Virgin Galactic Holdings, Inc.

Good afternoon, my name is and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's first quarter 2024 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, and if you would like to ask a question during this time, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 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 first quarter 2024 earnings conference call. On the call with me today are Michael Colglazier, Chief Executive Officer, and 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 now turn the call over to Michael.

Thanks, Eric, and good afternoon, everyone. On slide three, you'll see the agenda for today. I'll share several updates about our commercial space line and the progress we're making toward our long-term business objectives. On the immediate horizon is our next space flight, Galactic 7, scheduled for June 8th. Galactic 7 will be our last commercial flight with VSS Unity, and this will mark an important turning point for Virgin Galactic, and the space flight will be a celebratory moment as we reflect on the many successes of our pathfinding first commercial spaceship. The learnings we have built over our last seven spaceflights have enormously benefited our spaceship designs. In addition, we have also learned a great deal about the performance of our mothership, VMS Eve, which has been an incredible asset for the company following the ship's major enhancement program that was completed in 2023. One of the many benefits of using a specialized airplane for our first stage of spaceflight This is the frequency of flight operations that can be achieved with an aircraft versus a liquid rocket booster. Using flight and engineering data from EVE's service history, our technical operation teams are developing a targeted maintenance plan and operations schedule for EVE. And I'm pleased to share that we now expect VMS EVE to support three space missions per week, a 50% increase over prior base case estimations. This is fantastic news. We expect Eve and our first two Delta ships will be able to execute approximately 125 space flights, carrying 750 or so astronauts to space each year. To put that in perspective, Eve and the first two Delta ships will bring more people to space in a single year than the total number of astronauts who have ever journeyed to space to date. Economically, that equates to roughly $450 million in annualized revenue within the first 12 months following entry into commercial service. Of course, those numbers are expected to grow substantially as we scale our operations by adding new ships and expand across multiple spaceports. During today's call, I'll ask Doug Ahrens, our Chief Financial Officer, to shed more light on our financial operating model, giving you a sense of what our economics are estimated to look like with the initial rollout of our first two Delta ships and in the years to follow. With that, let's get started on slide four. At Virgin Galactic, nothing is more exciting than seeing a spaceflight in action and witnessing the incredible impact that the journey to space has on our astronauts and their families. On June 8th, we will again watch Unity soar above the planet from Spaceport America, this time with a blended manifest of research and private astronauts. This will be our seventh commercial flight and our 12th space flight overall. A research astronaut on board will conduct several human-tended experiments, and we will also have several autonomous rack-mounted payloads on board in connection with NASA's Flight Opportunities Program and academic institutions. Three private astronauts will also join this flight, two from the U.S. and one from Italy. Given the blended nature of this particular manifest, Galactic 7 is expected to realize an average per seat price of over $800,000, the highest of our commercial flights flown to date. The value of our space flights for our customers is enormous, and we are seeing ongoing strength in our pricing, which we expect will continue as we introduce the Delta ships and grow the business. When we see Unity fly next month, it will be a very exciting and proud moment. Unity has helped to revolutionize commercial human spaceflight and has served Virgin Galactic incredibly well, demonstrating the safety and repeatability of our spaceflight system while informing the design of our next-generation ships. Unity will continue to play a role in training, and the ship will reside at Spaceport America to commemorate its historic role in commercial space travel. As you know, Unity reached the point where it was turning monthly, completing six spaceflights in six months last year. a significant accomplishment for our Pathfinder spaceship. At the same time, we have always known that VMS Eve, a specialized airplane, is able to turn much faster. One of the great advantages of our space flight system is this combination of carrier airplane and mated spaceship. In addition to providing the benefit of a runway takeoff and landing, the mothership design enables the efficient turnaround capabilities of an aircraft. As we've put our mothership through the paces with regular flights and inspections, EVE has performed brilliantly. As I mentioned at the opening, our technical operations team, using flight and engineering data from EVE's service history, are developing a targeted maintenance plan and operations schedule that supports three space missions per week, a 50% increase over our prior base case estimations. The third flight per week will prove highly beneficial to our business model when we resume commercial service. With the launch of just our first two Delta ships, we expect to operate a robust and meaningful business with positive operating cash flow. This is why we have prioritized the cash we already have on hand to bring these ships into service. On a related note, EVE's impressive flight capacity will also serve us well with our next generation mothership program. As we stated last year, We resequenced the next mothership program to better manage our capital and spending levels in the near term, and we are continuing to exercise that optionality. We've been pleased with our development approach to our Delta spaceships, where Virgin Galactic maintains design authority and leverages the manufacturing and engineering expertise of a few key industry partners. We expect to follow a similar approach with our next mothership program, and we will be shifting our engineering talent towards our next mothership design following the conclusion this summer of the bulk of our Delta spaceship design. As we balance our desire for rapid growth with our spending pace ahead of meaningful revenue, we will target 2028 for delivery of the first of our next-gen motherships. This timing enables us to manage our existing capital confidently, which in turn sets us up for long-term success. Importantly, our growth strategy remains the same. to scale our commercial space travel business, first by adding ships to our fleet in New Mexico, and then expanding to additional spaceports in excellent locations around the globe. Turning to slide five, let's talk about progress and tangible milestones we're hitting within our Delta program. As you can see in the chart on slide five, there are multiple phases to our Delta program, beginning with design, then moving to tooling, parts fabrication, subassemblies, final assemblies, and then on to flight test and commercial service. While sequential, these phases have purposeful overlap throughout the development process. Currently, we are working through the latter part of our design phase, which we expect to wrap up this summer. Along the way, as designs of individual parts are completed, we have been releasing those designs to begin development of the tools that will be used in the parts fabrication process. As those initial tools are completed and delivered, our partners at Bell and Carbon are able to start fabricating parts, and they are beginning to accumulate the components that will be necessary for their respective sub-assemblies. The images on slide six show some of the tools that have been delivered or are in development, as well as an example of what a finished part looks like within its tooling. This particular part is a door for the landing gear within the wing. Tool delivery and parts fabrication are beginning to accelerate as we work to complete the bulk of the design phase this summer and move more fully into the build phase. Most of you know that Bell is supplying the unique feathering system and flight control surfaces for Delta, while Carbon is producing the fuselage and wing components. I met recently with teams from both companies, and I am excited about the emphasis that they put on quality and performance of these key components while aligning with our overall production schedule. In parallel with design, tooling, and parts fabrication, we have been building out the facilities needed for both our test assets and our final assembly factory. The facility in Phoenix that will house our final assembly operation is nearing completion, seen here on slide seven. We expect to take occupancy of the building this summer, and we'll begin setting up the factory floor for assembly and developing our training tools and processes in preparation for the final assembly stage in the first half of 2025. Also on slide 7, you can see the mock-up of our cabin interior for Delta, which we are using to confirm human factors in addition to fit and finish. We have a host of upgrades we are adding to our Delta cabin interiors, and we're looking forward to revealing the full interior design and functionality later this year. You've heard us talk about our test asset called the Ironbird. and the design of the full build out of this system is shown on slide 8. We recently opened the test facility that houses this Ironbird system and it's up and running in Irvine near our Southern California headquarters. The Ironbird allows us to test and verify the operation of dozens of Delta subsystems including avionics, feather actuation and pneumatics on the ground and in parallel to the assembly of our ships. Again, The purpose of this system is to provide the widest possible scope of ground testing prior to performing flight tests, making flight tests more streamlined and efficient. Turning to slide nine regarding schedule, our overall plan remains intact, with commercial service expected to begin with our first two Delta ships in 2026. Sharing some color underneath the macro timeline, we have been adapting our detailed schedule to take advantage of opportunities and to react to sub-elements of the plan that need more time for completion. As with most large aerospace programs, we find schedule improvement opportunities while also identifying elements that are extending beyond their originally allotted time durations, and we work to integrate both of these into the overall plan. The key with regard to schedule is to adapt the sequencing and application of resources to ensure the critical path of the program remains on track. At a tactical level, we are realizing schedule improvements in the final assembly timelines as we compare our detailed build plan activities versus our initial estimates. Our final assembly process for Delta is much different and improved versus our prototype work with Unity and Imagine, and we are seeing the benefits of our digital thread approach and manufacturing strategy with Bell and Carbon. While the build planning has been positive for our schedule, we have had elements within our design phase extend longer. Net-net, the benefits we have found and the time extensions we have realized have bounced out, and our overall program schedule remains intact, with schedule contingencies and buffers still in place to handle unexpected items that will surely arise over the course of the upcoming work. Our team at Virgin Galactic and our partners at Bell and Carbon are all committed to the success of the program, and the collaboration between the groups as we work through the typical ups and downs of a complex program have been great to witness. I'll now turn the call over to Doug so we can share more detail about the financial operating model and how our first two Delta ships have a meaningful impact on our business in the near term, generating strong operating cash flows even before we fully build out our fleet in New Mexico or expand to additional spaceports.