Virgin Galactic Holdings, Inc. — FY2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021; it does not provide standalone fourth-quarter results. Virgin Galactic is developing reusable suborbital spaceflight services for private passengers and research customers. It had not begun commercial human spaceflight operations by year-end.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $3.3 million | $0.2 million |
| Gross profit / gross margin | $3.0 million / 91.7% | $0.1 million / 27.3% |
| Operating loss | $319.5 million | $275.3 million |
| Net loss | $352.9 million | $644.9 million |
| Net loss per share, basic and diluted | $1.43 | $2.94 |
| Cash used in operating activities | $230.8 million | $233.2 million |
| Cash used in investing activities | $387.5 million | $17.2 million |
| Cash provided by financing activities | $489.4 million | $436.6 million |
- Revenue remained very small relative to operating expenses. FY2021 revenue primarily reflected sponsorships, payload-related government contract milestones, and the May and July spaceflights; it did not include commercial passenger flights.
- Operating expenses were $322.6 million: selling, general and administrative expenses of $173.2 million and research and development expenses of $149.4 million. SG&A rose 48.5%, principally from higher stock-based compensation, payroll, marketing and consulting costs. R&D declined 5.9%.
- The net loss narrowed year over year largely because the non-cash warrant fair-value expense fell to $34.7 million from $371.9 million. The operating loss increased, so the lower net loss did not reflect improved operating profitability.
- At December 31, 2021, cash, cash equivalents and restricted cash totaled $550.0 million; marketable securities totaled $380.9 million. Combined, these were $930.9 million. Current assets were $678.6 million and current liabilities $131.5 million.
- Year-end debt was limited to a $0.3 million software-financing note due in 2022. Operating lease liabilities were $42.2 million; finance lease liabilities were $0.3 million. The company reported $80.1 million of undiscounted operating lease payments.
- FY2021 financing included $500 million gross proceeds from an at-the-market common-stock offering. Shares outstanding were 258.2 million at year-end.
Material changes and operating developments
- Revenue increased by $3.1 million from FY2020, but remained immaterial compared with losses and expenses. FY2020 revenue primarily related to government engineering services that ended in early 2020.
- Virgin Galactic flew research payloads in May 2021 and conducted a July 2021 flight with four mission specialists in the cabin, including founder Richard Branson. The FAA expanded its license to permit carriage of spaceflight participants; the company described this as the first such FAA approval for a spaceline.
- After reopening ticket sales in August 2021, the company set a base consumer ticket price of $450,000 per seat and reported approximately 100 new reservations by year-end. Total reservations were approximately 700, with about $90 million in customer deposits and more than $160 million of expected future revenue upon completed flights. Deposits were largely refundable and are not equivalent to recognized revenue or firm sales.
- Cash and cash equivalents declined from $665.9 million to $524.5 million, while the company invested $382.9 million in marketable securities. Combined cash, restricted cash and marketable securities increased from $679.0 million to $930.9 million, mainly reflecting financing proceeds and investment allocation.
Outlook, risks and contingencies
- Management expected commercial human spaceflight service to begin in the fourth quarter of 2022, after planned vehicle maintenance and enhancements, completion of testing and a planned research flight with the Italian Air Force. The company also expected VSS Imagine flight tests to start in the second half of 2022. These are forward-looking targets, not guarantees.
- Commercial operations were expected to start with one spaceflight system—VSS Unity and carrier aircraft VMS Eve—constraining initial flight capacity. The company had not tested the spaceship at its full six-passenger capacity.
- Management stated that year-end liquidity and its operating plan were expected to fund operations for at least 12 months. On January 19, 2022, after year-end, the company issued $425 million of 2.50% convertible senior notes due 2027; net proceeds were $362 million. It also paid $52.3 million for capped-call transactions intended to mitigate potential dilution, subject to a cap.
- Management expected spending to increase as it develops and tests vehicles, expands the fleet, hires staff and prepares for commercial service. It continued to expense development costs while the spaceflight system remained in development.
- COVID-19-related disruption had contributed to schedule and cost-efficiency delays, including in testing and maintenance. Principal risks include flight safety, test and launch delays, dependence on a single initial flight system, limited flight cadence, supply constraints, uncertain demand and refundable reservations, competition, regulation, financing needs and the company’s ability to scale operations.
- The filing describes a securities class action alleging misleading statements concerning vehicle safety and the commercial flight program, and a related derivative action filed February 22, 2022. The company said it intended to defend the matters and did not consider pending proceedings material to its financial position, results or cash flows; outcomes remain uncertain.
- The company reported effective disclosure controls and internal control over financial reporting as of December 31, 2021, and the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the planned test, maintenance and regulatory milestones were completed and commercial service began, and on what date.
- Actual flight cadence, passenger capacity, vehicle turnaround and maintenance costs versus the assumptions needed for viable unit economics.
- How many reservations convert to completed, paid flights, and the extent of refunds or cancellations; deposits are largely refundable.
- Cash burn, capital requirements and liquidity after the 2022 convertible-note issuance, including the notes’ conversion and potential dilution terms.
- Progress on additional spaceships and motherships, supply availability and the effect of any safety, regulatory or operational delays.
- Developments in the securities and derivative litigation and any resulting financial or operational impact.