by Douglas Messier
Suborbital flight provider Virgin Galactic announced on Friday that it is delaying release of its first quarter earnings report from Tuesday, May 4, to Monday, May 10. The release will now occur after and not before rival Blue Origin starts selling tickets on May 5 for trips to space aboard its suborbital New Shepard spacecraft.
Virgin Galactic said it needs more time to restate 2019 and 2020 earnings in response to an April 12 statement by the Securities and Exchange Commission (SEC) on the accounting treatment of company-issued warrants, which provide holders the right to purchase stock at a set price by a certain date.
The SEC’s April 12 statement came on the same day Virgin Galactic announced the May 4 date for its quarterly earnings report. The company’s accountants had three weeks to recalculate the numbers. Virgin Galactic said six more days are required to report what it claims will be minimal impacts on the massive losses it has piled up since going public in October 2019.
“The Company expects to file the restated financials prior to the new conference call date and estimates that it will recognize incremental non-operating, non-cash expense for each of the fiscal years ended December 31, 2020 and December 31, 2019. The Company does not anticipate that the restatement will impact its previously communicated non-GAAP financial metrics, including Adjusted EBITDA and free cash flow,” Virgin Galactic said in a press release.
Unmentioned in Virgin Galactic’s press release is the delay will allow the company to respond to Blue Origin’s long-awaited announcement about ticket sales. Jeff Bezos’ company began promoting the pending announcement on Thursday, April 29. Virgin Galactic announced the delay in its earnings report the following day.
Either this is all a giant coincidence, or Virgin Galactic is responding to Bezos’ flanking maneuver. One thing is clear: the battle of the billionaires between Bezos and the Richard Branson-founded and Chamath Palihapitiya-backed Virgin Galactic is about to heat up.
Whatever the actual reason for the delay, the prospect of delivering yet another dismal earnings report only hours before Blue Origin’s announcement could not have been an attractive one for Virgin Galactic CEO Michael Colglazier and new CFO Doug Ahrens. The quarterly earnings call is a major opportunity to influence Wall Street analysts who make recommendations on whether to buy or sell the company’s stock.
Virgin Galactic is expected to report a significant loss with minimal or no revenues as it struggles to complete the flight test program for its SpaceShipTwo suborbital vehicle, VSS Unity. Virgin Galactic’s net lost was $273 million for 2020, including a $74 million net loss for the fourth quarter.
Virgin Galactic’s stock has been taking a pounding lately. After opening at $10.75 on the first day of trading on Oct. 28, 2019, the stock soared to a high of $62.80. It is now trading at $22.15, having lost all of its gains for the year.
Shares are down due to ongoing delays in the start of commercial service. Branson’s decision to sell $650 million in stock over the last year and Palihapitiya’s liquidation of his entire personal stake worth $312 million has hurt investor confidence. Both men continue to be large shareholders in the company.
Virgin Galactic went public after shareholders in billionaire Palihapitiya’s Social Capital Hedosophia (SCH) approved an $808 million merger. SCH was a special purpose acquisition company (SPAC) that was already traded on the New York Stock Exchange (NYSE). SPACs are investment vehicles whose entire purpose is to find a company to take public under its own name.
SEC’s April 12 statement concerned warrants issued by SCH and other SPACs that allow holders to purchase stock at set prices by certain dates. The statement indicated that warrants should be treated as liabilities on company’s balance sheets, not as equity. The move is widely viewed as a move to reign in SPACs, which have become increasingly popular on Wall Street and in the commercial space industry.
In response, Virgin Galactic has decided to restate past earnings going back to when the company began trading. The company said not that many warrants remain to be redeemed.
“As of today, approximately 2.7 million warrants remain outstanding, which represents less than 10% of the warrants originally issued,” the press release said.
In documents filed with the SEC to support the merger, Virgin Galactic and SCH projected to start commercial space tourism flights in June 2020. Due to technical problems with VSS Unity, the date has been pushed back to early 2022. In other words, the schedule has slipped about 19 months in the 18 months since the company went public.
Amid all the gloomy news, Virgin Galactic did say it plans to conduct a suborbital test of VSS Unity later this month.
“As previously communicated, Virgin Galactic is targeting its next rocket-powered spaceflight from Spaceport America to take place in May,” the company said.
VSS Unity last suborbital flight came more than 26 months ago on Feb. 22, 2019. The spacecraft was grounded after it suffered severe in-flight damage to its horizontal stabilizer that nearly destroyed the vehicle and killed the three-member crew.
Extensive modifications were required to address the problem. More than 13 months passed before the spacecraft flew again in May 2020 in a successful glide test from Spaceport America in New Mexico. Another glide flight followed the following month.
VSS’s next suborbital flight, which carried NASA-sponsored experiments, suffered an in-flight abort in December 2020 due to a computer reboot just as its hybrid engine began to fire. Virgin Galactic said the reboot was caused by electromagnetic interference (EMI).
The company planned to repeat the flight test in February 2021. But, the test was rescheduled to May when the modifications made to VSS Unity to address the EMI issue resulted in other potential problems.
Virgin Galactic has said it plans three additional flight tests after the one later this month. The first will carry four test subjects in the passenger cabin to evaluate the experience. Branson will be aboard the flight after that one. Then three Italian Air Force pilots will fly as part of a training exercise to complete the flight test program.
VSS Unity and its WhiteKnightTwo carrier airplane will undergo about four months of upgrades before flying the first space tourism mission early next year.
Virgin Galactic hopes to have another SpaceShipTwo, VSS Imagine, start service early next year. The spacecraft will undergo testing this summer at Spaceport America.
Virgin Galactic’s press release about the delayed earnings call follows.
Virgin Galactic Reschedules First Quarter 2021 Financial Results and Conference Call in Response in Response to Recent Guidance Relating to Warrants Issued by SPACs
LAS CRUCES, N.M.–(BUSINESS WIRE)– Virgin Galactic Holdings, Inc. (NYSE: SPCE) (the “Company”), a vertically integrated aerospace and space travel company, announced today that it has rescheduled the reporting of its financial results for the first quarter 2021 to following the close of the U.S. markets on Monday, May 10, 2021. Virgin Galactic will now host a conference call to discuss the results and provide a business update that day at 2:00 p.m., Pacific Time (5:00 p.m., Eastern Time). The Company is rescheduling its reporting due to the recent statement issued by the Securities and Exchange Commission (the “SEC”) on April 12, 2021 relating to the accounting treatment of warrants issued by special purpose acquisition companies (the “SEC Statement”).
The Company today reported in a Current Report on Form 8-K that, following its review of the SEC Statement and consulting with its advisors, the Company will restate its consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The restatement is due solely to the accounting treatment for the warrants of Social Capital Hedosophia Holdings Corp. that were outstanding at the time of the Company’s business combination on October 25, 2019. The Company expects to file the restated financials prior to the new conference call date and estimates that it will recognize incremental non-operating, non-cash expense for each of the fiscal years ended December 31, 2020 and December 31, 2019. The Company does not anticipate that the restatement will impact its previously communicated non-GAAP financial metrics, including Adjusted EBITDA and free cash flow.
As of today, approximately 2.7 million warrants remain outstanding, which represents less than 10% of the warrants originally issued.
As previously communicated, Virgin Galactic is targeting its next rocket-powered spaceflight from Spaceport America to take place in May.
A live webcast and replay of the conference call will be available on the Company’s Investor Relations website at investors.virgingalactic.com.
About Virgin Galactic Holdings
Virgin Galactic Holdings, Inc. is a vertically integrated aerospace and space travel company, pioneering human spaceflight for private individuals and researchers, as well as a manufacturer of advanced air and space vehicles. It is developing a spaceflight system designed to offer customers a unique and transformative experience. You can find more information at https://www.virgingalactic.com/.