Virgin Galactic Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The unaudited filing covers a pre-commercial-stage aerospace business developing and operating reusable spaceflight systems for passenger flights and research payloads. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0.571 million | $0 | $0.571 million | $0.238 million |
| Gross profit / margin | $0.508 million / 89% | $0 / not meaningful | $0.508 million / 89% | $0.065 million / 27% |
| Operating loss | $73.898 million | $63.056 million | $155.175 million | $123.938 million |
| Net loss | $94.040 million | $71.973 million | $223.734 million | $448.709 million |
| Basic and diluted loss per share | $0.39 | $0.34 | $0.94 | $2.17 |
| Operating cash used | Not separately provided in the filing text | Not separately provided in the filing text | $113.472 million | $108.087 million |
Q2 revenue came from flying two research payloads in May and reaching payload-service technical milestones. The company has not yet begun commercial human spaceflight operations. Selling, general and administrative expense rose 48% year over year to $38.5 million in Q2; research and development expense decreased 3% to $35.9 million. The six-month non-cash warrant fair-value expense was $69.1 million, compared with $326.5 million in 2020, contributing to the lower year-over-year six-month net loss.
At June 30, cash and cash equivalents were $551.6 million, with restricted cash of $13.0 million, for total cash, cash equivalents and restricted cash of $564.7 million. Cash and cash equivalents declined from $665.9 million at December 31, 2020. Total assets were $684.0 million and total liabilities $238.8 million. The balance sheet reported a $0.62 million commercial loan, including $0.31 million current, and $25.8 million of operating lease liabilities; it also reported $100.3 million of warrant liabilities. Customer deposits were $82.0 million and are not equivalent to earned revenue.
For the first half, investing cash use was $1.6 million and financing activities provided $0.8 million. Capital expenditures were $1.6 million. The company stated that cash on hand and its operating plan were expected to fund operations for at least twelve months from issuance of the financial statements.
Material changes and developments
- Q2 net loss increased from $72.0 million to $94.0 million, while operating loss increased from $63.1 million to $73.9 million. Higher SG&A, including increased stock-based compensation, salaries and marketing, was the main expense pressure.
- First-half revenue increased from $0.238 million to $0.571 million, while first-half operating cash use rose from $108.1 million to $113.5 million. Lower warrant remeasurement expense substantially reduced the reported six-month net loss versus 2020.
- Virgin Galactic reported FAA approval to carry spaceflight participants and said its May flight carried NASA research payloads. Its July flight, after quarter-end, carried a full cabin crew including founder Richard Branson.
- The company had reservations for approximately 600 spaceflight tickets and had collected more than $80 million in future astronaut deposits as of June 30. It had approximately 1,000 participants in its retired One Small Step program.
- In July, the company sold 13,740,433 shares through an at-the-market offering, raising $500 million gross and approximately $493.7 million net. It said proceeds would support general corporate purposes, working capital and capital expenditures, including fleet and manufacturing development. Remaining private placement warrants were cashlessly exercised in July.
Outlook, risks and unusual items
Management said it was working toward a third test flight later in 2021, a revenue-generating flight with the Italian Air Force, followed by planned vehicle maintenance and enhancements before commercial service. Timing depends on completing testing and development; the filing does not provide a firm commercial launch date. The company expected expenses to increase as it develops its systems, expands manufacturing and builds its fleet, and said it continues to expense spaceflight-system development costs.
Management cited COVID-19-related operational inefficiencies and delays, flight-test and development execution, vehicle safety, regulatory approvals, limited fleet capacity, supplier and manufacturing dependencies, customer demand and the ability to convert reservations into revenue as material uncertainties. It warned that delays or safety issues could harm commercialization and revenue. The filing also describes a class action filed in May 2021 alleging misleading statements concerning warrant accounting. Virgin Galactic had restated prior financial statements for warrant-accounting errors; management reported completion of remediation efforts for the related material weakness and concluded disclosure controls were effective as of June 30, 2021. A previously agreed $1.9 million employment settlement was paid in July.
Important facts for investors to verify
- Whether the remaining test program, vehicle maintenance and commercial-flight schedule meet management’s stated expectations.
- Actual cash burn, capital requirements and use of the approximately $493.7 million in net ATM proceeds, including the dilution from shares issued.
- Progress converting ticket reservations and customer deposits into completed flights and recognized revenue, as well as the pace and capacity of fleet expansion.
- Developments in the warrant-accounting class action and whether the company’s control-remediation measures remain effective.
- Whether COVID-19, safety, regulatory, supplier or other operational issues cause additional delays or costs.