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What changed in Virgin Galactic Holdings, Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Virgin Galactic Holdings, Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+412 added−467 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-28)

Top changes in Virgin Galactic Holdings, Inc's 2023 10-K

412 paragraphs added · 467 removed · 321 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

136 edited+35 added−35 removed82 unchanged
Biggest changeAll of our manufacturing operations, which include, among others, fabrication, assembly, warehouse and both ground and test operations, are located in Mojave, California, at the Air and Space Port, where our campus spans over 200,000 square feet. This location provides us with year-round access to airspace for various flight test programs.
Biggest changeOur rocket motor plant and hot-fire test facility are located in Mojave, California, where we also perform ground and test operations. This location provides us with year-round access to airspace for various flight test programs. Our Design and Engineering center is located in Tustin, California and encompasses approximately 61,000 square feet of office space and functions as our corporate headquarters.
Our license from the FAA includes Spaceport America as a location from which we can launch and land our spaceflight system. The terminal hangar building, officially designated the “Virgin Galactic Gateway to Space,” was designed to be functional and beautiful, matching future astronauts’ high expectations of a Virgin-branded facility and delivering an aesthetic consistent with the Virgin Galactic experience.
Our license from the FAA includes Spaceport America as a location from which we can launch and land our spaceflight system. The terminal hangar building, officially designated the “Virgin Galactic Gateway to Space,” was designed to be functional and beautiful, matching our astronauts’ high expectations of a Virgin-branded facility and delivering an aesthetic consistent with the Virgin Galactic experience.
Each of our future astronauts will go through a customized medical screening and flight preparation process, including training for the use of communication systems, flight protocols, emergency procedures and G-force training. In addition, initial customer questionnaires and health assessments have been completed and are maintained in a comprehensive and secure medical database. • Full mission abort capability.
Each of our astronauts will go through a customized medical screening and flight preparation process, including training for the use of communication systems, flight protocols, emergency procedures and G-force training. In addition, initial customer questionnaires and health assessments have been completed and are maintained in a comprehensive and secure medical database. • Full mission abort capability.
While our primary focus for the foreseeable future is on commencing and managing our commercial human spaceflight operations, we intend to expand our commitment to exploring and evaluating the application of our technologies and expertise into these and other ancillary applications. 16 Table of Contents Competition The commercial spaceflight industry is still developing and evolving, but we expect it to be highly competitive.
While our primary focus for the foreseeable future is on managing our commercial human spaceflight operations, we intend to expand our commitment to exploring and evaluating the application of our technologies and expertise into these and other ancillary applications. 16 Table of Contents Competition The commercial spaceflight industry is still developing and evolving, but we expect it to be highly competitive.
Informed Consent and Waiver Our commercial human spaceflight operations and any third-party claims that arise from our operation of spaceflights are subject to federal and state laws governing informed consents and waivers of claims, including under the Commercial Space Launch Amendments Act of 2004 (“CSLA”) and the New Mexico Space Flight Informed Consent Act (“SFICA”).
Informed Consent and Waiver Our commercial human spaceflight operations and any third-party claims that arise from our operation of spaceflights are subject to federal and state laws governing informed consents and waivers of claims, including under the Commercial Space Launch Act (“CSLA”), the Commercial Space Launch Amendments Act of 2004 (“CSLAA”) and the New Mexico Space Flight Informed Consent Act (“SFICA”).
In the past, the technologies necessary to journey to space have been owned and controlled strictly by government space agencies. Government agencies have recently demonstrated interest in opening up access to the private sector for human spaceflight. Because of the high cost of development, historically, there has been limited innovation to foster the commercial viability of human spaceflight.
In the past, the technologies necessary to journey to space have been owned and controlled strictly by government space agencies. Government agencies have recently demonstrated interest in opening up access to the private sector for spaceflight. Because of the high cost of development, historically, there has been limited innovation to foster the commercial viability of spaceflight.
Once all future astronauts are safely onboard and the pilots have coordinated with the appropriate regulatory and operational groups, the mothership will take-off and climb to an altitude of approximately 45,000 feet. Once at altitude, the pilots will perform all necessary vehicle and safety checks and then will release the spaceship from the mothership.
Once all astronauts are safely onboard and the pilots have coordinated with the appropriate regulatory and operational groups, the mothership will take-off and climb to an altitude of approximately 45,000 feet. Once at altitude, the pilots will perform all necessary vehicle and safety checks and then will release the spaceship from the mothership.
The training program has been built on the philosophy that familiarization with the systems, procedures, equipment and personnel that will be involved in the actual flight will make the future astronaut more comfortable and allow the customer to focus their attention on having the best possible experience.
The training program has been built on the philosophy that familiarization with the systems, procedures, equipment and personnel that will be involved in the actual flight will make the astronaut more comfortable and allow the customer to focus their attention on having the best possible experience.
The form of the building in the landscape and its interior spaces capture the drama and mystery of spaceflight, reflecting the thrill of space travel for our future astronauts. The LEED-Gold certified building has ample capacity to accommodate our staff and our current fleet of vehicles.
The form of the building in the landscape and its interior spaces capture the drama and mystery of spaceflight, reflecting the thrill of space travel for our astronauts. The LEED-Gold certified building has ample capacity to accommodate our staff and our current fleet of vehicles.
Design, Development and Manufacturing Our development and manufacturing team consists of talented and dedicated engineers, technicians and professionals with thousands of years of combined design, engineering, manufacturing and flight test experience from a wide variety of the world’s leading research, commercial and military aerospace organizations.
Design, Development and Manufacturing Our development and manufacturing team consists of talented and dedicated engineers, technicians and professionals with years of combined design, engineering, manufacturing and flight test experience from a wide variety of the world’s leading research, commercial and military aerospace organizations.
Our spaceflight system and our hybrid rocket motor together enable the following key differentiators: ◦ horizontal take-off and landing using winged vehicles and traditional airplane runway infrastructure that enable a familiar airplane-like experience; ◦ use of our carrier aircraft for the first stage of flight and then to air launch our spaceship, which is intended to maximize the safety and efficiency of our spaceflight system; ◦ pilot-designed and pilot-flown missions to aid safety and customer confidence; ◦ carbon composite construction that is light, strong and durable; ◦ robust, controllable spaceship hybrid rocket motor propulsion system that can be safely shut down at any time during the flight; ◦ large cabin with multiple windows, allowing for an experience of weightlessness and easy access to views of Earth for all of our future astronauts; ◦ unique “wing-feathering” system, designed to enable a safe, aerodynamically controlled re-entry into the Earth’s atmosphere on a repeated basis; and ◦ Versatile cabin provides the adaptability to operate research-focused flights with payload racks and researchers onboard as well as private astronaut flights with a full cabin of commercial passengers. • Significant backlog and pent-up customer demand.
Our spaceflight system and our hybrid rocket motor together enable the following key differentiators: ◦ Horizontal take-off and landing using winged vehicles and traditional airplane runway infrastructure that enable a familiar airplane-like experience; ◦ Use of our carrier aircraft for the first stage of flight and then to air launch our spaceship, which is intended to maximize the safety and efficiency of our spaceflight system; ◦ Pilot-designed and pilot-flown missions to aid safety and customer confidence; ◦ Carbon composite construction that is light, strong and durable; ◦ Robust, controllable spaceship hybrid rocket motor propulsion system that can be safely shut down at any time during the flight; ◦ Large cabin with multiple windows, allowing for an experience of weightlessness and easy access to views of Earth for all of our astronauts; ◦ Unique “wing-feathering” system, designed to enable a safe, aerodynamically controlled re-entry into the Earth’s atmosphere on a repeated basis; and 8 Table of Contents ◦ Versatile cabin provides the adaptability to operate research-focused flights with payload racks and researchers onboard as well as private astronaut flights with a full cabin of commercial passengers. • Significant backlog and pent-up customer demand.
We have developed extensive vertically integrated aerospace development capabilities for developing, manufacturing and testing aircraft and related propulsion systems. These capabilities encompass preliminary systems and vehicle design and analysis, detail design, manufacturing, ground testing, flight testing and post-delivery support and maintenance.
We have developed extensive vertically integrated aerospace development capabilities for developing, manufacturing and testing aircraft, spacecraft and related propulsion systems. These capabilities encompass preliminary systems and vehicle design and analysis, detail design, manufacturing, ground testing, flight testing and post-delivery support and maintenance.
The restricted airspace will facilitate frequent and consistent flight scheduling by preventing general commercial air traffic from entering the area. Additionally, the desert climate and its relatively predictable weather provide favorable launch conditions year-round. Our license from the FAA includes Spaceport America as a location from which we can launch and land our spaceflight system on a routine basis.
The restricted airspace will facilitate flight scheduling by preventing general commercial air traffic from entering the area. Additionally, the desert climate and its relatively predictable weather provide favorable launch conditions year-round. Our license from the FAA includes Spaceport America as a location from which we can launch and land our spaceflight system on a routine basis.
We attempt to protect our intellectual property rights, both in the United States and abroad, through a combination of patent, trademark, copyright, and trade secret laws, as well as nondisclosure and invention assignment agreements with our consultants and employees, and we seek to control access to and distribution of, our proprietary information through non-disclosure agreements with our vendors and business partners.
We attempt to protect our intellectual property rights, both in the United States and abroad, by using a combination of patent, trademark, copyright, and trade secret laws, as well as nondisclosure and invention assignment agreements with our consultants and employees, and we seek to control access to and distribution of, our proprietary information through non-disclosure agreements with our vendors and business partners.
Our SEC filings are also available free of charge on the Investor Information page of our website at virgingalactic.com as soon as reasonably practicable after they are filed with or furnished to the SEC. Our website and the information contained on or through that site are not incorporated into this Annual Report on Form 10-K. 20 Table of Contents
Our SEC filings are also available free of charge on the Investor Information page of our website at virgingalactic.com as soon as reasonably practicable after they are filed with or furnished to the SEC. Our website and the information contained on or through that site are not incorporated into this Annual Report on Form 10-K. 21 Table of Contents
While compensation is not defined in regulation or statute, the FAA does not consider refundable deposits for future spaceflight to be compensation. Moreover, the CSLA established a three-tiered indemnification system, subject to appropriations, for a portion of claims by third parties for injury, damage or loss that result from a commercial spaceflight incident.
While compensation is not defined in regulation or statute, the FAA does not consider refundable deposits for future spaceflight to be compensation. Moreover, the CSLA established a three-tiered indemnification system for a portion of claims by third parties for injury, damage or loss that result from a commercial spaceflight incident.
Under U.S. federal law and the CSLA, operators of spaceflights are required to obtain informed consent from both participants and members of the crew for any commercial human spaceflight. In addition, the CSLA requires that an operator must obtain any spaceflight participant’s informed consent before receiving compensation or making an agreement to fly.
Under U.S. federal law and the CSLAA, operators of spaceflights are required to obtain informed consent from both participants and members of the crew for any commercial human spaceflight. In addition, the CSLAA requires that an operator must obtain any spaceflight participant’s informed consent before receiving compensation or making an agreement to fly.
We have worked diligently for over a decade to plan every aspect of the future astronaut’s journey to become an astronaut, drawing on a world-class team with extensive experience with human spaceflight, high-end customer experiences, and reliable transportation system operations and safety.
We have worked diligently for over a decade to plan every aspect of the journey to become an astronaut, drawing on a world-class team with extensive experience with human spaceflight, high-end customer experiences, and reliable transportation system operations and safety.
This capability will enable scientific experiments as well as educational and research programs to be carried out by a broader range of individuals, organizations and institutions than ever before. Our commitment to advancing research and science has been present in all of our spaceflights to date.
This capability will enable scientific experiments as well as educational and research programs to be carried out by a broader range of individuals, organizations and institutions than ever before. Our commitment to advancing research and science has been present in many of our spaceflights to date.
Our suborbital platform is an end-to-end offering, which includes not only our vehicles, but also the hardware such as middeck lockers that we provide to researchers that request them, along with the processes and facilities needed for a successful campaign.
Our suborbital platform is an end-to-end offering, which includes not only our vehicles, but also the hardware such as payload lockers that we provide to researchers that request them, along with the processes and facilities needed for a successful campaign.
As a result, researchers have used parabolic aircraft and drop towers to create moments of microgravity and conduct significant research activities. While these solutions help address cost concerns, they offer only seconds of continuous microgravity per flight.
As a result, researchers have used parabolic aircrafts and drop towers to create moments of microgravity and conduct significant research activities. While these solutions help address cost concerns, they offer only seconds of continuous microgravity per flight.
Its design incorporates comprehensive critical safety features, including the ability to be safely shut down at any time, and its limited number of moving parts increases reliability and robustness for human spaceflight. Furthermore, the fuel is made from a benign substance that needs no special or hazardous storage. • Spaceport America .
Its design incorporates comprehensive critical safety features, including the ability to be safely shut down at any time, and its limited number of moving parts increases reliability and robustness for human spaceflight. Furthermore, the fuel is made from a benign substance that needs no special or hazardous storage. 5 Table of Contents • Spaceport America .
Researchers have historically utilized parabolic aircraft and drop towers to create moments of microgravity and conduct significant research activities related to the space environment. In most cases, these solutions offer only seconds of continuous microgravity time and do not offer access to the upper atmosphere or space itself. Researchers can also conduct experiments on sounding rockets, satellites or orbital platforms.
Researchers have historically utilized parabolic aircraft and drop towers to create moments of microgravity and conduct significant research activities utilizing the space-like environment. In most cases, these solutions offer only seconds of continuous microgravity time and do not offer access to the upper atmosphere or space itself. Researchers can also conduct experiments on sounding rockets, satellites or orbital platforms.
Furthermore, if potential concerns emerge after release from the mothership, spaceship can simply glide back to the runway. • The mothership's engine reliability. Highly reliable and rigorously tested jet engines made by Pratt and Whitney Canada power the first 45,000 feet of the journey to space. • Two pilots per vehicle.
Furthermore, if potential concerns emerge after release from the mothership, spaceship can simply glide back to the runway. 12 Table of Contents • The mothership's engine reliability. Highly reliable and rigorously tested jet engines made by Pratt and Whitney Canada power the first 45,000 feet of the journey to space. • Two pilots per vehicle.
We have had the considerable advantage of building and managing our initial community of future astronauts, comprised of individuals from 65 countries who have made reservations to fly on our spaceships. This community is actively engaged, allowing us to understand the style of customer service and experience expected before, during and after each flight.
We have had the considerable advantage of building and managing our initial community of future astronauts, comprised of individuals from over 60 countries who have made reservations to fly on our spaceships. This community is actively engaged, allowing us to understand the style of customer service and experience expected before, during and after each flight.
The commonality of cabin construction provides cost savings in production, as well as operational, maintenance and crew training advantages. The mothership’s all-composite material construction substantially reduces weight as compared to an all-metal design. The mothership is powered by four Pratt and Whitney Canada commercial turbo-fan engines.
The commonality of cabin construction provides cost savings 10 Table of Contents in production, as well as operational, maintenance and crew training advantages. The mothership’s all-composite material construction substantially reduces weight as compared to an all-metal design. The mothership is powered by four Pratt and Whitney Canada commercial turbo-fan engines.
Signature Campus in Sierra County In August 2022, the Company secured land to move forward with the development of a new astronaut campus and training facility in the State of New Mexico, near Spaceport America.
Signature Campus in Sierra County In August 2022, the Company purchased land to move forward with the development of a new astronaut campus and training facility in the State of New Mexico, near Spaceport America.
We are initially focused on human spaceflight for recreation and research, but we believe our differentiated technology and unique capabilities can be leveraged to address numerous commercial and government opportunities in the commercial space industry. We have developed an extensive set of integrated aerospace development capabilities for developing, manufacturing and testing aircraft and related propulsion systems.
We are initially focused on human spaceflight for personal exploration and research, but we believe our differentiated technology and unique capabilities can be leveraged to address numerous commercial and government opportunities in the commercial space industry. We have developed an extensive set of integrated aerospace development capabilities for developing, manufacturing and testing aircraft, spacecraft, and related propulsion systems.
Despite the importance of these missions and their cultural, scientific, economic and geopolitical influence, as of December 31, 2022, only approximately 640 humans have ever traveled above the Earth’s atmosphere into space. Overwhelmingly, these men and women have been government employees handpicked by government space agencies such as NASA, and trained over many years at significant expense.
Despite the importance of these missions and their cultural, scientific, economic and geopolitical influence, as of December 31, 2023, only approximately 675 humans have ever traveled above the Earth’s atmosphere into space. Overwhelmingly, these men and women have been government employees handpicked by government space agencies such as NASA, and trained over many years at significant expense.
Spaceport America is the first purpose-built commercial spaceport in the world and serves as the home of our terminal hangar building, officially designated the “Virgin Galactic Gateway to Space.” Spaceport America is located in New Mexico on 27 square miles of desert landscape, with access to 6,000 square miles of restricted airspace running from the ground to space.
Spaceport America is the first purpose-built commercial spaceport in the world and serves as the home of our terminal hangar building, officially designated the “Virgin Galactic Gateway to Space.” Spaceport America is located in New Mexico on more than 25 square miles of desert landscape, with access to 6,000 square miles of restricted airspace running from the ground to space.
While the 14 Table of Contents astronauts are enjoying their time in space, our spaceship’s pilots will have reconfigured the spaceship into its feathered re-entry configuration. After enjoying several minutes of weightlessness, our astronauts will maneuver back to their seats to prepare for re-entry.
While the astronauts are enjoying their time in space, our spaceship’s pilots will have reconfigured the spaceship into its feathered re-entry configuration. After enjoying several minutes of weightlessness, our astronauts will maneuver back to their seats to prepare for re-entry.
Our in-house propulsion team is in the process of upgrading our fuel cartridge production plant to increase the production rate and to reduce the unit production cost to accommodate planned growth in the spaceship fleet and drive increasingly attractive per-flight economics. Safety Systems We have designed our spaceflight system with a fundamental focus on safety.
Our in-house propulsion team is in the process of upgrading our rocket motor production plant to increase the production rate and to reduce the unit production cost to accommodate planned growth in the spaceship fleet and drive increasingly attractive per-flight economics. Safety Systems We have designed our spaceflight system with a fundamental focus on safety.
This rocket offers simple shut-off control at any point in the trajectory, unlike a traditional solid rocket motor. • Feathering system. Our unique wing feathering technology provides self-correcting capability that requires limited pilot input for our spaceship to align properly for re-entry. 12 Table of Contents • Astronaut preparation.
This rocket offers simple shut-off control at any point in the trajectory, unlike a traditional solid rocket motor. • Feathering system. Our unique wing feathering technology provides self-correcting capability that requires limited pilot input for our spaceship to align properly for re-entry. • Astronaut preparation.
Additionally, we expect to review, assess and modify the program regularly as we gain commercial experience. The Spaceflight Experience On the morning of their flight to space, the future astronauts will head out to the spaceport for their final flight briefings and preparation.
Additionally, we expect to continue to review, assess and modify the program regularly as we gain additional commercial experience. The Spaceflight Experience On the morning of their flight to space, the astronauts will head out to the spaceport for their final flight briefings and preparation.
Our future astronauts will interact with these technologies at our operational headquarters at Spaceport America, the first purpose-built commercial spaceport, and our terminal hangar building, officially designated the “Virgin Galactic Gateway to Space.” 9 Table of Contents Our Carrier Aircraft—The Mothership The mothership is a twin-fuselage, custom-built aircraft designed to carry spaceships up to an altitude of approximately 45,000 feet, where the spaceship is released for its flight into space.
Our astronauts will interact with these technologies at Spaceport America, the first purpose-built commercial spaceport, and our terminal hangar building, officially designated the “Virgin Galactic Gateway to Space.” Our Carrier Aircraft—The Mothership The mothership is a twin-fuselage, custom-built aircraft designed to carry spaceships up to an altitude of approximately 45,000 feet, where the spaceship is released for its flight into space.
Although leased, the facilities were built with our operational requirements and our future astronauts in mind, with comprehensive consideration of its practical function, while also providing the basis for the Virgin Galactic experience. • Experienced management team and an industry-leading flight team.
Although leased, the facilities were built with our operational requirements and our astronauts in mind, with comprehensive consideration of its practical function, while also providing the basis for the Virgin Galactic experience. 9 Table of Contents • Experienced management team and an industry-leading flight team.
User experience features are expected to include strategically positioned high-definition video cameras, flight data displays and cabin lighting. Virgin companies are renowned for their interior design, particularly in the aviation industry. That experience and reputation have been brought to bear on both spaceship and spaceport interiors to optimize the customer journey.
User experience features are expected to include strategically positioned high-definition video cameras and phase-sequenced cabin lighting. Virgin companies are renowned for their interior design, particularly in the aviation industry. That experience and reputation have been brought to bear on both spaceship and spaceport interiors to optimize the customer journey.
Using the mothership’s air launch capacity, rather than a standard ground-launch, reduces the energy requirements of 4 Table of Contents our spaceflight system as the spaceship does not have to ascend through the higher density atmosphere closest to the Earth’s surface. Our carrier aircraft is designed to launch thousands of spaceship flights over its lifetime.
Using the mothership’s air launch capacity, rather than a standard ground-launch, reduces the energy requirements of our spaceflight system as the spaceship does not have to ascend through the higher density atmosphere closest to the Earth’s surface. Our carrier aircraft is designed to launch hundreds of spaceship flights over its lifetime.
Within seconds, the rocket motor will be fired, instantly producing acceleration forces of up to 4Gs as the spaceship undertakes a near vertical climb and achieves speeds of more than Mach 3. The rocket motor will fire for approximately 60 seconds, burning all of its propellant, and the spaceship will coast up to apogee.
Within seconds, the rocket motor will be ignited, producing acceleration forces of up to 4Gs as the spaceship undertakes a near vertical climb and achieves speeds of approximately Mach 3. The rocket motor will fire for approximately 60 seconds, burning all of its propellant, and the spaceship will coast up to apogee.
The future astronauts will then meet up with their fellow future astronauts and board our spaceship, which will already be mated to the mothership. The spaceship cabin has been designed, like the spaceport interior, to deliver an aesthetic consistent with our brand values and optimize the flight experience.
The astronauts will then meet up with their fellow astronauts and board our spaceship, which will already be mated to the mothership. 14 Table of Contents The spaceship cabin has been designed, like the spaceport interior, to deliver an aesthetic consistent with our brand values and optimize the flight experience.
This reusable launch platform design provides a flight experience and economics similar to commercial airplanes and may offer a considerable economic advantage over other potential launch alternatives. Additionally, our carrier aircraft is designed to have a rapid turnaround time to enable it to provide frequent spaceflight launch services for multiple spaceships. • Our spaceship .
This reusable launch platform design provides a flight experience and economics similar to commercial airplanes and offers an economic advantage over other potential launch alternatives. Additionally, our carrier aircraft is designed to have a rapid turnaround time to enable it to provide frequent spaceflight launch services for multiple spaceships. • Our spaceships .
Spaceport America The future astronauts’ flight preparation and experience will take place at The Gateway To Space at Spaceport America, the first purpose-built commercial spaceport in the world. Spaceport America is located in New Mexico on 27 square miles of desert landscape and includes a space terminal, hangar facilities and a 12,000 foot runway.
Spaceport America Our astronauts’ flight preparation and experience will take place at The Gateway To Space at Spaceport America, the first purpose-built commercial spaceport in the world. Spaceport America is located in New Mexico on more than 25 square miles of desert landscape and includes a space terminal, hangar facilities and a 12,000 foot runway.
The fuel cartridge is consumed over the course of a flight, meaning that each spaceship flight will require the installation of a new, replaceable fuel cartridge that contains the fuel used in the hybrid rocket motor. The assembly of this fuel cartridge is designed to be efficient and to support high rates of commercial spaceflight.
The fuel cartridge is consumed over the course of a flight, meaning that each spaceship flight will require the installation of a new hybrid rocket motor. The assembly of this fuel cartridge with the hybrid rocket motor is designed to be efficient and to support high rates of commercial spaceflight.
Our team of pilots is similarly experienced, with 267 years of collective flight experience, and includes former test pilots for NASA, the Royal Air Force, the Royal Canadian Air Force, the U.S. Air Force, the Italian Air Force, and the U.S. Marine Corps.
Our team of pilots is similarly experienced, with decades of flight and flight test experience, and includes former test pilots for NASA, the Royal Air Force, the Royal Canadian Air Force, the U.S. Air Force, the Italian Air Force, and the U.S. Marine Corps.
As a result, most training is expected to involve hands-on activities with real flight hardware or with high fidelity mock-ups. Although broadly similar for each flight, the training program and the flight schedule may vary slightly depending on the backgrounds, personalities, physical health of the future astronauts and weather and other conditions.
As a result, most training involves hands-on activities with real flight hardware or with high fidelity mock-ups. Although broadly similar for each flight, the training program and the flight schedule may vary slightly depending on the backgrounds, personalities, physical health of the astronauts and weather and other conditions.
Total Workforce Demographics: • Compensation and Benefits: ◦ Virgin Galactic strives to offer competitive compensation, benefits and services that meet the needs of its employees, including short-term and long-term incentive programs, defined contribution plan, healthcare benefits, and wellness and employee assistance programs.
Total Workforce Demographics: 20 Table of Contents • Compensation and Benefits: ◦ Virgin Galactic strives to offer competitive compensation, benefits and services that meet the needs of its employees, including short-term and long-term incentive programs, defined contribution plans, healthcare benefits, and wellness and employee assistance programs.
The feathering system works like a badminton shuttlecock, naturally orienting the spaceship into the desired re-entry position with minimal pilot and computer input. This re-entry position uses the entire bottom of the spaceship to create substantial drag, thereby slowing the vehicle to a safe re-entry speed and preventing unacceptable heat loads.
The feathering system works like a badminton shuttlecock, naturally orienting the spaceship into the desired re-entry position with minimal pilot input. This re-entry position uses the entire bottom of the spaceship to create substantial drag, thereby slowing the vehicle to a safe re-entry speed and reducing both heat and structural loads.
We believe a significant market opportunity exists for a company that can provide high net worth individuals with the opportunity to enjoy a spaceflight experience in comfort and safety. While not yet in commercial service, we have already received significant interest from future astronauts and research organizations.
We believe a significant market opportunity exists for a company that can provide high net worth individuals with the opportunity to enjoy a spaceflight experience in comfort and safety. We have received significant interest from future astronauts and research organizations.
The land, located in Sierra County, will be home to a new, first-of-its-kind astronaut campus, for the exclusive use by Virgin Galactic future astronauts and up to three of their guests in advance of a spaceflight from Spaceport America.
The land, located in Sierra County, is planned to be home to a new, first-of-its-kind astronaut campus, for the exclusive use by Virgin Galactic astronauts and their guests in advance of a spaceflight from Spaceport America.
Once the reservation transaction is completed, the customer receives immediate membership of the Future Astronaut community and access to an annual calendar of money-can’t-buy events and experiences, including exclusive weeks 'at home' with Sir Richard Branson, visits to Virgin Galactic’s facilities in New Mexico and California, as well as space readiness activities such as zero-gravity aircraft flights and high-g centrifuge training.
Once the reservation transaction is completed, the customer receives immediate membership of the Future Astronaut community and access to an annual calendar of money-can’t-buy events and experiences, visits to Virgin Galactic’s facilities in New Mexico and California, as well as space readiness activities such as zero-gravity aircraft flights and high-g centrifuge training.
While these highly capable government astronauts have inspired millions, individuals in the private sector have had extremely limited opportunity to fly into space, regardless of their wealth or ambitions. We are planning to change that. Over the past decade, several trends have converged to invigorate the commercial space industry.
While these highly capable government astronauts have inspired millions, individuals in the private sector have had extremely limited opportunity to fly into space, regardless of their wealth or ambitions. 6 Table of Contents Over the past decade, several trends have converged to invigorate the commercial space industry.
We were formed in 2004 after the architecture of our spaceflight system had been proven in prototype form, which in itself had taken several years. In total, the development of our platform and capabilities has required approximately $2 billion in total investment to 8 Table of Contents date.
We were formed in 2004 after the architecture of our spaceflight system had been proven in prototype form, which in itself had taken several years. In total, the development of our platform and capabilities has required significant investment to date.
Our goal is to offer our future astronauts an unmatched, safe, and affordable journey to space without the need for any prior experience or significant prior training and preparation.
Our goal is to offer our customers an unmatched and safe journey to space without the need for any previous experience or significant prior training and preparation.
While these companies are currently focused on providing orbital spaceflight transportation to government agencies, a fundamentally different product from ours, we cannot ensure that one or more of these companies will not shift their focus to include suborbital spaceflight and directly compete with us in the future.
While these companies are currently focused on providing orbital spaceflight transportation to government agencies, a fundamentally different product from ours, we cannot ensure that one or more of these companies will not shift their focus to include suborbital spaceflight and directly compete with us in the future. We may also explore the application of our proprietary technologies for other uses.
Leveraging the extensive design engineering invested in VSS Unity, we are currently manufacturing additional spaceships based on that design, at a substantially lower cost. In addition, we are manufacturing rocket motors to support the growth of our commercial operations over time.
Leveraging the extensive design engineering invested in VSS Unity, we are currently designing and producing a new fleet of spaceships, our Delta Class, based on that design, at a substantially lower cost. In addition, we are manufacturing rocket motors to support the growth of our commercial operations over time.
As of December 31, 2022, the tickets sold represent approximately $207 million in expected future spaceflight revenue upon completion of space flights and collection of outstanding balances owed by customers, which become due prior to space flights.
As of December 31, 2023, the tickets sold represent approximately $205 million in expected future spaceflight revenue upon completion of spaceflights and collection of outstanding balances owed by customers, which become due prior to spaceflights.
Further, we have developed a significant amount of know-how, expertise and capability that we believe we can leverage to capture growing demand for innovative, agile and low-cost development projects for third parties, including contractors, government agencies and commercial service providers.
Further, we have developed a significant amount of know-how, expertise and capability that we believe we can leverage to capture growing demand for innovative, agile and low-cost development projects for third parties, including contractors, government agencies and commercial service providers. Commercial Spaceflight The market for commercial spaceflight for private individuals is new and virtually untapped.
The spaceship is a rocket-powered winged vehicle designed to achieve a maximum speed of over Mach 3 and has a flight duration, measured from the mothership’s takeoff to landing, of up to approximately 90 minutes. The spaceship begins each mission by being carried to an altitude of approximately 45,000 feet by the mothership before being released.
The spaceship is a rocket-powered winged vehicle designed to achieve a maximum speed of over Mach 3 and has a flight duration, measured from passenger boarding to the disembarkation, of approximately 90 minutes. 11 Table of Contents The spaceship begins each mission by being carried to an altitude of approximately 45,000 feet by the mothership before being released.
The platform offers a routine, reliable and responsive service allowing for 5 Table of Contents experiments to be repeated rapidly and frequently and with the opportunity to be tended in-flight by one or more researchers.
The platform offers a routine, reliable and responsive launch service allowing for experiments to be conducted rapidly and frequently and with the opportunity to be tended in-flight by one or more researchers.
Upon release, the pilot fires the hybrid rocket motor, which propels the spaceship on a near vertical trajectory into space. Once in space, after providing the future astronauts with amazing views and a weightlessness experience, a pilot uses the spaceship’s unique "wing-feathering" feature in order to prepare the vehicle for re-entry.
Upon release, the pilot ignites the hybrid rocket motor, which propels the spaceship on a near vertical trajectory into space. Once in space, astronauts enjoy amazing views and a weightlessness experience, and the pilots use the spaceship’s unique "wing-feathering" feature in order to prepare the vehicle for re-entry.
By leveraging our technology and operations, we believe we will also have an opportunity in the future to pursue growth opportunities abroad, including by potentially opening additional spaceports or entering into other arrangements with different international government agencies.
By leveraging our technology and operations, we believe we will also have an opportunity in the future to pursue growth opportunities abroad, including by potentially opening additional spaceports or entering into other arrangements with different international government agencies. We also expect to continue and expand our government and research payload business, in addition to developing additional commercial partnerships.
Item 1. Business. Overview We are at the vanguard of a new industry, pioneering a consumer space experience using reusable spaceflight systems. We believe the commercial exploration of space represents one of the most exciting and important technological initiatives of our time. Approximately 640 humans have ever traveled above the Earth’s atmosphere into space.
Item 1. Business. Overview We are at the vanguard of a new industry, pioneering a consumer space experience using reusable spaceflight systems. We believe the commercial exploration of space represents one of the most exciting and important technological initiatives of our time.
Our Chief Executive Officer spent more than 30 years working at The Walt Disney Company, most recently as its President and Managing Director, Disney Parks International, and leads a senior management and advisory team with extensive experience in the aerospace industry, including NASA’s former space shuttle launch integration manager and former Senior Vice President of Delta Air Lines' TechOps Services Group.
Our Chief Executive Officer spent more than 30 years working at The Walt Disney Company, most recently as its President and Managing Director, Disney Parks International. We also have a senior management team with extensive experience in the aerospace industry, including NASA’s former space shuttle launch integration manager.
The future astronaut flight preparation and experience will take place at our operational headquarters at Spaceport America.
The astronaut flight preparation and experience takes place at our operational headquarters at Spaceport America.
The EAR similarly regulates the export of hardware, software, and technology that has commercial or “dual-use” applications (i.e., for both military and commercial applications) or that have less sensitive military or space-related applications that are not subject to the ITAR. The regulations exist to advance the national security and foreign policy interests of the United States.
The EAR similarly regulates the export of hardware, software, and technology that has commercial or “dual-use” applications (i.e., for both military and commercial applications) or that have less sensitive military or space-related applications that are not subject to the ITAR.
We believe our existing spaceflight system addresses many of these issues by providing: • researchers the ability to accompany and tend to their experiments in space; • the ability to fly payloads repeatedly, which can enable lower cost and iterative experiments; • prompt access to experiments following landing; • access to a large payload capacity; and • in the case of sounding rockets, gentler G-loading. 15 Table of Contents We believe the demand for access to suborbital research is likely to come from educational and commercial research institutions across a broad range of technical disciplines.
We believe our existing spaceflight system addresses many of these issues by providing: 15 Table of Contents • Researchers the ability to accompany and tend to their experiments in space; • The ability to fly payloads repeatedly, which can enable lower cost and iterative campaigns; • Prompt access to experiments following landing; • Access to a large payload capacity; and • In the case of sounding rockets, gentler G-loading.
Additionally, our carrier aircraft has a rapid turnaround time, enabling it to provide frequent spaceflight launch services for multiple spaceships. 10 Table of Contents The mothership was designed with a view towards supporting our international expansion and has a range of up to 2,800 nautical miles.
Additionally, our carrier aircraft has a rapid turnaround time, enabling it to provide frequent spaceflight launch services for multiple spaceships. The mothership was designed with a view towards supporting our international expansion and has a range of up to 2,800 nautical miles. As a result, the mothership can transport our spaceships virtually anywhere in the world to establish launch capabilities.
Additional Potential Applications of our Technology and Expertise We believe we can leverage our robust platform of advanced technologies, significant design, engineering and manufacturing experience, and thousands of hours of flight training to develop additional aerospace applications, including, among others, the manufacturing of aircrafts capable of high-speed point-to-point travel.
Additional Potential Applications of our Technology and Expertise We believe we can leverage our robust platform of advanced technologies, significant design, engineering and manufacturing experience, and thousands of hours of flight training to develop additional aerospace applications.
Further, even investigations of suspected or alleged violations can be expensive and disruptive. Thus, violations (or allegations of violations) of applicable export control laws and regulations could materially adversely affect our reputation, business, financial condition and results of operations. Human Capital Our employees are the cornerstone to our success.
Further, even investigations of suspected or alleged violations can be expensive and disruptive. Thus, violations (or allegations of violations) of applicable export control laws and regulations could materially adversely affect our reputation, business, financial condition and results of operations. Human Capital At Virgin Galactic, our employees are critical to our mission of opening access to space for all.
The Virgin brand carries an exceptional reputation worldwide for innovation, customer experience, adventure and luxury. We have been planning our customer journey for many years and have refined our plans with the help of our future astronauts, many of whom are highly regarded enthusiasts who are committed to optimizing their experience and our success.
We have been planning our customer journey for many years and have refined our plans with the help of our astronauts, many of whom are highly regarded enthusiasts who are committed to optimizing their experience and our success.
Prior to traveling to Spaceport America to begin their journey, each future astronaut will be required to complete a medical history questionnaire. In addition to completing this questionnaire, each future astronaut will also undergo a medical assessment with an aerospace medical specialist, typically within six months of flight.
Prior to traveling to Spaceport America to begin their journey, each astronaut will be required to complete a medical history questionnaire. In addition to completing this questionnaire, each astronaut will also undergo a medical assessment with an aerospace medical specialist, typically within six months of flight. Some astronauts may be asked for additional testing as indicated by their health status.
The spaceship is a rocket-powered winged vehicle designed to achieve a maximum speed of over Mach 3 and has a flight duration, measured from the takeoff of our carrier aircraft to the landing of spaceship, of up to approximately 90 minutes. The spaceship cabin has been designed to maximize the future astronaut’s safety, experience and comfort.
The spaceship is a rocket-powered winged vehicle designed to achieve a maximum speed of over Mach 3 and has a flight duration, measured from passenger boarding to the disembarkation, of approximately 90 minutes. The spaceship cabin has been designed to maximize astronaut safety, experience and comfort.
Since the Company was formed in 2004, we have developed reusable vehicles and capabilities that will allow us to move towards airline-like operations for spaceflight, and which were the basis for the FAA granting us our commercial space launch license in 2016.
Since the Company was formed in 2004, we have developed our current spaceflight system consisting of reusable vehicles and capabilities that allow us to conduct efficient and frequent operations for spaceflight and which were the basis for the FAA granting us our commercial space launch license in 2016.
Once the spaceship has descended back to an altitude of approximately 55,000 feet above sea level, the wings un-feather back to their normal position, and the spaceship glides back to the base for a runway landing, similar to NASA’s Space Shuttle or any other glider.
Once the spaceship has descended back to an altitude of approximately 55,000 feet above sea level, the wings de-feather back to their normal position, and the spaceship glides back to the base for a runway landing, similar to NASA’s Space Shuttle or any other glider. The spaceship’s feathering system was originally developed and tested on SpaceShipTwo’s smaller predecessor, SpaceShipOne.
The various federal and state regulations regarding informed consent for suborbital commercial spaceflight are evolving, and we continue to monitor these developments. However, we cannot predict the timing, scope or terms of any other state, federal or foreign regulations relating to informed consent and waivers of claims relating to commercial human spaceflight.
However, we cannot predict the timing, scope or terms of any other state, federal or foreign regulations relating to informed consent and waivers of claims relating to commercial human spaceflight.
The U.S. government agencies responsible for administering the ITAR and the EAR have significant discretion in the interpretation and enforcement of these regulations. The agencies also have significant discretion in approving, denying, or conditioning authorizations to engage in controlled activities.
The regulations exist to advance the national security and foreign policy interests of the United States. 19 Table of Contents The U.S. government agencies responsible for administering the ITAR and the EAR have significant discretion in the interpretation and enforcement of these regulations. The agencies also have significant discretion in approving, denying, or conditioning authorizations to engage in controlled activities.
Additionally, we expect that, as we commence commercial operations, our staff will become more efficient in various aspects of operations and maintenance to reduce associated operating costs. • Leverage our proprietary technology and deep manufacturing experience to augment our product and service offerings and expand into adjacent and international markets.
Additionally, we expect that our staff will become more efficient in various aspects of operations and maintenance to reduce associated operating costs over time. • Leverage our proprietary technology and deep manufacturing experience to augment our product and service offerings and expand into adjacent and international markets. We have developed an extensive set of integrated aerospace development capabilities and technologies.
Some future astronauts may be asked for additional testing as indicated by their health status. Based on our observations in tests involving a large group of our future astronauts, we believe that the vast majority of people who want to travel to space in our program will not be prevented from doing so by health or fitness considerations.
Based on our observations in tests involving a large group of our future astronauts, we believe that the vast majority of people who want to travel to space in our program will not be prevented from doing so by health or fitness considerations. Pre-Flight Training Our astronauts participate in several days of pre-flight training.
As of December 31, 2022, we had 1,166 employees across the globe. Prior to joining our company, many of our employees had prior experience working for a wide variety of reputed commercial aviation, aerospace, high-technology, and world-recognized organizations.
Prior to joining the Company, many of our employees had prior experience working for a wide variety of highly reputed commercial aviation, aerospace, military, high technology and world-recognized organizations.
We have developed an extensive set of integrated aerospace development capabilities and technologies. While our primary focus for the foreseeable future will be on commercializing human space flight, we intend to explore the application of our proprietary technologies and our capabilities in areas such as design, engineering, composites manufacturing, high-speed propulsion and production for other commercial and government uses.
While our primary focus for the foreseeable future will be on developing the Delta Class spaceship fleet, we intend to explore the application of our proprietary technologies and our capabilities in areas such as design, engineering, composites manufacturing, high-speed propulsion and production for other commercial and government uses.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeGiven the great discretion the government has in issuing or denying such authorizations to advance U.S. national security and foreign policy interests, there can be no assurance we will be successful in our future efforts to secure and maintain necessary licenses, registrations, or other U.S. government regulatory approvals.
Biggest changeGiven the great discretion the government has in issuing or denying such authorizations to advance U.S. national security and foreign policy interests, there can be no assurance we will be successful in our future efforts to secure and maintain necessary licenses, registrations, or other U.S. government regulatory approvals. 34 Table of Contents Compliance with ever evolving U.S. federal, state and foreign laws, regulations and other requirements relating to privacy, the processing of personal information and consumer protection involves significant expenditure and resources, and any actual or perceived failure by us or third parties we rely upon to comply could adversely affect our business, results of operations and our financial condition.
In addition, marketing campaigns, which we have not historically utilized, can be expensive and may not result in the acquisition of future astronauts in a cost-effective manner, if at all. Further, as our brand becomes more widely known, future marketing campaigns or brand content may not attract new future astronauts at the same rate as past campaigns or brand content.
In addition, marketing campaigns, which we have not historically utilized, can be expensive and may not result in the acquisition of new astronauts in a cost-effective manner, if at all. Further, as our brand becomes more widely known, future marketing campaigns or brand content may not attract new astronauts at the same rate as past campaigns or brand content.
Due to the inherent risks associated with commercial spaceflight, there is the possibility that any accident or catastrophe could lead to the loss of human life or a medical emergency. Human spaceflight is an inherently risky activity that can lead to accidents or catastrophes impacting human life.
Due to the inherent risks associated with commercial spaceflight, there is the possibility that any accident or catastrophe could lead to the loss of human life or a medical emergency. Spaceflight is an inherently risky activity that can lead to accidents or catastrophes impacting human life.
Our estimates for the total addressable market for commercial human spaceflight are based on a number of internal and third-party estimates, including our current backlog, the number of consumers who have expressed interest in our astronaut experience, assumed prices at which we can offer our astronaut experience, assumed flight cadence, our ability to leverage our current manufacturing and operational processes and general market conditions.
Our estimates for the total addressable market for commercial spaceflight are based on a number of internal and third-party estimates, including our current backlog, the number of consumers who have expressed interest in our astronaut experience, assumed prices at which we can offer our astronaut experience, assumed flight cadence, our ability to leverage our current manufacturing and operational processes and general market conditions.
Our disclosure controls and procedures address cybersecurity and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from security breaches. Our business is subject to a wide variety of extensive and evolving government laws and regulations. Failure to comply with such laws and regulations could have a material adverse effect on our business.
Our disclosure controls and procedures address cybersecurity and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from cybersecurity breaches. Our business is subject to a wide variety of extensive and evolving government laws and regulations. Failure to comply with such laws and regulations could have a material adverse effect on our business.
We believe our ability to compete successfully as a commercial provider of human spaceflight does and will depend on a number of factors, which may change in the future due to increased competition, including the price of our offerings, consumer confidence in the safety of our offerings, consumer satisfaction for the experiences we offer, and the frequency and availability of our offerings.
We believe our ability to compete successfully as a commercial provider of spaceflight does and will depend on a number of factors, which may change in the future due to increased competition, including the price of our offerings, consumer confidence in the safety of our offerings, consumer satisfaction for the experiences we offer, and the frequency and availability of our offerings.
Our prospects and operations may be adversely affected by changes in consumer preferences and economic conditions that affect demand for our spaceflights. Because our business is currently concentrated on a single, discretionary product category, commercial human spaceflight, we are vulnerable to changes in consumer preferences or other market changes.
Our prospects and operations may be adversely affected by changes in consumer preferences and economic conditions that affect demand for our spaceflights. Because our business is currently concentrated on a single, discretionary product category, commercial spaceflight, we are vulnerable to changes in consumer preferences or other market changes.
The continued expansion of our business may also require additional manufacturing and operational facilities, as well as space for administrative support, and there is no guarantee that we will be able to find suitable locations or partners for the manufacture and operation of our spaceflight systems.
The expansion of our business may also require additional manufacturing and operational facilities, as well as space for administrative support, and there is no guarantee that we will be able to find suitable locations or partners for the manufacture and operation of our spaceflight systems.
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. As part of our growth strategy, we expect to leverage our initial U.S. operations to expand internationally.
If we commercialize spaceflights 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. As part of our growth strategy, we expect to leverage our initial U.S. operations to expand internationally.
In that event, we expect that we would be subject to additional risks related to entering into international business relationships, including: 30 Table of Contents • restructuring our operations to comply with local regulatory regimes; • identifying, hiring and training highly skilled personnel; • unexpected changes in tariffs, trade barriers and regulatory requirements; • economic weakness, including inflation, or political instability in foreign economies and markets; • compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; • foreign taxes, including withholding of payroll taxes; • the need for U.S. government approval to operate our spaceflight systems outside the United States; • foreign currency fluctuations, which could result in increased operating expenses and reduced revenue; • government appropriation of assets; • workforce uncertainty in countries where labor unrest is more common than in the United States; and • disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including anti-corruption laws and anti-money laundering regulations, as well as exposure of our foreign operations to liability under these regulatory regimes.
In that event, we expect that we would be subject to additional risks related to entering into international business relationships, including: • restructuring our operations to comply with local regulatory regimes; • identifying, hiring and training highly skilled personnel; • unexpected changes in tariffs, trade barriers and regulatory requirements; • economic weakness, including inflation, or political instability in foreign economies and markets; • compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; • foreign taxes, including withholding of payroll taxes; • the need for U.S. government approval to operate our spaceflight systems outside the United States; • foreign currency fluctuations, which could result in increased operating expenses and reduced revenue; • government appropriation of assets; • workforce uncertainty in countries where labor unrest is more common than in the United States; and • disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including anti-corruption laws and anti-money laundering regulations, as well as exposure of our foreign operations to liability under these regulatory regimes.
To date, we have primarily sold the reservations for our astronaut experience to future astronauts through direct sales and have sold a limited number of seats each year. Our success depends, in part, on our ability to attract new future astronauts in a cost-effective manner.
To date, we have primarily sold the reservations for our astronaut experience through direct sales and have sold a limited number of seats each year. Our success depends, in part, on our ability to attract new astronauts in a cost-effective manner.
If our operations continue to grow as planned, of which there can be no assurance, we will need to expand our sales and marketing, research and development, customer and commercial strategy, products and services, supply, and manufacturing and distribution functions.
If our operations grow as planned, of which there can be no assurance, we will need to expand our sales and marketing, research and development, customer and commercial strategy, products and services, supply, and manufacturing and distribution functions.
The trading price of our common stock may fluctuate due to a variety of factors, including: • changes in the industries in which we operate; • the number of flights we schedule for a period, the number of seats we are able to sell in any given spaceflight and the price at which we sell them; • delays in development of additional spaceships and motherships or in the completion of our ground and flight testing programs; • developments involving our competitors; • unexpected weather patterns, maintenance issues, natural disasters or other events that force us to cancel or reschedule flights; • variations in our operating performance and the performance of our competitors in general; • actual or anticipated fluctuations in our quarterly or annual operating results; • publication of research reports by securities analysts about us, our competitors or our industry; • the public’s reaction to our press releases, public announcements and filings with the SEC; • additions and departures of key employees and personnel; • competition for talent and skill-sets required; • changes in laws and regulations affecting our business; • commencement of, or involvement in, litigation involving us; • changes in our capital structure, such as future issuances of securities or the incurrence of debt; • investors mistaking developments involving other companies, including Virgin-branded companies, as involving us and our business; • the volume of shares of our common stock available for public sale; • sales of common stock by our directors, officers or significant stockholders, or the perception that such sales may occur; 42 Table of Contents • short sales of our common stock; and • general economic and political conditions such as the COVID-19 global health crisis or other pandemics or epidemics, recessions, inflation, interest rates, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism.
The trading price of our common stock may fluctuate due to a variety of factors, including: • changes in the industries in which we operate; • the number of flights we schedule for a period, the number of seats we are able to sell in any given spaceflight and the price at which we sell them; • delays in development of additional spaceships and motherships, including our Delta Class spaceships, or in the completion of our ground and flight testing programs; • developments involving our competitors; • unexpected weather patterns, maintenance issues, natural disasters or other events that force us to cancel or reschedule flights; • variations in our operating performance and the performance of our competitors in general; • actual or anticipated fluctuations in our quarterly or annual operating results; • publication of research reports by securities analysts about us, our competitors or our industry; • the public’s reaction to our press releases, public announcements and filings with the SEC; • additions and departures of key employees and personnel; • competition for talent and skill-sets required; • changes in laws and regulations affecting our business; • commencement of, or involvement in, litigation involving us; • changes in our capital structure, such as future issuances of securities or the incurrence of debt; • investors mistaking developments involving other companies, including Virgin-branded companies, as involving us and our business; • the volume of shares of our common stock available for public sale; • sales of common stock by our directors, officers or significant stockholders, or the perception that such sales may occur; • short sales of our common stock; and • general economic and political conditions such as the COVID-19 global health crisis or other pandemics or epidemics, recessions, inflation, interest rates, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism.
We will also need to continue to leverage our manufacturing and operational systems and processes, and there is no guarantee that we will be able to scale the business and the manufacture of spacecraft as currently planned or within the planned timeframe.
We will also need to leverage our manufacturing and operational systems and processes, and there is no guarantee that we will be able to scale the business and the manufacture of spacecraft as currently planned or within the planned timeframe.
Our indebtedness could have significant negative consequences for our security holders, business, results of operations and financial condition by, among other things: • increasing our vulnerability to adverse economic and industry conditions; • limiting our ability to obtain additional financing; • in the event interest accrues on the 2027 Notes or additional indebtedness, requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes; • limiting our flexibility to plan for, or react to, changes in our business; • diluting the interests of our existing stockholders if we issue shares of our common stock upon conversion of the Notes or additional indebtedness; and 40 Table of Contents • placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.
Our indebtedness could have significant negative consequences for our security holders, business, results of operations and financial condition by, among other things: • increasing our vulnerability to adverse economic and industry conditions; • limiting our ability to obtain additional financing; • in the event interest accrues on the 2027 Notes or additional indebtedness, requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes; • limiting our flexibility to plan for, or react to, changes in our business; • diluting the interests of our existing stockholders if we issue shares of our common stock upon conversion of the Notes or additional indebtedness; and • placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.
Furthermore, VIL’s consent is also required for the following, among other things, for so long as VIL continues to beneficially own, in the aggregate, at least 10% of the shares of our common stock that an affiliate of VIL beneficially owned upon completion of the Virgin Galactic Business Combination: • any sale, merger, business combination or similar transaction to which we are a party; • any amendment, modification or waiver of any provision of our certificate of incorporation or bylaws; • any liquidation, dissolution, winding-up or causing any voluntary bankruptcy or related actions with respect to us; or • any issuance or sale of any shares of our capital stock or securities convertible into or exercisable for any shares of our capital stock in excess of 5% of our then-issued and outstanding shares, other than issuances of shares of capital stock upon the exercise of options to purchase shares of our capital stock.
Furthermore, VIL’s consent is also required for the following, among other things, for so long as VIL continues to beneficially own, in the aggregate, at least 10% of the shares of our common stock that an affiliate of VIL beneficially owned upon completion of the Virgin Galactic Business Combination whether or not VIL acquires any additional shares of our common stock: • any sale, merger, business combination or similar transaction to which we are a party; • any amendment, modification or waiver of any provision of our certificate of incorporation or bylaws; • any liquidation, dissolution, winding-up or causing any voluntary bankruptcy or related actions with respect to us; or • any issuance or sale of any shares of our capital stock or securities convertible into or exercisable for any shares of our capital stock in excess of 5% of our then-issued and outstanding shares, other than issuances of shares of capital stock upon the exercise of options to purchase shares of our capital stock.
Our facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, terrorist attacks, power losses, telecommunications failures and similar events. In the event that our or any third-party provider’s systems or service abilities are hindered by any of the events discussed above, our ability to operate may be impaired.
Our facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, terrorist attacks, power losses, telecommunications failures, cybersecurity incidents (discussed above) and similar events. In the event that our or any third-party provider’s systems or service abilities are hindered by any of the events discussed above, our ability to operate may be impaired.
Pursuant to the terms of the stockholders' agreement entered in connection with the consummation of the Virgin Galactic Business Combination (the "Stockholders’ Agreement"), Virgin Investments Limited (“VIL”) has a contractual right to be able to influence the outcome of corporate actions so long as it owns a significant portion of our total outstanding shares of common stock.
Pursuant to the terms of the stockholders' agreement (the "Stockholders' Agreement") entered in connection with the consummation of the Virgin Galactic business combination in October 2019 (the "Virgin Galactic Business Combination"), Virgin Investments Limited (“VIL”) has a contractual right to be able to influence the outcome of corporate actions so long as it owns a significant portion of our total outstanding shares of common stock.
Risks Related to Our Securities and Indebtedness Our indebtedness could expose us to risks that could adversely affect our business, financial condition and results of operations. In 2022, we sold $425,000,000 aggregate principal amount of 2.50% convertible senior notes due 2027 (the "2027 Notes"). We may also incur additional indebtedness to meet future needs.
Risks Related to Our Securities and Indebtedness Our indebtedness could expose us to risks that could adversely affect our business, financial condition and results of operations. In 2022, we sold $425 million aggregate principal amount of 2.50% convertible senior notes due 2027 (the "2027 Notes"). We may also incur additional indebtedness to meet future needs.
We have limited experience in marketing and selling human spaceflights, which we refer to as our astronaut experience. If we are unable to utilize our current sales organization effectively, or to expand our sales organization as needed, to adequately target and engage our potential future astronauts, our business may be adversely affected.
We have limited experience in marketing and selling spaceflights, which we refer to as our astronaut experience. If we are unable to utilize our current sales organization effectively, or to expand our sales organization as needed, to adequately target and engage our potential astronauts, our business may be adversely affected.
The success of our human spaceflight operations will depend on our achieving and maintaining a sufficient level of passenger capacity on our spaceflights.
The success of our spaceflight operations will depend on our achieving and maintaining a sufficient level of passenger capacity on our spaceflights.
Prolonged disruptions in the supply of any of our key raw materials or components, difficulty qualifying new sources of supply, implementing use of replacement materials or new sources of supply or any volatility in prices could have a material adverse effect on our ability to operate in a cost-efficient, timely manner and could cause us to experience cancellations or delays of scheduled spaceflights, customer cancellations or reductions in our prices and margins, any of which could harm our business, financial condition and results of operations.
Prolonged disruptions in the supply of any of our key raw materials or components, difficulty qualifying new sources of supply, implementing use of replacement materials or new sources of supply or any volatility in prices could have a material adverse effect on our ability to operate in a cost-efficient, timely manner and could cause us to experience cancellations or delays of scheduled spaceflights, customer 27 Table of Contents cancellations or reductions in our prices and margins, any of which could harm our business, financial condition and results of operations.
We believe the steps we have taken are sufficient to address the issues noted in the NTSB’s report; however, it is impossible to completely eliminate the potential for human error, and there is a possibility that other accidents may occur in the future as a result of human error or for a variety of other reasons, some of which may be out of our control.
We believe the steps we have taken are sufficient to address the issues noted in the NTSB’s report; however, it is 26 Table of Contents impossible to completely eliminate the potential for human error, and there is a possibility that other accidents may occur in the future as a result of human error or for a variety of other reasons, some of which may be out of our control.
The market for commercial human spaceflight has not been established with precision and is still emerging.
The market for commercial spaceflight has not been established with precision and is still emerging.
Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business. 35 Table of Contents Natural disasters, unusual weather conditions, epidemic outbreaks, terrorist acts, military conflicts, macroeconomic conditions and political events could disrupt our business and flight schedule.
Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business. Natural disasters, unusual weather conditions, epidemic outbreaks, terrorist acts, military conflicts, macroeconomic conditions and political events could disrupt our business and flight schedule.
Due to the volume and sensitivity of the personal information and data we and these third parties manage and expect to manage in the future, as well as the nature of our customer base, the security features of our information systems are critical.
Due to the volume and sensitivity of the personal information and data we and these third parties process and expect to process in the future, as well as the nature of our customer base, the security features of our information systems are critical.
The global economy has in the past, and will in the future, experience recessionary periods and periods of economic instability. During such periods, our potential future astronauts may choose not to make discretionary purchases or may reduce overall spending on discretionary purchases, 24 Table of Contents which may include not scheduling spaceflight experiences or cancelling existing reservations for spaceflight experiences.
The global economy has in the past, and will in the future, experience recessionary periods and periods of economic instability. During such periods, our potential astronauts may choose not to make discretionary purchases or may reduce overall spending on discretionary purchases, which may include not scheduling spaceflight experiences or cancelling existing reservations for spaceflight experiences.
These anticipated technologies, services, products and offerings are unproven and subject to significant continued design and development efforts, may take longer than 27 Table of Contents anticipated to materialize, if at all, and may never be commercialized in a way that would allow us to generate revenue from the sale of these technologies, services, products and offerings.
These anticipated technologies, services, products and offerings are unproven and subject to significant continued design and development efforts, may take longer than anticipated to materialize, if at all, and may never be commercialized in a way that would allow us to generate revenue from the sale of these technologies, services, products and offerings.
Terrorist attacks, actual or threatened acts of war or the escalation of current hostilities, such as the ongoing conflict between Russia and Ukraine, or any other military or trade disruptions impacting our domestic or foreign suppliers of components of our products, may impact our operations by, among other things, causing supply chain disruptions and increases in commodity prices, which could adversely affect our raw materials or transportation costs.
Terrorist attacks, actual or threatened acts of war or the escalation of current hostilities, such as the ongoing conflicts between Russia and Ukraine and Israel and Hamas, or any other military or trade disruptions impacting our domestic or foreign suppliers of components of our products, may impact our operations by, among other things, causing supply chain disruptions and increases in commodity prices, which could adversely affect our raw materials or transportation costs.
For example, commercial space launches, reentry of our spacecraft and the operation of our spaceflight system in the United States require licenses and permits from certain agencies of the Department of Transportation, including the FAA, and review by other agencies of the U.S. Government, including the Department of Defense, Department of State, and Federal Communications Commission.
For example, commercial space launches, reentry of our spacecraft and the operation of our spaceflight system in the United States require licenses and permits from certain agencies of the Department of Transportation, including the FAA, and review by other agencies of the U.S. Government, including the Department of Defense, Department of State, and Federal Communications 33 Table of Contents Commission.
If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline. Item 1B. Unresolved Staff Comments None.
If one or more of these analysts cease coverage of 45 Table of Contents us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline. Item 1B. Unresolved Staff Comments None.
If we are unable to attract new future astronauts, our business, financial condition and results of operations will be harmed. 21 Table of Contents The market for commercial human spaceflight has not been established with precision. It is still emerging and may not achieve the growth potential we expect or may grow more slowly than expected.
If we are unable to attract new astronauts, our business, financial condition and results of operations will be harmed. 22 Table of Contents The market for commercial spaceflight has not been established with precision. It is still emerging and may not achieve the growth potential we expect or may grow more slowly than expected.
The loss of any one or more members of our senior management team, for any reason, including resignation or 34 Table of Contents retirement, could impair our ability to execute our business strategy and have a material adverse effect on our business, financial condition and results of operations.
The loss of any one or more members of our senior management team, for any reason, including resignation or retirement, could impair our ability to execute our business strategy and have a material adverse effect on our business, financial condition and results of operations.
We may not be successful in identifying acquisition, partnership and joint venture candidates. In addition, we may not be able to continue the operational success of such businesses or successfully finance or integrate any businesses that we acquire or with which we form a partnership or joint venture.
We may not be successful in identifying acquisition, partnership and joint venture candidates. In addition, we may 44 Table of Contents not be able to continue the operational success of such businesses or successfully finance or integrate any businesses that we acquire or with which we form a partnership or joint venture.
Specifically, under the terms of the Stockholders’ Agreement, for so long as VIL continues to beneficially own, in the aggregate, at least 25% of the shares of our common stock that an affiliate of VIL beneficially owned upon completion of the Virgin Galactic Business Combination, VIL’s consent is required for, among other things: • any non-ordinary course sales of our assets having a fair market value of at least $10.0 million; • any acquisition of an entity, or the business or assets of any other entity, having a fair market value of at least $10.0 million; • certain non-ordinary course investments having a fair market value of at least $10.0 million; • any increase or decrease in the size of our board of directors; 38 Table of Contents • any payment by us of dividends or distributions to our stockholders or repurchases of stock by us, subject to certain limited exceptions; or • incurrence of certain indebtedness.
Specifically, under the terms of the Stockholders’ Agreement, for so long as VIL continues to beneficially own, in the aggregate, at least 25% of the shares of our common stock that an affiliate of VIL beneficially owned upon completion of the Virgin Galactic Business Combination, whether or not VIL acquires any additional shares of our common stock, VIL’s consent is required for, among other things: • any non-ordinary course sales of our assets having a fair market value of at least $10.0 million; • any acquisition of an entity, or the business or assets of any other entity, having a fair market value of at least $10.0 million; • certain non-ordinary course investments having a fair market value of at least $10.0 million; • any increase or decrease in the size of our board of directors; • any payment by us of dividends or distributions to our stockholders or repurchases of stock by us, subject to certain limited exceptions; or • incurrence of certain indebtedness.
While SpaceX and Boeing are currently focused on providing orbital spaceflight transportation to government agencies, a fundamentally different product from ours, we cannot assure you that one or more of these companies will not shift their focus to include suborbital spaceflight and directly compete with us in the future.
While SpaceX and Boeing are currently focused on providing orbital spaceflight transportation to government agencies, a fundamentally different product from ours, we cannot provide assurance that one or more of these companies will not shift their focus to include suborbital spaceflight and directly compete with us in the future.
Although we enter into non-disclosure and invention assignment agreements with our employees, enter into non-disclosure agreements with our future astronauts, consultants and other parties with whom we have strategic relationships and business alliances and enter into intellectual property assignment agreements with our consultants and vendors, no assurance 28 Table of Contents can be given that these agreements will be effective in controlling access to and distribution of our technology and proprietary information.
Although we enter into non-disclosure and invention assignment agreements with our employees, enter into non-disclosure agreements with our astronauts, consultants and other parties with whom we have strategic relationships and business alliances and enter into intellectual property assignment agreements with our consultants and vendors, no assurance can be given that these agreements will be effective in controlling access to and distribution of our technology and proprietary information.
We do not believe, however, that pending 37 Table of Contents environmental regulatory developments in this area will have a material effect on our capital expenditures or otherwise materially adversely affect our operations, operating costs, or competitive position. We may be adversely affected by global climate change or by legal, regulatory or market responses to such change.
We do not believe, however, that pending environmental regulatory developments in this area will have a material effect on our capital expenditures or otherwise materially adversely affect our operations, operating costs, or competitive position. We may be adversely affected by global climate change or by legal, regulatory or market responses to such change.
Our management team and many of our other employees will need to devote substantial time to compliance, which may divert management's attention and resources from our business. 43 Table of Contents An active trading market for our common stock may not be maintained.
Our management team and many of our other employees will need to devote substantial time to compliance, which may divert management's attention and resources from our business. An active trading market for our common stock may not be maintained.
While we had a backlog of approximately 800 future astronauts as of December 31, 2022, we are making, and we expect that we will need to continue to make, significant investments in order to attract new future astronauts. Our sales growth depends on our ability to implement strategic initiatives and these initiatives may not be effective in generating sales growth.
While we had a backlog of approximately 750 future astronauts as of December 31, 2023, we are making, and we expect that we will need to continue to make, significant investments in order to attract new astronauts. Our sales growth depends on our ability to implement strategic initiatives and these initiatives may not be effective in generating sales growth.
Many events may cause a delay in our ability to fulfill reservations or cause planned spaceflights to not be completed at all, some of which may be out of our control, including unexpected weather patterns, maintenance issues, natural disasters, epidemics or pandemics (including COVID-19), changes in governmental regulations or in the status of our regulatory approvals or applications or other events that may force us to cancel or reschedule flights.
In addition to our planned pause of Unity spaceflights in mid-2024, many other events may cause a delay in our ability to fulfill reservations or cause planned spaceflights to not be completed at all, some of which may be out of our control, including unexpected weather patterns, maintenance issues, natural disasters, epidemics or pandemics (including COVID-19), changes in governmental regulations or in the status of our regulatory approvals or applications or other events that may force us to cancel or reschedule flights.
If our personnel or one of our spaceflight systems, or the personnel or spacecraft of one of our competitors or the personnel or aircraft of a commercial airline or governmental agency, were to be involved in a public incident, accident or catastrophe, this could create an adverse public perception of spaceflight and result in decreased customer demand for spaceflight experiences, which could cause a material adverse effect on our business, financial conditions and results of operations.
If our personnel or one of our spaceflight systems, the personnel or spacecraft of one of our competitors or the personnel, aircraft or other vehicle of a commercial airline, governmental agency or other specialty adventure company, were to be involved in a public incident, accident or catastrophe, this could create an adverse public perception of spaceflight and result in decreased customer demand for spaceflight experiences, which could cause a material adverse effect on our business, financial conditions and results of operations.
The results of intellectual property litigation are difficult to predict and may require us to stop using certain 29 Table of Contents technologies or offering certain services or may result in significant damage awards or settlement costs.
The results of intellectual property litigation are difficult to predict and may require us to stop using certain technologies or offering certain services or may result in significant damage awards or settlement costs.
The success of our business depends in part on effectively managing and maintaining our existing spaceflight system, manufacturing more spaceflight systems, operating a sufficient number of spaceflights to meet customer demand and providing future astronauts with an astronaut experience that meets or exceeds their expectations.
The success of our business depends in part on effectively managing and maintaining our existing spaceflight system, manufacturing more spaceflight systems, operating a sufficient number of spaceflights to meet customer demand and providing an astronaut experience that meets or exceeds expectations.
To date, we have relied primarily on trade secrets and other intellectual property laws, non-disclosure agreements with our employees, consultants and other relevant persons and other measures to protect our intellectual property, and intend to continue to rely on these and other means, including patent protection, in the future.
To date, we have relied primarily on trade secrets and other intellectual property laws, non-disclosure agreements with our employees, consultants and other relevant persons and other measures to protect our intellectual property, and intend to continue to rely on these and other 29 Table of Contents means, including patent protection, in the future.
Export 32 Table of Contents Administration Regulations, the ITAR, and economic sanctions administered by the Treasury Department’s Office of Foreign Assets Controls. Similar laws that impact our business exist in other jurisdictions.
Export Administration Regulations, the ITAR, and economic sanctions administered by the Treasury Department’s Office of Foreign Assets Controls. Similar laws that impact our business exist in other jurisdictions.
To the extent these events also impact one or more of our suppliers or contractors or result in the closure of any of their facilities or our facilities, we may be required to delay our commercial launch, be unable to maintain spaceflight schedules, provide other support functions to our astronaut experience or fulfill our other contracts.
To the extent these events also impact one or more of our suppliers or contractors or result in the closure of any of their facilities or our facilities, we may be unable to maintain spaceflight schedules, provide other support functions to our astronaut experience or fulfill our other contracts.
We may not be able to convert our orders in backlog or inbound inquiries about flight reservations into revenue. As of December 31, 2022, our backlog represents orders from approximately 800 future astronauts for which we have not yet recognized spaceflight revenue.
We may not be able to convert our orders in backlog or inbound inquiries about flight reservations into revenue. As of December 31, 2023, our backlog represents orders from approximately 750 future astronauts for which we have not yet recognized spaceflight revenue.
Further, it is possible that domestic or foreign companies or governments, some with greater experience in the aerospace industry or greater financial resources than we possess, will seek to provide products or services that compete directly or indirectly with ours in the future.
Further, it is possible that domestic or foreign companies or governments, some with greater experience in the aerospace industry or greater financial resources than we possess, will seek to provide products or services that compete directly 28 Table of Contents or indirectly with ours in the future.
We are also subject to evolving U.S., EU and UK online services and digital privacy and data laws as well as privacy laws on cookies, pixels, tracking technologies and e-marketing. Recent European court and regulator decisions are driving increased attention to cookies and tracking technologies.
We and our third-party providers are also subject to evolving U.S., EU and UK online services and digital privacy and data laws as well as laws on cookies, pixels, tracking technologies and e-marketing. Recent European court and regulator decisions are driving increased attention to cookies and tracking technologies.
In addition, we do not make any representation that the option counterparties will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. 41 Table of Contents We are subject to counterparty risk with respect to the 2027 Note Hedge transactions.
In addition, we do not make any representation that the option counterparties will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. We are subject to counterparty risk with respect to the 2027 Note Hedge transactions.
If our current or future spaceflight systems do not meet expected performance or quality standards, including with respect to customer safety and satisfaction, this could cause operational delays.
If our current or future spaceflight systems do not meet expected performance or quality standards, including with respect to customer safety, this could cause delays.
The successful development of our spaceflight systems and related technology involves many uncertainties, some of which are beyond our control, including: • timing in finalizing spaceflight systems design and specifications; • successful completion of flight test programs, including flight safety tests; • our ability to obtain additional applicable approvals, licenses or certifications from regulatory agencies, if required, and maintaining current approvals, licenses or certifications; 22 Table of Contents • performance of our manufacturing facilities despite risks that disrupt productions, such as natural disasters and hazardous materials; • performance of a limited number of suppliers for certain raw materials and supplied components; • performance of our third-party contractors that support our research and development activities; • performance of our third-party contractors to design and manufacture our next generation carrier aircraft as well as manufacture key subassemblies for our next generation spaceships; • our ability to maintain rights from third parties for intellectual properties critical to our research and development activities; • our ability to continue funding and maintain our current research and development activities; and • the impact of the COVID-19, or an outbreak of another highly infectious or contagious disease or other health concern, on us, our customers, suppliers and distributors, and the global economy.
The successful development of our spaceflight systems and related technology involves many uncertainties, some of which are beyond our control, including: • timing in finalizing spaceflight systems design and specifications; • successful completion of flight test programs, including flight safety tests; • our ability to obtain additional applicable approvals, licenses or certifications from regulatory agencies, if required, and maintaining current approvals, licenses or certifications; • performance of our manufacturing facilities despite risks that disrupt productions, such as natural disasters and hazardous materials; • performance of a limited number of suppliers for certain raw materials and supplied components; • performance of our third-party contractors that support our research and development activities; • performance of our third-party contractors to design and manufacture our next generation carrier aircraft as well as manufacture key subassemblies for our next generation spaceships; • our ability to maintain rights from third parties for intellectual properties critical to our research and development activities; • our ability to continue funding and maintain our current research and development activities; and • the impact of the COVID-19, or an outbreak of another highly infectious or contagious disease or other health concern, on us, our customers, suppliers and distributors, and the global economy. 23 Table of Contents Any inability to operate our spaceflight systems at our anticipated flight rate could adversely impact our business, financial condition and results of operations.
Any continued improvements in spaceflight technology may 26 Table of Contents make obsolete our existing spaceflight systems or any component of our spacecraft prior to the end of its life.
Any continued improvements in spaceflight technology may make obsolete our existing spaceflight systems or any component of our spacecraft prior to the end of its life.
As the enforcement landscape further develops, and supervisory authorities issue further guidance on international data transfers, we could suffer additional costs, complaints and/or regulatory investigations or fines; we may have to stop using certain tools and vendors and make other operational changes; we may have to implement revised standard contractual clauses for existing intragroup, customer and vendor arrangements within required time frames; and/or it could otherwise affect the manner in which we provide our services, and could adversely affect our business, operations and financial condition.
As the enforcement landscape further develops, and supervisory authorities issue further guidance on international data transfers, we could suffer additional costs, complaints and/or regulatory investigations or fines; we may have to stop using certain tools and vendors and make other operational changes; we have had to and will have to implement revised standard contractual clauses for existing intragroup, customer and vendor arrangements; and/or it could otherwise affect the manner in which we provide our services, the geographic location or segregation of our systems and operations, and could adversely affect our business, operations and financial condition.
Four derivative suits have also been filed in the Eastern District of New York alleging, in some combination and among other claims, violations of federal securities laws and fiduciary duty breaches, including substantially similar allegations as those in the class action lawsuit.
Four derivative suits have also been filed in the Eastern District of New York, as well as one derivative suit in the District of Delaware, alleging, in some combination and among other claims, violations of federal securities laws and fiduciary duty breaches, including 37 Table of Contents substantially similar allegations as those in the class action lawsuit.
For example, there are only a few nitrous oxide plants around the world and if one or more of these plants were to experience a slowdown in operations or to shutdown entirely, including as a result of the COVID-19 pandemic, we may need to qualify new suppliers or pay higher prices to maintain the supply of nitrous oxide needed for our operations.
For example, there are only a few nitrous oxide plants around the world and if one or more of these plants were to experience a slowdown in operations or to shutdown entirely, including as a result of the COVID-19 pandemic or an outbreak of another highly infectious or contagious disease or other health concern, we may need to qualify new suppliers or pay higher prices to maintain the supply of nitrous oxide needed for our operations.
The GDPR and UK GDPR also include significant penalties for non-compliance, which may result in monetary penalties of up to the higher of €20.0 million/GBP 17.5 million or 4% of a group’s worldwide turnover.
The GDPR includes significant penalties for non-compliance, which may result in monetary penalties of up to the higher of €20.0 million/GBP 17.5 million or 4% of a group’s worldwide annual turnover.
The success of our business will be highly dependent on our ability to effectively market and sell human spaceflights. We have generated only limited revenue from spaceflight, and we expect that our success will be highly dependent, especially in the foreseeable future, on our ability to effectively market and sell human spaceflight experiences.
The success of our business will be highly dependent on our ability to effectively market and sell spaceflights. Although we commenced commercial operations in June 2023, we have generated only limited revenue from spaceflight, and we expect that our success will be highly dependent, especially in the foreseeable future, on our ability to effectively market and sell spaceflight experiences.
We are likely to face attempted cyber-attacks in the future. Accordingly, we may be vulnerable to losses associated with the improper functioning, security breach or unavailability of our information systems as well as any systems used in acquired operations.
We are likely to face attempted cybersecurity incidents in the future. Accordingly, we may be vulnerable to losses and costs associated with the improper functioning, breach or unavailability of our information systems as well as any systems used in acquired operations.
To be successful, we will need to maintain a sufficient flight rate, which will be negatively impacted if we are not able to operate that system for any reason.
To be successful, we will need to maintain a sufficient flight rate, which will be negatively impacted if we are not able to operate our spaceflight systems for any reason.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including: • the number of flights we schedule for a period, the number of seats we are able to sell in any given spaceflight and the price at which we sell them; • unexpected weather patterns, maintenance issues, natural disasters or other events that force us to cancel or reschedule flights; • the cost of raw materials or supplied components critical for the manufacture and operation of our spaceflight system; • the timing and cost of, and level of investment in, research and development relating to our technologies and our current or future facilities; • developments involving our competitors; • changes in governmental regulations or in the status of our regulatory approvals or applications; • future accounting pronouncements or changes in our accounting policies; • the impact of epidemics or pandemics, including the business disruption and related financial impact resulting from the global COVID-19 pandemic; and • general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors. 36 Table of Contents The individual or cumulative effects of the factors discussed above could result in large fluctuations and unpredictability in our quarterly and annual operating results.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including: • the number of flights we schedule for a period, the number of seats we are able to sell in any given spaceflight and the price at which we sell them; • unexpected weather patterns, maintenance issues, natural disasters or other events that force us to cancel or reschedule flights; • the cost of raw materials or supplied components critical for the manufacture and operation of our spaceflight system; • any delays that we may experience in connection with the manufacture of our Delta Class spaceships and next generation motherships; • the timing and cost of, and level of investment in, research and development relating to our technologies and our current or future facilities; • developments involving our competitors; • changes in governmental regulations or in the status of our regulatory approvals or applications; 38 Table of Contents • future accounting pronouncements or changes in our accounting policies; • the impact of epidemics or pandemics, including the business disruption and related financial impact resulting from the global COVID-19 pandemic; and • general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
We collect, store, process, and use personal information and other customer data, including health information, of customers and employees, and we rely in part on third parties that are not directly under our control to manage certain of these operations and to collect, store, process and use payment information.
We collect, store, use, disclose and otherwise process personal information and other customer data, including sensitive information (such as health and biometric information), of customers, employees and other individuals, and we rely in part on third parties that are not directly under our control to manage certain of our operations and to collect, store, use, disclose and otherwise process payment information.
Any decrease from our assumptions in the number of passengers per flight could adversely impact our ability to generate revenue at the rate we anticipate. 23 Table of Contents Any delays in the development and manufacture of additional spaceflight systems and related technology may adversely impact our business, financial condition and results of operations.
Any decrease from our assumptions in the number of passengers per flight could adversely impact our ability to generate revenue at the rate we anticipate. Any delays in the development and manufacture of additional spaceflight systems and related technology, including our Delta Class spaceships and next generation motherships, may adversely impact our business, financial condition and results of operations.
These requirements include, for example: • specialized disclosure and accounting requirements unique to government contracts; • financial and compliance audits that may result in potential liability for price adjustments, recoupment of government funds after such funds have been spent, civil and criminal penalties, or administrative sanctions such as suspension or debarment from doing business with the U.S. government; • public disclosures of certain contract and company information; and • mandatory socioeconomic compliance requirements, including labor requirements, non-discrimination and affirmative action programs and environmental compliance requirements.
These requirements include, for example: • specialized disclosure and accounting requirements unique to government contracts; • financial and compliance audits that may result in potential liability for price adjustments, recoupment of government funds after such funds have been spent, civil and criminal penalties, or administrative sanctions such as suspension or debarment from doing business with the U.S. government; • public disclosures of certain contract and company information; and • mandatory socioeconomic compliance requirements, including labor requirements, non-discrimination and affirmative action programs and environmental compliance requirements. 31 Table of Contents Government contracts are also generally subject to greater scrutiny by the government, which can initiate reviews, audits and investigations regarding our compliance with government contract requirements.
A significant data breach or any failure, or perceived failure, by us to comply with any U.S. federal, state or foreign privacy or consumer protection-related laws, regulations or other principles or orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, investigations, proceedings or actions against us by governmental entities or others or other penalties or liabilities or require us to change our operations and/or cease using certain data sets.
Any failure, or perceived failure, by us to comply with any U.S. federal, state or foreign privacy, processing of personal information, consumer protection or e-marketing related laws, regulations, standards or other requirements to which we may be subject or other legal obligations relating to these matters, or any significant data breach, could adversely affect our reputation, brand and business, result in claims, investigations, proceedings or actions against us by individuals, consumer rights groups, governmental entities or others or other penalties or liabilities, or require us to change our operations and/or cease using certain data sets.
Furthermore, we are exposed to additional risks because we rely in certain capacities on third-party data management and cloud service providers with possible security problems and security vulnerabilities beyond our control.
Furthermore, we are exposed to additional risks because we rely in certain capacities on third-party services that support our internal and customer-facing operations, like data management and cloud service providers with possible security problems and security vulnerabilities beyond our control.
Prior to November 1, 2026, noteholders will have the right to convert their notes only upon the occurrence of certain events. On and after November 1, 2026, noteholders will have the right to convert their notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.
On 42 Table of Contents and after November 1, 2026, noteholders will have the right to convert their notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.
As part of our growth strategy, we may utilize additional spaceports outside the United States. Construction of a spaceport or other facilities in which we conduct our operations may require significant capital expenditures to develop, and in the future we may be required to make similar expenditures to expand, improve or construct adequate facilities for our spaceflight operations.
Construction of a spaceport or other facilities in which we conduct our operations may require significant capital expenditures to develop, and in the future we may be required to make similar expenditures to expand, improve or construct adequate facilities for our spaceflight operations.
We may be unable to operate our current spaceflight system at our anticipated flight rate for a number of reasons, including, but not limited to, unexpected weather patterns, maintenance issues, pilot error, design and engineering flaws, natural disasters, epidemics or pandemics (including COVID-19), changes in governmental regulations or in the status of our regulatory approvals or applications or other events that force us to cancel or reschedule flights.
In addition to the expected pause on Unity spaceflights while we continue to develop our Delta Class spaceships, we may be unable to operate our spaceflight systems at our anticipated flight rate for a number of other reasons outside of our control, including, but not limited to, unexpected weather patterns, maintenance issues, pilot error, design and engineering flaws, natural disasters, epidemics or pandemics (including COVID-19), changes in governmental regulations or in the status of our regulatory approvals or applications or other events that force us to cancel or reschedule flights.
We may experience periodic system interruptions from time to time. Any slowdown or failure of our underlying technology infrastructure could harm our business, reputation and ability to acquire and serve our future astronauts, which could materially adversely affect our results of operations.
Any slowdown or failure of our underlying technology infrastructure could harm our business, reputation and ability to acquire and serve our future astronauts, which could materially adversely affect our results of operations.
If we delay spaceflights or if future astronauts reconsider their astronaut experience, those future astronauts may seek to cancel their planned spaceflight, and may obtain a full or partial refund. We have not yet tested flights at our anticipated full passenger capacity of our spaceship. We have not yet tested flights at our full passenger capacity of six persons.
If we further delay spaceflights or if future astronauts reconsider their astronaut experience, those individuals may seek to cancel their planned spaceflight, and may obtain a full or partial refund. 24 Table of Contents We have not yet tested flights at our anticipated full passenger capacity of our Delta Class spaceships.
If we do not complete this development in our anticipated timeframes or at all, our ability to grow our business will be adversely affected.
If we do not complete the development of our next generation spaceflight vehicles in our anticipated timeframes or at all, our ability to grow our business will be adversely affected.
Our success depends in part upon successful prosecution, maintenance, enforcement and protection of our owned and licensed intellectual property, including the Virgin brand and other intellectual property that we license from Virgin under the Amended TMLA. Under the terms of the Amended TMLA, Virgin has the primary right to take actions to obtain, maintain, enforce and protect the Virgin brand.
Our success depends in part upon successful prosecution, maintenance, enforcement and protection of our owned and licensed intellectual property, including the Virgin brand and other intellectual property that we license from Virgin under the Amended TMLA.
In addition to fines, a breach of the GDPR or UK GDPR may result in regulatory investigations, reputational damage, orders to cease/change our data processing activities, enforcement notices, assessment notices (for a compulsory audit) and/or civil claims (including class actions). The GDPR and UK GDPR regulate cross-border transfers of personal data out of the EEA and the UK.
In addition to fines, a breach of the GDPR or other applicable laws relating to the processing of personal information (including in the U.S.) may result in regulatory investigations, reputational damage, orders to cease/change our data processing activities, enforcement notices, assessment notices (for a compulsory audit) and/or civil claims (including class actions).
License approval includes an interagency review of safety, operational, national security, and foreign policy and international obligations implications, as well as a review of foreign ownership. Additionally, the FAA and other state government agencies also enforce informed consent and cross-waiver requirements for spaceflight participants and have the authority to regulate training and medical requirements for crew.
License approval includes an interagency review of safety, operational, spectrum coordination, national security, and foreign policy and international obligations implications, as well as a review of foreign ownership. Additionally, the FAA Office of Commercial Space Transportation enforces informed consent and cross-waiver requirements for spaceflight participants and has the authority to regulate training and medical requirements for crew.
Media or other reports of perceived security vulnerabilities to our systems or those of our third-party suppliers, even if no breach has been attempted or occurred, could adversely impact our brand and reputation and materially impact our business.
Media or other reports of perceived security vulnerabilities to our systems or those of our third-party suppliers, even if no breach has been attempted or occurred, could adversely impact our brand and reputation. Any or all of the foregoing could have a materially adverse effect on our business, results of operations, and financial condition.
In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of our systems.
In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties and integrate into our or our third-party service providers’ systems, products or services may contain defects in design or manufacture, including “bugs”, 32 Table of Contents malicious code, misconfigurations, and other problems or vulnerabilities that could unexpectedly interfere with the operation of our information systems.
We use complex proprietary software in our technology infrastructure, which we seek to continually update and improve. Replacing such systems is often time-consuming and expensive, and can also be intrusive to daily business operations. Further, we may not always be successful in executing these upgrades and improvements, which may occasionally result in a failure of our systems.
Replacing such systems is often time-consuming and expensive, and can also be intrusive to daily business operations. Further, we may not always be successful in executing these upgrades and improvements, which may occasionally result in a failure of our systems. We may experience periodic system interruptions from time to time.
If delays like this arise or recur, if our remediation measures and process changes do not continue to be successful or if we experience issues with planned manufacturing improvements or design and safety, we could experience issues in sustaining the ramp of our spaceflight system or delays in increasing production further.
If delays like this arise or recur, in particular in connection with the development of our Delta Class spaceships and next generation motherships, if our remediation measures and process changes do not continue to be successful or if we experience issues with planned manufacturing improvements or design and safety, we could experience issues in sustaining the ramp of our spaceflight system, delays in increasing production further or commencing revenue service on our expected timeframes or at all.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur Design and Engineering center located in Tustin, California encompasses approximately 61,000 square feet of office space and functions as our headquarters. This facility houses our management, research, design, development, marketing, finance and other administrative functions.
Biggest changeOur design and engineering center located in Tustin, California encompasses approximately 61,000 square feet of office space and also functions as our corporate headquarters. This facility houses our management, research, design, development, marketing, finance and other administrative functions. Our final assembly facility, located in Mesa, Arizona consists of two hangars with an aggregate of approximately 151,000 square feet.
State and local governments in New Mexico have invested more than $200.0 million in Spaceport America, with Virgin Galactic serving as the facility’s anchor tenant under a 20-year lease scheduled to expire in 2028, subject to our right to extend the term for an additional five years.
State and local governments in New Mexico have invested more than $200 million in Spaceport America, with Virgin Galactic serving as the facility’s anchor tenant under a 20-year lease scheduled to expire in 2028, subject to our right to extend the term for an additional five years.
Item 2. Properties We operate primarily at three locations in California and New Mexico. All of our current operating facilities are located on land that is leased from third parties.
Item 2. Properties We currently operate primarily at three locations in California and New Mexico. All of our current operating facilities are located on land that is leased from third parties.
We also currently lease facilities in Arizona and own land in New Mexico, which we plan to develop further to support the manufacturing of our next generation spaceships and develop a new astronaut campus and training facility, respectively. We believe that such facilities meet our current and future anticipated needs.
We also currently lease facilities in Arizona and own land in New Mexico, which we plan to develop further to support the assembly of our next generation spaceships and develop a new astronaut campus and training facility, respectively. We believe that such facilities meet our current and future anticipated needs.
We maintain more than 200,000 square feet of manufacturing and operations facilities at the Mojave Air and Space Port in Mojave, California. This campus includes six main operational buildings and several storage buildings under separate lease agreements that collectively house fabrication, assembly, warehouse, office and test operations.
We maintain more than 200,000 square feet of manufacturing and operations facilities at the Mojave Air and Space Port in Mojave, California. This campus includes four main operational buildings and several storage buildings under separate lease agreements that collectively house office, test and rocket motor production.
These facilities are leased pursuant to several agreements, which generally have two- or three-year initial terms coupled with renewal options. Several leases are either operating in renewal periods or on a month-to-month basis. We will conduct our commercial operations at Spaceport America in Sierra County, New Mexico.
These facilities are leased pursuant to separate 46 Table of Contents agreements, which generally have renewal options. Several leases are either operating in renewal periods or on a month-to-month basis. We conduct our commercial operations at Spaceport America in Sierra County, New Mexico.
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On July 14, 2022, the Company entered into an agreement to lease approximately 151,000 square feet of manufacturing and operations facilities in Mesa, Arizona which consists of two hangars. The lease has an initial term of ten years and five months after its commencement with options for extension.
Added
It is situated adjacent to the Phoenix-Mesa Gateway Airport. This facility will be used to assemble our next generation Delta Class spaceships and motherships. We expect to occupy the spaceship factory in the second quarter of 2024.
Removed
We plan to use the facilities to assemble our next generation Delta class spaceships.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSome of these claims, lawsuits and other proceedings may involve highly complex issues that 44 Table of Contents are subject to substantial uncertainties, and could result in damages, fines, penalties, non-monetary sanctions or relief.
Biggest changeItem 3. Legal Proceedings We are from time to time subject to various claims, lawsuits and other legal and administrative proceedings arising in the ordinary course of business. Some of these claims, lawsuits and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, non-monetary sanctions or relief.
Removed
Item 3. Legal Proceedings We are from time to time subject to various claims, lawsuits and other legal and administrative proceedings arising in the ordinary course of business.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 45 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 45 Item 6. [Reserved] 46 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 47 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 59 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 47 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 47 Item 6. [Reserved] 48 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 49 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 56 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis graph shall not be deemed "soliciting material" or be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. 45 Table of Contents As of December 31, 2022, the comparable companies used are comprised of the following companies: Atlas Air Worldwide Holdings, Inc., The Boeing Company, Comtech Telecommunications Corp., EchoStar Corporation, Hexcel Corporation, Iridium Communications Inc., KVH Industries Inc., L3 Harris Technologies Inc., Lockheed Martin Corp., Northrop Grumman Corp., and Tesla, Inc.
Biggest changeThis graph shall not be deemed "soliciting material" or be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the NYSE under the symbol “SPCE.” Holders As of February 15, 2023, there were 716 holders of record of our shares of common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the NYSE under the symbol “SPCE.” Holders As of February 13, 2024, there were 774 holders of record of our shares of common stock.
Stock Performance Graph The following graph shows the total stockholder return of an investment of $100 cash on October 28, 2019 (the date our common stock began trading on the NYSE after the Virgin Galactic Business Combination) through December 31, 2022 for (1) our common stock, (2) Standard & Poor's ("S&P") 500 Index and (3) the average of comparable companies listed in the NYSE.
Stock Performance Graph The following graph shows the total stockholder return of an investment of $100 cash on October 28, 2019 (the date our common stock began trading on the NYSE after the Virgin Galactic Business Combination) through December 31, 2023 for (1) our common stock, (2) the Standard & Poor's ("S&P") 500 Index and (3) the S&P Aerospace and Defense Select Industry Index.
All values assume reinvestment of the full amount of all dividends. The comparisons in the table are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock.
The comparisons in the table are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock.
Added
In addition, because we have elected to change to the S&P Aerospace and Defense Select Industry Index from certain previously specified self-selected comparable companies which we used in our Annual Report on Form 10-K for the year ended 47 Table of Contents December 31, 2022 (the “2022 Comparable Companies”), the graph below also includes a comparison to such 2022 Comparable Companies.
Added
We elected to change from the self-selected 2022 Comparable Companies to a published industry index, the S&P Aerospace and Defense Select Industry Index, because we believe that the industry index provides more meaningful stockholder return information.
Added
The 2022 Comparable Companies consisted of The Boeing Company, Comtech Telecommunications Corp., EchoStar Corporation, Hexcel Corporation, Iridium Communications Inc., KVH Industries Inc., L3 Harris Technologies Inc., Lockheed Martin Corp., Northrop Grumman Corp., and Tesla, Inc.
Added
Atlas Air Worldwide Holdings, Inc. was previously included in the 2022 Comparable Companies but was removed from the peer group for all periods as it is no longer publicly traded as of March 2023. All values assume reinvestment of the full amount of all dividends.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe believe our cash and cash equivalents on hand at December 31, 2022, and management's operating plan, will provide sufficient liquidity to fund our operations for at least the next twelve months from the issuance of the consolidated financial statements included in this Annual Report on Form 10-K. 54 Table of Contents Historical Cash Flows Year Ended December 31, 2022 2021 (In thousands) Net cash provided by (used in): Operating activities $ (380,241) $ (230,763) Investing activities (286,165) (387,519) Financing activities 459,003 489,357 Net decrease in cash, cash equivalents and restricted cash $ (207,403) $ (128,925) Operating Activities Net cash used in operating activities was $380.2 million for the year ended December 31, 2022, and consisted primarily of $500.2 million of net losses, adjusted for non-cash items, which primarily included stock-based compensation expense of $45.7 million, depreciation and amortization expense of $11.1 million, amortization of debt issuance costs of $2.0 million, other non-cash items of $10.8 million, as well as a $50.3 million of cash provided from changes in working capital.
Biggest changeHistorical Cash Flows Year Ended December 31, 2023 2022 (In thousands) Net cash provided by (used in): Operating activities $ (448,193) $ (380,241) Investing activities (116,273) (286,165) Financing activities 475,431 459,003 Net decrease in cash, cash equivalents and restricted cash $ (89,035) $ (207,403) Operating Activities Net cash used in operating activities was $448.2 million for the year ended December 31, 2023, and consisted primarily of $502.3 million of net losses, adjusted for non-cash items, which primarily included stock-based compensation expense of $44.3 million and depreciation and amortization expense of $13.4 million. 53 Table of Contents Net cash used in operating activities was $380.2 million for the year ended December 31, 2022, and consisted primarily of $500.2 million of net losses, adjusted for non-cash items, which primarily included stock-based compensation expense of $45.7 million, depreciation and amortization expense of $11.1 million, as well as $50.3 million of cash provided from changes in operating assets and liabilities.
Although we believe that our current capital is adequate to sustain our operations for at least the next twelve months, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control.
We believe that our current capital is adequate to sustain our operations for at least the next twelve months. Changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control.
Investing Activities Net cash used in investing activities was $286.2 million for the year ended December 31, 2022, and consisted primarily of $704.6 million in purchases of marketable securities and $16.5 million in purchases of capital expenditures, partially offset by $434.9 million in proceeds from maturities and calls of marketable securities.
Net cash used in investing activities was $286.2 million for the year ended December 31, 2022, and consisted of $704.6 million in purchases of marketable securities and $16.5 million in capital expenditures, partially offset by $434.9 million in proceeds from maturities and calls of marketable securities.
Revenue recorded for the year ended December 31, 2022 was primarily attributable to membership fees related to our Future Astronaut community, fees related to our Future Astronaut community event, and scientific research services under government contracts.
Revenue for the year ended December 31, 2022 was primarily attributable to membership fees related to our Future Astronaut community, fees related to our Future Astronaut community event, and scientific research services under government contracts.
A discussion and analysis of, and a comparison between, our results of operations for the years ended December 31, 2021 and 2020 can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
A discussion and analysis of, and a comparison between, our results of operations for the years ended December 31, 2022 and 2021 can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Short-term Liquidity and Capital Resources For at least the next twelve months, we expect our principal demand for funds will be for our ongoing activities described above. We expect to meet our short-term liquidity requirements primarily through our cash, cash equivalents and marketable securities on hand.
Liquidity Outlook For at least the next twelve months, we expect our principal demand for funds will be for our ongoing activities described above. We expect to meet our short-term liquidity requirements primarily through our cash, cash equivalents and marketable securities on hand.
The following is a discussion and analysis of, and a comparison between, our results of operations for the years ended December 31, 2022 and 2021.
The following is a discussion and analysis of, and a comparison between, our results of operations for the years ended December 31, 2023 and 2022.
“ Risk Factors—Risks Related to Our Business .” Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
“ Risk Factors—Risks Related to Our Business .” Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.
Going forward, we expect the size of our backlog and the number of future astronauts that have flown to space on our spaceflight system to be an important indicator of our future performance. As of December 31, 2022, we had reservations for space flights for approximately 800 future astronauts.
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. As of December 31, 2023, we have reservations for spaceflights for approximately 750 future astronauts.
Financing Activities Net cash provided by financing activities was $459.0 million for the year ended December 31, 2022, and consisted primarily of the issuance of the 2027 Notes for net proceeds of $413.7 million and proceeds from the sale and issuance of common stock of $103.3 million, partially offset by the purchase of the 2027 Capped Calls of $52.3 million, tax withholdings paid for net settled stock-based awards of $4.0 million and transaction costs incurred for the issuance of common stock of $1.2 million.
Net cash provided by financing activities was $459.0 million for the year ended December 31, 2022, and consisted primarily of the issuance of the 2027 Notes for net proceeds of $413.7 million and net cash proceeds from the sale and issuance of common stock of $102.1 million, partially offset by the purchase of the capped call related to the 2027 Notes of $52.3 million and tax withholdings paid for net settled stock-based awards of $4.0 million.
The income tax expense includes the effects of any accruals that we believe are appropriate, as well as the related net interest and penalties. We have not yet started commercial operations, and as such, we are accumulating net operating losses at the federal and state levels.
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.
We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our consolidated financial statements and, therefore, we consider these to be our critical accounting policies. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.
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.
Please refer to Note 2 in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for information about these critical accounting policies, as well as a description of our other significant accounting policies.
Our actual results may differ from these estimates under different assumptions and conditions. Please refer to Note 2 in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for information about these critical accounting policies, as well as a description of our other significant accounting policies.
In August 2021, following Sir Richard Branson's successful test flight, we reopened ticket sales to a select group and increased the pricing of our consumer offerings to a base price of $450,000 per seat. In February 2022, we opened ticket sales to the general public.
In August 2021, we reopened ticket sales to a select group and increased the pricing of our consumer offerings to a base price of $450,000 per seat. In February 2022, we opened ticket sales to the general public for a limited time.
We expect these resources will be adequate to fund our ongoing operating activities. The commercial launch of our human spaceflight program and the anticipated expansion of our fleet have unpredictable costs and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control, that may affect the timing and magnitude of these anticipated expenditures.
The commercial launch of our spaceflight program and the anticipated expansion of our fleet have unpredictable costs and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control, that may affect the timing and magnitude of these anticipated expenditures.
Customer experience costs for the year ended December 31, 2022 were primarily attributable 52 Table of Contents to costs related to our Future Astronaut community event, other costs to maintain our Future Astronaut community, labor costs provided for scientific research services, and incremental costs related to payload services.
Spaceline operations expense for the year ended December 31, 2022 was primarily attributable to costs related to our Future Astronaut community event, other costs to maintain our Future Astronaut community, labor costs provided for scientific research services, and incremental costs related to payload services.
LLC (each, an “Agent” and collectively, the “Agents”) providing for the offer and sale of up to $500.0 million of shares of our common stock, par value $0.0001 per share, through an "at the market offering" program ("ATM"), from time to time by us through the Agents, acting as our sales agents, or directly to one or more of the Agents, acting as principal (the “2021 ATM program”).
LLC (each, an "Agent" and collectively, the "Agents") providing for the offer and sale of up to $300 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 "2022 ATM Program").
As of December 31, 2022, we sold a total of 16,265,700 shares of our common stock under the 2022 ATM program, generating $103.3 million in gross proceeds, before deducting $1.2 million in underwriting discounts, commissions and other expenses payable by us.
As of December 31, 2023, we sold a total of 79.7 million shares of common stock under the 2023 ATM Program, generating $287.5 million in gross proceeds, before deducting $2.9 million in underwriting discounts, commissions and other expenses.
Long-term Liquidity and Capital Resources Beyond the next twelve months, our principal demand for funds will be to sustain our operations, including the construction of additional motherships under an agreement with a third-party contractor, and spaceship vehicles, construction of our astronaut campus, expansion of the New Mexico Spaceport, and for the payment of the principal amount of our convertible senior notes as it becomes due.
Beyond the next twelve months, our principal demand for funds will be to sustain our operations, including the construction of additional spaceships and motherships, expansion of our footprint at Spaceport America in New Mexico, construction of our astronaut campus and payment of the principal amount of our convertible senior notes as they become due.
("Bell") and Qarbon Aerospace ("Qarbon") to manufacture key subassemblies for our next generation spaceships, will require significant capital expenditures from us, but such amounts are subject to future negotiations and cannot be estimated with reasonable certainty.
We expect our arrangements with third-party providers to manufacture key subassemblies for our next generation spaceships and for the design and manufacture of our next generation carrier aircraft will require significant capital expenditures. Certain estimated amounts in connection with third-party arrangements are subject to future negotiations and cannot be estimated with reasonable certainty.
Year Ended December 31, 2022 2021 2020 (In thousands) Revenue $ 2,312 $ 3,292 $ 238 Operating expenses: Customer experience 1,906 272 173 Selling, general and administrative 175,118 166,814 111,203 Research and development 314,174 144,223 154,365 Depreciation and amortization 11,098 11,518 9,781 Total operating expenses 502,296 322,827 275,522 Operating loss (499,984) (319,535) (275,284) Interest income 12,502 1,208 2,277 Interest expense (12,130) (25) (36) Change in fair value of warrants — (34,650) (371,852) Other income, net 58 182 14 Loss before income taxes (499,554) (352,820) (644,881) Income tax expense 598 79 6 Net loss $ (500,152) $ (352,899) $ (644,887) Comparison of Results of Operations for Year Ended December 31, 2022 to Year Ended December 31, 2021 Year Ended December 31, $ Change % Change 2022 2021 (In thousands, except %) Revenue $ 2,312 $ 3,292 $ (980) (29.8) % Revenue decreased by $1.0 million, or 29.8%, to $2.3 million for the year ended December 31, 2022 from $3.3 million for the year ended December 31, 2021.
Year Ended December 31, 2023 2022 2021 (In thousands) Revenue $ 6,800 $ 2,312 $ 3,292 Operating expenses: Spaceline operations 50,538 1,906 272 Research and development 295,140 314,174 144,223 Selling, general and administrative 174,864 175,118 166,814 Depreciation and amortization 13,369 11,098 11,518 Special charges 4,398 — — Total operating expenses 538,309 502,296 322,827 Operating loss (531,509) (499,984) (319,535) Interest income 42,234 12,502 1,208 Interest expense (12,872) (12,130) (25) Change in fair value of warrants — — (34,650) Other income, net 263 58 182 Loss before income taxes (501,884) (499,554) (352,820) Income tax expense 453 598 79 Net loss $ (502,337) $ (500,152) $ (352,899) 50 Table of Contents Comparison of Results of Operations for Year Ended December 31, 2023 to Year Ended December 31, 2022 Revenue Year Ended December 31, $ Change % Change 2023 2022 (In thousands, except %) Revenue $ 6,800 $ 2,312 $ 4,488 194 % Revenue for the year ended December 31, 2023 was primarily attributable to revenue generated from our commercial spaceflights and membership fees related to our Future Astronaut community.
Income Tax Expense Year Ended December 31, $ Change % Change 2022 2021 (In thousands, except %) Income tax expense $ 598 $ 79 $ 519 n.m. Income tax expense increased from $0.1 million for the year ended December 31, 2021 to $0.6 million for the year ended December 31, 2022.
Interest Expense Year Ended December 31, $ Change % Change 2023 2022 (In thousands, except %) Interest expense $ 12,872 $ 12,130 $ 742 6 % Interest expense increased from $12.1 million for the year ended December 31, 2022 to $12.9 million for the year ended December 31, 2023.
We expect to begin generating revenue from our human spaceflight program, which is expected to launch in the second quarter of 2023. To the extent this source of capital as well as the sources of capital described above are insufficient to meet our needs, we will also conduct additional offerings of our securities or may refinance debt.
We expect to generate revenue from our spaceflight program, which commenced with our first commercial spaceflight, 'Galactic 01,' in June 2023. To the extent this source of capital as well as the sources of capital described above are insufficient to meet our needs, we may need to seek additional debt or equity financing.
Factors Affecting Our Performance We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section of this Annual Report on Form 10-K titled “Risk Factors.” Impact of COVID-19 The COVID-19 pandemic and the protocols and procedures we implemented in response to the pandemic caused delays to our business and operations, which led to accumulated impacts to both schedule and cost efficiency and some delays in operational and maintenance activities, including delays in our test flight program.
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.
Depreciation and Amortization Year Ended December 31, $ Change % Change 2022 2021 (In thousands, except %) Depreciation and amortization $ 11,098 $ 11,518 $ (420) (3.6) % Depreciation and amortization expense decreased from $11.5 million for the year ended December 31, 2021 to $11.1 million for the year ended December 31, 2022, a decrease of $0.4 million when compared to 2021.
Depreciation and Amortization Year Ended December 31, $ Change % Change 2023 2022 (In thousands, except %) Depreciation and amortization $ 13,369 $ 11,098 $ 2,271 20 % Depreciation and amortization expense increased from $11.1 million for the year ended December 31, 2022 to $13.4 million for the year ended December 31, 2023.
Interest expense increased to $(12.1) million for the year ended December 31, 2022. This increase was primarily driven by interest expense and amortization of debt issuance costs related to our January 2022 senior convertible notes.
This increase was primarily driven by a full year of interest expense and amortization of debt issuance costs related to our convertible senior notes in 2023. Income Tax Expense Income tax expense was immaterial for the years ended December 31, 2023 and 2022. We have accumulated net operating losses at the U.S. federal and state levels.
Net cash used in investing activities was $387.5 million for the year ended December 31, 2021, and consisted primarily of $382.9 million in purchases of marketable securities and $4.6 million in purchases of capital expenditures.
Investing Activities Net cash used in investing activities was $116.3 million for the year ended December 31, 2023, and consisted of $1.0 billion in purchases of marketable securities and $44.3 million in capital expenditures, partially offset by $937.9 million in proceeds from maturities and calls of marketable securities.
To reduce the capacity constraint associated with having only one spaceflight system, we are currently developing our newest spaceship, VSS Imagine. We intend to expand our fleet further with our next generation vehicles, our Delta class spaceships and our next generation motherships, which will allow us to increase our annual flight rate.
As a result, our annual flight rate will be constrained by the availability and capacity of this spaceflight system. To reduce the capacity constraint associated with having only one spaceflight system, we are currently developing our next generation spaceflight vehicles.
Research and development costs consist primarily of the following costs for developing our spaceflight systems: • flight testing programs, including rocket motors, fuel, and payroll and benefits for pilots and ground crew performing test flights; • equipment, material, and labor hours (including from third-party contractors) for developing the spaceflight system’s structure, spaceflight propulsion system, and flight profiles; • rent, maintenance, and other overhead expenses allocated to the research and development departments; and • third-party fees to design and manufacture our next generation motherships, as well as manufacture key subassemblies for our next generation spaceships.
Research and development costs will consist primarily of equipment, material, and labor costs (including from 51 Table of Contents third-party contractors) for designing the spaceflight system’s structure, spaceflight propulsion system, and flight profiles for our next generation spaceships and motherships, as well as allocated facilities and other supporting overhead costs.
Our principal sources of liquidity have come from our sales of our common stock and offering of convertible senior notes ("2027 Notes").
Liquidity and Capital Resources As of December 31, 2023, we had total cash, cash equivalents and restricted cash of $253.6 million and total marketable securities of $728.8 million. Our principal sources of liquidity have come from sales of our common stock and offering of convertible senior notes ("2027 Notes").
Research and Development Research and development expense represents costs incurred to support activities that advance our human spaceflight system towards commercialization, including basic research, applied research, concept formulation studies, design, development, and related testing activities.
Research and Development Year Ended December 31, $ Change % Change 2023 2022 (In thousands, except %) Research and development $ 295,140 $ 314,174 $ (19,034) (6) % 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.
Issuances of Common Stock On July 12, 2021, we entered into a distribution agency agreement with Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC and Goldman Sachs & Co.
We anticipate the costs to manufacture additional vehicles will begin to decrease as we continue to scale up our manufacturing processes and capabilities. 54 Table of Contents Issuances of Common Stock In August 2022, we entered into a distribution agency agreement with Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC and Goldman Sachs & Co.
We have also leveraged our knowledge and expertise in manufacturing spaceships to occasionally perform engineering services for third parties, such as research, design, development, manufacturing and integration of advanced technology systems.
We have also leveraged our knowledge and expertise in manufacturing spaceships to occasionally perform engineering services for third parties. Recent Developments In June 2023, we completed our first commercial spaceflight, ' Galactic 01,' which marked the start of our commercial service.
Specifically, our operating expenses will increase as we: • scale up our manufacturing processes and capabilities to support expanding our fleet with additional spaceships, carrier aircraft and rocket motors upon commercialization; • pursue further research and development on our future human spaceflights, including those related to our research and education efforts on point-to-point travel; • hire additional personnel in research and development, manufacturing operations, testing programs, maintenance operations and guest services as we increase the volume of our spaceflights upon commercialization; • seek regulatory approval for any changes, upgrades or improvements to our spaceflight technologies and operations in the future, especially upon commercialization; • maintain, expand and protect our intellectual property portfolio; • establish our astronaut campus in New Mexico; and • hire additional personnel in management to support the expansion of our operational, financial, information technology, and other areas to support our operations as a public company.
Specifically, our long-term expenditures will increase as we: • scale up our manufacturing processes and capabilities to support expanding our fleet with additional spaceships, carrier aircraft and rocket motors in connection with commercialization; • hire additional personnel in manufacturing operations, testing programs, maintenance operations and guest services as we increase the volume of our spaceflights; • scale up required operational facilities, such as hangars and warehouses; and • establish our astronaut campus in New Mexico.
We believe that expanding the fleet will allow us to increase our annual flight rate once commercialization is achieved. We are dedicating significant engineering resources to the work that precedes production of the future fleet.
These next generation spaceflight vehicles, which include our Delta Class spaceships and our next generation motherships, will allow us to increase our annual flight rate. We are dedicating significant engineering resources to the work that precedes production of the future fleet. In 2023, we demonstrated the flight consistency of Unity and Eve by safely bringing our customers to space.
Research and Development Year Ended December 31, $ Change % Change 2022 2021 (In thousands, except %) Research and development $ 314,174 $ 144,223 $ 169,951 117.8 % Research and development expenses increased by $170.0 million, or 117.8%, to $314.2 million for the year ended December 31, 2022 from $144.2 million for the year ended December 31, 2021.
Research and development expenses decreased from $314.2 million for the year ended December 31, 2022 to $295.1 million for the year ended December 31, 2023.
Safety Performance of Our Spaceflight Systems Our spaceflight systems are highly specialized with sophisticated and complex technology. We have built operational processes to ensure that the design, manufacture, performance and servicing of our spaceflight systems meet rigorous quality standards.
We have built operational processes to ensure that the design, manufacture, performance and servicing of our spaceflight system meets rigorous quality standards. However, our spaceflight system is still subject to operational and process risks, such as manufacturing and design issues, human errors, or cyber-attacks.
The change in income tax expense shown above is primarily related to corporate income taxes for our operations in the United Kingdom, which operates on a cost-plus arrangement. Liquidity and Capital Resources As of December 31, 2022, we had cash, cash equivalents and restricted cash of $342.6 million and $637.1 million in marketable securities.
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.
Net cash provided by financing activities was $489.4 million for the year ended December 31, 2021, and consisted primarily of $500.0 million cash proceeds from the sale and issuance of common stock and $20.0 million in cash received from the issuance of common stock pursuant to stock options exercised, partially offset by tax withholdings paid for net settled stock-based awards of $23.4 million and transaction costs incurred for the issuance of common stock of $6.8 million. 55 Table of Contents Contractual Obligations We lease certain facilities and data centers under non-cancellable operating lease arrangements that expire at various dates through 2065.
Financing Activities Net cash provided by financing activities was $475.4 million for the year ended December 31, 2023, and consisted primarily of net cash proceeds from the sale and issuance of common stock of $478.9 million, partially offset by tax withholdings paid for net settled stock-based awards of $3.2 million.
Our missions include flying passengers to space as tourists, as well as flying scientific payloads and researchers to space in order to conduct experiments for scientific and educational purposes. Our operations include the design and development, manufacturing, ground and flight testing, and post-flight maintenance of our spaceflight system vehicles.
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 spaceflight system is developed using our proprietary technology and processes and is focused on providing space experiences for private astronauts, researcher flights and professional astronaut training. We intend to offer our customers a unique, multi-day experience culminating in a spaceflight that includes several minutes of weightlessness and views of Earth from space.
Our operations include the design and development, manufacturing, ground and flight testing, spaceflight operation, and post-flight maintenance of our spaceflight system. Our current spaceflight system was developed using our proprietary technology and processes and is focused on providing space experiences for private astronauts, researcher flights and professional astronaut training.
Selling, General and Administrative Selling, general and administrative expenses consist of human capital related expenses for employees involved in general corporate functions, including executive management and administration, accounting, finance, tax, legal, information technology, marketing and commercial, and human resources; rent relating to facilities, including a portion of the lease with Spaceport America, and equipment; professional fees; and other general corporate costs.
Selling, General and Administrative Year Ended December 31, $ Change % Change 2023 2022 (In thousands, except %) Selling, general and administrative $ 174,864 $ 175,118 $ (254) n.m 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.
As of December 31, 2022, future minimum payments under noncancellable operating leases was $110.9 million. For additional information regarding our lease obligations, see Note 16 in our consolidated financial statements included in Item 8 of this Annual Report in Form 10-K.
For additional information regarding our lease obligations, see Note 16 in our consolidated financial statements included in Item 8 of this Annual Report in Form 10-K. Funding Requirements We expect our expenditures to fluctuate in connection with our ongoing activities, particularly as we continue to advance the development of our next generation spaceflight system and leverage investments in capital expenditures.
Our contracts generally include spaceflight operations, Future Astronaut community services, and other revenue and engineering services. Inventories Inventories consist of raw materials expected to be used for the development of the human spaceflight program and customer-specific contracts. Inventories are stated at the lower of cost or net realizable value.
Inventories Inventories consist of materials expected to be used in our spaceflight operations. Inventories are stated at the lower of cost or net realizable value using the average cost method. We record a provision for excess and obsolete inventory based primarily on forecasted product demand and production requirements.
This increase was primarily due to a $18.8 million increase in salary, bonus and other employee benefits, a $7.0 million increase in consulting, legal and other professional costs, a $2.3 million increase in software licensing costs, and a $1.9 million increase in contract and subcontract labor.
This decrease was primarily driven by a $4.2 million decrease in consulting and other professional fees and a $1.2 million decrease in cash compensation and other employee benefit costs. This decrease was partially offset by a $2.8 million increase in information technology and software costs and a $2.7 million increase in marketing and promotion costs.
However, our spaceflight systems are still subject to operational and process risks, such as manufacturing and design issues, human errors, or cyber-attacks. Any actual or perceived safety issues may result in significant reputational harm to our business and our ability to generate human spaceflight revenue.
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.
Interest Income Year Ended December 31, $ Change % Change 2022 2021 (In thousands, except %) Interest income $ 12,502 $ 1,208 $ 11,294 n.m Interest income increased by $11.3 million to $12.5 million for the year ended December 31, 2022 from $1.2 million for the year ended December 31, 2021.
The unpaid severance and related benefit costs of $1.4 million as of December 31, 2023 are expected to be fully paid during the first quarter of 2024. 52 Table of Contents Interest Income Year Ended December 31, $ Change % Change 2023 2022 (In thousands, except %) Interest income $ 42,234 $ 12,502 $ 29,732 238 % Interest income increased from $12.5 million for the year ended December 31, 2022 to $42.2 million for the year ended December 31, 2023.
Available Capacity and Annual Flight Rate We expect to commence commercial operations with a single spaceship, VSS Unity, and a single mothership carrier aircraft, VMS Eve, which together comprise our only spaceflight system. As a result, our annual flight rate will be constrained by the availability and capacity of this spaceflight system.
As of December 31, 2023, the tickets sold represent approximately $205 million in expected future spaceflight revenue upon completion of spaceflights. 49 Table of Contents Available Capacity and Annual Flight Rate We commenced our commercial operations with VSS Unity and VMS Eve, which together comprise our current spaceflight system.
Additionally, we are in the final phases of developing our commercial spaceflight program. While we anticipate initial commercial launch with a single spaceship, we currently have additional spaceship vehicles under construction. We anticipate the costs to manufacture additional vehicles will begin to decrease as we continue to scale up our manufacturing processes and capabilities.
While we have completed our initial commercial launch with a single spaceship, we are currently developing our next generation spaceflight vehicles.
We completed available offerings under the 2021 ATM program on July 16, 2021, generating $500.0 million in gross proceeds through the sale of 13,740,433 shares of our common stock, before deducting $6.2 million in underwriting discounts, commissions and other expenses payable by us. 56 Table of Contents On August 4, 2022, we entered into a distribution agency agreement with Credit Suisse Securities (USA) LLC, Morgan Stanley & Co.
We completed the 2022 ATM Program in June 2023, selling a total of 59.4 million shares of common stock and generating $300.0 million in gross proceeds since its inception, before deducting $3.0 million in underwriting discounts, commissions and other expenses.
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Overview We are at the vanguard of a new industry, pioneering a consumer space experience using reusable spaceflight systems. We believe the commercial exploration of space represents one of the most exciting and important technological initiatives of our time. Approximately 640 humans have ever traveled above the Earth’s atmosphere into space.
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In July 2023, we concluded that technological feasibility had been achieved for our initial spaceship, VSS Unity, and mothership carrier aircraft, VMS Eve, which together comprise our current spaceflight system. As a result, future costs associated with this spaceflight system, including the manufacture of related rocket motors, will no longer qualify as research and development activities.
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This industry is growing dramatically due to new products, new sources of private and government funding, and new technologies. Demand is emerging from new sectors and demographics, which we believe is broadening the total addressable market.
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Following the launch of commercial service and achievement of technological feasibility, we began presenting the operating expenses supporting our commercial spaceline activities as spaceline operations expense in the accompanying consolidated statements of operations and comprehensive loss. Expenses incurred prior to the achievement of technological feasibility were classified as research and development and selling, general and administrative expenses.
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As government space agencies have retired or reduced their capacity to send humans into space, private companies are beginning to make exciting inroads into the fields of human space exploration. We have embarked on this journey with a mission to put humans and research experiments into space and return them safely to Earth on a routine and consistent basis.
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In November 2023, we announced our plan to pause Unity spaceflights in mid-2024 and that we expect to re-commence flying with test flights for our Delta Class spaceships in 2025, in advance of revenue service expected to begin in 2026. In January 2024, we completed our sixth commercial spaceflight.
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We believe that opening access to space will connect the world to the wonder and awe created by space travel, offering customers a transformative experience, and providing the foundation for a myriad of exciting new industries. We are an aerospace and space travel company offering access to space for private individuals, researchers and government agencies.
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In 2024, we expect to adjust the flight cadence of Unity to quarterly and then pause flights starting mid-year to focus our resources on the development of the Delta Class spaceship fleet. Safety Performance of Our Spaceflight System Our spaceflight system is highly specialized with sophisticated and complex technology.
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Our elegant and distinctive spaceflight system – which takes off and lands on a runway – has been designed for optimal safety and comfort. As part of our commercial operations, we have exclusive access to the Gateway to Space facility at Spaceport America located in New Mexico.
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Spaceline Operations Year Ended December 31, $ Change % Change 2023 2022 (In thousands, except %) Spaceline operations $ 50,538 $ 1,906 $ 48,632 n.m 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 Future Astronaut community; and costs to provide payload cargo and engineering services.
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Spaceport America is the world’s first purpose-built commercial spaceport and will be the site of our initial commercial spaceflight operations.
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Following the launch of commercial service and achievement of technological feasibility, we began presenting the operating expenses supporting our commercial spaceline activities as spaceline operations expense in the accompanying consolidated statements of operations and comprehensive loss.
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We believe the site provides us with a competitive advantage as it has a desert climate with relatively predictable weather conditions preferable to support our spaceflights and it also has airspace that is restricted for surrounding general commercial air traffic which facilitates frequent and consistent flight scheduling. Our near-term focus is to launch the commercial program for human spaceflight.
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Prior to achievement of technological feasibility, spaceline operations expense included costs to support our Future Astronaut community and costs related to payload cargo and engineering services, which were previously presented as customer experience expense.
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In December 2018, we made history by flying our groundbreaking spaceship, VSS Unity, to space. This represented the first flight of a spaceflight system built for commercial service to take humans into space. In February 2019, we flew our second spaceflight with VSS Unity, which carried a crew member in the cabin in addition to the two pilots.
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Spaceline operations expense for the year ended December 31, 2023 was primarily attributable to 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; and costs to maintain and support our Future Astronaut community.
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After relocating our operations to Spaceport America, we have flown an additional two spaceflights in May and July of 2021. The May 2021 flight carried revenue-generating research experiments as part of NASA’s Flight Opportunities Program. This was the third time Virgin Galactic had flown technology experiments in the cabin on a spaceflight.
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This decrease was primarily driven by a $51.7 million decrease in materials costs associated with the development of our spaceflight systems, a $7.2 million decrease in cash compensation and other employee benefit costs, a $4.7 million decrease in stock-based compensation, and a $3.4 million decrease in facility costs.
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This flight also completed the data submission to the FAA resulting in the approval for the expansion of our commercial space transportation operator license to allow for the carriage of space flight participants. This marked the first time the FAA licensed a spaceline to fly customers and was further validation of the inherent safety of our system .
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These decreases were partially offset by a $47.6 million increase in manufacturing sub-contractor and contract labor costs, consulting, and other direct costs associated with the development of our spaceflight systems.
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Our flight in July 2021 was the 22 nd flight of VSS Unity, the fourth rocket powered spaceflight and the first spaceflight with a full crew of four mission specialists in the cabin, including our Founder, Sir Richard Branson. 47 Table of Contents We believe that the market for commercial human spaceflight is significant and untapped.
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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 $175.1 million for the year ended December 31, 2022 to $174.9 million for the year ended December 31, 2023.
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As of December 31, 2022, we received reservations for approximately 800 spaceflight tickets and collected $103.3 million of deposits and membership fees from future astronauts.
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This increase is primarily due to the acquisition of property, plant and equipment. Special Charges In November 2023, we commenced a restructuring plan designed to decrease costs and strategically realign our resources. In connection with this plan, we announced a workforce reduction of approximately 185 employees, constituting approximately 18% of our workforce.
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With each ticket purchased, future astronauts will experience a multi-day journey to prepare their mind and body for their upcoming flight, which includes a comprehensive spaceflight training preparation program and culminates with a trip to space on the final day. Each ticket purchased after our ticket sale reopening in 2021 also includes a membership in Virgin Galactic's Future Astronaut community.
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As a result, we recorded severance and related benefit costs for the involuntarily terminated employees as special charges in the accompanying 2023 consolidated statement of operations and comprehensive loss.
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This membership provides access to events and experiences, including exclusive weeks 'at home' with Virgin Galactic Astronaut 001, Sir Richard Branson. We have developed an extensive set of integrated aerospace development capabilities encompassing preliminary vehicle design and analysis, detail design, manufacturing, ground testing, flight testing, and maintenance of our spaceflight system.
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This increase was primarily driven by increased average balances of marketable securities, higher investment returns on marketable securities and higher interest rates on deposits in interest bearing accounts.
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Our reusable spaceflight system consists of two primary components: our carrier aircraft, which is called the mothership, and our spaceship. Our mothership is a twin-fuselage, custom-built aircraft designed to carry the spaceship up to an altitude of approximately 45,000 feet, where it is released for its flight into space.
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Contractual Obligations We lease certain facilities and assets under non-cancellable operating lease arrangements that expire at various dates through 2065. As of December 31, 2023, future minimum payments under non-cancellable operating leases were $128.2 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOur cash and cash equivalents are held for working capital purposes and to enable us to earn low-risk returns on our investments. Our investment in marketable securities are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.
Biggest changeOur investment 56 Table of Contents in marketable securities are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes. Our cash equivalents and our investment portfolio are subject to market risk due to changes in interest rates.
In January 2022, we issued the 2027 Notes in an aggregate principal amount of $425.0 million. Concurrently with the issuance of the 2027 Notes, we entered into separate capped call transactions. The 2027 Capped Calls were completed to reduce the potential dilution from the conversion of the 2027 Notes. The 2027 Notes have a fixed annual interest rate of 2.50%.
In January 2022, we issued the 2027 Notes in an aggregate principal amount of $425 million. Concurrently with the issuance of the 2027 Notes, we entered into separate capped call transactions. The 2027 Capped Calls were completed to reduce the potential dilution from the conversion of the 2027 Notes. The 2027 Notes have a fixed annual interest rate of 2.50%.
The fair value is determined based on the quoted bid price of the 2027 Notes in an over-the-counter market on the last trading day of the reporting period. As of December 31, 2022, a hypothetical 100 basis point change in interest rates would not have had a material impact on the value of our cash equivalents or investment portfolio.
The fair value is determined based on the quoted bid price of the 2027 Notes in an over-the-counter market on the last trading day of the reporting period. As of December 31, 2023, a hypothetical 100 basis point change in interest rates would not have had a material impact on the value of our cash equivalents or investment portfolio.
Currently, we do not use foreign currency forward contracts to manage exchange rate risk, as the amount subject to foreign currency risk is not material to our overall operations and results. 59 Table of Contents
Currently, we do not use foreign currency forward contracts to manage exchange rate risk, as the amount subject to foreign currency risk is not material to our overall operations and results.
Our cash equivalents and our investment portfolio are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates.
Fixed rate securities may have their market value adversely affected due to a rise in interest rates.
Interest Rate Risk We had cash, cash equivalents and marketable securities totaling $1.0 billion as of December 31, 2022, of which $928.1 million was invested in money market funds, certificate of deposits, U.S. treasury securities, and corporate debt securities.
Interest Rate Risk We had cash, cash equivalents and marketable securities totaling $982.4 million as of December 31, 2023, of which $964.7 million was invested in money market funds, U.S. treasury securities and corporate debt securities. Our cash and cash equivalents are held for working capital purposes and to enable us to earn low-risk returns on our investments.

Other SPCE 10-K year-over-year comparisons