To the Moon? A Look at the Virgin Orbit SPAC - 7investing 7investing
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To the Moon? A Look at the Virgin Orbit SPAC

The company focuses on launching satellites into space.

August 26, 2021

Virgin Orbit being spun off as a publicly-traded company has been something that has been in the works for quite a while and now, it has been confirmed that the company will merge with NextGen Acquisition Corp II, a special purpose acquisition company that trades under the ticker NGCA. It’s important to remember that Virgin Orbit was spun off from Virgin Galactic (NYSE: SPCE) in 2017 so the two companies could both pursue different niches in the space economy.

Virgin Galactic focuses on space tourism and will eventually offer high-speed global travel. Virgin Orbitfocuses on launch solutions for small satellites and other payloads (up to 500KG). Both companies launch their spaceships by being flown by a modified Boeing (NYSE: BA) to an altitude of about 45,000 feet, then dropping it from the larger plane. It then ignites its engine in midair and travels to orbit from there.

This method offers improved efficiency compared to a standard ground-based rocket, but it does place a limit on the size of the payload the company can carry. Of course, we’re still in the very early days for Virgin Orbit as the company expects to generate $15 million revenue this year, but has targetted revenue of $2.6 billion by 2026 and expects to be positive on an EBITDA basis by 2024.

Steve Symington joined Dan Kline for the August 23 edition of “7investing Now” to take a closer look at the company.

A full transcript follows the video.

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Dan Kline: The next one we’re going to talk about is Virgin Orbit. I sort of approach this from the angle that Boeing is part of the investment group in this. But I think, Steve, let’s set the stage. What is Virgin Orbit? And sort of what is the SPAC looks like, give us a little bit of an overview here?

Steve Symington:  Yeah, so this one’s definitely piqued my interest. And for those of you who have watched the live stream before, you might recall we actually talked about the potential Virgin Orbit SPAC back in April when news first kind of broke that they were in talks with a SPAC merger vehicle called NextGen Acquisition Corp. that trades under the ticker (NASDAQ: NGCA). And today, we have that news is confirmed. So Virgin Orbit will be going public via SPAC, SPAC is an acronym for “special purpose acquisition company”. And we’ve done a couple podcasts on SPAC’s specifically, say that 10 times fast, and to help you kind of better understand the whole purpose of them, but it’s basically an alternate way to go public relative to traditional IPO.

So essentially, these are blank check companies that have been formed with the sole purpose of finding a company to merge with, to bring a previously privately held company public. It’s kind of a lower-cost way to have to go through a lot of the hoops that you need to with traditional IPO. So Virgin Orbit will be merging with NextGen Acquisition Corp. to trades under the ticker NGCA. And eventually will have its own ticker once the merger is complete, but we don’t have a timeline yet.

But right now it’s gonna value Virgin Orbit at about $3.2 billion. It will include a PIPE as well, which is a “private investment in public equity”. That’s another acronym that goes with SPACs, and part of that PIPE. They’ve dedicated, they’ve already collected $100 million in dedicated PIPE investments, including investments from Boeing. And that’s no coincidence because Virgin Orbit, they take kind of a different approach to launching.

Now, if you’re not familiar with what they do, they focus on launch solutions for small satellites and light payloads to get things into orbit. It used to be prohibitively expensive to do something like that. But Virgin Orbit can launch satellites and other small payloads up to 500 kilograms into orbit for anybody. And rather than using an upright rocket model, like some of the other competitors do. Virgin Orbit, does it in a similar fashion to Virgin Galactic, in that it attaches a rocket launcher to the bottom of a modified Boeing 747. There’s the connection with Boeing. The Boeing 747 takes about 45,000 feet drops the rocket then launches to space from there.

And it’s important to keep in mind this isn’t the same company as Virgin Galactic, it is a sister company. Virgin Orbit was actually a spinoff from Virgin Galactic back in 2017. So not the same company. They are kind of affiliated, they use similar technologies. And they believe it’s a more efficient way to launch payloads into space. So definitely an interesting, interesting space pun intended.

Dan Kline:  So let’s set the table a little bit here, you’ve got Virgin Galactic on one side that’s doing space tourism. And eventually, let’s call it super fast, not interstellar travel, New York to Australia in 45 minutes, or whatever it’s gonna be. So that’s the travel and tourism part. This is launching payloads into space, which is a more competitive area, but it’s also a more monetizable area. So this is a company that has a little bit more in the way of actual finances. Right, Steve?

Steve Symington:  Yeah, it’s a little bit farther ahead in terms of actual revenue generation. I think last quarter we saw Virgin Galactic generate $781 thousand in revenue from like a single flight that carried a NASA payload. But they haven’t started collecting actual, being able to recognize actual revenue from paying customers yet. Virgin Orbit expects about $15 million in revenue this year. And they’re targeting revenue of about $2.6 billion by 2026. Now take that with a grain of salt.  They’re basically saying, we hope to be positive on an EBITDA basis, that’s earnings before interest, taxes, depreciation, amortization, by 2024, is what they’re looking for to be basically profitable on EBITDA basis by then. They have a couple $100 million in actual contracts already. And they say that they’re pursuing opportunities worth about $2.3 billion.

So it depends on how much of that they can actually secure. It is a competitive space. But as far as, there’s kind of a lower ask, when it comes to not putting in not having to, obviously they’re going to do things as safely as possible. But it’s a little bit different dynamic when you’re dropping payloads, small payloads into orbit than when you’re dropping people.

Dan Kline:  Yeah. If things don’t go well with the payload, you don’t have to tell the payload’s wife that it’s not coming home. Like that’s, really, really important here. But these two companies, it’s important to note are tied together on a technology basis, they’re using the same rocket ship technology more or less. And look, I think if you own one, you probably need to own the other. And I think it’s also fair to say that there are a lot of SPAC’s out there that are very speculative that we know nothing about the business. And that’s not really true here. Look, a lot of things could go wrong. But arguably, this is a more mature company where some of the de-risking events have already happened. We know they can make these launches. So that’s absolutely something.


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