Virgin Orbit Holdings, Inc. (NASDAQ:VORB) Q4 2021 Earnings Conference Call March 29, 2022 4:30 PM ET
Company Participants
Chris Thomson – Director, Financial Planning and Analysis
Dan Hart – Chief Executive Officer
Brita O’Rear – Chief Financial Officer
Conference Call Participants
John Roy – Water Tower Research
Austin Moeller – Canaccord Genuity
Josh Sullivan – The Benchmark Company
Operator
Greetings. And welcome to the Virgin Orbit Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]
As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Chris Thomson, Director of Financial Planning and Analysis. Please go ahead.
Chris Thomson
Good afternoon. I’d like to welcome everyone to Virgin Orbit’s fourth quarter and full year 2021 earnings call. Conducting the call today are Dan Hart, Chief Executive Officer; and Brita O’Rear, Chief Financial Officer.
During today’s call, we may make certain forward-looking statements. These statements are based on current expectations and assumptions, and as a result, are subject to risks and uncertainties.
Many factors could cause actual events to differ materially from the forward-looking statements made on this call. For more information about these risks and uncertainties, please refer to the risk factors in the company’s filings with the Securities and Exchange Commission filed by Virgin Orbit from time-to-time.
Readers are cautioned not to put any undue reliance on forward-looking statements and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call.
Please also note that we will refer to certain non-GAAP financial information on today’s call. You can find reconciliations of the non-GAAP financial measures with the most comparable GAAP measures in our earnings press release.
With that, I’ll turn the call over to Dan.
Dan Hart
Thank you, Chris. Good afternoon to everyone on the line and thank you for joining our first earnings call as a public company. Today, I would like to begin with a brief overview of the Virgin Orbit’s story for those who are new to the company, followed by some key recent milestones achieved and a brief look at the current year. I will then turn the call over to Brita for a closer look at the numbers.
Virgin Orbit is a spaceflight and space services company that utilizes breakthrough technology and a differentiated launch method. Different from the familiar traditional ground launch, we utilize a modified 747 to carry a liquid fueled rocket to 35,000 feet. We release the rocket and then autonomously carry satellites to space.
Using an aircraft to start the flight to space offers several advantages. This approach allows us to simplify the rocket, increasing reliability and efficiency. The inherent capabilities of the aircraft provide flexibility and responsiveness, thus giving us unique market access.
Our system is mobile and can enable space launch from any airport that can support a 747. This allows governments to establish sovereign space launch capability with minimal added infrastructure. It also simplifies range safety and regulatory approvals.
Virgin Orbit’s ability to launch quickly from anywhere to any orbit and unwarned has unique value for national security. Space has become vital for understanding and connecting our world, and a core asset for our national security infrastructure, a point that has become front and center at a time when increased aggression in space threatens the orbital comments.
The space economy is going through a period of remarkable transformation, enabled by technology that has allowed satellites to get much smaller and much less expensive. Just as processing technology transformed our phones. Now similar advancements are fueling the improved productivity and capability of satellites.
This has resulted in a lot more satellites developed by companies from around the world and has led to a wide expansion of use cases. This transformation is the driver for much of the growth that is forecasted for the space economy, which is expected to grow from approximately $400 billion to more than $1 trillion annually by 2040.
With this growth, we expect increasing demand for launch and the associated space services that support it, coming from commercial space, national security and civil space, both within the U.S. and across the world.
We believe Virgin Orbit is well-positioned at this critical time, having proven our system and moved into operations. This is a notable differentiator, as many of our competitors vying to enter the industry do not have demonstrated technology or demonstrated repeatable operations.
Turning to our recent milestones, we had a very successful year in 2021. We flew two launches with 100% mission success during the year and carried 19 satellites to space, serving all of our key customer groups, commercial, NASA and national security, both domestically and internationally.
We delivered satellites for NASA, the U.S. DoD, as well as the first satellite for the Royal Netherlands Air Force. We added significantly to our backlog. We also signed our first agreements to launch abroad in support of the U.K. Space Agency and the Royal Air Force at Spaceport Cornwall.
We continue to make progress on key commercial launch contracts, including the opportunity to provide multiple launches for ANA of Japan. We met with the British and Australian prime ministers at the G7 Summit and discuss the importance of responsive launch for their space economies and national security.
We were awarded a funded study from the Missile Defense Agency that illustrated the utility of Virgin Orbit system for Missile Defense targets. We signed several strategic agreements to make investments that could enhance our Space Solutions activities and we ended the year with our NASDAQ Listing via successful merger with NexGen Acquisition Corp. II.
Let me spend a little time on these key achievements. In 2021, we flew two missions, the first in January carried 12 satellites for NASA’s Venture Class Launch Systems program and our second in June carried seven satellites for customers including Poland SatRevolution, the Dutch Air Force and the U.S. Department of Defense, including the Missile Defense Agency. Both missions flew on the first attempt at the beginning of the launch window and successfully deployed all satellites to their target orbits. We maintain this launch momentum in 2022 with 100% success rate and I’ll talk more about that in a moment.
With these successful launches, the market responded positively, as we grew our binding and non-binding backlog increasing over 500% from $86 million to $575 million at the end of 2021. This represents over 45 launches, as well as infrastructure and support for Spaceports.
As I mentioned, we had a productive year signing several key agreements, covering different sectors and geographies. We signed a new launch contract with Arqit Quantum Incorporated for five dedicated launches to provide Quantum encryption from space.
We signed an agreement with Astroscale Holdings Incorporated to establish a partnership on a series of space initiatives that will drive the future of space sustainability and the on orbit servicing ecosystem. Astroscale is planning dozens of missions over the next decade.
We were selected as a participant for an IDIQ with a national security customer. The IDIQ is worth up to $986 million.
Our agreement with ANA Holdings of Japan includes plans to provide as many as 20 launches and infrastructure to establish a Spaceport in Oita, Japan. Last year, we advanced our Space Solutions activity through investment agreements with satellite companies Hypersat, Arqit, SatRev and Horizon. With the capabilities of our launch system for responsive space and our deep expertise across the organization, we view our Space Solutions business as a natural evolution into growing space services adjacencies.
Space launch is a critical link for the growth of a space economy. Our mobile launch technology is a key differentiator that we believe makes us extremely attractive to international partners and governments who are looking to establish local launch capabilities. There are approximately 80 space agencies around the world and only around 10 currently have space launch capability.
Last year, we signed agreements with Oita Airport in Japan and the Government of Brazil to use LauncherOne from their Spaceports and we initiated conversations with several other governments.
This builds on our Launch Service Agreements that will see us conduct our first international launch from Cornwall in the U.K. plan later this year. We see this as a significant area of business for Virgin Orbit and one that clearly differentiates us from our peers in the launch market.
As the head of the U.K. RAF Space Directorate, Air Vice Marshal, Harv Smyth testified to the parliament this month. Virgin Orbit air-launch capability is a key enabler that will bring exceptional flexibility for U.K. sovereign space. These accomplishments illustrate a significant progress we have made consistent with our plan to penetrate each of our target markets.
In late December, we close our SPAC merger with NexGen Acquisition Corp. II, which resulted in Virgin Orbit becoming a public company. As a part of the transaction, we raised $228 million in gross proceeds. Our PIPE investors included multiple prominent financial and strategic investors, such as Boeing, AE Industrial Partners, The Virgin Group Mubadala and NexGen.
On January 7th, we rang the opening bell at the NASDAQ and brought our rocket to Time Square. Six days after ringing the bell at the NASDAQ, we launched our third successful mission, maintaining our strong momentum.
Our launch on January 13, 2022, carried seven satellites to orbit for the DoD, NASA and a commercial customer. This mission demonstrated the robustness of our air-launch technology. Despite heavy clouds that would have violated the launch criteria for a ground launch rockets, our 747 took off and flew through them without a problem as 747s have done routinely for decades.
We achieved an orbit that would not have been possible from a ground launch in California, demonstrating the ability to access orbits that were hitherto unreachable for many territories. The rocket was released from the aircraft by Flight Lieutenant, Matthew Stannard, who is currently accounted to Virgin Orbit from the Royal Air Force, illustrating our growing partnerships with allies.
Also on this flight, after receiving a last minute request from a customer, we were able to integrate and launch a satellite within 22 days of notification. Our key capability that we believe will be more and more important with commercial and national security customers.
We are enormously proud of our team and this meaningful accomplishment of our first three consecutive operating launches within 12 months. We have now flown the system four times and have never scrubbed a launch. Over my 40-year career, I do not know of any other system that has approached this record, which we believe speaks to the responsiveness and robustness of the LauncherOne system and this new method of achieving spaceflight.
Turning to business development in 2022. In January, we announced an agreement with The Sultanate of Oman, towards collaboration on Oman’s first mission to deep space. The same agreement also lays the foundation to collaborate on delivering additional small satellites to low Earth orbit, as well as evaluating the establishment of a dedicated launch capability in Oman.
Two weeks ago, we hosted a visit from the Polish Minister of Economic Development and the President of the Polish Space Agency. During this meeting, we signed an agreement to work towards establishing sovereign launch in Poland and providing neighboring countries of the Three Seas region with launch capability. This comes off the back of our successful launches for Polish company SatRevolution.
We are also working with several government agencies across five continents to provide sovereign launch. For many of these countries, our air-launch system is the only option to achieve direct access to space.
As Professor Grzegorz Wrochna, President of the Polish Space Agency described, we can’t perform regular vertical flights from Poland, because there was a risk a rocket could fall into inhabited land. The technology offered by Virgin Orbit is a feasible way into orbit.
We were selected by NASA to be one of the providers for VADR, Venture Class Acquisition of Dedicated Rideshare, a program with a total value of $300 million. And earlier this month, we were awarded a launch contract for the first satellite developed in Wales by in-space manufacturing tech startup, Space Forge.
The recent conflict in Ukraine has increased focus of the U.S. Government on the need for responsive space launch. Congress recognizes the needs for this capability and has approved a dedicated $50 million to support tactically respond to space as part of this year’s budget.
On other fronts, in the Missile Defense sector, this year, we concluded a study for the Missile Defense Agency that underlines the utility of our system for Missile Defense targets and other uses, and we are seeing increased momentum for the use of the system in support of hypersonic R&D.
Following our successful launch in January, we are expecting our second launch this year will be in the second quarter, followed by our first launch from the U.K. later this year. This year, we are planning to at least double our launch rate to between four and six launches, actively pursuing Mission Assurance Category II Flight Worthiness Certification to allow us to launch high value government payloads and work to achieve the first space launch in history from Europe.
We are extremely excited to begin our journey as a public company and continue to build on the momentum that we’ve established in 2021 to increase launch rate and increase penetration of all our target market segments.
I would like to thank our employees whose dedication and talent has enabled us to bring breakthrough launch technology to commercialization in less than four years and become an operational launch company.
Now I will turn the call over to Brita who will take you through the numbers. Brita?
Brita O’Rear
Thank you, Dan, and good afternoon, everyone. I’m Brita O’Rear, the CFO of Virgin Orbit, and I’m pleased to share our financial results for the first time as a public company. I’ll begin with a quick recap of our recent listing on NASDAQ before coming to a summary of our 2021 results.
In August 2021, we announced a business combination agreement with NexGen Acquisition Corp. II, alongside a successful PIPE fundraise, we raised approximately $228 million of gross proceeds.
As Dan said, the business combination was completed on December 29, 2021, and our common stock now trades on the NASDAQ Global Select Stock Exchange under the ticker symbol VORB.
Moving to our financial results for 2021. Revenue for full year 2021 increased 92% to $7.4 million, compared to prior year revenue of $3.8 million. The 2021 revenue increase is primarily due to our two successful launches.
When we factor in other income sources, including gains on our investments, we ended the year with total combined revenue and other income at $21.4 million. As we ramp up our launch cadence in the near- and medium-term, our revenue will track key milestones, such as launches and delivery of ground support equipment, which do not necessarily align with the quarterly cadence.
Likewise, our revenue per launch is expected to grow as each launch builds our pedigree within the market. We had our third successful launch in the first quarter of this year and expect another launch in the second quarter, with steadily decreasing time between launches thereafter.
Full year 2021 gross profit was negative $30.5 million, compared to $672,000 in the prior year. The change was driven by the cost related to our initial production rockets for our second demonstration launch and our first commercial launch.
With the investments we’ve already made in automating our production and testing processes, we are achieving cost reductions and increased efficiencies. As is typical for any aerospace company in low rate production, positive gross profit develops as production increases, costs reduced per standard learning curve and our asset utilization improves, and we’re seeing these trends materialize as we continue to scale.
Research and development costs for the year were $48.1 million, compared to $137.1 million in the prior year. In January 2021, we had our first successful launch, which transitioned the company from pre- to post-technical feasibility, thereby allowing us to begin capitalizing our launch costs. We continue to invest in the development of our capabilities to reduce cost and address evolving customer needs.
SG&A for the full year 2021 was $92.8 million, compared to $43 million in the prior year. Primary drivers for these increases are the transition out of development and into sustaining for both launch operations and production processes, as well as additional expenses associated with becoming a public company.
Operating loss for 2021 was $171.4 million, an improvement from $179.5 million in the prior year.
Full year adjusted EBITDA was negative $140.4 million. Adjusted EBITDA was also an improvement from our 2020 figure of minus $157.5 million by $17.1 million or 11%. Capital expenditures totaled $25.3 million for 2021, an increased from $13.3 million in 2020. The investments were comprised primarily of launch ground support equipment, engine test stands, automation and manufacturing equipment, and upgrades to IT, infrastructure and facilities.
As of December 31, 2021, we had $195 million in cash and cash equivalents, leaving us well positioned to continue to progress on our growth objectives in 2022.
We have today announced a Standby Equity Purchase Agreement or SEPA with Yorkville Advisors. This SEPA will give us the right, but not the obligation to sell up to $250 million of shares of common stock at our request over the next 36 months, subject to the terms and limitations set forth in the agreement.
Shares would be purchased by Yorkville at 97.5% of the average of the volume weighted average price for each trading day over a three-day trading day period, following a delivery of notice by us in accordance with the agreement.
We anticipate any funding activity under this facility would be undertaken systematically and opportunistically as market conditions warrant, and as we progress through 2022 and prepare further growth-related cash requirements in 2023 and beyond. This instrument can provide us with access to capital to execute our business plans and respond to opportunities as they appear in the market.
As Dan mentioned, our business development initiatives highlight the progress we have made to commercialization and the breadth of applications that our launch and space services can provide.
We are seeing this materialize in our binding and non-binding agreements, which totaled over $575 million as of December 31, 2021, growing more than 500% since the end of 2020. Of this binding agreements increased from $86 million to $152 million, growing more than 75%.
I will now turn the call back over to Dan.
Dan Hart
Thank you, Brita. Let’s see, at this point, we’re ready for any questions you may have.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question will come from John Roy with Water Tower Research. Please go ahead.
John Roy
Great. So, obviously, the Ukraine is on a lot of people’s minds and are you seeing any increased customer interest kind of driven by that or are you seeing, conversely, any customers pull back. Just trying to get a little more color on how that situation is impacting you and Europe as well?
Dan Hart
Well, I think, we’re all seeing that overhead imagery and related functions has become a premium over Ukraine and we’ve had a number of queries from folks who provide imagery, as well as other related services on upcoming launches this year. So we are seeing a heightened increased business potentially from that tragic situation.
John Roy
And nobody is saying we want to slow things down or delay at this point?
Dan Hart
No. We have not heard anything like that. The other thing that we have seen, as I mentioned earlier, we did have a group of come, we had the Minister of Economic Development come from Poland just two weeks ago and we’ve had some other queries from countries as well, because the interest in responsive launch has actually heightened as well.
John Roy
Right. Yeah. You kind of think it would kind of go together. And you were kind of saying four to six launches this year, any possibilities that can move around a lot or is that pretty well said at this point?
Dan Hart
I mean, that’s the range that we’re looking at and it’s a function of how much international work we’re doing. As I mentioned, as Brita mentioned, we are also working on providing Spaceport capability and we’re working on the next level of certification so that we can — in the future do the really very high valued payloads for the Space Force and NASA.
John Roy
Great. Thanks so much, Dan.
Operator
Next question will come from Austin Moeller with Canaccord Genuity. Please go ahead.
Austin Moeller
Good afternoon, Dan and Brita.
Dan Hart
Good afternoon.
Brita O’Rear
Hi, Austin.
Austin Moeller
Hi. So just my first question here, do you guys expect to be good with just having Cosmic Girl is the mothership for the next year or two, or do you anticipate that you might add an additional 747 aircraft at some point?
Dan Hart
For the time being Cosmic Girl is certainly satisfies our needs. We do have plans and we are also talking to customers about additional aircraft. 747 can fly every day or more than every day. So it’s not a bottleneck for space operations, certainly. But there are some attractive economics to be had in having additional aircraft, and certainly, there are also both countries and organizations within the U.S. who are talking to us about aircraft as well. So it’s a business opportunity.
Austin Moeller
Okay. That’s helpful. Just a question on the backlog, it — as I can see in the release here, you’ve got about $152 million in binding backlog. How long do you expect that it will take in terms of a timeline for that to be recognized as revenue, 12 months, more than 12 months? How should we think about that?
Brita O’Rear
The binding backlog varies for some of its near-term and some of the agreements will extend beyond the current year.
Austin Moeller
Okay. And then just one last question for me, obviously, you guys were selected by NASA for VADR. If we look at that $50 million that was added by Congress for the DoD to procure tactically responsive launches. What do you expect the timing to be on that before contract awards start to be handed out under that program?
Dan Hart
Well, we’re awaiting the acquisition plan. So it’s not completely clear. But it is obviously fiscal year 2022 money. So that should sort of indicate some of the urgency to establish that plan and get things moving.
And of course, we’re hearing publicly, certainly, there are a lot of statements saying, we need to be moving forward with tactically responsive space. If a satellite is damaged in orbit by an adversary being able to reconstitute our capability is both a very urgent capability to have and a deterrent.
So we’re hearing the right voices from General Raymond, from General Dickinson, from all the leadership in the executive branch, as well as the key players in Congress. That’s why you’re seeing the money.
Austin Moeller
Excellent. Thanks for all the color.
Dan Hart
You bet.
Operator
Our next question will come from Josh Sullivan with The Benchmark Company. Please go ahead.
Josh Sullivan
Hey. Good afternoon.
Dan Hart
Good afternoon.
Josh Sullivan
This would be the 23 defense budget out here recently. Curious if there’s any line items or upticks that you’ve seen in interesting programs that you’re following that you think you might have some good access to?
Dan Hart
One of the areas we’re seeing a lot of growth in is hypersonics and we have had quite a bit of discussion. We feel fielded queries and proposals for primes who are working to develop hypersonic capability.
Our system is a bit of a simpler mousetrap, if you will, then the current test systems that are out there that use B-52 aircraft and things of that nature. And we’re aware that there have been some booster issues in the hypersonic research arena and so it’s likely an area that we can help with.
Josh Sullivan
Okay. And then just as far as the pace of the JVs that you’ve announced so far, what are some of the other opportunities that you think we might see you sign up some more partners?
Dan Hart
We — I can’t get into some any details on specific companies, certainly. But it — we’re certainly seeing quite a bit of innovation that has developed over the last three years to five years. That’s coming of age, if you will, and so it does provide opportunities.
We’ve been focused on both the Earth observation, as well as the RF, Internet of Things and signals intelligence area. Those are the primary areas that we’re — we’ve been looking at. As well as, I should add, we have a strategic partnership with BigBear and Redwire. BigBear to provide analytics and help us sort of sew together the overall offering to customers.
Josh Sullivan
Yeah. And then just, in the prepared remarks, you talked about each launch driving some incremental dollars per launch. Can you just talk about magnitude, about where the top end we might go from where you’re currently at on a per launch basis?
Dan Hart
Let’s see, we do already have contracts that — at least one of them that we — that I can think of offhand that is quite a bit higher than where our standard pricing has been. And we’ve been seeing — we’ve seen very good progression as we proven the system.
So, whereas the initial launches that we performed were contracted four years ago. Well before we had technical feasibility, now that we have a proven system, we’re seeing pricing a respond accordingly.
And then I’ll just add that, we are focused on some key differentiated areas, like being able to be a sovereign capability for countries like some of the key areas for hypersonics, for Missile Defense, for national security and high level NASA and DoD payloads, and all of those are nice differentiated areas that also demand a premium.
Josh Sullivan
Got it. Thank you for the time.
Dan Hart
Thank you.
Operator
Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like turn the call back to Dan Hart for closing remarks.
Dan Hart
Well, I want to thank everybody for joining us today and we really look forward to continuing the journey and to getting together for our next earning call. So, thanks, everybody. Have a good day.
Operator
This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
Be the first to comment