Dear Michael, 

You preside over one of the world’s most exciting companies, both in terms of its mission and its day-to-day operations. So please forgive us for asking you to read this unexciting - but in our opinion - important letter.

There has been negative noise in the press and investment community lately, surrounding the financial precariousness of Virgin Galactic, its long road to profitability and its tumbling share price. But at the outset, we want to stress that we aren’t commentators or journalists. We are co-owners of the company, and unlike investors in Berkshire Hathaway or AstraZeneca, the vast majority of us have been led by passion first and calculation second. We share a passion for democratizing space-travel and adventure. 

It’s also crucial to acknowledge the undeniably excellent job that you and the team have done, in executing the first commercial flights safely and without a hitch. We can barely imagine the magnitude of teamwork and hustle it took to deliver those milestones, over the many years preceding the flights. 

We want to focus specifically on 3 key areas, in which we feel a change of approach could profoundly and positively affect the trajectory of the company. 

1. Please, Please - Lower the Cash-Burn

We want to submit a heartfelt plea, for you and the leadership team to cut opex costs and thus lower the cash-burn. At the time of writing, VG’s share-price is $1.7, down c70% from June this year. In spite of the c$900m on the balance sheet, there is a very present danger that the price could keep falling until the company is delisted this or next year. Ordinarily, this would not be an existential risk for a business, but VG needs at least $1bn (maybe $2bn on a bad day) to commission the delta fleet and reach profitability; without ongoing access to the public market, optionality for fundraising routes will be severely limited. 

The current burn of c$130m per quarter - in a new era of sky-high interest-rates and cash conservation for loss-making companies, is in our opinion - unsustainable. At the time of writing, the c$900m in cash and equivalents gives the company around 1.5 years of runway - assuming for only moderate ramp ups in expenditure linked to building and testing the Delta fleet. Assuming that trying to raise capital in the last 9 months of that period will be seen as a distressed raise and will lead to very punishing terms for shareholders - that leaves 8 months for the share price to climb back up to levels at which capital raises wouldn’t dilute shareholders too extremely. 

Whilst we don’t run a space-tourism company and aren’t privy to all of the information you have to hand - we do know that the company needs confidence-inspiring news to reach the market very soon, in order for it to help raise the share-price and reopen access to further capital, before it’s too late. Given the low revenue ceiling for the next 24+ months, we strongly feel that announcing a 20+% cut to quarterly expenditure would be VG’s most viable option for winning back investor confidence and hopefully instigating an upward movement in the share-price. 

We would submit the challenge - whilst the company is 2-3 years away from weekly+ spaceflights, does it need 1,100 staff? Are all of those staff members absolutely fundamental to the business needs in the near-term, whilst the annual revenue ceiling is under $15m and one spaceship is being operated? 

In the absence of a publicly available and itemized P&L, we can only piece together where the c$500m a year is being allocated. We estimate that annual staff costs may be $100-150m, and although we don’t know how much it costs to maintain and run the spacecraft, Eve, training planes etc - we have reason to believe through interactions with former and current employees, as well as through reading countless accounts on GlassDoor, that a culture of waste and excessive spending may be present within the company’s leadership team. It is difficult to conceive of how such a nascent company with such limited operations can be spending $40m a month. 

Regardless of the granular details which we aren’t party to - please, please reduce the cash-burn by over 20%. We are of the firm view that the extension to cash-runway will materially affect the likelihood of VG staying in business long enough to reach profitability, and we also feel that the mere announcement of this change could enable positive market sentiment to push the share-price back up - getting the company out of the delisting danger-zone. 

 

2. Delivering Monthly Spaceflights For The Next 2-3 Years Is Not Enough

From the outside, it appears that management is facing the market skepticism with a ‘heads down’ approach, getting on with delivering safe and reliable monthly spaceflights for the foreseeable future. It is our conviction that this simply won’t win back investor bullishness on its own, based on the cascading share-price since commercial operations commenced.  

Reaching a cadence of monthly spaceflights is frankly an incredible achievement, as we stated previously. But we request that the company simultaneously looks to deliver promising and confidence-inspiring news to the market, alongside a forthcoming decrease in expenditure. Perhaps in any of these areas: 

A partnership with a preeminent supplier or aerospace company in VG’s ecosystem, either centered around technological development for future fleet enhancements, or perhaps a more strategic partner who can expand the scope of the company’s offering in the longer term. 

Obviously this could be an impossibly tall order, but perhaps the build schedule for the first Delta ship could somehow be sped up, so that the cadence of flights and revenue could be increased sooner than expected. 

Exciting and visionary plans for an intercontinental spaceline were announced in 2020, along with a partnership with Rolls Royce. Those plans seem to have fallen out of focus, at least publicly. Section 3 of this open letter will expand on this theme, but game-changing and ambitious future plans being shared with the market, could help rebuild excitement for the business. 

Although unlikely to move the needle too much, we still wonder whether announcing high-profile customer flights could help build momentum for the company. 

3. What Is The Vision Beyond 50 Mile High Parabolic flights? 

For the avoidance of doubt - the 50 mile high flights are historic and boundlessly impressive in their own right. But us shareholders feel that there’s room for the company to position itself as a future leader in the space travel industry, beyond just 90 minute flights for entertainment and memory-making. Obviously those are the focus today, but we feel a strong sense of surprise that the company has not yet shared a roadmap towards offering a suite of space-tourism services, which could improve international travel times, send passengers into orbit or perhaps there could even be a VG space-station one day. 

We aren’t quite arrogant enough to think we can prescribe a business plan to you - the experts in this industry. But we do feel like the company could win market approval by publicly sharing a more substantial and globally exciting vision, than just operating parabolic 90 minute flights for the foreseeable future. We feel that VG has enormous potential to lead the world in the field of space-tourism for decades to come, so seeing a glimpse of how that outcome could be reached and maintained, would be fantastic for current and potential shareholders. 

All that remains is for us to thank you for reading this open letter. It was predominantly authored by Andy Shovel, who is a VG shareholder and businessperson from the UK. Also - like so many of your investors - he’s a space nut who desperately wants to see this company succeed and prosper for many years to come. 

 

Sincerely, 

Andy Shovel

(On behalf of the Virgin Galactic investors listed below.)