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 First Quarter 2024 Earnings Conference Call. [Operator Instructions] 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 First Quarter 2024 Earnings Conference Call. On the call today with me are Michael Colglazier, Chief Executive Officer; 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 2 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 this call. 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 metrics. With that, I would like to turn the call over to Michael.

Thanks, Eric, and good afternoon, everyone. On Slide 3, you'll see the agenda for today. I'll share several updates about our commercial space line and the progress we're making toward our long-term business objectives. On the immediate horizon is our next spaceflight, Galactic 07, scheduled for June 8. Galactic 07 will be our last commercial flight with VSS Unity. And this will mark an important turning point for Virgin Galactic, and the spaceflight will be a celebratory moment as we reflect on the many successes of our pathfinding first commercial spaceship. The learnings we have built over our last 7 spaceflights have enormously benefited our spaceship designs. In addition, we have also learned a great deal about the performance of our mothership VMS Eve, which has been an incredible asset for the company following the ship's major enhancement program that was completed in 2023. One of the many benefits of using a specialized airplane for our first stage of spaceflight is the frequency of flight operations that can be achieved with an aircraft versus a liquid rocket booster. Using flight and engineering data from Eve's service history, our technical operation teams are developing a targeted maintenance plan, an operations schedule for Eve, and I'm pleased to share that we now expect VMS Eve to support 3 space missions per week, a 50% increase over prior base case estimations. This is fantastic news. We expect Eve and our first 2 Delta ships will be able to execute approximately 125 spaceflights carrying 750-or-so astronauts to space each year. To put that in perspective, Eve and the first 2 Delta ships will bring more people to space in a single year than the total number of astronauts who have ever journeyed to space to date. Economically, that equates to roughly $450 million in…

Thank you, Michael. Good afternoon, everyone. Let's go to Slide 10. The planned increase in flight cadence for our mothership Eve is a game changer when the first 2 Delta ships enter commercial service. With steady state operations, flying Eve 3 times a week means we have the capacity to conduct approximately 125 flights per year, allowing for potential weather or operational inefficiencies. At that pace, with 6 seats per spaceflight, we plan to fly 750 astronauts to space annually with our first 2 Delta ships. Not only does this enable us to serve the existing ticket holders fairly rapidly, but it also enables us to begin serving new customers at higher price points. Applying the recently announced pricing of $600,000 per seat, within a year after Delta enter service, we expect to be able to achieve a run rate of $450 million annually. This is a sizable business that can be achieved with the mothership we have, plus the addition of the first 2 Delta class spaceships. We have shared with you previously that we expect to see contribution margins above 75% for each spaceflight. This is the margin we project after accounting for the variable costs of each flight, such as the rocket motor, fuel, hospitality expenses for the astronauts, etc. This contribution margin will be more than enough to cover the fixed costs of running the business, leading to meaningful operating cash flow. This is the first stepping stone in our economic growth story, as these profits can be reinvested to further expand our fleet and drive additional growth. At that stage, we plan to build incremental Delta ships at a recurring cost of $50 million to $60 million each. These are highly accretive assets. The costs of our future ships are so low because the designs…

Thanks, Doug. To recap today's call, we are planning to fly the last commercial flight of VSS Unity on June 8, taking a researcher and 3 private astronauts to space and delivering an incomparable and life changing experience to each of them. This will mark our seventh commercial flight and 12th spaceflight in total, again demonstrating that Virgin Galactic spaceflight system is safe, reliable and repeatable with an experience beyond compare. I also shared that we expect our existing mothership will have the capacity to fly up to 3 times a week with the first 2 Delta ships, or upwards of 125 times a year, supporting a strong revenue business in the first stage of Delta operations. We are making important progress with our Delta suppliers and are seeing steady progress with designs, tooling development, initial parts fabrication, and preparations to open our final assembly factory this summer. Our Delta schedule remains on track for commercial service in 2026. At the same time, we remain committed to our long-term, high growth business model of scaling operations at Spaceport America with a fleet of 4 to 5 spaceships, followed by the creation of fully utilized spaceports and continuous operations from multiple locations around the world. With that, we'll turn to questions. Operator, we're ready to begin the Q&A portion of the call.

[Operator Instructions] Your first question comes from the line of Greg Konrad with Jefferies.

Appreciate the incremental details. Just on the $450 million annual run rate of revenue, it seems like that assumes the $600,000 ticket price. How much backlog of lower tickets are there to kind of cycle through, before you kind of get to that higher price point? Or how should we think about near-term revenue just given some launch pricing?

Yes. Greg, this is Doug. Yes, so we have approximately 600 -- a little more over 600 astronauts at the lower price points and then we have some that were sold at $450,000. So one of the important things we noted is at the flight rate of 125 flights a year, we can fly up to 750 astronauts per year. So that will move through our backlog of customers fairly quickly. So what we gave you was our annualized run rate at about 12 months out after we've moved through the backlog we already have. And then we've applied the ticket pricing that we've recently announced of $600,000 because that's what we're projecting at this time. It's worth noting though that we said that this flight coming up, Galactic 07, the average price per seat is over $800,000. So it's showing the pricing leverage we have. So we think it's a fair number to use to say $600,000 for the future for that point in time.

And then just to confirm, the first 2 Delta class spaceships rollout at the same time or enter commercial at the same time. And then appreciated the detail around the mothership 2028. How much does that become a pacing item, just given it seems like maybe you'll be able to exceed that from a Delta standpoint in 2027?

Greg, it's Michael. So, Eve, which is excellent, still will remain the bottleneck against the capacity of the Delta ships. So, when we bring a second mothership out, at that point, those 2 Delta ships would become the bottleneck. So we'd want to pair the arrival of that new mothership with a fast follow with additional Delta ships, for sure. And we kind of keep that balanced as we grow the fleet up. But with Eve, 3 times a week, the way we can do that allows, some weeks we'll have a back-to-back flight, then there'll be a number where we'll run more than 3 a week. There'll be other weeks where we will run less than 3 a week because we're doing a regularly scheduled maintenance piece. Within that operation, there may be opportunity to go up above where we are, but we feel good with what we're stating today at 125 by the time we factor weather days and rain days and efficiencies that will come out. So that's probably a good gate until we get to 2028, that 125 flights as a kind of planning target for your modeling. And then it really opens up as we add additional motherships.

So just a quick follow-up to that. So should we assume -- not assume, the third Delta enter service until 2028 then?

Yes, we would match the third Delta shift with the addition of the next mothership.

Your next question comes from the line of Myles Walton with Wolfe Research.

Michael, the way you're describing it, you're going to actually burn through your backlog of customers reasonably quickly. So I'm curious, what is your thought process on reopening initially the sales window? And also just from a running the business perspective how do you want to run with a backlog such that you can -- you sort of run to a predictable pace as opposed to something else and also provide your flying customers with enough lead time for them to plan around their trips?

Right. Myles, consistently, I think it's helpful to have on both the customers side and the business side a 2-year run. And the customer side that first year is really recognizing the journey that this spaceflight is. It's not just the up and down moment by any sense. It is a journey and we will build people through that journey from the moment they sign on. I think once you go past 2 years to 3 years that journey starts to get a little long for people and they are getting antsy. But 2 years, I think is appropriate, and then we'd like to give people in a steady state basis around 12 months of notice. It says okay your flights going to be 12 months from now in that month, so people can start to prepare, schedules and friends and family who will come. So if you look at our existing backlog of customers with us starting in '26, that means within '26 and '27, we should really process through the existing folks. So by the time we get to 2028, especially when we have that next mothership, if we're going to have a 2-year backlog in front of that, we want everybody kind of on board by the beginning of '26. So just backing that up, you'll see us start the sales process within the '25 period. We won't wait till the end of '25 to do that because we'd like to have another years of backlog in place by the time we start '26. And we're balancing getting people on board in time to have, I said, both the journey for them as well as a nice comfortable backlog for us to focus on executing our operations. At the same time, if we try to bring people in too early, I think we lose some of the pricing pressure that we're obviously been demonstrating with these last flights. So we want to keep a balance there so that we maintain the power of pricing that befits the quality of the experience we're delivering, but still allow both our customers and us for planning. So hopefully that 2-year window explains that.

That does, yes, that's a perfect explanation. Maybe one on the details of the accounting. CapEx, I know you were looking for $40 million to $50 million in the quarter. It was light, but R&D was heavy. I'm going to guess that that was because you didn't transition fully to capitalizing versus R&D. Is that the way to read it?

Right, yes, it's just an accounting convention of when we flip the switch. But you'll see that start to ramp up this year, especially in the second half. So you'll start to see majority CapEx. You will start to exceed OpEx. As we wrap up the design work here, and we're building more tooling, and then parts fabrication happens, you'll see the shift take place.

Okay. And sorry, just one last one, which is if you will be cycling through a 1,000 customers a year in '28 and their constituencies, what kind of physical plant improvement and timeline for investment are you going to have to make within Spaceport America on the experiential side?

That's a great question. The plant at Spaceport America, for those who haven't been there, we have 1 major hanger that can handle our operations for the mothership and a number of spaceships. As we grow and as we bring in another mothership, we do expect to work with the spaceport in New Mexico and add what we would call kind of a launch hanger. That would be an additional hanger primarily for the mated pair of spaceship and mothership. And that hanger would also be where we do the maintenance on the motherships. So we'll add an additional hangar there. It's not the architectural statement of what's the primary hangar base in New Mexico. That building is not only a hangar, it's our customer operations, it's training, and all those things. So it's an airplane hangar that needs to be built, So that would be 1 of the pieces of infrastructure that's there. The other piece will come in the training facilities that are there. As we start to fly, really even with these 2 Delta ships, and we're flying more than once a week, we will break training out into an additional training facility and use the spaceport and the third floor where we have been doing training, that will really become kind of a launch day focus and will bring a training facility separately. So we have choices about whether to build those out or to rent facilities for that, but we expect those to be in the Las Cruces, New Mexico area as well. So those are the 2, I'm looking over to Doug if there's anything other from a major investment, but an aircraft hangar as we scale and training facilities.

[Operator Instructions] Your next question comes from the line of Michael Leshock with KeyBanc.

I think that you've previously said 2024 is kind of the peak cash burn year in support of Delta. And then looking at your 2Q guided implied somewhere around $130 million quarterly burn rate give or take for 3Q and 4Q each. So it likely would be a step up in the burn sequentially at some point this year if '24 is the peak burn year. So is that still your view? And do you have any line of sight when you expect to see the peak quarterly cash burn just assuming Delta class schedule progresses as expected.

Yes. Thanks, Mike. Yes, we do expect the peak burn to be here in 2024. That's still the case. So you'll see a ramp. We haven't guided specifically beyond Q2, but we do see a trend coming for Q3 and Q4 that we would be increasing our spending on CapEx, as I mentioned previously, because we're still going to be going through the tooling completion and moving heavily into parts fabrication. So the peak is still to come, but in this year for Delta.

Okay. And then I think you said you're targeting '28 for the second mothership, which should get over 125 flights per year on those first 2 Delta ships. Just wondering if the ongoing legal issues with Boeing have the potential to impact any plans on the mothership front or if you could share any update there?

Sure. The very short answer is no. The issues with Boeing are not material and are not going to be impacting how we progress our mothership program. Our position with Boeing is very clear and if you haven't had a chance, there's a very thorough overview of that in the counter suit that we put out. But in short, our positions, we received unacceptable work from Boeing. The intellectual property that was in debate is either owned outright or duly licensed by us and, you know, all the elements of that are laid out in that case. With that said, again, it's not a material piece. It will not be a distraction for us in any way as we move forward with our mothership program. But it's a good read if you want to read the background there.

Yes, I did. It was surprising to see for me. Okay. And then I think just lastly for me, previously you allocated a portion of ticket sales to Virtuoso. Did they sell their portion fully? And is that something -- a partnership that you're going to continue to leverage when you open up ticket sales again?

Virtuoso has not fully used their allocation. Like us, they've kind of -- we've pulled back on the sales piece until we get closer in. I think the opportunity for companies like Virtuoso where they have a very healthy and active base in particular in adventure travel and high-end travel is a relevant potential channel for us. I clearly will be doing a lot direct. But I do think there's help in -- as this becomes known and normal, we had a huge deal just in this last year of 6 flights in 6 months and that seemed like a huge deal. We're going to show up into the '26 and start operations on a pace of 125 human spaceflights a year. And it's going to be completely different idea of what's going on here. The word will be out, people will be known. And at that place, wide distribution and access to people is sometimes helpful. And so I think we'll continue to test efforts like we've done with Virtuoso, but I do expect the bulk will probably be direct sales.

This concludes the Q&A session as well as today's conference. We thank you for joining. You may now disconnect your lines.