Virgin Galactic Holdings, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report; quarterly results are not provided in the supplied filing text. Amounts below are in U.S. dollars.
Business context
Virgin Galactic is developing reusable suborbital spaceflight services for private passengers and research customers. At year-end, it had not begun commercial passenger operations. Its near-term plan relied on one operating system: VSS Unity and carrier aircraft VMS Eve. The company reported approximately 800 ticket reservations, $103.3 million in customer deposits and membership fees, and approximately $207 million of potential future flight revenue, subject to completing flights and collecting remaining balances.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $2.3 million | $3.3 million |
| Operating expenses | $502.3 million | $322.8 million |
| Operating loss | $(500.0) million | $(319.5) million |
| Net loss | $(500.2) million | $(352.9) million |
| Net loss per share, basic and diluted | $(1.89) | $(1.43) |
| Cash used in operating activities | $(380.2) million | $(230.8) million |
| Capital expenditures | $16.5 million | $4.6 million |
Revenue was primarily from Future Astronaut community fees and events and scientific research services. The filing reclassified prior-year cost of revenue as customer experience expense and no longer presents gross margin; a comparable gross-margin figure is therefore not provided.
At December 31, 2022, cash, cash equivalents and restricted cash totaled $342.6 million, and marketable securities totaled $637.1 million, or approximately $979.7 million combined. Current assets were $1.002 billion versus current liabilities of $184.1 million. Management said available liquidity and its operating plan were expected to fund operations for at least the next 12 months from issuance of the financial statements.
The company issued $425 million of 2.50% convertible senior notes due 2027; their year-end net carrying value was $415.7 million. It also paid $52.3 million for capped-call transactions intended to reduce potential conversion dilution. Future minimum operating lease payments were $110.9 million.
Material changes versus FY2021
- Revenue fell $1.0 million, or 29.8%, reflecting the absence of 2021 spaceflight and sponsorship-related revenue.
- Research and development expense more than doubled, rising $170.0 million, or 117.8%, to $314.2 million, mainly from vehicle-development materials, contractor and consulting costs, and employee costs.
- Net loss widened by $147.3 million to $500.2 million. Operating expenses increased substantially, while FY2021 also included a $34.7 million non-cash warrant remeasurement expense that did not recur in FY2022.
- Cash used in operations increased by $149.5 million. The company ended the year with lower cash, cash equivalents and restricted cash than in 2021, partly offset by substantial marketable-security holdings.
- Financing included $413.7 million net proceeds from the notes and $103.3 million gross proceeds from FY2022 at-the-market stock sales; the share count increased to 275.4 million at year-end from 258.2 million.
Outlook, risks and unusual items
- Management expected commercial service to begin in the second quarter of 2023, following vehicle maintenance, enhancements and further flight testing. This was forward-looking guidance in the filing, not a guarantee.
- Management said flight cadence would initially be constrained by the single available spaceflight system. The schedule for VSS Imagine was being reassessed while resources were prioritized toward Unity and Eve; Delta-class vehicles and next-generation motherships were intended to expand capacity.
- The company expected expenses to rise as it develops and expands its fleet, hires staff, prepares the astronaut campus and continues research and development. It warned that capital needs could exceed expectations and that future financing might be required.
- Key risks include test or launch delays, safety incidents, limited flight capacity, uncertain customer demand, largely refundable reservations, supplier and contractor dependence, evolving FAA and other regulation, and the need for additional capital. The company cited an approximately $2.0 million inventory-obsolescence write-down in FY2022 and reported an increase in the reserve for inventory obsolescence.
- A securities class action and four derivative suits concerning alleged statements about vehicle safety and the commercial flight program were pending. The company said it intended to defend the matters and did not consider pending proceedings material, while noting outcomes were uncertain.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Research and development cost accounting was identified as a critical audit matter; this did not modify the audit opinion.
Important facts for investors to verify
- Whether commercial flights began on the stated schedule, and whether subsequent testing, licensing and safety requirements were satisfied.
- Actual flight frequency, passenger capacity, turnaround and maintenance costs, and progress in bringing additional vehicles into service.
- Reservation cancellations and refunds, conversion of deposits and ticket sales into completed flights, and realized revenue per flight.
- Cash burn, marketable-security balances, financing needs, dilution, and obligations under the 2027 notes and operating leases.
- Developments in the securities and derivative litigation, FAA rules, supplier commitments and inventory obsolescence.