Virgin Galactic Holdings, Inc.

Thank you, and good afternoon, everyone. Welcome to Virgin Galactic's third quarter 2020 earnings conference call. On the call with me today are Michael Colglazier, Chief Executive Officer, Mike Moses, President, Space Missions and Safety, and John Campagna, Chief Financial Officer, who will provide prepared remarks. Earlier today, we issued a press release and made a slide presentation available on our investor relations website, which provides an overview of our business and financial highlights for the third quarter 2020. During today's call, we will make certain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions, and as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this communication. For more information about the factors that may cause actual results to maturely differ from forward-looking statements, please refer to the earnings press release we issued today and other documents filed by Virgin Galactic from time to time with the Securities and Exchange Commission, including those risks and uncertainties included in the risk factors section of our Form 10-Q for the third quarter of 2020. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements. Please also note that we will refer to certain non-GAAP financial information on today's call. You can find reconciliations of these non-GAAP financial measures to the most comparable GAAP measures in our earnings press release issued earlier today, which is available on the investor relations section of our website at virgingalactic.com. With that, I'd like to turn the call over to Michael Colglazier.

Thanks, Michelle, and good afternoon, everyone. I hope you and your loved ones are keeping healthy and safe. When I last spoke with you, I was two weeks into the job, and over the last three months, I've immersed myself in the company's engineering, operations, brand, commercial, and financial areas, and I'm well underway in getting to know our incredibly talented team members. Let me start this call by saying that the exposure I've gained in just three short months has caused my excitement to far exceed my expectations for when I've joined. I'll start today with a brief recap of our Q3 accomplishments, and an update of how we are working within the constraints of the COVID-19 pandemic. And then I'd like to give you a glimpse into some of the key insights and observations that I've had in my first 100 days. I'll then ask Mike Moses to share an update on our upcoming flights and a review of our flight test program, which I know many of you are eager to hear about. We'll talk about progress with our second spaceship, and then I'll share initial thoughts on our commercial plans and provide an update on reopening sales. After that, John will provide detail regarding our Q3 financial performance. With that, let's get started with a summary of our Q3 accomplishments beginning on slide four. Despite the challenges brought on by the pandemic, we accomplished many milestones this quarter across the company. We made good progress preparing our space flight system for our fall flight, including completion of data analysis that followed the June 25th glide flight, and installing the cabin camera system and the hardware needed to provide live video downlink. We completed build-out of the astronaut exclusive training facility at Spaceport America, and we also made solid progress on our second spaceship in preparation for rollout, including application of the thermal protection system on the wing and the fuselage, progress on systems installation, and successful completion of pilot simulator evaluations. I'll share more about our second spaceship later in the call. We continue to advance our efforts around high-speed, point-to-point travel in Q3, and I'm very excited by the team's early work and also by the long-term market opportunity within the hypersonic space. While we won't be covering high-speed during this earnings call, we will accumulate our progress and bring a deeper dive discussion to one of our future earnings calls. Turning to slide five, I'd like to speak to some of the impacts we are continuing to experience on our operations and our fleet production and a few others. As you might imagine, building spaceships during a pandemic is materially less efficient than normal. Our team members, though, have been simply incredible, and everyone has stepped up to continue progress on our key initiatives while working under stringent COVID protocols. Many tasks involved in building spaceships require close-quarters work, including inspection and maintenance tasks on our first spaceship and mothership. and installation of systems in our second ship. This type of close-in work is still progressing, albeit slower than expected. Our team members have moved to staggered shifts to lower density, and we have reworked communications processes with engineers who are primarily working from home. While it continues to be difficult to quantify the full impact to our overall flight test We are still experiencing schedule and cost inefficiencies, and we expect these to continue into 2021. Despite the pandemic, our team has managed to keep our fall flight on track, which has been really inspiring to watch. There's tremendous dedication to our mission, and I'd like to take this moment to thank all of them for their commitment and their efforts. Turning to slide six, as I said up front, after 100 days of learning, I am incredibly excited about the growth potential of this company, and I'd like to tell you why. To start, we have three incredible assets. Our space flight system, meaning our spaceship, the hybrid rocket motor, and our mothership, is one of a kind. It is first and foremost designed for safety. It is elegant, beautiful, thrilling, and unique. And it is built for the express purpose of providing a transformative experience for our customers. Asset number two is our intellectual property. We have built an incredible economic moat of experience, data, and knowledge that's been accumulated over 15 years of developing our system. And asset number three is our talent. We have an incredibly diverse and talented team of people who've come together for this shared purpose. The second reason I'm excited is that the transformational experience we are creating is just so over the top fantastic. As you'd expect, I'm looking forward to bringing some of the creative development approaches that I learned in my prior roles to build in even more value as an incomparable experience can support our pricing strategies over time. And third, I'm excited about our strategy to monetize and scale this business. After 15 years of development and testing, we are at the cusp of achieving technological feasibility, and this marks an inflection point in the company's journey. Turning to slide seven, the first chapter of Virgin Galactic has been to accomplish an incredibly difficult task, creating a space flight system that can fly humans to space, give them a gift of a changed perspective, and then bring them safely home. We are close to completing this task, and the team has done an incredible job to bring us to this point. The next chapter of Virgin Galactic is to use this system to bring thousands and thousands of people to space. and deliver our purpose of opening space to change the world for good. At a recent objective, we are embarking on a multi-year effort that will lead to flying not once a month or even once a week, but targets flying 400 flights per year per spaceport. I am very bullish on the transformational experience that we intend to deliver and the price points we believe we could command for this one-of-a-kind, supply-constrained product. The approach we are taking suggests we could generate meaningful revenues of a billion dollars a year per spaceport. And a fully utilized spaceport can create an incredibly powerful economic engine, an engine that will come first to New Mexico, but also an engine that should have great appeal across other locations in the world. If you turn to slide 8, to accomplish this, we must refine the organization to shift from R&D to production. I mentioned before that we have some amazing world-class talent in this organization, and we have already begun to assign individuals to key roles as we make this shift. On this page is a group of fantastic leaders who will be playing important roles in our next chapter. One example is Tom Pugh, our Senior VP of Programs and Engineering. Tom came to us following a 32-year career at Lockheed Martin Advanced Development Programs. Tom started his career at Skunk Works supporting the SR-71 Blackbird, and he played a part in many programs, including the F-117 and the F-22, along with other initiatives. Tom and the other great team members on this page are only a small slice of the extraordinary people we have across all levels of the company. As we set the organization up for growth and scale, I expect to see us recruit additional talent to play key roles in our next chapter. and we will also become a great stepping off point for people's careers as Virgin Galactic has long been an incubator of talent for early stage innovative companies. Turning to slide nine, this image captures our space flight system shortly after launch in New Mexico. Enabling this to happen 400 times a year per spaceport is a multi-year objective that accelerates now. As part of the transition from R&D to production, Thank you for joining us. I am incredibly excited to now be taking Virgin Galactic on a similar path at this inflection point in the company's journey. With that said, our immediate focus is to complete our flight test program and get to a commercial operation. Turning to slide 10, as we said last quarter, our plan is to fly our first space flight from New Mexico this fall with two pilots. We would then continue our flight testing with a second rocket-powered flight with a full cabin of mission specialists in addition to our pilots. Once analysis of that flight is completed, we will follow with a third rocket-powered test flight that would include our founder, Sir Richard Branson. Richard's flight will be a momentous occasion and will provide us with important feedback on the cabin design and the astronaut experience. At this stage, we are on track for each of these flights. As always, our progress towards the next flight depends on the results of detailed reviews of our prior flights, and our engineers may recommend conducting additional test flights. For our fall flight, I am pleased to announce that we have entered our final flight preparation phase, and we expect to launch from Spaceport America between November 19 and November 23. We have a number of activities to complete between now and then, which could cause slight adjustments to the specific date, and as with any spaceflight, there are a number of external factors, such as weather, that could also impact our launch date. We are extremely excited about this flight. It will mark the first human spaceflight ever to depart from the state of New Mexico, and this is a huge milestone for the people of the state which has built the world's first commercial spaceport. I'd like to ask Mike Moses, our President of Space Missions and Safety, to share more about this upcoming flight.

Thanks, Michael. Since our last powered flight to space, we have relocated our teams to New Mexico, and we have integrated our operations with the local agencies here, New Mexico Spaceport Authority, White Sands Missile Range, FAA Albuquerque Center, and several other New Mexico state agencies. We have also flown two successful glide flights as part of our testing program. During this time, we have made several planned upgrades to our spaceship, VSS Unity. In our current development and test phase, a big part of what we do on these flights is assess any modifications and changes that may be required to optimize the vehicles for operations, customer experience, and of course, safety. One of the upgrades we made is in the passenger cabin. As you saw with our cabin reveal in quarter three, we have put significant work into the interior design. We've installed the crucial elements of that cabin in preparation for the full testing of the customer experience in our upcoming quarter one flights. On our upcoming November flight, we will test the new cabin hardware, including our reclining seats with test mannequins strapped in the seats. We will also test the full complement of cabin cameras and downlink hardware, which will allow us to assess our capacity to live stream future flights. This upcoming November flight will also include test points to continue evaluation of our upgraded horizontal stabilizers and flight control system. The horizontal stabilizers, also known as HDABs, are the flight control surfaces on the outboard side of the feather booms. We've made improvements to these surfaces as well as upgrading the flight control system that drives them. This system was already in development for future spaceships and is now installed in Unity. These changes will increase performance during the boost phase of flight. Both the H-STABs and the flight control system have been extensively tested on the ground, as well as in previous two glide flights here from Spaceport America. And now we plan to verify their performance during this next rocket-powered flight. Another key feature of our November flight is that the cabin will be outfitted with four payload racks. Three of these will carry NASA payloads. as part of NASA's Flight Opportunities Program, making this a revenue-generating flight. Carrying payloads means our pilots will be flying the vehicle slightly differently to how they would fly the vehicle with future astronauts on board. Once in space, we will pitch the vehicle 270 degrees following boost to get into the reentry attitude as soon as possible. This maneuver will maximize time for payloads to remain in zero-gravity data collection mode. I'd like to point out here that a great part of our system is that it is pilot flown, as this allows us to fly different mission profiles and to more specifically meet the needs of our different customer markets. In addition to the NASA payloads, for the first time, we are enabling our team members to include small personal items as a payload that will fly to space on their behalf. It takes our entire company pulling together to achieve our mission, and this is a wonderful opportunity to share this momentous occasion with them. Finally, this next flight will also contribute to our current FAA commercial license. As we said on our last earnings call, we need data from a rocket-powered flight to complete the final two verification and validation elements that are required by the FAA under our current commercial spaceflight license. Back to you, Michael. Thanks, Mike.