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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, all references in this section to the “Company,” "Virgin Galactic," “we,” “us,” or “our” refer to Virgin Galactic Holdings, Inc. and its subsidiaries.

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections and elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.

The following is a discussion and analysis of, and a comparison between, our results of operations for the years ended December 31, 2022 and 2021. A discussion and analysis of, and a comparison between, our results of operations for the years ended December 31, 2021 and 2020 can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Overview

We are at the vanguard of a new industry, pioneering a consumer space experience using reusable spaceflight systems. We believe the commercial exploration of space represents one of the most exciting and important technological initiatives of our time. Approximately 640 humans have ever traveled above the Earth’s atmosphere into space. This industry is growing dramatically due to new products, new sources of private and government funding, and new technologies. Demand is emerging from new sectors and demographics, which we believe is broadening the total addressable market. As government space agencies have retired or reduced their capacity to send humans into space, private companies are beginning to make exciting inroads into the fields of human space exploration. We have embarked on this journey with a mission to put humans and research experiments into space and return them safely to Earth on a routine and consistent basis. We believe that opening access to space will connect the world to the wonder and awe created by space travel, offering customers a transformative experience, and providing the foundation for a myriad of exciting new industries.

We are an aerospace and space travel company offering access to space for private individuals, researchers and government agencies. Our missions include flying passengers to space as tourists, as well as flying scientific payloads and researchers to space in order to conduct experiments for scientific and educational purposes. Our operations include the design and development, manufacturing, ground and flight testing, and post-flight maintenance of our spaceflight system vehicles. Our spaceflight system is developed using our proprietary technology and processes and is focused on providing space experiences for private astronauts, researcher flights and professional astronaut training.

We intend to offer our customers a unique, multi-day experience culminating in a spaceflight that includes several minutes of weightlessness and views of Earth from space. Our elegant and distinctive spaceflight system – which takes off and lands on a runway – has been designed for optimal safety and comfort. As part of our commercial operations, we have exclusive access to the Gateway to Space facility at Spaceport America located in New Mexico. Spaceport America is the world’s first purpose-built commercial spaceport and will be the site of our initial commercial spaceflight operations. We believe the site provides us with a competitive advantage as it has a desert climate with relatively predictable weather conditions preferable to support our spaceflights and it also has airspace that is restricted for surrounding general commercial air traffic which facilitates frequent and consistent flight scheduling.

Our near-term focus is to launch the commercial program for human spaceflight. In December 2018, we made history by flying our groundbreaking spaceship, VSS Unity, to space. This represented the first flight of a spaceflight system built for commercial service to take humans into space. In February 2019, we flew our second spaceflight with VSS Unity, which carried a crew member in the cabin in addition to the two pilots. After relocating our operations to Spaceport America, we have flown an additional two spaceflights in May and July of 2021. The May 2021 flight carried revenue-generating research experiments as part of NASA’s Flight Opportunities Program. This was the third time Virgin Galactic had flown technology experiments in the cabin on a spaceflight. This flight also completed the data submission to the FAA resulting in the approval for the expansion of our commercial space transportation operator license to allow for the carriage of space flight participants. This marked the first time the FAA licensed a spaceline to fly customers and was further validation of the inherent safety of our system.

Our flight in July 2021 was the 22nd flight of VSS Unity, the fourth rocket powered spaceflight and the first spaceflight with a full crew of four mission specialists in the cabin, including our Founder, Sir Richard Branson.

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We believe that the market for commercial human spaceflight is significant and untapped. As of December 31, 2022, we received reservations for approximately 800 spaceflight tickets and collected $103.3 million of deposits and membership fees from future astronauts. With each ticket purchased, future astronauts will experience a multi-day journey to prepare their mind and body for their upcoming flight, which includes a comprehensive spaceflight training preparation program and culminates with a trip to space on the final day. Each ticket purchased after our ticket sale reopening in 2021 also includes a membership in Virgin Galactic's Future Astronaut community. This membership provides access to events and experiences, including exclusive weeks 'at home' with Virgin Galactic Astronaut 001, Sir Richard Branson.

We have developed an extensive set of integrated aerospace development capabilities encompassing preliminary vehicle design and analysis, detail design, manufacturing, ground testing, flight testing, and maintenance of our spaceflight system. Our reusable spaceflight system consists of two primary components: our carrier aircraft, which is called the mothership, and our spaceship.

Our mothership is a twin-fuselage, custom-built aircraft designed to carry the spaceship up to an altitude of approximately 45,000 feet, where it is released for its flight into space. Using the mothership’s air launch capability, rather than a standard ground-launch, reduces the energy requirements of our spaceflight system as the spaceship does not have to ascend through the higher density atmosphere closest to the Earth’s surface. It is also a fully reusable part of our spaceflight system. The spaceship is a vehicle with the capacity to carry pilots and private astronauts, research experiments, and researchers that travel with their experiments for human tended research flights into space and return them safely to Earth. It is powered by a hybrid rocket propulsion system, which propels the spaceship on a trajectory into space. The hybrid rocket motor utilizes liquid oxidizer and solid fuel and is designed to be a simple, safe, reliable propulsion system for the spaceship. The spaceship’s cabin has been designed to maximize the future astronaut’s safety, experience and comfort. A dozen windows line the sides and ceiling of the spaceship, offering customers the ability to view the blackness of space as well as stunning views of the Earth below.

Our team is currently in various stages of designing, testing and manufacturing additional spaceships, motherships, and rocket motors in order to meet the expected demand for human spaceflight experiences. Our next generation spaceships will include the various learnings from our flight test program so we are able to design and manufacture our future spaceships to allow for greater predictability, faster turnaround time and easier maintenance. Concurrently, we are also researching and developing new products and technologies to grow our company.

Our operations also include spaceflight opportunities for research and technology development. Researchers have historically utilized parabolic aircraft and drop towers to create moments of microgravity and conduct significant research activities related to the space environment. In most cases, these solutions offer only seconds of continuous microgravity time and do not offer access to the upper atmosphere or space itself. Researchers can also conduct experiments on sounding rockets or satellites. These opportunities are expensive, infrequent and may impose highly limiting operational constraints. Our spaceflight system is intended to provide the scientific research community access to space for affordable and repeatable access to microgravity. Our suborbital platform is an end-to-end offering, which includes not only our vehicles, but also the hardware such as middeck lockers that we provide to researchers that request them, along with the processes and facilities needed for a successful campaign. The platform offers a routine, reliable and responsive service allowing for experiments to be repeated rapidly and frequently and with the opportunity to be tended in-flight by one or more researchers. This capability will enable scientific experiments as well as educational and research programs to be carried out by a broader range of individuals, organizations and institutions than ever before. Our commitment to advancing research and science has been present in all of our spaceflights to date. In May 2021, we carried payloads into space for research purposes through NASA's Flight Opportunities Program, and our flight in July 2021 included research payloads from the University of Florida.

We have also leveraged our knowledge and expertise in manufacturing spaceships to occasionally perform engineering services for third parties, such as research, design, development, manufacturing and integration of advanced technology systems.

Factors Affecting Our Performance

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section of this Annual Report on Form 10-K titled “Risk Factors.”

Impact of COVID-19

The COVID-19 pandemic and the protocols and procedures we implemented in response to the pandemic caused delays to our business and operations, which led to accumulated impacts to both schedule and cost efficiency and some delays in operational and maintenance activities, including delays in our test flight program. While we are no longer experiencing

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delays from these measures, the long-term effects of the COVID-19 pandemic on our business remain uncertain. Measures we may need to take in the future and challenges that result from the pandemic could affect our operations necessary to complete the development of our spaceflight systems, our scheduled flight test programs and commencement of our commercial flights. If the pandemic worsens and we experience an additional delay, we may take additional actions, such as further reducing costs.

Commercial Launch of Our Human Spaceflight Program

We are the first spaceline to receive FAA approval to carry commercial customers to space. This was through an update to our existing commercial spaceflight license which we have held since 2016. We are in the final phases of developing our commercial spaceflight program. Prior to launch of commercial service, we must complete a period of planned maintenance and enhancements to the vehicles, as well as subsequent vehicle flight testing. Commercial service is currently expected to commence in the second quarter of 2023. We continuously monitor our supply chain for potential risk associated with the delivery of materials from our suppliers, which in turn could impact the schedule for completion of the enhancement period and the start of commercial service. We have identified some areas of risk for timely delivery and continue to work on mitigating these identified risks. Any delays in successful completion of our test flight program, whether due to the supply chain, the impact of COVID-19 and related macroeconomic factors or otherwise, will impact our ability to generate revenue from human spaceflight.

Customer Demand

While not yet in commercial service for human spaceflight, we have already received significant interest from potential future astronauts. Going forward, we expect the size of our backlog and the number of future astronauts that have flown to space on our spaceflight system to be an important indicator of our future performance. As of December 31, 2022, we had reservations for space flights for approximately 800 future astronauts. In August 2021, following Sir Richard Branson's successful test flight, we reopened ticket sales to a select group and increased the pricing of our consumer offerings to a base price of $450,000 per seat. In February 2022, we opened ticket sales to the general public. We are reserving our first 100 seats within our first 1,000 commercial seats sold for research and scientific experiments. As of December 31, 2022, the tickets sold represent approximately $207 million in expected future spaceflight revenue upon completion of space flights.

Available Capacity and Annual Flight Rate

We expect to commence commercial operations with a single spaceship, VSS Unity, and a single mothership carrier aircraft, VMS Eve, which together comprise our only spaceflight system. As a result, our annual flight rate will be constrained by the availability and capacity of this spaceflight system. Additionally, we may commence commercial operations while temporarily assigning one of the four passenger seats in VSS Unity to be occupied by one of our employees to gather input about the experience in order to help us create a better experience for our customers in the long-term. To reduce the capacity constraint associated with having only one spaceflight system, we are currently developing our newest spaceship, VSS Imagine. We intend to expand our fleet further with our next generation vehicles, our Delta class spaceships and our next generation motherships, which will allow us to increase our annual flight rate. We believe that expanding the fleet will allow us to increase our annual flight rate once commercialization is achieved. We are dedicating significant engineering resources to the work that precedes production of the future fleet. Simultaneously, we are focused on the launch and flight consistency of Unity and Eve to begin bringing our customers to space and to demonstrate the value of our product. Prioritizing our resources against these important efforts will likely impact the pace of work on our second spaceship, VSS Imagine, and we are reassessing its schedule for entering commercial service.

Safety Performance of Our Spaceflight Systems

Our spaceflight systems are highly specialized with sophisticated and complex technology. We have built operational processes to ensure that the design, manufacture, performance and servicing of our spaceflight systems meet rigorous quality standards. However, our spaceflight systems are still subject to operational and process risks, such as manufacturing and design issues, human errors, or cyber-attacks. Any actual or perceived safety issues may result in significant reputational harm to our business and our ability to generate human spaceflight revenue.

Component of Results of Operations

Revenue

To date, we have primarily generated revenue from fees related to our Future Astronaut community membership and Future Astronaut community event, by transporting scientific commercial research and development payloads using our

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spaceflight systems and by providing engineering and scientific research services. We also have generated revenues from sponsorship arrangements.

Following the commercial launch of our human spaceflight services, we expect the significant majority of our revenue to be derived from ticket sales to fly to space and related services. We also expect that we will continue to receive a small portion of our revenue by providing services relating to the research, design, development, manufacture and integration of advanced technology systems.

Customer Experience

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 astronauts.

Selling, General and Administrative

Selling, general and administrative expenses consist of human capital related expenses for employees involved in general corporate functions, including executive management and administration, accounting, finance, tax, legal, information technology, marketing and commercial, and human resources; rent relating to facilities, including a portion of the lease with Spaceport America, and equipment; professional fees; and other general corporate costs. Human capital expenses primarily include salaries, cash bonuses, stock-based compensation and benefits. As we continue to grow as a company, we expect that our selling, general and administrative costs will increase on an absolute dollar basis.

Research and Development

Research and development expense represents costs incurred to support activities that advance our human spaceflight system towards commercialization, including basic research, applied research, concept formulation studies, design, development, and related testing activities. Research and development costs consist primarily of the following costs for developing our spaceflight systems:

•flight testing programs, including rocket motors, fuel, and payroll and benefits for pilots and ground crew performing test flights;

•equipment, material, and labor hours (including from third-party contractors) for developing the spaceflight system’s structure, spaceflight propulsion system, and flight profiles;

•rent, maintenance, and other overhead expenses allocated to the research and development departments; and

•third-party fees to design and manufacture our next generation motherships, as well as manufacture key subassemblies for our next generation spaceships.

As of December 31, 2022, our current primary research and development objectives focus on the development of our mothership and spaceship vehicles for commercial spaceflights and developing our rocket motor, a hybrid rocket propulsion system that is used to propel our spaceship vehicles into space. The successful development of our motherships, spaceships and rocket motors involves many uncertainties, including:

•our ability to recruit and retain skilled engineering and manufacturing staff;

•timing in finalizing spaceflight systems design and specifications;

•successful completion of flight test programs, including flight safety tests;

•our ability to obtain additional applicable approvals, licenses or certifications from regulatory agencies, if required, and maintaining current approvals, licenses or certifications;

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•performance of our manufacturing facilities despite risks that disrupt productions, such as natural disasters and hazardous materials;

•performance of a limited number of suppliers for certain raw materials and components;

•performance of our third-party contractors that support our manufacturing and research and development activities including the quality of components and subassemblies;

•our ability to maintain rights from third parties for intellectual properties critical to research and development activities;

•continued access to launch sites and airspace;

•our ability to continue funding and maintain our current research and development activities; and

•the impact of the global COVID-19 pandemic.

A change in the outcome of any of these variables could delay the development of our motherships, spaceships, or rocket motors, which in turn could impact when we are able to commence our human spaceflights.

As we are currently still in our final development and testing stage of our spaceflight system, we have expensed all research and development costs associated with developing and building our spaceflight system. We expect that our research and development expenses will decrease once technological feasibility is reached for our spaceflight systems as the costs incurred to manufacture additional spaceship vehicles, built by leveraging the invested research and development, will no longer qualify as research and development activities.

Interest Income

Interest income primarily includes interest earned on our cash, cash equivalents and marketable securities.

Interest Expense

Interest expense consists of amortization of debt issuance costs and interest expense for our 2027 Notes, as well as interest expense related to our finance lease obligations.

Change in Fair Value of Warrants

Change in fair value of warrants reflects the non-cash change in the fair value of warrants. Certain warrants issued as part of the Company's initial public offering in 2017 and assumed upon the consummation of the Virgin Galactic business combination in October 2019 (the "Business Combination") were recorded at their fair value on the date of the Business Combination and are remeasured at the end of each reporting period and no warrants were outstanding as of each of December 31, 2022 and 2021.

Other Income, net

Other income, net consists of miscellaneous non-operating items, such as gains and losses on marketable securities and handling fees related to customer refunds.

Income Tax Provision

We are subject to income taxes in the United States and the United Kingdom. Our income tax provision consists of an estimate of federal, state, and foreign income taxes based on enacted federal, state, and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.

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Results of Operations

The following tables set forth our results of operations for the periods presented. The period-to-period comparisons of financial results is not necessarily indicative of future results.

Year Ended December 31,

(In thousands)

Operating expenses:

Comparison of Results of Operations for Year Ended December 31, 2022 to Year Ended December 31, 2021

Year EndedDecember 31, $Change %Change

(In thousands, except %)

Revenue decreased by $1.0 million, or 29.8%, to $2.3 million for the year ended December 31, 2022 from $3.3 million for the year ended December 31, 2021. Revenue recorded for the year ended December 31, 2022 was primarily attributable to membership fees related to our Future Astronaut community, fees related to our Future Astronaut community event, and scientific research services under government contracts. Revenue recorded for the year ended December 31, 2021 was primarily attributable to sponsorship revenue and revenue earned under government contracts from progress on the completion of certain technical milestones related to payload services. In addition, we recognized revenue related to the performance of our spaceflights in May and July 2021.

Customer Experience

Year EndedDecember 31, $Change %Change

(In thousands, except %)

We recorded $1.9 million and $0.3 million of customer experience costs for the years ended December 31, 2022 and December 31, 2021, respectively. Customer experience costs for the year ended December 31, 2022 were primarily attributable

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to costs related to our Future Astronaut community event, other costs to maintain our Future Astronaut community, labor costs provided for scientific research services, and incremental costs related to payload services. Customer experience costs for the year ended December 31, 2021 were primarily attributable to the incremental costs related to the completion of payload services, labor costs provided for engineering services under long-term U.S. government contracts, and agent fees related to sponsorship revenue.

Selling, General and Administrative

Year EndedDecember 31, $Change %Change

(In thousands, except %)

Selling, general and administrative expenses increased by $8.3 million, or 5.0%, to $175.1 million for the year ended December 31, 2022 from $166.8 million for the year ended December 31, 2021. This increase was primarily due to a $18.8 million increase in salary, bonus and other employee benefits, a $7.0 million increase in consulting, legal and other professional costs, a $2.3 million increase in software licensing costs, and a $1.9 million increase in contract and subcontract labor. These increases were partially offset by a $14.2 million decrease in stock-based compensation and a $7.4 million decrease in marketing and advertising related expenses attributable to our spaceflights in May and July 2021.

Research and Development

Year EndedDecember 31, $Change %Change

(In thousands, except %)

Research and development expenses increased by $170.0 million, or 117.8%, to $314.2 million for the year ended December 31, 2022 from $144.2 million for the year ended December 31, 2021. This increase was primarily due to costs associated with developing our spaceflight system, specifically a $138.8 million increase in material costs, contract and subcontract labor, and technical consulting costs and a $23.2 million increase in salaries, bonus, and other employee benefits. In addition, there was a $5.4 million increase in facilities costs.

Depreciation and Amortization

Year EndedDecember 31, $Change %Change

(In thousands, except %)

Depreciation and amortization expense decreased from $11.5 million for the year ended December 31, 2021 to $11.1 million for the year ended December 31, 2022, a decrease of $0.4 million when compared to 2021.

Interest Income

Year EndedDecember 31, $Change %Change

(In thousands, except %)

Interest income increased by $11.3 million to $12.5 million for the year ended December 31, 2022 from $1.2 million for the year ended December 31, 2021. This increase was primarily driven by higher interest rates on marketable securities and a full year of our investment program in 2022 compared to a partial year in 2021.

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Interest Expense

Year EndedDecember 31, $Change %Change

(In thousands, except %)

Interest expense increased to $(12.1) million for the year ended December 31, 2022. This increase was primarily driven by interest expense and amortization of debt issuance costs related to our January 2022 senior convertible notes.

Change in the Fair Value of Warrants

Year EndedDecember 31, $Change %Change

(In thousands, except %)

Change in fair value of warrants reflects the non-cash change in the fair value of warrants. No warrants were outstanding during the year ended December 31, 2022.

Other Income, net

Year EndedDecember 31, $Change %Change

(In thousands, except %)

Other income, net $ 58 $ 182 $ (124) n.m.

Other income, net decreased from $0.2 million for the year ended December 31, 2021 to less than $0.1 million for the year ended December 31, 2022, a decrease of $0.1 million when compared to 2021.

Income Tax Expense

Year EndedDecember 31, $Change %Change

(In thousands, except %)

Income tax expense increased from $0.1 million for the year ended December 31, 2021 to $0.6 million for the year ended December 31, 2022. As we have not yet started commercial operations we have accumulated net operating losses at the U.S. federal and state levels, and we maintain a valuation allowance against a substantial portion of our U.S. federal and state deferred tax assets. The change in income tax expense shown above is primarily related to corporate income taxes for our operations in the United Kingdom, which operates on a cost-plus arrangement.

Liquidity and Capital Resources

As of December 31, 2022, we had cash, cash equivalents and restricted cash of $342.6 million and $637.1 million in marketable securities. Our principal sources of liquidity have come from our sales of our common stock and offering of convertible senior notes ("2027 Notes"). We believe our cash and cash equivalents on hand at December 31, 2022, and management's operating plan, will provide sufficient liquidity to fund our operations for at least the next twelve months from the issuance of the consolidated financial statements included in this Annual Report on Form 10-K.

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Historical Cash Flows

Year Ended December 31,

(In thousands)

Net cash provided by (used in):

Operating Activities

Net cash used in operating activities was $380.2 million for the year ended December 31, 2022, and consisted primarily of $500.2 million of net losses, adjusted for non-cash items, which primarily included stock-based compensation expense of $45.7 million, depreciation and amortization expense of $11.1 million, amortization of debt issuance costs of $2.0 million, other non-cash items of $10.8 million, as well as a $50.3 million of cash provided from changes in working capital.

Net cash used in operating activities was $230.8 million for the year ended December 31, 2021, and consisted primarily of $352.9 million of net losses, adjusted for non-cash items, which primarily included stock-based compensation expense of $61.8 million, depreciation and amortization expense of $11.5 million, and change in fair value of warrants of $34.7 million, as well as a $14.2 million of cash provided from changes in working capital.

Investing Activities

Net cash used in investing activities was $286.2 million for the year ended December 31, 2022, and consisted primarily of $704.6 million in purchases of marketable securities and $16.5 million in purchases of capital expenditures, partially offset by $434.9 million in proceeds from maturities and calls of marketable securities.

Net cash used in investing activities was $387.5 million for the year ended December 31, 2021, and consisted primarily of $382.9 million in purchases of marketable securities and $4.6 million in purchases of capital expenditures.

Financing Activities

Net cash provided by financing activities was $459.0 million for the year ended December 31, 2022, and consisted primarily of the issuance of the 2027 Notes for net proceeds of $413.7 million and proceeds from the sale and issuance of common stock of $103.3 million, partially offset by the purchase of the 2027 Capped Calls of $52.3 million, tax withholdings paid for net settled stock-based awards of $4.0 million and transaction costs incurred for the issuance of common stock of $1.2 million.

Net cash provided by financing activities was $489.4 million for the year ended December 31, 2021, and consisted primarily of $500.0 million cash proceeds from the sale and issuance of common stock and $20.0 million in cash received from the issuance of common stock pursuant to stock options exercised, partially offset by tax withholdings paid for net settled stock-based awards of $23.4 million and transaction costs incurred for the issuance of common stock of $6.8 million.

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Contractual Obligations

We lease certain facilities and data centers under non-cancellable operating lease arrangements that expire at various dates through 2065. As of December 31, 2022, future minimum payments under noncancellable operating leases was $110.9 million. For additional information regarding our lease obligations, see Note 16 in our consolidated financial statements included in Item 8 of this Annual Report in Form 10-K.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we continue to advance the development of our spaceflight system and the commercialization of our human spaceflight operations. In addition, we expect customer experience expenses to increase significantly as we commence commercial operations and add additional spaceships to our operating fleet.

Specifically, our operating expenses will increase as we:

•scale up our manufacturing processes and capabilities to support expanding our fleet with additional spaceships, carrier aircraft and rocket motors upon commercialization;

•pursue further research and development on our future human spaceflights, including those related to our research and education efforts on point-to-point travel;

•hire additional personnel in research and development, manufacturing operations, testing programs, maintenance operations and guest services as we increase the volume of our spaceflights upon commercialization;

•seek regulatory approval for any changes, upgrades or improvements to our spaceflight technologies and operations in the future, especially upon commercialization;

•maintain, expand and protect our intellectual property portfolio;

•establish our astronaut campus in New Mexico; and

•hire additional personnel in management to support the expansion of our operational, financial, information technology, and other areas to support our operations as a public company.

In some cases, we expect our arrangements with third-party providers, including under our Master Agreements with Aurora Flight Sciences Corporation (“Aurora"), a wholly owned subsidiary of The Boeing Company, for the design and manufacture of our next generation of carrier aircraft and Bell Textron Inc. ("Bell") and Qarbon Aerospace ("Qarbon") to manufacture key subassemblies for our next generation spaceships, will require significant capital expenditures from us, but such amounts are subject to future negotiations and cannot be estimated with reasonable certainty.Although we believe that our current capital is adequate to sustain our operations for at least the next twelve months, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. Additionally, we are in the final phases of developing our commercial spaceflight program. While we anticipate initial commercial launch with a single spaceship, we currently have additional spaceship vehicles under construction. We anticipate the costs to manufacture additional vehicles will begin to decrease as we continue to scale up our manufacturing processes and capabilities. Until we achieve technological feasibility with our spaceflight systems, we will not capitalize expenditures incurred to construct any additional components of our spaceflight systems and we will continue to expense these costs as incurred to research and development.

Issuances of Common Stock

On July 12, 2021, we entered into a distribution agency agreement with Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC (each, an “Agent” and collectively, the “Agents”) providing for the offer and sale of up to $500.0 million of shares of our common stock, par value $0.0001 per share, through an "at the market offering" program ("ATM"), from time to time by us through the Agents, acting as our sales agents, or directly to one or more of the Agents, acting as principal (the “2021 ATM program”).

We completed available offerings under the 2021 ATM program on July 16, 2021, generating $500.0 million in gross proceeds through the sale of 13,740,433 shares of our common stock, before deducting $6.2 million in underwriting discounts, commissions and other expenses payable by us.

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On August 4, 2022, we entered into a distribution agency agreement with Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC providing for the offer and sale of up to $300.0 million of shares of our common stock, par value $0.0001 per share, through an ATM (the "2022 ATM program").

As of December 31, 2022, we sold a total of 16,265,700 shares of our common stock under the 2022 ATM program, generating $103.3 million in gross proceeds, before deducting $1.2 million in underwriting discounts, commissions and other expenses payable by us.

Short-term Liquidity and Capital Resources

For at least the next twelve months, we expect our principal demand for funds will be for our ongoing activities described above. We expect to meet our short-term liquidity requirements primarily through our cash, cash equivalents and marketable securities on hand. We believe we will have sufficient liquidity available to fund our business needs, commitments and contractual obligations for the next twelve months.

Long-term Liquidity and Capital Resources

Beyond the next twelve months, our principal demand for funds will be to sustain our operations, including the construction of additional motherships under an agreement with a third-party contractor, and spaceship vehicles, construction of our astronaut campus, expansion of the New Mexico Spaceport, and for the payment of the principal amount of our convertible senior notes as it becomes due. We expect to begin generating revenue from our human spaceflight program, which is expected to launch in the second quarter of 2023. To the extent this source of capital as well as the sources of capital described above are insufficient to meet our needs, we will also conduct additional offerings of our securities or may refinance debt. We expect these resources will be adequate to fund our ongoing operating activities.

The commercial launch of our human spaceflight program and the anticipated expansion of our fleet have unpredictable costs and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control, that may affect the timing and magnitude of these anticipated expenditures. Some of these risk and uncertainties are described in more detail in this Annual Report on Form 10-K under the heading Item 1A. “Risk Factors—Risks Related to Our Business.”

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our consolidated financial statements and, therefore, we consider these to be our critical accounting policies. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. Please refer to Note 2 in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for information about these critical accounting policies, as well as a description of our other significant accounting policies.

Revenue Recognition

We recognize revenue when control of the promised service is transferred to our customers in an amount that reflects the consideration we expect to receive based on the contracted amount for those services. We determine revenue recognition by first identifying the contract or contracts with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract, and recognizing revenue when, or as, we satisfy a performance obligation. Our contracts generally include spaceflight operations, Future Astronaut community services, and other revenue and engineering services.

Inventories

Inventories consist of raw materials expected to be used for the development of the human spaceflight program and customer-specific contracts. Inventories are stated at the lower of cost or net realizable value. At the end of each reporting period, we evaluate whether the utility of our inventories have diminished through damage, deterioration, obsolescence, changes in price or other causes, and if so, a loss is recognized in the period in which it occurs. We determine the costs of other product and supply inventories by using the first-in, first-out or average cost methods. Our status of pre-technological feasibility means that material issued from inventory into production of our vehicles, labor charges and overhead charges are charged to research and development expense.

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Research and Development

We conduct research and development activities to develop existing and future technologies that advance our spaceflight system towards commercialization. Research and development activities include basic research, applied research, concept formulation studies, design, development, and related test program activities. Costs incurred for developing our spaceflight system and flight profiles primarily include equipment, material, and labor hours. Costs incurred for performing test flights primarily include rocket motors, fuel, and payroll and benefits for pilots and ground crew. Research and development costs also include rent, maintenance, and depreciation of facilities and equipment and other allocated overhead expenses. We expense all research and development costs as incurred. Once we have achieved technological feasibility, we will capitalize the costs to construct any additional components of our spaceflight systems.

Income Taxes

We record income tax expense for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We record valuation allowances to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. Our assessment considers the recognition of deferred tax assets on a jurisdictional basis. Accordingly, in assessing our future taxable income on a jurisdictional basis, we consider the effect of our transfer pricing policies on that income.

We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. As we grow, we will face increased complexity in determining the appropriate tax jurisdictions for revenue and expense items. We adjust these reserves when facts and circumstances change, such as the closing of a tax audit or refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the income tax expense in the period in which such determination is made and could have a material impact on our financial condition and operating results. The income tax expense includes the effects of any accruals that we believe are appropriate, as well as the related net interest and penalties.

We have not yet started commercial operations, and as such, we are accumulating net operating losses at the federal and state levels. Income taxes included in the consolidated financial statements are primarily related to corporate income taxes for our operations in the United Kingdom, which operates on a cost-plus arrangement.

Stock-Based Compensation

We have granted stock-based awards consisting of restricted stock units ("RSUs"), performance-based stock units ("PSUs"), performance-based stock options ("PSOs"), and service-based stock options. Our outstanding RSUs and stock options contain a service-based vesting condition. The service-based vesting condition for the majority of these awards is satisfied over four years. Our outstanding PSUs contain a service-based vesting condition, as well as a market-based vesting condition that is satisfied based on the Company's common stock performance following the end of the three-year performance measurement period based on the highest closing price over twenty consecutive trading days during the performance measurement period. Our outstanding PSOs contain a market-based vesting condition that is satisfied based on the attainment of certain stock price goals.

We recognize all stock-based awards to employees and directors as stock-based compensation expense based upon their fair values on the date of grant. Compensation expense is recognized over the requisite service periods. We account for forfeitures when they occur.

We have estimated the fair value for each service-based stock option award as of the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected volatility of our stock price. We have estimated the fair value for each PSO and PSU award with market-based conditions as of the grant date using the Monte-Carlo simulation method. The Monte-Carlo simulation method considers, among other factors, the discount rates and future market conditions.

In connection with the Business Combination, our board of directors and stockholders adopted the 2019 Incentive Award Plan (the "2019 Plan").Pursuant to the 2019 Plan, up to 21,208,755 shares of common stock have been reserved for issuance to employees, directors and other service providers. Please refer to Notes 2 and 14 in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further information regarding stock-based compensation.

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Warrant Liability

We account for the public and private placement warrants issued in connection with our initial public offering in accordance with Accounting Standards Codification (“ASC”) 815-40, “Derivatives and Hedging—Contracts in Entity’s Own Equity” (“ASC 815”), under which the warrants do not meet the criteria for equity classification and must be recorded as liabilities. As the warrants meet the definition of a derivative as contemplated in ASC 815, the warrants are measured at fair value at inception and at each reporting date in accordance with ASC 820, "Fair Value Measurement," with changes in fair value recognized as a component of non-operating income (expense) on the consolidated statements of operations and comprehensive loss.

Recent Accounting Pronouncements

Please refer to Note 3 in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We have operations within the United States and the United Kingdom and, as such, we are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and fluctuations in foreign currency exchange rates. We are also exposed to market risk from changes in our stock prices, which impact the fair value of our 2027 Notes. Information relating to quantitative and qualitative disclosures about these market risks is set forth below.

Interest Rate Risk

We had cash, cash equivalents and marketable securities totaling $1.0 billion as of December 31, 2022, of which $928.1 million was invested in money market funds, certificate of deposits, U.S. treasury securities, and corporate debt securities. Our cash and cash equivalents are held for working capital purposes and to enable us to earn low-risk returns on our investments. Our investment in marketable securities are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.

Our cash equivalents and our investment portfolio are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates. Due in part to these factors, our future investment income may fall short of our expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our marketable securities as “available for sale,” no gains are recognized due to changes in interest rates. As losses due to changes in interest rates are generally not considered to be credit-related changes, no losses in such securities are recognized due to changes in interest rates unless we intend to sell, it is more likely than not that we will be required to sell, we sell prior to maturity or we otherwise determine that all or a portion of the decline in fair value are due to credit related factors.

In January 2022, we issued the 2027 Notes in an aggregate principal amount of $425.0 million. Concurrently with the issuance of the 2027 Notes, we entered into separate capped call transactions. The 2027 Capped Calls were completed to reduce the potential dilution from the conversion of the 2027 Notes. The 2027 Notes have a fixed annual interest rate of 2.50%. Accordingly, we do not have economic interest rate exposure on the 2027 Notes. However, changes in market interest rates impact the fair value of the 2027 Notes. In addition, the fair value of the 2027 Notes fluctuates when the market price of our common stock fluctuates. The fair value is determined based on the quoted bid price of the 2027 Notes in an over-the-counter market on the last trading day of the reporting period.

As of December 31, 2022, a hypothetical 100 basis point change in interest rates would not have had a material impact on the value of our cash equivalents or investment portfolio.

Foreign Currency Risk

The functional currency of our operations in the United Kingdom is the local currency. We translate the financial statements of the operations in the United Kingdom to United States Dollars and as such we are exposed to foreign currency risk. Currently, we do not use foreign currency forward contracts to manage exchange rate risk, as the amount subject to foreign currency risk is not material to our overall operations and results.

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Item 8. Financial Statements and Supplementary Data

The financial statements required by this Item are included in Item 15 of this report and are presented beginning on page F-1 and are incorporated herein by reference.

Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.

Management's Report on Internal Controls Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon criteria established in Internal Control – Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2022.

KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in the Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness of our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

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Part III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our Proxy Statement for our Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2022.

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

Our independent registered public accounting firm is KPMG LLP, Los Angeles, CA, Auditor Firm ID: 185

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Part IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this report:

(1) Financial Statements. Reference is made to the Index to Consolidated Financial Statements beginning on Page F-1

hereof.

(2) Financial Statement Schedules. None.

(3) Exhibits. The following exhibits are filed, furnished or incorporated by reference as part of this Annual Report on

Form 10-K.

Incorporated by Reference

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Incorporated by Reference

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Incorporated by Reference

21.1 List of Subsidiaries *

23.1 Consent of KPMG LLP *

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Incorporated by Reference

101.SCH Inline XBRL Taxonomy Extension Schema Document *

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document *

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document *

*Filed herewith.

**Furnished herewith.

(1)Indicates management contract or compensatory plan.

(2)Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Regulation S-K, Item (601)(b)(10).

(3)Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant agrees to furnish

supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

Item 16. Form 10-K Summary

None.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Virgin Galactic Holdings, Inc.

Date: February 28, 2023 By: /s/ Michael Colglazier

Name: Michael Colglazier

Title: Chief Executive Officer and President(Principal Executive Officer)

Date: February 28, 2023 By: /s/ Douglas Ahrens

Name: Douglas Ahrens

Title: Chief Financial Officer(Principal Financial and Accounting Officer)

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Colglazier and Douglas Ahrens, or either of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to file and sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the United States Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

Michael Colglazier

Douglas Ahrens

/s/ Wanda Austin Director February 28, 2023

Wanda Austin

/s/ Adam Bain Director February 28, 2023

Adam Bain

/s/ Tina Jonas Director February 28, 2023

Tina Jonas

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/s/ Craig Kreeger Director February 28, 2023

Craig Kreeger

/s/ Evan Lovell Director February 28, 2023

Evan Lovell

/s/ George Mattson Director February 28, 2023

George Mattson

/s/ Wanda Sigur Director February 28, 2023

Wanda Sigur

/s/ W. Gilbert West Director February 28, 2023

W. Gilbert West

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page No.

Reports of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets F-4

Consolidated Statements of Operations and Comprehensive Loss F-5

Consolidated Statements of Stockholders' Equity F-6

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-8

(1) Organization F-8

(2) Summary of Significant Accounting Policies F-8

(3) Recent Accounting Pronouncements F-15

(4) Related Party Transactions F-15

(5) Cash, Cash Equivalents and Marketable Securities F-16

(6) Inventories F-17

(7) Property, Plant and Equipment F-17

(9) Accrued Liabilities F-20

(10) Convertible Senior Notes F-20

(11) Income Taxes F-22

(12) Stockholders' Equity F-25

(13) Earnings Per Share F-26

(14) Stock-Based Compensation F-27

(15) Fair Value Measurements F-31

(16) Commitments and Contingencies F-32

(17) Employee Benefit Plans F-33

(18) Supplemental Cash Flow Information F-34

F-1

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors Virgin Galactic Holdings, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Virgin Galactic Holdings, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Controls Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Ours audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

F-2

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Research and development costs

As discussed in Note 2 to the consolidated financial statements, the Company expenses all research and development costs incurred to develop its spaceflight systems and flight profiles. The Company incurred $314.2 million of research and development costs during the year ended December 31, 2022.

We identified the evaluation of research and development costs as a critical audit matter. There was a high degree of auditor judgement and subjectivity involved in evaluating the future benefits, if any, provided by research and development expenditures to progress the Company’s spaceflight systems and flight profiles.

The following are the primary procedures we performed to address this critical audit matter. We obtained an understanding of the Company’s determination to record research and development expenditures as expenses in the period incurred. We assessed the determination by obtaining documentation of the remaining steps required to achieve commercial spaceflight systems and flight profiles development and milestones achieved. We obtained and evaluated the Company’s analysis regarding the development costs incurred to progress its spaceflight systems and flight profiles.

/s/ KPMG LLP

We have served as the Company’s auditor since 2019.

Los Angeles, California

February 28, 2023

F-3

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VIRGIN GALACTIC HOLDINGS, INC.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

December 31,

Assets

Current assets:

Prepaid expenses and other current assets 28,228 19,476

Liabilities and Stockholders' Equity

Current liabilities:

Non-current liabilities:

Convertible senior notes, net 415,720 —

Commitments and contingencies (Note 16)

Stockholders' Equity

Accumulated other comprehensive loss (7,326) (1,869)

See accompanying notes to consolidated financial statements.

F-4

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VIRGIN GALACTIC HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts)

Year Ended December 31,

Operating expenses:

Other comprehensive income (loss):

Foreign currency translation adjustment (146) 129 (54)

Unrealized loss on marketable securities (5,311) (2,003) —

Net loss per share:

Weighted-average shares outstanding:

See accompanying notes to consolidated financial statements.

F-5

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VIRGIN GALACTIC HOLDINGS, INC.

Consolidated Statements of Stockholders' Equity

(In thousands, except share amounts)

Shares Amount

Other comprehensive loss — — — — (54) (54)

Other comprehensive loss — — — (1,874) (1,874)

Transaction costs — — (6,494) — — (6,494)

Other comprehensive loss — — — — (5,457) (5,457)

Transaction costs — — (1,216) — — (1,216)

See accompanying notes to consolidated financial statements.

F-6

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VIRGIN GALACTIC HOLDINGS, INC.

Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

Cash flows from operating activities:

Amortization of debt issuance costs 1,998 — —

Change in fair value of warrant liability — 34,650 371,852

Change in operating assets and liabilities:

Cash flows from investing activities:

Proceeds from maturities and calls of marketable securities 434,889 — —

Cash flows from financing activities:

Payments of finance lease obligations (234) (140) (123)

Proceeds from convertible senior notes 425,000 — —

Debt issuance costs (11,278) — —

Purchase of capped call (52,318) — —

Repayment of commercial loan (310) (310) (310)

Transaction costs related to issuance of common stock (1,248) (6,772) (20,988)

See accompanying notes to consolidated financial statements.

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VIRGIN GALACTIC HOLDINGS, INC.

Notes to Consolidated Financial Statements

(1) Organization

Virgin Galactic Holdings, Inc. and its wholly owned subsidiaries ("the "Company," "we," "us," "our," 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.

(2) Summary of Significant Accounting Policies

Basis of Presentation

These 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.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires 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.

Cash and Cash Equivalents

The Company's cash consists of cash on hand. All highly liquid investments with an original maturity of three months or less, when acquired, are accounted for as cash equivalents.

Restricted Cash

Restricted cash consists of any cash deposits received from our future astronauts, that are contractually restricted for operational use until the condition of carriage is signed or the deposits are refunded.

Marketable Securities

The Company's marketable securities have been classified as debt securities that are accounted for as "available-for-sale" securities. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the classification at each balance sheet date. Marketable securities are classified as short-term and long-term based on the instrument's underlying contractual maturity date. The Company's marketable securities are carried at fair value, with unrealized gains and losses, net of income taxes, reported as a component of accumulated other comprehensive income (loss) in the consolidated statements of stockholders' equity, with the exception of unrealized losses believed to be other-than-temporary, which are reported in the Company's consolidated statements of operations and comprehensive loss in the period in which such determination is made.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and unbilled receivable, and do not bear interest. The Company estimates an allowance for doubtful accounts based on historical losses, the age of the receivable balance, credit quality of our customers, current economic conditions, and other factors that may affect the customers’ ability to pay. There was no allowance for uncollectible amounts as of December 31, 2022 or 2021, and no write-offs for the years ended December 31, 2022, 2021 or 2020. The Company does not have any off balance sheet credit exposure related to its customers.

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VIRGIN GALACTIC HOLDINGS, INC.

Notes to Consolidated Financial Statements

Inventories

Inventories consist of raw materials expected to be used for the development of the human spaceflight program and customer-specific contracts. Inventories are stated at the lower of cost or net realizable value. At the end of each reporting period, we evaluate whether the utility of our inventories have diminished through damage, deterioration, obsolescence, changes in price or other causes, and if so, a loss is recognized in the period in which it occurs. We determine the costs of other product and supply inventories by using the first-in, first-out or average cost methods. The company’s status of pre-technological feasibility means that materials issued from inventory into production of our vehicles, labor charges and overhead charges are charged to research and development ("R&D") expense.

Property, Plant and Equipment

Property, plant and equipment, net and leasehold improvements are stated at cost, less accumulated depreciation. Depreciation on property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter period of the estimated life or the lease term.

The estimated useful lives of property, plant and equipment are principally as follows:

Asset Useful Life

Buildings 39 years

Aircraft 20 years

Machinery and equipment 5 to 7 years

Information technology software and equipment 3 to 5 years

Leasehold improvements Shorter of the estimated useful life or lease term

We incur repair and maintenance costs on major equipment, which is expensed as incurred.

Leases

The Company determines whether an arrangement contains a lease at inception. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. For identified leases, the Company determines whether it should be classified as an operating or finance lease. Operating leases are recorded in the balance sheet as a right-of-use asset (“ROU asset”) and operating lease obligation. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at the commencement date of the lease and measured based on the present value of lease payments over the lease term. The ROU asset also includes deferred rent liabilities. The Company’s lease arrangements generally do not provide an implicit interest rate. As a result, in such situations the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option in the measurement of its ROU assets and liabilities. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company has some lease agreements with lease and non-lease components, which are accounted for as a single lease component. ROU assets are presented in other non-current assets and lease liabilities are presented in other current liabilities and long-term liabilities on the Company's consolidated balance sheets.

Capitalized Software

We capitalize certain costs associated with the development or purchase of internal-use software. The amounts capitalized are included in property, plant and equipment on the Company's consolidated balance sheets and are amortized on a straight-line basis over the estimated useful life of the resulting software, which approximates 3 years. As of December 31, 2022 and 2021, net capitalized software, totaled $5.3 million and $2.0 million, including accumulated amortization of $10.4 million and $8.4 million, respectively. No amortization expense is recorded until the software is ready for its intended use. For the years ended December 31, 2022, 2021, and 2020, amortization expense related to capitalized software was $2.1 million, $1.7 million and $1.3 million, respectively.

Long-Lived Assets

Long-lived assets primarily consist of property, plant and equipment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If

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VIRGIN GALACTIC HOLDINGS, INC.

Notes to Consolidated Financial Statements

circumstances require a long-lived asset to be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by that asset group to its carrying amount. We assess impairment for asset groups, which represent a combination of assets that produce distinguishable cash flows. If the carrying amount of the asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.

Convertible Senior Notes

On January 1, 2022, the Company adopted Accounting Standards Update ("ASU") 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40),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. At the end of each reporting period, we evaluate whether conditions are present that would require bifurcation. 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 10, 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 to interest expense using the effective interest rate method. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share.

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 the Company's 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 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 the Company's common stock. At the end of each reporting period, we evaluate whether the instruments continue to qualify for equity classification. The capped call transactions have the effect of reducing the number of shares outstanding if exercised, hence reduces the potential dilution. Therefore, the capped call transactions are anti-dilutive and not included in the calculation of diluted shares outstanding. See Note 10for additional information on the 2027 Capped Calls.

Fair Value Measurements

We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We estimate fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which is categorized in one of the following levels:

•Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date;

•Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability; and

•Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The fair value of the warrant liability was determined using the Black-Scholes valuation methodology and the quoted price of the Company’s common stock in an active market, a Level 3 measurement. Volatility was based on the

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VIRGIN GALACTIC HOLDINGS, INC.

Notes to Consolidated Financial Statements

actual market activity of the Company’s peer group as well as the Company's historical volatility since the business combination in October 2019 (the “Virgin Galactic Business Combination"). The expected life was based on the remaining contractual term of the warrants, and the risk free interest rate was based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants’ expected life.

The Company calculated the estimated fair value of the warrants as of December 31, 2020 using the following assumptions:

Risk-free interest rate 0.25%

Contractual term 3.82 years

Expected volatility 80%

Segments

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer.

The Company has determined that it operates in one operating segment and one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources and evaluating financial performance.

Comprehensive Income

Comprehensive income generally represents all changes in equity other than transactions with owners. Our comprehensive loss consists of net loss, foreign currency translation adjustments and any unrealized gains or losses on marketable debt securities.

Revenue Recognition

Spaceflight operations and other revenue

Spaceflight operations and other revenue is recognized for providing human spaceflights and carrying payload cargo into space, or a combination of the two. In addition, we have various sponsorship arrangements for which revenue is recognized over the sponsorship term.

Human spaceflight services are those services provided to the majority of our customers. Spaceflight service revenue is recognized at a point in time upon successful completion of a spaceflight. Payload cargo services generally include performance obligations in which control is transferred over time. We recognize revenue on these fixed fee contracts, over time, using the proportion of actual costs incurred to the total costs expected to complete the performance obligations.

For contracts which include a combination of services, the Company assesses and accounts for individual services separately if they are distinct performance obligations, which often requires judgment based upon knowledge of the services and structure of the sales contract. We allocate the contract price to each performance obligation based on the estimated standalone selling price using observable pricing from our contracts with single performance obligations.

Engineering services revenue

Engineering services revenue is recognized for providing services for the research, design, development, manufacture, integration and sustainment of advanced technology aerospace systems, products and services. We have arrangements as a subcontractor to the primary contractor of a long-term contract with the U.S. Government and perform the specified work on a time-and-materials basis subject to a guaranteed maximum price.

Our engineering services revenue contract obligates us to provide services that together are one distinct performance obligation; the delivery of engineering services. The Company elected to apply the ‘as-invoiced’ practical

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VIRGIN GALACTIC HOLDINGS, INC.

Notes to Consolidated Financial Statements

expedient to such revenues and, as a result, will bypass estimating the variable transaction price. Revenue is recognized as control of the performance obligation is transferred over time to the customer.

Membership revenue

Membership revenue is recognized for providing access to Virgin Galactic's Future Astronaut community. This membership provides access to events and experiences, including exclusive weeks 'at home' with Virgin Galactic Astronaut 001, Sir Richard Branson. Each spaceflight ticket purchased after our ticket sale reopening in 2021 includes this membership. We allocate a portion of the contract price to the membership based on the estimated standalone selling price. We recognize revenue for these memberships over time based on the period of performance before the members' flight to space.

Variable consideration

We generally estimate variable consideration and refund liabilities at the most likely amount to which we expect to be entitled or owed and in certain cases based on the expected value, which requires judgment. Estimated variable consideration amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

Estimated refund liability amounts are excluded in the transaction price to the extent it is probable that they are payable to the customer. Our estimates of variable consideration and refund liabilities, and determination of whether to include the estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information that is reasonably available to us.

Disaggregation of revenue

The Company does not disaggregate revenue for purposes of disclosure.

Contract balances

Contract assets are comprised of billed accounts receivable and unbilled receivables, which is the result of timing of revenue recognition, billings and cash collections. The Company records accounts receivable when it has an unconditional right to consideration.

Contract liabilities relate to spaceflight operations and other revenue contracts and are recorded when cash payments are received or due in advance of performance. Cash payments for spaceflight services are classified as customer deposits until enforceable rights and obligations exist, when such deposits also become nonrefundable. Customer deposits become nonrefundable and are recorded as deferred revenue following the Company's delivery of the conditions of carriage to the customer and execution of an informed consent.

As of December 31, 2022 and 2021, our contract liabilities are $102.6 million and $90.9 million, respectively. Contract liabilities were comprised of customer deposits for our spaceflight services and Future Astronaut community membership.

Contract fulfillment costs

The Company evaluates whether or not it should capitalize the costs of fulfilling a contract. Such costs would be capitalized when they are not within the scope of other standards and: (1) are directly related to a contract; (2) generate or enhance resources that will be used to satisfy performance obligations; and (3) are expected to be recovered.

Significant financing component

In determining the transaction price, the Company assesses the existence of significant financing components in its arrangements and adjusts the promised amount of consideration for the effects of the time value of money when the timing of payments provides it with a significant benefit of financing the transfers of goods or services to the customer.

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VIRGIN GALACTIC HOLDINGS, INC.

Notes to Consolidated Financial Statements

The arrangements related to our current offerings do not have a significant financing component as the payment terms are intended to enable customers to reserve the service, not to provide a financing benefit to the Company.

Remaining performance obligations

We do not disclose information about remaining performance obligations for (a) contracts with an original expected length of one year or less, (b) revenues recognized at the amount at which we have the right to invoice for services performed, or (c) variable consideration allocated to wholly unsatisfied performance obligations.

Customer Experience

Selling, General and Administrative

Research and Development

•flight testing programs, including rocket motors, fuel, and payroll and benefits for pilots and ground crew performing test flights;

•equipment, material, and labor hours (including from third-party contractors) for developing the spaceflight system’s structure, spaceflight propulsion system, and flight profiles;

•rent, maintenance, and other overhead expenses allocated to the research and development departments; and

•third-party fees to design and manufacture our next generation motherships, as well as manufacture key subassemblies for our next generation spaceships.

Income Taxes

The Company records income tax expense for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, the Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The Company records valuation allowances to reduce its deferred tax assets to the net amount that it believes is more likely than not to be realized. Its assessment considers the

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VIRGIN GALACTIC HOLDINGS, INC.

Notes to Consolidated Financial Statements

recognition of deferred tax assets on a jurisdictional basis. Accordingly, in assessing its future taxable income on a jurisdictional basis, the Company considers the effect of its transfer pricing policies on that income.

The Company recognizes tax benefits from uncertain tax positions only if it believes that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. As the Company expands, it will face increased complexity in determining the appropriate tax jurisdictions for revenue and expense items. The Company’s policy is to adjust these reserves when facts and circumstances change, such as the closing of a tax audit or refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the income tax expense in the period in which such determination is made and could have a material impact on its financial condition and operating results. The income tax expense includes the effects of any accruals that the Company believes are appropriate, as well as the related net interest and penalties.

Concentrations of Credit Risks and Significant Vendors and Customers

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash equivalents and marketable securities. In respect to accounts receivable, we are not exposed to any significant credit risk to any single counterparty or any company of counterparties having similar characteristics.

Foreign Currency

The functional currency of our foreign subsidiary operating in the United Kingdom is the local currency. Assets and liabilities are translated to the United States dollar using the period-end rates of exchange. Revenue and expenses are translated to the United States dollar using average rates of exchange for the period. Exchange differences arising from this translation of foreign currency are recorded as other comprehensive income.

Stock-Based Compensation

We account for stock-based employee compensation under the fair value recognition and measurement provisions, in accordance with applicable accounting standards, which requires compensation expense for the grant-date fair value of stock-based awards to be recognized over the requisite service period. We account for forfeitures when they occur.

Service-Based Awards

We have estimated the fair value for each service-based option award as of the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected volatility of our stock price. We recognize the stock-based compensation expense over the requisite service period using the straight-line method for service condition only awards, which is generally a vesting term of four years. Service-based stock options typically have a contractual term of 10 years. The time-based stock options granted have an exercise price equal to the closing stock price of our common stock on the grant date.

Compensation expense for restricted stock units ("RSUs") is based on the market price of the shares underlying the awards on the grant date. We recognize the stock-based compensation expense over the requisite service period, which is generally a vesting term of four years.

Performance-Based Awards

We have granted performance stock units ("PSUs") with a service-based condition and market-based conditions. PSUs with both service-based and market-based conditions will vest based on the Company's common stock performance following the end of the three-year performance measurement period based on the highest closing price over twenty consecutive trading days during the performance measurement period. PSUs with market-based conditions cannot vest before the end of the performance measurement period, thus the requisite service period is three years.

We have granted performance-based stock options ("PSOs") with market-based conditions. The number of PSOs that will vest depends on the attainment of certain stock price goals. Vested options will be exercisable at any time until ten years from the grant date, subject to earlier expiration under certain terminations of service and other conditions. The PSOs granted have an exercise price equal to the closing stock price of our common stock on the grant

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VIRGIN GALACTIC HOLDINGS, INC.

Notes to Consolidated Financial Statements

date. We recognize compensation expense on the PSOs over the period between the grant date and the estimated vest date.

We have estimated the fair value for each PSO and PSU award with market-based conditions as of the grant date using the Monte-Carlo simulation method. The Monte-Carlo simulation method considers, among other factors, the discount rates and future market conditions.

Reclassification

Certain reclassifications of the components of operating loss for the years ended December 31, 2021 and 2020 have been made to conform to the current period presentation included in the consolidated statements of operations and comprehensive loss. 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.

(3) Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which affects general principles within Topic 740, and are meant to simplify and reduce the cost of accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and simplifies areas including franchise taxes that are partially based on income, transactions with a government that result in a step-up in the tax basis of goodwill, the incremental approach for intraperiod tax allocation, interim period income tax accounting for year-to-date losses that exceed anticipated losses and enacted changes in tax laws in interim periods. The Company adopted ASU 2019-12 effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact to the Company's consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt-with Conversion and Other Options (Subtopic 470-20)andDerivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40), which simplifies and clarifies certain calculation and presentation matters related to convertible equity and debt instruments. Specifically, ASU-2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement to account for beneficial conversion features on such instruments. It also provides clearer guidance surrounding disclosure of such instruments and provides specific guidance for how such instruments are to be incorporated in the calculation of diluted earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASU 2020-06 effective January 1, 2022.

In May 2021, the FASB issued ASU 2021-04, Earning Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), andDerivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40), which clarified and reduced diversity in an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This update is effective for all entities for fiscal years beginning after December 15, 2021. The Company adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 did not have a material impact to the Company's consolidated financial statements.

(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. Royalties payable, excluding sponsorship royalties, for the use of the 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 $0.2 million, $0.5 million and $0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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VIRGIN GALACTIC HOLDINGS, INC.

Notes to Consolidated Financial Statements

The Company has a transition services agreement 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 $0.1 million, $0.1 million and $0.5 million of operating expenses, net, from VOH for the years ended December 31, 2022, 2021 and 2020, respectively.

(5)Cash, Cash Equivalents and Marketable Securities

The amortized cost, unrealized loss and estimated fair value of the Company's cash, cash equivalents and marketable securities are as follows:

Amortized Cost Gross Unrealized Losses Fair Value

(In thousands)

Cash, restricted cash and cash equivalents:

Marketable securities:

Amortized Cost Gross Unrealized Losses Fair Value

(In thousands)

Cash, restricted cash and cash equivalents:

Marketable securities:

The Company included $1.0 million of current restricted cash held in a money market account as of December 31, 2021. No current restricted cash was held in a money market account as of December 31, 2022.

The Company included $4.5 million and $2.3 million of interest receivable in prepaid expenses and other current assets as of December 31, 2022 and December 31, 2021, respectively.

The Company recognizes amortization and accretion of purchase premiums and discounts on its marketable securities within interest income, net. The Company recognized $6.0 million and $2.1 million in amortization expense for our marketable securities within interest income, net for the years ended December 31, 2022 and December 31, 2021, respectively.

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VIRGIN GALACTIC HOLDINGS, INC.

Notes to Consolidated Financial Statements

We record gross realized gains and losses as a component of other income, net in the consolidated statements of operations and comprehensive loss. For the year ended December 31, 2022, the Company recognized a $0.3 million loss in other income, net. Gross realized gains and losses were immaterial for the year ended in December 31, 2021.

The following table presents the contractual maturities of the Company's marketable securities as of December 31, 2022:

Amortized Cost Estimated Fair Value

(In thousands)

(6) Inventories

Inventories are comprised of the following:

December 31,

(In thousands)

For the years ended December 31, 2022, 2021 and 2020, the Company increased the reserve for inventory obsolescence by $3.0 million, $0.6 million and $1.1 million, respectively. For the years ended December 31, 2022 and 2021, the write down of obsolete inventory was $4.1 million and $0.4 million, respectively. The Company did not write down any obsolete inventory during the year ended December 31, 2020.

(7) Property, Plant and Equipment

Property, plant and equipment, net consists of the following:

SPCE US Equity

SPCE · 10-K · period ended 2022-12-31

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

SPCE US Equity☆

SPCE · 10-K · period ended 2022-12-31

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

SPCE US Equity