Virgin Galactic Holdings, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 1, 2021. The filing is an annual report, not a standalone Q4 filing. Unless otherwise stated, amounts are U.S. dollars.
Business context and reporting period
Virgin Galactic is developing reusable spacecraft and related systems for commercial human spaceflight and research payloads. It had not begun paid passenger operations by year-end; its limited revenue came from research payloads, engineering services and sponsorship. The 2019 comparison reflects the business combination completed October 25, 2019 and is presented as a reverse recapitalization.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $0.238 million | $3.781 million |
| Gross profit / margin | $0.065 million / 27% | $1.777 million / 47% |
| Operating loss | $275.284 million | $213.262 million |
| Net loss | $273.035 million | $210.935 million |
| Basic and diluted loss per share | $1.25 | $1.09 |
| Cash used in operating activities | $233.159 million | $209.111 million |
| Capital expenditures | $17.201 million | $13.856 million |
FY2020 revenue fell 94%, primarily due to lower engineering-services billings, no comparable payload revenue from the February 2019 flight, and an expired sponsorship agreement. SG&A increased 42% to $116.6 million, including higher stock compensation and public-company costs; R&D increased 19% to $158.8 million as spacecraft development continued.
In Q4 2020, revenue was zero and net loss was $74.018 million, compared with revenue of $0.529 million and net loss of $72.799 million in Q4 2019.
At December 31, 2020, cash and cash equivalents were $665.9 million and restricted cash was $13.0 million. Total current assets were $727.9 million and current liabilities were $115.0 million. The balance sheet showed $0.620 million of notes payable, plus $26.5 million of operating-lease liabilities and $0.372 million of finance-lease liabilities. Contractual operating-lease payments totaled $51.7 million. Management said available cash and its operating plan were expected to fund operations for at least 12 months from issuance of the statements.
Financing activities provided $436.6 million in 2020, primarily from the August public offering of 23.6 million shares for $460.2 million gross proceeds, offset by transaction costs and other outflows. The company reported $273.0 million in accumulated losses for the year and expected continued losses and increased expenses.
Material changes versus the prior comparable period
- Revenue declined sharply while net loss widened by $62.1 million; gross margin fell 20 percentage points.
- Operating cash use increased by $24.0 million. Capital expenditures rose by $3.3 million.
- Cash and cash equivalents rose to $665.9 million from $480.4 million, supported in part by equity financing.
- The company issued shares in the public offering and recorded $30.3 million of stock-based compensation, versus $2.5 million in 2019.
- Management reported that it remediated the prior-year material weaknesses in financial reporting controls; management and the auditor concluded controls were effective at year-end 2020.
Outlook, commentary, risks and unusual items
- Management expected a powered test flight from Spaceport America in spring 2021, further test flights thereafter, and a flight by founder Sir Richard Branson in summer 2021. These were plans, dependent on test results and FAA review; they were not assurances of commercial launch.
- Before carrying paying passengers, the company needed to complete flight testing and submit required verification reports to the FAA. COVID-19 had delayed development, testing and operations, with further schedule and efficiency effects expected into 2021.
- The company planned to reopen ticket sales following Branson’s expected test flight. At year-end it reported approximately 600 reservations and more than $80 million in deposits, with estimated future ticket revenue of about $120 million. Deposits and reservations were largely refundable; the backlog is not guaranteed revenue. It also had approximately 1,000 refundable $1,000 One Small Step deposits.
- Commercial operations were expected to begin with one SpaceShip and one carrier aircraft, limiting initial capacity and creating dependence on a single system. Two additional spaceships were under construction; estimated direct costs to complete them were $35 million to $55 million.
- Principal risks include flight-test delays or failure, safety incidents, inability to achieve the planned flight rate or passenger capacity, unproven market demand, competition, supplier constraints, changing regulation, COVID-19 impacts and the need for future financing. The company had not demonstrated profitability or commercial passenger operations.
- Legal proceedings were not considered material overall by management. A California wage-and-hour matter was settled for $1.9 million; payment remained outstanding pending court motions. Separately, a $28.0 million supplier legal settlement recorded in 2018 makes that prior-year comparison unusual.
- The Virgin brand is licensed, not owned. The license carries royalties and can be terminated under specified conditions, including certain failures to launch or sustain passenger flights.
Important facts for investors to verify
- Subsequent test-flight results, FAA acceptance of required reports and actual timing of commercial passenger operations.
- Whether the refundable reservations and deposits convert to completed flights and recognized revenue, and whether ticket prices and passenger capacity support expected economics.
- Cash burn, financing needs and dilution, including the cost to complete additional vehicles and scale operations.
- Progress in reducing development and operating costs, and whether flight cadence, maintenance needs and safety performance meet management’s plans.
- Continuing effectiveness of internal controls and the terms and ongoing obligations of the Virgin trademark and technology licenses.