Virgin Galactic Holdings, Inc.

Good afternoon. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's fourth quarter and full year 2023 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, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. I will now turn the call over to Eric Cerny, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's fourth quarter and full year 2023 earnings conference call. On the call today with me are Michael Colglazier, Chief Executive Officer, Mike Moses, President of our Spaceline, Doug Ahrens, Chief Financial Officer. Following our prepared remarks, we will open the call for questions. Our press release and slide presentation that will accompany today's remarks are available on our investor relations website. Please see slide two of the presentation for 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 SEC filings made from time to time. You are cautioned not to put 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, whether as a result of new information, future events, or otherwise. Please also note that we will refer to certain non-GAAP financial information on today's call, Please refer to our earnings release for a reconciliation of these non-GAAP financial metrics. With that, I would like to turn the call over to Michael. Please go ahead.

Good afternoon, everyone. Thank you for joining us. 2023 was incredible for Virgin Galactic, as years of R&D and flight test culminated in launching our commercial space line and successfully flying back-to-back monthly space flights, each delivering an exceptional experience for our customers. Importantly, 2023 proved that each time we fly to space, we change lives for the better. And I'm incredibly proud of and thankful to our Virgin Galactic team for this successful year. Since our inception, the vision for our company has been clear and consistent to make space more accessible to people around the world and to do it in a way that's transformative and unforgettable. That vision, that dream behind Virgin Galactic came into sharp focus as we repeatedly flew Spaceship Unity in 2023. Now, in 2024, we're poised for even more meaningful accomplishments as we build the fleet of spaceships that will turn the dream into reality and long-term success. It's a new day for Virgin Galactic. We've entered phase two of our company's journey, having grown beyond our R&D and prototype roots into an engineering, manufacturing, and astronaut-driven consumer space company with an industry-defining product and customer experience. At the top of the call, I'd like to share that our Delta-class spaceships remain on track to begin ground and flight testing next year and commercial service in 2026. And our balance sheet continues to be strong, with cash, cash equivalents, and marketable securities at just under $1 billion. Turning to the agenda on slide three, I will start with a recap and overview of 2023, covering our launch of commercial operations, the incomparable life experience we are delivering to our customers, and related to that experience, the strong value and pricing opportunities we are seeing. I'll then revisit our strategy to scale the business and drive long-term growth. Because our Delta-class spaceships play a pivotal role in our future, I've asked Mike Moses, President of Virgin Galactic Spaceline, to join today's call and dive deeper into how these next-generation vehicles are being built and how they will accelerate value creation for the company. Finally, Doug will share financial results for the year and the fourth quarter, thoughts on the size of the commercial space travel market, and our growth model as we build out our spaceport operations. Following our prepared remarks, we'll open the call to your questions. With that, let's get started on slide four. We officially commenced commercial operations last year with great success, proving that we can execute as a commercial space line, flying safe, regular, and repeatable missions. We've created a customer experience that sets the industry standard for years to come. The comments from our newly minted astronauts have been overwhelmingly positive. To hear them describe it, the customer journey delivered by Virgin Galactic, from pre-flight activities and immersive training to the spaceflight itself, is perhaps the most meaningful experience of their lives. We're not only taking our customers to space and back. Our customers tell us it's an incomparable life moment, and we're seeing what's called the overview effect in action, where the experience of seeing the Earth from space literally changes you. It's a thrilling and overwhelming sensory experience to be sure, giving everyone who does it the adventure of a lifetime. But it's also the visceral realization of the vastness and the brilliance of the Earth and the enormity of the human endeavor that brought them to this point. This is a life journey and it matters like nothing else people have experienced. Because we take off and land from the same spaceport runway, our astronauts can have their family and their friends share in this journey And that is just wonderful. They watch their loved ones rocket into space, see them floating in awe above the planet, and then cheer as they gracefully glide back down to the spaceport. The reunions and the hugs are deeply emotional. Because we thoughtfully integrate family members and friends into the scheduled activities and overall experience, the days at Spaceport America become a shared experience that is completely unique and deeply meaningful for everyone involved. On slide five, for our last flight, Galactic 6, we hosted our largest crowd of friends and family since launching commercial service, and the energy was undeniable. We host this group for the benefit of our customers, but this service also enables invaluable sharing and testimonials via word of mouth, which will be of great value to the company when we reopen sales ahead of the Delta ship's arrival. In addition, many of our flown astronauts have become ambassadors for our product, which will draw more people to the adventure and discovery associated with our space flight experience. Our astronaut testimonials are very moving, and I encourage you to go listen to our more recent ones from Galactic 6 on our social channels. Since May of 2023, we brought 24 people to space, bringing Virgin Galactic's current total to 32 astronauts. This is almost 5% of human history's total number of astronauts, and we will surpass the 5% mark with our next mission, Galactic 7, later this year. All this was done with our first prototype ship, and these numbers will be dwarfed as we scale up the Delta class fleet. Everything I just discussed, how we deliver successful flights, along with the superlative customer experience, has tangibly demonstrated the appeal and the value of being a Virgin Galactic astronaut, and our experience with actual customers has reaffirmed the company's strong market opportunity. As a practical example of this market opportunity, we have sold recent openings in our manifest at a market rate that is substantially above our historical pricing. Our next spaceflight, Galactic 7, will have a blended manifest of researchers and private citizens, and we expect the revenue for that flight to exceed an average of $800,000 per seat. With a current backlog of approximately 725 future astronauts, New sails are not planned to open until we are closer to the launch of our Delta fleet. However, we have a limited number of house seats that we have made available to private astronaut referrals from our future astronaut community. We have moved the entry price point of these private astronaut seats from $450,000 to $600,000 in line with the entry level price per seat of our research flights. We believe these prices continue to reflect outstanding value for the product and lifetime experience we are delivering. And, as Doug will share in a moment, we believe there is a large and robust addressable market at these price points. Before I hand the call over to Mike and Doug, I want to clarify and reaffirm our vision and growth strategy for the company. Moving to slide six, let's start with the building blocks of our core business model. We have laid out the unit economics of a single Delta ship. With six seats, these ships can deliver a revenue per flight of $3.6 million at current pricing levels. We are targeting each Delta ship to average eight spaceflights per month, allowing for annual maintenance cycles and an appropriate amount of redundancy. We expect each spaceport will be optimized with a fleet of four to five spaceships and two motherships. This set of assets should enable a range of 300 to 400 spaceflights per year per spaceport in steady-state operation. To illustrate, a spaceport that operates 300 flights a year at $3.6 million per flight generates over $1 billion per year in revenue from the spaceflights themselves. But that's not all that we expect to have going on at a spaceport. As we've demonstrated with our early flights, witnessing a spaceflight in person is an extremely compelling experience, not only for friends and family, but also for people who are interested in space and aerospace technology in general. As we approach a flight cadence that is closer to daily than weekly, we expect many people will wish to be part of that experience. Some of those people will eventually become astronauts themselves, and some will be satisfied with being part of human spaceflight from the ground. All of them, however, will have an outstanding experience during the day at our spaceports, and this can be accomplished at prices that are much less than our spaceflights. This larger volume of attendance at our space flights is very important to the communities where we operate. On top of the high wage jobs generated directly and indirectly from our operations at the spaceport, additional jobs and positive economic impacts should flow into the community as all the people in attendance during our space flight days spend time and money within the surrounding areas. At a macro level, It is this fully utilized spaceport that is the primary economic engine for both Virgin Galactic and our communities. It will be a compelling public-private partnership that we're working to first scale up and realize at Spaceport America in New Mexico. We will then take that fully utilized spaceport model to governments and communities in other parts of the world that wish to develop a local space economy. I want to note that the upfront infrastructure we are now building for our Delta-class ships including our final assembly spaceship factory in Phoenix, is planned to support this future expansion. This is where we expect to drive excellent contribution margins, and this is where we see significant upside potential in our business model. Once our upfront infrastructure is in place, we expect to lean into the profitable expansion of our fleet. While the capital we have on hand is sufficient to bring our first two ships into service, we do expect to bring on additional growth capital to fund the assets needed, primarily additional spaceships and motherships, to expand our business at an appropriate rate. With high margins and short payback periods on additional spaceships and motherships, we forecast returns on this growth capital, when deployed, to be very attractive and value accretive to the company. Our primary effort right now, however, is to remain laser focused on completing the upfront design, build, and test work so we can launch our Delta fleet and move into cash flow positive operations. With that in mind, I'll hand the call over to Mike Moses, President of Virgin Galactic Spaceline, for an update on our Delta ships.