Good afternoon. My name is Christina and I will be your conference operator today. At this time, I would like to welcome everyone to the Virgin Galactic’s Third 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. Thank you. I'll now turn the call over to Eric Cerny, Vice President of Investor Relations. Sir, the floor is now yours.

Thank you. Good afternoon, everyone. Welcome to Virgin Galactic’s third 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 risk and uncertainties. Many factors could cause actual events to differ materially from 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 now.

Thanks, Eric. We've had a powerful and productive quarter at Virgin Galactic. I'll leave with three main points to open the call. First, and as planned, we've moved into the build phase of our spaceship program. This is the phase when we are building tools, fabricating parts, and assembling the spaceships. I have to give a shout-out to our engineering teams whose tireless work has successfully elevated our prototype spaceship to a true production model. We now have a spaceship design that can be manufactured efficiently and maintained effectively with enormous improvements in reusability and turnaround time while keeping safety above all. We are hyper-focused on the critical path of the build phase. Working in close coordination with our partners at Bell Textron and Qarbon Aerospace, our spaceship program remains on track to begin commercial operations in 2026. Second, we are directing our efforts towards the next phase of growth by expanding our fleet beyond our first two spaceships. We have an exciting opportunity to capture economies of scale from our existing investments. The non-recurring investments we have made in design engineering and manufacturing infrastructure allow additional spaceships to be built relatively quickly and cost-effectively. This enables a straightforward path to add a third and a fourth spaceship at Spaceport America. Taking advantage of the flight capacity provided by a third and fourth spaceship requires the addition of a second mothership. With the strong progress made on the Delta program, we now have the engineering capacity to pick up the design work on a second mothership. This additional mothership and two additional spaceships are the keys to unlocking substantial economic expansion. Third, with confidence in our customer experience and clarity in our business model, we plan to accelerate this economic expansion through the targeted use of growth capital. While our existing capital on hand is projected to be sufficient to bring our first two spaceships into service and drive positive operating cash flow, a two-spaceship operation does not capture the full economic potential of a spaceport. The growth capital we plan to employ will allow Virgin Galactic to deliver a second mothership and two additional spaceships much earlier than if we were to fund these ships solely through organic growth. Our strong cash position gives us flexibility in timing and pace of acquiring this growth capital, and this allows us to make prudent progress on fleet expansion, while maintaining continuous strength in our balance sheet. Importantly, the expanded fleet enabled with this growth capital creates an economic engine for Virgin Galactic. While we may adjust our capital structure from time-to-time, we expect the cash generated by this economic engine will be sufficient to fund operations going forward, including further fleet buildup and expansion to additional spaceports. With that, let's get started on slide three with the agenda for today's call. I'll share visibility into the progress, challenges, and solutions that have shaped our spaceship program during the quarter. We'll then revisit our business model and growth strategy, which sets the stage for our fleet buildout and the launch of our second generation mothership program. Doug will then cover our financial results from the quarter, including how we're thinking about growth capital to optimize our revenue and profit growth. As I shared in the opening, we are well into the building phase of our spaceship program, with tools being completed and parts beginning to be produced. Our near and medium-term milestones remain the same as we shared last quarter. As a reminder, we expect part fabrication will continue ramping up in Q4. Assembly of the spaceships in Phoenix is expected to commence in Q1 of 2025, with the rollout and testing of our first ship expected in the second half of 2025. Since our last call, we have refined our schedules to include day-by-day management of tool deliveries, parts fabrication, and the build assembly sequence. As I shared at the opening, we expect to launch commercial operations in 2026. We are well through the majority of the non-recurring engineering investment, also known as NRE, associated with our Delta spaceship program. Engineering design and manufacturing facilities comprise the largest part of NRE, but the tools used to make the parts for our spaceships are also a large non-recurring item. These high-quality tools will enable us to quickly fabricate the parts for future spaceships with the full cost of an incremental spaceship estimated at $50 million to $60 million per ship. Page four shows examples of completed tools that are being used to create carbon fiber parts for our spaceships. Our tools are made with a material known as INVAR, a nickel-iron alloy which provides the gold standard in delivering precision parts time-after-time. Moving to page five. Our testing work will continue throughout the duration of our spaceship program, and this effort is also well underway. The Learjet shown here is owned by CalSpan, a company well known in flight test circles for testing fly-by-wire configurations in advance of actual flight testing. Working with CalSpan, our engineers and spaceship pilots are able to assess flight control software on a flying test bed prior to the first flight of our Delta spaceship. This is one of many ways we are able to test critical parts of our system well in advance of our first spaceship flight test. Turning to page six, we are ramping our hiring in the Phoenix Mesa area this quarter in advance of the spaceship assembly work in early 2025. Hiring emphasis is on AMP mechanics, manufacturing engineers, quality inspectors, and other key personnel to augment our experienced teammates, who have relocated to Phoenix. Many of our highly experienced maintenance and technical operations teammates from New Mexico will also be joining the team in Phoenix for the building of our first two ships, after which they will return with the ships to Spaceport America to support flight tests and commercial operations. We are all excited as our spaceship factory comes alive. Moving to page seven. Earlier today, we released a short video to give a glimpse into the exciting work that is happening at our partner facilities as major tools continue to arrive and parts fabrication ramps up. As we expected in a project of this scale, complexity in the manufacturing of certain parts can often lead to design revisions and the overall design process can take longer to complete than originally expected. Working with Bell and Qarbon, who in turn are working with their suppliers, we have identified and implemented opportunities to reduce the impact of these design extensions. Together, we have been able to re-sequence elements within our build planning to maintain overall program momentum and delivery within our expected timelines. In summary, lots of great work underway with our spaceship program, moving forward as planned and on track for commercial service in 2026. Turning to slide eight, I want to add more context around our strategy for growth. Last quarter, we shared a video describing our business model, and page eight shows a copy of the economic slides that we highlighted in that presentation. Many of the costs required to operate a spaceport are fixed or semi-variable, and you can see this in the difference between the initial fleet and the expanded fleet columns. This provides an excellent opportunity to drive economies of scale as we expand the number of ships in our fleet. The non-recurring investments we have made in our Delta Spaceship Program allow us to cost-effectively deliver a third and fourth spaceship. Unlocking the profitability of those spaceships requires an additional mothership to support them. So turning to slide nine, with the strong progress we have made in our Delta program, we now have the engineering capacity to restart work on our second mothership. This second-generation mothership will look and perform similarly to our current mothership Eve, which has performed well for us following an extensive modification in 2022. The bar at the top of this slide provides an illustrative look at the schedule for our next mothership. Spending is expected to be limited through most of 2025 as we complete our design efforts, with commitments increasing as we approach the build phase of the mothership in 2026. We expect the pace of the second-generation mothership to pick up as resources are released from the Delta Spaceship Program. I'll hand the call over to Doug to share the quarterly update and explain more about our growth plan.

Thanks, Michael. Turning to slide 10, revenue for the quarter was $402,000 driven by future astronaut membership fees. Total operating expenses were $82 million, compared to $116 million in the prior year period, primarily driven by lower R&D and SG&A expenses. Capital expenditures for the quarter were $39 million, compared to $13 million in the prior year period as we ramped up investment in property, plant, and equipment related to the development of our Delta Class fleet. Free cash flow was negative $118 million in the third quarter, compared to negative $105 million in the same period last year. Turning to slide 11, our balance sheet remains strong with $744 million in cash, cash equivalents, and marketable securities. Moving to our projections, forecasted free cash flow for the fourth quarter of 2024 is expected to be in the range of negative $115 million to $125 million. While we typically have not provided a multi-quarter outlook for free cash flow, we think providing additional color on the free cash flow profile for 2025 is helpful. As we are now in the build phase of the Delta Spaceship Program, we project an uptick in spending in Q1 2025 as we reach the peak of payments for tools and parts. With these capital investments behind us, costs are expected to be meaningfully reduced through the remainder of 2025, so we progress through assembly and tests of our new spaceships. The lower spending trend contributes to the delivery of our initial fleet of two new Delta spaceships into service with the capital we currently have. These ships are expected to generate positive operating cash flow, which can be used to organically expand our fleet. While this is good, substantially greater returns can be achieved by accelerating the development of our expanded fleet. As Michael described, with the addition of another mothership plus Deltas 3 and 4, we expect to double our revenue, while quadrupling EBITDA by leveraging our fixed cost base at Spaceport America in New Mexico. Relative to the pace at which we can expand our fleet organically by utilizing future cash flow from operations, we see a tremendous opportunity to accelerate revenue and profit with an infusion of growth capital. With targeted investments in a new mothership and two more spaceships, we project that the additional growth capital would enable us to achieve a fully utilized spaceport in 2028, at least two years earlier than we would otherwise. From there, our first fully utilized spaceport becomes the economic engine that generates more than enough cash flow to expand to other spaceports around the globe. We foresee that the right amount of growth capital to achieve the above goals while also maintaining appropriate cushion on the balance sheet at all times is $300 million. Our strong cash position gives us flexibility in timing and pace of acquiring this growth capital, and this allows us to make prudent progress on fleet expansion while maintaining continuous strength in our balance sheet. Furthermore, the value that can be created with this remaining growth capital is expected to far outweigh the cost of that capital. We could go slower and not raise the growth capital, but that would delay EBITDA expansion and the significant value that EBITDA expansion represents. To wrap up, we are excited with the progress made on the Delta Spaceship Program. Building upon this foundation, we are now looking to capture the profit that can come from a fully utilized spaceport, paving the way for further self-sustaining global expansion. Back to you, Michael.

Thanks, Doug. We're pleased with our progress with our Delta Spaceship Program, as well as our plans to accelerate the growth of Virgin Galactic. Q4 will bring more milestones for the Delta program as we prepare to assemble the first two spaceships next year. We're excited to advance our growth strategy and start the design process of our second mothership. So, operator, let's open the call for questions.

Thank you. Thank you, and your first question comes from the line of Matt Akers of Wells Fargo. Your line is open.

Yes, hey, good afternoon, guys. Thanks for the question. I was wondering, what's your latest thinking on sort of reopening ticket sales, given, you know, Spaceship 3 and 4 sounds like we'll open up quite a bit of additional capacity? Just curious how you think about sort of the phasing of when you might sell tickets for those?

Thanks, Matt. I think you'll see us opening ticket sales when we are probably within a year or less of flying private citizens on our Delta ships. So somewhere towards the back half of 2025 is when that's most likely to be there. And the reason, as we shared before, we want to hold, right now we want to make sure we're taking advantage of yielding. We have a business that we expect is quite supply constrained relative to demand. And we think it's appropriate to have people generally with a two-year time window from the time they sign on board, building up the journey and then going ahead and letting them come to New Mexico for the week of training before flight. Once we get out in front of two years, it's not as beneficial. And so that's a good sense of timing for us.

Got it. Thank you. I have a question regarding any potential additional equity issuance as you pursue this mothership initiative. I know you've mentioned the flexibility in how quickly you want to accelerate, but do you anticipate more equity issuance related to that program given the current situation? Additionally, is there a minimum cash balance you believe is necessary on the balance sheet moving forward?

Yes, this is Doug. Thanks for the question. So we talked about growth capital. And to put that in perspective, we've described how we have enough cash on the balance sheet today to get the first two Deltas into service and become cash flow positive. There's an opportunity to bring in growth capital along the way to accelerate the growth. And that would be really targeted at a second mothership and a couple more Deltas to round out the fleet in Spaceport America. So we see this big opportunity to go forward with that because it brings in the economies of scale and we had an economic chart in here that shows the magnitude of that with the extra vehicles in our fleet, another mothership and two more spaceships, we can double our revenue and quadruple our EBITDA. So we're very interested in pursuing that and that's available because we have a fixed cost base and the more volume we have and the more often we fly, the more leverage we get that goes to the bottom line. So we don't have an immediate need to bring in that growth capital, but we do see the opportunity to do that ahead of any vehicle investment. So we have the mothership ready by 2028 is the timeline we're targeting and also to ensure we always have a strong balance sheet along the way. So there's no minimum cash balance that we're putting out there, but the growth capital we mentioned is more than enough to support all of our needs for growth and also keep the values strong.

Okay, great thank you.

Your next question comes from the line of Oliver Chen from TD Cowen. Your line is open.

Hi Michael and Doug. We're in quite a dynamic environment. What are your thoughts around the potential for tariffs and anything we should know as you think about sourcing as that may add some risk to the production? And then as we think about your partners, how's everything going with your manufacturing partners, Bell Textron, and Qarbon, any thoughts there? And then on the marketing side and just keeping engagement up, it sounds like everything's going really well as planned? What's on your mind in terms of the consumer engagement and marketing during this period and key priorities you have there?

Thank you, Oliver. In terms of potential tariffs or other future issues, our supply chain is quite insulated. Most of our operations are based in the United States, and we source everything locally. Our suppliers are all located in the U.S. so our supply chain is firmly connected to the country. Working with Bell and Qarbon has been exceptional. We’re currently in the build phase, and while you might not have seen it yet, we shared a brief video showcasing one of Qarbon’s factories, including a location in Georgia. They have been bringing in tools necessary for creating the carbon parts that we need to assemble into our spaceship, and we have a few significant tools arriving. This work is ongoing, and parts fabrication will be increasing. The partnership with Qarbon and Bell is crucial in this complex aerospace development program. Throughout the process, we continually adapt as we learn that modifications are needed for the tools or parts, leading to design adjustments. Bell and Qarbon have been incredible partners, enabling us to address issues in real time and adjust our plans when necessary. I've mentioned our strong focus on the program's critical path, and we collaborate closely with Bell and Qarbon to keep our schedule on track. There have been no changes to our milestone expectations since last quarter as we're making the necessary progress. Regarding consumer marketing, we’ve adopted a quieter strategy during this phase as our primary focus is on building. However, we plan to shift our approach as we progress through the latter part of 2025. As we receive these major tools from Bell and Qarbon and begin to assemble parts that resemble a spaceship, we believe it's the right time to begin sharing our stories with retail investors, customers, and fans to build excitement about the upcoming ships that will take them to space. Expect to see an increase in our marketing and event strategies around that time.

Okay, thank you. And the Delta class announcement regarding the third and fourth ships sounds encouraging. What's underlying that decision and what you're seeing and does it interrelate to your thoughts on demand? Thank you.

I appreciate it, Doug. Let's dive in. Our strategy has always been to develop the economic engine of fully utilized spaceports. Over the past year, we concentrated on getting our first two Delta ships ready so that we could achieve a cash-positive position with our existing mothership in New Mexico. We've remained focused on this effort and have made significant progress. Now, it's time to consider bringing more spaceships into the fold to accommodate additional customers and increase profits. As previously mentioned, operating a spaceport involves many fixed and semi-variable costs. By expanding capacity, we can drive revenue that benefits from this leverage. Our aim is to leverage these economies of scale and achieve EBITDA growth sooner than if we relied solely on cash flow from operations, which would take longer. The timing is optimal because as we transition from the design phase to the build phase of the Delta ship, we will be able to reallocate engineering resources from spaceship projects to the mothership. This timing is crucial, and as mentioned, starting this process now will enable us to introduce not just the second mothership, but also the third and fourth Delta ships by 2028, significantly enhancing our capacity at Spaceport America. We have already established the necessary tools and manufacturing infrastructure to support continued growth, which will help us self-fund expansion for the next Spaceport and beyond.

Thank you. Sounds encouraging. Best regards. Happy holidays as well.

Thanks, same to you, Oliver.

Your next question comes from the line of Greg Konrad from Jefferies. Your line is open.

Good evening.

Hi, Greg.

You provided some useful insight on the 2025 free cash flow and the increase in Q1 followed by a decrease through 2025. Considering your comments about growth capital, has there been any adjustment to the expectations regarding the use of free cash flow in 2025 compared to 2023, as previously discussed?

No change because we've been planning this all along, so we see a downward trend in 2025 due to our position in the life cycle of Delta. We have capital expenditures going into tooling and parts fabrication. The next phase will focus on achieving a lower cost base through assembly and testing. With the introduction of the mothership, we will start with a lower spending profile since the initial phase involves engineering work, and then expenses will increase later when we ramp up tooling and parts fabrication, similar to our approach with Delta. The overall profile for 2023, 2024, and 2025 remains the same, and we anticipate a downward trend in 2025. We also expect to exit 2025 with quarterly spending below $100 million. Furthermore, more than half of our spending will shift to capital expenditures, reflecting an increase in tooling and parts fabrication throughout 2025, indicating that we are maturing through this process and establishing our infrastructure and parts supply.

And then when you talk about growth capital and kind of bridging to that acceleration and that was really helpful, you talked about the $100 million burn or under exiting 2025. Does that reaccelerate on those growth initiatives or it just doesn't improve as quickly, because now you're filtering in those growth capital on top of the production of the first and second delta?

So I think the right way to look at this is just where we're at in 2026. By then you start to see cash coming in from the flights that we're doing with the delta class. You'll see the cash burn continue to improve over time because of that shift towards money coming in now with commercial operations. At that point, we become self-sustaining, and as we continue to add to the fleet with this growth capital, we build up even more cash inflows which support additional expansion of the fleet and into other spaceports. This sets us up for the future beyond that, but that's the way to look at that trend.

And then maybe one last one for me I mean it was helpful you kind of size growth capital at $300 million, you said recurring production of Delta is $50 million $60 million. Can we think about the delta between that $300 million and the two Deltas as kind of going towards the development of the second mothership, just thinking about NRE and maybe the production of that?

Yes, the main use of the growth capital is really to get going on the mothership, right? Because we're still working on Deltas 1 and 2 and, you know, the next thing to be focused on is the design and then the tooling and then starting parts fab on a mothership. So you'll see that as the real use for that growth capital. And then we already have the factory and the tooling and everything in place for the spaceships that we would add to pair with that mothership. And then it'd all be coming together about the same time. So we have the fully utilized spaceport with the mothership and the two new spaceships arriving.

Thank you.

Your next question comes from the line of Myles Walton of Wolfe Research. Your line is open.

Thanks, good evening. I was hoping to maybe just make sure I understand the mothership, second mothership timing for 2028. I think earlier this year you had also had a timing for 2028 for the second mothership, is that right? And if that's correct, then is there something in the schedule that's actually moving with the growth capital you're talking about or what within the schedule is being enabled by the growth capital?

What we've been trying to do very clearly is ensure first things first. Let's take the cash we have on hand and use that to build these first two Delta ships so that we get to, you know, operating cash positivity and, you know, can kind of manage our destiny from there. So that's where we've been truly focused. That's going well and as planned. So what we want to do is obviously bring in enough funds that stay ahead of the cost ramp that will come with building this mothership, so that we aren't dipping into funds that we would be using for those first two spaceships. That timing to your point, Miles, is the same as we've described before. We want the mothership to come in in the ‘28 timeframe, as well as the third and the fourth spaceship, which we probably haven't been as explicit about in the past. So not only the mothership but also those next two spaceships would be together coming in ’28, so that we can put them all to use together and start driving profits from it.

Okay, got it. So this is more of a green light exercise than a change of your plan that sounds like it's consistent with your plan and that's more of you're gating the capital investment?

That's correct. We're just managing that through and I guess be more explicit about the timing of Deltas 3 and 4.

Okay, cool. And then, Michael, you talked about the Delta design, the feedback loops, and it sounded like it was more on the tool design, that you're having the feedback loops at the moment. Is that indicative that you haven't got down to component-level feedback loop designs, or are you through much of the component level design of the actual Delta Class and you're more into the manufacturing process design and that's where you're having the feedback?

Yes, it's a mix of feedback loops related to tool manufacturing as we refine the lofts. For instance, we are currently focused on assembly drawings and the manufacturing work instructions. A simple example is the interior of our cabin, which has a floor and side walls that are created using our modeling software, 3DX. Different individuals are responsible for various components. When we assembled these parts, we encountered a conflict relating to a flange used to secure them. Resolving this design issue was relatively straightforward; we just needed to adjust the flange's position. However, this minor design change affected the tool already in development, prompting us to reevaluate the tooling process. Thankfully, we have sufficient time to incorporate this adjustment into our building schedule without affecting the critical path. We're sharing this to illustrate the ongoing challenges we face with assembly drawings and manufacturing work instructions. We continually identify aspects that require updates, which can range from simple tweaks to designs that inadvertently affect the toolpath, resulting in adjustments to our schedule. I wanted to provide insight into the day-to-day challenges our teams are navigating as part of this program.

Makes sense. All right, thanks for the color.

You're welcome.

Your next question comes from the line of Michael Leshock of KeyBanc Capital Markets. Your line is open.

Hey, good afternoon. I wanted to follow up on cash flow. Previously, you had expected 2024 to be the largest cash burn year related to the Delta Class ships, but now it's looking like it could come in a bit lower. Was this due to the timing of some spending being pushed into 2025, or did you come in under budget in certain areas? And how is Delta Class progressing relative to your initial budget for the shift?

So overall we've been very actively managing our spending. So some of the lower numbers come from just our active control of what we spend our money on and trying to be as lean as possible. There's always a little bit of timing shift within quarters, but I think we were also trying to be conservative previously to highlight what 2024 could look like and paint that picture for the year-over-year profile was still stand, so 2024 is still the peak. 2025 will be lower. We gave that guidance a while ago. I think we came in pretty close to what we were expecting. And then second part of your question, could you remind me, Mike?

Just overall how the Delta Class is progressing relative to your initial budget for the program?

Yes, it's tracking very well. So we've been very diligent about tracking all the different elements of the program. And we've been very pleased with the aggregate spend for that program from NRE through the tooling development and what we project for the remainder of the program is on track with what we had projected.

Okay and then on the headcount additions at the Arizona facility, what are you seeing in terms of labor availability? Just trying to get a sense how fast you could add headcount and how much additional labor would you need to add at that facility? Thanks.

Thanks. It's Michael. Thanks, Mike. Just for context, if you think what's going to happen through Phoenix in the, let's call it over, of course, the next year, we'll be assembling these first two ships in a fairly intensive hands-on phase, and then we'll move those ships into ground testing, at which point in time we'll fly them after that to Spaceport America where they'll go through their flight test program. And then there'll probably be a little bit of a time period, while we're out working on flight testing and getting those Delta ships in before the mothership that we've been talking about is kind of rolling into Phoenix for assembly there. So what we're trying to be thoughtful about is not ramping up, I'll call it an excessively large permanent group at Phoenix at this time, the larger ramp will probably come when the mothership comes in because then we'll have a more consistent mothership build, spaceships build, do another spaceship, do another mothership, it will be consistent. So what we're handling that is we have a great and very talented team in New Mexico, heavy AMP mechanic group, they maintain all of our ships. A lot of those folks have agreed to come to Phoenix and, you know, kind of bring the lead and the expertise to help us go through the building phase. And then as we bring those first two Delta ships back to New Mexico, that team that's based in New Mexico will leave Phoenix and go back home to put them through the flight. So I give you all that context because it means the amount of hires that we need to do in Phoenix is relatively modest, because we'll be bringing in folks from New Mexico and a few from Mojave as well. With that said, this is a specialized job. This is building spaceships. And the Phoenix market is very strong in what we're trying to do in general. And we believe we will compete and be an employer of choice there as we come in. So, yes, we have to go do that. That'll come later in the fourth quarter. So we'll be putting our energies to that. But I believe the market depth relative to the amount of people we need is quite deep.

That's helpful. Thank you, guys.

Thanks Mike.

We do thank you for your questions and we do thank you for your time today. This does conclude today's conference call and you may now disconnect. Have a great day everyone.