vorb-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-40267

Virgin Orbit Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware						98-1576914
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

4022 E. Conant St.
Long Beach, CA						90808
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (562) 388-4400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.0001 par value per share

VORB

The Nasdaq Stock Market LLC

Warrants to purchase common stock, $0.0001 par value per share

VORBW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☐

As of November 4, 2022, there were 337,014,284 shares of the registrant's common stock, par value $0.0001 per share, issued and outstanding.

Table of Contents


			Page

Cautionary Note Regarding Forward-Looking Statements			2

Risk Factor Summary			3

Part I - FINANCIAL INFORMATION			4
Item 1. Financial Information			4
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Operations and Comprehensive Loss			5
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)			6
Condensed Consolidated Statements of Cash Flows			8
Notes to Condensed Consolidated Financial Statements			9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market Risk			45
Item 4. Controls and Procedures			46

Part II - OTHER INFORMATION			48
Item 1. Legal Proceedings			48
Item 1A. Risk Factors			48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			75
Item 3. Defaults Upon Senior Securities			76
Item 4. Mine Safety Disclosures			76
Item 5. Other Information			75
Item 6. Exhibits			77
Signatures			79

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” We intend such forward-looking statements to be covered by the safe harbor provisions for forward- looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements, including statements regarding our future results of operations and financial position, capital requirements and ability obtain adequate financing, business strategy, growth of the space market, our planned commercial launches, the expansion of our portfolio of space offerings, our research and development costs and timing and likelihood of success of the plans and objectives of management for future operations. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may” or “should” or, in each case, their negative or other variations or comparable terminology. Such forward-looking statements are based on available current market material and management’s expectations, beliefs and forecasts concerning future events impacting us. Such statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified in Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II. Item 1A “Risk Factors.” These risks and uncertainties include, but are not limited to:

•our need for additional financing to expand our operations and grow our business;

•our ability to obtain necessary capital when needed on acceptable terms or at all;

•our ability to continue as a going concern and to access sufficient sources of capital to finance operations and growth;

•our ability to effectively market and sell our launch services;

•our ability to maintain an effective system of internal controls over financial reporting;

•our ability to grow market share in our existing markets or any new markets we may enter;

•our ability to respond to general economic conditions;

•our ability to manage our growth effectively;

•our ability to convert our contracted revenue or potential contracts into actual revenue;

•our ability to achieve and maintain profitability in the future;

•our ability to maintain and enhance our products and brand, and to attract customers; and

•our ability to execute our business model, including market acceptance of our planned products and services and achieve sufficient production volumes at acceptable quality levels and prices; the success of strategic relationships with third parties.

The foregoing list of factors is not exhaustive. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should carefully consider the foregoing factors and the other risks and uncertainties described in Part II. Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q and the documents we reference herein. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects on us and our business. We qualify all of our forward-looking statements through these cautionary statements. There can be no assurance that future developments affecting us will be those that we have anticipated. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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RISK FACTOR SUMMARY

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this Quarterly Report. These risks include the following:

•We will require additional financing to expand our operations and grow our business, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our research and development, operations or commercialization efforts, which could have a material adverse effect on our business, financial condition, results of operations and prospects, including the possibility that a lack of funds could cause our business to fail and liquidate with little or no return to investors.

•Our losses from operations and liquidity conditions raise substantial doubt regarding our ability to continue as a going concern.

•The success of our business will be highly dependent on our ability to effectively market and sell our launch services for small low Earth orbit (“LEO”) satellites, our national security and defense services and space solutions, and to convert contracted revenues and our pipeline of potential contracts into actual revenues.

•The market for launch services for small LEO satellites and space solutions is not well established, is still emerging and may not achieve the growth potential we expect or may grow more slowly than expected.

•Our ability to grow our business depends on the successful operation and performance of our launch systems and related technology and our ability to introduce new enhancements or services in a timely manner, which are subject to many uncertainties, some of which are beyond our control.

•We may not be able to convert our contracted revenue or potential contracts into actual revenue.

•We routinely conduct hazardous operations when testing and launching our rockets, which could result in damage to property or persons. Unsatisfactory performance or failure of our rockets and related technology at launch or during operations could reduce customer confidence and have a material adverse effect on our business, financial condition and results of operations.

•If we are unable to adapt to and satisfy customer demands in a timely and cost-effective manner, or if we are unable to manufacture our rockets at a quantity and quality that our customers demand, our ability to grow our business may suffer.

•We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.

•If we commercialize outside the United States, we will be exposed to a variety of risks associated with international operations that could materially and adversely affect our business.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

VIRGIN ORBIT HOLDINGS, INC.

Condensed Consolidated Balance Sheets

As of September 30, 2022 and December 31, 2021

(In thousands, except per share data)


	As of
	September 30, 2022		December 31, 2021
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	71,194	$	194,154
Restricted cash	—		828
Accounts receivable, net	1,977		2,080

Inventory	69,229		33,927
Prepaid expenses and other current assets	12,708		7,789
Total current assets	155,108		238,778
Property, plant and equipment, net	69,840		61,425
Right-of-use assets	13,312		14,685
Investments	4,338		13,498

Other noncurrent assets	380		3,354
Total assets	$	242,978	$	331,740

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	19,728	$	10,334
Current portion of lease obligation	1,455		1,642
Current portion of provision for contract losses	8,054		—
Accrued liabilities and other current liabilities	25,094		23,832
Deferred revenue	17,927		12,150

Total current liabilities	72,258		47,958
Lease obligation, net of current portion	12,800		14,078
Deferred revenue, net of current portion	9,165		28,991

Convertible note	44,147		—
Public and private placement warrant liabilities	4,326		20,188
Provision for contract losses, net of current portion and other long-term liabilities	10,795		7,555
Total liabilities	153,491		118,770
Commitments and contingencies (Note 17)
Stockholders’ equity
Preferred stock, $0.0001 par value, 25,000,000 shares authorized; none issued and outstanding	—		—
Common stock, $0.0001 par value, 2,000,000,000 shares authorized; 336,145,621 and 334,919,914 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.	36		34
Additional paid-in capital	1,049,533		1,033,393
Accumulated deficit	(959,959)		(820,454)
Accumulated other comprehensive loss	(123)		(3)
Total stockholders’ equity	89,487		212,970

Total liabilities and stockholders’ equity	$	242,978	$	331,740

The accompanying notes are an integral part of the condensed consolidated financial statements.

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VIRGIN ORBIT HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except for per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Revenue	$	30,907	$	2	$	33,023	$	7,230
Cost of revenue	40,396		8,697		61,264		25,370
Gross loss	(9,489)		(8,695)		(28,241)		(18,140)
Selling, general and administrative expenses	30,745		27,163		91,016		67,126
Research and development expenses	10,263		9,035		30,201		38,482
Operating loss	(50,497)		(44,893)		(149,458)		(123,748)
Other income, net:
Change in fair value of equity investments	(340)		4,852		(9,160)		4,852
Change in fair value of liability classified warrants	4,182		—		15,862		—
Change in fair value of convertible note	3,153		—		3,153		—
Interest expense, net	(508)		(6)		(588)		(19)
Other income	367		1,457		690		3,352
Total other income, net:	6,854		6,303		9,957		8,185
Loss before income taxes	(43,643)		(38,590)		(139,501)		(115,563)
Provision for income taxes	—		—		4		—
Net loss	(43,643)		(38,590)		(139,505)		(115,563)



Other comprehensive loss
Foreign currency translation adjustment	(31)		(82)		(120)		(102)
Total comprehensive loss	$	(43,674)	$	(38,672)	$	(139,625)	$	(115,665)

Net loss per share:
Basic and diluted	$	(0.13)	$	(0.13)	$	(0.42)	$	(0.41)

Weighted average shares outstanding
Basic and diluted	335,416,139		294,124,548		335,101,146		283,496,703

The accompanying notes are an integral part of the condensed consolidated financial statements.

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VIRGIN ORBIT HOLDINGS, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Three and Nine Months Ended September 30, 2021

(In thousands, except per share data)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated other comprehensive income (loss)		Accumulated Deficit		Total
	Share	Par Value
Balance as of December 31, 2020	266,619,585	$	27	$	463,380	$	134	$	(663,163)	$	(199,622)
Net loss	—	—		—		—		(32,325)		(32,325)
Stock-based compensation	—	—		1,421		—		—		1,421
Exercise of stock options	2,789	—		21		—		—		21
Advances to stock option holders	—	—		18		—		—		18
Other comprehensive loss	—	—		—		(33)		—		(33)
Issuance of common stock due to Parent Company contributions	12,646,392	1		46,140		—		—		46,141
Conversion of long-term debt due to Parent Company to Parent Company non-cash contributions	—	—		235,108		—		—		235,108

Balance as of March 31, 2021	279,268,766	$	28	$	746,088	$	101	$	(695,488)	$	50,729
Net loss	—	—		—		—		(44,648)		(44,648)
Stock-based compensation	—	—		1,327		—		—		1,327
Exercise of stock options	195,594	—		758		—		—		758
Advances to stock option holders	—	—		—		—		—		—
Other comprehensive income	—	—		—		13		—		13
Issuance of common stock due to Parent Company contributions	9,030,759	1		39,797		—		—		39,798

Balance as of June 30, 2021	288,495,119	$	29	$	787,970	$	114	$	(740,136)	$	47,977
Net loss	—	—		—		—		(38,590)		(38,590)
Stock-based compensation	—	—		5,560		—		—		5,560
Exercise of stock options	245,190	—		954		—		—		954
Advances to stock option holders	—	—		—		—		—		—
Other comprehensive income	—	—		—		(82)		—		(82)
Issuance of common stock due to Parent Company contributions	9,819,708	1		51,201		—		—		51,202
Reverse recapitalization, net of transaction costs	—	—		—		—		—		—
Balance as of September 30, 2021	298,560,017	$	30	$	845,685	$	32	$	(778,726)	$	67,021

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VIRGIN ORBIT HOLDINGS, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Three and Nine Months Ended September 30, 2022

(In thousands, except per share data)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated other comprehensive loss		Accumulated Deficit		Total
	Share	Par Value
Balance as of December 31, 2021	334,919,914	$	34	$	1,033,393	$	(3)	$	(820,454)	$	212,970
Net loss	—	—		—		—		(62,570)		(62,570)
Stock-based compensation	—	—		3,814		—		—		3,814
Other comprehensive loss	—	—		—		(61)		—		(61)
Balance as of March 31, 2022	334,919,914	$	34	$	1,037,207	$	(64)	$	(883,024)	$	154,153
Net loss	—	—		—		—		(33,292)		(33,292)
Stock-based compensation	—	—		2,633		—		—		2,633
Exercise of stock options	182,609	2		649		—		—		651
Other comprehensive loss	—	—		—		(28)		—		(28)
Balance as of June 30, 2022	335,102,523	$	36	$	1,040,489	$	(92)	$	(916,316)	$	124,117
Net loss	—	—		—		—		(43,643)		(43,643)
Stock-based compensation	—	—		5,508		—		—		5,508
Exercise of stock options	211,742	—		803		—		—		803
Issuance of common stock due to Convertible Note conversion	831,356	—		2,733		—		—		2,733
Other comprehensive loss	—	—		—		(31)		—		(31)
Balance as of September 30, 2022	336,145,621	$	36	$	1,049,533	$	(123)	$	(959,959)	$	89,487

The accompanying notes are an integral part of the condensed consolidated financial statements.

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VIRGIN ORBIT HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2022 and 2021

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
		2022		2021
Cash flows from operating activities
Net loss		$	(139,505)	$	(115,563)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		11,954		8,308
Depreciation and amortization		9,646		10,783
Inventory write-down		298		1,569
Gain on sale of fixed asset disposal		(90)		—
Write-off of right-of-use assets		70		—
Non-cash investment in Sky and Space		—		(1,706)
Change in fair value of equity investments		9,160		(4,852)
Change in fair value of liability classified warrants		(15,862)		—
Change in fair value of convertible note		(3,153)		—

Changes in operating assets and liabilities:
Accounts receivable		103		2,035

Inventory		(24,305)		(24,345)
Prepaid expenses and other current assets		(4,888)		(5,267)
Deferred transaction costs		—		(230)
Other noncurrent assets		2,977		78
Due to related party, net		(74)		(83)
Accounts payable		9,391		5,127
Other long-term liabilities		(966)		(727)
Accrued liabilities		1,335		1,608
Deferred revenue		(14,049)		11,681
Other, net		(33)		(110)
Net cash used in operating activities		(157,991)		(111,694)

Cash flows from investing activities:
Purchase of property and equipment		(17,115)		(16,791)
Purchase of investment in Arqit		—		(5,000)
Proceeds from sale of property and equipment		90		—
Net cash used in investing activities		(17,025)		(21,791)

The accompanying notes are an integral part of the condensed consolidated financial statements.

VIRGIN ORBIT HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows (continued)

Nine Months Ended September 30, 2022 and 2021

(In thousands) (Unaudited)


	Nine Months Ended September 30,
		2022		2021
Cash flows from financing activities:
Payments of finance lease obligations		(227)		(187)
Proceeds from the exercise of stock options		1,455		1,733
Advances to stock option holders		—		18
Parent Company contributions		—		137,141

Proceeds from convertible note		50,000		—

Net cash provided by financing activities		51,228		138,705
Net (decrease) increase in cash and cash equivalents and restricted cash		(123,788)		5,220
Cash and cash equivalents and restricted cash at the beginning of the period		194,982		26,786
Cash and cash equivalents and restricted cash at the end of the period		$	71,194	$	32,006

Cash and cash equivalents		$	71,194	$	31,178
Restricted cash		—		828
Cash and cash equivalents and restricted cash		$	71,194	$	32,006

Supplemental disclosures
Schedule for non-cash investing activities and financing activities
Conversion of long-term debt due to Parent Company non-cash contributions		$	—	$	235,108
Deferred transaction costs in accounts payable and accrued liabilities		$	—	$	6,070
Unpaid property, plant and equipment received		$	78	$	105

The accompanying notes are an integral part of the condensed consolidated financial statements.

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VIRGIN ORBIT HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(1)Organization and Business Operations

Virgin Orbit Holdings, Inc. (“Virgin Orbit”) and, together with, its wholly owned subsidiaries (the “Company,” “we,” “us” or “our”) are focused on the development, manufacture and related technologies of rockets for the purpose of conducting launch operations to place payloads into orbit. The Company is a vertically integrated aerospace company that provides customers with dedicated and rideshare small-satellite launch capabilities for various industries including government, research and education. We develop and manufacture our launch technology from a vertically-integrated manufacturing facility in Long Beach, California, with a testing facility in Mojave, California. As of the date of this Quarterly Report on Form 10-Q, we have successfully completed a total of four orbital launches since 2021, which we believe demonstrates the efficacy of our launch system. With the four completed orbital launches, we have delivered 33 satellites for commercial, civil and national security and defense customers to their desired orbits with high precision. Through our proprietary mobile launch system, we offer greater and more predictable access to space, enabling our vision of using space to drive positive and lasting change on Earth. The Company plans to conduct future commercial launches from other locations, including Cornwall in the UK later this year.

Since our founding in 2017, we have invested in research and development efforts to develop a unique air-launch system, comprised of Cosmic Girl, a modified Boeing 747 aircraft, and the LauncherOne rocket. Cosmic Girl serves as a reusable mobile launch pad, carrying LauncherOne aloft, and LauncherOne is a two-stage rocket that is the world’s first and only liquid-fueled, air-launched rocket to reach orbit successfully. This mobile system allows us to serve a broad array of applications and markets, providing customers with a highly differentiated solution to launch satellites relative to other existing small-satellite ground launch providers.

The Business Combination

The registrant was initially formed on January 11, 2021, as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. The registrant was formed as NextGen Acquisition Corp. II (“NextGen”) and, at the time of the consummation of the transactions described in the following paragraph (the “Business Combination”), NextGen changed its name to Virgin Orbit Holdings, Inc.

On August 22, 2021, the registrant entered into a merger agreement (the “Merger Agreement”) with Pulsar Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the registrant (“Pulsar Merger Sub”), and Vieco USA, Inc. (“Vieco USA”). On December 29, 2021, as contemplated by the Merger Agreement and following approval by the registrant’s shareholders at an extraordinary general meeting held December 28, 2021, the registrant filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which the registrant was domesticated and continues as a Delaware corporation, changing its name to “Virgin Orbit Holdings, Inc.” (the “Domestication”). Virgin Investments Limited, a company limited by shares under the laws of the British Virgin Islands (“VIL”), is the holder of a majority of our outstanding common stock.

Upon the closing of the Business Combination (the “Transaction Close” or the “Closing”), holders of all issued and outstanding Vieco USA common stock received a total of 303,320,884 shares of common stock at a deemed value of $10.00 per share after giving effect to the exchange ratio of approximately 1.250301 (the “Exchange Ratio”) and all holders of issued and outstanding Vieco USA options received options to purchase shares of Virgin Orbit (“Virgin Orbit Options”), covering 10,704,645 shares of common stock after giving effect to the Exchange Ratio.

The Business Combination was accounted for as a reverse recapitalization in accordance with ASC 805, Business Combinations. Under this method of accounting, NextGen was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of Virgin Orbit represented a continuation of the financial statements of Vieco USA with the Business Combination treated as the equivalent of Vieco USA issuing shares for the net assets of NextGen, accompanied by a recapitalization. The net assets of NextGen are stated historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Vieco USA in future reports of Virgin Orbit.

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VIRGIN ORBIT HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

In accordance with guidance applicable to these circumstances, the equity structure has been recast in all comparative periods up to the Closing to reflect the number of shares of Virgin Orbit’s common stock, $0.0001 par value per share, issued to Virgin Orbit’s stockholders in connection with the Business Combination. As such, the shares and corresponding capital amounts and earnings per share related to Vieco USA common stock Vieco USA Options prior to the Business Combination have been retroactively recast as shares reflecting the Exchange Ratio.

Virgin Orbit common stock and warrants commenced trading on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “VORB” and “VORBW,” respectively, on December 29, 2021.

Liquidity and Going Concern

The accompanying unaudited condensed consolidated interim financial statements have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these unaudited condensed consolidated interim financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the condensed consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern. The Company has not generated positive cash flows from operations or sufficient revenues to provide sufficient cash flows to enable the Company to finance its operations internally, and may not be able to raise sufficient capital to do so. We have incurred significant losses since our inception and had an accumulated deficit of $960.0 million as of September 30, 2022. In June 2022, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with YA II PN, Ltd. (the “Investor”), pursuant to which we sold a convertible debenture and raised gross proceeds of $50.0 million, as discussed in Note 11. Convertible Note. Our cash and cash equivalents were $71.2 million and $194.2 million as of September 30, 2022 and December 31, 2021, respectively.

Pursuant to the requirements of ASC Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, our 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 one year from the date the unaudited condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within our control as of the date the unaudited condensed consolidated interim financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the unaudited condensed consolidated interim financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated interim financial statements are issued. In connection with the Company’s assessment of going concern considerations, management has determined that the liquidity condition raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate within 12 months. The condensed financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.

Management’s plans to mitigate an expected shortfall of capital to support future operations include expanding commercial operations, raising additional funds through borrowings or additional sales of securities or other sources, and managing our working capital. There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company or whether the Company will become profitable and generate positive operating cash flow. If the Company is unable to raise substantial additional

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VIRGIN ORBIT HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

capital, operations and production plans may be scaled back or curtailed. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

COVID-19 Pandemic

The COVID-19 pandemic continues to directly and indirectly impact the Company’s business, results of operations and financial condition, including revenue, expenses, reserves and allowances. The Company continues to monitor developments that are highly uncertain, including supply chain disruptions and price increases, as well as the economic impact on domestic and international suppliers, customers, and markets. The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its current expected credit losses, the carrying value of the Company's intangible assets and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of September 30, 2022 and through the date of this report. As a result of these assessments, there were no impairments or material increases in expected credit losses or valuation allowances that impacted the Company's condensed financial statements as of and for the three and nine months ended September 30, 2022 and 2021. However, the Company's future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the condensed financial statements in future reporting periods.

(2)Summary of Significant Accounting Policies

(a)Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the regulations of the U.S. Securities and Exchange Commission. All intercompany transactions and balances between the various legal entities comprising the Company have been eliminated in consolidation. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022, or for any other interim period or for any other future year.

(b)Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

(c)Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company bases these estimates on historical experience and

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VIRGIN ORBIT HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

on various other assumptions that it 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 inherent in the preparation of the condensed consolidated financial statements include, but are not limited to, useful lives of property, plant and equipment, net, leases, income taxes including deferred tax assets and liabilities and impairment valuation, assumptions included in the valuation of the stock-based awards, assumptions included in the valuation of the Company’s common stock, contingencies, warrants, convertible note, and contract losses for cost estimates-to-complete.

(d)Revenue

The Company recognizes revenue when control of the promised goods and services is transferred to our customers in an amount that reflects the consideration it expects to be entitled to in exchange for those services. The Company’s launch service revenue contracts have been fixed-price contracts. To the extent actual costs vary from the cost upon which the price was negotiated, the Company will generate variable levels of profit or could incur a loss.

For promised goods, revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

Launch Related Services

Small-satellite launch operations revenue is recognized for providing customer launch services. The Company’s launch service contracts generally consisting of multiple launches with each launch being allocated a fixed price and identified as distinct performance obligations. Revenue for each launch service is recognized at a point in time when the performance obligation is complete, which is typically at the point of launch. When the Company determines it is probable that costs to provide the services stipulated by the launch services agreement will exceed the allocated fixed price for each launch, the Company records a provision for the contract loss. Contract losses are recorded at the contract level and are recognized when known. To the extent the contract loss provision is less than the accumulated costs to fulfill the contracts, the Company records the provision net of inventory and net of contract assets in the condensed consolidated balance sheets. Launch service revenue was $30.9 million and $0.0 million for the three months ended September 30, 2022 and 2021, respectively, and $32.7 million and $6.0 million for the nine months ended September 30, 2022 and 2021, respectively.

Engineering Services

Engineering services revenue contracts obligate the Company to provide primarily research and studies services that together are one distinct performance obligation; the delivery of engineering services. The Company elected to apply the “as-invoiced” practical 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. Engineering services revenue was $0.0 million and $0.0 million for the three months ended September 30, 2022 and 2021, respectively, and $0.3 million and $1.2 million for the nine months ended September 30, 2022 and 2021, respectively.

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. Amounts are generally billed as work progresses in accordance with agreed-upon milestones. The Company records accounts receivable when it has an unconditional right to consideration. Contract assets are classified as current if the invoice will be delivered to the customer within the succeeding 12-month period with the remaining recorded as long-term.

In addition, 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

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VIRGIN ORBIT HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

a contract; (2) generate or enhance resources that will be used to satisfy performance obligations; and (3) are expected to be recovered.

The Company began capitalizing contract costs associated with specific launch services contracts with customers as the Company determined technological feasibility was reached upon the Company’s successful demo launch in January 2021. As of September 30, 2022 and December 31, 2021, the Company recorded $0.5 million and $3.1 million, respectively, of contract assets, included in prepaid expenses and other current assets in the condensed consolidated balance sheets.

The Company has not incurred incremental costs for obtaining our contracts with customers.

Contract liabilities primarily relate to small-satellite launch operations and are recorded when cash payments are received or due in advance of performance. Cash payments for small-satellite launch services are classified as customer deposits until enforceable rights and obligations exist, when such deposits also become non-refundable. Customer deposits become non-refundable and are recorded as non-current deferred revenue following the Company’s delivery of the conditions of carriage to the customer and execution of an informed consent. Non-current deferred revenue was $9.2 million and $29.0 million as of September 30, 2022 and December 31, 2021, respectively. Current deferred revenue was $17.9 million and $12.2 million as of September 30, 2022 and December 31, 2021, respectively.

Payment terms vary by customer and type of revenue contract. The Company generally expects that the period of time between payment and transfer of promised goods or services will be less than one year. In such instances, the Company has elected the practical expedient to not evaluate whether a significant financing component exists.

These individual contract assets and liabilities are reported in a net position on a contract-by-contract basis on the condensed consolidated balance sheets at the end of each reporting period.

Remaining Performance Obligations

Remaining performance obligations are committed and represent non-cancellable contracted revenue that has not yet been recognized and will be recognized as revenue in future periods. Some contracts allow customers to cancel the contracts without a significant penalty if the Company’s launches are delayed beyond a specified period or if the Company does not achieve certain milestones, and the cancellable amount of contract value is not included in the remaining performance obligations.

As of September 30, 2022, the Company has multiple launch and engineering service revenue contracts for which it expects to transfer all remaining performance obligations to the customer by the fiscal year ending December 31, 2027. The Company does 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 it has the right to invoice for services performed, or (c) variable consideration allocated to wholly unsatisfied performance obligations.

(e)Cost of Revenue

Cost of revenue related to launch services and engineering services consists of expenses related to materials and human capital, such as payroll and benefits. As the Company determined technological feasibility was reached upon the Company’s successful demo launch in January 2021, the Company began capitalizing costs for the production of the Company’s rockets, and has subsequently charged to cost of revenue the cost for rocket manufacturing including materials, labor and related mission launch costs including fuel, payroll and benefits for our launch and flight operations as well as the depreciation of the Company’s uniquely portable and reusable launch stage, Cosmic Girl (“Cosmic Girl”), facilities and equipment and other allocated overhead expenses. The costs of revenue were $40.4 million and $8.7 million for the three months ended September 30, 2022 and September 30, 2021, respectively. The costs of revenue were $61.3 million and $25.4 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

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VIRGIN ORBIT HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(f)Warrant Liability

The Company accounts for the warrants assumed in connection with the Business Combination in accordance with the guidance contained in ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period. This liability is subject to remeasurement at each balance sheet date until exercised, and any change in fair value is recognized in the condensed consolidated statements of operations and comprehensive loss.

(g)Convertible Note

The Company elected to early adopt Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The Company has elected to apply the fair value option to the convertible note on the date that the Company first recognizes the convertible note on June 29, 2022. The Company acknowledges that its election to apply the fair value option is irrevocable. The Company recognized costs incurred upon issuance of the convertible note as an expense in its consolidated income statement for the nine months ended September 30, 2022. The convertible note will be classified and presented as a long-term liability on the Consolidated Balance Sheet as of September 30, 2022. Changes in fair value will be recorded in the statements of operations and changes in fair value related to credit risk will be recorded in other comprehensive loss.

(h)Other Summary of Significant Accounting Policies

There have been no other significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on March 31, 2022, as amended (the “2021 Annual Report on Form 10-K”).

The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s 2021 Annual Report on Form 10-K. Interim results are not necessarily indicative of the results for a full year.

(3)Recently Issued and Adopted Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”), in the form of Accounting Standards Updates (“ASU”).

Section 102(b)(1) of the JOBS Act allows emerging growth companies to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. As an emerging growth company, the Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the Company’s financial statements may not be comparable to the financial statements of another public company which is not an emerging growth company or an emerging growth which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on accounting for convertible note instruments by removing the separation models for: (1) convertible note with a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023 for smaller reporting companies, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020.

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VIRGIN ORBIT HOLDINGS, INC.

Notes to Consolidated Financial Statements

Issued Accounting Standard Updates Not Yet Adopted

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), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40), which clarified and reduced diversity in an issuer's accounting for modifications of 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 is currently assessing the potential impact of ASU 2021-04 to our condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides an exception to fair value measurement for revenue contracts acquired in business combinations. This update is effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and all other entities for fiscal years beginning after December 15, 2023. The Company is currently assessing the potential impact of ASU 2021-08 to our condensed consolidated financial statements.

In September 2022, the FASB issued ASU No. 2022-04, "Liabilities-Supplier Finance Programs (Subtopic 405-50)." This standard requires disclosure of the key terms of outstanding supplier finance programs and a rollforward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The ASU becomes effective January 1, 2023, except for the rollforward requirement, which becomes effective January 1, 2024. The Company is currently assessing the potential impact of ASU 2022-04 to our condensed consolidated financial statements.

(4)Related Party Transactions

The Company licenses our brand name from certain entities affiliated with Virgin Enterprise Limited (“VEL”), a company incorporated in England. VEL is an affiliate of VIL. Under the trademark license agreement (“TMLA”), the Company has the exclusive and non-exclusive rights to use the brand name “Virgin Orbit” and the Virgin signature logo. On August 22, 2021, the TMLA was amended and restated and novated to Virgin Orbit in order for us to continue to have these certain rights to the “Virgin Orbit” name and brand and the Virgin signature logo following consummation of the Business Combination. Pursuant to the terms of the amended TMLA, we are obligated to pay VEL quarterly royalties equal to the greater of (a) 1% of revenue, or (b)(i) $40 thousand for each of four quarters prior to the Company’s first commercial launch, Tubular Bells, Part One, in June 2021; (b)(ii) $0.4 million for each of four quarters after the commercial launch date; (b)(iii) $0.8 million for each of the four quarters two years after commercial launch date. As of September 30, 2022, royalties payable was $0.8 million due to VEL. The royalties expense was $1.5 million for the nine months ended September 30, 2022. As of December 31, 2021, royalties payable was $72 thousand, which includes a prorated fee from the amended TMLA of $12 thousand. Based on the original TMLA dated March 1, 2017, royalties payable for the use of license were the greater of 1% of revenue, or $60 thousand per quarter, after the Company’s first commercial launch, Tubular Bells, Part One, in June 2021. Prior to this date, royalties payable for the use of license was the greater of 1% of revenue or $20 thousand per quarter.

On October 25, 2019, the Company entered into a transition services agreement (“TSA”) with Galactic Enterprises, LLC, f/k/a Virgin Galactic, LLC (“GEL”) primarily for certain operating and administrative services. The original agreement expired in October 2021, and a limited form of this agreement was extended through July 15, 2022. Under the original agreement, GEL provided pilot utilization services, finance and accounting services and insurance advisory services to the Company, and the Company provided propulsion engineering services, tank design support services, tank manufacturing services, and office space access and usage services, as well as business development and regulatory affairs services to GEL. Under the limited extension, GEL provides pilot utilization services and the use of office space, and the Company provides GEL with propulsion engineering services, tank design support services, tank manufacturing services, and office space access and usage. Costs incurred for the TSA were not material for the three months ended September 30, 2022 and September 30, 2021. In addition to the TSA, the Company records direct charges from GEL for other general administrative expenses. There were $1 thousand in charges for the three months ended September 30, 2022 and $1 thousand in charges for the three months ended

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VIRGIN ORBIT HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2021, which were recorded as a reduction of selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.

The Company has a receivable of $32 thousand and a payable of $42 thousand as of September 30, 2022 and December 31, 2021, respectively, due to Virgin Galactic Holdings, Inc. (“VGH”), the parent of GEL.

(5) Fair Value Measurements

The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, respectively, and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.


Fair Value Measurements as of September 30, 2022
	Level 1		Level 2		Level 3
Assets	(in thousands)
Money market	$	50,037	$	—	$	—
Investments	2,815		—		1,523
Total assets at fair value	$	52,852	$	—	$	1,523

Liabilities:
Derivative warrant liabilities - Public warrants	$	2,287	$	—	$	—
Derivative warrant liabilities - Private placement warrants	—		—		2,023
Convertible note, net	—		—		44,147
Total liabilities at fair value	$	2,287	$	—	$	46,170


Fair Value Measurements as of December 31, 2021
	Level 1		Level 2		Level 3
Assets	(in thousands)
Money market	$	154,630	$	—	$	—
Investments	13,498		—		—
Total assets at fair value	$	168,128	$	—	$	—

Liabilities:
Derivative warrant liabilities - Public warrants	$	10,713	$	—	$	—
Derivative warrant liabilities - Private placement warrants	—		—		9,475
Total liabilities at fair value	$	10,713	$	—	$	9,475

Level 1 assets include investments traded within an active market, with an observable listed price, and money market funds that invest solely in U.S. government securities. The Company uses inputs such as actual trade data, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of our investments. Level 3 assets include investments where no observable traded price is available. The estimated fair value of the investment was determined using assumptions related to the unit price, expected volatility, risk-free interest rate, and observed historical transactions.

The Company’s warrant liability as of September 30, 2022 includes public and private placement warrants that were originally issued by NextGen and assumed by the Company as part of the Closing of the Business Combination (the “Public Warrants” and “Private Warrants,” respectively, or together, the “Public and Private Warrants”). The Public and Private Warrants are recorded on the condensed consolidated balance sheet at fair value. The carrying amount is subject to remeasurement at each balance sheet date. With each remeasurement, the carrying amount will be adjusted to fair value, with the change in fair value recognized in the Company’s condensed consolidated statements of operations and comprehensive loss. The Public Warrants are publicly-traded under the symbol “VORBW”, and the fair value of the Public Warrants at a specific date is determined by the closing price of the Public Warrants as of that date. As such, the Public Warrants are classified within Level 1 of the fair value hierarchy.

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VIRGIN ORBIT HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

For periods where no observable traded price is available, the fair value of the Private Placement Warrants has been estimated using a Monte-Carlo simulation model. For periods subsequent to the detachment of the Public Warrants from the Units, the fair value of the Public Warrants is based on the observable listed price for such warrants. The estimated fair value of the Public and Private Placement Warrants, prior to the Public Warrants being traded in an active market, was determined using Level 3 inputs. Inherent in a Monte-Carlo simulation model are assumptions related to the Unit price, expected volatility, risk-free interest rate, term to expiration, and dividend yield. The Unit price is based on the publicly traded price of the Units as of the measurement date. The Company estimated the volatility for the Public and Private Placement Warrants based on an iterative approach to recalculate the implied volatility using a Monte-Carlo simulation model from the historical traded prices of the warrants. The risk-free interest rate is based on interpolated U.S. Treasury rates, commensurate with a similar term to the Public and Private Placement Warrants. The term to expiration was calculated as the contractual term of the Public and Private Placement Warrants, commencing on the later of: (i) 30 days after the Closing or (ii) twelve months from the date of the closing of NextGen’s initial public offering. Finally, the Company does not anticipate paying a dividend. Any changes in these assumptions can change the valuation significantly.

The change in the fair value of the private warrant liabilities continue to be measured using Level 3 inputs, for the period from December 31, 2021 through September 30, 2022 as summarized below:





	Private Placement Warrants
	(in thousands)
Warrant liabilities at December 31, 2021	$	9,475
Change in fair value of derivative warrant liabilities	(7,452)
Warrant liabilities at September 30, 2022	$	2,023

The convertible note is recorded on the condensed consolidated balance sheet at fair value. The carrying amount is subject to remeasurement at each balance sheet date. With each remeasurement, the carrying amount will be adjusted to fair value, with the change in fair value recognized in the Company’s condensed consolidated statements of operations and comprehensive loss. As of September 30, 2022 fair value was determined to be $44.1 million based on the following: unit price, expected volatility, risk-free interest rate, term to expiration. Quarterly, the fair value of convertible note is remeasured using the Monte-Carlo model.

(6) Inventory

As of September 30, 2022 and December 31, 2021, inventory is comprised of raw materials, labor, and overhead costs incurred for the production of the Company’s rockets.


	As of
	September 30, 2022		December 31, 2021
	(In thousands)
Raw materials	$	31,617	$	18,890
Work in process	57,402		27,123
Inventories, gross	89,019		46,013
Provision for contract losses against inventory	(17,895)		(11,626)
Reserve for inventory excess and obsolescence	(1,895)		(460)
Inventory	$	69,229	$	33,927

As of September 30, 2022, the Company determined inventory related to certain rocket builds were not recoverable. The change in provision for contract losses against inventory of $6.3 million and reserve for inventory excess and obsolescence of $1.4 million were recorded for the nine months ended September 30, 2022. During the three months ended September 30, 2022, change in provision for contract losses against inventory was $12.1 million and reserve for inventory excess and obsolescence of $1.0 million were recorded.

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VIRGIN ORBIT HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(7) Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following as of September 30, 2022 and December 31, 2021:


	As of
	September 30, 2022		December 31, 2021
	(In thousands)
Leasehold improvements	$	23,882	$	23,501
Machinery and equipment	62,632		59,358
Aircraft	8,000		8,000
IT software and equipment	24,828		22,397
Construction in progress	34,161		23,167
	153,503		136,423

Less: accumulated depreciation and amortization	(83,663)		(74,998)

Property, plant and equipment, net	$	69,840	$	61,425

Within IT software and equipment, the Company’s capitalized software totaled $1.4 million and $0.8 million, net of accumulated amortization of $7.9 million and $7.4 million, as of September 30, 2022 and December 31, 2021, respectively. No amortization expense is recorded until the software is ready for its intended use. For the three months ended September 30, 2022 and 2021, amortization expense related to capitalized software was $0.2 million and $0.1 million, respectively.

Depreciation expense recorded in the condensed consolidated statements of operations and comprehensive loss during the three and nine months ended September 30, 2022 and 2021 consisted of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(In thousands)
Cost of revenue	$	1,194	$	—	$	2,179	$	556
Research and development, net	136		143		392		1,202
Selling, general and administrative	1,375		2,848		5,673		7,429
Total depreciation expense	$	2,705	$	2,991	$	8,244	$	9,187

(8) Leases

The Company leases offices and other facilities and certain manufacturing and office equipment under long-term, non-cancelable operating and finance leases. Some leases include options to purchase, terminate, or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised. The Company does not recognize ROU assets and lease obligations for short-term leases.

The components of lease expense related to leases for the period are as follows:

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VIRGIN ORBIT HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In thousands)
Lease Cost:
Operating lease expense	$	222	$	784	$	2,050	$	2,168
Short-term lease expense	$	1,302	$	719	$	2,594	$	2,447
Finance lease cost:
Amortization of right-of-use assets	$	69	$	64	$	232	$	192
Interest on lease obligations	6		6		20		19
Total finance lease cost	75		70		252		211
Total lease cost	$	1,599	$	1,573	$	4,896	$	4,826

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


	Nine Months Ended September 30,
	2022			2021

	(In thousands)
Cash flow information:
Cash paid for amounts included in the measurement of lease obligations for the period ended:
Operating cash flows for operating leases	$	2,011		$	2,018
Operating cash flows for finance leases	$	20		$	19
Financing cash flows for finance leases	$	227		$	187

Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	549		$	1,632
Finance leases	$	528		$	—
Termination of right-of-use asset, net	$	1,300		$	—

Other information:
Weighted average remaining lease term:
Operating leases (in years)	8			8
Finance leases (in years)	2			1

Weighted average discount rates:
Operating leases	11.6		%	11.0		%
Finance leases	5.4		%	5.4		%

Table of Contents

VIRGIN ORBIT HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

The supplemental condensed consolidated balance sheet information related to leases for the period is as follows:


	As of
	September 30, 2022		December 31, 2021
	(In thousands)
Finance leases
Long-term right-of-use assets	$	564	$	252

Short-term finance lease liabilities	$	288	$	258
Long-term finance lease liabilities	302		79
Total finance lease liabilities	$	590	$	337

Operating leases
Long-term right-of-use assets	$	12,748	$	14,433