Virgin Galactic Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter ended September 30, 2021; comparisons include the nine months ended September 30. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise. The company is developing and preparing to operate commercial human spaceflight and research-payload services. It had not yet launched commercial passenger service.
Financial results and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2.6 | $0 | $3.2 | $0.2 |
| Gross profit / margin | $2.4 / 92% | $0 / — | $2.9 / 91% | $0.1 / 27% |
| Operating loss | $(83.1) | $(77.0) | $(238.3) | $(200.9) |
| Net loss | $(48.4) | $(92.1) | $(272.1) | $(540.8) |
| Operating cash used | — | — | $(165.6) | $(163.1) |
- Q3 revenue came from sponsorship tied to the July Unity 22 flight and progress on government payload-service milestones. Nine-month 2021 revenue also included the May flight; 2020 revenue was primarily engineering services under government contracts that ended early in 2020.
- Despite reported gross margins of 92% for Q3 and 91% year to date, revenue remained very small and was not yet representative of passenger-flight economics.
- Q3 SG&A rose 61% year over year to $49.9 million, reflecting marketing, compensation, consulting and stock-based compensation. Nine-month SG&A increased 59% to $133.3 million. R&D declined 23% in Q3 and 8% year to date, mainly due to lower contract labor and materials costs.
- At September 30, cash, cash equivalents and restricted cash totaled $720.6 million; marketable securities totaled $286.1 million. The company completed a $500 million gross ATM stock offering in July, issuing 13.7 million shares; reported transaction costs and commissions reduced proceeds.
- Current assets were $788.4 million versus current liabilities of $118.5 million. Total liabilities were $147.7 million. Debt was $0.31 million, due in 2022; the company also had $25.2 million of operating lease liabilities. Customer deposits were $84.8 million.
- Nine-month investing cash outflow was $288.6 million, largely from purchases of marketable securities; financing cash inflow was $495.9 million. Management said available liquidity and its operating plan were expected to fund operations for at least 12 months from the financial-statement issuance date.
Material changes, outlook and risks
- Net loss improved versus 2020 partly because the prior-year period included a much larger non-cash warrant revaluation expense. In Q3 2021, warrant revaluation produced $34.4 million of non-cash income; for the first nine months it produced $34.7 million of expense. All remaining private warrants were exercised in July, and no warrant liability remained at September 30.
- The company had restated previously issued financial statements for warrant-accounting errors. Management reported completing remediation of the related material weakness during Q3 and concluded disclosure controls were effective at the reasonable-assurance level as of September 30.
- At filing, commercial service was expected to begin in Q4 2022, after planned vehicle maintenance and enhancements, further testing, and a planned research flight with the Italian Air Force. The date was an expectation, not a guarantee; delays could postpone passenger revenue.
- The company reported FAA approval to carry spaceflight participants. It said it had about 700 ticket reservations and more than $80 million in future-astronaut deposits as of October 31, 2021. Ticket sales reopened in August, with a base price of $450,000 per seat. Reservations and deposits do not by themselves establish completed sales or recognized revenue.
- Initial commercial capacity was expected to depend on one spaceship, VSS Unity, and one carrier aircraft, VMS Eve. Two additional spaceships were under development. Management expected expenses to rise with fleet development, hiring and commercialization; COVID-19-related impacts had caused and were expected to continue causing operational and test-program delays.
- Key risks include flight-test completion and safety, vehicle development and maintenance, limited initial capacity, regulatory approvals, customer conversion, supplier and workforce constraints, COVID-19 disruption, and the need for additional capital if costs or delays exceed expectations. Management also cited market, foreign-exchange and stock-price exposure.
- After quarter-end, the company agreed to lease additional Tustin office space beginning January 2022, with an average annual base rent of approximately $2.5 million. A $1.9 million wage-and-hour settlement was paid in July 2021; the filing said no balance remained at quarter-end.
Investor verification points
- Verify progress against the stated Q4 2022 commercial-launch expectation, including maintenance, test flights, FAA requirements and any schedule changes.
- Assess the nature, refundability and conversion status of reservations and deposits, and whether demand supports the stated ticket pricing and planned flight capacity.
- Track operating cash use, spending on fleet development, available liquidity and any further equity issuance or dilution.
- Review the warrant-accounting restatement and confirm the remediation of the material weakness remains effective.
- Evaluate whether early flight revenue and reported gross margins provide a meaningful indication of future commercial economics; the filing does not provide a clear mature passenger-flight cost or margin outlook.