Virgin Galactic Holdings, Inc.

My name is Bethany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Virgin Galactic's fourth quarter and full year 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Hosting today's conference call will be Liz Calvillo of Investor Relations. As a reminder, today's call is being recorded. I would now like to turn the conference call over to Ms. Calvillo. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Virgin Galactic's fourth quarter and full year 2021 earnings conference call. On the call with me today are Michael Colglazier, Chief Executive Officer, and Doug Ahrens, Chief Financial Officer. Following prepared remarks from Michael and Doug, we will open the call for questions. Our press release was issued about an hour ago and is available on our Investor Relations website, as well as a slide presentation that will accompany today's remarks. Let me refer you to slide two of the presentation, which contains our Safe Harbor disclaimer. 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 Galactic 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 statement 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 for the most comparable GAAP measures in our earnings press release. With that, I would now like to turn the call over to Michael.

Thanks, Liz. Good afternoon, everyone. Before we start today's presentation, I'd like to acknowledge the service and support of our first chairperson, Chamath Palahapatiya. As announced last week, Chamath has stepped down as our chair and board member to focus on other public company board commitments. We've known the time will come when Chamath would move on to new initiatives, and I'm very pleased that long-term board member Evan Lovell, who is the chief investment officer of the Virgin Group, has agreed to serve as interim chair until the permanent chair has been named. Spencer Stewart has been retained to lead the search for a permanent chairperson. They've already begun the process. I'd like to thank Chamath for his vision and groundbreaking work in transitioning Virgin Galactic to a public company, and also thank him for the support and insight that he's provided me over the past two years. Evan's deep experience with the company is a tremendous asset, and I'm excited to continue our excellent partnership as he steps into the interim chair role. Turning to slide four. 2021 was an incredibly important year for Virgin Galactic that laid an essential foundation towards becoming a scaled commercial operation. I'd like to call out a few highlights. We received approval from the FAA for our full commercial launch license, marking the first time that the agency licensed a company to fly customers to space. We successfully completed two cruise space flights that demonstrated the value of our product and our unique customer experience. The enormous media and consumer response to these flights reinforced our belief that demand for space travel will outstrip supply for the foreseeable future. We began enhancements to our current vehicles to ready them for commercial service, and we initiated the design work on the next generation of our space flight system that will become the backbone of our future fleet. Today, our focus is on scaling our business in a methodical way. With regard to our current ships and near-term schedules, We remain on track and on schedule to launch commercial operations in the fourth quarter. Our vehicle enhancement program is progressing well and is expected to be completed in the third quarter. And we've opened ticket sales to the general public and expect to have our first 1,000 future astronauts signed up by the time we launch commercial service. With regards to our future fleet and medium-term business plan, we've adjusted our design and manufacturing strategy to have our internal resources primarily focused on engineering, R&D, final assembly, and test. We will then leverage partnerships within the aerospace ecosystem to develop our major sub-assemblies. We are putting into place the internal and supply chain infrastructure that will allow us to build our vehicles with high quality in a cost and time efficient fashion. We've built out our senior leadership team, and we are continuing to attract and develop outstanding talent at all levels of the organization. All of these steps affirm confidence in our business model and our ability to generate attractive flight economics. Doug will share more detail about this later during the call. Turning to slide five in today's agenda, I'll start with an update on the readiness of our current fleet and then turn to our commercial plans, followed by an update on the manufacturing strategy for our future fleet. I'll then turn the call over to Doug, who will provide a financial update and some detail about our long-term economic model. Moving to slide six in our vehicle enhancement program. As I mentioned, we remain on track and on schedule to commence commercial service later this year. We are making excellent progress on the enhancements to our mothership Eve and our spaceship Unity. As we discussed last quarter, these modifications will meaningfully improve the durability, reliability, and predictability of these current ships and enable a higher frequency flight rate for commercial service. As we shared last quarter, Eve's enhancement program focuses on three areas. modifications to the center wing and launch pylon, replacing the horizontal stabilizers, or H-stabs, located back at the vehicle, and completing upgrades to our avionics and mechanical systems, as well as strengthening various areas across the ship to reduce the volume of regular inspections. All of these modifications are designed to increase flight cadence, as well as overall service life. These three work streams on EVE are complex and interdependent. and I'm pleased to share that all three are progressing towards completion in the third quarter. The work we are doing on VSS Unity is also progressing well, and the ship is expected to be completed in the third quarter. Unity's enhancements are designed to reduce maintenance needs by reinforcing and upgrading various joints and components located throughout the ship. As with EVE, the result of these efforts will be improved flight frequency, increased time between maintenance periods, and longer service life. Subject to testing and verification, we expect a monthly turnaround time for Unity. As a reminder, we anticipate that VSS Unity will begin flying revenue-generating flights in the fourth quarter later this year. We remain on track to begin IMAGINE's commercial service in the first half of 2023. Flight testing is targeted to commence later this year, beginning with a captive carry flight. We will then move to glide flights and finally rocket-powered flights. We anticipate Imagine will begin conducting revenue-generating space flights in the first quarter of 2023, beginning with flying research payloads and then progressing to private astronaut flights alongside VSS Unity later in the year. We expect to see Unity fly monthly following its commercial launch, and we expect Imagine to fly twice per month once it finishes its flight test program. We are very excited at the prospect of delivering this level of capacity from our current ships. We are operating more efficiently. even as we absorb the continuing impacts of the pandemic and related labor disruptions. We implemented a COVID vaccine policy in Q4 of 21 that required all employees to be fully vaccinated or have a legally entitled exemption. We are pleased that 94% of our workforce at the time complied with our policy, and all new hires are also required to be in compliance. This has helped the company minimize the impacts of the virus, although we have experienced elevated sick rates as a result of the Omicron variant. as an added step to mitigate disruptions from new term labor shortages. We shifted certain non-critical work from the fourth quarter of 21 into 2022. However, we do not expect these changes to impact the completion of our enhancement program or the launch of commercial service later this year. To date, we have not encountered any critical supply chain issues, but we are monitoring this carefully as we recognize that supply chains worldwide are under pressure. We are proactively planning ahead assessing supplier health, and ordering parts and materials further in advance to help mitigate potential raw material and labor availability issues. I'd like to extend a huge thanks to all of our teammates who have been working incredibly hard under pandemic-related protocols to deliver such great progress. Turning to slide seven, I'm very pleased to share that Blair Rich has joined Virgin Galactic as our new President and Chief Business Officer for Commercial and Consumer Operations. In this newly created role, Blair will lead all aspects of our commercial strategy, including sales, marketing, business and product development, communications, operations, and customer experience. Blair brings a unique consumer-centric perspective to our company with an incredible blend of business, digital, and creative experience that she honed working with some of the most iconic brands in the entertainment industry. For the past year, she has served as a consultant and strategic advisor to Virgin Galactic, including guiding the marketing for the Unity 22 flight, which is viewed by tens of millions of people around the world. Blair will continue to play a critically important role in shaping our commercial strategy and enhancing our customer experience ahead of our commercial launch. With Blair's appointment, this rounds out our senior leadership team and ensures that we have deep expertise across all our key areas. Turning to slide eight, Last week, we launched our consumer brand and opened a limited number of space flight tickets to the general public, and we plan to have our first 1,000 customers signed up in advance of the launch of our commercial operations later this year. Given the robust response from our space fairs and early hand raisers, we have approximately 250 seats remaining, and demand through our direct sales channel is strong. As a reminder, we hold a $150,000 deposit against the total cost of $450,000. $25,000 of which is a non-refundable membership fee. Following the closure of our first 1,000 astronaut window, we will build a highly qualified reservation pipeline of future customers through a priority list with a $10,000 deposit required to join. We expect to leverage earned in digital media as well as word-of-mouth referrals from our ongoing flights to continuously supply the top of the funnel with new prospects which we can then efficiently filter using our CRM tools and sales processes. Turning to slide nine and our future astronaut membership. Membership is included with ticket purchase, which adds additional appeal for customers and highlights our unique experience and service, distinguishing Virgin Galactic's offering in the industry. Future astronaut community members enjoy access to Money Can't Buy experiences, events, trips, and activities around the world, all delivered with trademark Virgin styles. We provide opportunities to connect directly with the Virgin Galactic team, offering members deeper knowledge of our aerospace, flight, and engineering programs. Customers also gain exclusive access to Spaceport America, enjoy parabolic flights, centrifuge training, and VIP attendance at launches, to name just a few of the benefits. Trips will include memorable opportunities, like the inaugural Space for the Curious Summit that we will be hosting later this year, a multi-day destination experience It's both intellectually engaging and entertaining. Past events have taken members to locations including Antarctica and Idaho to view the solar eclipse and the world-renowned Necker Island. This membership program builds engagement from the minute of purchase through the space flight, and we expect the high affinity that comes from these members to translate into repeat visitation, numerous referrals, and extensive lifetime customer value. Turning to slide 10 and the manufacturing strategy for our future fleet. While three human space flights per month from our current ships is an impressive task, we seek to open space to a much larger audience, and this requires a larger fleet capable of flying at much higher flight rates. In the past several months, we have spent a significant amount of time redesigning our manufacturing approach, and I'd like to outline how this will enable us to scale our operations and maximize efficiencies. Our current ships, Unity, Imagine, and EVE, have primarily been delivered in a fully in-house design, manufacturing, and assembly environment. This approach has been critical during our flight test phase, although it is a relatively slow and expensive process. As we step forward into higher rate commercial service, we will be augmenting our capabilities with strategically selected tier one suppliers to deliver major sub-assemblies in a cost and time efficient manner. This is particularly important for Delta-class spaceship and next-generation mothership programs. Our approach takes advantage of the nationwide aerospace ecosystem to tap into talented pre-existing pools of labor and optimize timing of capital expenditures. It also focuses our in-house expertise on design and engineering, final assembly, and fabrication of complex and critical parts that are all important elements of our intellectual property. Overall, we expect that this will provide us with a cost-effective and highly efficient manufacturing model for building out our Delta fleet and future motherships. As I mentioned on our last earnings call, we've established a new engineering, design, and corporate headquarters based in the strong aerospace corridor that runs from El Segundo to San Diego. This serves as our primary hub for R&D and the design of our new vehicles. We are currently focused on evolving the designs of our spaceship and mothership to enable greater flight cadence, as well as to support third-party supply of major sub-assemblies. It's an excellent location for innovation and collaboration, and we continue to ramp up engineering and support team talent at this location. We are also progressing designs and choice of locations for a new final assembly facility for our spaceships. We expect this final assembly facility to be operational in late 2023, and it will eventually employ hundreds of technicians and engineers. with production capability of up to six spaceships a year. Similar to our approach with the Delta-class spaceships, where we focus on the upfront design and engineering, as well as final assembly, we are in the late stages of negotiation with preferred suppliers to manufacture the next generation of our motherships. We believe that leveraging strategic partners to build these major sub-assemblies will allow us to increase our speed to market and realize meaningful efficiencies without sacrificing quality or performance. Turning to slide 11, I will now turn the call over to Doug for an update on our financials.