Good afternoon. My name is Irene, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic’s Second Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. I would now like to turn the conference call over to Eric Cerny, Vice President of Investor Relations. Eric, please go ahead.

Thank you. Good afternoon, everyone. Welcome to Virgin Galactic’s second quarter 2022 earnings conference call. On the call with me today are Michael Colglazier, Chief Executive Officer; and Doug Ahrens, Chief Financial Officer. Following prepared remarks from Michael and Doug, 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. During today’s call, we may make forward-looking statements. These statements are based on current expectations and assumptions and as a result are subject to risks and uncertainties. Many factors could cause actual events to differ materially from the forward-looking statements made on this call. For more information about these risks and uncertainties, please refer to the Risk Factors in the company’s filings with the SEC. Readers are cautioned not to put undue reliance on forward-looking statements and the company’s specifically disclaim any obligation to update the forward-looking statements that may be discussed during this call. Please also note that we will refer to certain non-GAAP financial information on today’s call. With that, I would now like to turn the call over to Michael.

Good afternoon, everyone. First off, I’d like to welcome Eric Cerny to Virgin Galactic. As many of you know, Eric joined us a couple of months ago to lead our Investor Relations function. We are excited to have him on the team and I am confident you will all enjoy working with him as well. We are more than halfway through the transformational year for Virgin Galactic. Over the last few months, we have put in place significant pieces of our strategic roadmap for our medium- or long-term operations. We have in the past talked about what we intend to do. But these recent steps lay out the specifics as to how we will ramped the production of our future fleet and deliver hundreds of spaceflight each year to space ports. We are progressing to the enhancement program in our initial fleet. However, important work on our mothership need have taken us longer to complete than we planned and we now anticipate private astronauts service commencing in Q2 of 2023. While the short-term schedule flight is unfortunate, our team in Mojave is working diligently to complete the work and we continue to take a long-term approach to managing the business. Initiatives we set in motion are powerful. I look forward to sharing more detail about some on today’s call. Today’s agenda on slide three, we will start with advancements of future fleet, followed by a commercial strategy update. Well then get into enhancement program and updated flight schedule for our initial fleet beforehand the call over to Doug who will provide a financial review of the quarter. Let’s turn to slide four and production of our future fleet. Increasing the frequency of flight for each of our spaceships is how we unlock the true economic impact of commercial spaceflight. We…

Thanks, Michael, and good afternoon, everyone. Turning to slide 11 and our financial results for the second quarter. We generated revenue of $357,000 in the second quarter, driven by future astronaut membership fees. Operating expenses were $110 million, compared to $74 million in the prior year period. The increase of $36 million is primarily attributable to higher R&D costs tied to our fleet enhancement activity and the ramp up development work on our future motherships and spaceships. We reported the GAAP net loss of $111 million, compared to $94 million in the prior year period. Adjusted EBITDA was negative $93 million in the second quarter, compared to negative $56 million in the prior year period, primarily driven by an increase in operating expenses. Free cash flow was negative $91 million, at the high end of our guidance for the quarter, compared to negative $66 million in the same period last year. The increased spending is largely due to higher operating costs tied to our fleet enhancement activity and the ramp up development work on our future motherships and spaceships. Our balance sheet remains strong, with over $1.1 billion in cash, cash equivalents and marketable securities. The details Michael shared with you around our manufacturing approach for the motherships and spaceships, and the investments we are making in our future astronauts space are all consistent with the long-term commentary we shared with you in prior quarters regarding our approach to the business model. Leveraging aerospace industry supply chain built major sub-assembly allows our team to focus on design, engineering, final assembly and ongoing operations and maintenance. Collaboration with companies such as Aurora allows us to minimize our capital expenditures for infrastructure, required to scale the fleet and significantly accelerate our time to market. As you can see, we are rapidly moving ahead on our plans to scale the business. Many of the building blocks that Michael and I have talked about over the last several quarters are now in place. We are making strategic investments from a position of financial strength with momentum of the business and a healthy balance sheet. Furthermore, we believe it is appropriate to take steps to give us financial flexibility going forward. To that end, today we filed a prospectus supplement and established an aftermarket program to sell up to $300 million of additional common stock. We are excited about the investments we have outlined, the spaceships, mothership and infrastructure surrounding astronaut experience. We therefore plan to always maintain a strong balance sheet, enabling us to fulfill our strategic plan of becoming a scaled commercial Spaceline. Moving to guidance on slide 12. For the third quarter, we forecast free cash flow to be in the range of negative $110 million to $120 million. As we continue to ramp up our efforts to scale the business, we anticipate this number will continue to grow over the next several quarters. With that, I will hand it back to Michael for some closing comments.

Thanks, Doug. 2022 is a year we set ourselves up for scale and for the long-term. We are moving into a building phase for future, building out the factories, cultivating partnerships and growing the campuses, teams and networks that will take us into the future. Shifting our commercial service launch to Q2 2023 has a short-term challenge but does not carry over into our longer term objectives. We are taking an intentional value driven approach to this business and we now have several core elements in place for us to scale the world’s first commercial Spaceline in a meaningful way. These include the development of our next-generation motherships with Aurora, leveraging the aerospace supply chain to provide major sub-assemblies for Delta class spaceships and our new Spaceship factory in Phoenix and bringing together unforgettable and truly unique consumer experience in New Mexico. In coming months will continue to be very busy for us and looking forward to sharing updates on our progress. And with that, we will turn to questions. Operator, we are ready to begin the question-and-answer portion of the call.

Thank you, dear speakers. Our first question comes from Greg Konrad from Jefferies. Greg, your line is open.

Good evening. Maybe to start -- I don’t -- I didn’t hear an update on kind of backlog. I know last quarter was at 800 seats. Where does that stand today and then given the commentary, is there any government seats in there today and does that mean that more than 0.5% of the remaining 1000 seats are going into the government, with the rest for referrals?

Yeah. So as of the last quarter, we talked about having approximately 800 future astronauts and it’s kind of mix, but very few of those were in the research market and as we were -- and we went ahead and closed out some more of those private astronauts that were there earlier on the -- earlier in the quarter. As we have been looking to build our research markets, we have great response and we also have very great consistency of, hey, the research that I have needs to go into certain timetable and if I am coming in at the end of the manifest, while I understand why that would be. I can’t commit because I need to get my research going at this timetable. And also, again, not surprisingly, the funding cycle for research, whether that would be private or government is a shorter duration. And so in order for people to apply for their funding for the grants, they have to have a date ahead of time, we just didn’t have any inventory. I think we are putting it at the end to be able to offer it up to this market. And so we made a decision to make a strategic shift and take 10% of that first 1000 seats and put into the research market. And as I kind of mentioned earlier, the reason is, we want to see this, I think, this has potential to grow, but we need to allow people to actually use our platform for this and we had to create a parallel manifest to do that. That takes us from 800. There is another 100 basically for research allocations. We closed some more earlier in the quarter before we made this strategic shift to the research piece. And then the…

And then on the cash usage of $110 million to $120 million for Q3, I mean you announced the number of agreements in the quarter. I mean, how does that compare to peak and maybe what is accelerating when we look about versus Q2, and anymore ideas kind of what peak cash usages given the initial agreements in place?

Sure. Yeah. Regarding the increase between Q2 and Q3, it’s primarily around the scaling of the aerospace activities we have. So we have got the continuation of the enhancement period. But on top of that, now we have the beginning of the work with Aurora for the new motherships. We have got the ramping of engineering for Delta class spaceships. That type of thing. So it’s really aerospace driven for finishing the current programs and then ramping up the new programs. So that’s where we land for next -- what you have indicated is we grow and we see growing past that, of course, a little early to call a peak into the future, because that’s pretty far out and we really give just one quarter guidance. You would see these layers continue to build right around the spaceships, motherships, the campus, these types of things, the factory for the spaceships. So those things are going to come together. We got timing and magnitude of each that could move around a bit. So it wouldn’t be appropriate to get -- to put a number out there like a year or two out, but although it gives you enough color to kind of see the layers that were build for your model.

Okay. Thank you.

Thanks Greg.

Thank you. Our next question comes from Matt Akers from Wells Fargo. Matt, your line is open.

Hey. Hi. Good afternoon. Thanks for the question. I wanted to ask about the partnerships, Delta and kind of progress on RFPs and if there’s any update on that or sort of the timing of when you think you might be able to announce an update there?

I will probably start sort of like specific timing announcement there, but the RFIs are long due and the RFPs have been out for a while and will be coming back in the upcoming month or two here and then we have to spend the time in the selection process. But we are clearly parallel passing with the teams that we have been working with. We have been really pleased with both the quality of the companies that are interested in working with us. Specifically we are looking for people who not only have the technology and skills but also we are sorting for people who have capacity within both their manufacturing and their engineering organizations, because we will need separate teams that will focus on these spaceships. So we have been really pleased at who we are speaking with, they are really quality firms and we are actually touring with them and doing sidewalks along the way as well. So I think that’s going to be in our near future as we will be able to bring those names in, and as I mentioned, they will -- the structure will be similar to what we are doing with Aurora, where we are having them both help on the manufacturing and in some cases engineering side. Well, clearly, we will be doing a lot of the engineering on Delta’s ourselves spaceships, but they are able to partner with us and get us scale in that way as well and then we will do final assembly in the new Phoenix facility as discussed.

Okay. Thanks. And then, I guess, one more, just on the kind of the delays on the Eve upgrades, and I guess, if you could dive into more detail, I mean, is that -- the supply chain disruptions, labor availability, just kind of scope change or if you could just talk about sort of what the biggest kind of drivers of the delay were?

Sure. It’s not scope change and while supply chain everywhere remains challenged and is something we are working on, our teams have done a really good job putting a box around the supply chain issues that we talked about earlier, and again, we are still not as it was as our country and supply chain issues, but that’s not really the driver. The driver is around the amount of time it is taking us to accomplish the work scope on Eve. The particular part that’s probably most acute all happens around the center wing area, that’s where, as you are probably aware, we are changing what had been a 3 point highlight that attaches to spaceship to a 4 point pile on. And a couple of things that are going on in that, one is, we have amazing people that are excellent designers and they take the drawings that we have and draw the installation on the ship and the ships as built are different enough from the drawings that we had that we need to go back and conform those drawings to the as built. So then it’s a practical situation of labor, right, whether people are out with COVID and we are waiting a little bit for the engineer to come back, whether it is just limited working environments there, have you seen the wing of this airplane, the narrow wing, there’s a limited number of axis panels. And so everything can happen in parallel, there is quite a bit of seriousness that goes into this effort and that’s kind of what’s going on here. This is compounded. We have all this happening in Mojave, labor availability for the specific technicalities we have there. While we are able to keep and bring in, it is a challenged labor market in that area. And so what we have done is, we have, as we saw Eve’s work not progressing over the last couple of months, we have shifted resources from Imagine who do have the technical expertise we need to also finish out Eve because we need get Unity back in the air, we need to get Eve fly. So hopefully that gives you a little bit of a sense there. It is -- we have really amazing people and they are working hard to do this. I’d say we had our planning of how long each of these pieces of work would take is where I missed this. We did not plan the full amount of time that is proven necessary to get this work accomplished.

Yeah. That’s great color. Thank you.

Thank you. Our next question comes from Oliver Chen from Cowen. Oliver, your line is open.

Hi. Thank you, Michael and Doug. Regarding the astronaut campus, what should we know about the cash flow and CapEx implications and also as you think more globally over time, how might this plan manifest, it sounds quite experiential and positive? And second on the Space for the Curious event. I am just curious about what metrics might be important for you to determine the success and return on investment there? And then lastly on the delay, did it make -- did you consider doing the delays in further to Q3, just to give yourself some more cushion, because there’s a lot of uncertainty that’s some of its uncontrollable? Thank you.

Let me, yeah, Doug and I are looking each other like who wants to take the first question there. So because I writing notes down overall for you, do you want start Doug and I will try to kick in…

Yeah. I will with the question on campus. So in terms of timing and cash flows so it will be occurring over a period of years, right, it’s a real estate development project and the intention is to have it ready, the Delta class is ramping and so we have done it available for the customers that will be flying our Delta class. So it’s a multiyear project. It’s -- we aren’t going to put a out specific price tag on it. We have got -- we are still finalizing that amounts. But I can tell you it’s significantly less than the other parts of our key investments, which should be spaceships and motherships. So put it in perspective. But you would expect to see some incremental real estate development costs over about a four-year period.

And I will just give you over a little bit just scope. We are building this for when we have our capacity on the Delta ships out, so that we are hitting effectively whether not in our way at the daily basis. So we will have effectively at any one period of time five individual groups, crews of spaceship participants, right, future astronauts that are turning into astronauts. So each of those five groups has up to six teams in it and so we have a size, you are going to end up with 30 or so kind of individual parties that at the most, right, sometimes will get family party that will be in same place. So it gives you a size. It’s not a giant facility out in the desert, because we are turning these over each day one group goes out and another group comes in. So we need enough for kind of five in a concurrent basis. So hope that gives you a little bit of a sense of scale. I tell you, you can probably see from that picture. This is a glorious location. It sits out there looking over the Rio Grande Valley. It has -- you saw one view of it. On the other view are just these incredible places out at the distance. It’s one thing we love about New Mexico the -- just ruggedness and natural beauty. And that’s important, because as you heard us talk, we are taking people to get a perspective of the planet, and as you do that last several days of preparation, having a good anchor to the plan that you are leaving is very important. So we are really thrilled with the site. You talked about the space for the Curious event and metrics. Just…

Very helpful. Thank you. Best regards.

Thank you.

Thank you. Our next question comes from Kristine Liwag from Morgan Stanley. Kristine, your line is open.

Hey. Good afternoon, guys.

Hi, Kristine.

Hey, Michael. thanks for the color on Eve. But with a longer time and what sounds like a more complicated work scope. Can you provide more color on how much the total enhancement of the program will cost versus your initial expectations?

We can comment on that. So if we look at the collection of the three vehicles we are working on and what we had planned for, we were actually seeing some savings initially, because of the costs of the contracts we had, the contract labor and place and everything. So we had been building up some savings along the way. What we are finding is, the extension of the schedule is eating up that savings with basically Eve and Unity is kind of consuming the savings we had. We are back to where we originally budgeted. I think this new extension with Imagine is incremental. So there’s done one step versus three. But that’s probably the incremental part. So, overall, more, but we are fortunate that we had some savings in the beginning to offset some of the things that happened later.

Thanks. And as a follow up to that, can you provide some numbers around the Imagine cost increase?

Well, that’s a multiyear effort and so I think it’s hard to put it in perspective given it’s been going on for several years. So, I think, what we are talking about is, it’s -- we are talking moving from mid-2023 to the end of 2023 for the enhancement period in q4. So you can just think of it as a quarter and a half. If you were to take the midpoint there kind of extension, but to try and put a exact price tag on it relative to the total cost, they don’t think is helpful. But just kind of put it in perspective, it’s one ship out of the three. So it’s just a fraction of all of the effort. The bulk of the spending right now is on Eve is getting most of the attention and Imagine is the next in line. But hope that put some perspective.

Yeah. I guess the other thing just a little bit add color of what’s left on Imagine, is not so -- there is a little bit of -- I will put hands on the ship just finishing things out. But that’s the smaller part. The -- what we are going to be doing at Imagine is, moving it through its test program on the ground and in the air and so that’s a different slice of engineering resources that we need for that. Obviously, we have people in Mojave that are working to ship throughout. But it’s the cost that we are still moving through test as opposed to giant groups of people that are building at that moment.

Thank you for all the color guys.

You are welcome. Thank you, Kristine.

Thank you. Our next question comes from Pete Osterland from Truist Securities. Pete, your line is open.

Hey. Good afternoon. I have just got a question for you on R&D expense. So you start commercial operations in second quarter of next year, you can -- are you going to see any meaningful step down on the extent of getting the first ship up and running or the work you are doing with Imagine and Delta, would it really be more of just a reaction of resources where you would expect to see R&D continue at or maybe above where it is right now?

We would expect to see it at or above where we are now, because we will be ramping heavily on the Delta class and the next-generation motherships. So we will be rolling off on one hand with the enhancement period, but pivoting and growing resources on the other side. So this is our -- when I talked about spending increasing quarter-over-quarter and then continuing into next year. This is the category we will go into will be R&D primarily. So you will see that that type of trends.

Okay.

Thanks, Pete.

Thank you. Currently, we have no further questions. Therefore, I would like to say thank you to our speakers for their time and presentation during this event. And ladies and gentlemen, this concludes today’s conference call. Thank you for being with us today. Have a lovely day ahead. You may disconnect your lines now.