The following discussion and analysis provides information that
Virgin Orbit'smanagement believes is relevant to an assessment and understanding of Virgin Orbit'scondensed consolidated results of operations and financial condition. You should read this discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited financial statements and related notes as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with filed with the SECon March 31, 2022, as amended (the "2021 Annual Report on Form 10-K"). This discussion may contain forward-looking statements based upon Virgin Orbit'scurrent expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed in the sections entitled " Part II, Item 1A. Risk Factors " and " Cautionary Statement Regarding Forward-Looking Statements ." Vieco USA, Inc.entered into a merger agreement (the "Merger Agreement") with NextGen Acquisition Corp.II ("NextGen") on August 22, 2021. The transactions contemplated by the terms of the Merger Agreement (the "Business Combination") were completed on December 29, 2021, in conjunction with which NextGen changed its name to Virgin Orbit Holdings, Inc.(hereafter referred to as " Virgin Orbit, the "Company," "we," "us" or "our", unless the context otherwise requires).
We are a vertically integrated space company that provides customers dedicated and rideshare small satellite launch capabilities. Our philosophy is to operate a mobile launch system that can "launch at any time, from any place, to any orbit." Our vision is to use space to drive positive and lasting change on Earth, from connecting communities to advancing scientific initiatives; supporting America's and other nations' space presence, and helping create the next generation of world-changing space technology. Since our founding in 2017, we have invested in research and development efforts to develop a unique air-launch system, comprised of Cosmic Girl, a modified Boeing 747 aircraft, and the LauncherOne rocket. Cosmic Girl serves as a reusable mobile launch pad, carrying LauncherOne aloft, and LauncherOne is a two-stage rocket that is the world's first and only liquid-fueled, air-launched rocket to reach orbit successfully. This mobile system allows us to serve a broad array of applications and end markets, providing customers with a highly differentiated solution to launch satellites relative to other existing small satellite ground launch providers. We believe there is near- and medium-term acceleration in the growth of the space market, driven by rapid advances in launch and satellite technology. As a result, there has been a proliferation of private sector space companies pursuing the growing demand for space solutions across multiple applications. There are numerous private small-satellite launch companies (focused on carrying less than 1,000 kg to 500 km low Earth orbit), but to our knowledge, only five companies have completed successful launch to orbit - Astra Space,
Northrop Grumman, Rocket Lab, SpaceX'sdedicated rideshare program, and Virgin Orbit. As one of the few proven small satellite launch providers, we believe we are well-positioned to benefit from these attractive industry tailwinds. We successfully completed three orbital launches in 2021 and the first quarter of 2022, each at the beginning of our targeted launch window, which we believe demonstrates the efficacy of our launch system. To date, we have delivered 26 satellites to their desired orbits with high precision. By utilizing an air-launch system via Cosmic Girl and the LauncherOne rocket, we believe that we offer the agility, flexibility and responsiveness that small satellite customers need to achieve their mission objectives. Our launches have delivered satellites to orbit for customers across commercial, civil and national security and defense markets, both domestically and internationally. Leveraging the successes from these launches, we have been able to secure active contracts representing approximately $575.6 millionof potential revenue, of which $156.9 millionis under binding agreements, and $418.7 millionis under non-binding memorandums ("MOUs") and letters of intent ("LOIs"). Amounts for active contracts and signed, non-binding memorandums of understanding as of March 31, 2022included $22.0 millionfor a non-binding MOU that was terminated after March 31, 2022, and is not included in such amounts after such termination. We develop and manufacture our launch technology from a vertically-integrated manufacturing facility in Long Beach, California. Leveraging advanced, state-of-the art manufacturing capabilities, including automation and additive manufacturing technologies, we believe we have the necessary infrastructure in-place to meet the medium-term demand for our launch business. Prior to the Business Combination, Virgin Group Holdings Limited(" Virgin Group")and Mubadala Investment Company PJSC("Mubadala") and its subsidiaries invested approximately $1 billionof capital to found, scale and grow the business. 28
We have been primarily focused and engaged in designing and developing launch solutions for small satellites since our inception in 2017. We have incurred net losses of
$62.6 millionand $32.3 millionfor the three months ended March 31, 2022and 2021, respectively, and expect to incur significant losses in the near term. Since achieving commercialization in June 2021, we have continued and expect to continue to make significant investments in capital expenditures to build and expand our production for commercial small satellite launches, hire top-tier leaders and innovators, and continue to invest in research and development.
August 22, 2021, NextGen Acquisition Corp.II ("NextGen") via Pulsar Merger Sub, Inc.("Pulsar Merger Sub") and Vieco USAentered into a merger agreement (the "Merger Agreement") which contemplated Pulsar Merger Sub merging with and into Vieco USA, with Vieco USAsurviving the merger as a wholly owned subsidiary of NextGen (the "Business Combination"). On December 29, 2021, as contemplated by the Merger Agreement, we consummated the Business Combination and changed our name to Virgin Orbit Holdings, Inc.The Business Combination was accounted for as a reverse recapitalization. Virgin Orbitcommon stock and warrants commenced trading on the Nasdaq Stock Market LLC("Nasdaq") under the symbols "VORB" and "VORBW," respectively, on December 29, 2021. See Note 1, "Organization and Business Operations -Business Combination" in the notes to the condensed consolidated financial statements included in this Quarterly Report for further details.
Key factors affecting our performance
We believe that our future success and financial performance depend on several factors that present significant opportunities for our business, but also pose risks and challenges, including those discussed below and in Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q.
Since our first test flight in 2020, a broad range of potential customers, including national security organizations, commercial satellite providers, and civil service providers have shown significant interest in our service. Our commercial customers include satellite and constellation providers such as Arqit and SatRevolution. Civil customers mostly fall within our spaceport and launch offerings for civil space agencies with customers including, NASA, Spaceport
Cornwallin the United Kingdom, Spaceport Japan at Oita Airportin Japan, and Alcantara Launch Center in Brazil. Outside of spaceports, we also provide dedicated launch services for civil space agencies such as NASA, and we expect to provide such service to other governments which have space agencies but lack the infrastructure for domestic space launches. Some national security and defense customers include the United States Space Force, the U.S. Air Force, NRO and the Missile Defense Agency. Leveraging our three successful orbital launches in 2021 and early 2022, we have been able to secure active contracts as of March 31, 2022representing approximately $575.6 millionof potential revenue as of March 31, 2022, including $175.3 millionof signed, binding agreements, of which $156.9 millionin backlog, and $418.7 millionof signed, non-binding memorandums of understanding and letters of intent. Amounts for active contracts and signed, non-binding memorandums of understanding as of March 31, 2022included $22.0 millionfor a non-binding MOU that was terminated after March 31, 2022, and is not included in such amounts after such termination. We also believe there is near- and medium-term growth potential in the space market, driven by rapid advances in launch and satellite technology. As a result, there has been a proliferation of private sector space companies pursuing the growing demand for space solutions across multiple applications. As one of the few proven small satellite launch providers to have successfully reached orbit, we believe we are well-positioned to benefit from these attractive industry tailwinds. Therefore, we plan to leverage our existing launch capabilities and our track record as a systems integrator to provide end-to-end value-added services for Internet of Things ("IoT") and Earth Observation ("EO") applications through the combination of agreements with satellite operators and a satellite constellation we will own and operate. Using a satellite-as-a-service model, we expect to deploy our own satellites in the next few years to serve government and commercial, both domestically and internationally.
We design, build, and test LauncherOne in-house and operate at the forefront of composite structures, liquid rocket engines, ultra-responsive launch systems, ruggedized avionics, optimized flight software, automated flight safety systems, and advanced manufacturing techniques. We believe the synergy of these technologies enables greater responsiveness to the commercial and government small satellite markets. Our unique air-launch system launches satellites into space from a 29
rocket carried beneath the wing of a modified Boeing 747-400, meaning it has greater flexibility, mobility and responsiveness than other satellite launch systems. To continue establishing market share and attracting customers, we plan to continue our substantial investments in research and development for the continued enhancements of LauncherOne and commercialization of future generations of our rockets.
As we plan to continue to scale our production of rockets for our small satellite services, we are making significant investments in capital expenditures for building and enhancing our manufacturing capacity and facilities. We expect our capital expenditures to continue to increase for the next several years. The amount and timing of our future manufacturing capacity requirements, and resulting capital expenditures, will depend on many factors, including the pace and results of our research and development efforts to meet technological development milestones, our ability to develop and manufacture rockets, our ability to achieve sales, and customer demand for our rockets at the levels we anticipate. Our headquarters in
Long Beach, Californiahas combined facility of 195,000 square feet and is used for design, engineering, manufacturing, integration, assembly, test activities, payload processing and encapsulation. We currently have approximately five rockets in production and the processes, technology and machinery/tooling to support a production capacity of approximately 20 rockets annually. Global Pandemic On March 11, 2020, the World Health Organizationcharacterized the outbreak of the coronavirus disease ("COVID-19") as a global pandemic and recommended containment and mitigation measures. We have taken steps to protect our workforce and support community efforts. As part of these efforts, and in accordance with applicable government directives, we initially reduced and later temporarily suspended on-site operations for one week at our facilities in Long Beach, Californiain late March 2020. Starting late March 2020, approximately two-thirds of our workforce and contractors were able to complete their duties from home. As of the date of this Quarterly Report on Form 10-Q, all of our employees whose work requires them to be in our facilities are now back on-site, but we have experienced, and expect to continue to experience, reductions in operational efficiency due to illness from COVID-19 and precautionary actions taken related to COVID-19. While many restrictions associated with COVID-19 have more recently been relaxed, the longevity and extent of the COVID-19 pandemic remains uncertain, including due to the emergence and impact of the COVID-19 variants. These measures and challenges may continue for the duration of the pandemic and may affect our revenue growth while the pandemic continues. See Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q for further discussion of the impacts of the COVID-19 pandemic on our business.
Components of operating results
Small satellite launch operations revenue is recognized for providing customer launch services by placing payloads into orbit. Revenue for each customer payload is recognized at a point in time when the performance obligation is complete, which is typically at the point of launch. We began recognizing revenue for launch services in
January 2021from our initial launch with NASA. Our second launch was completed in June 2021, with successful deployments of payloads in each of our core offerings: commercial, civil and defense. We successfully completed three orbital launches in 2021 and the first quarter of 2022, out of Mojave, California. To date, we have delivered 26 satellites to their desired orbits with high precision. We generated $1.8 millionand $4.6 millionduring the three months ended March 31, 2022and 2021, respectively, from launch services. We expect a significant portion of our future revenue growth to be derived from further commercialization of our small satellite launch operations and expansion of our portfolio of space offerings.
We also generate revenue by providing engineering services, which primarily relates to research and studies, to our customers. Revenue is recognized as control of the performance obligation is transferred over time to the customer. As of
March 31, 2022, we have two engineering services revenue contracts for which we expect to transfer all remaining performance obligations to the customer by the year ended December 31, 2024. We expect that we will continue to earn revenue from engineering services, but that such revenue will represent a smaller portion of our future revenue growth compared to launch services. We generated $0.30 millionand $0.04 millionfor the three months ended March 31, 2022and 2021, respectively, from engineering services. 30
Cost of revenue relates to launch services and engineering services, which primarily includes costs for materials and human capital, such as payroll and benefits for our launch and flight operations. We expect that we will continue to incur cost of revenue from launch services and engineering services. Since LauncherOne achieved technological feasibility in
January 2021, we began capitalizing and subsequently charging to cost of revenue the costs incurred to launch small satellites. Costs associated with launch services include the costs for rocket manufacturing, overhead, and launch. Costs for rocket manufacturing include materials, labor, fuel, payroll and benefits for our launch and flight operations as well as the depreciation of Cosmic Girl, maintenance and depreciation of facilities and equipment and other allocated overhead expenses. As we continue to grow our revenue from further commercialization of our small satellite launch operations and expansion of our portfolio of space offerings, we expect that our cost of revenue will increase.
Gross profit and gross margin
Gross profit is calculated as revenue less cost of revenue. Gross margin is the percentage obtained by dividing gross profit by its revenue. Our gross profit and gross margin have varied historically based on the mix of revenue from small satellite launch services and engineering services. Although our gross profit and gross margin may continue to vary by offering as we scale our business, we expect our overall gross profit and gross margin to improve over time.
Selling, general and administrative expenses
Selling, general and administrative expenses consist of personnel-related expenses related to general corporate functions, primarily including executive management and administration, finance and accounting, legal, business development, and government affairs, as well as certain allocated costs. Personnel-related expenses primarily include salaries and benefits. Allocated costs include costs related to information technology, facilities, human resources and safety. Personnel-related expenses also include allocated sustaining activities relating to launch operations and production processes support, including required launch system maintenance, updates and documentation. As we continue to grow, we expect that our selling, general and administrative costs will increase. We also expect to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the
SEC, as well as higher expenses for general and director and officer insurance, investor relations and professional services.
Research and development costs
We conduct research and development activities to develop existing and future technologies that advance our satellite launch and space solution offerings. Research and development activities include basic research, applied research, concept formulation studies, design, development and related test program activities. Costs incurred to develop our LauncherOne rockets primarily include equipment, material, labor and overhead. Costs incurred for performing test flights primarily include labor and fuel expenses for launch and flight operations. Research and development costs also include rent, maintenance, and depreciation of facilities and equipment and other allocated overhead expenses. We plan to continue to make substantial investments in research and development for the continued enhancements of LauncherOne and the development of a third stage modified LauncherOne for additional services. As LauncherOne achieved technical feasibility in
January 2021, we began capitalizing the production costs of our LauncherOne rockets.
Interest expense, net
Interest expense, net, relates to our finance lease obligations, the cost of funding our directors’ and officers’ insurance, and income from interest-bearing demand deposit accounts
Change in fair value of equity securities
Change in fair value of equity investments includes changes in the fair value of our equity investments.
Change in fair value of warrants classified as liabilities
Change in fair value of liability classified warrants relates to remeasurement of our public and private placement warrants to fair value as of any respective exercise date and as of each subsequent balance sheet date.
Other income includes sources of income that are not related to our core business, including various non-operating items, such as income recognized in the non-ordinary course of business.
Provision for income tax
Our provision for income taxes consists of an estimate for
U.S.federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in the tax law. We maintain a valuation allowance against the full value of our U.S.and state net deferred tax assets because we believe it is more likely than not that the recoverability of these deferred tax assets will not be realized.
Three months completed
The following table sets forth our results of operations for the periods presented. Period-to-period comparisons of financial results are not necessarily indicative of future results.
Three Months Ended March 31, $ % (In thousands) 2022 2021 change change Revenue
$ 2,111 $ 5,535 $ (3,424)(62) % Cost of revenue 17,441 2,381 15,060 633 % Gross (loss) profit (15,330) 3,154 (18,484) (586) % Selling, general and administrative expenses 32,426 19,483 12,943 66 % Research and development expenses 10,803 17,831 (7,028) (39) % Operating loss (58,559) (34,160) (24,399) 71 % Other income (expense): Change in fair value of equity investments (4,185) - (4,185) N/A Change in fair value of liability classified warrants - - - N/A Interest expense (28) (7) (21) 300 % Other income, net 202 1,842 (1,640) (89) % Total other income (expense), net: (4,011) 1,835 Loss before income taxes (62,570) (32,325) (30,245) 94 % Provision for income taxes - - - N/A Net loss (62,570) (32,325) (30,245) 94 % Revenue Three Months Ended March 31, $ % (In thousands) 2022 2021 change change Revenue $ 2,111 $ 5,535 $ (3,424)(62) % 32
Revenue decreased by
$3.4 millionfor the three months ended March 31, 2022compared to the three months ended March 31, 2021, which was primarily attributable to one launch each with the difference in revenue driven by the manifests for satellites being launched, during the three months ended March 31, 2022and March 31, 2021, .
Revenue cost and gross profit
Three Months Ended March 31, $ % (In thousands) 2022 2021 change change Revenue
$ 2,111 $ 5,535 $ (3,424)(62) % Cost of revenue 17,441 2,381 15,060 633 % Gross (loss) profit (15,330) 3,154 (18,484) (586) % Gross margin (726) % 57 % Cost of revenue increased by $15.1 millionfor the three months ended March 31, 2022compared to the three months ended March 31, 2021primarily attributable to the recognition of contract losses and inventory write-down of $13.2 millionrelated to future launches during the three months ended March 31, 2022. After the launch in January 2021, we began to capitalize costs associated with the launch services. For the three months ended March 31, 2022, we determined inventory related to a certain near-term rocket build was not recoverable and as a result, we recognized an inventory write-down of $1.6 millionto its estimated net realizable value, and cost of goods sold related to Above the Clouds launch and other manufacturing variances of $1.8 million. Gross profit decreased by $18.5 million, and gross margin decreased by 783 percentage points for the three months ended March 31, 2022compared to the three months ended March 31, 2021primarily attributable to the increase in launch services revenue after our first launch in 2021.
Selling, general and administrative expenses
Three Months Ended March 31, $ % (In thousands) 2022 2021 change change Selling, general and administrative expenses
$ 32,426 $ 19,483 $ 12,94366 % Selling, general and administrative expenses increased by $12.9 million, or 66%, for the three months ended March 31, 2022compared to the three months ended March 31, 2021, which was primarily attributable to the increase in facilities and overhead of approximately $8.3 millionand the increase general corporate expenses of $7.7 million, offset by higher department allocations of approximately $2.7 millionas well as other costs of $0.5 million. The increase in facilities and overhead is due to our transition from development to sustaining activities for both the launch operations and production processes which primarily represents personnel-related expenses of $5.6 millionduring the three months ended March 31, 2022. General corporate expenses includes $3.9 millionrelated to new public company costs for directors and officers insurance, legal and audit fees, and SECfiling fees.
Research and development costs
Three Months Ended March 31, % (In thousands) 2022 2021 $ change change Research and development expenses
$ 10,803 $ 17,831 $ (7,028)(39) % Research and development expenses decreased by $7.0 million, or 39%, for the three months ended March 31, 2022compared to the three months ended March 31, 2021, which was primarily attributable to the decrease in facilities, overhead and general corporate expenses due to the transition from development into sustaining activities for both launch 33
operations and production processes of approximately
$8.3 million, offset by the growth in research and development personnel-related expenses of approximately $1.0 millionduring the three months ended March 31, 2021.
Change in fair value of equity securities
Three Months Ended March 31, $ % (In thousands) 2022 2021 change change Change in fair value of equity investments
$ (4,185)$ - $ (4,185)N/A The loss on the fair value of equity investments of $4.2 millionfor the three months ended March 31, 2022compared to the three months ended March 31, 2021, which was attributable to the unrealized loss of $4.2 millionfrom the equity investment in Arqit.
Change in fair value of warrants classified as liabilities
Three Months Ended March 31, $ % (In thousands) 2022 2021 change change Change in fair value of liability classified warrants $ - $ - $ - N/A There was no change in fair value of liability classified warrants for the three months ended
March 31, 2022. The public and private placement warrants were assumed by the Company from NextGen as part of the Business Combination on December 29, 2021. The public and private placement warrants are recorded on the balance sheet at fair value with the carrying amount subject to remeasurement to fair value as of any respective exercise date and as of each subsequent balance sheet date. Interest Expense, Net Three Months Ended March 31, $ % (In thousands) 2022 2021 change change Interest expense, net $ (28) $ (7) $ (21)300 % Interest expense, net increased $21.0 thousand, or 300% for the three months ended March 31, 2022compared to the three months ended March 31, 2021primarily attributable to the interest expense for financing of our director and officer insurance of $29.1 thousand, offset by interest income, net of $8.2 thousandearned on money market fund investments. Other Income Three Months Ended March 31, $ % (In thousands) 2022 2021 change change Other income, net 202 1,842 $ (1,640)(89) % Other income decreased by $1.6 million, or 89% for the three months ended March 31, 2022compared to the three months ended March 31, 2021primarily attributable to the initial recognition of the initial ordinary shares of Sky and Space Global Limited("SAS") issued to us in consideration for the termination of the launch service agreement ("LSA") of $1.7 millionas an equity investment and three months ended March 31, 2021.
Provision for income taxes
Provision for income taxes was immaterial for the three months ended
March 31, 2022and 2021. We have accumulated net operating losses at the federal and state level for the time period during we had not yet began commercial operations. We maintain a substantially full valuation allowance against net deferred tax assets. The income tax expenses are primarily related to minimum state filing fees in the states where we have operations. 34
Cash and capital resources
We expect our expenses to increase in connection with ongoing activities, particularly as we continue to advance the development of our technologies, commercialize our satellite launch operations and start to develop our space solution offerings, and continue to build and expand our production of rockets and aircraft.
Specifically, we expect our operating expenses to increase as we:
•increasing our facilities, manufacturing processes and capabilities to support our increased rocket volume;
•pursue research and development on our satellite launches and space solutions offerings, including those related to our research and education efforts;
•hire additional staff in research and development, manufacturing operations, test programs and maintenance as we increase the volume of our satellite launches and expand our space solutions offerings;
• seek regulatory approval for any changes, upgrades or enhancements to our technologies and operations in the future; and
•hire additional management personnel to support the expansion of our operational, financial and information technology functions as a public company.
We have several non-cancelable leases primarily related to the lease of our manufacturing and testing facilities. These leases generally contain renewal options for periods ranging from three to ten years and require us to pay all executory costs, such as maintenance and insurance. Our total remaining lease obligation as of
March 31, 2022is $23.6 million, with $2.5 milliondue in less than one year. We also have non-cancelable purchase commitments as of March 31, 2022primarily related to supply and engineering services providers. Total non-cancelable purchase commitments due in the next five years is approximately $46.6 million, with $21.0 milliondue in less than one year. Additionally, we are expanding our satellite launch operations and space solution offerings since commercialization. As of March 31, 2022, we had approximately five rockets in various stages of production and one carrier aircraft in operation. We expect to accelerate our production of rockets to reach an annual production capacity of approximately 20 rockets and we expect to begin acquisition and modification of an additional carrier aircraft in the next 12 to 18 months. We have significantly reduced the per unit cost of producing rockets since production began. As such, we anticipate the costs to manufacture additional rockets to continue to decrease on a per unit basis as we advance and scale up our manufacturing processes and capabilities. We expect our capital investments to increase our production of rockets, modify additional carrier aircrafts, and advance and scale up our manufacturing facilities. However, the recent commercialization of our satellite launch and space solution offerings and the anticipated expansion of our rocket production 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. Many of these risks and uncertainties are described in more detail in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. Our future capital requirements will depend on many factors, including rate of revenue growth, ability to reduce costs per unit, the expansion of research and development activities, hiring additional personnel, and investment in manufacturing operations. We may sell equity securities or debt securities or secure other debt financing in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such equity securities in subsequent transactions, our current investors may be materially diluted. Any debt financing, if available, may involve restrictive covenants and could reduce our operational flexibility or profitability.
Sources of liquidity
Prior to the Business Combination, our operations participated in cash management and funding arrangements managed by our previous corporate parent,
Vieco 10("Vieco 10"). Only cash and cash equivalents held in bank accounts legally owned by our entities are reflected in the condensed consolidated balance sheets. Cash and cash equivalents held in bank accounts legally owned by the Vieco 10were not directly attributable to us for any of the periods presented. Transfers of cash, both to and from us, have been reflected as a contribution from or a distribution to Vieco 10in the condensed consolidated balance sheets and as a financing activity on the accompanying condensed consolidated statements of cash flows.
Our primary sources of liquidity following the Business Combination are our cash and cash equivalents and any additional capital that may be raised through borrowings or further sales of equity securities. We didn’t generate enough
35 -------------------------------------------------------------------------------- Table of Contents revenues to provide sufficient cash flows to enable us to finance our operations internally. We have incurred significant losses since our inception and had an accumulated deficit of
$883.0 millionas of March 31, 2022, we entered into a Standby Equity Purchase Agreement (the "Purchase Agreement") with YA II PN, Ltd.(the "Investor"), pursuant to which we have the right from time to time at our option to sell to the Investor up to $250.0 millionof our common stock, subject to certain conditions and limitations set forth in the Purchase Agreement. . Our cash and cash equivalents were $127.4 millionand $194.2 millionas of March 31, 2022and December 31, 2021, respectively, and we have not generated positive cash flows from operations. In an effort to alleviate these conditions, management continues to seek and evaluate opportunities to raise additional funds. As part of our funding efforts, on March 28, 2022 and as described in Note 12. Stockholders' Equity , we entered into the Purchase Agreement with the Investor, pursuant to which the Investor has committed to purchase up to $250.0 millionof our common stock, at our direction from time to time, subject to the satisfaction of certain conditions and limitations set forth in the Purchase Agreement. The actual amount that we raise under the Purchase Agreement will depend on market conditions and other limitations in the agreement. We expect that our existing cash and cash equivalents and the amounts we may raise from the Purchase Agreement will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report on Form 10-Q. Cash Flows Historical Cash Flows The following table summarizes our cash flows for the three months ended March 31, 2022and 2021: Three Months Ended March 31, (In thousands) 2022 2021 Cash used in operating activities $ (61,627) $ (39,467)Cash used in investing activities (4,996) (5,188) Cash (used in) provided by financing activities (91) 46,119 Net (decrease) increase in cash and cash equivalents
For the three months ended
March 31, 2022, net cash used in operating activities was $61.6 millionprimarily consisting of $62.6 millionof net loss, adjusted for $12.9 millionof non-cash and cash charges, and a decrease in net operating assets and liabilities of $12.0 million. The non-cash charges primarily included the charges in stock-based compensation of $3.8 million, depreciation and amortization of $3.3 million, inventory write-down of $1.6 millionand the change in fair value of the equity investment in Arqit of $4.2 million. For the three months ended March 31, 2021, net cash used in operating activities was $39.5 millionprimarily consisting of $32.3 millionof net loss, adjusted for $3.3 millionof non-cash and cash charges, and a decrease in net operating assets and liabilities of $10.5 million. Deferred revenue decreased due to recognizing revenue for our demo launch in January 2021. The non-cash charges primarily included the charges in stock-based compensation of $3.6 million, depreciation and amortization of $1.4 million, offset by the non-cash initial investment in SAS of $1.7 million.
For the three months ended
March 31, 2022and March 31, 2021, net cash used in investing activities was $5.0 millionand $5.2 million, respectively, consisting of purchases of property and equipment.
Cash provided by financing activities
Net cash provided by financing activities was
Net cash provided by financing activities was
$46.1 millionfor the three months ended March 31, 2021, consisting primarily of equity contributions received from the Parent Company of $46.1 million.
Significant Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report are prepared in accordance with GAAP. We evaluated the development and selection of our critical accounting policies and estimates and believe that the following involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and financial position and are therefore discussed as critical. The following critical accounting policies reflect the significant estimates and judgements used in the preparation of our condensed consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions due to the inherent uncertainty involved in making those estimates and any such differences may be material. We re-evaluate our estimates on an ongoing basis. We believe that the following accounting policies involve a high degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our condensed consolidated financial condition and results of our operations. Refer to Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report for a description of other significant accounting policies.
There have been no material changes in critical accounting policies previously identified in our 2021 Annual Report on Form 10-K.
Recent accounting pronouncements
Please refer to Note 3 - Recently Issued Accounting Pronouncements to our condensed consolidated financial statements included elsewhere in this Quarterly Report for a description of recently issued accounting pronouncements.
Accounting Election for Emerging Growth Companies
Section 102(b)(1) of the JOBS Act exempts "emerging growth companies" as defined in Section 2(A) of the Securities Act, from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.
Virgin Orbitis an "emerging growth company" and has elected to take advantage of the benefits of this extended transition period. Virgin Orbitwill use this extended transition period for complying with new or revised accounting standards that have different effective dates for public business entities and non-public business entities until the earlier of the date Virgin Orbit(a) is no longer an emerging growth company or (b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. The extended transition period exemptions afforded by Virgin Orbit'semerging growth company status may make it difficult or impossible to compare Virgin Orbit'sfinancial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of this exemption because of the potential differences in accounting standards used. Refer to Note 2 of our condensed consolidated financial statements included elsewhere in this Quarterly Report for the recent accounting pronouncements adopted and the recent accounting pronouncements not yet adopted as of March 31, 2022. Virgin Orbitwill remain an "emerging growth company" under the JOBS Act until the earliest of (a) December 31, 2026, (b) the last date of Virgin Orbit'sfiscal year in which Virgin Orbithas total annual gross revenue of at least $1.07 billion, (c) the last date of Virgin Orbit's fiscal year in which Virgin Orbitis deemed to be a "large accelerated filer" under the rules of the SECwith at least $700.0 millionof outstanding securities held by non-affiliates or (d) the date on which Virgin Orbithas issued more than $1.0 billionin non-convertible debt securities during the previous three years.
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