Virgin Galactic Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2023

There are 9 speakers on the call.

Operator

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 Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Ad. I will now turn the conference over to Eric Cerny, Vice President of Investor Relations.

Speaker 1

Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's Q2 2023 earnings conference call. On the call with me today are Michael Colglazier, Chief Executive Officer and Doug Aarons, Chief Financial Officer. Following prepared remarks from Michael and Doug, we will open the call for questions.

Speaker 1

Press release and slide presentation that will accompany today's remarks are available on our Investor Relations website. Please see Slide 2 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 forward looking statements made on this call.

Speaker 1

For more information about these risks and uncertainties, please refer to the risk factors in the company's key 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 non GAAP financial metrics. With that, I would like to now turn the call over to Michael.

Speaker 2

Good afternoon, everyone. Thank you for joining us on our Q2 earnings call. We are thrilled to have launched commercial service and look forward to sharing more about that on today's call. Turning to our agenda on Slide 3. I'll start today's call by highlighting the activity around our space flights during the quarter and then discuss the progress we are making on our Delta class ships before turning the call over to Doug to share insights into our financial performance.

Speaker 2

Following our prepared remarks, we will open the call for your questions. Turning to Slide 4. We returned to space in late May with a spectacular Unity 25 space mission. The Unity 25 crew spent 4 days in training and preparation at Spaceport America before boarding VSS Unity and rocketing to space at nearly 3 times the speed of sound. The mission was an incredible success.

Speaker 2

Not only did it validate the efficacy of our astronaut training program, it also affirmed the absolutely stunning experience Virgin Galactic provides. Moving to Slide 5. On June 29, We transformed VSS Unity into a suborbital space lab with the launch of our first commercial space mission, GALACTIC 1. The mission brought members of the National Research Council of Italy and the Italian Air Force to space, along with 13 research payloads. Galactic 1 was an outstanding achievement for our customers as the Italian astronauts and ground based crew successfully executed all 13 of the research experiments.

Speaker 2

Feedback from our Italian partners was extremely positive And the Italian team members received congratulatory notes from across their country, including from Italian Prime Minister Maloney. As highlighted on Slide 6, our spaceflight system and flight profile provide researchers with a long list of benefits. Our spaceship cabin is modular and can be adjusted to various needs. Experiments can be structured as autonomous payloads, human tended research racks and even as research studies designed to be worn by the crew themselves. Our unique runway takeoff and landing Enables research payloads to be loaded immediately prior to flight, minimizing time that experiments spend outside of the lab and providing researchers with expedited access to their data after landing.

Speaker 2

Our ability to provide unprecedented access to space For researchers, government agencies and universities, it means more opportunities for microgravity research and more expansion of human knowledge. Historically, microgravity research has required accepting the very long lead times and extremely high cost of accessing the International Space Station For accepting the limited continuous microgravity duration offered by parabolic flights. We believe our suborbital space lab product hits a sweet spot, and we are pleased to offer researchers and scientists access to several minutes of continuous microgravity that will allow for deeper and more frequent study of microgravity's effects on the human body, Fluid Dynamics, Plant and Food Growth and much more. As we now begin to build out this product vertical, We believe the combination of extended time in microgravity, capability for researchers to accompany their experiments in space And relatively favorable cost positioning will enable the attraction of both new and repeat research customers. On to Slide 7.

Speaker 2

While GALACTIC 1 showcased our research product, GALACTIC 2 is going to set the stage For a new era of suborbital human spaceflight that will dramatically broaden access to space for private individuals. We are just over a week away from the planned launch of this historic flight. The Galactic 2 crew provides a glimpse Into the breadth of access that Virgin Galactic will enable as we scale our fleet and expand our business. Their ages range from 18 to 80. They hail from 2 of the more than 60 countries already represented within our future astronaut community.

Speaker 2

They have widely diverse reasons for wanting to travel to space and their journeys will have widely diverse and positive impacts within their respective communities. Along with our pilots and astronaut instructors, Similar to Galactic 1, we will be live streaming the Galactic 2 mission. The live stream footage and widespread media coverage from these flights Helps to showcase our product and build awareness of the safety of our systems as well as the unique and highly differentiated space experience delivered by Virgin Galactic. I encourage all of you to join us on August 10 for the live stream of this historic mission at virgingalactic.com. As we go forward with flying our customers to space, the majority of our webcast will be for private viewing as we focus our efforts on customers and their guests.

Speaker 2

Turning to Slide 8. We are building consumer interest and confidence by operating our commercial space line safely and consistently on a planned monthly cadence. We are executing on that objective. The performance of our spaceflight system over the last two flights has been excellent, and we've been very pleased to see both Spaceship Unity and our mothership Eve performed so predictably following their enhancement programs. The enhancement program was successful and the improved ship performance Now enables us to plan our flight days with reasonable advance notice to our customers.

Speaker 2

Regular flight cadence Gives us a meaningful database of feedback around both the astronaut experience and overall spaceflight performance. Monthly flights also provide valuable maintenance data with which we can continuously improve our operation. Moving to Page 9. We continue to progress the development of our Delta class spaceships, which will drive the revenue growth and profitability of the company as we scale to business. Our production roadmap for the Delta class remains consistent with what we shared last quarter.

Speaker 2

With 2023 focused on completing designs for the Delta spaceships, building the required tooling and beginning fabrication and structural components for the ships. As we move into 2024, we anticipate completing the assembly and equipment installation designs, completing parts fabrication And initiating the assembly phase at our facility in Phoenix, Arizona, utilizing the sub assemblies from our suppliers. We continue to operate on a timeline that supports testing in 2025 in advance of the 1st Delta ship entering commercial service 2026. Delta ships have been designed to have a relatively low unit production cost And have material improvement, flight cadence relative to our initial ship VSS Unity. The Delta development process has yielded some excellent enhancements to the ship's architecture, particularly in the manufactureability and maintainability, and we are tracking well against our primary ship performance criteria.

Speaker 2

Before I turn the call over to Doug, I want to convey how incredibly moved our astronauts have been following their flights. Across the board, whether it be research flights or private astronaut missions, Virgin Galactic is delivering an incomparable experience. It is exciting to be flying to space on a regular basis, and we also know that we have many more milestones ahead of us. We continue to make progress on our Delta class ships as these vehicles are going to enable us to deliver the same and comparable experience customers at a faster rate. And with that, Doug, let's turn the call over to you.

Speaker 3

Thanks, Michael. Good afternoon, everyone. Turning to Slide 10 and our financial results for the Q2. We generated revenue of approximately $2,000,000 compared to $110,000,000 in the prior year period. The increase is primarily attributable to a $24,000,000 increase in R and D costs tied to engineering work for our future fleet.

Speaker 3

SG and A increased $7,000,000 We reported a GAAP net loss of $134,000,000 compared to $111,000,000 in the prior year period, primarily driven by higher R and D costs. Adjusted EBITDA was negative $116,000,000 in the 2nd quarter compared to negative $93,000,000 in the prior year period. Free cash flow was in line with our guidance at negative $135,000,000 in the 2nd quarter compared to negative $91,000,000 in the same period last year. Moving to Slide 11. At the end of the Q2, cash, cash equivalents and marketable securities on the balance sheet Totaled $980,000,000 a sequential increase of $106,000,000 from the Q1 of fiscal 2023.

Speaker 3

During the quarter, we raised $241,000,000 in gross proceeds as part of our at the market or ATM equity offering programs. With the start of commercial service, you will see some changes in the presentation of operating expenses when we report Q3 results in November. Going forward, the customer experience category will be expanded and renamed Spaceline Operations, accounting for costs associated with operating a commercial space line. These items include components of Spaceline Technical Operations and Spaceline Missions and Safety, which were previously presented in R and D or SG and A. This recategorization does not change aggregate operating expenses.

Speaker 3

Moving to Slide 12 and our financial outlook. With commercial service, we anticipate a monthly flight cadence beginning in August With 2 commercial space flights in the 3rd quarter and 3 commercial space flights in the 4th quarter. Given the flight cadence and manifest details, We forecast revenue to be approximately $1,000,000 in each of the 3rd and the 4th quarters. Our capital expenditures for the 3rd quarter expected

Speaker 2

to be between

Speaker 3

$10,000,000 $15,000,000 The growth in CapEx is driven by the construction of the spaceship assembly facility in Phoenix 2023 to be in the range of negative $120,000,000 to $130,000,000 With that, I'll hand the call back to Michael for some closing comments. Thanks, Doug. In closing, the Q2 was an important one for us.

Speaker 2

We celebrated a critical milestone for the company, Having safely and successfully launched commercial service with extremely satisfied customers. We are very excited to be just over a week away from our second commercial spaceflight with Galactic 2 flying the first of approximately 800 customers with reservations.

Speaker 3

We look

Speaker 2

forward to delivering this transformational experience on a recurring basis, and we remain on track to scale the business in the future with the delivery of our Delta class fleet. Finally, before we end the call today, I want to take a moment to address the passing of our good friend and Chair of the Board, Evan Lovell. Evan was a champion for our mission and for the Virgin brand. We continue to keep his family in our thoughts and will forever be grateful for his leadership and his time with us. Our entire Board has been incredibly helpful And Ray Mabus, our Lead Independent Director, has seamlessly stepped in as our Interim Chair.

Speaker 2

Ray brings extensive public sector experience to our Board, having served as U. S. Secretary of the Navy and as the Governor of Mississippi. With that, we'll turn to questions. Operator, we're ready to begin the Q and A portion of the call.

Speaker 2

Thank

Operator

Your first question comes from the line of Greg Konrad with Jefferies. Please go ahead.

Speaker 3

Good evening.

Speaker 2

Hi, Greg.

Speaker 4

Maybe just to square the revenue comments. I mean, you did over $2,000,000 in Q2, you talked about $1,000,000 in Q3 and Q4 on 2 and 3 flights. What's included in that? I would think they'd be a little bit higher given the spaceflight activity.

Speaker 3

Yes. Hi, Greg. This is Doug. So in Q2, we had the Italian flight, which was a research flight, So a little higher revenue. Going forward for Q3 and Q4, when we look at the manifest details, it depends if it's going to be astronauts or research flight.

Speaker 3

So depending on what we do with that mix and the manifest in particularly the Q4, We may see higher revenue. So if we look at the potential here, it's probably going to be closer to $1,000,000 in Q3. And if we do research in the Q4, it would be probably over $2,000,000

Speaker 4

And then just on the R and D, we talked about The restatement in Q3, but R and D stepped down about $25,000,000 sequentially, CapEx up a little bit. Is that Q2 R and D kind of the right level ex the restatement going forward just given the rework and reentry of

Speaker 3

Yes. So you're going to see some things changing on the income statement because the R and D will start to move over into space line operations. So things that were historically there will now be In the operations category, which basically represents the cost of operating the space line. So, you'll see our technical operations group go over there, space line missions and safety. This is all the maintenance and ground support and safety and pilots and all of that.

Speaker 3

So A lot of movement. But in general, what you're still seeing without that restatement is R and D is continuing at this level for a while because we're in the design phase of the Delta class and that effort is continuing for the foreseeable future into 2024. So without that reclass, you'd still see the R and D progressing at these similar levels. Thank you.

Operator

Your next question comes from the line of Oliver Chen with TD Cowen. Please go ahead.

Speaker 5

Hi, it's Tom on for Oliver. Just a question on how ticket sales are trending, especially after the most recent flight and And then how you expect that to trend forward. And additionally, if you could just remind us on how long the lower priced Tickets are expected to last relative to the price increase.

Speaker 2

Hey, Tom. Michael here. So I think you may recall, we have I'm sure you recall, we have roundabouts 800 people in the queue. And with the kind of monthly cadence off of our first big ships, even Unity, And until we get the Delta ships going in 'twenty six, that turns into generally a 4 year backlog, which is a little longer than We prefer, I think, a 2 to 3 year backlog is the appropriate place for that. So you're going to see us, I'd say, use these early flights To add confidence in our system, to add confidence in the safety of human spaceflight on suborbital journeys, To see I think you're going to hear excitement, really impressive excitement from the people who fly and as those stories come back.

Speaker 2

And that combination is purposeful for us because it will build confidence in this new industry, confidence in what this can be And aspirations and excitement to come. And so we're going to let that build a little while because we have a backlog that's a little longer than we would prefer. And then as we start to get a little closer in towards our Delta ships ready to come online. We will open up in successive tranches of sales, and I think you'll see that from us. That lets us manage the price points at which we release inventory.

Speaker 2

And we intend We will be supply constrained for a little while. So it also helps us manage and you'll manage the supply as we put that out. So we're going to not We have sales outside of what we've talked about before. We've continued to allow for research sales to play forward And we have a small amount of sales available through the Virtuoso Travel Network. And Anybody who kind of wants in will probably go through that channel over the next reasonable period of time.

Speaker 2

And then like I said, as we get closer to Being able to have the Delta fleet scale up, then you'll see us open the door with larger and larger tranches, always keeping a 2 to 3 year backlog along the way. The second thing I think you asked was how do I think about the price points. So of the 800, the first 600 or so of those. The vast majority were in between $200,000 $250,000 ranging from tickets that were sold all the way back in like 2,005, up through when the company went public. We then brought that price point down and opened up a price point of $450,000 And so Roughly, you've got another 200 seats in a $450,000 The research flights we sell, Which are fewer in number and we expect plus or minus around 10% of our volume of the first one thousand.

Speaker 2

Those will be at on average $600,000 per seat equivalent. So that kind of gives you a mix of these early flights. We have Effectively outside of the Virtuoso seats closed at the $450,000 price point. When we do reopen up sales, we haven't announced pricing for that, but we have a share we don't expect that to be less.

Speaker 5

Great. That's very helpful. And then a follow-up on the research flight demand. Could you just talk a little bit about the drivers of demand for research flights and then what factors lead you to prioritize research flights relative to ticketed passengers for tourism. Thanks.

Speaker 2

Yes, I'll take the last part first and then go forward. So on the whole, we're going to prioritize the vast majority of our inventory to private astronauts. I think that's the broad vision that's always been at the founding of this company And kind of core to our vision of opening space and access to space up for individuals who aspire to do so. We do believe research is important. We believe research matters to the ongoing growth of human knowledge.

Speaker 2

We believe that research Is a profitable business along the way. We also believe research appropriately adds, I think, a halo, a positive halo over the top of commercial spaceflight. And so for all those reasons, we've allocated generally 100 of our first 1,000 about 10%. And I would like to see that kind of be in that range as we grow. Now, What are the factors that are here?

Speaker 2

Mentioned briefly in kind of prepared remarks, there's kind of two ends of the spectrum that are currently available to people who want to do microgravity research. Microgravity research It's hugely important as kind of humanity in large starts to work to spend more time and space for All the various reasons that are out there. So there's a lot of research needs to be done. It has either been experiment that goes to the space station, which is a long time to get in line because there's not that much capacity for that. It's very expensive to get it there and you kind of have one shot to make it work.

Speaker 2

And that puts a lot of pressure on those experiments to make them very, very robust. And you have one experiment that lasts a long time. On the other end of the spectrum, you have parabolic flights At the higher end of the current piece, which on average give you about 20 seconds of microgravity. It's not As pristine microgravity as the planes can bounce around in the air a little bit. And you can get repetition on that, but you just don't have enough length of time or sounding rockets are very short or drop towers are very, very short.

Speaker 2

And so what we heard Coming back from our Italian partners on this and from other researchers we've talked to is there's a sweet spot that suborbital space is enabling. And the flexibility that our spaceship provides is we can either keep or remove seats, add payload racks in or not, Allow those to be tended by the researchers or actually flown researchers experiments flown on the astronauts themselves. It's this middle ground that has just never been available before. And so now we can provide minutes of very clean microgravity time And that allows not only for a wider range of experiments that could go up, but because our cost price points, especially compared to getting to the space station Are so much less. Now researchers can actually plan for a sequence of experiments or repeating experiments with slightly different parameters as they learn more.

Speaker 2

And usually those are on the way towards either a larger piece that will go to the space station or eventually the moon or sometimes they are just They can get everything they need through us. So those are the parameters that people need. And then the people who buy those are heavily government and government funded institutions. And so what we're doing now is taking the success of this first flight, putting that into A kit that all those researchers and government agencies can use in their own appropriations discussions, U. S.

Speaker 2

Government and other governments across the globe.

Operator

Peter Osterland with Truist Securities. Please go ahead.

Speaker 6

Hey, good afternoon. I'm on for Mike Tumulty this afternoon. Appreciate you taking the questions. So first, I just wanted to ask, I appreciate the color you've given on pricing, but just kind of following up on that. In this timeframe where you're operating just with Unity, Is $500,000 per flight about what you're expecting on average for civilian flights through 2025?

Speaker 6

Or are there any considerations related to number of passengers

Speaker 3

Sure. So when we look at the capacity of Unity and the ticket prices that we're Flying these days, you would expect to see for the near term about $600,000 per flight Because there is one seat allocated for an astronaut trainer in the near term. As we move into 2024, We expect to open up that 4th seat and so then you would see 4x200,000 or $800,000 in revenue per flight is what we're projecting. And if we get research seats mixed in there, you would see some uplift from that.

Speaker 2

Very helpful. Thank you.

Speaker 6

And then as a follow-up, just wanted to ask, under fleet development activities, have you experienced any challenges or Surprises that you'd call out either in terms of cost, labor or design challenges that might be different from what you expected at the beginning of the year or Has it mostly just been on track as of this point?

Speaker 2

No, I haven't seen surprises that are here. Aerospace in general is growing and competition for engineering roles in certain types of fields Remains healthy. The defense industry has more pressure upon it for everything that's going on with the war in Ukraine. And so we continue to hold our own I think against that and we have an incredible group of engineers that are delivering against us. So that part, I would say is just kind of normal for all aerospace that's going on.

Speaker 2

And we've had, I think, really pleased relationships with our Delta suppliers here. So in fact, we've got some of them on-site today from both Bell and Carbon. And that's been really good. We are working with them. It's not new technology, but more state of the industry technology of using, We'll use the word digital thread.

Speaker 2

You may hear digital twin, but design and software that allows us to go both for the design phase into the parts, the tooling and manufacturing phase, eventually all the way to maintenance. And so ensuring that all of our teams, whether that's ourselves or our partners are faster with that software moving through is something that we put a lot of training into, But again, not surprising. So we are keeping great focus on this. Obviously, each time we talk about the Delta ships, We reiterate this is where the business model depends. This is where we ramp both in cadence and in ability to have a relatively low cost on the variable production unit cost of their ships.

Speaker 2

And they're super important. So all attention is on it and we're going to keep it that way.

Speaker 6

Great. Thanks a lot for taking the questions.

Speaker 2

Thanks, Peter.

Operator

Your next question comes from the line of Matt Akers with Wells Fargo. Please go ahead.

Speaker 6

Yes. Hey, guys. Good afternoon. Thanks for the question. I wanted to ask just your latest thoughts on Imagine and I You've described that as kind of option value that you could activate at some point.

Speaker 6

Now that you've got Unity flying, is that something you could look to exercise at this point?

Speaker 2

So, Imagine is, as you said, we've kind of kept it as an option for us And it's going to remain as an option for us. The picture when Page 9, I think of the accompanying deck, which was talking about our Delta Class ships. That image is actually an image of Imagine. And we use it because Delta is derived from that base. And there are many things that we've already been able to benefit from in evolving the production model shipped from Imagine.

Speaker 2

The reasons that we put it kind of off to the side is because the engineers that we have focused on this early design phase for the Delta ships The same types of engineers that we would have through the testing phase of Imagine, modified sciences, avionics work, areas like that. And we need those people focused upfront on Delta so that we can get the momentum of Delta into the supply chain that we've built. At the time when those key engineers have kind of completed that and we're kind of well down the path towards Delta, The production, the build and production of those Delta ships is pretty quick. And the way in which we are Not only going to learn through flight test, but we're also building as you would expect to see in a rapid commercial aerospace development program. We are building you'll hear the words IronBird or a static test article.

Speaker 2

We're building systems that are on the ground that can allow us to very rapidly move through design elements. And we're wind tunnel testing the Delta ship, actually this month. So A lot of that allows us to have a relatively abbreviated flight test program. And so when you hear us, we're doing flight testing in 2025 and allowing the first Delta ships into commercial in 20 6. We're kind of at a point where they're almost outpacing Imagine at that point.

Speaker 2

So we are going to keep Imagine, right? It's still here with us and we have it secured and ready, but it's likely going to be Used in service of the Delta program as opposed to, hey, we're going to turn our attention over to Imagine and get that going. And again, that allows us to anchor our technical operations, our flight support and mission control group on one consistent vehicle, Which is the Delta ship. And then as we have multiple of those ships, it's the same engineering base, it's the same maintenance manuals, it's the same program And that will allow for a more efficient operation.

Speaker 6

Got it. Okay. Thanks for the color. I'll leave it at 1.

Speaker 2

Thanks, Matt.

Operator

Your next question comes from the line of Christine LeWigg with Morgan Stanley. Please go ahead.

Speaker 7

Great. Hey guys, good afternoon.

Speaker 2

Hi, Christine.

Speaker 7

You mentioned the ability to flex cash burn by controlling the timing for next and Motherships. Can you provide any color to your current thinking around the timeline?

Speaker 3

Yes. So that strategy that we outlined in the last call is still consistent with what we're looking at today, again, because we're pleased with how Eve is performing after the enhancement period we're doing so we did. So that now we see Eve continuing through the Delta flight test program. So we are benefiting from that. So because of that, we are still anticipating that we will be working on Delta first and getting through some remaining design elements and then moving on to the parts fabrication and rolling off of that over to the next generation mothership program.

Speaker 3

So it's a lot of the same engineers again. So it allows us to stagger the engineering resources And the focus in the company from one program to the next. So that would be in the following year. So 2024 When you see the mothership program start to pick up more heavily as we roll off of the initial phases of the Delta program. So that's still consistent with what we were planning before.

Speaker 2

And then just it's Michael, Christine. Just final continual thought on that is that allows us to bring these additional mother ships in at this kind of sequence when we're building the volume of our Delta fleet. So that way, right about the time that Eve will tap out from a capacity standpoint, we would be bringing on new mother ships at that point to manage the scale of the fleet.

Speaker 7

Great. Thanks. And then also, after you guys change your pricing structure to the $450,000 for the passenger flights and then you've got $125,000 in a fully refundable deposit. Can you discuss any cancellation requests that you've received so far? And how sticky has been the orders that you guys have received to date?

Speaker 2

So we We have a limited number of cancellations kind of year over year. The largest was not unexpectedly way back in 2014. And we have not seen and I'll call it out of line uptick in any of that. Where I get the most questions on that particular topic was following the Titan experience. And hey, did you see any falloff associated with all the media around that?

Speaker 2

We did not, in fact, and we've heard from many of our future astronauts. They are very clear, especially those who've been with us a long time, About everything that goes into the safety of this platform and they're able to talk that through with themselves and others. And so we've not seen any dropouts due to that either. You'll see some people drop for Not often, but sometimes it will be for economics. Sometimes it can be for medical reasons or health reasons.

Speaker 2

And then that's why you've heard us say we keep some house seats there. And so what we're doing is generally replacing those As somebody falls off, we can replace onesies and twosies back on the way. So hopefully that gives you some color window into those.

Speaker 7

Great. Thank you for the color. Thanks, Chris.

Speaker 2

You're welcome. Thanks, Christine.

Operator

Your next question comes from the line of Michael Leshauch with KeyBanc Capital Markets. Please go ahead.

Speaker 4

Hey, good afternoon. I wanted to start on the cash balance that you're at today. And just as we think about some of the optionality that you have Your common stock offerings, what level of cash and marketable securities are you comfortable with? And do you expect to maintain that position of around $1,000,000,000 for the foreseeable future.

Speaker 3

Yes, we're very pleased with The balance sheet right now and the strength there and our ability to have access to the capital markets has been great. So Yes, we are approximately $1,000,000,000 today, and we like where we are. This gives us the flexibility to invest in these programs that we see are going to generate really high returns and gives us a pretty good runway. So we like where we are, And we fully intend to keep our balance sheet strong throughout this phase as we move towards the ramp of the Delta class. So We don't have a specific minimum cash balance, but we do intend to keep it strong.

Speaker 4

And then following up on the Delta class progression, you had mentioned you're on track with the development process, but Wanted to ask a bit more specifically since you previously expected to complete design and tooling, and then begin parts fab this year. Is that still the near term expectation and what has been accomplished to date?

Speaker 2

Yes. So that is still the expectation. Tooling will sequence before parts And both of those sequence, of course, before the sub assemblies can be created and then sent over to us. And the way we're rolling that a bit in a sequential pattern. We'll have tools completing this year, some parts being built on those tools, tooling probably finishing in early next year.

Speaker 2

So the tools that are needed later in the process come on and then the parts that are needed later in the process come back in. And all those need to be done because by second half of the year, We will be bringing those into Phoenix for kind of starting on the final assembly process. So that all kind of remains Yes. I think you asked the question, what else have we seen in there? One of the things I guess I'd share, I set in on, I'll call it an executive overview.

Speaker 2

It wasn't an executive summary. It was a deep day on the design process and report out into this 4th generation spaceship, the Delta class. I was really pleased with what's come forward there. The key things we're trying to do is not Create a ship that looks different and the ship that we think will perform generally the same as our imagined ship will perform. It's lighter, carry 6 people, Go higher, all those things.

Speaker 2

What's really been validating is the work that has been done to enable us to turn this ship On a weekly basis, we're going to continue to aspire to even approve there. And the work that has been done to confirm The length of time, I think we've put 500 approximate flights out for useful life and we feel very good on those numbers as well. And that weekly turn, that length of time in the flights, that's where the cost of this on a per flight basis Gets to be really positive compared to other mechanisms of human spaceflight. So it's been the detail of that design And showcasing how we're going to carry that through has been very confidence building for me. I mentioned briefly just a little bit ago, We are putting the right energy into doing this.

Speaker 2

These are not going to be one off ships. So we are developing, you'll hear us use the word a copper bird. We're actually doing that in our engineering headquarters. It gets located in this week and that will have us running through all the avionics and Avionics Systems Electrical Systems that we can just cycle and cycle and cycle in advance. We'll be building an IronBird to test out the mechanical systems that go through there and running and running and running and running those.

Speaker 2

So we're not having to wait until we get into flight test or actual use To understand the margins and the maintenance intervals of our parts, we're going that through all the way through. We'll be building a static test article for our ships and being able to take that to kind of an ultimate limit load to confirm all the maintenance intervals that we're putting in. So those things are all very confidence building for me as I watch the diligence with which our engineering and program teams are putting these together.

Speaker 4

Great. Thank you.

Operator

Your next question comes from the line of Myles Walton with Wolfe Research. Please go ahead.

Speaker 1

Thanks. Good evening.

Speaker 2

Hi, Myles.

Speaker 8

And Michael, I was hoping you could talk a bit about the engagement plan after GALACTIC 2.0. And In the frame of reference, I think you mentioned, these would start to become more private experiences. And I'm just curious, how do you maintain The visibility is going to be required to create and sell the experiential side of this while keeping it intimate private What basically the customer is paying for?

Speaker 2

Right. We have to do both, of course. So Want to say we will definitely find a frequent cadence of our flight that we want to kind of do deep showings of. That's easy around our research flights as we do those pieces And there's new stories along the way there. And there will be some flights that we will want to do in a full public manner.

Speaker 2

As you'd expect, A lot, maybe not all, but a lot of our future astronauts are quite excited to tell their own story, But don't necessarily want us to broadcast their personal experience. And so we'll find the balance. I think you'll always hear us talking about when our flights go. There will always be recaps. There will always be footage and video pieces out.

Speaker 2

There doesn't always need to be Have a detailed streaming of the interior of the cabin for each group of private astronauts that fly. And What I do think you'll see though is we'll be giving that material to our astronauts and not all, but I imagine the majority of those We'll also become very active in bringing those out. So we're going to I won't even call it finding the balance. This is a both and type of a scenario. We have to 1st and foremost focus on our customers, deliver the experience that they want, deliver the quality and not I kind of overly commercialize their personal experience.

Speaker 2

They've put a lot of energy and effort and aspiration into this. We have to deliver that. And when we do that right, that is the absolute best marketing we will get because they will become missionary for us. So we're going to get that right. And I think within that, we can also ensure that we are touting what we do and building confidence in the safety, confidence in the power of the experience and just the general excitement of our company.

Speaker 2

I think we can do both. So don't want to overplay it now, probably have just by over answering, but We I just want to make sure it's not like a way or hey, we may not showcase like the interior of every cabin flight because it's not appropriate.

Speaker 8

Yes. Maybe a different operational question on the Delta class. At this point, do you have A viewpoint of how many would actually be in service in 20 27. Is it 1 or 2? Or is it the 4 to 6 you're thinking about on an annual basis of capacity of the manufacturing, those 4% to 6% could be on the line in 2026.

Speaker 2

Yes. I think the end of 27 is what you're asking. We'll probably be in between there. As you've heard us say, we're building our factory for 4 to 6 ships a year. It's logical To start that on the lower side, right, as you start to build up just muscle memory and kind of work any kinks that are in the system out.

Speaker 2

So we will probably be less than the full cadence of that, but more than the first couple. We're wanting to get a couple out Right away, because we will be using 2 ships, miles in the flight test program. And so those will roll right into service. We'll have probably a little bit of a break between those 2, but not so far that we kind of messed up the line from a supply chain standpoint And then we'll start moving again on a pace. Probably, let's get the first four out.

Speaker 2

I think the other question that will come with that What's the turn rate of those ships? As I mentioned just on the question before, feeling Very good about our ability to hit a weekly turn from all the analysis we've seen. And we're going to keep pushing on that metric. So nothing else to add today, but That's another one that I think has got some interesting leverage.

Speaker 8

Okay. And last one, on the financials. Is this A point where you can kind of confirm you're past the peak cash burn quarterly cadence, I guess, implied for the second half. I just don't know if you're able to Say that, we're past this quarterly cadence we saw in the first half into next year as well.

Speaker 3

Well, we're only giving guidance for Q3 and Q4. And for the following years, we're going to be Making sure that we're able to invest in the fleet because we see these great returns. So that involves the Delta class and the mother ships because we see really great financial returns from those investments. So we're going to be leaning into that when possible. But if necessary, we can control that pace and we could slow that spending and keep That level down, but we think the returns are very attractive and shareholders will be supportive of us really trying to build the fleet at Yes, the rapid rate.

Speaker 3

So but we've got flexibility.

Speaker 2

Okay. Thanks. Thanks, Miles.

Operator

Call. This concludes the question and answer session as well as today's call. Thank you for joining. You may now disconnect your

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Key Takeaways

  • Virgin Galactic launched commercial service in late Q2 with the GALACTIC 1 mission, carrying Italian research customers and 13 payloads, showcasing its suborbital space lab’s modular cabin and rapid pre- and post-flight experiment access.
  • The upcoming GALACTIC 2 flight on August 10 will be the company’s first private astronaut mission, featuring crew ages 18–80 from multiple countries, with a live stream to boost public awareness and confidence in safety.
  • Enhancements to VSS Unity and mothership Eve have enabled a planned monthly flight cadence, yielding predictable performance, improved safety data, and a growing operational database for maintenance and experience optimization.
  • Development of the Delta class spaceships remains on track: 2023 will focus on finalizing designs, tooling, and component fabrication; 2024 on assembly and systems installation; with flight testing in 2025 and commercial service beginning in 2026.
  • In Q2, Virgin Galactic reported $2 million in revenue and a GAAP net loss of $134 million, ended the quarter with $980 million in cash and equivalents after raising $241 million via ATM, and forecasts 2 flights (Q3) and 3 flights (Q4) each generating about $1 million in revenue.
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Earnings Conference Call
Virgin Galactic Q2 2023
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