10-Q 1 spce-20220930.htm 10-Q spce-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to                  
Commission File No. 001-38202
Virgin Galactic Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
85-3608069
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1700 Flight Way
Tustin California
92782
(Address of Principal Executive Offices)(Zip Code)
(949) 774-7640
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which
registered
Common stock, $0.0001 par value per share
SPCE
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No
As of October 31, 2022, there were 274,559,169 shares of the Company’s common stock, par value $0.0001, issued and outstanding.


VIRGIN GALACTIC HOLDINGS, INC.
TABLE OF CONTENTS
Page


1


Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements (including within the meaning of the Private Securities Litigation Reform Act of 1995) concerning us and other matters. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of management, as well as assumptions made by, and information currently available to management. Forward-looking statements may be accompanied by words such as “achieve,” “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “future,” “grow,” “increase,” “intend,” “may,” “opportunity,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strategy,” “target,” “will,” “would,” or similar words, phrases, or expressions. These forward-looking statements are subject to various risks and uncertainties, many of which are outside our control. Therefore, you should not place undue reliance on such statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following:
any delay in completing the flight test program and final development of our spaceflight fleet, which is comprised of our SpaceShipTwo spaceships, VSS Unity and VSS Imagine, and our mothership carrier aircraft, VMS Eve;
our ability to conduct test flights;
our ability to operate our spaceflight system after commercial launch;
the safety of our spaceflight systems;
the development of the markets for commercial human spaceflight and commercial research and development payloads;
our ability to effectively market and sell human spaceflights;
our ability to convert our backlog or inbound inquiries into revenue;
our anticipated full passenger capacity;
our ability to achieve or maintain profitability;
delay in development or the manufacture of spaceflight systems;
our ability to successfully develop our next generation vehicles, and the time and costs associated with doing so;
our ability to supply our technology to additional market opportunities;
our expected capital requirements and the availability of additional financing;
our ability to attract or retain highly qualified personnel;
the impact of the COVID-19 pandemic on us, our operations, our future financial or operational results, and our access to additional financing;
extensive and evolving government regulation that impact the way we operate;
risks associated with international expansion;
our ability to maintain effective internal control over financial reporting and disclosure and procedures; and
our ability to continue to use, maintain, enforce, protect and defend our owned and licensed intellectual property, including the Virgin brand.
2

Additional factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in Part I, Item 1.“Business,” Part I, Item 1A. “Risk Factors,” and Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Annual Report on Form 10-K") and in Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our information may be incomplete or limited, and we cannot guarantee future results. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Each of the terms the “Company,” “Virgin Galactic,” “we,” “our,” “us” and similar terms used herein refer collectively to Virgin Galactic Holdings, Inc., a Delaware corporation, and its consolidated subsidiaries, unless otherwise stated.


3

PART I. FINANCIAL INFORMATION
VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
September 30, 2022December 31, 2021
(Unaudited)
Assets
Current assets
Cash and cash equivalents$394,032 $524,481 
Restricted cash40,328 25,549 
Marketable securities, short-term606,713 79,418 
Inventories22,851 29,668 
Prepaid expenses and other current assets22,094 19,476 
Total current assets1,086,018 678,592 
Marketable securities, long-term69,072 301,463 
Property, plant, and equipment, net48,874 47,498 
Other non-current assets55,220 41,281 
Total assets$1,259,184 $1,068,834 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable$19,872 $9,237 
Accrued liabilities43,389 28,787 
Customer deposits103,971 90,863 
Other current liabilities3,336 2,636 
Total current liabilities170,568 131,523 
Non-current liabilities
Convertible senior notes, net415,188  
Other long-term liabilities59,885 43,047 
Total liabilities645,641 174,570 
Commitments and contingencies (Note 17)
Stockholders' equity
Preferred stock, $0.0001 par value; 10,000,000 authorized; none issued and outstanding
  
Common stock, $0.0001 par value; 700,000,000 shares authorized; 274,481,195 and 258,166,417 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
27 26 
Additional paid-in capital2,096,901 2,019,750 
Accumulated deficit(1,472,975)(1,123,643)
Accumulated other comprehensive income(10,410)(1,869)
Total stockholders' equity613,543 894,264 
Total liabilities and stockholders' equity$1,259,184 $1,068,834 

See accompanying notes to condensed consolidated financial statements.
4

VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except for per share data)
(Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue$767 $2,580 $1,443 $3,151 
Operating expenses:
Customer experience590 207 737 270 
Selling, general, and administrative46,113 48,268 127,820 128,503 
Research and development97,411 34,289 211,578 103,997 
Depreciation and amortization2,214 2,895 7,981 8,635 
Total operating expenses146,328 85,659 348,116 241,405 
Operating loss(145,561)(83,079)(346,673)(238,254)
Interest income3,524 240 6,327 785 
Interest expense(3,293)(6)(8,924)(19)
Change in fair value of warrants 34,432  (34,650)
Other income, net(203)70 7 110 
Loss before income taxes(145,533)(48,343)(349,263)(272,028)
Income tax expense(21)(25)(69)(74)
Net loss(145,554)(48,368)(349,332)(272,102)
Other comprehensive income (loss):
Foreign currency translation adjustment(180)3 (313)11 
Unrealized loss on marketable securities(585)(437)(8,227)(437)
Total comprehensive loss$(146,319)$(48,802)$(357,872)$(272,528)
Net loss per share:
Basic$(0.55)$(0.19)$(1.34)$(1.11)
Diluted$(0.55)$(0.32)$(1.34)$(1.11)
Weighted-average shares outstanding:
Basic263,907,259 254,749,195 260,255,202 244,157,923 
Diluted263,907,259 255,147,228 260,255,202 244,157,923 

See accompanying notes to condensed consolidated financial statements.
5

VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Equity    
(In thousands, except for per unit and share data)
(Unaudited)
(For the period ended September 30, 2021)

Common Stock
Balance as of # of SharesPar ValueAdditional Paid-In CapitalAccumulated DeficitAccumulated
Other Comprehensive
Income (Loss)
Total
Balance as of December 31, 2020236,123,659 $23 $1,297,794 $(770,744)$5 $527,078 
Net loss— — — (129,694)— (129,694)
Other comprehensive income— — — — 26 26 
Stock-based compensation— 22,111 — — 22,111 
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes1,150,771 — 323 — — 323 
Balance as of March 31, 2021237,274,430 23 1,320,228 (900,438)31 419,844 
Net loss— — — (94,040)— (94,040)
Other comprehensive loss— — — — (20)(20)
Stock-based compensation— — 14,423 — — 14,423 
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes275,283 — 840 — — 840 
Common stock issued related to warrants exercised3,387,827 — 104,176 — — 104,176 
Balance as of June 30, 2021240,937,540 23 1,439,667 (994,478)11 445,223 
Net loss— — — (48,368)— (48,368)
Other comprehensive loss— — — — (432)(432)
Stock-based compensation— — 12,170 — — 12,170 
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes685,487 — 1,916 — — 1,916 
Common stock issued related to warrants exercised2,034,390 — 65,914 — — 65,914 
Issuance of common stock pursuant to an at-the-market offering13,740,433 2 499,998 — — 500,000 
Transaction costs related to an at-the-market offering— — (6,494)— — (6,494)
Balance as of September 30, 2021257,397,850 $25 $2,013,171 $(1,042,846)$(421)$969,929 

See accompanying notes to condensed consolidated financial statements.



6

VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Equity
(In thousands, except for per unit and share data)
(Unaudited)
(For the period ended September 30, 2022)

Common Stock
Balance as of # of SharesPar ValueAdditional Paid-In CapitalAccumulated DeficitAccumulated
Other Comprehensive
Loss
Total
Balance as of December 31, 2021258,166,417 $26 $2,019,750 $(1,123,643)$(1,869)894,264 
Net loss— — (93,057)— (93,057)
Other comprehensive loss— — — (5,805)(5,805)
Stock-based compensation— — 10,895 — — 10,895 
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes307,471 — (1,882)— — (1,882)
Purchase of capped calls— — (52,318)— — (52,318)
Balance as of March 31, 2022258,473,888 26 1,976,445 (1,216,700)(7,674)752,097 
Net loss— (110,721)(110,721)
Other comprehensive loss— — (1,970)(1,970)
Stock-based compensation— 12,083 — 12,083 
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes216,758 — (914)— (914)
Balance as of June 30, 2022258,690,646 26 1,987,614 (1,327,421)(9,644)650,575 
Net loss— — — (145,554)— (145,554)
Other comprehensive loss— — — — (766)(766)
Stock-based compensation— — 11,510 — — 11,510 
Issuance of common stock pursuant to stock-based compensation, net of withholding taxes202,949 — (633)— — (633)
Issuance of common stock pursuant to an at-the-market offering15,587,600 1 99,573 — — 99,574 
Transaction costs related to an at-the-market offering— — (1,163)— — (1,163)
Balance as of September 30, 2022274,481,195 $27 $2,096,901 $(1,472,975)$(10,410)$613,543 

See accompanying notes to condensed consolidated financial statements.
7

VIRGIN GALACTIC HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20222021
Cash flows from operating activities
Net loss$(349,332)$(272,102)
Stock-based compensation34,488 48,704 
Depreciation, amortization and impairment12,174 8,635 
Amortization of debt issuance costs1,466  
Change in fair value of warrants 34,650 
Non-cash interest and other operating activities, net6,063 (42)
Change in assets and liabilities
Inventories6,817 1,178 
Other current and non-current assets2,253 6,342 
Accounts payable and accrued liabilities23,828 1,824 
Customer deposits13,108 2,148 
Other current and non-current liabilities136 3,026 
Net cash used in operating activities(248,999)(165,637)
Cash flows from investing activity
Capital expenditures(12,306)(2,452)
Purchases of marketable securities(604,945)(286,132)
Proceeds from maturities and calls of marketable securities294,612  
Cash used in investing activity(322,639)(288,584)
Cash flows from financing activities
Payments of lease obligations(132)(105)
Proceeds from convertible senior notes425,000  
Debt issuance costs(11,278) 
Capped call premium(52,318) 
Repayment of commercial loan(310)(310)
Proceeds from issuance of common stock99,573 500,000 
Proceeds from issuance of common stock pursuant to stock options exercised49 18,856 
Transaction costs related to issuance of common stock(1,137)(6,753)
Withholding taxes paid on behalf of employees on net settled stock-based awards(3,479)(15,779)
Net cash provided by financing activities455,968 495,909 
Net increase (decrease) in cash and cash equivalents(115,670)41,688 
Cash, cash equivalents and restricted cash at beginning of year550,030 678,955 
Cash, cash equivalents and restricted cash ending balances$434,360 $720,643 
Cash and cash equivalents$394,032 $702,565 
Restricted cash40,328 18,078 
Cash, cash equivalents and restricted cash$434,360 $720,643 
See accompanying notes to condensed consolidated financial statements.
8

VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(1) Organization and its wholly owned subsidiaries
Virgin Galactic Holdings, Inc. and its wholly owned subsidiaries ("we," "us," "our," the "Company" and similar terms) are focused on the development, manufacture and operation of spaceships and related technologies for the purpose of conducting commercial human spaceflight and flying commercial research and development payloads into space. The development and manufacturing activities are located in Tustin, California and Mojave, California, with plans to operate the commercial spaceflights out of Spaceport America located in New Mexico.
(2) Summary of Significant Accounting Policies

(a)    Basis of Presentation
These condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). All intercompany transactions and balances between the various legal entities comprising the Company have been eliminated in consolidation.

Certain reclassifications of the components of operating loss for the three and nine month period ended September 30, 2021 have been made to the comparable prior period in the Condensed Consolidated Statements of Operations and Comprehensive Loss to conform to the same current period presentations. Specifically, cost of revenue has been reclassified to customer experience, and gross margin is no longer presented. Customer experience expenses related to spaceflight operations include the consumption of a rocket motor and fuel and other consumables, as well as payroll and benefits for our pilots and ground crew. Customer experience expenses related to the payload cargo services, as well as engineering services, consist of materials and human capital, such as payroll and benefits, to perform these services. Additionally, customer experience expenses include costs associated with maintaining and growing our Future Astronaut community through offerings provided to community members, as well as hospitality, medical, safety, security, training, and facility costs that are for the benefit of our future astronauts. Additionally, depreciation and amortization expense are presented separately instead of included in selling, general, and administrative or research and development expenses. These reclassifications had no impact on total loss as previously reported.
(b)     Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP required us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates. Significant estimates inherent in the preparation of the consolidated financial statements include, but are not limited to, accounting for revenue, contract assets, contract liabilities, useful lives of property, plant and equipment, fair value of investments, accrued liabilities, income taxes including deferred tax assets and liabilities and impairment valuation, warrants, stock-based awards and contingencies.
9

VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(c)    Convertible Senior Notes
On January 1, 2022, the Company adopted ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which removes from GAAP the liability and equity separation model for convertible instruments with either cash or beneficial conversion features. As a result, convertible debt instruments would only be separated into multiple components if they were issued at a substantial premium or if embedded derivatives requiring bifurcation were identified. The convertible senior notes (the "2027 Notes") were not issued at a substantial premium, and the Company analyzed the provisions of the notes and did not identify any material embedded features which would require bifurcation from the host debt. As such, the notes are accounted for entirely as a liability net of unamortized issuance costs. The carrying amount of the liability is classified as long-term as the instrument does not mature within one year of the balance sheet date and the holder is not permitted to demand repayment of the principal within one year of the balance sheet date. However, if conditions to convertibility are met as described further in Note 11, the Company may be required to reclassify the carrying amount of the liability to current. The embedded conversion features are not remeasured as long as they do not meet the separation requirement of a derivative. Issuance costs are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the notes. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share, however there was no impact during the current quarter as the convertible instruments were anti-dilutive.

(d)    Capped Call Transactions
In connection with the pricing of our 2027 Notes, the Company entered into capped call transactions with respect to its common stock (the "2027 Capped Calls"). The 2027 Capped Calls are purchased call options that give the Company the option to purchase shares of our common stock, subject to anti-dilution adjustments substantially identical to those in the 2027 Notes. The Company's capped call transactions are accounted for as separate transactions from the 2027 Notes and are classified as equity instruments as a reduction to additional paid-in capital in the Condensed Consolidated Balance Sheets. The instruments are initially recorded at fair value and not subsequently remeasured so long as they continue to qualify for equity classification based on the Company's intent and ability for the 2027 Capped Calls to be settled in shares of our common stock. The capped call transactions have the effect of reducing the number of shares outstanding if exercised. Therefore, the capped call transactions are anti-dilutive and not included in the calculation of diluted shares outstanding for the purposes of diluted net loss per share. See Note 11 for additional information on the 2027 Capped Calls.
(e)     Other Summary of Significant Accounting Policies
There have been no other significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "Annual Report on Form 10-K").
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K. Interim results are not necessarily indicative of the results for a full year.
(3)    Recent Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASU”). See Note 2 for additional information on recently adopted accounting pronouncements.
10

VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(4)    Related Party Transactions

The Company licenses its brand name from certain entities affiliated with Virgin Enterprises Limited (“VEL”), a company incorporated in England. VEL is an affiliate of the Company. Under the trademark license, the Company has the exclusive right to operate under the brand name “Virgin Galactic” worldwide. Royalty payables, excluding sponsorship royalties, for the use of license are the greater of 1% of revenue or $40,000 per quarter, prior to the commercial launch date. Sponsorship royalties payable are 25% of sponsorship revenue. We paid license and royalty fees of $40,000 and $390,000 for the three months ended September 30, 2022 and 2021, respectively. We paid license and royalty fees of $120,000 and $470,000 for the nine months ended September 30, 2022 and 2021, respectively.

The Company has a Transition Services Agreement ("TSA") with Virgin Orbit, LLC ("VO") based on allocated operating expense from Virgin Orbit Holdings, Inc. and its subsidiaries (“VOH”), a majority owned company of Virgin Investments Limited ("VIL"), for operations-related functions based on an allocation methodology that considers our headcount, unless directly attributable to the business. Operating expense allocations include use of machinery and equipment, pilot services, and other general administrative expenses. We were allocated $46,000 and $33,000 operating expenses, net, from VOH for the three months ended September 30, 2022 and 2021, respectively. We were allocated $80,000 and $104,000 of operating expenses, net from VOH for the nine months ended September 30, 2022 and 2021, respectively. The Company has a receivable from VOH of $32,000 and $43,000 as of September 30, 2022 and December 31, 2021, respectively.

(5)    Cash, Restricted Cash, Cash Equivalents and Marketable Securities

The amortized cost, unrealized loss and estimated fair value of the Company's cash, cash equivalents, restricted cash, and marketable securities as of September 30, 2022 and December 31, 2021:

As of September 30, 2022
Amortized CostGross Unrealized LossesFair Value
(In thousands)
Cash, restricted cash and cash equivalents
Cash and restricted cash$8,358 $— $8,358 
Money market384,575 — 384,575 
Certificate of deposits41,427 — 41,427 
Marketable securities
US treasuries149,102 (183)148,919 
Corporate debt securities536,913 (10,047)526,866 
Total cash, cash equivalents, restricted cash and marketable securities$1,120,375 $(10,230)$1,110,145 

11

VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of December 31, 2021
Amortized CostGross Unrealized LossesFair Value
(In thousands)
Cash, restricted cash and cash equivalents
Cash and restricted cash$55,592 $— $55,592 
Money market402,889 — 402,889 
Certificate of deposits91,549 — 91,549 
Marketable securities
Corporate debt securities382,884 (2,003)380,881 
Total cash, cash equivalents and marketable securities$932,914 $(2,003)$930,911 

The Company included $39.8 million and $1.0 million of current restricted cash held in a money market account as of September 30, 2022 and December 31, 2021, respectively.
The Company included $3.2 million and $2.3 million of interest receivable in prepaid expenses and other current assets as of September 30, 2022 and December 31, 2021, respectively.
The Company recognizes amortization and accretion of purchase premiums and discounts on our marketable securities within interest income, net. The Company recognized $1.5 million and $0.3 million in amortization expense for our marketable securities within interest income, net for the three months ended September 30, 2022 and September 30, 2021, respectively. The Company recognized $5.5 million and $0.3 million in amortization expense for marketable securities within interest income, net for the nine months ended September 30, 2022 and September 30, 2021, respectively.
We record gross realized gains and losses as a component of other income, net in the consolidated statements of operations. For the three months ended September 30, 2022, the Company recognized $0.2 million loss in other income, net, and for the three months ended September 2021, the Company did not recognize any material gross realized gains and losses. For the nine months ended September 30, 2022, the Company recognized $0.3 million loss in other income, net. For the nine months ended September 30, 2021, the Company did not recognize any material gross realized gains and losses.
The following table presents the contractual maturities of the Company's marketable securities as of September 30, 2022:
As of September 30, 2022
Amortized CostEstimated Fair Value
(In thousands)
Matures within one year$614,641 $606,713 
Matures between one to two years71,374 69,072 
Total$686,015 $675,785 
(6)    Inventory
As of September 30, 2022 and December 31, 2021, inventory is comprised of the following:
12

VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of
September 30, 2022December 31, 2021
(Unaudited)
(In thousands)
Raw materials$13,267 $21,127 
Spare parts9,584 8,541 
Total inventory$22,851 $29,668 
For the three months ended September 30, 2022 and 2021,we wrote off $2.2 million and $0.2 million of inventory due to excess and obsolescence, respectively. For the nine months ended September 30, 2022 and September 30, 2021, we wrote off $3.3 million and $0.4 million of inventory due to excess and obsolescence, respectively.
(7)    Property, Plant, and Equipment, net
As of September 30, 2022 and December 31, 2021, property, plant, and equipment, net consisted of the following:
As of
September 30, 2022December 31, 2021
(Unaudited)
(In thousands)
Land$1,302 $ 
Buildings9,118 9,117 
Leasehold improvements30,457 29,155 
Aircraft195 195 
Machinery and equipment35,670 37,002 
IT software and equipment28,911 23,523 
Construction in progress3,152 2,901 
108,805 101,893 
Less accumulated depreciation and amortization
(59,931)(54,395)
Property, plant, and equipment, net
$48,874 $47,498 

The following table sets forth the summary of depreciation and amortization expense for property, plant and equipment, net:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Unaudited and in thousands)
Customer experience$ $ $ $ 
Selling, general, and administrative1,819 1,592 5,085 4,774 
Research and development395 1,304 2,896 3,861 
$2,214 $2,895 $7,981 $8,635 
13

VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(8)     Leases
On July 14, 2022, the Company entered into an agreement to lease 151,096 square feet of manufacturing and operations facilities in Mesa, Arizona consisting of two hangars ("Hangar C" and "Hangar B").

The lease has an initial term of approximately ten years and five months after the commencement date applicable to Hangar C or Hangar B, whichever is later, and is expected to commence ten months following the date of the agreement was entered into with respect to Hangar C and fifteen months following the date of the agreement was entered into for Hangar B. The average annual base rent under the lease is approximately $3.0 million. The Company has four options to extend the term of the lease, each for an additional five years.

The Company's leases are more fully described in Note 8 of the "Notes to Consolidated Financial Statements" to its Annual Report on Form 10-K.

The components of lease expense related to leases for the periods presented below are as follows:

Three Months Ended
September 30,
20222021
(Unaudited and in thousands)
Lease Cost:
Operating lease expense $2,553 $1,244 
Short-term lease expense 6 
Finance Lease Cost:
Amortization of right-of-use assets
42 34 
Interest on lease liabilities11 6 
Total finance lease cost53 40 
Variable lease cost1,760 1,475 
Total lease cost$4,366 $2,765 

14

VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Nine Months Ended
September 30,
20222021
(Unaudited and in thousands)
Lease Cost:
Operating lease expense $6,622 $3,758 
Short-term lease expense 26 
Finance Lease Cost:
Amortization of right-of-use assets
100 103 
Interest on lease liabilities20 20 
Total finance lease cost120 123 
Variable lease cost4,654 4,185 
Total lease cost$11,396 $8,092 


The components of supplemental cash flow information related to leases for the period are as follows:

Nine Months Ended September 30,
20222021
(In thousands, except term and rate data)
Cash flow information:
Operating cash flows for operating leases$7,980 $4,065 
Operating cash flows for finance leases$20 $20 
Financing cash flows for finance leases
$132 $105 
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
Operating leases$16,338 $501 
Finance Leases$230 $19 
Other Information:
Weighted average remaining lease term:
Operating leases (in years)10.8012.30
Finance leases (in years)2.752.29
Weighted average discount rates:
Operating leases12.14 %11.66 %
Finance leases11.26 %8.22 %
15

VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The supplemental balance sheet information related to leases for the period is as follows:
As of
September 30, 2022December 31, 2021
(Unaudited)
(In thousands)
Operating leases
Long-term right-of-use assets$49,324 $35,486 
    Short-term operating lease liabilities$3,190 $2,204 
    Long-term operating lease liabilities56,856 39,965 
Total operating lease liabilities$60,046 $42,169 

Commitments
The Company has certain non-cancelable operating leases primarily for its premises. These leases generally contain renewal options for periods ranging from 3 to 20 years and require the Company to pay all executory costs, such as maintenance and insurance. Certain lease arrangements have rent free periods or escalating payment provisions, and we recognize rent expense of such arrangements on a straight line basis.

Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum finance lease payments as of September 30, 2022 are as follows:
Operating LeasesFinance Leases
(In thousands)
2022 (for the remaining period)$2,106 $47 
20238,676 170 
202410,034 94 
202510,190 64 
202610,347 35 
Thereafter71,707 2 
Total lease payments$113,060 $412 
Less:
Imputed interest/present value discount$(53,014)$(62)
Present value of lease liabilities$60,046 $350 
16

VIRGIN GALACTIC HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(9)    Accrued Expenses
A summary of the components of accrued liabilities are as follows:
As of
September 30, 2022December 31, 2021
(Unaudited)
(In thousands)
Accrued payroll$8,331 $4,214 
Accrued vacation6,383 5,372 
Accrued bonus11,578 12,218 
Accrued interest expense1,771  
Accrued contract labor7,869 1,147 
Other accrued expenses7,457 5,836 
Total accrued expenses$43,389 $28,787 

(10)    Commercial Loan
As of
September 30, 2022December 31, 2021
(Unaudited)
(In thousands)
Commercial loan$ $310 
     Less: Current portion (310)
Non-current portion$ $ 

On June 18, 2020, we financed the purchase of software licenses through a loan totaling approximately $0.9 million. The loan amortized in three equal annual installments of approximately $0.3 million with the final payment due October 1, 2022 with 0% interest rate. The loan is secured by a standby letter of credit issued from our financial institution and restricted cash has been recorded for the corresponding outstanding balance. The outstanding balance is recorded in other current-liabilities on the C