Just one month ago, Virgin Galactic (SPCE 2.42%) dropped a bombshell.
It's been more than a year since the space tourism pioneer last sent a spaceplane to space. That happened last July, when company founder Sir Richard Branson celebrated Virgin's receipt of a "full commercial launch license" from the U.S. Federal Aviation Administration by taking a joyride to the edge of space and back. But since then -- crickets.
Regardless, on July 14 of this year, Virgin Galactic announced a bold plan to build a new factory in Mesa, Arizona, capable of churning out up to six new "next-generation Delta class spaceships" a year to support the company's dreams of flying to space 400 times per year. According to Virgin Galactic, the new factory is already under construction and will be fully operational by late 2023.
But will Virgin have even resumed launching by then?
Virgin Galactic's disappointing Q2
That's not a rhetorical question: When Virgin Galactic reported its fiscal Q2 2022 "earnings" (actually losses) earlier this month, one of the biggest revelations was that Virgin Galactic is postponing its next launch yet again, and this time to Q2 2023 -- and actual commercial operations might be even farther off.
Virgin has been making upgrades on both its VSS Unity spaceplane and VMS Eve mothership in preparation for beginning commercial operations. But as company CEO Michael Colglazier explains, the work on Eve in particular is taking longer than expected. And because Unity depends on Eve to carry it to altitude before it can blast off to space, any delay in the latter prevents the former from resuming its test flight schedule.
The result: Resumption of test flights of Unity could still be nearly a year away. And because actual commercial service can't begin until the test flights are completed, that probably means investors will need to wait another year before Virgin can start charging passengers for their tickets, and generating appreciable levels of revenue for the business.
If you're an investor in Virgin Galactic, here's why this should concern you:
When it reported earnings last week, Virgin confirmed that its Q2 revenue was less than half a million dollars, while losses for the quarter approached $113 million, or $0.43 per share -- 20% more money than Virgin was losing even a year ago. Of somewhat greater concern, Virgin Galactic is burning through its cash reserves at an accelerating rate as it spends heavily to upgrade its existing spaceships and prepares to build even more. Negative free cash flow for the quarter approached $160 million, up 38% from a year ago.
Granted, Virgin does have approximately $1 billion in cash and short-term marketable securities. And management says that cash burn should abate a bit in Q3 2022 to no more than $120 million. Assuming Virgin can keep that promise, the company should have enough cash to remain solvent for another six quarters -- long enough for the company to begin generating revenue from space tourism flights to offset some of its costs.
That's only true, however, if you assume that Virgin Galactic won't suffer any more delays to its flight schedule, that it will resume test flights in Q2 2023 as promised, and that it will proceed swiftly to begin commercial operations no later than Q4 2023. Any longer, and Virgin could face a cash crunch.
Anticipating this eventuality, management has announced plans to sell another $350 million worth of stock, which should cover another couple of quarters of start-up costs if Virgin needs them.
Long story short, Virgin appears to have plans in place to ensure that even if commercial operations don't begin for another two years, it will have the money it needs to survive until then. Investors should really hope it doesn't take that long, however, because as Virgin crawls toward commercial operations, its arch-space rival Blue Origin is sprinting ahead. Indeed, Blue Origin just conducted its sixth successful crewed spaceflight on August 4, the same day that Virgin came out with its financial report.
Mind you, Blue Origin still isn't saying how much it's charging passengers for a ticket aboard its space rocket, making it hard to say if it's overpricing or undercutting its rival. But every dollar that Blue Origin does charge is a dollar Virgin Galactic will never be able to collect as revenue once it gets its own business going.
The longer Virgin waits to get started, the harder it's going to be for it to make a go of this business.