Tic-tac-toe, four in a row.

Virgin Galactic (SPCE 6.67%) reported first-quarter 2023 earnings last week and -- surprise -- the world's most famous space tourism company (that still isn't carrying paying tourists into space) missed earnings yet again.  

That may change soon.

In its press release last week, Virgin Galactic assured investors that its first commercial space tourism flight, dubbed Galactic 01, remains on track to fly in late June 2023 -- which would be in time to book that revenue under Virgin Galactic's second-quarter results. For the time being, however, Virgin Galactic remains a company collecting only de minimis revenue, racking up losses, and burning cash at a tremendous pace.

Virgin Galactic by the numbers

Expected to lose $0.52 per share on revenue of only $319,000 (not a typo) last quarter, Richard Branson's space company reported a $0.57 per share loss instead, albeit revenue was a bit ahead of consensus at $392,000.

Virgin Galactic should do even better in Q2, currently underway. Management says all systems still look go for a return to space with the Unity 25 mission planned for the end of May. One month after this test flight (carrying four Virgin Galactic employees) takes place will be the Galactic 01 space tourism flight, carrying paying customers. Assuming six passengers and a price of $250,000 per seat (Virgin Galactic had sold 600 tickets at prices of up to $250,000 before raising its prices last year), that should mean a cool $1.5 million in revenue for Virgin Galactic -- more than 4 times the revenue the company booked in all of Q1, recorded in a single day.  

But will it be enough?

Virgin Galactic has a cash problem

Virgin Galactic burned through $139 million in cash in Q1, yet describes its cash position as still "strong," with $874 million in the bank at the end of the quarter.

Management expects to burn a further $130 million to $140 million in the second quarter, however, despite undertaking perhaps two separate spaceflights in the quarter. And Virgin Galactic anticipates continuing to burn cash at the rate of $120 million to $130 million per quarter in the third and fourth quarters as well, despite (presumably) running even more flights over the course of those two quarters.

Precisely why Virgin Galactic expects to continue burning cash at such a phenomenal rate even as it begins flying revenue-generating flights (revenue would presumably help offset the cash burn) isn't entirely clear. But consider this:

If Virgin Galactic were able -- hypothetically -- to follow up a successful, revenue-generating commercial spaceflight in June with similar flights twice a month, every month through the end of this year, its total revenue from these (13) flights would be $19.5 million, or about $10 million per quarter. This would be roughly equal to the amount Virgin Galactic is predicting its cash burn will slow down over the next two quarters.

This may (or may not) be what the company is anticipating. (Recall that Virgin Galactic has only one or two spaceplanes completed, and needs to entirely replace the engine on a spaceplane after each flight, slowing the turnaround time on flights.) However, to completely offset $120 million to $130 million in cash burn, the company would need to be flying closer to 80 flights per quarter (bringing $120 million in revenue).

That's two flights every three days, rather than two flights every month. Even if Virgin Galactic had enough customers for that, it probably wouldn't be feasible for a company that has only one or two spaceplanes, and that needs to replace its engines after each flight.

What it means for investors

Thus, it seems most likely Virgin Galactic will in fact burn through somewhere between $370 million and $400 million in cash through the end of 2023, leaving it with at most $504 million at the start of next year. If the company manages to fly more frequently than once every other week next year, that might be enough cash to last Virgin Galactic through the end of 2024. But if it can't, it won't.

And so it seems more likely than not that Virgin Galactic will be out of cash before the end of next year.

What happens then? Well, Virgin Galactic might take on more debt. But it already has $416 million in debt on its balance sheet, and the cost of taking out loans is only going up. Or Virgin Galactic could sell more shares. It sold 5.8 million shares last August, raising $32 million -- but its stock price is down 28% since then.

At today's price, Virgin Galactic would need to sell about 30 million shares to offset one quarter's worth of cash burn -- more than 10% of shares outstanding for every quarter that it continues burning cash at the current rate.

Suffice it to say I don't think this is great news for Virgin Galactic stock.