VIRGIN ORBIT HOLDINGS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following discussion and analysis provides information that Virgin Orbit's
management believes is relevant to an assessment and understanding of Virgin
Orbit's condensed 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 SEC on
March 31, 2022, as amended (the "2021 Annual Report on Form 10-K"). This
discussion may contain forward-looking statements based upon Virgin Orbit's
current 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).

Insight

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's dedicated 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 million of potential revenue, of
which $156.9 million is under binding agreements, and $418.7 million is 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, 2022 included $22.0 million for 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 billion of capital to found, scale and grow the business.
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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 million and $32.3 million for the three months ended March 31,
2022 and 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.

Trade suit

On August 22, 2021, NextGen Acquisition Corp. II ("NextGen") via Pulsar Merger
Sub, Inc. ("Pulsar Merger Sub") and Vieco USA entered into a merger agreement
(the "Merger Agreement") which contemplated Pulsar Merger Sub merging with and
into Vieco USA, with Vieco USA surviving 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 Orbit common stock and warrants commenced
trading on the Nasdaq Stock Market LLC ("Nasdaq") under the symbols "VORB" and
"VORBW," respectively, on December 29, 2021.

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.

Customer demand

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
Cornwall in the United Kingdom, Spaceport Japan at Oita Airport in 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, 2022 representing approximately $575.6 million of potential revenue as of
March 31, 2022, including $175.3 million of signed, binding agreements, of which
$156.9 million in backlog, and $418.7 million of 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, 2022 included $22.0
million for 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.

Technological innovation

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
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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.

manufacturing capacity

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, California has
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 Organization characterized 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, California in 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

Revenue

Launch services

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 2021 from 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 million and
$4.6 million during the three months ended March 31, 2022 and 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.

Engineering Services

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 million and $0.04 million for the three months ended March 31,
2022 and 2021, respectively, from engineering services.
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Revenue cost

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

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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

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.

Operating results

Three months completed March 31, 2022 Compared to the three months ended March 31, 2021

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) %


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Revenue decreased by $3.4 million for the three months ended March 31, 2022
compared 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,
2022 and 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 million for the three months ended March 31,
2022 compared to the three months ended March 31, 2021 primarily attributable to
the recognition of contract losses and inventory write-down of $13.2 million
related 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 million to 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, 2022 compared to the three months ended March 31, 2021
primarily 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          $ 12,943               66  %


Selling, general and administrative expenses increased by $12.9 million, or 66%,
for the three months ended March 31, 2022 compared to the three months ended
March 31, 2021, which was primarily attributable to the increase in facilities
and overhead of approximately $8.3 million and the increase general corporate
expenses of $7.7 million, offset by higher department allocations of
approximately $2.7 million as 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 million during the
three months ended March 31, 2022. General corporate expenses includes $3.9
million related to new public company costs for directors and officers
insurance, legal and audit fees, and SEC filing 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, 2022 compared 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
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operations and production processes of approximately $8.3 million, offset by the
growth in research and development personnel-related expenses of approximately
$1.0 million during 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 million for the three
months ended March 31, 2022 compared to the three months ended March 31, 2021,
which was attributable to the unrealized loss of $4.2 million from 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, 2022 compared to the three months ended March 31, 2021 primarily
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 thousand
earned 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, 2022 compared to the three months ended March 31, 2021 primarily
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 million as 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,
2022 and 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.
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Cash and capital resources

Liquidity requirements

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, 2022 is $23.6 million, with $2.5 million due in less
than one year. We also have non-cancelable purchase commitments as of March 31,
2022 primarily 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 million due 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 10 were 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 10 in 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

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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 million as 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 million of our common stock, subject
to certain conditions and limitations set forth in the Purchase Agreement. . Our
cash and cash equivalents were $127.4 million and $194.2 million as of March 31,
2022 and 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 million of 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, 2022 and 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                        

($66,714) $1,464

Net cash used in operating activities

For the three months ended March 31, 2022, net cash used in operating activities
was $61.6 million primarily consisting of $62.6 million of net loss, adjusted
for $12.9 million of 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 million and 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 million primarily consisting of $32.3 million of net loss, adjusted
for $3.3 million of 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.

Net cash used in investment activities

For the three months ended March 31, 2022 and March 31, 2021, net cash used in
investing activities was $5.0 million and $5.2 million, respectively, consisting
of purchases of property and equipment.

Cash provided by financing activities

Net cash provided by financing activities was $0.1 million for the three months ended March 31, 2022consisting primarily of payments of finance lease obligations.

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Contents

Net cash provided by financing activities was $46.1 million for 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 Orbit is an "emerging growth company"
and has elected to take advantage of the benefits of this extended transition
period.

Virgin Orbit will 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's
emerging growth company status may make it difficult or impossible to compare
Virgin Orbit's financial 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 Orbit will remain an "emerging growth company" under the JOBS Act until
the earliest of (a) December 31, 2026, (b) the last date of Virgin Orbit's
fiscal year in which Virgin Orbit has total annual gross revenue of at least
$1.07 billion, (c) the last date of Virgin Orbit's fiscal year in which Virgin
Orbit is deemed to be a "large accelerated filer" under the rules of the SEC
with at least $700.0 million of outstanding securities held by non-affiliates or
(d) the date on which Virgin Orbit has issued more than $1.0 billion in
non-convertible debt securities during the previous three years.

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