Virgin Galactic's better-than-expected cash burn a positive sign, says KeyBanc

By James Rogers

Space tourism company Virgin Galactic reported first-quarter results after the bell Tuesday

Virgin Galactic Holdings Inc. gave an update on its closely-monitored cash position when it reported its first-quarter results after the bell Tuesday, with the company's cash burn, in particular, attracting attention.

The space tourism company's shares are down 1% in premarket trades after Virgin Galactic guided for lower-than-expected second-quarter revenue. However, analyst firm KeyBanc Capital Markets pointed to Virgin Galactic's (SPCE) lower-than expected cash burn as a positive.

First-quarter free cash flow was a burn of $126 million, down from a burn of $139 million in the same period last year. This was also below the $129 million burn expected by analysts surveyed by FactSet and KeyBanc Capital Markets' $131 million burn estimate.

"The Company guided to a 2Q24 FCF burn of $110M-$120M vs. our $135M burn estimate," wrote KeyBanc Capital Markets analyst Michael Leshock in a note released late Tuesday. Analysts surveyed by FactSet are looking for second-quarter cash burn of $126.9 billion.

"While the lower than expected burn is a positive sign, the Company continues to expect 2024 will be the most capital-intensive year in support of its next-generation Delta class fleet, implying 2H24 FCF burn could be modestly higher than our estimates," Leshock added.

Related: Here's how much Virgin Galactic earned from space tourists last quarter

Virgin Galactic ended the first quarter with cash, cash equivalents, and marketable securities of $867 million, compared with $874 million at the end of the same period last year. The company's cash position is being closely watched. Virgin Galactic's shares slid in December after founder Richard Branson ruled out further investment in the space-tourism company, which had recently fleshed out its near-term growth strategy.

Last week Virgin Galactic said that it is targeting a launch window that opens June 8 for its milestone Galactic 07 mission. The Galactic 07 mission will be the final flight of Virgin Galactic's Unity spacecraft before it halts commercial operations to develop its new Delta-class spacecraft.

The Delta spacecraft featured prominently during the conference call to discuss the company's first-quarter results.

"The progress of SPCE's Delta class ships remains on track, and the Company unveiled it expects its current mothership, Eve, will be able to support up to 125 flights per year when the first two Delta ships come online in 2026," wrote KeyBanc Capital Markets' Leshock. "Upon ramping flight frequency and establishing Delta operations, SPCE looks to bring an additional mothership and Delta ship(s) into service in 2028 and beyond."

Related: Virgin Galactic sets date for Unity spacecraft's final commercial flight

Virgin Galactic recently announced that Delta tickets will be priced at $600,000, compared with the current ticket price of $450,000.

"SPCE expects to reopen ticket sales at some point in 2025, ahead of the Delta class debut, at a new, higher price point of $600K per seat," Leshock said. "This implies an annual revenue run-rate of $450M (>75% contribution margin) with only mothership Eve and two Delta ships."

"While we acknowledge it will take time to ramp to this full run rate, it would mark a significant turning point for the Company as it continues to position itself as the leader in space tourism for the long term," the analyst added.

Related: Virgin Galactic skyrockets 22%, registers biggest gain in 10 months

Leshock noted that Virgin Galactic remains in an ongoing legal battle with Boeing Co. (BA) over the intellectual property rights of its mothership. "Importantly, we gained further clarity into the issue and believe there will be minimal, if any, impact to SPCE, and we believe it has a strong case," said Leshock. "We are surprised that BA filed the case, and we see no impact on SPCE's ability to execute (regardless of the final determination)."

Speaking during the first-quarter conference call Virgin Galactic CEO Michael Colglazier said that the issues with Boeing are not material. "It will not be a distraction for us in any way as we move forward with our mothership program," he said.

Of 10 analysts surveyed by FactSet, two have a buy rating, five have a hold rating, and three have an underweight or sell rating for Virgin Galactic. The company's shares are down 58.8% in 2024, compared with the S&P 500 index's SPX gain of 8.8%.

-James Rogers

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05-08-24 0837ET

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