Q2 2020 Virgin Galactic Holdings Inc Earnings Call
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Ladies and gentlemen, this is the operator your conference is scheduled to begin momentarily until that's on your ones will once again be placed on home. Thank you for your patience.
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Good afternoon, My name is Jason and I will be your conference operator today at this time I would like to welcome everyone to Virgin Galactic second quarter 2020 earnings Conference call. All lines have been placed on mute to prevent any background noise hosting today's conference call will be Michelle CLI.
<unk> General Counsel and Secretary of Virgin Galactic as a reminder, today's call is being recorded.
I would now like to turn the conference over to MS. Quite please go ahead.
Thank you.
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Okay.
Second quarter 20 funny.
Oh.
Today, our Michael.
Executive Officer.
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<unk> Chief Financial Officer.
That's really need a slide presentation available on our Investor Relations website, which provides an overview of our business and financial highlights for the second quarter 2020.
During today's call, we will make certain forward looking statements within the meaning of the federal Securities law.
<unk> looking statements or 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 may materially differ from forward looking statements. Please refer to the earnings press release, we issued today and other documents filed by Virgin Galactic from time to time with the Securities Exchange Commission, including our form 10-Q for the second quarter I'm 2020.
<unk> looking statements speak only as of today. They are me readers are cautioned not to put undue reliance on forward looking statements.
As I'm sure. Most of you had seen today, we filed a registration statement on form S. One for a proposed underwritten offering a virgin Galactic style.
Given securities law restrictions around public offering we will not be hosting acuity on today's call.
No more normal acuity structure on our Q3 earnings call.
With that I'd like to turn over the call to Michael called later.
Thank you Michelle and good afternoon, everyone.
Well I can start, but I think in each of you for joining us today.
I hope that you and your loved ones are continuing to stay healthy and safe.
Today marks the start of my third week at Virgin Galactic.
Over the past two weeks I've been focused on meeting our team getting up to speed on the primary efforts taking place within the company.
And you this would be the case, but Mike segment had my passion about joining this talented team continues to grow each day.
A joint Virgin Galactic from the Walt Disney Company right gained over three decades of experience developing and growing consumer oriented businesses.
Although clearly different companies Virgin Galactic and Disney parks have similarities in many respects.
Most companies show central focus on safety.
This is built into the engineering operations processes and culture here at Virgin Galactic and this is something I'm very familiar with from my time at Disney.
I'd like Disney Virgin Galactic will provide amazing transformational customer experiences.
It's the core what we're offering a virgin Galactic and I look forward to working with our team as we proceed with momentum towards commercial service.
My priority for this initial onboarding period, this to listen to learn from the talented leaders engineers and technicians, let Virgin Galactic to this point in the company's journey.
As such I, best or two space officer, and founder and CEO, George Whiteside, along with our CFO John companion to lead the bulk of today's call.
Now, let me hand, the call over to George I will joined at the end to share final comments.
Thanks, Michael.
Before I begin I just wanted to say, we feel from endlessly privilege that Michael has joined the company.
You know I have next and that has only solidified my view that he is exactly the right person to lead the company through its commercial growth phase.
Michael Deep experience building and scaling fantastic customer experiences all around the world will serve this company well.
So welcome Michael and thank you for joining this incredible team.
Today, we will start our discussion of the quarter by providing a recap on the main areas of progress.
We will then provide updates on our flight test program as well as the ongoing impact of Coburn 19 on our operations and lead production.
We will then discuss our business highlights for the quarter and close by covering new developments in our future business opportunities.
John will then provide detail regarding our financial performance.
We achieved a significant number of miles.
So its during the quarter in both our space flight operations as well as our advanced development initiatives.
I will provide a short summary here and provide details on each during the call.
We conducted a number of successful flights from Spaceport America as we prepare for the next stage of our test program.
When we made important progress in our process to gain clearance to fly paying customers under our commercial launch license from the FDA.
We saw strong growth in customer pipeline and stability in our existing customer community.
We hosted a virtual event last week to unveil our spaceship cabin, which I hope you all have the opportunity to watch.
This morning, we announced a new series of steps in our high speed flight strategy.
And today I'm excited to be able to share some important news the development of our commercial orbital spaceflight initiative.
All of this has been achieved at the same time as we have had to navigate the inevitable challenges brought on by the covert 19 crisis, which we will cover later on in the call.
Turning to slide five.
In the quarter flight operations continue to ramp up and Spaceport America, and we completed eight flights between our space ship and the carrier aircraft.
As previously announced and discussed on our last earnings call on May Onest, We successfully conducted our first glide flight from Spaceport America.
This was an important milestone for us as it was the first time, our spaceship, yes, that's unity flu freely in new Mexico airspace.
During the glide flight vehicles climbed to an altitude 50000 feet before unity was released.
The spaceship achieved a glide speed of mock 0.70, and completed multiple touch points before touching back down smoothly for a runway landing at Spaceport America.
We're also able to complete six flights from Spaceport America with our carrier.
Craft Vms Eve during the quarter, an opportunity for the pilots and space flight operations team to continue Familiarization with the new aerospace around Spaceport America.
On a chance to conduct further pilot training.
We will continue to perform me flights as we lead up to come or full launch.
Finally, our team conducted several tests of the ground infrastructure at Spaceport America It will support.
Spacelabs, including a full scale exercise that involve loading VSS unity with a rocket motor and filling the tanks with propellant and pressure and a first for us at Spaceport America.
Turning to slide six.
Following our first alive flight from Spaceport America in May our teams conducted in depth analyses of the flight data in preparation for our second glide play, which we successfully completed on June 25th.
On this second glide play, but my 0.85.
After being released from the carrier aircraft to be MSC I didn't altitude of 51000 feet.
And it completed multiple tests points before touching back down smoothly for a runway landing.
That's based Port America.
The pilots performed a series of been data about the spaceships performance and.
Handling qualities, while flying at higher speeds.
This data husband verified again, similar maneuvers that were performed in the previous glide flight to enhance aerodynamic modeling.
Following the completion of an extensive analysis of the data from this fight. The team has now started preparing for the next stage of our flight test program powered space flights from Spaceport America.
For two and during the final phases of our flight testing, including review of flight data to prepare the vehicle for the next flight final modifications to the space ship customer cabin and detailed inspections of the vehicle systems.
Turning to slide seven and the FDA approval process.
We have made progress with important aspects of the EFI approval process over the quarter.
As we discussed in previous calls the company has already been awarded <unk> launch like since.
A license includes a series of element that must be verified and validated before we are cleared to fly paying customers under the license.
I'm pleased to share today, but in the second quarter, we were able to clear an additional three verification and validation elements, bringing our total cleared up to 27 out of 29.
These three elements related to cabin humidity vehicle landing gear and environmental control systems.
We are continuing to progress towards completing the final two VNB elements, which will be one of the goals relating to our next powered flight.
Once we complete these remaining elements, we can be approved to fly paying customers to space under our existing commercial license from yesterday.
We will also continue our own set of test objectives that we will complete in addition to the FDA milestones that may involve additional test flights prior to commercial launch.
Finally, we are pleased the during the quarter the F. accepted our safety management system or SMS.
SMS is a formal systemic approach to managing safety risk, which includes agreed upon procedures policies and practices and has become standard throughout the aviation industry worldwide.
Well not specifically required for our license we have adopted SMS as an industry best practice.
Turning to slide eight I'll now provide more detailed information regarding the progress we made during the quarter in our test flight program and look forward at our plans.
We're currently preparing the vehicles and operational facilities that Spaceport America for the next test flight.
Although we were able to conduct two successful glide flights with VSS unity from Spaceport America during the quarter. Our test flight program schedule has been impacted by Covidien team.
The Kobin protocols that we have put in place I've lived.
But at the number of people, we are able to bring back in Mojave producing the pace at which we can work compared to pre coven to help safeguard the progress on the commercial test by program. We are prioritized staff resources to be aligned.
Here.
The glide flights, we completed during the quarter have given us a good set of test results regarding operations from our new location at Spaceport America.
Those successful glide flights, meaning that we have baselined. Our next flight as a rocket powered space flight with a crew of two test pilots, which we expect to complete this fall.
This slight will be hearing payloads as part of massive flight opportunities program. The third such flight for the company, which will generate a modest amount of revenue.
As always I flagged that our engineers may want to repeat a test point and fly another flight as we proceed through the final stage of flight testing.
Pending a satisfactory review of the data from this fall flight and a check out of the vehicle. We would then plan to conduct a rocket powered flight to space with the crew of two test pilots in the cockpit and for mission specialists in the cabin.
The primary evaluate the performance of our full customer cabin and associated hardware as well as procedures and training detail.
These mission specialist will be company employees stations.
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I mean things go as expected on the spend to fly so Richard Branson on the.
Third powered flight for New Mexico, which we would plan to occur in the first quarter of 2021.
So Richard is in a unique position to provide the ultimate cabin and space flight experience evaluation experience.
Okay.
Future earnings calls, we will continue to share progress updates and advice on how results from our ground and flight tests are being incorporated into the schedule.
Turning to slide nine where I will provide an update on our fleet build program.
We've had to adjust many of our manufacturing processes and facility safety protocols to ensure we can continue operating safely during the coven 19 pandemic.
Although our team responded swiftly to take proactive steps to keep our teams safe and minimize potential disruption to our business our pace of progress was impacted during the quarter.
First we had a full shutdown of shop for operations from the Middle of March early April and cautiously restarted operations with small trial work cells.
Thanks to our protocols, we have been able to maintain progress within our manufacturing facility, while enabling many staff to work remotely.
The cumulative effect of these new protocols have led to delays in shop floor and engineering work process and have impacted the manufacturing assembly of our second and third spaceships.
However, during the quarter, we continue to make progress on key fabrication metrics and preparing our second spaceship to vehicle for integrated vehicle systems testing.
Well as the release of all structural close out drawings and remaining engineering definitions.
Although the covert protocols have created some delays to our process. We've continued to progress with our fleet expansion efforts and we expect to complete assembly of our second space ship to vehicle ready for rollout and commencement of ground testing this year.
For our third spaceship parts fabrication is now over 75% complete and we are expecting to complete assembly and ready to the vehicle for testing and 2021.
Turning to slide 10.
Last week on July 20, Eightth, we unveiled the design of the spaceship two cabin interior via an exclusive virtual event streamed live on Youtube.
Alongside the reveal we also launched an immersive experience a virgin Galactic space flight and cabin interior using augmented reality technology that can be accessed by aspiring astronauts in space enthusiastic around the world through a mobile app available to download for free on the App store and play store.
We're excited about this milestone and I am in all of what our team has accomplished with the cabin stunning design.
To allow a profound view from space 12 windows with soft extended outages are positioned around the cabin for a 360 degree on inspiring view.
And with the overhead windows pointing towards Earth, creating a life changing vista.
This includes the use of automated mood lighting and the cabin that harmonizes with each phase of flight.
Additionally, 16 cabin cameras plus those in the cockpit and mounted externally will generate high definition output to provide everything from the first Instagram posts to a beautifully edited and historically significant personal movie.
It was an exceptional event and really speaks to our teams creativity and finding ways to share. These exciting milestones with all of you. While we continue to navigate through these unprecedented circumstances.
Turning to slide 11.
During the second quarter, we continue to make meaningful progress and the Buildout of Spaceport America.
Typically we completed construction of the third floor customer area, which is where our astronaut training and flight preparation activities will take place.
The third floor also includes our customer space ship training cabin in astronaut lounge.
Following completion of the third floor, we were able to receive the certificate of occupancy for the space, which was the last such certificate for the whole facility.
We look forward to unveiling the special area to our customers and the media later this year.
Turning to slide 12.
During the second quarter, we continued to see steady growth in our sales pipeline a testament to the demand for our experience and the stability of our future astronaut community.
In light of the global Cobot 19, pandemic, we paused our active marketing campaigns around our one small step quarter, but have now restarted this campaign.
Despite Tim.
Efforts, we continue to see a positive.
Response, as registrants continued to sign up to join our small step community.
As of July Thirtyth 2020, we have received over 700 deposit payments for our one small step program a substantial increase since our last earnings call update.
In total this means the number of people who have signed up for our one small step community now substantially exceeds the number of future astronaut deposit holders.
It also means that we have more small step candidates then the total number of people who have ever been to space.
As a result of our strong customer relationships and an active engagement strategy. We also continue to see stability and minimal refund requests from our approximately 600 future astronauts.
As I said on our last call the financial profile of many of our customers helps to limit the impact of economic downturns on our business.
I'm tremendously encouraged that during this challenging time, almost all of our customer community has continued to stick with us reaffirming their commitment and belief in our mission.
The next decade for Virgin Galactic will be commercially focused and I couldn't be more excited to have much of the launch of commercial service and beyond.
Michael the wrong.
To my new role as Chief Space Officer.
Sure on spearheading Virgin Galactic efforts for the future business opportunity.
He's.
Leveraging the amazing talent across the organization.
Which has led us to some exciting early.
The stage progress and development.
I would like to share updates on two of these advanced development programs.
Turning to slide 14, and our orbital space flight initiative.
As you will recall in June we entered into a space Act agreement with NASA focused on commercial participation in orbital human space flight to the international space station ranging from private citizen expeditions government enable scientific reordering with the agency via the Johnson Space Center, we will leverage our commercial expertise and industry now.
College helped develop a program for private Astra missions to the ISS, including identifying interested candidates arranging transportation to the international space station and managing on orbit and ground resources in support of the mission.
We will contribute end to end program management and integrated astronaut training packages for private.
Passengers tailored to meet the needs for a commercial orbital space flight experience.
As part of this we will offer our existing space training infrastructure, It's based Port America, and customized future astronaut readiness program, which will play an important role and training private astronaut's for orbital travel, allowing these private astronauts to become familiar with the environment in and en route to space, such as GE forces and zero G.
This initiative has been largely driven by the considerable demand among our existing customer base to participate in orbital spacelabs.
Since the NASA agreement announcement, we have been in communication with our existing future astronaut about their opportunity to put down a significant refundable deposit demonstrate their interest in the orbital space experience.
Being existing customers. These individuals will also have unique opportunity to train for their orbital space flight using their suborbital space like a connection that NASA has itself recognized in its recent initiative to consider suborbital space flights for its research employees an astronaut core.
I'm very pleased to share today that since our we have entered into deposit agreements for orbital space flight with 12 customers.
We have not yet set final pricing for the orbital space flight experience, but other offerings in the market and with the.
Premium service and training the people expect from the Virgin Galactic brands.
We are thrilled to be partnering with NASA on these efforts and we look forward to helping grow another market for the new space economy, driven by a greater demand for use of the international space station for scientific and technological research and development commercial activity and international collaboration.
Turning to slide 15.
We have discussed high speed trap.
I will as a longer range opportunity for the company for some time and I'm excited to report on some important progress in this area.
Earlier today, we made an announcement unveiling the initial design concept for high speed vehicle effort. Following the completion of our mission concept review phase.
Our initial designs are based on the following parameters.
A targeted mock three certified Delta wing vehicle.
Cabin design that would accommodate from nine to 19 passengers flying in an altitude above 60000 feet.
And a vehicle design that aims to help lead the way toward state of the art sustainable aviation fuel.
To support the design process, we have signed a nonbinding.
To facilitate further collaboration on the development a sustainable for this type of aircraft.
As a leader in the technologies that deliver clean safe and competitive solutions to the planet vital power needs Rolls Royce has a proven record of delivering high mock propulsion powering the only civil certified commercial aircraft the Concorde capable of supersonic flight.
The design philosophy of the aircraft is geared around making high speed travel practical sustainable safe and reliable, while making the customer experience a top priority.
We're designing the aircraft for a range of operational scenarios, including service for passengers on long distance commercial aviation routes.
The aircraft would take off and land like any other passenger aircraft and integrate into existing airport infrastructure and international airspace around the world.
We're also working closely with international regulatory communities to ensure compliance with the highest safety and environmental standards.
Yes, I see a center for emerging concentrate direction and authorized ethics.
Hey resources to work with the Virgin Galactic team to begin the outline of a certification framework during the pre project guidance phase.
We believe that Baselining sustainable technologies and techniques.
Into the aircraft design early well also act as a catalyst to the adoption of sustainable practices and the rest of the aviation community.
You announced today Leverages and build on the Space Act agreement, we entered into with NASA in may to facilitate the development of high speed technologies over the coming years.
Turning to slide 16.
We're excited with the progress we have made in a relatively short time and on a personal level I'm thrilled to be able to devote my efforts and time to this area as we work on opening up a new frontier in high speed travel.
We believe that high speed point to point travel will revolutionize the way, we move about the planet and cut travel times drastically importantly, according to our analysis unlock three vehicle has the potential for travelers to do a round trip in one day between 85% of the most frequently traveled global city pairs.
This project is a long term effort and this is just to start but we have hit the ground running.
On this slide we've laid out a high level roadmap to give some context on what is ahead.
Turning to believe that Virgin Galactic is well positioned competitively to be a leading player in the high speed market.
We are the only company in the world to a phone and non pilot crew member.
And we plan to continue to collect Lars.
George amounts of relevant data from our flight program.
We have a strong team in place where the vertically integrated design development manufacturing and test capability and we are excited about the prospect complementing those strengths the capabilities of Boeing NASA and Rolls Royce.
Finally, we are excited about the experience we can offer customers by leveraging the service design, we have built up for our core product.
We have unique advantages in this area and I look forward to sharing more updates with you in the future I.
I would now like.
Tail about our second quarter financial result.
Pulse.
Thanks, George looking at Slide 19.
Our second quarter reserve for commercial launch.
Remain in a strong cash position.
Ended the quarter with cash and cash equivalents of 360 million on our balance sheet as of June Thirtyth 2020.
Net loss for the quarter was 63 million compared to $60 million net loss in the first quarter of 2021st full quarter as a public company.
Non-GAAP SGN expenses and non-GAAP R&D expenses have been adjusted to exclude stock based compensation.
Yeah as gene expenses for the quarter for 26 million compared to 27 million in the first quarter of 2020.
Non-GAAP SGN expenses for the quarter were 23 million, which was consistent with the first quarter 2020.
GAAP R&D expenses for the quarter for 37 million compared to 34 million in the first quarter 2020.
Non-GAAP R&D expenses for the quarter were 35 million compared to 33 million in the previous quarter.
Adjusted EBITDA, which excludes stock based compensation totaled negative 54 million.
This is compared 2 billion in the first quarter 2020.
Cash paid for capital expenditures was 6 million in the second quarter 2020 here to 4 million in the first quarter.
Capital expenditures in the second quarter consisted primarily vehicle tooling cost and investments in Spaceport America as we continue to prepare that facility for commercial operations.
Turning to slide 20.
I'd like to take some time.
That's run through some of the line items and our income statement to provide more context drivers behind some of those numbers.
As you know our primary focus executing on our test flight program and ensuring the safety of our workforce given the challenges associated with the club in 19 pandemic.
As a result, we did not generate any revenue during the quarter and we anticipate modest spread given our continued focus on these areas.
Turning to R&D as a reminder per vehicle cost currently sit within R&D and we'll continue to be expensed, there until we achieve technological feasibility.
Well subject to change, we anticipate achieving technological feasibility once we have completed a power test flight to space with four mission specialist in the cabin.
The point of achieving technological feasibility, we will begin to capitalize our vehicle costs.
Our R&D expenses for the quarter totaled 37 million, an increase of 3 million compared to the first quarter 2020, primarily due to an increase in allocation at facility costs from SGN, a two R&D as a result of the transition of our vehicles to Mexico as well as an increase in personnel costs.
<unk> expenses for the quarter totaled 26 million a decrease of 708000 compared to the first quarter 2020, primarily due to the Afro mentioned facility cost allocation to R&D.
Turning to slide 21.
Looking at the cash flow statement.
The decrease in cash and cash equivalents over the quarter totaled 59 million, which was generally in line with Q1 cash burn.
Although we're not providing specific guidance as we noted last quarter. We continue to believe this is an approximate indication of our ongoing cash burn so the incremental public company related costs.
However, there may be some strategic initiatives that we decided to invest in that may lead to an increase in our burn rate.
Cash paid for capital expenditures increased from the prior quarter by 2 million to 6 million.
Capital expenditures for the quarter were primarily attributed to continued investment readiness and vehicle tooling.
I would now like to turn the call back over to Michael for some final remarks.
I'd like to spend a few moment.
It's briefly recapping our next steps.
As we navigate through these unprecedented times, our number one safety other employees and their families.
The communities in which we operate.
As George mentioned earlier on the call we expect to advance to the next phase of our test flight program by conducting first rocket powered space Flight Spaceport America. This fall.
After that flight, we will conduct a second powerplay from Spaceport America.
This is expected to include four mission specialist in the cabin.
In addition to conducting a variety of functional test within the cabin East specialist will help us block choreograph the ways, we will capture uncover Richard Branson history, making flight.
If all goes as expected on this fully crude slate. We would then plan to fly so Richard Branson on the third powered flight from space put America, which we anticipate.
State will occur in the first quarter of 2021.
As always safety will remain or central focus and we will continue to progress with the step by step diligent approach throughout the test flight program as we prepare for commercial service.
As such our schedule may adjust as we process data from each of our test flights.
Before we close the call I'd like to recognize and congratulate George unsuccessfully bringing us to this inflection points in Virgin Galactic journey towards commercialization of human space flight.
And the team as we develop our advanced technology efforts, including our participation in the commercialization of orbital space flight and our work in high speed travel.
Thank you everyone for joining today's call, we look forward to sharing more with you.
That concludes today's conference call.
You may now disconnect.
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