Virgin Galactic Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results are compared with the same 2021 periods. The company is developing reusable spaceflight systems for private astronaut, research and government missions; it had not begun commercial passenger service.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0.8 million | $2.6 million | $1.4 million | $3.2 million |
| Operating expenses | $146.3 million | $85.7 million | $348.1 million | $241.4 million |
| Operating loss | $145.6 million | $83.1 million | $346.7 million | $238.3 million |
| Net loss | $145.6 million | $48.4 million | $349.3 million | $272.1 million |
| Basic and diluted loss per share | $0.55 | $0.19 basic | $1.34 | $1.11 |
| Cash used in operating activities | Not separately stated | Not separately stated | $249.0 million | $165.6 million |
- Q3 revenue fell 70%; nine-month revenue fell 54%. The prior-year periods included sponsorship and revenue associated with 2021 spaceflights and payload work. 2022 revenue mainly came from Future Astronaut community fees and events and research services.
- Research and development expense rose 184% in Q3 to $97.4 million and 103% for the nine months to $211.6 million, primarily reflecting higher contract labor, materials and employee costs for spaceflight-system development. SG&A was broadly flat year over year.
- At September 30, cash and cash equivalents were $394.0 million, restricted cash $40.3 million, and marketable securities $675.8 million: approximately $1.11 billion combined. Nine-month operating cash use increased by $83.4 million year over year.
- Investing cash use was $322.6 million for the nine months, principally purchases of marketable securities and $12.3 million of capital expenditures. Financing provided $456.0 million, including the convertible notes and ATM share sales.
- The company issued $425 million of 2.50% senior unsecured convertible notes due February 2027; carrying value net of issuance costs was $415.2 million. It paid $52.3 million for capped calls intended to limit dilution, subject to a cap. No note-conversion conditions were met at quarter-end.
- Total assets were $1.259 billion and total liabilities $645.6 million at September 30, 2022. Marketable securities had $10.2 million of gross unrealized losses; the filing attributes potential investment-value risk to interest-rate movements.
- There is no useful conventional profit margin for this pre-commercial business; the filing no longer presents gross margin following a reclassification of expense presentation.
Changes, outlook and key commentary
- Management expected commercial human-spaceflight service to begin in Q2 2023, subject to planned vehicle maintenance and enhancements, subsequent flight testing, supplier performance and other risks. The company said supply-chain delivery risks could affect timing.
- Initial commercial operations were expected to rely on one spaceship, VSS Unity, and one mothership, VMS Eve, limiting flight capacity. The schedule for VSS Imagine was being reassessed as resources were prioritized toward Unity and Eve.
- Management stated that available cash and its operating plan were expected to fund operations for at least the next 12 months. It also cautioned that costs could rise faster than anticipated and that additional financing or debt refinancing might be needed if resources proved insufficient.
- At September 30, the company reported approximately 800 ticket reservations and more than $104 million in customer deposits. Tickets sold represented about $213.2 million of expected future revenue upon completed flights; the base price for reopened consumer ticket sales was $450,000 per seat. These amounts are not current-period revenue.
- After quarter-end, the company disclosed agreements with Bell Textron and Qarbon Aerospace to support design and manufacture of major Delta-class spaceship subassemblies. The preliminary schedule targets revenue-generating payload flights in late 2025 and private astronaut flights in 2026; work and costs depend on task orders.
- Other notable items: the company sold 15.6 million shares under its 2022 at-the-market program for $99.6 million gross proceeds by quarter-end; it recorded $3.3 million of inventory write-offs for excess and obsolescence in the first nine months. A securities class action and three related derivative suits were pending; management said it intended to defend the class action and did not consider pending matters material, while noting outcomes are uncertain.
Most important facts for investors to verify
- Whether maintenance, enhancements and flight testing are completed on schedule and commercial service actually begins in Q2 2023.
- Whether the company can safely and consistently operate Unity and Eve, and what realized flight frequency and passenger capacity will be.
- How development spending, operating cash burn and cash runway evolve; whether additional capital raising becomes necessary.
- Whether ticket reservations and deposits convert into completed, revenue-generating flights, and whether projected Delta-class timelines and costs remain achievable.
- Potential dilution from ATM equity issuance and conversion of the 2027 Notes, as well as the capped calls’ limits and terms.
- Developments in the disclosed litigation, inventory obsolescence, supplier risks and unrealized losses on marketable securities.