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, 2025 and 2024.
Overview
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 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, spaceflight operation and post-flight maintenance of our spaceflight system. Our spaceflight system was developed using our proprietary technology and processes and is focused on providing space travel experiences for private astronauts, researcher flights and professional astronaut training. We have also leveraged our knowledge and expertise in manufacturing spaceships to occasionally perform engineering services for third parties. To expand capacity, we are currently developing our next-generation spaceflight vehicles. These spaceflight vehicles, which include our next-generation spaceships and launch vehicles, are expected to dramatically increase our annual flight rate. Following the completion of the non-recurring engineering work on our next-generation spaceships, we have redeployed engineering resources to the next phase of design for our next-generation launch vehicle. In addition, we are exploring the opportunity to use a derivative model of our launch vehicle as a High-Altitude, Long-Endurance (“HALE”) aircraft, which we believe could be utilized for several types of government and research purposes.
Recent Developments
We are continuing the production of our next-generation spaceships and are progressing through our build milestones. We currently expect our flight test program to commence in the third quarter of 2026 in advance of restarting commercial service, which is expected to begin in the fourth quarter of 2026 with a research flight. We currently expect private astronaut spaceflights to commence six to eight weeks after our first commercial spaceflight.
In December 2025, we entered into separate, privately negotiated repurchase agreements (the “2027 Notes Repurchase Agreements”) with a limited number of holders of our 2.50% convertible senior notes due 2027 (the “2027 Notes”), pursuant to which we repurchased $354.6 million in aggregate principal amount of the 2027 Notes. See Note 8 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
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.”
Customer Demand
We have already received significant interest from potential astronauts. Going forward, we expect the size of our backlog and the number of astronauts that have flown to space on our spaceflight system to be an important indicator of our future performance. We have recently reopened ticket sales for a tranche of spaceflight reservations at a higher base price per seat. As of December 31, 2025, we have reservations for spaceflights for approximately 675 future astronauts, which represent approximately $188 million in expected future spaceflight revenue upon completion of the spaceflights.
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Available Capacity and Annual Flight Rate
In 2023, we commenced our commercial operations with VSS Unity and VMS Eve, which together comprised our initial commercial spaceflight system. Our annual flight rate was constrained by the availability and capacity of this commercial spaceflight system. To expand capacity, we developed and are assembling our next-generation spaceships. These spaceships are expected to dramatically increase our annual flight rate. With our first two next-generation spaceships, we expect to ramp to a targeted rate of 125 commercial space missions per year.
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 service 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 spaceflight revenue.
Results of Operations
The following tables set forth our results of operations for the periods presented. The period-to-period comparisons of financial results are not necessarily indicative of future results.
Year Ended December 31,
(In thousands)
Operating expenses:
Debt restructuring expense (2,798) —
Income tax expense 52 74
Comparison of Results of Operations for Year Ended December 31, 2025 to Year Ended December 31, 2024
Revenue
Year EndedDecember 31, $Change %Change
(In thousands, except %)
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Revenue for the year ended December 31, 2025 was primarily attributable to access fees related to our astronaut community. Revenue for the year ended December 31, 2024 was primarily attributable to revenue generated from our commercial spaceflights and access fees related to our astronaut community.
Spaceline Operations
Year EndedDecember 31, $Change %Change
(In thousands, except %)
Spaceline operations expense includes costs to maintain and operate our spaceflight system; non-capitalizable costs to build our new vehicles and manufacture items required to support the making of our vehicles, such as rocket motors and spare parts; the consumption of rocket motors, fuel and other consumables; costs to maintain and support our astronaut community; and costs to provide payload cargo and engineering services.
Spaceline operations expense decreased from $90.0 million for the year ended December 31, 2024 to $72.8 million for the year ended December 31, 2025. The decrease was primarily driven by an $18.9 million decrease in cash compensation and other employee benefit costs and a $1.6 million decrease in facility costs. These decreases were partially offset by a $2.7 million increase in materials and sub-contractor and contract labor costs.
Research and Development
Year EndedDecember 31, $Change %Change
(In thousands, except %)
Research and development expenses represent costs incurred to support activities that advance our future fleet towards commercialization, including basic research, applied research, concept formulation studies, design, development, and related testing activities. Research and development costs consist primarily of equipment, material, and labor costs (including from third-party contractors) for designing the spaceflight system’s structure, spaceflight propulsion system, and flight profiles for our next-generation spaceships and launch vehicles, as well as allocated facilities and other supporting overhead costs.
Research and development expenses decreased from $152.7 million for the year ended December 31, 2024 to $80.5 million for the year ended December 31, 2025. The decrease was primarily driven by a $63.1 million decrease in sub-contractor and contract labor costs associated with the development of our next-generation spaceflight vehicles and an $8.1 million decrease in cash compensation and other employee benefit costs.
Selling, General and Administrative
Year EndedDecember 31, $Change %Change
(In thousands, except %)
Selling, general and administrative expenses consist primarily of compensation and other employee benefit costs for employees involved in general corporate functions, including executive management and administration, accounting, finance, legal, information technology, sales and marketing, and human resources. Non-compensation components of selling, general and administrative expenses include accounting, legal and other professional fees, facilities expenses, and other corporate expenses.
Selling, general and administrative expenses decreased from $125.5 million for the year ended December 31, 2024 to $117.2 million for the year ended December 31, 2025. The decrease was primarily driven by a $6.7 million decrease in professional
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fees and outside services and a $3.4 million decrease in cash compensation and other employee benefit costs, partially offset by a $2.3 million expense associated with the proposed settlement of a class action lawsuit.
Depreciation and Amortization
Depreciation and amortization expense increased from $15.5 million for the year ended December 31, 2024 to $16.5 million for the year ended December 31, 2025. The increase was primarily due to the acquisition of property, plant and equipment.
Interest Income
Interest income decreased from $42.4 million for the year ended December 31, 2024 to $21.8 million for the year ended December 31, 2025. The decrease was primarily driven by decreased average balances of marketable securities and deposits in interest-bearing accounts.
Interest Expense
Interest expense decreased slightly from $12.9 million for the year ended December 31, 2024 to $12.8 million for the year ended December 31, 2025. Interest expense primarily consists of interest expense and amortization of debt issuance costs related to our convertible notes, as well as our new first lien notes that were issued in December 2025.
Debt Restructuring Expense
Debt restructuring expense of $2.8 million for the year ended December 31, 2025 relates to costs incurred in connection with the 2027 Notes Repurchase Agreements. See Note 8 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
Income Tax Expense
Income tax expense was immaterial for the years ended December 31, 2025 and 2024. We have accumulated net operating losses at the U.S. federal and state levels. We maintain a full valuation allowance against our net U.S. federal and state deferred tax assets. The income tax expense 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, 2025, we had total cash, cash equivalents and restricted cash of $175.7 million and total marketable securities of $162.3 million. Our principal sources of liquidity have come from sales of our common stock and offering of the 2027 Notes.
Historical Cash Flows
Year Ended December 31,
(In thousands)
Net cash provided by (used in):
Net decrease in cash, cash equivalents and restricted cash $ (35,170) $ (42,707)
Operating Activities
Net cash used in operating activities was $240.1 million for the year ended December 31, 2025, and consisted primarily of $278.9 million of net losses, adjusted for non-cash items, which primarily included stock-based compensation expense of $18.7 million and depreciation and amortization expense of $16.5 million, as well as $7.4 million of net changes in operating assets and liabilities, partially offset by $6.1 million of accretion of marketable securities purchased at a discount.
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Net cash used in operating activities was $352.7 million for the year ended December 31, 2024, and consisted primarily of $346.7 million of net losses, adjusted for non-cash items, which primarily included stock-based compensation expense of $29.8 million, depreciation and amortization expense of $15.5 million, partially offset by $16.6 million of accretion of marketable securities purchased at a discount and $38.2 million of net changes in operating assets and liabilities, which were driven primarily by the reversal of $18.6 million of accrued costs in connection with the settlement of certain disputed vendor invoices.
Investing Activities
Net cash provided by investing activities was $90.8 million for the year ended December 31, 2025, and consisted primarily of $601.9 million in proceeds from maturities and calls of marketable securities, partially offset by $313.0 million in purchases of marketable securities and $198.0 million in capital expenditures. The capital expenditures were primarily driven by costs associated with our next-generation spaceships.
Net cash provided by investing activities was $175.7 million for the year ended December 31, 2024, and consisted primarily of $840.3 million in proceeds from maturities and calls of marketable securities, partially offset by $543.4 million in purchases of marketable securities and $121.9 million in capital expenditures. The capital expenditures were primarily driven by costs associated with our next-generation spaceships and our new spaceship assembly facility in Arizona.
Financing Activities
Net cash provided by financing activities was $114.1 million for the year ended December 31, 2025, and consisted primarily of proceeds from issuance of long-term debt of $212.5 million, net cash proceeds from the sale and issuance of common stock pursuant to our at-the-market offering programs of $118.1 million, proceeds from the issuance of purchase warrants of $62.5 million, and proceeds from the issuance of common stock and pre-funded warrants of $45.6 million related to our registered direct offering, partially offset by the repurchase of our convertible debt of $320.6 million, transaction costs related to issuance of common stock and equity-classified warrants of $2.2 million and debt issuance costs of $1.8 million.
Net cash provided by financing activities was $134.3 million for the year ended December 31, 2024, and consisted primarily of net cash proceeds from the sale and issuance of common stock pursuant to our at-the-market offering programs of $135.7 million, partially offset by tax withholdings paid for net settled stock-based awards of $1.2 million.
Contractual Obligations
For information regarding our cash requirements for contractual obligations, indebtedness and lease obligations, see Notes 6, 9 and 16 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Issuances of Common Stock
In June 2023, 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 $400 million of shares of our common stock from time to time through the Agents, acting as sales agents, or directly to one or more of the Agents, acting as principal(s), through an “at-the-market offering” program (the “2023 ATM Program”).
In November 2024, we terminated the 2023 ATM Program, having sold a total of 12.8 million shares of common stock and generating $396.2 million in gross proceeds, before deducting $3.9 million in underwriting discounts, commissions and other expenses.
In November 2024, we entered into an open market sale agreementwith Jefferies LLC (“Jefferies”) providing for the offer and sale of up to $300 million of shares of our common stock from time to time through Jefferies, acting as sales agent, or directly to Jefferies, acting as principal, through an “at-the-market offering” program (the “2024 ATM Program”).
During the year ended December 31, 2025, we sold 33.5 million shares of common stock under the 2024 ATM Program and generated $121.6 million in gross proceeds, before deducting $3.5 million in underwriting discounts, commissions and other expenses.
As of December 31, 2025, we had sold a total of 37.6 million shares of common stock under the 2024 ATM Program, generating $150.7 million in gross proceeds since its inception, before deducting $4.4 million in underwriting discounts, commissions and other expenses.
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Debt Obligations
As of December 31, 2024, we had $425 million outstanding under the 2027 Notes that had a maturity date of February 1, 2027. During 2025, we evaluated alternative financing arrangements to refinance the 2027 Notes. Our primary objective was to extend the maturity of our contractual debt obligations to better align with the planned growth in our spaceline commercial operations, which is expected to commence commercial service in the fourth quarter of 2026.
As a result of the Capital Transactions (as defined below), we extended the maturity for a majority of our contractual debt obligations to December 31, 2028. In addition, the outstanding balance for our contractual debt obligations was reduced by $142.1 million.
A summary of the maturities and mandatory payments of the contractual debt outstanding is as follows:
Year Ending December 31,
(In thousands)
2025 Capital Realignment Transactions
In December 2025, we completed privately negotiated repurchase agreements (the “2027 Notes Repurchase Agreements”) with a limited number of holders of our 2027 Notes, pursuant to which we repurchased $354.6 million in aggregate principal amount of our 2027 Notes (the “Repurchases”) with cash proceeds received from the Registered Offering (as defined below) and the Private Placement (as defined below).
Concurrently with the Repurchases, we completed the issuance and sale for cash in a registered direct offering, pursuant to separate, privately negotiated subscription agreements with certain investors, of (i) 2.2 million shares of our common stock, and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase 8.4 million shares of our common stock (collectively, the “Registered Offering”). In connection with the Registered Offering, we received cash proceeds of $45.6 million.
The Pre-Funded Warrants are exercisable at any time on or after December 29, 2025 at an exercise price of $0.0001 per share. The Pre-Funded Warrants contain a cashless exercise feature that allows the holders to exercise the Pre-Funded Warrants without a cash payment to us upon the terms set forth therein. The number of shares of common stock for which the Pre-Funded Warrants are exercisable are subject to certain additional customary adjustments as set forth in the Pre-Funded Warrants. As of December 31, 2025, 4.3 million shares of common stock had been issued in connection with the exercise of the Pre-Funded Warrants. All Pre-Funded Warrants had been exercised by January 29, 2026.
Concurrently with the Registered Offering, we issued and sold for cash, in a private placement, (i) $212.5 million aggregate principal amount of a new series of our 9.80% First Lien Notes due 2028 (the “2028 Notes”) and (ii) warrants, with a fair value of $62.5 million, to purchase 31.7 million shares of our common stock (the “Purchase Warrants”), with an exercise price equal to $6.696 per share (collectively, the “Private Placement”, and together with the Repurchases and Registered Offering, the “Capital Transactions”). The Purchase Warrants are exercisable at any time on or after June 18, 2026 until December 18, 2030. The Purchase Warrants are exercisable only for cash and are subject to appropriate adjustment in the event of cash or share dividends, share splits, share repurchases, reorganizations or similar events affecting our common stock.
Liquidity Outlook
For at least the next twelve months, we expect our principal demand for funds will be for our ongoing operating activities described below and the repayment of $30.4 million of contractual principal payments related to the 2028 Notes. Beyond the next twelve months, our principal demand for funds will be to sustain our operations, operate our spaceline at Spaceport America in New Mexico, expand our fleet of spaceships, launch vehicles and supporting facilities, and repay outstanding debt.
We are currently in the pre-commercial service phase and accordingly have no spaceflight revenue. We expect to generate revenue from our spaceflight program once commercial service begins. We currently expect the flight test program of our next-
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generation spaceships to commence in the third quarter of 2026, followed by our first commercial spaceflight which is expected to occur in the fourth quarter of 2026. Before recognizing revenue for commercial spaceflights, we expect to receive cash payments in connection with spaceflights after we deliver the conditions of carriage to customers and receive customer executed informed consents.
We have recently used significant cash for operating activities and capital expenditures primarily related to the development of our next-generation spaceships and expect to continue to incur significant operating expenses and capital expenditures to complete the production of these spaceships and place them into commercial operation. We expect our future expenditures to continue to decrease in connection with our ongoing activities in the near term, particularly since we have completed investments in tooling to produce our spaceships and expect to complete the assembly of our initial next-generation spaceship ahead of its flight test program, which is expected to commence in the third quarter of 2026. As we move into commercial operations with our first commercial spaceflight expected in the fourth quarter of 2026, we expect increases in cash receipts and expenditures as we ramp and operate our spaceline commercial business.
Our plans to fund our operations for the next twelve months include implementing some or all of the following initiatives:
•Commencing commercial service in the fourth quarter of 2026, as currently planned.
•Generating significant cash from the current backlog of future astronauts as their final payments become due in advance of their spaceflight.
•Offering the sale of a limited number of early spaceflights at a premium to historical prices.
•Increasing cash on hand through additional debt or equity financing, including use of our existing “at-the-market” equity offering program.
•Partnering with third parties to fund and accelerate the pace of future space vehicle development.
•Settling debt through the issuance of equity and/or extending maturities of certain debt payments that are due within the period.
The plans discussed above are subject to market conditions and, while we intend to apply our best efforts to the execution of these plans, they are not fully within our control. As a result, it is uncertain whether we will have sufficient cash and marketable securities to maintain our planned operations for the next twelve months following the issuance date of the consolidated financial statements and we have concluded that there are conditions present in the aggregate that raise substantial doubt about our ability to continue as a going concern.
There are significant risks and uncertainties associated with our planned operations and there is no assurance that our future plans will be successful or, if successful, will be sufficient to fully fund our planned operations. For more information regarding our risks and uncertainties, see the section of this Annual Report on Form 10-K titled “Risk Factors.”
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 U.S. generally accepted accounting principles. 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 referred to 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 3 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.
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If 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. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly resulting from the use of those assets in
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operations. 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.
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 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. In addition, eligible employees are granted an option to purchase common stock under an employee stock purchase plan (“ESPP”). Our outstanding RSUs and stock options contain a service-based vesting condition. 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 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 and stock purchases under the ESPP 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 rate and future market conditions.
Warrants
Warrants are accounted for as either equity-classified or liability-classified instruments based on an assessment of their specific terms. The assessment considers whether the warrants are freestanding financial instruments and whether the warrants meet all of the requirements for equity classification, including whether the warrants are indexed to the Company's own common stock. Warrants that meet all of the criteria for equity classification are recorded in stockholders' equity at fair value as of the date of issuance and are not remeasured to fair value in subsequent reporting periods.
Warrants that do not meet the criteria for equity classification are recorded as liabilities at fair value, with changes in fair value recognized in earnings each reporting period.
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We have estimated the fair value of warrants as of the date of the issuance using the Black-Scholes option pricing model. The Black-Scholes option pricing model considers, among other factors, the exercise price, expected life of the warrants and the expected volatility of our stock price.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable for smaller reporting companies.
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, 2025, 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, 2025.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
During the three months ended December 31, 2025, none of our officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non Rule 10b5-1 trading arrangement.”
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, under the captions “Proposal No. 1: Election of Directors,” “Corporate Governance,” “Executive Officers,” and “Delinquent Section 16(a) Reports,” to be filed with the SEC within 120 days after the end of the year ended December 31, 2025.
We have adopted an Insider Trading Compliance Policy applicable to our directors, officers, employees, and other covered persons, and have implemented processes for the Company that we believe are reasonably designed to promote compliance with insider trading laws, rules and regulations, and the New York Stock Exchange listing standards. Our Insider Trading Compliance Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K.
Item 11. Executive Compensation
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, under the captions “Corporate Governance,” “Director Compensation,” “Executive Officers,” and “Executive Compensation” and “Board of Directors and Corporate Governance,” to be filed with the SEC within 120 days after the end of the year ended December 31, 2025.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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, under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” to be filed with the SEC within 120 days after the end of the year ended December 31, 2025.
Item 13. Certain Relationships and Related Transactions, and Director Independence
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, under the captions “Certain Transactions with Related Persons” and “Corporate Governance” to be filed with the SEC within 120 days after the end of the year ended December 31, 2025.
Item 14. Principal Accountant Fees and Services
Our independent registered public accounting firm is Ernst & Young LLP, Wichita, Kansas, Auditor Firm ID: 42.
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, 2025.
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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
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Incorporated by Reference
21.1 List of Subsidiaries *
23.1 Consent of Ernst & Young 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: March 30, 2026 By: /s/ Michael Colglazier
Name: Michael Colglazier
Title: Chief Executive Officer and President(Principal Executive Officer)
Date: March 30, 2026 By: /s/ Douglas Ahrens
Name: Douglas Ahrens
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 Exchange 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/ Raymond Mabus, Jr. Director March 30, 2026
Raymond Mabus, Jr.
/s/ Henio Arcangeli, Jr. Director March 30, 2026
Henio Arcangeli, Jr.
/s/ Luigi Brambilla Director March 30, 2026
Luigi Brambilla
66
Table of Contents
/s/ Tina Jonas Director March 30, 2026
Tina Jonas
/s/ Craig Kreeger Director March 30, 2026
Craig Kreeger
/s/ Wanda Sigur Director March 30, 2026
Wanda Sigur
/s/ Diana Strandberg Director March 30, 2026
Diana Strandberg
/s/ W. Gilbert West Director March 30, 2026
W. Gilbert West
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Report 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) Liquidity and Financial Condition F-8
(3) Summary of Significant Accounting Policies F-9
(4) Cash, Cash Equivalents and Marketable Securities F-14
(5) Property, Plant and Equipment F-15
(7) Other Current Liabilities F-17
(8) 2025 Capital Realignment Transactions F-17
(9) Long-Term Debt F-18
(10) Stockholders’ Equity F-20
(11) Stock-Based Compensation F-21
(12) Employee Benefit Plan F-25
(13) Income Taxes F-25
(14) Earnings Per Share F-28
(15) Fair Value Measurements F-29
(16) Commitments and Contingencies F-30
(17) Related Party Transactions F-33
(18) Supplemental Cash Flow Information F-33
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Virgin Galactic Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Virgin Galactic Holdings, Inc. (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2025, and the related notes(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has used significant cash for operating activities and developing its next-generation spaceships and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
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Indicators of Impairment for Long Lived Assets
Capital Transactions
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2023.
Wichita, Kansas
March 30, 2026
F-3
Table of Contents
VIRGIN GALACTIC HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 31,
Assets
Current assets:
Marketable securities, long-term — 61,280
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt 47,830 —
Non-current liabilities:
Commitments and contingencies (Note 16)
Stockholders’ Equity
Accumulated other comprehensive income 132 278
Total liabilities and stockholders’ equity $ 803,179 $ 961,225
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:
Debt restructuring expense (2,798) —
Income tax expense 52 74
Other comprehensive income (loss):
Foreign currency translation adjustment 6 —
Unrealized loss on marketable securities (152) (93)
Net loss per share:
Basic and diluted $ (5.44) $ (13.89)
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 — — — — (93) (93)
Stock-based compensation for equity-classified awards — — 29,109 — — 29,109
Transaction costs — — (2,059) — — (2,059)
Fractional share adjustment due to reverse stock split (137) — (2) — — (2)
Other comprehensive loss — — — — (146) (146)
Stock-based compensation for equity-classified awards — — 18,431 — — 18,431
Issuance of Pre-Funded Warrants — — 26,872 — — 26,872
Exercises of Pre-Funded Warrants 4,265,138 1 — — — 1
Issuance of Purchase Warrants — — 62,517 — — 62,517
Transaction costs — — (6,020) — — (6,020)
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 2,292 2,234
Accretion of marketable securities purchased at a discount (6,071) (16,635)
Other non-cash items (4) 1,457
Change in operating assets and liabilities:
Other current and non-current assets (3,609) 10,566
Other current and non-current liabilities 5,712 (6,253)
Cash flows from investing activities:
Proceeds from maturities and calls of marketable securities 601,923 840,335
Other investing activities 8 610
Net cash provided by investing activities 90,843 175,656
Cash flows from financing activities:
Proceeds from issuance of long-term debt 212,496 —
Repurchase of convertible debt (320,601) —
Debt issuance costs (1,827) —
Payments of finance lease obligations (211) (193)
Proceeds from issuance of Purchase Warrants 62,517 —
Proceeds from issuance of common stock pursuant to ESPP 473 —
Other financing activities — (2)
Net decrease in cash, cash equivalents and restricted cash (35,170) (42,707)
Cash, cash equivalents and restricted cash at beginning of year 210,885 253,592
Cash, cash equivalents and restricted cash at end of year $ 175,715 $ 210,885
Cash, cash equivalents and restricted cash $ 175,715 $ 210,885
See accompanying notes to consolidated financial statements.
F-7
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
(1) Organization
Virgin Galactic Holdings, Inc., together with its consolidated subsidiaries (“Virgin Galactic” or the “Company”), is an aerospace and space travel company focused on the development, manufacture and operation of spaceships and related technologies. The Company provides access to space for private individuals, researchers and government agencies. The Company’s missions include flying passengers to space, as well as flying scientific payloads and researchers to space in order to conduct experiments for scientific and educational purposes.
(2)Liquidity and Financial Condition
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern and will be able to realize its assets and satisfy its liabilities in the normal course of business.
The Company is currently in the pre-commercial service phase and accordingly has no spaceflight revenue. The Company has recently used significant cash for operating activities and capital expenditures primarily related to the development of its next-generation spaceships and expects to continue to incur significant operating expenses and capital expenditures to complete the production of these spaceships and place them into commercial operation.
In preparation of the consolidated financial statements, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the date the consolidated financial statements are issued, in accordance with the requirements of the Financial Accounting Standard Board's Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern (“ASC 205-40”).
Factors, among others, that are included in management’s evaluation are:
•cash, cash equivalents, and marketable securities on hand as of the date the consolidated financial statements are issued;
•all company costs that are forecasted to be incurred over the upcoming twelve months from the date the consolidated financial statements are issued, including costs expected to be incurred in completing fabrication and testing of the next-generation spaceships and costs expected to be incurred in the ramp-up to, and commercial operation of, spaceflights; and
•all contractual debt payments due within the next twelve months are assumed to be settled in cash.
Items that are planned or expected by management, but the execution of which may not be fully under management’s control, are not included in management’s evaluation in accordance with ASC 205-40. Factors, among others, excluded from management’s evaluation include:
•Revenues: any revenues or cash receipts, from spaceflights or otherwise, planned during the upcoming twelve months.
•Capital Market Transactions: any proceeds from capital market transactions, whether from debt issuance, equity issuance, or otherwise.
•Debt Repayment Terms: any change of contractual debt repayment schedules or settlement methods.
Management’s evaluation, which excluded the items that are not within its control (i.e., Revenues, Capital Market Transactions, and Debt Repayment Terms), resulted in the determination that the Company may not have sufficient cash and marketable securities to maintain its planned operations for the next twelve months following the issuance date of the consolidated financial statements and has concluded that there are conditions present in the aggregate that raise substantial doubt about the Company’s ability to continue as a going concern pursuant to ASC 205-40.
Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt include implementing some or all of the following initiatives:
•Commencing commercial service in the fourth quarter of 2026, as currently planned.
F-8
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
•Generating significant cash from the current backlog of future astronauts as their final payments become due in advance of their spaceflight.
•Offering the sale of a limited number of early spaceflights at a premium to historical prices.
•Increasing cash on hand through additional debt or equity financing, including use of the Company’s existing “at-the-market” equity offering program.
•Partnering with third parties to fund and accelerate the pace of future space vehicle development.
•Settling debt through the issuance of equity and/or extending maturities of certain debt payments that are due within the period.
The plans discussed above are subject to market conditions and, while management intends to apply its best efforts to the execution of these plans, they are not fully within the Company’s control and therefore cannot be deemed to be probable in accordance with ASC 205-40, and as a result, management has concluded that its plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern for twelve months after the date that the consolidated financial statements are issued.
The accompanying consolidated financial statements do not include any adjustments related to the carrying amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
(3) 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.
Reverse Stock Split
On June 14, 2024, the Company effected a 1-for-20 reverse stock split of the Company’s common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, every 20 shares of the Company’s common stock issued or outstanding were automatically reclassified into one new share of common stock. Proportionate adjustments were also made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, as well as to the number of shares issuable under the Company’s equity incentive plans and certain existing agreements. The Reverse Stock Split did not decrease the number of authorized shares of common stock or otherwise affect the par value of the common stock. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who were otherwise entitled to receive fractional shares as a result of the Reverse Stock Split were paid cash in lieu thereof. All shares of the Company’s common stock, per-share data and related information included in the accompanying consolidated financial statements have been retroactively adjusted as though the Reverse Stock Split had been effected prior to all periods presented.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates are based on historical experience and on various other assumptions that management believes 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 and judgments affecting the consolidated financial statements are those related to long-lived assets, income taxes, stock-based compensation and warrants.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less on their acquisition date to be cash equivalents.
F-9
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
Restricted Cash
Restricted cash consists of cash deposits received from 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 consist primarily of debt securities that are accounted for as “available-for-sale.” Management determines the appropriate classification of 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 in the consolidated balance sheets, with the exception of unrealized losses believed to be other-than-temporary, which are reported in the consolidated statements of operations and comprehensive loss in the period in which such determination is made.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, restricted cash and marketable securities. Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits.
The Company invests primarily in debt securities, the majority of which are high investment grade. In accordance with the Company’s investment policy, exposure to credit risk is limited by the diversification and investment in highly rated securities.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life.
The estimated useful lives are as follows:
Asset Useful Life
Buildings 39 years
Flight vehicles and rotables 2 to 20 years
Machinery and equipment 2 to 7 years
Information technology software and equipment 3 to 6 years
Leasehold improvements Shorter of the estimated useful life or lease term
Repair and maintenance costs are expensed as incurred.
Leases
The Company determines whether an arrangement contains a lease at inception. 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 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, which was determined based on market yields. 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. Variable lease payments primarily consist of lease payments resulting from
F-10
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
changes in the consumer price index. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the change occurs. Variable payments for common area maintenance costs and taxes are not included in determining lease payments and are expensed as incurred. The Company does not recognize ROU assets and lease liabilities for leases with terms at inception of twelve months or less.
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 circumstances require a long-lived asset to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset group to its carrying amount. The Company assesses 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. During the years ended December 31, 2025 and 2024, no material asset impairments were recorded.
Debt Issuance Costs and Premiums
Debt issuance costs and premiums are presented in the consolidated balance sheets as a direct deduction from or addition to the carrying amount of the related debt and are amortized or accreted, using the effective interest method, as interest expense over the contractual lives of the related debt.
The Company accounts for exchanges of debt in accordance with ASC 470-60, Troubled Debt Restructurings by Debtors (“ASC 470-60”), which has resulted in certain debt being carried at a premium relative to its principal amount as well as a portion of contractual interest cost being recorded as a reduction of that premium rather than as interest expense.
Convertible Senior Notes
Convertible debt instruments are separated into multiple components if they are issued at a substantial premium or if embedded derivatives requiring bifurcation are identified. The Company’s 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, the Company evaluates whether conditions are present that would require bifurcation. The embedded conversion features are not remeasured as long as they do not meet the separation requirement of a derivative. The impact of convertible instruments on diluted earnings per share is calculated using the if-converted method.
Capped Call Transactions
In connection with the pricing of the 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 accompanying 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, the Company evaluates 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 9for additional information on the 2027 Capped Calls.
F-11
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms. The assessment considers whether the warrants are freestanding financial instruments and whether the warrants meet all of the requirements for equity classification, including whether the warrants are indexed to the Company’s own common stock. Warrants that meet all of the criteria for equity classification are recorded in stockholders’ equity at fair value as of the date of issuance and are not remeasured to fair value in subsequent reporting periods.
Warrants that do not meet the criteria for equity classification are recorded as liabilities at fair value, with changes in fair value recognized in earnings each reporting period.
The Company’s issued warrants meet the criteria for equity classification.
Fair Value Measurements
Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair value. Accordingly, assets and liabilities carried at fair value are classified within the fair value hierarchy in one of the following categories:
• Level 1 inputs — Quoted prices in active markets for identical assets or liabilities.
• Level 2 inputs — Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
• Level 3 inputs — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.
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. The CODM assesses performance for the segment and decides how to allocate resources based on net loss that is reported on the consolidated statements of operations and comprehensive loss. The CODM uses net loss to assess financial performance and allocate resources to align with company-wide goals. Further, the measure of segment assets is reported on the consolidated balance sheets as total assets.
Revenue Recognition
The Company recognizes revenue when control of the promised service is transferred to its customers in an amount that reflects the consideration the Company expects to receive based on the contracted amount for those services. 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. The Company allocates the contract price to each performance obligation based on the estimated standalone selling price using observable pricing from our contracts with single performance obligations.
Human spaceflight services are those services provided to the majority of the Company’s customers. Spaceflight service revenue is recognized at a point in time upon successful completion of a spaceflight. The Company recognizes revenue for astronaut community access fees, engineering services and sponsorships over the term of the respective arrangement.
F-12
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
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.
Spaceline Operations
Spaceline operations expense includes costs to maintain and operate the Company’s spaceflight systems; non-capitalizable costs to build new vehicles and manufacture items required to support the making of the Company’s vehicles, such as rocket motors and spare parts; the consumption of rocket motors, fuel and other consumables; costs to maintain and support the Company’s astronaut community; and costs to provide payload cargo and engineering services.
Research and Development
Research and development expenses represent costs incurred to support activities that advance the Company’s future fleet towards commercialization, including basic research, applied research, concept formulation studies, design, development, and related testing activities. Research and development costs consist primarily of equipment, material, and labor costs (including from third-party contractors) for designing the spaceflight system’s structure, spaceflight propulsion system, and flight profiles for next-generation spaceships and launch vehicles, as well as allocated facilities and other supporting overhead costs.
Income Taxes
Income tax expense is computed using the asset and liability method. Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. Future income tax benefits are recognized only to the extent that the realization of such benefits is considered to be more likely than not. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance, when it is more likely than not that such deferred tax assets will not be recoverable, based on historical taxable income, projected future taxable income, and the expected timing of the reversals of the existing temporary differences.
Stock-Based Compensation
The Company accounts for stock-based compensation under the fair value recognition and measurement provisions, in accordance with applicable accounting standards, which require compensation expense for the grant-date fair value of stock-based awards to be recognized over the requisite service period. Forfeitures are accounted for when they occur.
Service-Based Awards
The Company estimates 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 the Company’s stock price. The Company recognizes the stock-based compensation expense over the requisite service period using the straight-line method for service condition only stock option awards.
Compensation expense for restricted stock units (“RSUs”) that will be equity-settled is based on the market price of the shares underlying the awards on the grant date. The Company recognizes the stock-based compensation expense for these RSUs over the requisite service period.
F-13
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
RSUs that are expected to be settled in cash are accounted for as liability-classified awards. Changes in the fair value of these awards are recorded on a quarterly basis through their final vesting. Compensation expense is recognized over the requisite service period of the award, with recognition of a corresponding liability recorded in other current liabilities in the accompanying consolidated balance sheets. Changes in fair value are recognized in stock-based compensation expense.
Performance-Based Awards
The Company has granted performance stock units (“PSUs”) with a service-based condition and market-based condition. PSUs with both service-based and market-based conditions vest based on the performance over the requisite service period.
The Company has granted performance-based stock options (“PSOs”) with market-based conditions. The number of PSOs that vest depends on the attainment of certain performance measures. The Company recognizes compensation expense on the PSOs over the period between the grant date and the estimated vest date.
The fair value for each PSU and PSO award with market-based conditions as of the grant date is estimated using the Monte-Carlo simulation method. The Monte-Carlo simulation method considers, among other factors, the discount rate and future market conditions.
Employee Stock Purchase Plan (“ESPP”)
The Company has adopted an ESPP and the plan is considered compensatory. Eligible employees of the Company who elect to participate are granted an option to purchase common stock under the ESPP at 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. The Company estimates the fair value using the Black-Scholes model as of the commencement date of the offering period and recognizes stock-based compensation on a straight-line basis over the offering period.
(4)Cash, Cash Equivalents and Marketable Securities
The amortized cost, unrealized gain and estimated fair value of the Company’s cash, cash equivalents and marketable securities are as follows:
Amortized Cost Gross Unrealized Gain Fair Value
(In thousands)
Cash and cash equivalents:
Cash and restricted cash $ 7,687 $ — $ 7,687
Marketable securities:
F-14
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
Amortized Cost Gross Unrealized Gain Fair Value
(In thousands)
Cash and cash equivalents:
Cash and restricted cash $ 8,232 $ — $ 8,232
Marketable securities:
Interest receivable of $2.0 million and $4.2 million is included in other current assets in the accompanying consolidated balance sheets as of December 31, 2025 and 2024, respectively.
The Company recognizes amortization and accretion of purchase premiums and discounts on its marketable securities in interest income in the accompanying consolidated statements of operations and comprehensive loss. The Company recognized $6.1 million and $16.6 million in accretion income, net for its marketable securities for the years ended December 31, 2025 and 2024, respectively.
(5) Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
(In thousands)
Information technology software and equipment 52,130 45,553
Less: accumulated depreciation and amortization 104,636 90,374
(6) Leases
The Company leases offices and other facilities and certain manufacturing and office equipment under long-term, non-cancelable operating and finance leases.
F-15
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
The components of expense related to leases are as follows:
Year Ended December 31,
(In thousands)
Short-term lease cost — 22
Finance lease cost:
Amortization of assets under finance leases 221 223
Interest on finance lease liabilities 60 68
Total finance lease cost 281 291
The components of supplemental cash flow information related to leases are as follows:
Year Ended December 31,
(In thousands, except term and rate data)
Cash Flow Information:
Operating cash flows for operating leases $ 13,719 $ 13,215
Operating cash flows for finance leases $ 60 $ 68
Financing cash flows for finance leases $ 211 $ 193
Non-cash Activity:
Assets acquired in exchange for lease obligations:
Other Information:
Weighted-average remaining lease term:
Operating leases (in years) 6.9 8.7
Finance leases (in years) 2.1 2.6
Weighted-average discount rates:
F-16
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
The supplemental balance sheet information related to leases is as follows:
December 31,
(In thousands)
Operating Leases:
Short-term operating lease liabilities $ 8,475 $ 5,604
Long-term operating lease liabilities 42,279 67,394
Total operating lease liabilities $ 50,754 $ 72,998
ROU assets are included in other non-current assets, and lease liabilities are included in other current liabilities and other long-term liabilities in the accompanying consolidated balance sheets.
(7) Other Current Liabilities
The components of other current liabilities are as follows:
December 31,
(In thousands)
Accrued manufacturing sub-contractor and contract labor costs 9,601 18,827
(8) 2025 Capital Realignment Transactions
In December 2025, the Company completed privately negotiated repurchase agreements (the “2027 Notes Repurchase Agreements”) with a limited number of holders of its 2.50% 2027 Notes, pursuant to which the Company repurchased $354.6 million in aggregate principal amount of its 2027 Notes (the “Repurchases”) with cash proceeds received from the Registered Offering (as defined below) and the Private Placement (as defined below).
Concurrently with the Repurchases, the Company completed the issuance and sale for cash in a registered direct offering, pursuant to separate, privately negotiated subscription agreements with certain investors, of (i) 2.2 million shares of its common stock, and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase 8.4 million shares of its common stock (collectively, the “Registered Offering”). In connection with the Registered Offering, the Company received cash proceeds of $45.6 million.
The Pre-Funded Warrants are exercisable at any time on or after December 29, 2025 at an exercise price of $0.0001 per share. The Pre-Funded Warrants contain a cashless exercise feature that allows the holders to exercise the Pre-Funded Warrants without a cash payment to the Company upon the terms set forth therein. The number of shares of common stock for which the Pre-Funded Warrants are exercisable are subject to certain additional customary adjustments as set forth in the Pre-Funded Warrants. As of December 31, 2025, 4.3 million shares of common stock had been issued in connection with the exercise of the Pre-Funded Warrants. All Pre-Funded Warrants had been exercised by January 29, 2026.
Concurrently with the Registered Offering, the Company issued and sold for cash, in a private placement, (i) $212.5 million aggregate principal amount of a new series of its 9.80% First Lien Notes due 2028 (the “2028 Notes”) and (ii) warrants, with a fair value of $62.5 million, to purchase 31.7 million shares of its common stock (the “Purchase Warrants”), with an exercise price equal to $6.696 per share (collectively, the “Private Placement”, and together with the Repurchases and Registered Offering, the “Capital Transactions”). The Purchase Warrants are exercisable at any time on or after June 18, 2026 until December 18, 2030. The Purchase Warrants are exercisable only
F-17
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
for cash and are subject to appropriate adjustment in the event of cash or share dividends, share splits, share repurchases, reorganizations or similar events affecting the Company’s common stock.
The Company performed an assessment of the Capital Transactions and determined that it should be accounted for as a troubled debt restructuring under ASC 470-60. Accordingly, the Company did not recognize any gain on the Capital Transactions as the undiscounted future cash flows associated with the 2028 Notes exceeded the carrying amount of the repurchased 2027 Notes after adjusting the carrying value of the repurchased 2027 Notes by the fair value of common stock and warrants, aggregating $96.4 million, issued in connection with the Registered Offering and Private Placement. As a result, the difference between the principal amount of the 2028 Notes and the adjusted carrying value of the repurchased 2027 Notes was recorded as a premium and is included in long-term debt on the Company’s consolidated balance sheet as of December 31, 2025. The premium recorded on the 2028 Notes was $45.7 million and will be reduced as contractual interest payments are made.
As a result of the Repurchases, the outstanding principal amount of the 2027 Notes was reduced from $425.0 million to $70.4 million.
The Purchase Warrants were valued using the Black-Scholes option pricing model using the following assumptions:
Stock price $ 3.21
Expected life 5 years
Expected volatility 93.0 %
Risk free interest rate 3.6 %
Dividend yield — %
(9) Long-Term Debt
A summary of the components of long-term debt is as follows:
December 31,
( In thousands)
Unamortized debt premium 45,691 —
Unamortized debt issuance costs (4,416) (4,880)
Less: current portion of long-term debt 47,830 —
2028 Notes
In connection with the Private Placement, the Company issued $212.5 million aggregate principal amount of the 2028 Notes. The 2028 Notes were issued at a price of 100% of their face value and bear interest at a rate of 9.80% per year, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, beginning in March 2026. The 2028 Notes mature on December 31, 2028, unless earlier redeemed or repurchased.
The Company is required to redeem $30.4 million of the 2028 Notes on or before September 30, 2026, and beginning on December 31, 2027 and at every calendar quarter end thereafter, the Company is required to redeem $10.1 million of the outstanding 2028 Notes. In addition, the Company is required to repurchase a portion of the 2028 Notes upon certain asset sales and capital raises. The Company may also redeem any or all of the 2028 Notes at par plus accrued and unpaid interest at any time. Any such mandatory or optional redemptions may be made using cash, or subject to certain conditions, shares of common stock or a combination thereof.
F-18
VIRGIN GALACTIC HOLDINGS, INC.
Notes to Consolidated Financial Statements
The 2028 Notes are secured on a first-priority basis by liens on substantially all of the assets of the Company and its domestic subsidiaries, subject to customary exceptions, including customer deposits, pursuant to a security agreement and related collateral documents.
The Company is not subject to financial maintenance covenants under the 2028 Notes indenture but is subject to certain customary covenants, including but not limited to, limitations on debt, liens, restricted payments, investments, asset sales, affiliate transactions, liability management exercise protections, change of control transactions and other market-standard terms, all subject to materiality thresholds, carve-outs and exceptions. The 2028 Notes indenture also includes a limitation on cash repayment of the 2027 Notes until the mandatory redemption described above has been completed.
The following table presents the scheduled contractual interest payments for the 2028 Notes as of December 31, 2025. These contractual interest payments are allocated to the reduction of the recorded premium and interest expense as presented below. The amount of interest which reduces the recorded premium will be reported as a financing activity the Company’s consolidated statements of cash flows.
(In thousands)
Interest payments recorded as:
2027 Notes
In January 2022, the Company completed an offering of $425 million aggregate principal amount of the 2027 Notes. The 2027 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 2.50% per year. Interest is payable in cash semi-annually in arrears on February 1 and August 1 of each year. The 2027 Notes mature on February 1, 2027 unless earlier repurchased, redeemed or converted.
The terms of the 2027 Notes are governed by an Indenture by and between the Company and U.S. Bank National Association, as Trustee (the “2027 Indenture”). Upon conversion by the noteholders, the 2027 Notes may be settled in cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election, based on the conversion rate.
The 2027 Notes are convertible at an initial conversion rate of 3.9098 shares of common stock per $1,000 principal amount of the 2027 Notes, which is equal to an initial conversion price of approximately $255.77 per share of common stock, subject to adjustment upon the occurrence of certain events. Noteholders will have the right to convert their notes during any calendar quarter (and only during such calendar quarter) under the following circumstances:
•during any calendar quarter (and only during such calendar quarter) if the last reported sale price of the Company’s common stock for each of at least 20 trading days in a period of 30 consecutive trading days ending on and including the last trading day of the preceding calendar quarter is more than 130% of the then applicable conversion price for the Notes per share of common stock;
•during the five consecutive business days immediately after any ten consecutive trading day period in which the trading price per $1,000 principal amount of 2027 Notes for each day of that period was less than 98% of the product of the last reported sale price of the Company’s common stock and the then applicable conversion rate;
•the Company calls any or all of the 2027 Notes for redemption, holders may convert all or any portion of their notes at any time prior to the close of business on the scheduled trading day prior to the redemption date, even if the 2027 Notes are not otherwise convertible at such time; or