Virgin Galactic Holdings, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing. Virgin Galactic (NYSE: SPCE) develops and operates reusable suborbital spaceflight systems for private astronauts and research customers.
Business context
Commercial service began in June 2023. The company completed five commercial flights during 2023 and a sixth in January 2024. At year-end, it reported reservations for approximately 750 future astronauts, $99.7 million of deposits and membership fees, and approximately $205 million of expected future spaceflight revenue associated with tickets sold. Deposits are largely refundable and reservations may be cancelled under certain circumstances.
Financial and operating metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $6.8 million | $2.3 million |
| Operating expenses | $538.3 million | $502.3 million |
| Operating loss | $531.5 million | $500.0 million |
| Net loss | $502.3 million | $500.2 million |
| Cash used in operating activities | $448.2 million | $380.2 million |
| Capital expenditures | $44.3 million | $16.5 million |
- Revenue increased 194%, reflecting commercial spaceflights and Future Astronaut membership fees; the absolute revenue base remained small relative to operating costs. The filing does not provide a clear gross-margin figure.
- Research and development expense was $295.1 million, down from $314.2 million. Spaceline operations expense rose to $50.5 million from $1.9 million, reflecting commercial operations and related costs, as well as changes in expense presentation after technological feasibility was achieved for the current system.
- Interest income increased to $42.2 million from $12.5 million. Interest expense was $12.9 million, primarily related to the convertible notes.
- At December 31, 2023, cash, cash equivalents and restricted cash totaled $253.6 million; marketable securities totaled $728.8 million. Together, these were $982.4 million, versus $979.7 million at year-end 2022.
- The company had $425 million principal amount of 2.50% convertible senior notes due in 2027, reported at a net carrying value of $417.9 million. Future minimum operating lease payments were $128.2 million.
- Customer deposits were $97.8 million at year-end. Common shares outstanding increased to 399.9 million from 275.4 million, primarily reflecting at-the-market stock sales.
Material changes versus FY2022
- Revenue grew from a low base as paid commercial flights commenced; net loss was broadly similar, increasing slightly to $502.3 million.
- Operating cash use increased by $67.9 million to $448.2 million. Capital expenditures rose to $44.3 million.
- The company raised $478.9 million of net cash proceeds from common-stock issuance in 2023, primarily through its at-the-market program, increasing share count and diluting existing holders.
- In November 2023, the company announced a workforce reduction of approximately 185 employees, about 18% of its workforce, and recorded $4.4 million in restructuring charges.
Outlook, risks and unusual items
- Management planned to reduce Unity flights to a quarterly cadence in 2024 and pause them in mid-2024 to prioritize Delta development. Delta test flights are expected in 2025, with commercial service expected in 2026. These are expectations, not guarantees.
- Delta ships are designed for six passengers and management expects each to fly twice weekly at steady state. The company has not yet tested Delta vehicles at full passenger capacity; delays, test outcomes, safety approvals and manufacturing execution are important uncertainties.
- Management stated that available capital was adequate for at least the next 12 months. Beyond that period, funding needs include ongoing operations, new vehicles and motherships, facilities and an astronaut campus; additional debt or equity financing may be needed.
- Key risks include continuing losses and cash burn, limited commercial-flight revenue, refundable reservations, reliance on a single current flight system, safety and regulatory risks, supplier and contractor dependence, competition, and potential financing needs and dilution.
- In February 2024, the company voluntarily told the FAA that an alignment pin detached from the mothership launch pylon after release during the Galactic 06 flight. The filing states it posed no safety impact to vehicles or crew.
- The filing describes a securities class action and derivative suits concerning alleged statements about vehicle safety and the commercial flight program. The company said it intended to defend the class action; management did not consider pending proceedings material to the business or likely to materially affect future results, financial condition or cash flows.
- Ernst & Young issued unqualified opinions on the FY2023 financial statements and internal control over financial reporting. The auditor identified capitalization of spaceflight-system costs as a critical audit matter, involving judgment over when costs qualified for capitalization.
Most important facts for investors to verify
- Whether Delta development, flight testing, regulatory approvals and 2026 commercial-service expectations remain on schedule and within available funding.
- Actual cash burn, liquidity and financing requirements, including the effects of further equity issuance and dilution.
- Whether reservations convert to completed, paid flights, including cancellation and refund trends and the timing of customer deposit recognition.
- Flight cadence, safety performance, maintenance requirements and any follow-up to the Galactic 06 pylon-pin disclosure.
- Progress in reducing costs and scaling production, and the eventual passenger capacity and flight economics of Delta vehicles.