Virgin Galactic(SPCE) - 2023 Q3 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements concerning future plans, trends, events, results of operations, or financial condition, subject to various risks and uncertainties outside the company's control - This report contains forward-looking statements concerning future plans, trends, events, results of operations, or financial condition, which are subject to various risks and uncertainties outside the company's control[9][10] - Key factors that could cause actual results to differ materially include delays in future commercial flights, ability to develop and test next-generation vehicles, safety of spaceflight systems, market development, marketing effectiveness, backlog conversion, profitability, capital requirements, personnel retention, geopolitical conflicts, economic conditions, government regulation, international expansion, internal controls, and intellectual property protection[11] PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of Virgin Galactic's financial performance and condition Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Virgin Galactic Holdings, Inc., including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with their accompanying notes Condensed Consolidated Balance Sheets Presents the company's financial position, assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Total current assets | $1,076,221 | $1,001,614 | $74,607 | 7.45% | | Total assets | $1,267,984 | $1,139,938 | $128,046 | 11.23% | | Total current liabilities | $180,139 | $184,053 | $(3,914) | -2.13% | | Total liabilities | $668,625 | $659,715 | $8,910 | 1.35% | | Total stockholders' equity | $599,359 | $480,223 | $119,136 | 24.81% | Condensed Consolidated Statements of Operations and Comprehensive Loss Details the company's revenues, expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations and Comprehensive Loss (3 Months Ended Sep 30, in thousands) | Metric (3 Months Ended Sep 30) | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Revenue | $1,728 | $767 | $961 | 125.3% | | Total operating expenses | $116,000 | $146,328 | $(30,328) | -20.7% | | Operating loss | $(114,272) | $(145,561) | $31,289 | -21.5% | | Net loss | $(104,604) | $(145,554) | $40,950 | -28.1% | | Basic and diluted net loss per share | $(0.28) | $(0.55) | $0.27 | -49.1% | | Weighted-average shares outstanding | 375,853 | 263,907 | 111,946 | 42.4% | Condensed Consolidated Statements of Operations and Comprehensive Loss (9 Months Ended Sep 30, in thousands) | Metric (9 Months Ended Sep 30) | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Revenue | $3,991 | $1,443 | $2,548 | 176.6% | | Total operating expenses | $421,235 | $348,116 | $73,119 | 21.0% | | Operating loss | $(417,244) | $(346,673) | $(70,571) | 20.4% | | Net loss | $(398,353) | $(349,332) | $(49,021) | 14.0% | | Basic and diluted net loss per share | $(1.26) | $(1.34) | $0.08 | -6.0% | | Weighted-average shares outstanding | 316,198 | 260,255 | 55,943 | 21.5% | Condensed Consolidated Statements of Stockholders' Equity Outlines changes in the company's equity accounts, including stock issuances and net loss Stockholders' Equity (in thousands) | Stockholders' Equity (in thousands) | Dec 31, 2022 | Sep 30, 2023 | Change | | :---------------------------------- | :----------- | :----------- | :----- | | Total Stockholders' Equity | $480,223 | $599,359 | $119,136 | - Total shares outstanding increased from 275,397,229 at December 31, 2022, to 399,581,904 at September 30, 2023, primarily due to at-the-market offerings[16][23] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Cash Flow Activity (9 Months Ended Sep 30, in thousands) | Cash Flow Activity (9 Months Ended Sep 30) | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | | :----------------------------------------- | :------------------ | :------------------ | :-------------------- | | Net cash used in operating activities | $(352,884) | $(248,999) | $(103,885) | | Net cash used in investing activities | $(196,545) | $(322,639) | $126,094 | | Net cash provided by financing activities | $475,863 | $455,968 | $19,895 | | Net decrease in cash, cash equivalents and restricted cash | $(73,566) | $(115,670) | $42,104 | | Cash, cash equivalents and restricted cash at end of period | $269,061 | $434,360 | $(165,299) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the figures presented in the condensed consolidated financial statements, covering accounting policies, specific asset and liability breakdowns, equity changes, and other financial commitments and contingencies (1) Description of Business and Basis of Presentation Describes Virgin Galactic's core business and the accounting principles used for financial statement preparation - Virgin Galactic Holdings, Inc. focuses on the development, manufacture, and operation of spaceships and related technologies for commercial spaceflight and research payloads[27] - The unaudited condensed consolidated financial statements are prepared under SEC rules for interim reporting, with certain information and footnote disclosures condensed or omitted[28] - Operating results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results expected for the entire fiscal year[29] (2) Cash, Cash Equivalents and Marketable Securities Details the composition and fair value of the company's cash, cash equivalents, and marketable securities - Restricted cash consists of future astronaut deposits that are contractually restricted for operational use until the condition of carriage is signed or deposits are refunded[33] Financial Assets at Fair Value (in thousands) | Asset Type | Sep 30, 2023 (Fair Value, in thousands) | Dec 31, 2022 (Fair Value, in thousands) | | :--------- | :-------------------------------------- | :-------------------------------------- | | Cash and restricted cash | $33,697 | $51,651 | | Money market | $235,364 | $249,249 | | U.S. treasuries | $302,721 | $79,517 | | Corporate bonds | $516,456 | $557,591 | | Total marketable securities | $819,177 | $637,108 | - The Company recognized $6.0 million in net accretion income for marketable securities for the three months ended September 30, 2023, compared to $1.5 million in net amortization expense for the same period in 2022[36] (3) Inventories Provides a breakdown of the company's inventory components, including raw materials and spare parts Inventory Type (in thousands) | Inventory Type | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Raw materials | $10,822 | $15,033 | $(4,211) | -28.0% | | Work-in-process | $1,424 | $0 | $1,424 | N/A | | Spare parts | $4,816 | $9,010 | $(4,194) | -46.5% | | Total Inventories | $17,062 | $24,043 | $(6,981) | -29.0% | (4) Property, Plant and Equipment Details the company's fixed assets and related depreciation and amortization expenses Property, Plant and Equipment, net (in thousands) | Asset Type | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :--------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Total Property, Plant and Equipment, net | $74,066 | $53,658 | $20,408 | 38.0% | Depreciation & Amortization (3 Months Ended Sep 30, in thousands) | Depreciation & Amortization (3 Months Ended Sep 30) | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Spaceline operations | $1,516 | $0 | $1,516 | N/A | | Research and development | $436 | $395 | $41 | 10.4% | | Selling, general and administrative | $1,334 | $1,819 | $(485) | -26.7% | | Total | $3,286 | $2,214 | $1,072 | 48.4% | (5) Leases Outlines the company's lease obligations, including operating and finance lease costs and terms Lease Cost (3 Months Ended Sep 30, in thousands) | Lease Cost (3 Months Ended Sep 30) | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Operating lease cost | $3,382 | $2,553 | $829 | 32.5% | | Variable lease cost | $1,559 | $1,760 | $(201) | -11.4% | | Short-term lease cost | $127 | $0 | $127 | N/A | | Total finance lease cost | $89 | $53 | $36 | 67.9% | | Total lease cost | $5,157 | $4,366 | $791 | 18.1% | - As of September 30, 2023, the weighted average remaining lease term for operating leases was 10.0 years (down from 10.8 years), and for finance leases was 3.2 years (up from 2.8 years)[42] (6) Accrued Liabilities Presents a breakdown of the company's accrued expenses, such as compensation and subcontractor costs Accrued Liabilities (in thousands) | Accrued Liability Type | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :--------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Accrued compensation | $29,418 | $26,554 | $2,864 | 10.8% | | Accrued manufacturing sub-contractor and contract labor costs | $6,059 | $19,398 | $(13,339) | -68.8% | | Other accrued expenses | $14,411 | $15,896 | $(1,485) | -9.3% | | Total Accrued Liabilities | $49,888 | $61,848 | $(11,960) | -19.3% | (7) Convertible Senior Notes Details the terms and carrying amounts of the company's convertible senior notes and related interest expense - The Company has $425 million aggregate principal amount of 2.50% convertible senior notes (the "2027 Notes") due February 1, 2027[46] Convertible Senior Notes (in thousands) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Net carrying amount of 2027 Notes | $417,338 | $415,720 | - Interest expense on the 2027 Notes was $3.2 million for the three months ended September 30, 2023 (vs. $3.3 million in 2022) and $9.6 million for the nine months ended September 30, 2023 (vs. $8.9 million in 2022)[47][48] (8) Income Taxes Explains the company's income tax expense and effective tax rate, including valuation allowances Income Tax Expense (in thousands) | Income Tax Expense | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :----------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Income tax expense | $53 | $21 | $215 | $69 | - The effective income tax rate was nil for both the three and nine months ended September 30, 2023 and 2022, primarily due to a full valuation allowance against net deferred tax assets[50] (9) Stockholders' Equity Describes changes in stockholders' equity, including common stock issuances through at-the-market programs - The Company completed its 2022 ATM Program in June 2023, selling 59.4 million shares of common stock and generating $300.0 million in gross proceeds[52] - Under the 2023 ATM Program, 62.4 million shares were sold for $210.7 million gross proceeds in Q3 2023, and 79.7 million shares for $287.5 million gross proceeds for the nine months ended September 30, 2023[54][55] (10) Earnings Per Share Provides basic and diluted net loss per share calculations and weighted average shares outstanding Earnings Per Share | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic and diluted net loss per share | $(0.28) | $(0.55) | $(1.26) | $(1.34) | | Weighted average common shares outstanding | 375,853 | 263,907 | 316,198 | 260,255 | - The computation of diluted net loss per share excludes 45.0 million shares (2023) and 42.2 million shares (2022) from stock-based awards and convertible notes due to their anti-dilutive effect[57] (11) Stock-Based Plans and Compensation Details the company's equity incentive plans and stock-based compensation expenses - The Company maintains two equity incentive plans: the 2019 Plan (amended in April 2023, increasing shares by 8.2 million) and the 2023 Inducement Plan (adopted in June 2023, reserving 2.8 million shares)[59][60][61] Stock-Based Compensation (3 Months Ended Sep 30, in thousands) | Stock-Based Compensation (3 Months Ended Sep 30) | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Total stock option and PSO expense | $1,781 | $2,709 | $(928) | -34.3% | | Total RSU and PSU expense | $8,982 | $8,801 | $181 | 2.1% | | Total stock-based compensation expense | $10,763 | $11,510 | $(747) | -6.5% | - As of September 30, 2023, unrecognized stock-based compensation expense totaled $4.4 million for stock options, $49.8 million for RSUs, and $6.7 million for PSUs, expected to be recognized over weighted-average periods of 0.9 years and 1.1 years, respectively[65] (12) Fair Value Measurements Categorizes financial assets and liabilities based on fair value measurement inputs (Level 1, 2, 3) - The Company categorizes financial assets and liabilities measured at fair value into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[66][67] Financial Assets at Fair Value (in thousands) | Financial Assets at Fair Value (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------------ | :----------- | :----------- | | Level 1 Assets | $538,085 | $370,493 | | Level 2 Assets | $516,456 | $557,591 | | Total Assets at Fair Value | $1,054,541 | $928,084 | Financial Liabilities at Fair Value (in thousands) | Financial Liabilities at Fair Value (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------------------- | :----------- | :----------- | | 2027 Notes (Level 2) | $156,532 | $193,439 | (13) Commitments and Contingencies Outlines the company's future minimum lease payments and ongoing legal claims and proceedings Future Minimum Lease Payments (in thousands) | Future Minimum Lease Payments (in thousands) | Operating Leases | Finance Leases | | :----------------------------------------- | :--------------- | :------------- | | Total payments | $130,926 | $782 | | Less: present value discount/imputed interest | $57,195 | $142 | | Present value of lease liabilities | $73,731 | $640 | - The Company is a party to various lawsuits and claims, including a class action (Lavin v. the Company) and derivative complaints, but management believes the ultimate financial impact beyond current provisions would not be material[73][74][76] (14) Supplemental Cash Flow Information Provides additional details on cash payments for taxes and interest, and non-cash investing/financing activities Cash Payments (9 Months Ended Sep 30, in thousands) | Cash Payments (9 Months Ended Sep 30) | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Income taxes | $533 | $34 | | Interest | $10,625 | $5,667 | Non-Cash Investing & Financing Activities (9 Months Ended Sep 30, in thousands) | Non-Cash Investing & Financing Activities (9 Months Ended Sep 30) | 2023 (in thousands) | 2022 (in thousands) | | :---------------------------------------------------------------- | :------------------ | :------------------ | | Unpaid property, plant and equipment | $2,512 | $1,356 | | Transfer of inventory to rotables in property, plant and equipment | $2,681 | $0 | | Issuance of common stock through RSUs vested | $8,740 | $9,557 | (15) Subsequent Events Reports significant events occurring after the reporting period, such as workforce reductions and their estimated costs - On November 7, 2023, the Company announced a workforce reduction of approximately 185 employees (18% of the workforce) to decrease costs and strategically realign resources[79] - The workforce reduction is estimated to incur charges of approximately $5 million, primarily related to employee severance and benefits, with most charges expected in Q4 2023 and completion by Q1 2024[79] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Virgin Galactic's financial condition, results of operations, and cash flows for the periods presented, highlighting key trends, recent developments, and factors influencing performance Overview Provides a high-level introduction to Virgin Galactic's business model and operational focus - Virgin Galactic Holdings, Inc. is an aerospace and space travel company offering access to space for private individuals, researchers, and government agencies[82] - The company's operations include the design, development, manufacturing, ground and flight testing, and post-flight maintenance of its spaceflight system vehicles, focused on providing space experiences for private astronauts, researcher flights, and professional astronaut training[82] Recent Developments Highlights key operational milestones and strategic achievements during the reporting period - Completed the first commercial spaceflight, 'Galactic 01,' in late June 2023, marking the start of commercial service[83] - Achieved technological feasibility for VSS Unity and VMS Eve in July 2023, leading to the reclassification of future related costs from research and development to spaceline operations expense[84][85] - Completed five commercial spaceflights through the report date, including two flights with researchers[86] Factors Affecting Our Performance Examines external and internal elements influencing the company's operational and financial outcomes Customer Demand Discusses the volume of reservations for spaceflights and expected future revenue from ticket sales - As of September 30, 2023, the Company had reservations for spaceflights for approximately 800 future astronauts[87] - Tickets sold represent approximately $207 million in expected future spaceflight revenue upon completion of spaceflights[87] - Ticket sales reopened in August 2021 with a base price of $450,000 per seat and to the general public in February 2022[87] Available Capacity and Annual Flight Rate Addresses constraints on flight frequency and plans for developing next-generation spaceships to increase capacity - The annual flight rate is currently constrained by the availability and capacity of the VSS Unity and VMS Eve spaceflight system[88] - The Company is developing next-generation Delta class spaceships and motherships to increase the annual flight rate[88] Safety Performance of Our Spaceflight System Highlights the specialized and complex nature of the spaceflight system and potential risks to safety and reputation - The spaceflight system is highly specialized and complex, subject to operational and process risks such as manufacturing and design issues, human errors, or cyber-attacks[89] - Any actual or perceived safety issues could result in significant reputational harm and impact the ability to generate spaceflight revenue[89] Components of Results of Operations Explains the primary categories of revenue and expenses that constitute the company's financial results Revenue Describes the sources of the company's revenue, primarily from spaceflight ticket sales and related services - The significant majority of revenue is expected to be derived from ticket sales for spaceflights and related services[90] - A small amount of revenue is also expected from Future Astronaut community membership fees and events, as well as engineering services for third parties[90] Spaceline Operations Details the costs associated with maintaining and operating spaceflight systems and supporting the Future Astronaut community - Spaceline operations expense includes costs to maintain and operate spaceflight systems, non-capitalizable costs for new vehicle production (e.g., rocket motors, spare parts), consumption of rocket motors/fuel, and support for the Future Astronaut community and payload/engineering services[91] Research and Development Explains the expensing of R&D costs for current and next-generation spaceflight systems - Prior to achieving technological feasibility, all research and development costs for the current spaceflight system were expensed[92] - Costs for the next-generation spaceflight system will continue to be expensed as R&D until the design phase is complete[92][93] - R&D costs primarily consist of equipment, material, and labor costs (including third-party contractors) for designing the next-gen spaceflight system's structure, propulsion, and flight profiles, as well as allocated overhead[93] Selling, General and Administrative Covers compensation, professional fees, and other corporate expenses for general business functions - Selling, general and administrative expenses primarily comprise compensation and other employee benefit costs for general corporate functions (executive, administration, accounting, finance, legal, IT, sales/marketing, HR)[94] - Non-compensation components include accounting, legal, and other professional fees, facilities expenses, and other corporate expenses[94] Results of Operations This section provides a comparative analysis of Virgin Galactic's financial performance for the three and nine months ended September 30, 2023, versus the same periods in 2022, detailing changes in revenue, operating expenses, and other income/expenses Revenue Analyzes the significant increase in revenue driven by commercial spaceflights and membership fees - Revenue for the three months ended September 30, 2023, was $1.7 million, a 125% increase YoY, primarily from commercial spaceflights and Future Astronaut community membership fees[97] - Revenue for the nine months ended September 30, 2023, was $4.0 million, a 177% increase YoY, also driven by commercial spaceflights and membership fees[98] Spaceline Operations Examines the substantial increase in expenses due to the launch of commercial service and reclassification of costs - Spaceline operations expense for the three months ended September 30, 2023, was $25.6 million, a significant increase from $0.6 million in the prior year, due to the reclassification of expenses following commercial service launch and technological feasibility[100][101] - Expenses for Q3 2023 were primarily attributable to costs for maintaining and operating the spaceflight system, non-capitalizable new vehicle costs, and Future Astronaut community support[101] Research and Development Discusses changes in R&D expenses, influenced by direct labor, materials, and subcontractor costs - Research and development expenses decreased by $52.6 million (-54%) to $44.8 million for the three months ended September 30, 2023, mainly due to a $37.2 million decrease in direct labor/materials and an $11.3 million decrease in compensation[103] - R&D expenses increased by $29.7 million (+14%) to $241.3 million for the nine months ended September 30, 2023, driven by a $53.7 million increase in manufacturing sub-contractor and contract labor costs, partially offset by a $31.5 million decrease in direct labor/materials[104] Selling, General and Administrative Reviews fluctuations in SG&A expenses, including compensation, marketing, and consulting fees - SG&A expenses decreased by $3.9 million (-8%) to $42.2 million for the three months ended September 30, 2023, primarily due to decreases in compensation ($3.8 million), consulting ($2.5 million), and stock-based compensation ($1.1 million), partially offset by a $4.5 million increase in marketing[105] - SG&A expenses increased by $16.2 million (+13%) to $144.0 million for the nine months ended September 30, 2023, mainly due to increases in compensation ($7.9 million), marketing ($5.3 million), and IT costs ($2.0 million)[106] Depreciation and Amortization Reports the increase in depreciation and amortization expense due to property, plant, and equipment acquisitions - Depreciation and amortization expense increased by $1.1 million (+48%) to $3.3 million for the three months ended September 30, 2023, and by $1.7 million (+22%) to $9.7 million for the nine months ended September 30, 2023, both due to the acquisition of property, plant and equipment[107][108] Interest Income Highlights the significant growth in interest income from marketable securities and higher interest rates - Interest income increased by $9.3 million (+265%) to $12.9 million for the three months ended September 30, 2023, and by $22.3 million (+352%) to $28.6 million for the nine months ended September 30, 2023, driven by increased average balances of marketable securities and higher interest rates[109][110] Interest Expense Details the interest expense incurred on convertible senior notes and its period-over-period changes - Interest expense was $3.2 million for the three months ended September 30, 2023, a slight decrease from $3.3 million in the prior year[111] - Interest expense increased by $0.7 million (+8%) to $9.6 million for the nine months ended September 30, 2023, primarily due to a full nine months of interest expense and amortization of debt issuance costs related to convertible senior notes[112] Income Tax Expense Explains the immaterial income tax expense due to a full valuation allowance against deferred tax assets - Income tax expense was immaterial for both the three and nine months ended September 30, 2023 and 2022[113] - The Company maintains a full valuation allowance against its net U.S. federal and state deferred tax assets, with income tax expense primarily related to UK operations[113] Liquidity and Capital Resources This section details Virgin Galactic's financial liquidity, including cash and marketable securities, historical cash flow activities (operating, investing, financing), and future funding requirements and outlook, emphasizing reliance on common stock sales and convertible notes Historical Cash Flows Summarizes the company's cash flows from operating, investing, and financing activities over time Cash Flow Activity (9 Months Ended Sep 30, in thousands) | Cash Flow Activity (9 Months Ended Sep 30) | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | | :----------------------------------------- | :------------------ | :------------------ | :-------------------- | | Net cash used in operating activities | $(352,884) | $(248,999) | $(103,885) | | Net cash used in investing activities | $(196,545) | $(322,639) | $126,094 | | Net cash provided by financing activities | $475,863 | $455,968 | $19,895 | | Net decrease in cash, cash equivalents and restricted cash | $(73,566) | $(115,670) | $42,104 | Operating Activities Details cash used in operations, primarily driven by net losses and non-cash adjustments - Net cash used in operating activities was $352.9 million for the nine months ended September 30, 2023, primarily due to $398.4 million in net losses, partially offset by non-cash items like stock-based compensation ($35.6 million) and depreciation ($9.7 million)[116] - Net cash used in operating activities was $249.0 million for the nine months ended September 30, 2022, primarily due to $349.3 million in net losses, offset by non-cash items and $46.1 million from changes in operating assets/liabilities[117] Investing Activities Explains cash flows related to purchases and maturities of marketable securities and capital expenditures - Net cash used in investing activities was $196.5 million for the nine months ended September 30, 2023, including $873.0 million in marketable securities purchases and $25.9 million in capital expenditures, partially offset by $702.3 million from marketable securities maturities[118] - Net cash used in investing activities was $322.6 million for the nine months ended September 30, 2022, including $604.9 million in marketable securities purchases and $12.3 million in capital expenditures, partially offset by $294.6 million from marketable securities maturities[119] Financing Activities Describes cash generated from the sale of common stock and issuance of convertible notes - Net cash provided by financing activities was $475.9 million for the nine months ended September 30, 2023, mainly from $479.0 million in net cash proceeds from the sale and issuance of common stock[120] - Net cash provided by financing activities was $456.0 million for the nine months ended September 30, 2022, primarily from the issuance of 2027 Notes for $413.7 million and common stock sales for $98.4 million, offset by a $52.3 million purchase of a capped call[121] Funding Requirements Outlines anticipated future expenditures for developing next-generation systems and scaling commercial operations - Expenditures are expected to fluctuate and increase as the Company advances the development of its next-generation spaceflight system and scales commercial operations[122] - Long-term expenditures will increase to scale manufacturing, hire additional personnel, expand operational facilities, and establish an astronaut campus[122][133] - Significant capital expenditures are anticipated for third-party arrangements related to the manufacture of key subassemblies for next-generation spaceships and the design/manufacture of next-generation carrier aircraft[124] Issuances of Common Stock Reports on the completion of at-the-market programs and proceeds from common stock sales - The 2022 ATM Program was completed in June 2023, selling 59.4 million shares of common stock and generating $300.0 million in gross proceeds[127] - The 2023 ATM Program was initiated in June 2023, providing for the offer and sale of up to $400 million of common stock[128] - Under the 2023 ATM Program, 62.4 million shares were sold for $210.7 million gross proceeds in Q3 2023, and 79.7 million shares for $287.5 million gross proceeds for the nine months ended September 30, 2023[129][130] Liquidity Outlook Assesses the company's ability to meet short-term and long-term financial obligations through available capital - The Company expects to meet short-term liquidity requirements for at least the next twelve months through its current cash, cash equivalents, and marketable securities[131] - Beyond twelve months, principal demand for funds will be for sustaining operations, including constructing additional spaceships/motherships, expanding Spaceport America, building the astronaut campus, and repaying convertible senior notes[132] - Additional debt or equity financing may be sought if current capital sources are insufficient to meet future needs[132] Contractual Obligations and Commitments Confirms no material changes to contractual obligations and discusses future vehicle manufacturing arrangements - There have been no material changes to contractual obligations and commitments outside the ordinary course of business since the 2022 Annual Report on Form 10-K[134] - Amounts for third-party arrangements for next-generation vehicles are significant but not contractually committed until specific task orders are executed and are subject to future negotiations[134] Critical Accounting Policies and Estimates Outlines the key accounting policies and significant judgments used in preparing the financial statements - No significant changes to critical accounting policies and estimates occurred during the fiscal quarter ended September 30, 2023, compared to those previously disclosed in the 2022 Annual Report on Form 10-K[136] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there have been no significant changes to the company's market risks during the fiscal quarter ended September 30, 2023, compared to those previously disclosed in its 2022 Annual Report on Form 10-K - No significant changes to market risks occurred during the fiscal quarter ended September 30, 2023, compared to those previously disclosed in the 2022 Annual Report on Form 10-K[137] Item 4. Controls and Procedures This section discusses the effectiveness of Virgin Galactic's disclosure controls and procedures, noting that management concluded they were effective as of September 30, 2023. It also highlights significant changes to internal control over financial reporting due to the launch of commercial service and achievement of technological feasibility - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023[139] - Significant changes were made to internal control over financial reporting due to the launch of commercial service and achievement of technological feasibility, including the implementation of preventative and detective controls for cost capitalization[140] PART II - OTHER INFORMATION This section provides additional non-financial information, including legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings This section states that Virgin Galactic is subject to various legal claims and proceedings in the ordinary course of business, but management does not consider any currently pending matters to be material or likely to have a material adverse effect on the company's financial condition or results of operations - The Company is subject to various claims, lawsuits, and other legal and administrative proceedings arising in the ordinary course of business[142] - Management does not consider any currently pending claims or proceedings, individually or in the aggregate, to be material or likely to result in a material adverse effect on future operating results, financial condition, or cash flows[142] Item 1A. Risk Factors This section refers to the risk factors previously disclosed in the company's Annual Report on Form 10-K, stating that there have been no material changes to these risks during the reporting period - There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K[143] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds occurred during the reporting period[144] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities to report for the period - No defaults upon senior securities occurred during the reporting period[145] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the Company[146] Item 5. Other Information This section provides updates on the company's flight cadence and future plans, including a shift to quarterly Unity flights, a pause in mid-2024, and the expected re-commencement of test flights for Delta Class spaceships in mid-2025, with revenue service beginning in 2026 - 'Galactic 06' is expected in January 2024, and the Company is shifting its Unity flight cadence from monthly to quarterly[147] - The Company plans to pause Unity spaceflights in mid-2024 and expects to re-commence flying with test flights for Delta Class spaceships in mid-2025, with revenue service anticipated to begin in 2026[147] - No officers or directors adopted or terminated any Rule 10b5-1(c) trading arrangements during the three months ended September 30, 2023[147] Item 6. Exhibits This section lists the documents filed, furnished, or incorporated by reference as part of the Quarterly Report on Form 10-Q, including certifications and XBRL taxonomy documents - The report includes various exhibits such as the Certificate of Incorporation, By-Laws, certifications of principal executive and financial officers, and Inline XBRL documents[149][150]