Q4 2023 Virgin Galactic Holdings Inc Earnings Call

Operator: Good afternoon, my name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's fourth quarter and full year 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.

Good afternoon. My name is Sarah and I will be your conference operator today at this time I would like to welcome everyone to Virgin Galactic <unk> fourth quarter and full year 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again.

After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.

If you would like to withdraw your question simply press Star one again.

Eric Cerny: I will now turn the call over to Eric Cerny, Vice President of Investor Relations. Please go ahead. Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's fourth quarter and full year 2023 earnings conference call. On the call today with me are Michael Colglaser, Chief Executive Officer; Mike Moses, President of our Spaceline; and Doug Ahrens, Chief Financial Officer. Following our prepared remarks, we will open the call for questions. Our press release and slide presentation that will accompany today's remarks are available on our Investor Relations website. Please see slide two of the presentation for our Safe Harbor disclaimer.

I will now turn the call over to Eric Cerny, Vice President of Investor Relations. Please go ahead.

Eric Cerny: Thank you and good afternoon, everyone welcome to Virgin Galactic <unk> fourth quarter and full year 2023 earnings conference call on the call today with me are Michael Coe Glaser, Chief Executive Officer, Mike Moses President of our baseline, Doug Aron Chief Financial Officer.

Eric Cerny: Following our prepared remarks, we will open the call for questions.

Eric Cerny: Our press release and slide presentation that will accompany today's remarks are available on our Investor Relations website.

Eric Cerny: Please see slide two of the presentation for our Safe Harbor disclaimer. During today's call. We may make certain forward looking statements. These statements are based on current expectations and assumptions and as a result are subject to risks and uncertainties. Many factors could cause actual events to differ materially from the forward looking statements made on.

Eric Cerny: 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 uncertainty. Many factors could cause actual events to differ materially from the forward-looking statements made on this call.

Eric Cerny: On this call.

Eric Cerny: For more information about these risks and uncertainties, please refer to the risk factors in the company's SEC filings made from time to time. You are cautioned not to put undue reliance on forward-looking statements, and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call, whether as a result of new information, future events, or otherwise. Please also note that we will refer to certain non-GAAP financial information on today's call. Please refer to our earnings release for a reconciliation of these non-GAAP financial measures. With that, I would like to turn the call over to Michael. Please go ahead.

Eric Cerny: For more information about these risks and uncertainties. Please refer to the risk factors in the company's SEC filings made from time to time.

Eric Cerny: You are cautioned not to put undue reliance on forward looking statements and the company specifically disclaims any obligation to update the forward looking statements that may be discussed during this call whether as a result of new information future events or otherwise.

Eric Cerny: Please also note that we will refer to certain non-GAAP financial information on today's call. Please refer to our earnings release for a reconciliation of these non-GAAP financial metrics.

Eric Cerny: With that I would like to turn the call over to Michael. Please go ahead.

Michael: Good afternoon, everyone. Thank you for joining US 2023 was incredible for Virgin Galactic as years of R&D and flight test culminated in launching our commercial space line and successfully flying back to back monthly space flights, each delivering an exceptional experience for our customers.

Michael: Good afternoon, everyone. Thank you for joining us. 2023 was incredible for Virgin Galactic as years of R&D and flight culminated in launching our commercial space line and successfully flying back-to-back monthly space flights, each delivering an exceptional experience for our customers. Importantly, 2023 proved that each time we fly to space, we change lives for the better, and I'm incredibly proud of and thankful to our Virgin Galactic team for this successful. Since our inception, the vision for our company has been That vision, that dream behind Virgin Galactic came into sharp focus as we repeatedly flew Spaceship Unity in 2023. Now, in 2024, we're poised for even more meaningful missions as we build the fleet of spaceships that will turn the dream into reality over the long term. It's a new day for Virgin Galactic.

Michael: Shortly 2023 prove that each time, we fly to space, we change lives for the better and I'm incredibly proud of and thankful to our Virgin Galactic team with a successful year.

Michael: Since our inception, the vision for our company has been clear and consistent to make space more accessible to people around the world and to do it in a way that's transformative and unforgettable.

Michael: That dream behind Virgin Galactic came into sharp focus as we repeatedly flu spaceship unity in 2023 now.

Now in 2024, we're poised for even more meaningful accomplishments as we build the fleet of spaceships that we'll turn the dream into reality and long term success.

Michael: It's a new day for Virgin Galactic, we've entered phase two of our company's journey, having grown beyond our R&D and prototype routes into an engineering manufacturing and astronaut driven consumer space company with an industry defining products from customer experience.

Michael: We've entered phase two of our company's journey, having grown beyond our R&D and prototype routes into an engineering, manufacturing, and astronaut-driven consumer space with an industry-defining product and customer experience. At the start of the call, I'd like to share that our Delta-class spaceships remain on track to begin ground and flight testing next year and commercial service in 2026, and our balance sheet continues to be strong with cash, cash equivalents, and marketable securities at just under $1 billion. Turning to the agenda on slide 3, I will start with a recap and overview of 2023, covering our launch of commercial operations, the incomparable life experience we are delivering to our customers, and related to that experience. We are seeing strong Value and Pricing Opportunities. I'll then revisit our strategy to scale the business and drive long-term growth.

Michael: At the top of the call I'd like to share that our Delta class space ships remain on track to begin ground and flight testing next year and commercial service in 2026, and our balance sheet continues to be strong with cash cash equivalents in marketable securities at just under $1 billion.

Michael: Turning to the agenda on slide three I will start with a recap an overview of 2023 covering our launch of commercial operations. The incomparable life experience, we are delivering to our customers and related to that experience the strong value and pricing opportunities we are seeing.

Michael: Then revisit our strategy to scale, the business and drive long term growth.

Michael: Because our Delta-class spaceships play a pivotal role in our future, I've asked Mike Moses, President of Virgin Galactic Spaceline, to join today's call and dive deeper into how these next-generation vehicles are being built and how they will accelerate value creation for the company. Finally, Doug will share financial results for the year in the fourth quarter, thoughts on the size of the commercial space travel market, and our growth model as we build out our spaceport operations. Following our prepared remarks, we'll open the call to your questions. With that said, let's get started on slide four.

Michael: Because our Delta class B ships play a pivotal role in our future I have asked Mike Moses President of Virgin Galactic <unk> baseline to join today's call and dive deeper into how these next generation vehicles are being built and how they will accelerate value creation for the company.

Michael: Finally, Doug will share financial results for the year in the fourth quarter thoughts on the size of the commercial space travel market and our growth model as we build out our space Port operations.

Michael: In our prepared remarks, we'll open the call to your questions with that let's get started on slide four.

Michael: We officially commenced commercial operations last year with great success, proving that we can execute as a commercial space line client safe regular and repeatable missions.

Michael: We officially commenced commercial operations last year with great success, proving that we can execute as a commercial space line, flying safe, regular, and repeatable missions. We've created a customer experience that sets the industry standard for years to come. The comments from our newly minted astronauts have been overwhelmingly positive.

Michael: We've created a customer experience that sets the industry standard for years to come.

Michael: The comments from our newly minted astronauts have been overwhelmingly positive to hear.

Michael: To hear them describe it, the customer journey delivered by Virgin Galactic, from preflight activities and Immersive Training to the spaceflight itself, perhaps the most meaningful experience of their lives. We're not only taking our customers to space, but our customers tell us it's an incomparable life moment, and we're seeing what's called the overview effect in action, where the experience of seeing the Earth from space literally changes. It's a thrilling and overwhelming sensory experience to be sure, giving everyone who does it the adventure of a lifetime, but it's also the visceral realization of the vastness and the brilliance of the Earth and the enormity of the human endeavor that brought them to this. This is a life journey, and it matters like nothing else people have experienced.

Michael: You then describe it the customer journey delivered by Virgin Galactic from pre feed activities and immersive training to the spaceflight itself is perhaps the most meaningful experience of their lives.

Michael: We're not only taking our customers to space them back.

Michael: Our customers tell us it is an incomparable life moment, and we're seeing what's called the overview effect an action where the experience is seeing the earth from space literally changes you.

Michael: It's a thrilling and overwhelming sensory experience to be sure, giving everyone who does it the adventure of a lifetime.

Michael: But it's also the visceral realization of the vastness and the brilliance of the Earth.

Michael: And the enormity of the human endeavor that brought them to this point.

Michael: This is a life journey and it matters like nothing else people have experienced.

Because we take off and land from the same spaceport runway our astronauts can have their family their friends sharing this journey and that is just wonderful.

Michael: Because we take off and land from the same spaceport runway, our astronauts can have their families and their friends share in this journey, and that is just wonderful. They watched their loved ones rocket into space, see them floating in awe above the planet, and in cheers, they gracefully glided back down to earth. The reunions and the hugs are deeply emotional because we thoughtfully integrate family members and friends into the scheduled activities and overall experience.

Michael: They watch their loved ones rocket into space see them floating and above the planet.

Michael: And then chairs they gratefully glide back down to the spaceport.

Michael: The reunions and hugs are deeply emotional.

Michael: Because we thoughtfully integrate family members and friends into the schedule of activities and overall experience. The days at Spaceport America become a shared experience that is completely unique and deeply meaningful for everyone involved.

Michael: The days at Spaceport America become a shared experience that is completely unique and deeply meaningful for everyone involved. For our last flight, Galactic 6, we hosted our largest crowd of friends and family since launching commercial service. Energy with Undeniable.

On slide five for our last flight Galactic six we hosted our largest crowd of friends and family since launching commercial service in the energy was undeniable.

Michael: We host this group for the benefit of our customers, but this service also enables invaluable sharing and testimonials via word of mouth, which will be of great value to the company when we reopen sales ahead of the Delta ship's arrival. In addition, many of our flown astronauts have become ambassadors for our product, which will draw more people to the adventure and discovery associated with our space. Our astronaut testimonials are very moving, and I encourage you to go listen to our more recent... 6 on our social media pages. Since May of 2023, we have brought 24 people to space, bringing Virgin Galactic's current total to 32 astronauts. This is almost 5% of human history's total number of asteroids, and we will surpass the 5% mark with our next mission, Galactic 7, later this year. All this was done with our first prototype ship, and these numbers will be dwarfed as we scale up the Delta class. Everything I just discussed.

Michael: We host this group for the benefit of our customers for this service also enables and valuable sharing and testimonials via word of mouth, which will be of great value to the company. When we reopened sales ahead of the delta ship's arrival.

Michael: In addition, many of our flown astronauts have become ambassadors for our product, which will draw more people to the adventure and discovery associated with our space flight experience.

Michael: Our astronaut testimonials are very moving and I encourage you to go listen to our more recent ones from Galactic six on our social channels.

Michael: Since may of 2023, we brought 24 people to space, bringing Virgin Galactic current total to 32 astronauts.

Michael: This is almost 5% of human history as total number of astronauts and will surpass the 5% Mark with our next mission Galactic seven later this year.

Michael: All of this was done with our first prototype chip and these numbers will be dwarfed as we scale up the Delta class fleet.

Michael: Everything I just discussed.

Michael: How we deliver successful flights, along with the superlative customer experience, has tangibly demonstrated the appeal and the value of being a Virgin Galactic asset, and our experience with actual customers has reaffirmed the company's strong market opportunity. As a practical example of this market opportunity, we have sold recent openings in our manifest at a market rate that is substantially above our historical price. Our next spaceflight, Galactic 7, will have a blended manifest of researchers and private citizens, and we expect the revenue for that flight to exceed an average of $800,000 per seat, with a current backlog of approximately 725 future asteroids. However, new sales are not planned to open until we are closer to the launch of our Delta fleet. However, we have a limited number of house seats that we have made available to private astronaut referrals from our future astronaut community. We have moved the entry price point of these private astronaut seats from $450,000 to $600,000 in line with the entry-level price per seat of our research flight. We believe these prices continue to reflect outstanding value for the product and lifetime experience we are delivering.

Michael: We deliver successful flights along with the superlative customer experience has tangibly demonstrated the appeal and the value of being a Virgin Galactic astronaut.

Michael: And our experience with actual customers has reaffirmed the company's strong market opportunity.

Michael: As a practical example of this market opportunity we have sold recent openings in our manifest at a market rate that is substantially above our historical pricing.

Michael: Our next space flight Galactic seven will have a blended manifest our researchers from private citizens and we expect the revenue for that flight to exceed an average of $800000 per seat.

With the current backlog of approximately 725 future astronauts new sales are not planned to open until we are closer to the launch of our Delta fleet.

Michael: However, we have a limited number of house seats that we have made available to private astronaut referrals from our future astronaut community.

Michael: We have moved the entry price point of these private astronaut seats from 450000 to $600000 in line with the entry level price per seat of our research flights.

Michael: We believe these prices continue to reflect outstanding value for the products and lifetime experience, we are delivering and as Doug will share in a moment. We believe there is a large and robust addressable market at these price points.

Michael: And as Doug will share in a moment, we believe there is a large and robust addressable market at these prices. Before I hand the call over to Mike and Doug, I want to clarify and reaffirm our vision and growth strategy for the company. Moving to slide six, let's start with the building blocks of our core business model. We've laid out the unit economics of a single Delta ship. With six seats, these ships can deliver a revenue per flight of $3.6 million at current prices.

Michael: Before I hand, the call over to Mike and Doug I want to clarify and reaffirm our vision and growth strategy for the company.

Michael: Moving to slide six let's start with the building blocks of our core business model.

Michael: We have laid out the unit economics of a single Delta ship with.

Speaker Change: With six seats. These ships can deliver a revenue per flight of $3 6 million at current pricing levels.

Michael: We are targeting each Delta ship to average eight space flights per month, allowing for annual maintenance cycles and an appropriate amount of redundancy. We expect each spaceport will be optimized with a fleet of four to five spaceships and two mothers. This set of assets should enable a range of 300 to 400 spaceflights per year per spaceport in steady-state operation. To illustrate, a spaceport that operates 300 flights a year at $3.6 million per flight generates over $1 billion per year in revenue from the spaceflights themselves. But that's not all that we expect to have going on at SpaceX. As we've demonstrated with our early flights, witnessing a spaceflight in person is an extremely compelling experience, not only for friends and family, but also for people who are interested in space and aerospace technology in general, as we approach a flight cadence that is closer to daily than weekly.

Speaker Change: We are targeting each delta shift to average eight space flights per months.

Speaker Change: Allowing for annual maintenance cycles, and an appropriate amount of redundancy. We expect each spaceport will be optimized with a fleet of four to five space ships and two motherships.

Speaker Change: This set of assets should enable a range of 300 to 400 space flights per year per spaceport in steady state operation.

Speaker Change: To illustrate our space Port that operates 300 flights a year at $3 $6 million per flight generates over $1 billion per year in revenue from the space flights themselves.

Speaker Change: But that's not all that we expect to have going on at a spaceport.

Speaker Change: As we've demonstrated with our early flights Wouldnt see in a space flight in person is an extremely compelling experience not only for friends and family, but also for people who are interested in space and aerospace technology in general.

Speaker Change: As we approach a flight cadence that is closer to daily and weekly we expect many people wish to be part of that experience.

Michael: We expect many people will wish to be part of that experience. Some of those people will eventually become astronauts themselves, and some will be satisfied with being part of human spaceflight from the ground. All of them, however, will have an outstanding experience during the day in our space... And this can be accomplished at prices that are much less than our spaceships.

Speaker Change: Some of those people will eventually become astronauts themselves and some will be satisfied with being part of human space flight from the ground up.

Speaker Change: All of them. However, we will have an outstanding experienced during the day at our space ports and this can be accomplished at prices that are much less than our space flight.

This larger volume of attendance at a spaceflight is very important to the communities where we operate.

Michael: This larger volume of attendance that is spaceflights is very important to the communities where we operate, on top of the high-wage jobs generated directly and indirectly from our operations at the Space Board. Additional jobs and positive economic impacts should flow into the community as all the people in attendance during their spaceflight days spend time and money in the surrounding area. At a macro level, it is this fully utilized spaceport that will be the primary economic engine for both Virgin Galactic and our community. It will be a compelling public-private partnership that we're working to first scale up and realize at Spaceport America in New Mexico. We will then take that fully utilized spaceport model to governments and communities in other parts of the world that wish to develop a local space economy. I want to note that the upfront infrastructure we are now building for our Delta class, including our final assembly spaceship factory in Phoenix, is planned to support this future expansion. This is where we expect to drive excellent contribution margins, and this is where we see significant upside potential in our business.

Speaker Change: On top of the high wage jobs generated directly and indirectly from our operations at the spaceport.

Speaker Change: Additional jobs and positive economic impacts should flow into the community is all of the people in attendance during a spaceflight days spent time and money within the surrounding areas.

Speaker Change: At a macro level. It is this fully utilized space port that is the primary economic engine for both Virgin Galactic and our communities.

Speaker Change: It will be a compelling public private partnership that we're working to first scale up and realized at Spaceport America in new Mexico.

Speaker Change: We will then take that fully utilized space port model to governments and communities and other parts of the world that wish to develop a local space economy.

Speaker Change: I want to note that the upfront infrastructure. We are now building for our Delta class ships, including our final Assembly spaceship factory in Phoenix as planned to support this future expansion.

Speaker Change: This is where we expect to drive excellent contribution margins and this is where we see significant upside potential of our business model.

Once our upfront infrastructure is in place, we expect to lean into the profitable expansion of our fleet.

Michael: Once our upfront infrastructure is in place, we expect to lean into the profitable expansion of our fleet. While the capital we have on hand is sufficient to bring our first two ships into service, we do expect to bring on additional growth capital to fund the assets needed, primarily additional spaceships and motherships, to expand our business at an appropriate rate. High Margins and Short Payback Periods on Additional Spaceships and Other Ships. We forecast returns on this growth capital, when deployed, to be very attractive and value-accretive to the company. Our primary effort right now, however, is to remain laser-focused on completing the up-front design, build, and test work so we can launch our Delta fleet and move into cast-flow positive operations. With that in mind, I'll hand the call over to Mike Moses, President of Virgin Galactic Spaceline, for an update on our Delta. Thank you, Michael. It's great to be able to join all of you today.

Speaker Change: All the capital we have on hand is sufficient to bring our first two ships into service, we do expect to bring on additional growth capital to fund the assets needed primarily additional space ship. Some other ships to expand our business at an appropriate rate.

Speaker Change: With high margins and short payback periods on additional space ship. Some other ships, we forecast returns on this growth capital when deployed to be very attractive and value accretive to the company.

Speaker Change: Our primary effort right. Now however is to remain laser focused on completing the upfront design build and test work. So we can launch our delta fleet and moved into cash flow positive operations.

Speaker Change: With that in mind, I'll hand, the call over to Mike Moses President of Virgin Galactic space Slide for an update on our Delta ships.

Mike Moses: Thank you Michael it's great to join all of you today.

Mike Moses: It's a tremendously exciting time for our company, and I'm thrilled to be part of it. I'll start by addressing a couple of questions that I hear frequently because the answers will help everyone better understand the strategy and design behind our next generation spaceship. The first question I hear most frequently is, "How is Delta different from Unity?" Typically, that question is quickly followed by what gives us confidence that we can deliver the first Delta class ships next year to begin ground and flight tests ahead of commercial service in 2020. Let me start on page 7 with the first question: what is different between Unity and Delta?

Mike Moses: Tremendously exciting time for our company and I'm thrilled to be part of it all.

I'll start by addressing a couple of questions that I hear frequently because the answers will help everyone better understand the strategy and design behind our next generation space ships.

Mike Moses: The first question I hear most frequently how is delta different annuity.

Mike Moses: That question is quickly followed with what gives us confidence that we can deliver the first Delta quest ships next year to begin ground and flight tests ahead of commercial service in 2026.

Mike Moses: Let me start on page seven with the first question what is different between <unk> and Delta.

Mike Moses: Simply put, Delta will look almost identical to Unity. The dynamics of the flight, the shape of the vehicle, our pilot-led approach, and our fundamental customer experience won't change, but each of the aspects will be in him. The Spaceship System emphasizes safety first, and then, ultimately, reusability and frequency. While Delta will look very similar, there are differences, and they can be broken down into three categories.

Mike Moses: Simply put delta will look almost identical to unity the dynamics of the flight the shape of the vehicle our pilot line approach and our fundamental customer experience won't change, but each of the aspects will be enhanced with.

Mike Moses: <unk> system emphasizes safety first and then ultimately we usability and frequent flight rate.

Mike Moses: While it will look very similar there are differences and they can be broken down into three categories capacity slight rate and cost.

Mike Moses: Capacity, flight rate, and cost. First, each Delta spaceship has increased cabin capacity. Delta will be able to carry six astronauts in addition to the two pilots, compared to only four astronauts in unity.

Mike Moses: First each delta spaceship has increased cabin capacity.

Mike Moses: Delta will be able to carry six astronauts. In addition to the two pilots compared to only four astronauts immunity.

Mike Moses: This is a 50% increase in seating capacity, which directly translates into increased revenue per flight. A key metric that highlights why we are so focused on the Delta fleet is revenue per flight. More seats in each spaceship means more revenue per flight. We achieve this increased capacity by removing weight from the design. One of the key enablers for reducing the weight is the composite materials that we use to build each ship. We have switched to a high-temperature composite resin called bismalamide, typically abbreviated as BMI.

Mike Moses: This is a 50% increase in seating capacity, which directly translates into increased revenue per flight.

Mike Moses: Key metric that highlights why we are so focused on the Delta fleet is revenue per flight more seats in each spaceship means more revenue per flight.

Mike Moses: We achieved the increased capacity by removing week from the design.

Mike Moses: One of the key enablers to reducing the weight is the composite materials that we use to build each ship.

Mike Moses: We have switched to a high temperature composite resin system called <unk> typically abbreviated as BMI.

Mike Moses: The ability of the base composite material to withstand higher temperatures reduces the amount of thermal protection required for each delta ship, thus saving weight and increasing our cabin capacity. In addition, we are optimizing the structural skeleton of the Delta Spaceship. Because we know from Unity flight experience exactly how we need the ship to perform, we can size and locate various structural parts more precisely, which in turn saves weight. The second difference is the increased flight rate of a single spaceship.

Mike Moses: The ability of the base composite material to withstand higher temperatures reduces the amount of thermal protection required through each delta shift, thus saving weight and increasing our cabinet capacity.

Mike Moses: In addition, we are optimizing the structural skeleton of the delta species, because we know from unity flight experience exactly how we need to ship to perform we can size and locate various structural parts more precisely which in turn saves weight.

Mike Moses: The second difference is the increased flight rate of a single space ship it.

Mike Moses: It should go without saying, but a spaceship is more beneficial to the business the more often it is safely flying, as opposed to sitting on the ground. Quicker turn times will enable us to grow the business quickly. This highlights another key metric, flights per month. Delta will be capable of flying 8 times per month, compared to once per month for Unity. Coupling increased revenue per flight, Delta can generate 12 times the revenue compared. We achieve this through thoughtful and precise design and testing of the Delta Space Shuttle. Turn-in time is how much time you spend on the ground between launches, and the biggest impact on turn time stems from periodic inspections required to check that the system and structure are performing as desired. A major advancement with Delta is that we are building specific, dedicated test equipment that supports cycle testing on the ground. One such article is the static test.

Mike Moses: It should go without saying, but a spaceship is more beneficial to the business. The more often seek lease line as opposed to sitting on the ground.

Mike Moses: Quicker turn times will enable us to grow the business quickly.

Mike Moses: This highlights another key metric flights per month Delta.

Mike Moses: Delta will be capable of flying eight times per month compared to the once a month for unity coupled.

Mike Moses: Coupled with increased revenue per flight Delta can generate 12 times the revenue compared to <unk>.

Mike Moses: We achieved this through thoughtful and precise design and testing of the Delta spaceships.

Mike Moses: Turning time is how much time, you spend on the ground between flights and the biggest impact on turn time stems from periodic inspections required to check that the system and structure are performing as desired.

Mike Moses: A major advancement with Delta is that we are building specific dedicated test articles that support cycle testing on the ground.

Mike Moses: One such article is the static test article this is essentially a delta shift it's the major assemblies that this patient built as if they were being used in delta spaceship, but installed into ground test rigs.

Mike Moses: This is essentially a delta ship. It's the major assemblies of the spaceship, built as if they were being used in a delta spaceship but installed during the ground test. We will then pull, push, bend, and twist that piece of structure until it breaks, verifying its capabilities compared to computer model predictions. This type of testing is common in aerospace manufacturing, and it allows you to have high confidence in your limits and capabilities. With Unity, we did some of this testing, but because our original prototype didn't always have a test part capable of being broken on the ground, we adopted a strategy of inspecting Unity regularly to validate our performance.

Mike Moses: We will then pull push spending twist that piece of structure until it breaks clarifying its capabilities compared to computer model predictions.

Mike Moses: Type of testing is common in aerospace manufacturing and it allows you to have high confidence in your limits and capabilities.

Mike Moses: With unity, we did some of this testing, but because our original prototype didn't always have a test smart capable of being broken on the ground. We adopted a strategy of inspecting unity regularly to validate our performance.

Mike Moses: The static test article represents a significant investment in time and materials, but the payoff is well worth it, similar to how modern airliners are maintained. The Delta fleet will have test data to inform the number and frequency of inspections that will be needed, with the ability to space these out over the course of its lifetime. While Unity needed an average of 14 days of inspections between flights, the Delta fleet will only need less than a day.

Mike Moses: Static test article represents a significant investment in time and materials, but the payoff is well worth it similar to how modern airliners are maintained.

Mike Moses: The Delta fleet will have test data to inform the number and frequency of inspections that will be needed with the ability to space. These out over the course of its lifetime.

Mike Moses: While utility needed an average of 14 days of inspections between like the Delta fleet will only need less than a day.

Mike Moses: Delta spaceships are being designed for easier access to the areas that do require inspection knowing specific maintenance tasks required ahead of the design process. We can ensure that parts requiring regular inspection arent very deep within the ship and that access panels can be removed and reinstalled quickly without requiring special tools of equipment.

Mike Moses: Delta spaceships are being designed for easier access to the areas that do require it, knowing specific maintenance tasks required ahead of the design. For example, we can ensure that parts requiring regular inspection aren't buried deep within the ship and that access panels can be removed and reinstalled quickly without requiring special tools or equipment. Finally, there is a significant difference in the cost to build each space shuttle because Unity was a hand-built spaceship. The parts were laid up by hand and assembled piece by piece when our company was vertically integrated, meaning that we did almost everything in house.

Mike Moses: Okay.

Mike Moses: Finally, there is a significant difference in the cost to build each species.

Mike Moses: <unk> was a hand built space ship the parts were laid up by hand and assembled piece by piece when our company was vertically integrated meaning that we did almost everything in house for Delta. We are leveraging the best practices of modern aerospace manufacturing.

Mike Moses: For Delta, we are leveraging the best practices of modern aerospace manufacturing. We are using a digital twin that models all of the parts electronically and stores all relevant metadata in a common graphical data structure. This process facilitates smoother manufacturing and assembly and has great benefits in test and verification, as well as commercial operations and maintenance. We are leveraging aerospace industry experts suppliers, Beltextron, and Carbon Aerospace, to develop, build, and assemble Delta's major subsystems. The Wing, Fuselage, and Feather Assembly

Mike Moses: We are using a digital twin that models all of the parts electronically and stores all relevant metadata common graphical data structure.

Mike Moses: This process facilitate smoother manufacturing and assembly and has great benefits in test and verification as well as commercial operations and maintenance.

Mike Moses: We are leveraging aerospace industry experts suppliers bell textron and carbon aerospace to develop build and assemble deltas major sub assemblies, the wing fuselage and feather assemblies.

Mike Moses: These parts will be fully built and integrated with wiring, subsystems, and components and delivered to our new Phoenix-based final assembly facility, where Virgin Galactic will combine those elements and perform final ground checkout before starting flight. Investing in the design and drawing release process up front will enable a much smoother and quicker assembly. In addition to shorter assembly times, this development approach reduces the variable cost per spaceship dramatically, with an estimated cost per incremental delta ship in the range of $50 to $60 million. This is the new way to make space. Addressing the second question I'm often asked about Delta, what gives us the confidence in our schedule to deliver Delta for commercial service in 2020? You can break our schedule down into three phases: design, build, and assemble, and test. As I've highlighted, Delta is based on the lessons of unity, and that is the most relevant fact that drives our country. In the design phase, we know that Delta needs to fly the same way as UD. It has the same shape, or outer mold line, flies through the same environment, and follows a similar pattern.

Mike Moses: These parts will be fully built integrated with wiring subsystems and components and delivered to our new Phoenix based final Assembly facility, where Virgin Galactic will combine those elements and perform final ground checkout before starting flight test.

Mike Moses: Investing in the design and drawing release process upfront will enable a much smoother and quicker Assembly phase.

Mike Moses: In addition to shorter Assembly times. This development approach reduces the variable cost per space ship dramatically with an estimated cost per incremental delta shipped in the range of $50 million to $60 million. This is the new way to make patients.

Mike Moses: Addressing the second question I'm, often asked about Delta what gives us the confidence in our schedule to deliver delta for commercial service in 2026.

Mike Moses: You can break our scheduled down into three phases design builds and assemble and test.

Mike Moses: As I've highlighted Delta is based on the learnings of unity and that is the most relevant factor that drives our confidence.

Mike Moses: In the design phase, we know that delta needs to fly the same way.

Mike Moses: It has the same shape or our mobile line slides through the same environment and follows a similar path to space.

Mike Moses: Thanks to Unity's flights, our designers already have the end well defined. In the build and assemble phase, I just highlighted the key changes that drive confidence, the digital models, integrated major sump assemblies, and development test equipment that allows us to check components before they go on the ship. On pages 8 and 9, you can see the continued progress we are making on the build-out of our spaceship factory. In the test phase, we again build off the foundation of unity. We are not flying into new and unknown territory. We need flight testing, but for Delta, we are looking at the performance of what has changed, not learning new things on each test flight, like was needed for Unity. In the test world, this is more like regression testing, as opposed to new envelopes.

Speaker Change: Thanks to you. These flights are designers already have the and well defined.

Speaker Change: In the build and assemble phase I just highlighted the key changes that drive confidence there.

Speaker Change: Digital models integrated major subassemblies and development test equipment that allows us to check components before they go on the ship on.

Speaker Change: On pages eight and nine you can see the continued progress we are making from the build out of our species factory.

Speaker Change: In the test phase, we again built off the foundation of unity.

Speaker Change: We are not flying into new and unknown territory, we need flight testing, but for Delta. We're looking at the performance of what has changed not learning new things on each test flight like was needed for unity in the test World. This is more like regression testing as opposed to new envelope testing.

Speaker Change: Finally for those with a more detailed interest in how our species or being built page 10 shows examples of tools that carbon aerospace is using to build the BMI composite parts.

Mike Moses: Finally, for those with a more detailed interest in how our spaceships are being built, page 10 shows examples of tools that Carbon Aerospace is using to build the BMI composite part. These tools work much like molds that allow us to build and cost-effectively replicate parts for multiple. The carbon fiber parts are laid up into these tools and then cured in pressurized ovens called autoclaves that are located at Carbon's facility.

Speaker Change: These tools work much like modes that allow us to build and cost effectively replicate parts for multiple spaceships.

Speaker Change: The carbon fiber parts are laid up into these tools and then security and pressurized ovens called auto claims that are located in carbon facilities.

Mike Moses: Page 11 shows the Delta flight deck simulator we have recently installed at our engineering headquarters in Orange County, California. This critical test asset supports the evaluation of our cockpit layout and human control interface, evaluation of flight controls, and updates to pilot procedures and checks. It has taken a tremendous amount of expertise and experience to arrive at this exciting point in our trajectory. Every flight we have taken, every lesson we have learned, every leap forward we have made, have all brought us here. What we are accomplishing with DELTA and the scaling of Virgin Galactic is nothing short of amazing, and I look forward to sharing more details as continued progress is made. Now I'll hand over the call to our Chief Financial Officer, Doug Ahrens, for a financial update. Thanks, Mike. Good afternoon, everyone.

Speaker Change: Page 11 shows the Delta flight deck simulator, we have recently installed at our engineering headquarters in Orange County, California.

Speaker Change: This critical test asset supports the evaluation of our cockpit lay out the human control interface evaluation of flight controls and updates to pilot procedures and checklist.

Speaker Change: It has taken a tremendous amount of expertise and experience to arrive at this exciting point in our trajectory.

Speaker Change: Every flight we have taken every lesson we have learned every leap forward. We have made all have brought us here.

Speaker Change: What we are accomplishing with delta and the scaling of Virgin Galactic is nothing short of amazing and I look forward to sharing more details as continued progress is made.

Speaker Change: Now I'll hand over the call to our Chief Financial Officer, Doug Aaron's for a financial overview.

Doug Aaron: Thanks, Mike Good afternoon, everyone, turning to slide 12, and our financial results for the fourth quarter, we generated revenue of $2 $8 million driven by commercial space flights and future astronaut membership fees.

Doug Ahrens: Turning to slide 12 and our financial results for the fourth quarter, which generated revenue of $2.8 million driven by commercial space flights and future astronaut membership fees, total operating expenses were $117 million compared to $154 million in the prior year period, primarily driven by lower R&D and SG&A expenses. We reported a gap net loss of $104 million compared to a net loss of $151 million in the prior year period, with the improvement driven by lower operating expenses and an increase in interest income from our marketable security. Adjusted EBITDA was negative $84 million in the fourth quarter, compared to negative $133 million in the prior year period.

Doug Aaron: Total operating expenses were $117 million.

Doug Aaron: Compared to $154 million in the prior year period, primarily driven by lower R&D and SG&A expenses.

Doug Aaron: We reported a GAAP net loss of $104 million compared to a net loss of $151 million in the prior year period with the improvement driven by lower operating expenses and an increase in interest income from our marketable securities.

Doug Aaron: Adjusted EBITDA was negative $84 million in the fourth quarter compared to negative $133 million in the prior year period.

Doug Ahrens: Turning to slide 13, for fiscal year 2023, we generated revenue of $6.8 million, driven by commercial space flights and future astronaut membership. Total operating expenses were $538 million compared to $502 million in the prior year. We reported a gap net loss of $502 million compared to $500 million in the prior year. Adjusted EBITDA for the year was negative $427 million, compared to negative $431 million in the prior year.

Doug Aaron: Turning to slide 13 for.

Doug Aaron: For fiscal year 2023, we generated revenue of $6 8 million driven by commercial space flights and future astronaut membership fees.

Doug Aaron: Total operating expenses were $538 million.

Doug Aaron: <unk> to $502 million in the prior year.

Doug Aaron: We reported a GAAP net loss of $502 million.

Doug Aaron: Compared to $500 million in the prior year.

Doug Aaron: Adjusted EBITDA for the year was negative $427 million.

Doug Aaron: Compared to negative $431 million in the prior year.

Doug Ahrens: Free cash flow was $-114 million in the fourth quarter, compared to $-135 million in the same period last year. Our free cash flow was better than guidance due to variation in the timing of payments to suppliers. For the year, pre-cash flow was negative $493 million compared to negative $397 million in the prior year.

Doug Aaron: Free cash flow was negative $114 million in the fourth quarter compared to negative $135 million in the same period last year.

Doug Aaron: Our free cash flow was better than guidance due to variation in timing of payments to suppliers.

Doug Aaron: For the year free cash flow was negative $493 million.

Compared to negative $397 million in the prior year.

Doug Aaron: Moving to slide 14, our balance sheet remains strong with $982 million in cash cash equivalents and marketable securities.

Doug Ahrens: Moving to slide 14, our balance sheet remains strong, with $982 million in cash, cash equivalents, and marketable securities. In 2023, we generated $484 million in gross proceeds through an at-the-market, or ATM, equity offering program. We did not utilize the ATM in the fourth quarter.

Doug Aaron: In 2023, we generated $484 million in gross proceeds through an aftermarket or ATM equity offering program we.

Doug Aaron: We did not utilize the ATM in the fourth quarter.

Doug Ahrens: Moving to our projection. Revenue for the first quarter of 2024 is expected to be approximately $2 million. Forecasted free cash flow for the first quarter of 2024 is expected to be in the range of negative $125 million to $135 million.

Doug Aaron: Moving to our projections.

Doug Aaron: Revenue for the first quarter of 2024 is expected to be approximately $2 million.

Doug Aaron: Forecasted free cash flow for the first quarter of 2024 is expected to be in the range of negative 125 million to $135 million.

Doug Aaron: Michael mentioned earlier, the strong value being delivered to our customers and as shared we have updated our private asphalt pricing to align with our research pricing at $600000 proceed.

Doug Ahrens: Michael mentioned earlier the strong value being delivered to our customers, and he shared that we have updated our private astronaut pricing to align with our research pricing at $600,000 per seat. I'd like to now discuss how we view the size of the commercial space travel market that we are pursuing. We've triangulated a few sources of research to help us better understand the Total Addressable Market, or TAM, leveraging a 2021 Jefferies report, a 2023 Credit Suisse report, and our own proprietary data.

Speaker Change: I'd like to now discuss how we view the size of the commercial space travel market that we are pursuing.

Speaker Change: We've triangulated a few sources of research to help us better understand the total addressable market or Tam.

Speaker Change: Leveraging a 2021 Jefferies report of 2023 Credit Suisse report and our own proprietary data. We have estimated the number of individuals that have both the desire to fly to space and the resources to do so.

Doug Ahrens: We've estimated the number of individuals that have both the desire to fly to space and the resources to do so, using conservative assumptions. We believe the TAM for private astronaut space travel is approximately 300,000 individuals, growing at an estimated annual rate of 8%. Putting that market opportunity into context, one fully operational spaceport, supporting around 2,000 astronauts per year, would represent less than 1% market penetration. This type of market analysis, combined with the tremendous customer feedback we're seeing from the spaceflight experience, shows the clear opportunity to keep expanding our fleet of spaceships and motherships with the goal of adding multiple spaceports around the globe. In the prior earnings call, we stated our ability to achieve positive cash flow with two Delta-class spaceships. We have allocated sufficient capital to bring them into service.

Speaker Change: Using conservative assumptions, we believe the Tam for private asthma space travel is approximately 300000 individuals growing at an estimated annual rate of 8%.

Speaker Change: Putting that market opportunity in the context, one fully operational spaceport supporting around 2000 astronauts per year would represent less than 1% market penetration.

Speaker Change: This type of market analysis, combined with a tremendous customer feedback we're seeing from the spaceflight experience shows the clear opportunity to keep expanding our fleet of space of some other ships, but the goal of adding multiple space sports around the globe.

Speaker Change: On the prior earnings call, we stated our ability to achieve positive cash flow with two delta class space ships, we have allocated sufficient capital to bring them into service.

Doug Ahrens: But our growth aspirations do not stop there. We plan to continue to expand our fleet and build additional spaceports. The one-time capital investment plan for 2024, which includes tooling at suppliers and the opening of our spaceship assembly factory in Arizona, will give us the manufacturing capacity needed to continue building additional spaceships at relatively low incremental costs. Now, let's discuss the economic model behind a fully operational spaceport. We believe the most effective utilization of a spaceport will occur at 300 to 400 flights per year. If we were to assume average ticket prices of $600,000 for now, we would generate approximately $1.1 billion to $1.4 billion of revenue per spaceport annually from spaceflight.

Speaker Change: But our growth aspirations do not stop there.

Speaker Change: We plan to continue to expand our fleet and fill additional space supports the.

Speaker Change: One time capital investment plan for 2024, which includes tooling suppliers and the opening of our <unk> Assembly factory in Arizona.

Speaker Change: <unk> will give us the manufacturing capacity needed to continue building additional space ships at relatively low incremental costs.

Speaker Change: Let's now discuss the economic model behind a fully operational spaceport.

Speaker Change: We believe the most effective utilization of the spaceport will occur at 300 to 400 flights per year.

Speaker Change: If we were to assume average ticket pricing of $600000 for now we would generate approximately $1 1 billion to $1 $4 billion of revenue per spaceport annually from spaceflight.

Speaker Change: The spaceship some other ships of the high return quick payback assets that are expected to drive the outstanding economics spaceport.

Speaker Change: Because of the attractive economics, just described at some point in the future we would expect to bring in additional growth capital to acquire additional space up some other ships the revenue generating assets that increased profits.

Doug Ahrens: The spaceships and motherships are the high-return, quick-payback assets that are expected to drive the outstanding economics for each spaceport. Because of the attractive economics just described, at some point in the future, we would expect to bring in additional growth capital to acquire additional spaceships and motherships, the revenue-generating assets that increase profit. We forecast the returns on this growth capital, when deployed, to be very attractive and value-accretive to the company. For now, however, having recently right-sized the company, we are prudently managing our resources and focusing the organization on good execution to bring our first Delta-class spaceships into service. I will now turn the call back over to Mike.

Speaker Change: We forecast the returns on this growth capital when deployed to be very attractive and value accretive to the company.

Speaker Change: For now however, having recently right sized the company, we are prudently managing our resources and focusing the organization on good execution to bring our first Delta class patients into service I will now turn the call back over to Michael.

Michael: Thanks, Doug.

Michael: To recap the key takeaways from today's call.

Michael: The bold dream of commercial space flight was realized in 2023 as we officially launched our commercial space line with six flights in six months demonstrating the Virgin Galactic space flight system is designed for safety reliability and repeatability.

Michael: Thanks, Doug, to recap the key takeaways from today's call. The bold dream of commercial spaceflight was realized in 2023 as we officially launched our commercial spaceflight program with six flights in six months, demonstrating the Virgin Galactic spaceflight system is designed for safety, reliability, and repeatability. Our astronaut journey is delivering an incomparable life experience that is of great value to our customers. We see positive indications for both pricing and the overall potential size of the commercial space travel market. 2024 marks a new phase as we move past our R&D and prototype routes and are now advancing the development of our production space, with ground and flight testing expected to commence in 2025 and entry into service expected in 2026.

Michael: Our astronaut journey is delivering an incomparable life experience is of great value to our customers.

Michael: We see positive indications for both pricing and the overall potential size of the commercial space travel market.

Michael: 2024 marks a new phase as we move past, our R&D and prototype routes and are now advancing the development of our production space ships with ground and flight testing expected to commence in 2025 and entry into service expected in 2026.

Michael: We continue to pursue our high growth business model are creating fully utilized spaceports with plans to first scale operations at Spaceport America with a fleet of four to five spaceships, followed by expansion to additional space ports in compelling locations.

Michael: We continue to pursue our high growth business model of creating fully utilized spaceports with plans to first scale operations at Spaceport America with a fleet of 4-5 spaceships, followed by expansion to additional spaceports and compelling locations. With that, we'll turn to questions. Operator, we're ready to begin the Q&A portion of the call. Thank you. If you have a question, please press star 1 on your telephone keypad. If you have queued up and want to withdraw your question, simply press star 1 again.

Speaker Change: With that I will turn to questions operator, we're ready to begin the Q&A portion of the call.

Speaker Change: Thank you if you have a question. Please press star one on your telephone keypad. If you have queued up and want to withdraw your question simply press Star one again.

Speaker Change: Your first question comes from the line of Greg Konrad with Jefferies. Your line is open.

Greg Konrad: Good evening.

Greg Konrad: Hi, Greg.

Greg Konrad: Maybe just to start on Capex I mean guiding to 40 to 45 million in Q1, I think you spent $18 million in Q4 and $44 million in 2023.

Operator: Your first question comes from the line of Greg Conrad with Jeffreys. Your line is open. Good evening.

Greg Conrad: Hi Greg. Maybe just to start on CapEx, I mean, guiding to $40 to $45 million in Q1. I think you spent $18 million in Q4 and $44 million in 2023. How do we think about the ramp there and how much of that is higher activity? And then also, just given accounting for R&D, how much of that, you know, is coming over from R&D, just kind of thinking about R&D spent. Thanks, Greg. Yeah, you've noted the trend in the shift. What's happening here is we've shifted from this heavy R&D phase as we've gone through the non-recurring engineering into the building of capital assets. It starts with tooling and the factory, and then parts, parts fabrication, and so on.

Greg Konrad: How do we think about the ramp there and how much of that is higher activity and then also just given the accounting with R&D how much of that.

Greg Konrad: He's coming over from R&D, just kind of thinking about R&D spend for 2024.

Speaker Change: Yeah. Thanks, Craig.

Speaker Change: You have noted the trend in.

Speaker Change: The shifts and what's happening here is we have shifted from this heavy R&D phase as we've gone through the nonrecurring engineering into the <unk>.

Speaker Change: The building of capital asset sales starts with tooling and the factory and then parts part fabrication and so on so we are seeing.

Doug Ahrens: So we're seeing a shift because we're moving into this next chapter where we're building these revenue-producing assets. So you're going to see that trend continue into 2024 and 2025, where you'll see more CapEx than R&D. We don't guide the split specifically, but you will see the majority shifting to CapEx. We have said in the past, and this still stands true, that if you look at total cash spending, we do expect the average spend for 2024 and 2025 to be lower than it was in 2023.

Speaker Change: <unk> because we're moving into this next chapter where we're building these revenue producing assets.

Speaker Change: Youre going to see that trend continue into 2024, and 'twenty, five where youll see more capex than R&D.

Speaker Change: Don't guide the split specifically.

Speaker Change: You will see the.

Speaker Change: Majority shifting to Capex, we have said.

Speaker Change: In the past and has still stands true that if you look at the total cash spending we do expect the average spend for 2425 to be lower than it was in 2023 and that's because of this shift that's happened where we are now moving through the addition of these assets.

Doug Ahrens: And that's because of this shift that's happened where we are now moving through the addition of these assets. A lot of this happens in 2024, and then it starts to ramp down because we have these assets in place and can now move into the production of spaceships. So that hopefully gives you some color, Greg.

Speaker Change: All of this happens in 2024, and then it starts to ramp down because we have these assets in place and now can move into the production of <unk>.

Speaker Change: So that hopefully gives you some color Greg.

Michael: That helps. And, you know, just in terms of spaceports, I mean, you sized each spaceport at a capacity of four to five spaceships. You know, in the past, you've talked about Delta production capacity at six per year. So, I mean, it seems like you could fill up the first one fairly quickly, any color around when you would look to add a second space for it and any initial conversations or, you know, when those conversations need to happen with potential. Sure.

Greg Konrad: Okay that helps and then just in terms of space.

Greg Konrad: You sized each space or the capacity of four to five state ships than.

Greg Konrad: In the past you've talked about delta production capacity at six per year. So I mean, it seems like you could fill up the first one fairly quickly any color around when you would look to add a second spaceport in any initial conversations or when those conversations need to happen with potential locations.

Michael: Just kind of harking back to the last call, one of the big advancements we've seen from Delta was to be able to turn those ships on a twice a week basis, well more than our Unity ship, of course, but even stronger than we had originally put forth. And so, therefore, we need about half the number of spaceships at every spaceport going forward. So as you note, the factory capacity that we built when we were thinking these could turn on a weekly basis versus twice a week gives us, I think, plenty of capacity within the factory to build the ships out. To your specific question about the next spaceport, Generally, that's about a five-year process, and so 2029 seems to be the right place for a second spaceport.

Greg Konrad: Sure.

Greg Konrad: This is kind of harking back to the last call one of the big advancements we've seen from Delta.

Greg Konrad: Was to be able to turn those ships on a twice a week basis.

Greg Konrad: Well more than our unity ship of course, but even.

Greg Konrad: Stronger than we had originally put forth and so.

Greg Konrad: Therefore, we need functionally about half the number of space shifts at every space port going forward. So as you note. The factory capacity that we built when we were thinking these could turn on a weekly basis versus twice a week gives us I think plenty of capacity within the factory to build the ships out to your specific question on NEC spaceport.

Greg Konrad: Generally thats about a five year process and so 2029.

Greg Konrad: It seems to be the right place for a second spaceport.

Michael: I know there are many places that we could go in the world. We could go to other places in the U.S. We could also functionally double our infrastructure at Spaceport America and kind of run a twin operation there if we so chose. So there are many places we can have that next spaceport come forward, and then, ideally, more following from that. But five years out from today is about the right target. Thank you, I'll leave it at that. Your next question comes from the line of Oliver Chen with TD Cowan. Your line is open. Hi Michael and Doug.

Greg Konrad: No.

Greg Konrad: Many places that we could go in the World. We can go to other places in the U S. We can also.

Greg Konrad: Functionally double our infrastructure at Spaceport America.

Greg Konrad: That kind of run run a twin operation there if we so chose so there's many places we can have that next phase port come forward and then ideally more following combat, but five years out from today is about the right target for that.

Speaker Change: Thank you I'll leave it at that.

Speaker Change: Your next question comes from the line of Oliver Chen with TD Cowen Your line is open.

Oliver Chen: Hi, Michael and Doug Delta.

Oliver Chen: Delta Class has a really nice contribution margin once it's running. I would love your thoughts on the upside or downside to the 75% contribution margin on Delta Class. And second, in terms of revenue modeling, as we think about the ramp of customer deposit liabilities on the balance sheet, Doug, any thoughts on how we should look to model that? And then third, the Galactic 6 experience that we had really showed a lot of differentiation in the product. How are you thinking about competition and your pricing relative to competition and the different kinds of experiences that you offer as well? Thank you. Thanks, Oliver. This is Doug.

Oliver Chen: Delta class.

Oliver Chen: Really nice contribution margin once that's running and would love your thoughts on upside or downside to the to the 75% contribution margin.

Oliver Chen: On Delta class and second in terms of revenue modeling as we think about the ramp of customer deposit liabilities on the balance sheet, Doug any thoughts on how we should look to model that.

Oliver Chen: Third the Galactic six experience that we had really showed a lot of differentiation of the product. How are you thinking about competition and your pricing relative to competition in the different kind of experience that you offer as well. Thank you.

Oliver Chen: Hi.

Oliver Chen: Thanks, Oliver This is Doug I'll take the first two questions and then have.

Doug Ahrens: I'll take the first two questions and then let Michael comment on the third. So regarding the contribution margin, 75% that we've stated before, that was actually based on a lower ticket price than we're talking about now. So that was based on the $450,000 ticket price, and that was a full Delta class ship and a variable cost of around $400,000. So that was giving us a contribution margin of greater than 75%.

Doug: Michael I'll comment on the third so regarding the contribution margin, 75% that we've stated before that was actually based on a lower ticket price and we're talking now so that was based on the $450000 ticket price.

Doug: And that was a.

Doug: The full Delta class ship.

Oliver Chen: And a variable cost of around $400000. So that was giving us a contribution margin of greater than 75% now with.

Doug Ahrens: Now with ticket prices at $600,000, that contribution margin will expand because the variable cost doesn't change. We are just bringing in more revenue per flight. In terms of the customer deposits, we model those being in the area they are now, which is around $100 million, until we reopen ticket sales in the future. And we talked about that on the call. But until then, it would be fairly constant. But in the future, just when we think about capital planning, we are fulfilling our CapEx requirements and our operational expenditures without any plans to utilize those deposits.

Oliver Chen: Ticket pricing at 600000 that contribution margin will expand because of the variable cost doesn't change we're just bring in more revenue per flight.

Oliver Chen: In terms of the customer deposits.

Oliver Chen: We model those being.

Oliver Chen: In the area. They are now which is around $100 million until we reopen ticket sales in the future and we've talked about that on a call, but until then it would be fairly constant but in the future just when we think about capital planning we are fulfilling all.

Oliver Chen: Our capex requirements and are operational.

Oliver Chen: Expenditures without any plans to utilize those deposits those set aside so our capex and so on is funded through.

Doug Ahrens: So our CapEx and so on is funded through the other money we have on the balance sheet and any future growth. So that's how we think about customer deposits. Michael on Galactic Six?

Oliver Chen: Well the other money, we have on the balance sheet and in any future growth. So that's how we think about customer deposits both Michael.

Michael: Yeah, I'll talk. I think, Oliver, your question is both about competition and, related to pricing. It's very difficult to compete with us.

Oliver Chen: <unk>.

Speaker Change: I'll talk I think Oliver to your question is both on competition and Relatedly pricing, it's very difficult to compete with us.

Michael: There's a huge technology and capital investment around human spaceflight. That's why it's, of course, previously only a few governments that could afford to get there. So really, where SpaceX and governments are sending people further out, the only people doing anything in our competitive set are the Blue Origin Company, although I don't have access to their specific pricing.

Oliver Chen: There is a huge technology and capital boat.

Oliver Chen: Around human spaceflight right. It's why it's of course previously only been a few governments that could afford to get there so really.

Oliver Chen: Spacex and governments are sending people further out the only people doing anything in our competitive set is the blue origin company and.

Oliver Chen: I don't have privy to their specific pricing anecdotally from the media.

Michael: Anecdotally from the media, they seem to have been pricing them at greater than a million dollars as a base. So that's, I'd say, the only real kind of comparison from a competitive standpoint. So then I'd look internally and, you know, in anything that is a luxury or consumer offering, you want to look at the price-value relationship, and the value has to be there to drive price. So we have had, I think everybody's tracking with us, when we've had very recent openings. We've flown, had openings on some of the flights that we've just done. And when that opening comes up, we have basically sold that opening at a market-available price that's been, you know, very close to a million dollars. And that's probably in line with what you're also seeing elsewhere when you can fly kind of right now. That's where the market has shown for something right here. So then the question is, well, what's the value at that price?

Oliver Chen: Seem to have been pricing greater than $1 million as a base.

Oliver Chen: So thats I'd say, the only real kind of.

Oliver Chen: <unk> from a competitive standpoint, so that im look internally and.

Oliver Chen: And anything that is a luxury consumer offering you want to look at the price value relationship.

Oliver Chen: And the value has to be there to drive price.

Oliver Chen: So we have had I think everybody is tracking with us when we have had very recent openings right. We've flown had in openings on.

Oliver Chen: Some of the flights that we've just done and when that opening comes up we have basically sold that opening at a market available price that's been very close to $1 million.

Oliver Chen: And.

Oliver Chen: That probably in line with what Youre also seen elsewhere. When you can fly kind of right now.

Oliver Chen: That's where the market has shown for something right. Here. So then the question is well how is the value at that price because we've flown people that have been.

Michael: Because we've flown people that have been waiting for 17 years that were at $200,000, and we've flown people that are closer to a million dollars. And I can tell you, having spoken with everyone, the value of what we are creating is so extraordinary that the price part of that equation is kind of diminished or minimized as an impact. So we feel that the value is so high, our price is good.

Oliver Chen: Waiting for 17 years that were at $200000 in <unk> people that are closer to a $1 million.

Oliver Chen: I can tell you having spoken with everyone the value of what we are creating.

Oliver Chen: So extraordinary that the price part of that equation is kind of diminished or minimized as an impact. So we feel that the value is so high our price value is good we feel.

Michael: We feel great that we're delivering enormous value at these recent prices we've been doing. I noted, and I think Doug noted too, that while we don't have sales open right now, we do maintain some house seats on our own. If we get a referral from our founders or our customers, we can sell a few of those seats at the end of the queue. And we've moved those seats to $600,000, in line with our research price. I don't expect when we open up sales going forward to go lower than that. I think the price value maintains pressure on the price point more towards the upward angle of that.

Oliver Chen: Great that we're delivering enormous value at these recent prices we have been doing.

Oliver Chen: I noted I think Doug noted too that while we don't have sales open right now we do maintain somehow seats on our own if we get a referral from.

Oliver Chen: Our founders or customers, we can sell a few of those seats at the end of the queue and we move those seats to $600000 in line with our research pricing I don't expect when we open up sales going forward to be going lower than that I think that price value maintain pressure on the price point more towards the <unk>.

Oliver Chen: Upward angle with that but that's where we sit right now and again I just don't think it's easy for people to come into this market compete with the amount of upfront technology investment and diligence that has to be done it's very complicated endeavor.

Michael: But that's where we sit right now. And again, I just don't think it's easy for people to come into this market and compete with the amount of upfront technology investment and diligence that has to be done. It's a very complicated endeavor. Thanks a lot.

Speaker Change: Thanks, a lot and one follow up Michael the spaceport experience in many ways.

Michael: And one follow-up, Michael. The Spaceport experience, in many ways, you know, felt like being in a movie. What are your thoughts on the community engagement part, and what have been your learnings so far from Spaceport and what you do there with the guests, you know, before and after, and also as you think about hospitality more broadly? Thank you. Thanks, Oliver. You heard me mention we had a larger number of friends and family and invited guests on the last spaceflight. Still, I'd say small versus what the capacity of that kind of spaceport wants to look like on a flight day.

Speaker Change: I felt like being being in a movie what are your thoughts.

Speaker Change: The community engagement part and what have been your your learning so far from from States, Florida, and what you do there with with the guests before and after and also as you think about hospitality more broadly. Thank you.

Speaker Change: Thanks Oliver.

Speaker Change: You heard me mentioned, we had a larger number of friends and family and invited guests at the last space flight still I'd say small versus what the capacity of that.

Speaker Change: Okay space Port wants to look like on a flight day and the more we bring in the better. This experience is for everyone. We're able to take all the groups that come and on the day before the flight actually break people and give fairly robust tours of the spaceport itself meet with leaders within.

Michael: And the more we bring in, the better this experience is for everyone. We're able to take all the groups that come and, on the day before the flight, actually, you know, break up people and give fairly robust tours of the spaceport itself, meet with leaders within our team, understand the technology, understand the incredible rigor that our maintenance and technical operations, our pilot teams, our mission control teams put into this. And it just builds the momentum and the excitement, the more context we provide people. So that's, you know, that's like one day in advance. And obviously, we can program one or two days in front of that as we choose to go forward. And then on the day of the flight, having that large group around that has that context just adds energy, as you experienced too, everyone that's there. I think we're just at the tip of the iceberg of what that could become.

Speaker Change: Our team understand the technology understand the incredible rigor that our maintenance and technical operations. Our pilot teams our mission control teams put into this.

Speaker Change: And it just builds the momentum and the excitement the more context, we provide people. So thats like one day in advance and obviously, we can program one or two days in front of that as we choose to going forward and then on the day of the flight having that large group around that has that context just adds.

Speaker Change: Energy as you experienced too.

Speaker Change: Everyone. That's there.

Speaker Change: I think we're just at the tip of the iceberg of what that could become better.

Michael: But at a practical level, we have to get our spaceships built so that we can bring the space flights and do that on a multiple times a week basis. And then from there, I think we can add this ancillary, non-trivial, but ancillary growth on top as we bring more people in. You mentioned hospitality. Obviously, that means people will need someplace to stay, someplace to eat, and they will likely want to do other things.

Speaker Change: But at a practical level, we have to get our space ships built so that we can bring this space flights and do that on a multiple times a week basis and then from there I think we can add this ancillary non.

Speaker Change: Non trivial, but ancillary growth on top as we bring more people in you mentioned hospitality, obviously that means people will need someplace to stay someplace to eat and likely will want to do other things Thats a big part of why in this case the state of new Mexico as been so excited to have us come and get the business scales.

Michael: That's a big part of why, in this case, the state of New Mexico has been so excited to have us come and get the business going because that starts to drive benefits that have multiplier effects throughout the community. So we definitely will pursue growth in those areas. But first things first, let's get the ships built, and then we can go after scaling the road. Thanks a lot.

Speaker Change: Because that starts to drive benefits that have multiplier effects throughout the community. So we definitely will pursue growth in those angles, but first things first let's get the ships built and then we can go after scaling the rest.

Speaker Change: Thanks, a lot best regards.

Myles Alexander Walton: Best regards. Your next question comes from the line of Miles Walton with Wolf Research. Your line is open. Hi, thanks. Good evening.

Speaker Change: Your next question comes from the line of Myles Walton with Wolfe Research. Your line is open.

Myles Alexander Walton: Hi, Thanks.

Myles Alexander Walton: Good evening I was hoping that first touch on galactic fix and the.

Myles Alexander Walton: I was hoping to first touch on Galactic 6, and it doesn't sound like there was a delay from the alignment pin departure for Galactic 7, which is still scheduled for 2Q. Is that correct? And have you already remedied anything with the FAA? I'm tracking this one, obviously, closely. But since we've got Mike here, Mike, I'll throw the question over to you. And nice to hear from you, Myles, by the way. Yeah, thanks, Michael. So, Myles, yeah, I can speak to that.

Myles Alexander Walton: It doesn't sound like there was a delay implication from the alignment and departure critical lactic seven which is still.

Myles Alexander Walton: Scheduled for <unk> is that correct and have you already remediated anything with USAA.

Myles Alexander Walton: I'm tracking this one obviously closely but since we've got Mike here, Mike I'll throw the question over to you and nice to hear from me miles by the way.

Mike Moses: Thanks, Michael.

Mike Moses: So Myles I can speak to this I've actually been sitting in on our regular status updates to the FAA.

Mike Moses: I've actually been sitting in on our regular status updates to the FAA. So, we are making really solid progress. We've done a fair bit of testing on the ground, and that's actually really allowed us to close out most of the actions in the investigation, and we could recreate the circumstances where that pin came free and kind of narrow down the conditions that could have caused that.

Mike Moses: So we are making really solid progress we've done a fair bit of testing on the ground and that's actually really allowed us to close out most of the actions in the investigation and we could recreate the circumstances were that.

Mike Moses: Then came free and kind of narrow down the conditions that could have caused that so we're in the corrective action phase to kind of enhance the robustness of the retention mechanism out of the discovery phase kind of into the reporting side. So we don't anticipate any impact on <unk> seven at all for coal for quarter, two and the investigation has been going really well with.

Mike Moses: So, we're in the corrective action phase to kind of enhance the robustness of the retention mechanism out of the discovery phase kind of into the reporting side. So, we don't anticipate any impact on Galactic 7 at all for quarter two, and the investigation has been going really well with the FAA in partnership. Okay. And, Mike, while I have you, thanks for the outline of sort of the architecture delta where it's different and the testing profile. Can you put a little more meat on the static testing? And I imagine getting over that hump will be pretty critical to defining the fatigue characteristics and getting you to the confidence of those inspection profiles, which basically is game changing for the economics. But when specifically does that static testing occur?

Mike Moses: The FAA and partnership.

Speaker Change: Okay, and Mike while I have you. Thanks for the outline of sort of the architecture Delta we are different and the testing profile can you put a little more meat on the static.

Mike Moses: Static testing and I imagine getting over that hump, we'll be pretty critical defining the petite characteristics and getting you to the comprehensive inspection profiles, which.

Mike Moses: Basically as the game changing for the economics, but wins when specifically does that static testing occurs it does it in parallel to the flight testing is it basically by the end of 2004 Youll have a good sense.

Mike Moses: Is it in parallel to the flight testing? Is it, you know, basically by the end of 24, you'll have a good idea of how it works. Yeah, Miles, so I think it's a really good deep question. You know, I highlighted the significant benefit of a static test article for inspection definition, but it also clearly validates models, allows you to look for manufacturing process improvements, and things like that.

Speaker Change: Yes, so I think that's a really good deep question.

Mike Moses: I highlighted the significant benefit of a static test article into inspection definition, but it also clearly validates models allows you to look for manufacturing.

Mike Moses: <unk> improvements and things like that so it has a lot of payoffs. Besides just inspection, having an article that youre able to kind of validate your models on you can also check out your instrumentation and data gathering systems and validate a lot of other things as well and so we'll run those in parallel we will have a static test article built.

Mike Moses: So it has a lot of payoffs besides just inspection, having an article that you're able to kind of validate your models on. You can also check out your instrumentation data gathering systems and validate a lot of things as well. And so we'll run those in parallel; we'll have a static test article built up and installed down here in Orange County at our engineering design headquarters. So we get close integration with our test and engineering facilities here. And we'll have some of those parts that we want to make sure we clear before we get to certain milestones in flight testing, and others that will occur a little bit later on as it relates to lifetime and cycle testing. So not a specific answer for you on exactly when that is up and running. But the article will be up and running in 2024 and ready to do testing.

Mike Moses: Built up and installed down here in Orange County.

Mike Moses: At our engineering design headquarters, so we get close integration with our test and engineering facilities here.

Mike Moses: And we will have some of those parts that we want to make sure we clear before we get to certain milestones in flight test.

Mike Moses: Others that will occur a little bit later on as it relates to lifetime cycle testing so.

Mike Moses: Not a specific answer for you on exactly when that is up and running but the article will be up and running in 2024 and ready to do testing and again some of that will be sub component, but what we're really looking forward to there is the major sub assembly testing, which will be later than that.

Myles Alexander Walton: And again, some of that will be subcomponents. But what we're really looking forward to there is the major subassembly testing, which will be later than that. Okay, thanks again. Thanks, Miles. Once again, ladies and gentlemen, if you have a question, it is star one on your telephone keypad. Your next question comes from the line of Sam Strusaker of Tourist Securities. Your line is open. Hey guys, on for Mike Shmoley this evening.

Speaker Change: Okay. Thanks again.

Ross: Thanks Ross.

Speaker Change: Once again, ladies and gentlemen, if you have a question. It is star one on your telephone keypad.

Speaker Change: Your next question comes from the line of Sam <unk> of Truth Securities. Your line is open.

Sam: Hey, guys on for much more this evening thanks for taking the question.

Sam Strusaker: Thanks for taking the question. I was just curious if you could give any more detail on, sort of, the quantity of those referral sheets that you guys mentioned. There are a lot of people to enter the queue if you want to do that. And then also, I was just wondering.

Sam: I was just curious if you could give any more detail on sort of the quantity of those referrals. You said you guys mentioned this one people to enter the queue. If you're willing to do that and then also I was just.

Michael: Hoping for some clarity on you said you had these openings that came up on recent flights that you sold at market value. What was the motivation behind selling those as new seats versus pulling in someone from the queue to fill those? Sure. The first question, Sam, is, you know, those are, we don't have sales open, so they are in smaller volumes, you know, single digits, low double digits, you know, over the course of time, more in response as opposed to proactively going out.

Sam: Hoping for some clarity on your you said you had these openings we came upon recent flagged that you sold at market value.

Sam: What was the motivation behind kind of selling those as new seats versus pulling and someone from the queue to fill those spots.

Sam: Sure.

Speaker Change: The first question Sam is those are we don't have sales open so they are in.

Speaker Change: In smaller volumes.

Speaker Change: Single digits low double digits over the course of time.

Speaker Change: More in response as opposed to proactively going out so.

Michael: So that's just kind of there as almost a service to our existing base. The question you had about when we have a seat opening, what we've done, we obviously have had a large number of amazing future astronauts, many with us for 15 years or even a little more. And before we reopened sales back at the $450,000 point, we took the opportunity to move all of those people forward into our queue, into the manifest. So, for instance, I might have signed up at number 50 in line, and Sam, you were number 51. And if it were for whatever reason I had to drop out, we would have moved everybody up into my space. And so some people moved up quite a bit at that time.

Speaker Change: So that's just kind of there is almost a service to our existing base.

Speaker Change: The question you had on.

Speaker Change: When we have a seat opening what we've done.

Speaker Change: We obviously have had a large number of amazing future astronauts many with us for 15 years or even a little more and before we reopen sales bag.

Speaker Change: Back at the $450000 point.

Speaker Change: We took the opportunity to move all of those people forward into our Q into the manifest so for instance.

Speaker Change: Signed up at.

Speaker Change: Number 50 in line and Sam Your number 51, and if for whatever reason I had to drop out.

Speaker Change: Moved everybody up into my space and so some people moved up quite a bit at that time and at that time, we communicated with our astronaut restaurant base that we're going to do that once and then if there were openings that came up in the manifest along the way that we would bring those forward more of a market rate, but we.

Michael: And at that time, we communicated with our astronaut base, future astronaut base, that we were going to do that once. And then if there were openings that came up in the manifest along the way, we would bring those forward more at a market rate, but we would give, you know, kind of a first nod within the community. And that's what we've been doing there; while we're no longer continuing to move people up, we don't move people back either, we are giving that opportunity. And so we asked the existing base of future astronauts, who would be interested if an opportunity presented itself to fly earlier, and it would be at a premium price if that happened. And that's where we built that list up. The people who have flown at those higher rates at earlier times have come from our existing customers.

Speaker Change: Would give kind of first nod within the community and that's what we've been doing there is while we're not no longer continuing to move people up we don't put people back either.

Speaker Change: We are.

Speaker Change: Given that opportunity and so we asked to the existing base of future astronauts, who would be interested if an opportunity presented itself to fly earlier and it would be at a premium price if that happened and thats, where we built that lift up and thats where people have been.

Speaker Change: The people who've flown at those higher rates at the earlier types have come from our existing base.

Sam Strusaker: Got it. Thank you. Your next question comes from the line of Kristine Liwag with Morgan Stanley. Your line is open. Hi, this is Gabby on behalf of Kristine.

Speaker Change: Got it thank you.

Speaker Change: Your next question comes from the line of Cristina <unk> with Morgan Stanley. Your line is open.

Speaker Change: Hi, This is gabby on for Christine Thanks for taking the question. So I was just curious if you could provide some color on if there are any design or a manufacturing changes required to either the mothership or spaceship as a result of the <unk> attachment last month and if so does this inform any design changes to the Delta class as you progress through development. Thank you.

Kristine Tan Liwag: Thanks for taking the question. So I was just curious if there are any design or manufacturing changes required to either the mothership or spaceship as a result of the pin detachment last month? And if so, does this inform any design changes to the Delta class as you progress through development?

Mike Moses: Thank you. Yeah, Gabby, so no changes to the design of either the mothership or the spaceship. Again, the pin issue we had posed no safety threat at all during the flight and actually, other than having fallen away at the end, performed its function. It's there to hold the ships in alignment while we're both mating on the ground and while we're flying, so as long as we're attached, it did its job as it should. Clearly, we don't want it to fall away, but the fact that it did meant it performed its function, so we're looking at a pretty minor change to the existing design just to give it some extra retention capability, but nothing that would be of any significance to either motherships or spaceships.

Speaker Change: Yeah.

Speaker Change: Hi, Yeah, Gaby so no no changes to the design on either the mother ship or the spaceship.

Speaker Change: Again, the pin issue, we had posed no safety threat at all during the flight.

Speaker Change: And actually.

Speaker Change: Other than having fallen away at the end performed its function. It's there to hold the shifts in alignment while we're both meeting on the ground and while we're flying so as long as were attached it did its job as it should clearly we don't wanted to fall away, but the fact that it did many performed its function. So we're looking at a pretty minor change to the <unk>.

Speaker Change: Listing designed just to give it some extra retention capability, but nothing that would be anything of significance to either mother ships or three ships.

Speaker Change: Thank you.

Operator: Thank you. There are no further questions at this time. That will conclude today's conference call. We thank you for joining us. You may now disconnect your lines.

Speaker Change: There are no further questions at this time that will conclude today's conference call. We thank you for joining you may now disconnect your lines.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change:

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Yeah.

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Speaker Change: Okay.

Speaker Change: Yeah.