Business context and reporting period
This is Social Capital Hedosophia Holdings Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2019—not an operating-company filing under the name Virgin Galactic Holdings, Inc. The registrant describes itself as a blank-check company formed to complete a business combination. The filing does not identify a target company.
Financial results and position
- Revenue and operations: No operating revenue; the company said it had not begun operations. Operating costs were $133,046, versus $466,305 in Q1 2018.
- Income: Net income was $4.04 million, compared with $1.76 million a year earlier, primarily reflecting trust-account interest income of $4.19 million (2018: $2.32 million). The filing reports basic and diluted earnings per share of $0.00, rounded; after income attributable to redeemable shares, adjusted net income was $39,842.
- Cash flow: Operating activities used $159,265, versus $220,366 in Q1 2018. Cash declined by $135,816 during the quarter to $326,346.
- Assets and liquidity: Trust-account securities were $708.43 million, consisting of U.S. Treasury bills with maturities of 180 days or less. Working-capital deficit was $207,749. Management said available cash was sufficient through the scheduled September 18, 2019 liquidation date.
- Liabilities and debt: Total liabilities were $24.83 million, including $24.15 million of deferred underwriting fees payable if a business combination closes. Related-party advances were $405,124, non-interest-bearing, unsecured and due on demand. The company reported no long-term debt.
- Margins: Not meaningful for this pre-combination blank-check company, which reported no operating revenue.
Material changes and notable items
Compared with Q1 2018, net income increased as trust interest rose and operating costs declined. Trust-account securities increased from $704.25 million at December 31, 2018 to $708.43 million at March 31, 2019. The balance sheet classified $679.07 million of Class A shares as subject to possible redemption, outside shareholders’ equity as temporary equity.
Outlook, risks and contingencies
The company planned to use trust funds to complete a business combination and said it might need additional financing. If it failed to complete a combination by the scheduled liquidation date, it would cease operations and liquidate the trust account. The filing notes potential dilution from issuing shares, debt-related risks if debt is used in a transaction, and dependence on sponsor-related financing. No specific business-combination guidance was provided. Management reported effective disclosure controls and no material change in internal control; it reported no legal proceedings and no material changes to the risk factors in its 2018 Form 10-K.
Important facts to verify
- Confirm the registrant and filing match the intended issuer: this filing is for Social Capital Hedosophia Holdings Corp., not Virgin Galactic Holdings, Inc.
- Verify the business-combination status and the September 18, 2019 liquidation deadline against subsequent filings.
- Review the restrictions on trust funds, redemption terms, deferred underwriting fees and related-party financing.
- Do not interpret reported net income as operating profitability: it was principally trust-account interest income.