Virgin Galactic Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The company develops and operates spacecraft for commercial human spaceflight and research payloads. The interim financial statements are unaudited.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $0.4 million | $0.3 million |
| Operating expenses | $163.8 million | $91.7 million |
| Operating loss | $163.4 million | $91.4 million |
| Net loss | $159.4 million | $93.1 million |
| Net loss per share | $0.57 | $0.36 |
| Cash used in operating activities | $136.1 million | $66.1 million |
Revenue was primarily from Future Astronaut community membership fees; Q1 2022 also included engineering services. The filing does not provide a meaningful gross margin measure. Operating expenses rose 79%, led by research and development, which increased 112% to $109.9 million, and selling, general and administrative expenses, which increased 36% to $50.4 million. Higher R&D costs reflected increased contract labor, materials and other direct costs, as well as employee costs. SG&A growth included higher compensation, stock-based compensation, IT and professional costs.
Interest income rose to $7.3 million from $0.8 million, primarily because of higher rates on cash and securities. Interest expense was $3.2 million. The effective tax rate was nil; income tax expense was $0.1 million.
Financial position and liquidity
- At March 31, 2023, cash and cash equivalents were $415.7 million, restricted cash was $40.4 million, and marketable securities were $417.9 million. Combined, these totaled $874.0 million; restricted cash consists of customer deposits contractually restricted for operational use until specified conditions are met or refunded.
- Total assets were $1.03 billion; current liabilities were $190.8 million and total liabilities were $666.7 million. Stockholders’ equity was $366.8 million.
- Convertible notes had a $425 million principal balance, a 2.50% fixed coupon and a February 2027 maturity; net carrying value was $416.3 million.
- Cash used in operations increased to $136.1 million. Investing activities provided $219.7 million, mainly from maturities and calls of marketable securities; financing activities provided $29.8 million, primarily from common-stock sales. Cash, cash equivalents and restricted cash increased $113.5 million during the quarter.
Management said available capital was expected to fund business needs, commitments and contractual obligations for at least the next 12 months. It also cautioned that changing circumstances could accelerate cash use or increase spending. The company may seek additional securities offerings or debt refinancing if resources prove insufficient. The filing gives no specific profitability or cash-flow guidance.
Business outlook, developments and risks
- Commercial human spaceflight service was expected to begin in Q2 2023, subject to planned vehicle maintenance and enhancements and subsequent flight testing. The company identified supply-chain delivery risks that could affect the schedule.
- The company reported reservations for approximately 800 future astronauts and said tickets sold represented approximately $211 million in expected future spaceflight revenue upon completion of flights. These are not recognized revenue.
- Initial commercial operations were expected to rely on one spaceship, VSS Unity, and one carrier aircraft, VMS Eve, constraining annual flight capacity. The company was developing Delta-class spaceships and next-generation motherships to expand capacity.
- Management expected expenses to increase substantially as it advances development and commercialization, expands manufacturing and fleet capacity, hires staff, and develops facilities. Third-party arrangements for next-generation vehicles may require significant spending; certain amounts were subject to negotiations and could not be estimated with reasonable certainty.
- Principal risks include flight-test and development delays, vehicle safety and operational risks, the ability to scale commercial operations and convert demand into revenue, financing needs, regulation, and the development of the spaceflight market. The company said there were no material changes to the risk factors in its 2022 Form 10-K.
Other material items
- Under its at-the-market program, the company sold 5.8 million shares in Q1, generating $32.0 million gross proceeds before expenses. The program authorized sales of up to $300 million; cumulative gross proceeds through March 31, 2023 were $135.4 million. Common shares outstanding were 281.7 million at quarter-end and 282.6 million as of May 3, 2023.
- The company disclosed a securities class action alleging misstatements concerning vehicle safety and commercial-flight progress, along with related shareholder derivative cases. It said it intended to defend the class action; management did not consider pending claims material, while noting outcomes were uncertain.
- Disclosure controls and procedures were assessed as effective at the reasonable-assurance level as of March 31, 2023; no material changes in internal control over financial reporting were reported.
Important facts for investors to verify
- Whether maintenance, enhancements and flight testing were completed and commercial service began on the expected schedule.
- Actual flight cadence, passenger capacity, safety performance and costs of operating the initial fleet.
- Future operating cash burn, liquidity runway and any need for further equity issuance or refinancing.
- Progress, timing and funding requirements for Delta-class vehicles and next-generation carrier aircraft.
- Conversion of reservations and ticket sales into completed flights and recognized revenue, and the status of disclosed litigation.