Q3 2022 Virgin Orbit Holdings Inc Earnings Call
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The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Greetings welcome to Virgin orbit third quarter 2022 earnings conference call. At this time all participants are in a listen only mode. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Steven Zhang Vice President Investor Relations you may begin.
Good afternoon.
Welcome everyone to Virgin or bps third quarter 2022 earnings call.
Conducting the call today are Dan Hart, Chief Executive Officer, and Brita or rear Chief Financial Officer.
During today's call we may make certain forward looking statements. These statements are based on current expectations and assumptions and as a result are subject to risks and uncertainties.
Many factors could cause actual events to differ materially from the forward looking statements made on this call.
For more information about these risks and uncertainties. Please refer to the risk factors in the company's filings with the Securities and Exchange Commission, which are made by Virgin orbit from time to time.
Readers are cautioned not to put any undue reliance on forward looking statements and the company specifically disclaims any obligation to update the forward looking statements that may be discussed during this call.
Please also note that on today's call, we will refer to certain non-GAAP financial information that we view as important in assessing the performance of our business.
You can find reconciliations of the non-GAAP financial measures with the most comparable GAAP measures in our earnings press release and presentation materials that are available on the investors page of Virgin Orbitz website.
With that I'll turn the call over to Dan. Thank.
Thank you Steve good afternoon to everybody on the line and thank you for joining us for the third quarter 2022 earnings Conference call.
Today I would like to begin with our recent accomplishments followed by our upcoming launch activities the scaling of our business and expanding geographical reach and all and with the latest on business development growth in our key priorities before I turn the call over to Greta for a closer look at the numbers.
Let's begin with a quick look at the highlights in the quarter.
On July one we executed our fourth launch the mission continued our track record of 100% mission success over our first 18 months of operations. This brings a total of 33 satellites precisely delivered into our customers and target organs.
We've had significant activity in our international space CT sector with the signing of agreements across several countries, including Australia, and South Korea, and just this past month with Luxembourg.
On the revenue side, we saw a significant increase in the quarter with over $30 million recognized a testament to the dedicated Virgin orbit team and execution on backlog.
This includes the straight up mission in addition to proprietary launch service activities.
And finally, having deployed the larger one system to Cornwall, we have demonstrated the mobility and flexibility of our launch platform, which is a key differentiator of our launcher one solution.
Now, let's get into the details.
Our third quarter began on a very strong note when we delivered seven satellites to lower Earth orbit for the United States space for US. This was our fourth successful launch we have now demonstrated the robustness of our system and its ability to execute in a range of weather conditions and various orbits in.
Our system has shown responsiveness and launch operation by delivering customer payloads to their precise orbitz early in the launch window.
On October 11th Newquay Airport in Cornwall was transformed into an air and space Port when we successfully deployed our launch system and activated the site for space launch activities.
Our upcoming Cornwall launch will come with many <unk>.
So first orbital launched from UK soil, the first orbital space port in Western Europe .
In the first of many international launches for Virgin orbit.
Through air launch, we can quickly and efficiently turn airports anticipate ports and open sovereign launch capabilities across the world, where traditional ground launch may not be possible or practical.
Our activities in Cornwall form a blueprint for other Allied nations, which will aid them in developing space port capability of supporting their local space economies and government needs.
The slight manifest for start me up include payloads from seven different programs, demonstrating our global reach and diverse customer base.
On the commercial side, we are opening space to a wide range of customers with missions across space based manufacturing maritime domain awareness global navigation systems and general Earth observation.
In this heightened geopolitical environment the U S and the UK are using this mission to further their collaboration as allies in the space domain.
Air launch provides the responsiveness and flexibility needed to preserve vital access to space.
Recent rhetoric threatening satellite service and actions in Ukraine have demonstrated that space is both a critical and contested environment.
Participating in this launch our organizations, including the UK Ministry of Defense, the Royal Air Force The U S National Reconnaissance office and the U S space Force.
In addition, the Royal Air Force is leading a scenario based exercise using launcher wanted to demonstrate how the unique capabilities of our system can provide options in response to a variety of potential world events. The.
The arrival of our air launch system in corn will have attracted significant attention from the UK space community government media and even royalty who recognize our mobile system as a key element of the UK space strategy and as an enabler for the local space ecosystem.
Turning now to new business, we recently announced a multi launch agreement with aspire Global who operates the worlds largest multipurpose satellite constellation.
As a reminder, we demonstrated the flexibility of larger ones rapid call up capabilities with a quick turnaround in late payload integration of spire satellite onboard our January mission.
Building on that success, we are now teaming up in a broader capacity to provide launch options and solutions for aspire and their global customer base.
We've expanded our geographic reach with the addition of space Port agreements, and Australia, Luxemburg and South Korea.
In Australia, our agreement with Wagner Corporation, one of the region's leading property and infrastructure development companies establishes a partnership whereby we will engage with government and local stakeholders to further the development of a national mobile launch capability in Australia the.
The partnership speaks to certify Wagner's Toowoomba, well camp airport as a national space Port and to perform an orbital launched demonstration in early 2024.
Last month, we were hosted by the defense Minister of Luxembourg, and the U S Ambassador.
During our meeting we signed an agreement to begin a collaborative effort whereby Luxembourg are key logistics hub for NATO would add launcher one capabilities to their portfolio.
The goal is to provide a mobile air launch system with responsive space capabilities for our NATO partners and other allies across Western Europe .
And in South Korea, we are under contract with J space to define the operational requirements and the industrial support needed to launch satellites from South Korea.
This cooperative effort is designed to act as a catalyst to the Korean small satellite in space solutions market and stimulate local economic growth and provide the south Korean government with a flexible and responsive launch capability in support of a wide range of mission applications.
We continue to expand globally, demonstrating our growing international reach as our differentiated <unk> technology continues to attract widespread interest.
As we've shown in Cornwall, we can transform airports anticipate ports capitalizing on existing infrastructure and minimizing local environmental impacts.
A major improvement over blasting off from traditional ground launch complexes.
For some of these countries our technology is the only option to enable launch safely from their borders.
We are now in discussion or have agreements with over 13 countries across the globe and expect to book additional firm orders in the near term.
The market has taken notice of the execution, we've demonstrated with 100% mission success across our first four missions on.
On the National Security side working under contract for the missile Defense Agency, we have confirmed the utility of the launcher one system for hypersonic development and missile defense target applications.
Follow on work is active with our objective being a full scale demonstration followed by a growing cadence of mission support and services.
We continue to work closely across the National security community to enable tactically responsive space through our air launch technology, which has recognized distinct advantages in this mission areas.
Our strategy includes capturing launch contracts for high value payloads, resulting in increased revenues.
By evolving our processes as we ramp our launch cadence, we're driving to the required certifications, while working closely with NASA and the space for us.
Looking internationally with a growing interest in the number of agreements we've signed across the space sports sector. This new market is shaping up to be a major growth area.
On the commercial side, we've seen increasing interest from the satellite community and more notably from more established space providers such as spire.
We are actively engaged with several others for multi launch agreements.
We see strong activity across market segments with approximately half a billion in active proposals of which several decisions are expected in the coming months. These proposals. In addition to our Mou and LOI agreements are approaching a $1 billion of total opportunities.
Overall, we continue to capitalize on our position in the growing space sector by targeting commercial multi launch agreements international Spaceports high value government payloads responsive launch and other national security missions.
Now turning to our priorities for the balance of the year.
Our first priority is to drive mission success through flawless execution and fulfill our commitments to our customers.
To this end our team is onsite with our rocket underwing in Cornwall, where proceeding through our launch campaign as we continue to work to obtain the necessary regulatory approvals in the U K.
We are now expecting three launches this year driven by the timing of regulatory approvals our efforts to obtain certifications for high value payloads and satellite readiness.
As we ramp up we continue to see operational efficiency improvements, resulting in higher production rates and lower cost for instance, the time between launch in the next rockets delivered for launch was reduced by approximately 50% for our current mission as compared to the previous.
And finally, we are building on our mission success differentiated capabilities and market reach to expand our backlog. All of this is enabled by our talented world class Virgin orbit team.
And with that I'll turn the call over to Brito to walk you through the results in more detail Brita.
Thank you Dan and good afternoon, everyone.
Moving to our financial results on Slide 17, we recorded $39 million of revenue in the quarter.
This was driven by our most recent launch in addition to recognize revenues for our other proprietary mission unique launch service activities as well as funded studies.
We are more than just a launch platform other revenue streams encompass customer funded R&D planning and activating spaceports ground support equipment studies and special mission services.
Adjusted EBIT for the third quarter of 2022.
Line with our expectations and a loss of $42 9 million.
Driven mainly by the cost of goods sold associated with the higher revenue.
We saw improving gross margin percentages to higher revenues and launch services and studies.
Another positive contributing factor was our continued progression down the learning curve, resulting in additional efficiencies.
Adjusted EBITDA exclude items, such as the impact of depreciation and amortization stock based compensation and fair value adjustments. We've included a reconciliation table to adjusted EBITDA in our appendix.
Free cash flow for the third quarter of 2022, with an outflow of $52 5 million.
This was a 6% improvement compared to the prior quarter as we had higher collections and continued to realize cost reduction gains.
We are activating our state of the art engine test and in addition to investing in our production ramp and have just completed our next generation ground support equipment, which is in operation at Cornwall.
Turning to our full year guidance as Dan mentioned, we expect to launch three times in 2022, as we focus on executing our strategic Cornwall launch and work with our customers on the timeliness of spacecraft availability.
On the revenue side, we have already secured at the lower end of our previous outlook range and are holding the top end range of $40 million.
Our launch operations execution to date gives us confidence in our revenue outlook.
No change to our free cash flow outlook as we continue to expect an outflow this year in the range of $220 million to $230 million.
This reflects our focus to manage cash as we continue to expect second half free cash flow to be favorable compared to the first half.
Sequentially in Q4, we are projecting higher working capital mainly associated with the production ramp with offsets from additional contract signings and the corresponding cash receipts.
Looking ahead similar to this year, we expect continued higher revenues per launch as we execute on our backlog and drive mission assurance certifications to deliver higher value payloads.
We will also continue to serve our government customers with diverse highly specialized emissions and services.
On the international side, we expect to continue to execute spaceport agreements and demonstrate the value of our unique mobile system.
In terms of launch right, we are targeting to more than double our launch rate next year as we focus on production ramp while building upon and extending our firm backlog.
In addition to launch we will continue to expand into market Adjacencies and international space parts missile defense targets and hypersonic.
Operational execution market penetration and expansion and disciplined cash management will be key for US next year as we drive towards becoming free cash flow breakeven in 2024.
Finally, I want to touch on cash as we continue to bolster our financial position through a variety of efforts.
We have strong backing from our current shareholders as demonstrated by the recent $25 million convertible investment from Virgin investment a part of the Virgin Group.
We finished the quarter with cash and cash equivalents of just over $71 million.
The recent $25 million of investment is in addition to this balance.
We will be opportunistic in the capital markets to fund our cloud.
Operationally, we continue to win new business and execute on our existing backlog, which will generate cash as we increased loss rate and drive costs down improving our gross margins.
In addition, capturing new higher value orders provides working capital benefits and cash receipts.
And with that I would like to thank you for your time and we'll now turn the call back over to Dan.
Thank you Brito at this point, we'd like to open the lineup for questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.
If your question has been answered or you wish Germany.
Once again, if you'd like to ask a question at this time. Please press star one one on your telephone keypad.
Please standby, while we compile the Q&A roster.
Our first question or comment comes from the line of John Roy from Water Tower Research Mr. Roy Your line is open.
Great.
Obviously, theres a lot of momentum on the international side and on the space <unk> Defense side I'm wondering how this is impacting the team internally your ability to hire and also on your interactions with sales prospects.
Well I mean.
The act of doing new and exciting things as a plus when it comes to exciting.
Workforce and bringing in the.
The community and that's what really we've seen.
So we've got a lot of energy going there we have a team here in the U K.
Doing something that's the first time in history.
If you walk down the street in Newquay.
During our Red Virgin orbit jacket.
Youll get a happy Hello, because the community knows that there is something new happening that all filters into the workforce will continue to do first as a company and thats to demonstrate our differentiation and air launch platform.
And drive open markets, which is what you're seeing really in the international and the.
In the defense side as well.
And then maybe as a quick follow on what are you seeing your limits to your growth I mean, I know you're still working on making sure that everything works 100%.
But.
What are what is kind of inhibiting you from necessarily growing faster.
I think we.
The operational ramp up is critically important it's got a lot of our focus and.
At this point in the company.
It's supply limited.
And we need to be very mindful of it.
You are as good as your as your glass launch.
And we're thrilled with the four successful launches.
Just had.
But we've got them, we've got to mind, our mission assurance focus and our technical.
Activities as the factory ramps up and make sure that we keep that recipe and drive it forward.
Great. Thanks.
Thank you our next question or comment comes from the line of.
Scott neutral from credit Suisse. Mr. <unk> Your line is open.
Thank you for taking my questions.
Brito can you disaggregate revenue and Cogs between launch and other activities.
Hey, Scott.
Assuming you are referring to our Q3 revenue of the $30 million and so in there in that.
We're in that value as we discussed during our last.
Earnings call in Q2, we do have the higher value launch revenue and in addition to that we also have some launch related service activities. In addition to some steady activity and Thats really comprising the revenue mix that we have in the Q3.
In regard okay great.
In regards to the margin.
To see that.
And the launch services related activity there is some higher higher revenue.
Revenues, there and margin.
But I'm not going to get too much into the detail of the launch versus non launch Cogs, our margins, but it's fair to say that our launch margin is lower and Thats really looking at where we are in the initial rate of production and we expect our launch margins to continue to improve of course.
As we come down the learning curve as we increase our rate and we scale and then we will also gain economies of scale. So what youre seeing in the quarter is really a blended result.
Got it so would it be fair to say I guess.
On to the details that the.
Cogs per launch have continued to improve with the rate that you.
Is it to improve over the past call. It six to nine months, you're continuing to see the learning curve progression that you would be helpful.
Yes, we are seeing we are continuing to see efficiencies being gained there.
As we continue to scale.
Okay, and then Dan can you talk a bit about <unk> and what your options are there at this point are you considering for testing and the award or do you want to kind of preserve the customer relationship and not go that route right now.
I mean, clearly tactically responsive launch.
A key market area for us and we're going to work.
And continue to work closely with that customer.
We see that it is highly valued.
We were <unk>.
Right.
Really very very high in our technical.
And natural capabilities of the system.
And so we were very encouraged by that obviously, we're disappointed in the loss.
Sure.
Okay.
At this point.
At this point, we don't anticipate a protest.
But we.
Instead, we're working very closely with that customer.
Going forward, a solution, which we think will be a game changer for them.
Okay makes sense. Thank you so much.
Thank you. Our next question or comment comes from the line of Edison you from Deutsche Bank.
Just a second please Mr. Yu your line is open.
Hey, Thank you. Thank you for taking the questions.
First I wanted to get your latest take on pricing I know youre, hoping to double launches next year do you have any sense of where pricing is trending for that activity.
Well I think we've got a really a wide spectrum of different customers with different value propositions.
Got.
What we're seeing.
Stability in.
The commercial market where.
I think we mentioned in the call.
Multi launch agreements are being discussed.
And what we're seeing is.
The companies that are in operations.
Our driving a good value.
For their customers. In addition, youre seeing developments in the National Security Arena.
And with our differentiated capability.
We have not only.
A traditional launch, but as we just discussed tactically responsive launch as well as inroads into hypersonic RMB and missile defense target areas, which other launchers don't have nearly as much.
An opportunity for and so those specialized government areas.
Sorry.
Carry a higher value.
And as Brito mentioned in.
In the call as well.
There are different categories of rockets and launch systems and what we're doing is we're pursuing.
The higher class certifications for NASA as well as the space for us to allow us to gain.
Access to launching high value payloads, which which yield higher revenues as well.
No.
That's kind of how the the overall landscape looks and overall.
We see a good value for our product.
And separate topic.
Clearly a lot of momentum.
On international.
Any sense to provide some sort of range on what those opportunities.
Manifesting to be.
I'm going to try to pinpoint.
A number but.
Is that some sort of rough approximation of what those things could potentially to what day well I can certainly describe let me describe the overall approach and I think that will give you some insights and again I mean, we're seeing a huge amount of interest in.
And a lot of.
Of agreements that we have.
Started to enter into.
And as well I happen to be sitting in the UK right now having.
Having having just walk down.
What used to be a blank slab of cement.
At Newquay Airport is now.
Aerospace port.
Our proposition is to come over and really be part of the space ecosystem and provide a sovereign launch capability.
They are there and there are obviously commercial as well as government purposes at work.
And it's always the most powerful when those come together.
Commercial and government purposes, I mean, thats, how space grew up in the U S.
Our services.
From.
Our campaign and doing a launch.
Two something.
Like what were doing here, where there is ground equipment and some infrastructure associated with it and we can we can sell and maintain.
Infrastructure ground equipment that services and fuel as a rocket to an airplane that's permanently station and.
And supplying our full turnkey system.
And we're having discussions with different nations on different levels of support that way.
But obviously, where we're most focused on the ladder and those of the constituent pieces.
Okay. Thank you very much.
Thank you.
Our next question or comment comes from the line of Josh Sullivan from Benchmark company.
Standby your line is open.
Hey, good afternoon.
Good afternoon.
As far as the regulatory process. The UK spaceport what are the remaining large tentpoles that you see.
We don't have any.
Major issues at play.
This is the first space launch ever from the UK.
There is a new set of regulations is a new team.
We've been working very closely with them and it's just taken time.
I think there will be a lot of lessons learned from this that will help shore up the process.
I am hoping.
Think theres been a lot of some good discussion about trying to bring more commonality between the U S and the UK and maybe other nations processes so that.
Documentation and various things are not done in multiple ways.
But.
The good news is we don't see a showstopper or like a big issue we're working.
But it is taking longer than then.
We had anticipated and it is taking a bit more effort than we anticipated as well.
And just on that commonality comment I mean are the other regions like Portland, and elsewhere, Washington, the process from afar.
Yes, very much so there are a number of countries watching and learning.
And I think this this activity will help us form a blueprint that we can apply.
Again and again.
Got it.
And then just on the spire multi launched relationship can you just provide some color there.
How do you think you won that contract than any.
Any other aspects to it that you might provide.
Inspire is a really dynamic forward leaning innovative company.
I'd say, probably the biggest thing that started this is.
As I mentioned was.
Last December .
We were.
Getting ready for our launch and our team got a call from.
The spire team and they have a satellite that was waiting for a launch.
Got another launch provider.
And they really were urgently needing it to get up.
Our gene and <unk> team looked at our performance in our orbit May said.
We can do this.
So the FAA is credit.
We call them and within a week. They said we're okay. If you add that spacecraft.
Three weeks later they were an orbit so that started the discussion.
And then it's a matter of hours.
Launch record.
Our responsiveness and our value proposition.
Got it.
And then just lastly on the kind of looking to breakeven by 2024.
What do you think are the major.
Need to have to get there and then maybe what are some of the risks around it.
Again.
As I've said before I think the ramp up is our key focus right now.
And so we are seeing good signs are the rocket Thats currently down the street from here and getting ready to launch came out of the factory.
And half the time.
From the last launch than the one before that so we're seeing some good nice bright spots like that we've got to continue to push it.
We haven't had any big supply chain issues with balancing out your feeder lines into your factory are important. So all those operational activities are ongoing and then we want to see and we're working hard on and making progress on our these certifications.
Which I think helped help your operations healthier mission assurance, but also give confidence to customers. So that they can put their high value payloads on your system. We did just get ISO 9000 certification.
234 months back.
We're working on the other pedigree in items sold.
So those pieces.
And then just then it's really just expanding into the markets. We described.
Great. Thank you for your time.
Thanks.
Thank you.
Standby.
Our next question or comment comes from the line of.
Austin Moeller from Canaccord Genuity.
Mr. <unk>. Your line is open hi, good afternoon, Dan and Brita.
Hi, Austin.
Alright.
So I mean Virgin will have three launches this year and given that long beach can build.
So the battle in build rate around 20 walk it's per year, what do you see as key bottlenecks keeping you from ramping the number next year closer to two times, the current which would be maybe like six to eight is it more of the supply side or more the demand payload readiness side.
It's really mainly the supply side is going through that ramp I mean, we have the capacity.
But what you do as you as you go through.
L. Rip typically low rate initial production as you make improvements you make you find whatever weak points. There are in your components in your build in your tooling.
And you improve on those and so any change is usually a headwind against ramping but those changes are important because they give you.
More efficient build process overall and for the long term and give you a more capable and more.
Reliable product in the long term too so as we go through we will make and we are making small changes like that to make sure that.
The.
Factory runs efficiently.
The product is reliable and if you look at big companies, who make airplanes and things they sometimes call those those early vehicles they're teenagers.
They take a little bit longer and it pays off as you get into rate. Because then you're right really picks up and so we're right in that steady phase, where we are ramping but.
We wont hit a knee in the curve once some of these developments and changes we've done.
Okay that makes sense and one more can you talk about the status of the <unk> Harris upgrade work on the two new 747 motherships.
We've been really focused mostly on the ramp.
We will we will probably differ.
The mother ship.
A bit as we as we really focus on ramp we do not need it.
For another year and a half to two years.
Given the capability of cosmic <unk>.
At the same time, we are keeping them warm we do have some customers.
Who are interested in.
We're also having aircraft.
And so as we expand in the market and get signals. There we have the ability to ramp those up quickly.
Okay, great. Thank you for the color there.
Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to management for any closing comments.
Well, let's see I'd, just like to thank everybody for joining us today it's.
It's an exciting time for the company I happen to be in Cornwall, right now, having just left the team.
As returning wrenches on an airfield.
And.
Yes stay tuned.
We will be pressing forward and we'll keep everybody informed everybody have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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