Q4 2019 Earnings Call
[music].
Good afternoon, My name is Jason and I'll be your conference operator today at this time I would like to welcome everyone to Virgin Galactic fourth quarter and full year 2019 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 answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press. The pound key. Thank you hosting today's conference call will be.
A show CLI Executive Vice President General Counsel and Secretary at Virgin Galactic as a reminder, today's call is being recorded I would now like to turn the conference over to MS. Clark. Please go ahead. Thank you and good afternoon, everyone welcome to Virgin Galactic fourth quarter and full year 2019, earning.
This conference call with me today, our George Whiteside, Chief Executive Officer, and John Companion, Chief Financial Officer, who will provide prepared remarks also with me is Enrico Palermo, Chief operating officer, who will be available along with Jordan John to answer questions. During the Q and a portion of the call.
Earlier today, we issued a press release and made a slide presentation available on our Investor Relations website, which provides an overview of our business and financial highlight for the fourth quarter and full year 2019.
During today's call, we will make certain forward looking statements within the meaning of the federal Securities laws.
Forward looking statements, our predictions projections and other statements about future events that are based on current expectations and assumptions and as a result are subject to risks and uncertainties.
Many factors could cause actual future events to differ materially from the forward looking statements in this communication.
For more information about factors that may cause actual results to materially differ from forward looking statements. Please refer to the earnings press release, we if you today as well as the risk factor section of the annual report on form 10-K that we will file but the securities and Exchange Commission. In addition to the company's subsequent filings with the Securities and Exchange Commission.
Forward looking statements speak only as of the date. They are made readers are cautioned not to put undue reliance on forward looking statement.
With that I'd like to turn the call over to George Whiteside.
Thank you Michelle good afternoon, everyone.
I'm delighted to be hosting our first earnings call. The public company now that we have completed our transaction with social capital head of subsea and are listed on the New York Stock Exchange.
Both of these events are major steps forward in our mission to open space for everyone and we continue to make great progress towards reaching that goal.
I would like to start by providing an overview of our business, what we've achieved so far and our strategy to drive growth going forward.
I'll, then turn to our fourth quarter activity and also provide detail on our current areas of focus.
John will then take you through the financial highlights.
Starting with our investment thesis on slide three.
Virgin Galactic is the world's first and only public company focused on commercial human space flight.
We believe the commercial exploration of space represents one of the most exciting and significant technology initiatives of our time and our mission is to broaden access to space and enable routine consistent and affordable travel.
Significant market opportunity exists to provide high net worth individuals with a unique horizontal launch space flight experience at a fraction of the expense incurred by other private individuals to date.
There is already significant demand for high end luxury experiences, particularly out of home experiences, which outpaced the broader segment growth by 7% for 2018.
Our customer base is highly engaged and we have seen sustained interest in our product offering since our founding.
We have over 600 reservations.
Approximately 80 million in deposits representing over $120 million of potential revenue.
Registrations of interest continue to grow at a rapid pace and currently stand at 7957 as of February 20, Threerd 2020 more than doubling since our last update in 2019.
We believe our business model is attractive and highly efficient underpinned by the reusable scalable design of our species UBS.
The design features meaningfully reduce the operational cost of each space flight overtime, delivering strong unit economics.
Importantly, we have a strong competitive position in the commercial space flight industry with more than $1 billion of investment behind the company.
We expect to benefit greatly from our first mover advantage, which is reinforced by significant barriers to entry for potential new competitors.
Supported by the substantial investment we have made in our technology and the progress we have achieved to date.
In addition, we're confident in the financial strength of our business.
I will talk later about our important announcement today of the one small step initiative.
Through which we will start to validate the huge interest we are seeing from people signing up to our future Flyer list.
The one small step program marks an important milestone to reactivate our sales engine.
We've seen approximately 8000 people register interest to fly since our December space flight, which is very exciting to see.
One small step will provide us is a means to qualify new prospects and bring new people into the galactic community, while enabling those prospects to be first in line to purchase a ticket once we have seats available.
As we move past commercial launch and increase our flight rate through bringing more spaceships online our business will really gained momentum.
2021 is when we expect to see the ramp up in our revenue and cash flows.
Overtime, we expect to benefit from operating and build efficiencies to drive our profitability.
We are in a strong cash position today as a result of the transaction with social capital Hedo Sofia and we have no debt on our balance sheet.
John will go into more detail on the financials later.
Finally, we have a strong management and flight operations team in place with decades of experience in the space in aviation sectors.
Let me now share some key milestones we've achieved over the past 15 months, the demonstrate our progress and pace thus far.
Turning to slide five.
On December 13th 2018, we successfully launched the first commercial space vehicle to put humans into space.
This was a historic step and was the first crude space launch from U.S. soil since 2011, the retirement of the space shuttle.
Our pilots who flew this flight were subsequently awarded their official astronaut wings by the U.S. Secretary of transportation in January.
Turning to slide six we followed this up by having the first non pilot crew member flown on a commercial space vehicle on February 22nd 2019.
Best Moses our chief astronaut instructor completed her first successful space flight, becoming the first non pilot crew member to fly on a commercial space vehicle fly at faster than mock three and on strap and flow freely in space in a commercial space vehicle.
Beth and the two pilots for this flight. We're also awarded their official astronaut wings. This time by associate administrator Wayne mine teeth, who runs the EFI A's space Transportation Division.
Turning to slide seven on May 10, 2019, we initiated the move to our operational headquarters at Spaceport America in Southern New Mexico.
Spaceport America is the world's first purpose built commercial spaceport and home to our Virgin Galactic Gateway to space terminal for which we have exclusive use.
The spaceport offers unparalleled operational advantages. Most importantly, it is within the restricted aerospace of the White Sands missile range, meaning that we will not disturbs surrounding commercial air traffic during our emissions, enabling a higher ultimate operational tempo.
Also offers great weather for operations year round and beautiful natural surroundings.
We made this announcement at the new Mexico State capital with Governor Lou hand, Christian and it was a significant moment for the company as it meant the relocation of dozens of employees from our manufacturing base in Mojave, California.
Turning to slide eight on August 15th 2019, we relocated our carrier aircraft called Vms Eve, two new Mexico at which point Spaceport America became operationally functional.
Specifically, we activated our mission control, our telemetry and tracking systems and a wide range of additional systems and processes.
Turning to slide nine on October eight 2019, we announced that we had entered into a strategic partnership with Boeing and receive $20 million in strategic investment from Boeing's Horizon X ventures.
We are excited about this partnership and its potential to support our mission to open access to the world and space in a safe and responsible way.
It also supports our focus on developing high speed global mobility technology.
Ill provide a bit more detail on our high speed efforts later in this presentation and we will provide information on specific projects as our partnership with Boeing ramps up.
Turning to slide 10.
On October 16th 2019, we announced our collaboration with under armour and also unveiled the flight suits that our future astronauts will wear in flight.
Under armour deployed their latest garment and footwear technologies to provide our future astronauts would suit that will be comfortable flexible safe and increase their enjoyment of the entire flight experience.
Turning to slide 11 on October 25th 2019, we completed our merger with social capital Hedo Sofia, creating the world's first and only publicly traded company focused on commercial space like.
This was a hugely exciting and transformational day for us all and we appreciate the support for many of you on the phone prior to and since our public listing.
Turning to slide 12.
In connection with completing our merger with social capital Hedo, Sofia, and becoming a publicly traded company we installed a world class Board of directors.
We believe each of our directors brings significant and complementary expertise and experience to our team.
We've listed out our board's experience on slide 12 of today's presentation, you will see experience from the world's leading aerospace mission assurance organization as well as some of the top airlines of the world and the leading investment firms in the world.
This thoughtful collection of leaders will serve the company and its shareholders well as we established commercial space operations, while looking forward towards high speed mobility.
Turning to slide 13.
On November 15th 2019, we kicked off our astronaut readiness program the process of preparing future astronaut customers for their flights to space at the under armour Global headquarters in Baltimore, including undertaking a number of flight preparation activities.
This enabled some of our earliest customers to be fitted for their flight suit do their medical's receive training on health and wellness advice as well as continue the paperwork process for their flights.
Turning to slide 14 on January eight to 2020, we announced that the second space ship in our fleet had completed a major build milestone and achieved weighed on wheels, where all major structural elements of the vehicle where assembled and the vehicle deployed its main landing gear and carried its own wait for the first time.
Yeah.
We achieved weighed on wheels faster and more efficiently both in terms of process efficiencies and in completeness of the build than our first spaceship, allowing us to reach the weight on wheels milestone approximately nine months faster than our first ship largely through the use of modular build processes as.
Well as experienced curve benefits.
Turning to slide 15.
A few weeks ago on February 13, 2020, we relocated our first space ship VSS unity from Mojave, California to Spaceport America in New Mexico.
This captive carry flight provided a valuable opportunity for engineers to evaluate VSS unity for over three hours at high altitude and cold temperatures a longer period of time and his experience during missions to space.
This milestone was a significant accomplishment for us and I'm really proud of our team.
Turning to slide 16.
Now I would like to provide some detail on the FDA approval process.
We already have our commercial launch license, which allows virgin galactic to conduct spaceflight missions.
We have already conducted all of our rocket powered flights under this license.
What we're doing now is going through the final process to fly paying customers by providing the FAA with data that verifies and validates elements of our commercial license.
We have already cleared 20 out of 29 of the verification and validation elements 10 of which were completed in Q1 Twentytwenty.
We are working hard on the remaining VNB elements and will provide updates as appropriate.
Turning to slide 17.
We continue to focus on our top priority of the year, which is to fly Richard Branson into space on a commercial flight.
It will be a powerful signal to the world that the next phase of commercial human space flight is beginning and it will be a transformative moment for the company and its employees customers and stakeholders.
We're pleased that we have now reached the next milestone in achieving that goal the relocation of our space ship Unity to Spaceport America in New Mexico.
This new milestone is significant because it sets us up to conduct test flights from our permanent base of operations building experience and familiarity with all the various aspects of mission execution.
Ground facilities staff support aerospace coordination external interfaces and services hosting and hospitality.
Well, we have come far and are excited by the tremendous progress to date.
We still have significant important work to accomplish before that can occur.
And we will not forget that our most important objective is to conduct our space flight operations safely and successfully.
That work, we'll have three main areas of focus.
Finishing the test flight program.
Testing and optimizing the end to end customer experience.
Readying the vehicles for long term high rate service.
I would like to discuss each of these in turn.
First finishing the flight test program.
For this area, we need to complete our glide flight program, which will enable us to check out the aspects of our new operating location.
Gain valuable piloting experience in gather additional performance data that may be incorporated into our design.
We will then complete our powered flight program, which will enable us to evaluate the spaceships performance throughout the entire range of its flight profile and to further validate the space flight system.
This phase will also continue the evaluation of the onboard space flight experience that we will be providing to our customers optimizing our spacecraft interior as well as the training program that will be used to prepare our future astronaut's for their journey.
With each flight performs in the flight test program, we gather additional data.
Evaluate flight performance and perform additional work on the vehicle to improve the flight profile for performance and repeatability.
Next testing the end to end customer experience. This goes beyond just the experienced in the cabin of the space ship during a space flight.
It includes the training our customers will receive prior to their flight both during their time and Spaceport America as well as earlier in their journey as they get prepared to take their flight.
It includes the hospitality experience customers will receive on the ground Apis spaceport at the hotel and throughout their entire stay.
This is not just limited to the people flying to space, but extends to their invited family and friends as well.
It also extends further back in time to cover the pre arrival experience preliminary training and preparation and the issuance of tickets.
Third readying the vehicles for long term high rate service.
This work will have several key focal points.
First ensuring that the space ship and carrier aircrafts have the proper resiliency in their systems and structures and are well prepared for the ability to quickly be inspected and readied for their next flight.
Second ensuring that the vehicles flight controls performance in handling qualities are well suited to a variety of flight conditions as we look to a future of geographic expansion.
Third continuing to make enhancements and upgrades to the space ship and carrier aircraft that enhance safety performance lifetime and flight rate.
One note.
Everyone should keep in mind that our manufacturing base remains in Mojave and due to its extensive and comprehensive capabilities. It is possible that we bring this space ship back to Mojave, one or two times before the start of regular commercial service.
We intend to provide periodic updates as we achieved the significant milestones necessary to fly Richard Branson into space and commence commercialization, while we would like to have some initial commercial revenue. This year. The main focus for this year from a company and engineering perspective is working to get the vehicles and.
Our operations prepared for long term regular commercial service.
Turning to slide 19.
I want to provide a bit more context about the market we operate in.
Over the past decade, several trends have converged to invigorate the commercial space industry.
Rapidly advancing technologies decreasing costs open innovation models with improved access to technology and greater availability of capital have driven significant growth in the commercial space market.
According to an October 2018 article from the U.S. Chamber of Commerce, the commercial space market is expected to grow 6% per year to at least 1.5 trillion by 2040, reaching 5% of the U.S. gross domestic product.
We expect the sector to be boosted further by the current administrations recent launch of the U.S. space for us.
We believe we are at the forefront of these trends and are well positioned to capitalize on them by bringing human space flight to a broad global population the dreams of traveling to space.
Turning to slide 20.
Private commercial space travel has historically been limited to a select group of individuals who are able to reach space generally only at great personal expense and risk.
Historically, the only option for private individuals to travel to space has been with orbital providers funded by national governments charging tens of millions of dollars and requiring many months of training.
What we are offering is significantly more affordable by two orders of magnitude.
And can allow a much greater portion of humanity to access space.
We view, our offering as a luxury out of home experience.
The growth of this segment of the luxury goods and experienced market has outpaced the broader segment by approximately 7% in 2018 and our research indicates this trend is expected to continue.
The demand for our product is supported by the more than 600 reservations and approximately $80 million of deposits. We have received and also by the approximately 8000 registrations of interest.
In reservations, we have received since our first space flight in December 2018.
We expect to see this grow with the launch of our one small step initiative announced today that I will talk about in more detail shortly.
Turning to slide 21.
Going into a bit more detail on our key demographic right now.
Research shows that in 2018, there were approximately 1.8 million high net worth individuals' globally with a net worth greater than $10 million.
This group of individuals is expected to grow at a compound annual growth rate of approximately 6% through 2023.
We actually believe our target market to be greater than this group as we know that many of our current customers have a net worth that is below this figure.
Further our business model only contemplates that we serve a very small percentage of this group. So we expect to be very well protected against any macroeconomic headwinds.
Turning to slide 22.
We currently have one space ship entering its final test phase before commercial launch.
As I touched on earlier, our second space ship reached a major milestone weighed on wheels last month.
We plan to expand the fleet to have five space ships in service by the end of 2023, which should allow us to significantly increase our flight rate.
In addition to human space travel, we're also working with research and education customers to conduct research payload trips a good example of this is the new contract we entered into with the Italian Air Force in the fourth quarter of 29 team for a human tended research flight during which Italian researchers will actively.
We conduct experiments while they're in space.
Multiple government agencies and research institutions have expressed interest in working with us to develop research payloads, two space and to conduct suborbital experiments.
We have flown eight payloads for research related admissions and we expect research missions to form an important part of our launch manifest in the future.
Turning to slide 23, and looking ahead.
We believe that by leveraging our technology and operations to drive efficiencies and reduce costs.
We will be able to lower ticket prices, allowing us to greatly expand our total addressable market to individuals with a lower net worth than we are currently modeling to have the capacity to meet our ticket prices.
We're also working hard to drive efficiencies in our existing capabilities in an effort to decrease the manufacturing cost per space ship and we are already making good progress.
For example, our second space ship reached the weighed on wheels milestone approximately nine months faster than our first ship largely through the use of modular build processes as well as experienced curve benefits.
Finally, we are pursuing growth opportunities abroad, including by potentially opening additional space ports are entering into other arrangements with different international government agencies, we are already in discussions with Italy, and the United Arab Emirates and have also had preliminary conversations with other countries.
Turning to slide 24.
While our primary focus is on commercializing human space flight.
We believe that we can leverage our robust platform of advanced technologies significant design engineering and manufacturing experience and extensive past and future flight data to develop additional aerospace applications, most notably centered on high speed global mobility.
Hi speed global mobility technology is already a key focus for military and other government applications, particularly in the missile space.
We see huge opportunities to apply high speed global mobility to the commercial aviation market to drastically reduced travel time.
Such as the example, we have here that shows how hypersonic vehicle could reduce the late to Tokyo flight time by nine hours.
Even supersonic flight could have a dramatic impact on global markets, enabling new activities and connecting the world more closely.
Turning to slide 25.
Virgin Galactic is already well positioned today to develop this technology and we believe we are significantly ahead of our potential peers.
Ours is the only team designing building and flying a commercial crude vehicle today that can travel at supersonic speeds, which we believe gives us an immense first mover advantage.
We are further bolstered by our partnership with Boeing which we believe will enable us to further develop our high speed technology.
Our team also benefits from our co located vertically integrated design and manufacturing stack.
In addition, our flight system, a wind system with the horizontal launch and landing architecture means that we are compatible with existing airport infrastructure is around the world capable of being sequenced into existing airport patterns and local air networks.
We have a focused and experienced project team dedicated to developing and applying high speed global mobility technology, and we're looking to build this team out further.
Finally, we can leverage the experience an insight from Virgin groups. Other airlines in this respect we're pleased to have the experience of former Virgin Atlantic CEO, Craig Krieger on our board of directors.
So looking ahead, our vision is to have a customer driven environmentally sustainable fleet of commercially viable vehicles with premium end to end service with rapid global reach saving a precious resource.
Time.
We believe a fleet of wind high speed vehicles would easily integrate into existing airspace and airport infrastructure for accelerated adoption and create value for operators, who would be accessing significant new market opportunities.
As a foundation for this work, we're focused on creating IP and material science analysis tools propulsion sustainable fuels manufacturing guidance and navigation and other supporting technologies for high speed applications with Aero derivative technologies developed that can provide direct benefit.
To all.
Turning to slide 26.
Our high speed initiative is enabled in part by the space ship company, our vertically integrated.
End to end aerospace manufacturer within Virgin Galactic headquartered at the Mojave Errand space Port in California.
The spaceship companies extensive capabilities covered the full range of design manufacturing ground testing flight testing and post delivery support.
The breadth and depth of our capabilities and the quality of our team that is designing building and testing our space ships is what you might expect of a major aerospace contractor. However, we do this with a passionate lean and nimble team and a low cost structure with a true entrepreneurial spirit.
Our capabilities are vertically integrated, allowing us to design analyze build and test the vast majority of our entire space flight system, including all of the engineering disciplines necessary to analyze and design high performance vehicles as well as the full stack of.
Onyx development, including software programming hardware development and avionics hardware integration.
Ours is the only team in the world designing building and flying accrued commercial winged supersonic vehicle today.
In Mojave, California, we have an extensive campus with over 200000 square feet of operational areas that supports our team of over 700 employees and contractors at the spaceship company.
Our Mojave campus includes a test site for our innovative hybrid rocket motor as well as advanced testing laboratories for qualifying the structures and systems used on our vehicles.
Turning to slide 27.
Vms Eve serves as our mother ship for spaceship too, but also has the capability to deliver other payloads.
Leveraging our existing intellectual property and advanced development and manufacturing capabilities in Mojave.
We are exploring the significant interest received to date to leverage this platform for other markets and uses.
Turning to slide 28.
Other potential applications of our technology include.
Hi speed test beds for defense applications.
Captive carry and launch services.
Research and development of future mothership configurations.
Urban mobility.
And high altitude long endurance vehicles.
Now well our primary focus for the foreseeable future will be on commencing and managing our commercial human space flight operations, we expect to continue to explore and evaluate the application of our technologies into these and other potential uses.
We are well positioned for opportunities like these stemming from our experienced garnered and lessons learned from a challenging development program.
We are already flying accrued commercial winged vehicle at Overmuch three.
We've assembled the best talent in the World and our team has already achieved a lot of first.
And we have built a company and importantly, a culture that takes time to replicate this allows us to deploy capital efficiently to new efforts.
Turning to slide 29.
Now I'd like to turn to the specific achievements, we accomplished in the fourth quarter.
I am pleased that we continued to build on our strong momentum and achieve number of key operational and business milestones.
Many of these we disclosed at the time, so I won't go into great detail on all of them, but to highlight just a few.
We achieved key operational milestones at Spaceport America through 29 team, including exercising our new mission control ground operational elements and external agreements and communications that were required for flights of Vms Eve and other aircraft types.
We transitioned a total of 70 Virgin Galactic operations personnel from Mojave, California to do Mexico by year end, bringing our current total staff number in new Mexico to 145, following the interior buildout of two floors at Spaceport America earlier in the year.
We achieved critical design and build milestones on our second space ship during the quarter.
And also achieved 50% completion of our third spaceships structure and systems.
We activated key elements of our higher rate rocket motor production facility.
We continued to clear FDA verification and validation provisos in the quarter.
We assembled our public company board and continued to build out our executive team hiring Michel CLI as our general counsel.
And while not in Q4, we also announced earlier this year that Enrico Palermo President of TSC has become chief operating officer of Virgin Galactic Holdings in a newly created role.
All of these achievements demonstrate the critical progress we continue to make as we prepare for commercial launch and I would like to thank all of our employees for their commitment and dedication to our mission.
Of course, one thing not listed here is our transaction with social capital Hedo Sofia. So now like to turn the call over to our Chief Financial Officer, John component, who will provide some additional detail about the transaction as well as our fourth quarter and full year financial results.
Thanks George.
Turning to slide 30.
On October 25th 2019, we completed our merger with social capital had a sofia, creating the world's first and only publicly traded company focused on commercial space flight.
This transaction provided us with $452 million of cash on our balance sheet and put us in a strong cash position as we continue to progress towards commercial launch.
As a results of the transaction, we incurred onetime costs of $48 million, including underwriting legal accounting and other fees.
Following the close of the transaction our ownership structure consisted of 59% ownership by rollover equity holders.
27% public ownership.
13% ownership by the specs sponsors and 1% Boeing ownership via their $20 million investments.
We recently filed our amended S. One registration statement for the purpose of registering the shares issuable upon exercise of approximately 31 million outstanding warrants.
We are working closely with the SEC to make that registration statement effective as quickly as possible.
Well, we have not yet met requirements to mandatorily redeem the outstanding public warrants and have not made any decisions as to whether we will redeem the warrants if we meet such requirements.
Our current intention is to wait until the S. One is effective before making such a decision.
Turning to slide 31.
We are pleased with our fourth quarter results, which reflect our ongoing progress towards commercial launch and our transition during the quarter to become a public company.
As George said earlier, we have received 7957 registrations of interest in flight reservations as of February 20, Threerd 2020 up 124% from 3557 as of September Thirtyth 2019.
We ended the quarter with cash and cash equivalents of $480 million on our balance sheet as of December 30, Onest 2019.
Revenue for the quarter was 529000, which we generated by providing engineering services.
Net loss for the quarter was 73 million, including clickable transaction costs from our merger with social capital had a Sofia.
And on a non-GAAP basis, adjusted EBITDA totaled negative 55 million in the fourth quarter.
Capital expenditures totaled 6 million in the fourth quarter, which comprised primarily of investments and Spaceport America and vehicle tooling costs.
Looking at the year overall revenue for fiscal year, 2019 was 4 million, which we generated by transporting scientific payloads and providing engineering services.
Net loss for the fiscal year was 211 million, including applicable transaction costs from our merger with social capital had a sofia and on a non-GAAP basis, adjusted EBITDA totaled negative 187 million for 2019.
Capital expenditures totaled 19 million for 2019, which was primarily attributable to investments in support of operational readiness at Spaceport America.
Turning to slide 32.
We use adjusted EBITDA as a key measure of our performance.
You may refer to the appendix of our earnings press release issued today for a complete reconciliation of adjusted EBITDA to GAAP net loss.
Adjusted EBITDA excludes stock based compensation and nonrecurring transaction costs.
To provide a bit more contacts on our expense increase for the fourth quarter 2019. This primarily relates to our efforts in connection with becoming a public company, including audit Sarbanes Oxley for four and internal audit costs as well as legal and investor relation services and insurance.
Our expenses for the quarter also include cost associated with the employee vehicle and equipment relocations as well as cabin and interior work for VSS unity.
We will be able to capitalize our build costs for space ship twos and white Knight twos in the future upon achievement of technological feasibility.
Which we anticipate achieving later in 2020.
As we get closer to commercial launch and begin to book ticket revenue, we expect to report more detailed financial results.
I will now I'll turn the call back over to George.
Thanks, John.
Turning to slide 33.
As you may have seen from the press release issued earlier today.
We have announced a new initiative called one small step.
As we reactivate our sales engine.
And prepare to release, our next tranche of seats for sale.
To the general public.
This is the latest planned step in a commercial strategy, which was initiated in December 2018 by a formal closed to new sales immediately following our historic first space flight.
Our objective in the meantime has been to create optimal conditions and a strong sales pipeline in preparation for reopening the doors to new business at higher price points.
During 2019, we rolled out a regular cadence of milestone updates, including our second space flight.
And the reveals of the spaceport interior and customer spacesuits.
Emphasizing the significant progress we have been making towards commercial service.
This program was supported by successful campaigns in traditional and social media. The ambition behind this program was to create a pool of prospects for space flight sales and as we went through 2019, we use the news flow to encourage those potentially interest.
Did in flying with Us to register online.
We have been delighted with the response and are extremely pleased that flight reservation registrations now number approximately 8000.
Our direct sales funnel is now strong in each of the leads prospects and future astronaut stages.
With the one small step initiative. We are now building additional structure that will establish a pool of qualified prospects and in doing so augment the direct channel sales funnel structure in readiness for turned to sales and in support of future growth.
Turning to slide 34.
Today's announcement of our one small step initiative marks a significant milestone as we prepare to reopen ticket sales.
Online registrants will pay a 1000 dollar refundable deposit.
To secure their place at the front of the line for future ticket reservations when ticket sales reopen.
We will then apply the $1000 small step deposit to the price of a future space flight reservation.
The one small step program offers advantages to both our customers into the company.
Once the new seats are released they will be offered first to one small step registrations.
One small step registrations will also enjoy an enhanced relationship with Virgin Galactic in terms of communications and other dedicated initiatives on the customer journey to becoming astronauts.
For the company this program augment the direct sales funnel.
And allows us to begin establishing relationships with future customers.
It also provides us with a pool of qualified prospects for conversion via one giant leap.
To a confirmed spaceflight reservation and full future astronaut status.
Our direct sales qualified prospect pool will also be augmented by alternative sales channels, including Virgin Galactic Global network of accredited space agents.
The launch of one small step is an exciting development in response to the unprecedented reservation interest we continue to see for our space flights and also serves as a qualifying method for the approximately 8000 registrations of interest we have received.
Before we turn to Q in a.
I would like to take this opportunity.
To thank the fantastic team at Virgin Galactic and the spatial company.
Our achievements to date reflect the daily hard work of each and every team member.
We're entering the most exciting chapter of our story and we are all committed to continuing our success, while opening up access to space.
We hope to have investors, who are here for the long term and who can appreciate the tremendous opportunities within the commercial space and high speed transportation sectors and the need to progress at a pace.
That keeps safety at the forefront.
We look forward to sharing more with you as our progress continues.
At this time, we will begin our Q and a.
I would like to remind everyone in order to ask your question. Please press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q and air Austria.
Your first question comes from the line of Adam Jonas from Morgan Stanley. Your line is open.
Thanks, everybody and George question for you.
Just kind of upfront what do you think of the share price here.
Hi, Adam and hi, everybody there.
Nice to be with you and you know I think.
I think we're just going to keep executing and.
That's really what we're focused on a run a team both space engineers and what we're best that is just.
Keeping our heads down and focused on on the engineering. So that's that's basically what I think.
Okay, I appreciate that and I asked because.
Clearly established you got a lot of cash on the balance sheet and theres. Some some items that could kind of continue that moving up.
Whether it's the one step small step program and then potentially the items related to the S. One.
But as a saying that sometimes the best time to raise capital is when you don't need it you don't need it but given the enormity of the opportunity that you've established in this really excellent presentation.
Some investors might wonder you know given volatile market conditions and opportunity to really exercise that first mover advantage.
What is the logic for not raising more capital here and I am referring specifically beyond to the warrants related to potential transaction can you tell us why you don't need don't want to use a potential opportunity to raise even more.
Well I mean.
I think the that the thing that is exciting about galactic is that we have in front of us.
An initial market opportunity that we believe is strong and highly profitable.
What's even more exciting in some ways is that the technology that we are developing as part of that.
First phase can lead into.
Future phase that can really transform the global transportation.
Market and you know.
That's something that we have a team thinking about right now.
That is.
Some of the smartest folks that I've ever met and.
There they are working really hard on this subject back on back in Mojave, California and in other places and so I think we're going to we're going to take us staged approach. This.
We're really going to be thinking carefully about.
How we rolled it out I look forward to sharing more information with the market as we go forward in our thinking process and our design process.
But I've been gratified by the excitement that I think people have felt about this opportunity to like really transform how we move around the planet and.
And I think that we're gratified by the share price and.
And as always we'll look at the entire situation and keep monitoring but right now we're really focused on on the engineering.
Your next question comes from the line of Daryl.
Spingarn from credit Suisse. Your line is open.
Hi, good afternoon, it's Rob Spingarn.
Rob.
Hey, George and John I got a couple of questions for both of you.
Yes.
Wanted to start George with the one small step and ask you how large that next tranche of seats that you're planning to release would be and what kind of pricing you're thinking about.
Yes. So so that's a that's a very important question and I mean, I think we will be sharing more information on both our premium pricing strategy and the number of seats that will be.
Releasing over the course of the year.
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Right now we're very focused on the rollout of the small step program and what I'd like to say is really think of our of our approach to the market as as a sort of a funnel right. So if you havent up at the top you have around 2 million.
Little bit less than 2 million folks who have over 10 million of.
Of.
Of net worth and then we've had this 8000 roughly 1000 folks who now expressed a desire to buy a ticket with us which by the way I mean, you know I think frankly that to me was the great surprised that we've been looking forward to sharing with folks today because it was started ticking up by a few hundred and then.
Recently, it's just it started going up by leaps and bounds and Thats, just a really exciting validation of what we're trying to do and what we're trying to build.
So if you start to think okay. Well first level is this just large group of people that can they can afford at the next group is the number of people who sort of said that they want to buy it and then if you go down to the bottom of the funnel you have the 600 folks who've already put down either a full or or substantial deposit representing $80 million. It of deposits in about a 120 $130 million.
A future business, what that small step allows us to do which is what we're announcing today and we'll open tomorrow is a chance for us to to start to really identify the folks who are most you're most eager to jump in on that next tranche of flights and as we go forward, we may even see another another.
They are tranche in there.
But basically what we're trying to do is to just help our customers and our prospects move through the sales funnel because it's a tremendous amount of people. Obviously, we think and we've expressed to the street in the past that we think we're going to be.
Supply constrained business for a while just because.
Even if we build these five ships thats not adding too much capacity unit market and so we really want to make sure. We're focused on folks now in terms of the premium pricing. This is.
As many of the folks on the phone no. We do plan on going back into the market with a higher price point, we think that done that.
That said justified by.
The extreme interest that we're seeing as well as.
The great product that will be offering and the best Moses validated last year. So we'll be we'll be talking more about that over the course of the year and we know that theres lot of interest in that today, we're really focused on small step getting that right rolling it out and having a great introduction of that and connecting with these thousands of people who have said that they are interested in buying a tick.
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Okay.
And if I am still in the queue here I wanted to ask you. If we could go barely you are seven.
Okay. Good yes, I have a few I've a couple more.
We go back.
Slide 17, you talked about the three areas.
Yes, when you were updating the test program. So those flight test and customer experience in the readying the vehicles what are the key.
Gating items among those three that you need to get through to get to this first commercial flight and are you still on schedule for mid summer sounded before like.
This.
The schedules in flux, a little bit as you as you get everything is perfect as you needed.
Yes, well you know as you know our number one priority is to fly safely and not just so Richard but anybody we fly whether it's the pilots that we fly or employees that we might fly in the late testify program.
That's our number one priority what were what were what we are affirming today as you know that were a number one priority is to fly Richard Branson into space on a commercial flight in 2020.
Thats, what our entire organization is really that they know that thats the top priority.
I don't mind, breaking out a little bit more detail in terms of these three areas I did talk about it a little bit during those remarks in terms of the finishing the test library, we're going to.
Be needing to do some glide flights and some rocket powered flights obviously in terms of the.
End to end customer experience you know, it's not just in flight experience. It's also the on the ground experienced its even the.
Before you get to spaceport experience, we really are working really hard on all all of those phases, but obviously a lot of theres going to be a lot of focus on the cabin experience in the seats and the suits in the energy the interaction between all of those things and then the third thing is ready to vehicles for long term higher it service I talked a little bit about that in my comments still you know.
We want we really want to make that a big focus because we know ultimately.
The amount of revenue that we.
Generate in 2020 is really.
Not the thing that's going to make this company a great success was going to make it up great success is having a vehicle that we can turnaround relatively rapidly.
And and do that on a consistent basis, and then build a fleet of them. So that we can.
More capacity into the market.
Those are the things that we're really going to be.
Focused on as as we as we go forward and you know as Weve as we have today, we look forward to communicating progress on key milestones were going to keep people updated as we go through that both with the test program, but also the build program in Mojave and the Spaceport America operational readiness I will say one thing.
Moving our unity, our first spaceship down to new Mexico was a big deal. It was a big deal on a technical basis getting that vehicle down there we had a great flight down we're able to do some test points in the way down because it was a three hour.
We had three hours of called soak on the way, but also big deal for the team, particularly the team.
In new Mexico, who have.
Now had I think around 70 folks have relocated joining our team already there building up so it's a big milestone to have both vehicles down in new Mexico, and what I'm really focused on next is the next glide flight, where we'll be able to.
The spaceship unity flying free above new Mexicos guys.
Your next question comes from the line of Darryl Genovesi from vertical research. Your line is open.
Hi, guys. Thanks for the time.
Hey, Tom.
Hey, George or if.
Stephen is in the room.
When I look at your.
Your chart, where you show the the progression of the addressable market from 10 million plus two to one to five I guess I can't help but think of.
How.
How you plan to sort of Tesla plasticity.
Around sort of initial price points and how you.
Neil will ultimately make the decision as to whether or not you want to proceed down that path.
You have any any thoughts around I guess, you said, you're going to give us some more comments on pricing as we progressed through the year, but just wondering how you're.
Sort of thinking about the Ford progression specifically.
Yes, I mean, you know you're probably aware that there's a variety of ways, both private and public but did you can use to test market.
Pricing and less just to the obviously, we're very focused on it we have some of the best.
Pfizer's in the world on this stuff and you know we're using a few different methods I think what is clear is that there's a huge.
You know desire to get in on.
No.
Early early flights how redefine that there is a desire.
You know to fly with special people.
The number of people would love to fly with Richard as large, but there are other people, who will be flying with us and.
And then there's we even see a fair amount of folks who.
I want to fly by themselves or like a couples are charter flights things like that and so there's going to be a variety of ways that we layer in different types of experiences this won't be like sort of a single experiencing.
Where we may be able to add premium pricing packages that I think will be really great for the customers, but also good for the company as well the other thing that is exciting is obviously.
You know the pricing that we're seeing in the research market is is a great. Even at pricing that is that is very good for us it's still.
Hugely cheaper than trying to send something up to an orbital facility and so I think we're going to be able to make good progress on that as as well and of course NASA is talking about.
Human tended funding human tended flights.
On on.
There there, they're considering that they put out some kind of document on that so I think theres a lot of.
Interesting opportunities for premium premium pricing.
At this time, we would like to thank everyone for.
Joining Virgin Galactic fourth quarter and full year 2019 earnings Conference call. This concludes todays conference call you may now disconnect.
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Hi.
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