Q4 2021 Virgin Galactic Holdings Inc Earnings Call
Permanent share has been named.
But just Stuart has been retained to lead the search for a permanent chairperson they've already begun the process.
I'd like to thank to Mark for his vision and groundbreaking work and transitioning Virgin Galactic to a public company and also thank them for their support and insight that he's provided me over the past two years.
Evans deep experience with the company as a tremendous asset and I'm excited to continue our excellent partnership as he steps into the interim chair role.
Turning to slide four.
2021 was an incredibly important year for Virgin Galactic late in a central foundation towards becoming a scaled commercial operation.
I'd like to call out a few highlights.
We received approval from the FAA for a full commercial launch license, marking the first time that the agency licensed accompanying to fly customers to space.
We successfully completed two crews baselines have demonstrated the value of our product and our unique customer experience.
He had enormous media and consumer response to these flights reinforced our belief that demand for space travel will outstrip supply for the foreseeable future.
We began enhancements to our current vehicles to ready them for commercial service and we initiated the design work on the next generation of our space flight system that will become the backbone of our future fleet.
Today, our focus is on scaling our business in a methodical way.
With regard to our current ship some near term schedules.
We remain on track and on schedule to launch commercial operations in the fourth quarter.
Our vehicle enhancement program is progressing well and is expected to be completed in the third quarter.
And we've opened ticket sales to the general public and expect to have our first 1000 future astronauts signed up by the time, we launched commercial service.
With regards to our future fleet and medium term business plan, we've adjusted our design and manufacturing strategy to have our internal resources, primarily focused on engineering R&D final Assembly and test.
We will then leverage partnerships within the aerospace ecosystem to develop our major subassemblies.
We are putting into place internal and supply chain infrastructure that will allow us to build our vehicles with high quality and a cost and time efficient fashion.
We've built out our senior leadership team and we are continuing to attract and develop outstanding talent at all levels of the organization.
All of these steps affirmed confidence in our business model and our ability to generate attractive flight economics.
Doug will share more detail about this later during the call.
Turning to slide five in today's agenda I will start with an update on the readiness of our current fleet and then turn to our commercial plans followed by an update on our manufacturing strategy for our future.
I'll, then turn the call over to Doug, who will provide a financial update and some detail about our long term economic model.
Moving to slide six in our vehicle enhancement program.
As I mentioned, we remain on track and on schedule to commence commercial service later this year.
We are making excellent progress on the enhancements to our mother ship youth in our spaceship unity.
As we discussed last quarter. These modifications will meaningfully improve the durability reliability and predictability of these current shifts and enabling higher frequency flat rates for commercial service.
As we shared last quarter <unk> enhancement program focuses on three areas modifications to the center when can launch pilot.
Replacing the horizontal stabilizers are H staffs located back of the vehicle.
And completing upgrades to our avionics and mechanical systems as well as strengthening various areas across the ship to reduce the volume of regular inspections.
All of these modifications are designed to increase flight cadence as well as overall service life.
These three work streams on Eve are complex and interdependent and I am pleased to share that all three are progressing towards completion in the third quarter.
The work we're doing on VSS unity is also progressing well and the ship is expected to be completed in the third quarter.
These enhancements are designed to reduce maintenance needs by reinforcing and upgrading various joints and components located throughout the ship.
As we need a result of these efforts will be improved flight frequency increased time between maintenance periods longer service flex.
Subject to testing and verification, we expect a monthly turnaround time for your entity either.
A reminder, we anticipate the VSS unity will begin flying revenue generating flights in the fourth quarter later this year.
We remain on track to begin imagine commercial service in the first half of 2023.
By testing is targeted to commence later this year beginning with a captive carry flight.
We will then move to glide flight and finally rocket powered flights, we anticipate imagine we'll begin conducting revenue generating space flights in the first quarter of 2023, beginning with slide research payloads, and then progressing that private astronaut place alongside the SSP entity later in the year.
We expect to see unity find monthly following its commercial launch and we expect to imagine to fly twice per month once it finishes its flight test program.
I'm very excited at the prospect of delivering this level of capacity from our current ships.
We are operating more efficiently even as we absorbed the continuing impacts of the pandemic and related labor disruptions.
We implemented a COVID-19 vaccine policy in Q4 of 'twenty, one that required all employees to be fully vaccinated wherever legally entitled exemption.
We were pleased that 94% of our workforce at a time complied with our policy and all the new hires are also required to be in compliance.
Has helped the company to minimize the impacts of the virus, although we have experienced elevated sick rates as a result of the old crop area.
As an added step to mitigate disruptions from new term labor shortages, we shifted certain noncritical work for the fourth quarter of 'twenty one into 2022.
However, we do not expect these changes to impact the completion of our enhancement program or the launch of commercial service later this year.
To date, we have not encountered any critical supply chain issues, but we are monitoring this carefully as we recognize the supply chain worldwide are under pressure.
We are proactively planning ahead, assessing supplier health and ordering parts or materials further in advance to help mitigate potential raw material and labor availability issues.
I'd like to extend a huge thanks to all of our teammates who've been working incredibly hard under pandemic related protocols to deliver such great progress.
Turning to slide seven.
I am very pleased to share that Blair rich has joined Virgin Galactic as our new President and Chief business officer for commercial and consumer operations.
This newly created role player will lead all aspects of our commercial strategy, including sales marketing business and product development communications operations and customer experience.
<unk> brings a unique consumer centric perspective to our company with an incredible blend of business digital and creative experience that she honed working with some of the most iconic brands in the entertainment industry.
For the past year. She has served as a consultant strategic advisor to Virgin Galactic, including guiding the marketing for the unity <unk> 'twenty, two light, which is viewed by tens of millions of people around the world.
Later, we will continue to play a critically important role in shaping our commercial strategy and enhancing our customer experience ahead of our commercial launch.
The players appointment this rounds out our senior leadership team and ensures that we have deep expertise across all our key areas.
Turning to slide eight.
Last week, we launched our consumer brand and opened a limited number of space flight tickets to the general public and we plan to have our first 1000 customers signed up in advance of the launch of our commercial operations later this year.
Given the robust response from our space fares and early hand raisers, we have approximately 250 seats remain in demand through our direct sales channel is strong.
As a reminder, we hold a $150000 deposit against the total cost of $450000 $25000 of which does a nonrefundable membership fee.
Following the closure of our first 1000 astronaut window, we will build a highly qualified reservation pipeline of future customers through a priority list with a 10000 dollar deposit required to join.
We expect to leverage earned in digital media as well as word of mouth referrals from our ongoing flights to continuously supply at the top of the funnel with new prospects, which we can then efficiently filter using our CRM tools and sales process, turning to slide nine and our future astronauts membership.
Membership is included with ticket purchase which adds additional appeal for customers and highlights our unique experience in service distinguishing Virgin galactic suffering in the industry.
Future astronaut community members enjoy access to money can't buy experiences events trips and activities around the world all delivered with trademark Virgin style.
We provide opportunities to connect directly with the Virgin Galactic team offering members a deeper knowledge of our aerospace light and engineering programs.
Customers also gain exclusive access to Spaceport America enjoyed parabolic flights centrifuge training and VIP attendance at launches to name just a few of the benefits. Chris will include memorable opportunities like the inaugural space for the curious summit that we will be hosting later this year or multi day destination experience that's both intellectually engage.
<unk> and entertaining.
Activists have taken members to locations, including Antartica in Idaho, which would be the solar eclipse and the world renowned decorator.
This membership program builds engagement for the minute of purchase through the space like that.
Can we expect the high affinity that comes from these members to translate into repeat visitation numerous referrals and extensive lifetime customer value.
Turning to slide 10, and the manufacturing strategy for our future fleet.
While three human space flight per month from our current ships is an impressive task.
We seek to open space to a much larger audience and this requires a larger fleet capable of flying at much higher freight rates.
In the past several months, we have spent a significant amount of time redesigning our manufacturing approach and I'd like to outline how this will enable us to scale, our operations and maximize efficiencies.
Our current chips unity imagine indeed have primarily been delivered and are fully in house design manufacturing and assembly.
This approach has been critical during a flight test phase, although it is a relatively slow and expensive process.
As we step forward into higher rate commercial service, we will be augmenting our capabilities with strategically selected tier one suppliers to deliver major sub assemblies cost and time efficient manner.
This is particularly important for a delta class spaceship and next generation mothership programs.
Our approach takes advantage of the nationwide aerospace ecosystem to tap into talented preexisting pools of labor and optimize timing of capital expenditures.
It also focuses our in house expertise on design and Engineering final Assembly and fabrication of complex and critical parts that are all important elements of our intellectual property.
Overall, we expect that this will provide us with a cost effective and highly efficient manufacturing model for building out our delta fleet and future amount of ships.
As I mentioned on our last earnings call. We've established a new engineering design and corporate headquarters based in our strong aerospace quarter that runs from El Segundo to San Diego.
This serves as our primary hub for R&D the design of our new vehicles we.
We are currently focused on evolving the designs of our spaceship and mother ship to enable greater flight cadence as well as to support third party supply of major sub assemblies.
An excellent location for innovation and collaboration and we continue to ramp up engineering and support teams talent to dislocation.
We are also progressing designs and choice of locations for a new final assembly facility for our spaceships.
We expect this final assembly facility to be operational in late 2023, and it will eventually employ hundreds of technicians and engineers with production capability of up to six patients a year.
Similar to our approach with the Delta class B ships, where we focus on the upfront design and engineering as well as final Assembly.
We are in the late stages of negotiation with preferred suppliers to manufacture the next generation of our mother ships.
We believe that leveraging strategic partners to build these major sub assemblies will allow us to increase our speed to market and realize meaningful efficiencies without sacrificing quality or performance.
Turning to slide 11, I will now turn the call over to Doug for an update on our financials.
Thanks, Michael and good afternoon, everyone before I review the financial results for the quarter and full year I'd like to begin with a few comments on our broader financial strategy and economic model.
We are making good progress in preparing our fleet and laying the groundwork for more efficient operations going forward.
To help fund these initiatives, we raised $425 million through a convertible debt offering last month.
The time this capital raise to take advantage of the low interest rate environment ahead of expected rate increases.
Furthermore, we entered a separate capped call transaction to effectively establish a 100% conversion premium in other words, we have hedged our equity dilution risk up to a share price of $20 six.
As of the end of January we had approximately $1 3 billion of available liquidity, which represents the balance as of the end of the fourth quarter adjusted for the net proceeds from the capital raise.
We're well positioned for the investments, we're making to drive the growth in the business.
We continue to see significant demand for our space flight services are.
Our key objectives are to cost effectively expand our fleet and set ourselves up for long run profitability.
We will target investments in key areas to maximize shareholder value, while also preserving capital along the way.
We plan to invest upfront and Ari or nonrecurring engineering to optimize our design of the Delta.
Efficient manufacturing this is a major leap forward for our manufacturing capability.
Following our energy investments, we expect that the subsequent ships will be produced in a repeatable scalable fashion.
The significant reduction in cost per vehicle relative to our current ships.
What this means is that as our final assembly facility ramps up operations, we anticipate it will be capable of cost effectively producing up to six patients per year.
This will enable a rapid increase in place capacity that will fully utilized spaceport America and allow for fast expansion to additional spaceports.
Our manufacturing strategy is also geared to leverage the well established supply chain in the aerospace industry.
As Michael mentioned, we plan to internally retain and build upon our IP and design and engineering, while also drawing upon tier one suppliers to provide major sub assemblies.
In Galactic in turn will focus on final assembly and integration.
This manufacturing approach streamlines, our fleet ramp up by allowing us to rely on the best practices of existing supplier networks behind our direct suppliers.
It will also reduce the total capital expenditure for infrastructure required to scale our fleets.
Possible, we plan to preserve our cash in the near term by deferring cash outflows to better match inflows.
Examples of this include leasing versus building or buying.
Leveraging development incentives were accretive to our business model and selective use of high quality partners and aerospace ecosystem, Deleveraged preexisting workforce talent infrastructure and supply relationships.
Turning to slide 12.
Unlocking the economic potential of commercial space flight requires maximizing vehicles fight right.
As a reminder, following the completion of the current and has some period, we expect to be able to fly our unity spaceship and monthly intervals and I imagine two week intervals we.
We plan to supercharge, our flight rates with introduction of Delta class ships, which we expect to be able to fly on the one week intervals.
With support from the planning and design efforts that have been completed over the past few months. We are now able to provide more visibility into the economic model they are targeting.
While we are not providing multi year guidance, we wanted to share additional insights about our objectives as we scale the business.
Based on our current schedules, we anticipate our delta class ships could be ready to conduct revenue payload flights in late 2025 and progress in the private asset base in 2026.
We are also planning to have next generation mother ships available tariff itself the cost basis as the scale of the fleet.
Our factory expansion plans are targeting production level of up to six patients per year.
Taking into account the expected weekly flight cadence for the Delta class ships and the resulting growth in revenue from the expanded fleet. We are aiming for positive free cash flow by 2026.
They are a range of options for the level of investment which is to pursue given.
Given the strong demand, we're seeing for space flights combined with the prior investments and already back.
Capacity and other infrastructure.
First the very favorable economics with the addition of each incremental space ship to our fleet.
Therefore, we expect to lean into the growth trajectory and continuous expansion of our fleet and the potential addition of multiple spaceports.
Our projected operating model reflects a low variable cost structure for individual flights are primary variable costs with operating expenses, such as our rocket motor and other fuels as well as lodging and training for the us nuts.
Furthermore, we expect to realize economies of scale as we add multiple ships sharply because we anticipate that we will be able to spread our fixed costs over more ships in flight examples of our fixed costs and fleet maintenance and flight crew and rent.
With the planned addition of Delta flagship store fleet and the anticipated increase in the utilization of the spaceport adjusted EBITDA margins could be above 30%.
Turning to slides 13, and 14 I will now review our results for the fourth quarter and the full year.
Free cash flow was negative $67 million compared.
Compared to negative $74 million in the prior year period. This cash outflow was less than our previously shared guidance for the fourth quarter.
Lower spend was primarily attributable to labor efficiencies achieved during the quarter and by the shift in certain noncritical path work from the fourth quarter 2022, both of which resulted in lower spending than previously forecast.
As Michael noted this shift to work and associated spend is not expected to impact our timing to complete our enhancement program. The launch of commercial service later this year.
The system work reflects enhanced planning foresight and contingency efforts from our team to ensure that we remain on track to deliver on time.
Looking at the income statement, we generated revenue of $140000 in the quarter, primarily driven by asset membership fees associated with new ticket sales.
GAAP operating expenses for the fourth quarter totaled $81 million compared to $74 million in the prior year equivalent period.
The increase in expenses was primarily due to higher employee cost and noncash stock based compensation expenses as well as the opening of take yourself.
These increases were partially offset by a decrease in contract labor and material costs associated with the development of our space launch system.
Total non-GAAP operating expenses were $65 million compared to $60 million in the prior year period.
GAAP net loss for the fourth quarter was $81 million.
Compared to a loss of $104 million in the fourth quarter of 2020.
The reduction in net loss was attributable to they're no longer being any outstanding warrant.
As well as an increase in stock based competition expense.
Adjusted EBITDA was negative $65 million compared to negative $60 million in the prior year period.
Moving onto our financial results for the full year 2021.
We generated total annual revenue of $3 $3 million.
We received revenue from sponsorship and payload services associated with two space life conducted during the year.
As well as revenue earned for completion of certain technical milestones related to the Italian basically agree with that.
As previously mentioned, we also receive revenue for asthma membership fees associated with new ticket itself.
Net loss for fiscal year, 2021, the $353 million compared to a $645 million net loss in fiscal year 2020.
Adjusted EBITDA totaled negative $245 million fiscal year, 2021, compared to negative $232 million for fiscal year 2020.
Our balance sheet remains an area of strength for us as of December 31 by one we had cash cash equivalents and marketable securities of approximately $931 million.
This does not reflect our capital raise in January of this year.
Looking ahead and a point to note about how we will be presenting some of our financial information going forward.
Beginning with the first quarter of 2022, we will no longer be providing gross margin on our GAAP income statement.
Intimately the nature of our company is out of a service provider.
Other than that the manufacturer, while we do manufacturer vehicles. Unlike other aerospace companies, we do not offer our vehicles for sale as Standalone products, rather we used vehicles, we produce to operate a spaceflight and as such our revenue is derived from services.
Within that guidance in 2022, we're adopting the format of an income statement tend to that major airlines hospitality and service companies as I said earlier, given our differentiation as the first commercial baseline our margin profile is expected to be much higher than typically seen industries.
As for our guidance of spending for the first quarter. We are completing enhancement period on multiple vehicles incredibly while ramping the development work for our future fleet.
The forecast free cash flow for the first quarter of 2022 to be in the range of negative $75 million to $85 million.
We are confident that this work will provide real benefits to our flight rate in service life over the long term, while also optimizing for shareholder returns as we expand the fleet.
I'd like to now hand, the call back to Michael.
Thanks, Doug turning to slide 15.
I am very pleased with the progress we made during the fourth quarter and the full fiscal year 2021.
2022 is an important year for all of us at Virgin Galactic.
Thanks to the dedication of our team we are on track and on schedule to launch commercial service in the fourth quarter and we expect to be flying three times a month when imagine joined unity in passenger service in mid 'twenty three.
We are well on our way to signing up our first 1000 astronauts before we launched commercial service and we are scaling our business in an efficient and methodical way.
Coming months, we will continue to be very busy for us and I'm looking forward to sharing future updates on our progress.
So with that we'll turn to questions. Operator, we are ready to begin the Q&A portion of the call.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to remove my question. Please press star followed by Tim again to ask a question. Please press star one as a reminder, if youre using a speakerphone. Please remember to pick up your handset before asking a question, we'll pause briefly to allow questions to generate in Q.
The first question is from the line of Oliver Chen with Cowen. Please proceed.
Hi, Michael and Doug Congrats on the opening Bell, Michael I would love your thoughts on the nature of demand that you've been seeing since you had opened the sales and how it informs your view pricing as well as thinking more broadly about friends and family and all the opportune.
<unk> you may have had.
Also Michael on the commercial and consumer operations I know you have new talent in that division what are your thoughts about key priorities, there and how they might work in conjunction with what Youre doing in terms of Delta class and the scaling efforts youre, making thanks a lot.
Thanks Oliver.
So the nature of the demand.
We talked on the last quarter, we had a group of folks who are kind of raised their hand earlier, we call them the space bears.
And they are around 1000 people with a de minimis.
Deposits that they put down.
And we had around 300 of those I'm, sorry around 100 of those people 100 of those.
So that brought us up to about 700 people.
And what we just announced this past week that we could just passed is we've now opened up.
Sales of our first the remaining available slots within our first thousand future astronauts to the general public and that's the first time, we've been really open up to the general public.
Leveraging digital channels to do so we picked up plus or minus around 15 additional reservations before we open it up to the general public Sunday carried in from the space Theres. Some from some early hand features.
And so you ask kind of the nature of the demand.
First I would say.
The way we're processing our demand is by sharing what we do the biggest thing was on that unit <unk> 22 flight that brings a lot of people into kind of our systems and allows us to engage conversations.
Pretty wide group of audience. Some of them are going to be brand and some of them will be people aspiring to the future.
Any of them are wanting to find out if we use a series of.
Customer journey communications to bring them into a group that really is a high probability of wanting to fly right away and then we use a one on one sales call around that we have seen the majority of the seats were still seen as individual fires, but we have seen sales across all the products we offer.
So individual fliers are couples either friends or family together as well as just a full ship purchase and also of course, we continue to focus on sales and our research piece. So I'd say, a good mix across the products mix and the other thing I'd say on the nature of the demand is these are people.
Pretty uniformly arent looking at this as just had a quick transactional purchase this is a life moment for them and that's why we put so much effort into our.
Membership community and you mentioned may be shifting.
Rich joined as our President and Chief business Officer for our commercial and consumer operations group.
At the time, when we are fine part of that group's responsibilities will be actually handling of all the future ask kind of a printed family managing the astronaut campus, where people come but upfront not only this group managing the sales, but then immediately bringing people into this future ashcroft community and engaging them in the.
<unk> thing that we have found in these early calls are people recognizing the value of that this is going to be something that is for their lives and they want to prepare thoughtfully for it and that's also helped us.
Kind of onboard people and quickly get them.
Excited about that.
Time period had their flight time after.
Yeah.
Okay, and a follow up Doug the guidance is very helpful. On free cash flow of negative 75 to 85 in Q1 as as we think about your leveraging of strategically leveraging suppliers.
How might the cash burn evolves.
In terms of that happening over time, any puts and takes there thoughts longer term. Thank you.
Thanks Oliver.
Yeah. So we guided for one quarter and we didn't guide gone out, but I can tell you directionally that as you look at the work streams that will be coming in.
We are going through the NRG phase the design finding up the supply chain in the factory and so on you would expect to see some increases in our spending as we build out the fleet essentially.
The focus there of course is the fleet expansion because that's we're going to get the great returns on the business. So that's our primary focus for the investment we are leveraging the supply chain.
As you reiterated there and what that allows us to do is tap into their best practices their processes their suppliers behind them.
And also minimize our capital investments so we pay them for the delivery of sub assemblies, rather than having to invest in the whole factory to do all of the parts fabrication ourselves. So that's the type of efficiency, we can get by tapping into that supply chain, which helps our overall capital investment.
Favorable way.
Thank you best regards.
Thanks, Oliver Thanks.
Thank you Mr. Chen.
The next question comes from the line of Kristen <unk> with Morgan Stanley You May proceed.
Hey, good afternoon guys.
Michael Dog.
Following up on Oliver's question, there on a free cash flow burn and once you start <unk>.
Investing in Delta can you provide a little bit more color on that how much will it cost and then also can you provide more color regarding the maturity of the design for Delta and your negotiations with these tier one suppliers are they fixed or is it still currently in the works.
Sure Christine Thanks for the question. This is Doug I'll take the first one and then hand over to Michael.
So regarding the cost we're at a stage now.
With Delta, where we're narrowing the list of suppliers for the sub assembly that working through that and we're going through the process here.
In terms of.
Defining that and basically entering the early stages of that process. The negotiation process. So at this stage, it's a little premature to be disclosing the cost per vehicle.
You can understand our position where we're at in that lifecycle. So it wouldn't be in our best interest to put all of that out there, but that's something we'll be able to share more on in the future as we narrowed down the.
The specifics with the supply chain.
But Michael maybe you'd like to talk about the progression on the Delta sure. Just we have two main parts of our program that we need to scale to please the first is with our mother shifts that takes us through the first stage and then the Delta space ship class itself.
Mother ships are quite advanced in the discussions that we've had.
We don't have something to share today, specifically, but I think I'm not too far distant future.
I'll be coming back there and that's been I think a good set of conversations as it reinforces the strategy. There are really quality people out there in the aerospace ecosystem that we can create value for them. While also keeping the right things that we do ourselves, namely the design.
Getting everything set to put out major sub assemblies and then we'll do the kind of final Assembly test quality safety piece.
The mother ship I'd say quite advanced in that dialogue there.
Delta class ships, we have been putting our investments and time.
Kind of move through the basic trade spaces, but we are now kind of getting into really refined requirements ahead of issuing the RFID and the rfps. So we've narrowed our list of potential suppliers into a pool.
We are well on the way to pick on location for where we will do our final assembly.
So we're not quite ready to announce that yet, but we've made great progress there and as you heard from Doug we've been able to share some context on Oh, it's not appropriate to give multiyear guidance, we do want to share context on our internal planning horizon, So people out.
Insight into our own goals and objectives that we're sharing with our teams.
And Christine I can add a little more too about the cost the way to think about the cost. So the approach. We're taking here is we're investing in NRT and the digital tools and you'll often hear about this digital twin approach, which the leading aerospace companies will take and what this allows us to do with this more advanced modeling and digital.
Tools as we have more predictable parts fabrication tolerances and then the the easier manufacturing comes from that so that allows us to again invest upfront in that design, which leads to a cost effective and repeatable.
Manufacturing approach, where we can.
Copies of this vehicle and a much lower cost than what we've been able to do before so the advancement in these tools and the modeling capability is really going to help with that cost structure in the future versus out.
Great. Thank you for all the color guys and if I could do one follow up I mean, you talked about the return to service of Unity, then imagine and you know Youre building that Delta class. So does this mean that inspire is completely off the table.
But you know, it's not going to be built at this point.
Yes.
We're keeping it right, where we were before it's a good option value for us we have the ability to finish it and completed if we so choose it also has potential use as part of the process to really go through and create a.
True production model vehicle. So it has potential use in kind of a copper bird scenarios, we're working through our avionics.
But it's also one that we can come back to so.
Now our focus as you can tell is really accelerating our work on the delta.
Caused vehicle itself. So we haven't made the final choice uninspiring, just or keeping it kind of in our Optionality base, there, but our focus is clearly on pushing through the downturn.
Great. Thank you very much.
Thanks Christine.
Thank you Ms Leila.
The next question comes from the line of Matt.
<unk> Walton with UBS. Please go ahead.
Thanks, Good afternoon, and thanks for the color on the fleet build out I was curious as it relates to the 2026 positive cash flow.
Is the assumptions that you are at that stage still running capex pretty aggressively at the six per year build rate for the spaceships and then maybe one of the mother ships and so youre your positive cash flow with that level of Capex or is the idea that you're through the capex at that point.
Thanks.
Sure I'll take that good question Michael.
So we actually have a range of options and how how.
How much to lean into that growth.
But the scenarios all kind of point in the same general outcome, which is cash flow positive.
The scenario, we end up with here for the company in 2026.
Regardless of the number of ships. So we can get there with a more moderate number of ships or we can continue to invest and we still crossover because of the rapid increase in the revenue and the profits that come from that which starts to.
Far outweigh the ongoing investment, but with that said what we see is at that stage in our lifecycle because we've invested in all of this N E and the factory capacity in the space.
And everything there are real benefits to continuing to invest and leaning into that growth trajectory because the incremental profits from each.
Vehicle are really.
Very attractive so the further we go the further.
Moves us on that profit curve.
Our likely cases to continue to lean into that and invest in additional fleet expansion.
Okay, and I would add and then just one other follow up.
I would also we'd be looking to the next phase two so just came out and the next question trajectory we would have.
I saw it coming.
So we would have.
The factory capacity ready to keep producing spaceship.
Wed like to leverage that and that would be kind of the.
Absolutely populate the first phase part we'd be looking to continue that those efficiencies and then populates the seconds Pittsburgh and get the economies of scale in that cycle at this point.
Okay, Okay, and I think you answered that one so the only other one I had was for.
For the first thousand space fares are you through that entire lot by the end of 2026 at this point based on your plan.
Yes, Im sorry, Im probably dead forgive me I'm looking at Doug.
I believe we will we've probably given you enough.
Data out there to attractive so we do expect our current fleet I will be flying a three times a month.
We got going and having imagine come in in the first half of 'twenty three.
So that gives you a kind of a sense of growth until we get our first dealt out we think the first delta.
Again, where.
We're trying to have a balance here Myles, it's not appropriate to give guidance and multiyear places in human spaceflight program, but we also want to share some of our internal plan.
Objection horizon. So we believe we are building our own.
Kind of build out and project plan to see the first delta coming out with research flights revenue driving research flights at the end of 'twenty five moving into private ash constant 26. So you can start to do some of that math on where the numbers will play out.
I'd just flag that as you start to then bring in deltas on.
A much more accelerated ramp up and again with a weekly flight cadence and 16th per.
We very quickly start to hit bigger numbers there so.
Anything that's not I'd say quite taken up by that 26 period would be done very quickly thereafter.
Okay. Thanks again.
Youre welcome.
Sure.
Thank you Mr. Walton.
Our next question comes from the line of Greg Konrad with Jefferies. Please go ahead.
Good evening.
Can you just maybe.
<unk> talked about the six year production for Doug you talked about that as a peak whats the timing of making that decision and what kind of drive peak rate and how does maybe the economics of the spaceship change at six a year versus maybe at a lower rate.
So we used to just to make sure I heard the question correctly you are talking about the number of ships per year that we would use our final assembly facility right exactly production.
So we definitely want to have a kind of our supply chain and our final assembly plant able to handle that cadence and the reason is as Dave mentioned, when we've invested the NRA upfront.
From what our plan. So we're going to have very attractive flight economics on a per vehicle basis.
So.
Scaling that is really strong and the economics support that approach.
Up to six is an interesting balance it allows us to take the first year year, and a house of that and kind of finish out our top off Spaceport America from a fleet standpoint, and then that allows us to get to that in a second space Port and you've got now at.
The fast and probably one and a half two years to top that went out and then you can go to the next in the next phase sports at some point you start to come back around.
Again to just continued updates of fleets over time, and so where we say up to six they're really easy breakpoint. So you can run it for if we would prefer our six just from a shifting standpoint, there and still take great.
Kind of leverage off the tooling, we've put in place in the lines you put in place. So it gives us the ability to pay a little bit with our demand but.
Continue to say so far we feel demand is going to outstrip supply for quite a while so we don't need to overdo. It I think that gives us a solid pace.
We definitely believe that the people who fly with us.
Front will quantify in other locations and how it word of mouth that will drive that but we also think it's important to go to other locations in the world I, just think that will bring in both heavier localized markets as well, but also variety and I just think we're going to build a great lifetime value with our existing customers will want to go and have <unk>.
<unk> places they can see the world from space. So this gives us good flexibility and I think allows.
Allows us to just kind of a pace that.
As as we see demand and as we choose to invest and the speed of growth.
And then this might be pushing it a little bit too much but I mean I appreciate that the long term business model I mean, I think you talked about 30% EBITDA margin free cash flow positive in 2026, I mean as you ramp is there any way to think about a conversion relative to EBIT.
And maybe some of the offsets whether it's working capital or Capex and how we kind of think about EBITDA converting to free cash flow as you kind of get scale.
I'm trying to make sure I understand your question when you talked about converting can you just can you repeat the question.
Just you know EBIT converts at 50% free cash flow or 100% EBIT to free cash flow conversion just trying to think about.
Bridging EBIT conversion, the 30% margin to maybe what the free cash flow potential is.
Yeah, I think yes.
That question is related to the pace of growth as we continue to move quickly into additional spaceports, obviously, we'd use some of that free cash flow into the fleet itself and to a degree we choose to go a little slower in there then you're going to see more flowing through and truly being free. So I think it is.
It's premature to guide we're not trying to guide here, we're trying to give some awareness into our own internal planning. So probably as you said probably have too much of a stretch at this moment, but I do think.
As Doug said, we see really strong returns are.
As we come out we've made the investments and the nonrecurring engineering the demand remains strong it will be a good.
Kind of a financial return, which is really where do we look about how we deploy our capital what does that look like from a shareholder return basis that feels like we will want to lean into that so I think.
Yes.
We'll be trying to do so in a in a self managed way by that point, but I think there's a lot of opportunity and upside for us as we do.
Regarding.
The timing of the EBITDA, so when I was referring to ebitdas.
Essentially being over 30% that's as we start to.
Get utilization good utilization of the space for it so.
Do you think about multiple Delta class spaceships.
Populating Spaceport America.
Starting to get some good utilization going and it doesn't have to be fully utilized but.
Well, well well utilized you start to get that kind of scale going that's when you get those the free cash flow.
Being positive and the EBITDA approaching those percentages I talked about.
Thank you.
Thank you.
Yeah.
Thank you Mr. Conrad.
There are no additional questions waiting at this time that concludes the Virgin Galactic <unk> fourth quarter and full year 2021 earnings conference call.
You all enjoy the rest of your day you may now disconnect your lines.
Goodbye.
Yeah.