Virgin Galactic Holdings, Inc. (NYSE: SPCE) This fall 2020 earnings name dated Feb. 25, 2021
Company Contributors:
Seth Zaslow — Vice President of Investor Relations
Michael A. Colglazier — Chief Govt Officer
Michael P. Moses — President, Area Missions and Security
Jon Campagna — Chief Monetary Officer
Analysts:
Robert Spingarn — Credit score Suisse — Analyst
Myles Walton — UBS — Analyst
Ron Epstein — Financial institution of America — Analyst
Dan — Goldman Sachs — Analyst
Oliver Chen — Cowen — Analyst
Pete Skibitski — Alembic World Advisors — Analyst
Presentation:
Operator
Good afternoon. My identify is Jacqueline and I will likely be your convention operator in the present day. Right now, I wish to welcome you to Virgin Galactic’s Fourth Quarter and Full 12 months 2020 Earnings Convention Name. [Operator Instructions] Thanks.
Internet hosting in the present day’s convention will likely be Seth Zaslow, Vice President, Head of Investor Relations at Virgin Galactic. As a reminder, in the present day’s name is being recorded.
I’d now like to show the convention over to Mr. Zaslow. Please go forward.
Seth Zaslow — Vice President of Investor Relations
Thanks. And good afternoon, everybody. Welcome to Virgin Galactic’s fourth quarter and full 12 months 2020 earnings convention name.
On the decision with me in the present day are Michael Colglazier, Chief Govt Officer; Mike Moses, President of Area Missions and Security; and Jon Campagna, Chief Monetary Officer. Following ready remarks from Michael, Mike and Jon, we’ll open the decision for questions. Our press launch was issued about 45 minutes in the past and is obtainable on our Investor Relations web site, as is the slide presentation that may accompany in the present day’s remarks.
Let me refer you to Slide 2 of the presentation, which accommodates our Secure Harbor disclaimer. Throughout in the present day’s name, we are going to make sure forward-looking statements. These statements are primarily based on present expectations and assumptions and in consequence are topic to dangers and uncertainties. Many elements may trigger precise occasions to vary materially from the forward-looking statements made on this name. For extra details about these dangers and uncertainties, please seek advice from the Danger Components part of Virgin Galactic’s Annual Report on Type 10-Okay filed with the Securities and Change Fee and different paperwork filed by Virgin Galactic once in a while.
Readers are cautioned to not put undue reliance on forward-looking statements and the corporate particularly disclaims any obligation to replace the forward-looking statements that could be mentioned throughout this name. Please additionally word that we’ll seek advice from sure non-GAAP monetary info on in the present day’s name. Yow will discover reconciliations of those non-GAAP monetary measures to probably the most comparable GAAP measures in our earnings press launch.
With that, I’d now like to show the decision over to Michael.
Michael A. Colglazier — Chief Govt Officer
Thanks, Seth. And good afternoon, everybody. I hope you and your family members are preserving wholesome and secure.
First off, I’d prefer to welcome Seth Zaslow to Virgin Galactic. As you might have seen, Seth joined us a number of weeks in the past to guide our Investor Relations operate and function our major liaison with the funding neighborhood. Seth is superior and we’re more than happy to have him on board. And I’m assured you’ll all take pleasure in working with him.
Second, I’m positive a lot of you noticed that our CFO, Jon Campagna, will likely be stepping down from his function to pursue his subsequent journey. I’d prefer to thank Jon on behalf of your complete Virgin Galactic workforce. Jon has been our CFO throughout our transition from non-public to public firm and helped construct wonderful relationships throughout the funding neighborhood. He leaves us with a powerful steadiness sheet at a time when the corporate is well-positioned for future development. I’ll share extra about our incoming CFO, Doug Ahrens, later within the name.
Shifting onto the agenda, I’m going to start out in the present day’s name with a quick recap of our 2020 accomplishments and an outline of our flight schedule. I’ll then ask Mike Moses to offer some element on our December 2020 flight in addition to an replace on our upcoming flight, which I do know a lot of you’re keen to listen to about. I’ll then discuss concerning the progress we’re making on increasing our fleet, adopted by some ideas on business plans and the way we’re positioning the group for scale and success. After that, Jon will present element on our monetary outcomes.
So with that, let’s get began. As I replicate again on 2020 and look forward to 2021 and past, I can’t assist however be excited. It’s an extremely dynamic time for each our firm and for the house trade as an entire as there’s a excessive diploma of curiosity in development that’s bringing our society nearer to the frontier house than ever earlier than. And we’re simply getting began on what we imagine goes to be an extended interval of development and enlargement.
Turning to Slide 4. 2020 was an lively and productive 12 months for Virgin Galactic, regardless of the challenges we confronted on account of the COVID-19 pandemic. Initially of the 12 months, we accomplished a captive carry flight of our spaceship, VSS Unity, from Mojave, California to its new residence at Spaceport America. This flight accomplished the transition of all Virgin Galactic spaceflight operations to our new business base in New Mexico.
Shortly after this flight, COVID started to have an effect on our operations. As we’ve shared prior to now, constructing and flying spaceships through the pandemic is materially much less environment friendly than regular. However regardless of scheduling and value inefficiencies associated to the pandemic, our workforce was capable of make vital progress through the 12 months. And I’d prefer to thank all of them for his or her extraordinary degree of dedication and dedication to our mission.
Within the second quarter, we accomplished two profitable glide flights that supplied us with beneficial knowledge on the ship and coaching for our workforce of pilots. Following these glide flights, we have been capable of full seven FAA verification and validation experiences, placing us in a powerful place the place we now have now cleared 27 out of 29 experiences and can tackle the proviso in our at present lively FAA operator’s license. We noticed nice success with our One Small Step program, which demonstrated the sturdy shopper demand for spaceflight, closing this system with roughly 1,000 folks signed up and we’re happy that our whole variety of future astronauts remained at roughly 600 as of the top of the 12 months 2020.
In August, we took benefit of favorable market circumstances to additional strengthen our steadiness sheet, and Jon will cowl this matter in additional element in his remarks. We adopted up our profitable glide flights with an additional check flight on December 12, which Mike Moses and I’ll discuss extra about shortly.
Throughout the 12 months, we additionally made progress on the construct of our second and third spaceships. And in December, we realigned the corporate’s construction from a enterprise unit focus to a purposeful construction as groundwork for our plans to shift from a prototyping and R&D focus to a corporation that may design and manufacture at scale. On this course of, we retired the spaceship firm model and have aligned everybody within the group below the Virgin Galactic model.
Turning to Slides 5 by 7. These three slides summarize the plan we mentioned on final quarter’s name for the following three flights in our check flight program. Whereas the precise timing of every flight has shifted, we’re nonetheless working in the direction of finishing these three flights. The primary of those was initially set for November 2020. Because of COVID restrictions in New Mexico, we deferred the flight to December.
Whereas the December flight didn’t attain house as deliberate, it did present beneficial learnings. Particularly, it demonstrated the effectiveness of our security programs in a stay situation, which strengthened the significance of our spaceflight system structure and our sturdy testing and coaching applications. Subsequent to the flight, we now have carried out and accomplished our root trigger evaluation, which has put us ready to maneuver ahead with our program.
I’d prefer to ask Mike Moses to share particulars concerning the December flight and the standing of our upcoming flights.
Michael P. Moses — President, Area Missions and Security
Thanks, Michael. Shifting on to Slide 8. Throughout the December check flight, the rocket motor halted because it was beginning the ignition sequence as a result of the onboard rocket motor laptop misplaced connection. This method, like others on the spaceship, is designed such that it defaults to a secure state at any time when energy or communications is misplaced. We plan for and rehearse many potential eventualities, together with one corresponding to this and the pilots on this spaceship in addition to the engineers and machine management have been effectively ready for this occasion.
Following the flight, we accomplished an intensive evaluation to research why the rocket motor laptop misplaced connection. And we’re assured that we’ve recognized and remoted the difficulty to be a reboot of the pc seemingly brought on by electromagnetic interference, or EMI. Unity has been upgraded with a brand new flight management laptop system, which provides a finer diploma of pilot management. This method has carried out effectively in our glide flight exams and is without doubt one of the parts we’re testing in our rocket-powered flight. Our workforce has decided that a part of this new system is the supply of upper EMI ranges that have been current on that final flight.
EMI is a comparatively widespread problem in aerospace. And in January, we proceeded with modifications that have been designed to decrease the EMI ranges and higher shield sure programs. After confirming by testing that these corrective actions would stop a reboot of the rocket motor laptop, we decided that we have been prepared to focus on a February launch. As we accomplished our pre-flight technical readiness checks for that February flight, a few of our shipboard sensor readings confirmed fluctuations. And it grew to become obvious that these adjustments that we had made to handle EMI had unintentionally created further noise inside our sensory surroundings. Whereas this noise not in itself is a security challenge, it did tell us that the EMI ranges on the ship have been impacting areas that whereas low in likelihood may doubtlessly set off one other fail-safe situation, presumably one that might stop us from seeing a full rocket motor burn.
Our security tradition is constructed across the precept that everybody within the firm has the flexibility to name consideration to a difficulty. And that’s precisely the best strategy once you’re coping with human spaceflight. On this case, we flagged an EMI challenge that wants decision and we selected to delay the February launch to mitigate it additional earlier than flying. To scale back the EMI ranges, we will likely be enhancing the brand new flight management laptop with further options. As soon as we full these modifications, we’ll completely check the system on the bottom each within the lab and on Unity, following which we are going to recommence our flight check program.
Michael, again to you.
Michael A. Colglazier — Chief Govt Officer
Thanks, Mike. Simply to bolster Mike’s feedback, one of many imperatives for me once I determined to hitch Virgin Galactic was confirming the corporate had an unwavering dedication to its security tradition. And that’s precisely what we’re seeing right here. We all know our spaceflight system works. We all know we are able to go to house. And we’re all very desperate to get again to house. However once we see one thing that isn’t fairly proper, we deal with it exhausting and we repair it after which we transfer ahead. And that’s what we’re doing.
As soon as this EMI challenge is addressed to our satisfaction, we intend to return to the check flight program sequence that we’ve beforehand communicated. Our estimate to finish this work is eight to 9 weeks, which suggests our subsequent check flight will likely be in Could. Whereas we’re not going to position particular dates round our second and third check flights, we anticipate them each to happen this summer time.
Turning to Slide 9. Our spaceflight system is constructed to serve three markets; non-public astronauts, microgravity analysis and suborbital coaching for skilled astronauts. Our flight with Richard Branson will show our non-public astronaut expertise and we are going to open gross sales for this market following this flight. Our microgravity analysis product consists of spaceflights the place two pilots fly racks of analysis payloads within the cabin or when two pilots fly researchers on board with their experiment for a human-tended analysis flight. The suborbital coaching product helps governments and nations that wish to embrace suborbital spaceflight as a part of a coaching program for his or her skilled astronauts.
With regard to those latter two markets, I’m happy to substantiate in the present day that the Italian Air Drive has partnered with Virgin Galactic on a flight that may show our capabilities for each human-tended analysis and suborbital astronaut coaching. They are going to be flying three spaceflight members and a number of payloads and they’ll conduct astronaut coaching along with experiments through the flight. The Italian Air Drive flight, which we anticipate to happen in late summer time or early fall, will likely be a revenue-generating flight and we’ll conclude our product check program.
Shifting on to our fleet enlargement on Slide 10. I’m actually happy to announce that we’ll be rolling out the primary of our SpaceShipThree class of autos on March 30. And I’m excited to point out you the sneak peek on the subsequent ship in our future fleet. SpaceShipThree has been constructed with a modular design and makes use of enhanced fabrication and meeting processes, which can allow higher efficiency by way of flight charge and maintainability. And SpaceShipThree will present a base for the way we scale the longer term design of our spaceships.
Shifting to Web page 11. The primary automobile on the SpaceShipThree class will begin its floor testing following the March thirtieth rollout occasion. And we anticipate that the ship will start glide flight testing this summer time. The second automobile within the SpaceShipThree class will start meeting at this level as effectively. Our present flight check protocol for the primary SpaceShipThree automobile requires 4 glide flights and 4 powered flights, and we anticipate the spaceflights will likely be revenue-producing. Following our preliminary glide flight check, there will likely be a multi-month interval of study and modification to the spaceship earlier than we convey it out for our last glide check and energy check.
Given SpaceShipThree is not going to require our mothership throughout this era, we’ve determined to implement enhancements and speed up to the long-term upkeep updates to our mothership, Eve, that may enhance the predictability and frequency of flight charge. To keep away from sequential downtimes, we may also implement some further enhancements to Unity throughout this era that may also enhance predictability of flight charge. We anticipate the mixed evaluation and refurbishment interval for all three autos to run for about 4 months. On the conclusion of this era, we anticipate that VSS Unity will start flying non-public astronauts and SpaceShipThree will likely be ready to finish its flight testing, which we anticipate to be in early ’22. And refurbished mothership, Eve, would be the service plane for each autos.
Shifting to Slide 12. As we’ve beforehand communicated, we’re embarking on a multi-year effort that targets flying 400 flights per 12 months per Spaceport. To take action, we might want to effectively construct extra spaceships and extra motherships. I’m happy to share in the present day that we now have formally launched two new applications inside Virgin Galactic that will likely be essential to this effort.
The primary will likely be for our next-generation spaceship, the fourth technology, which we’re referring to internally because the Delta class of autos. We’ll be updating our engineering drawings to enhance manufacturability and we are going to spend money on our manufacturing amenities, processes and partnerships to enhance price and schedule effectivity. These autos are designed to have quicker turnaround instances as a result of discount in upkeep between flights.
Whereas we are going to provoke our business service utilizing the SpaceShipTwo and SpaceShipThree class autos, it’s our Delta class of spaceships that we imagine will actually speed up the financial development of the corporate. The second and equally essential new program is for our next-generation mothership. We plan to have the aptitude to fly a number of instances per day at a Spaceport and we are going to want a number of motherships to take action. Now we have unbelievable groups that signed on these essential applications and we could have extra to say on these initiatives as we transfer ahead.
Turning to Slide 13. We’re attracting unbelievable expertise to hitch Virgin Galactic as we speed up our path to commercialization. At the moment, I’d like to focus on a few of the leaders and advisors who will play key roles as we pivot to higher-rate manufacturing and widen our lens on the business alternatives forward of us.
As introduced earlier in the present day, Swami Iyer will likely be becoming a member of Virgin Galactic as President of Aerospace Techniques. Swami goes to guide our extraordinary workforce of engineers, designers and technicians and assist groups who’re constructing the fleet of autos and designing the longer term alternatives that underpin our enterprise. Swami will be a part of us later in March and he involves us from GKN Aerospace, the place he served as President of Superior Protection Techniques. With over 20 years of expertise in business and extremely categorised aerospace, protection and cyber industries, Swami brings nice depth and experience in enterprise enlargement, whereas additionally having the deep course of and manufacturing orientation essential to guide our development and scale. He’s a robust chief who’s completely suited to guide our aerospace workforce into the following chapter.
As well as, we’re thrilled to welcome Steve Justice to Virgin Galactic as our Vice President of Engineering. Steve brings extremely deep management and engineering expertise having spent 4 many years at Lockheed Martin Skunk Works. Steve will lead and develop a world-class engineering workforce supporting our SpaceShipThree, Delta class, propulsion and new mothership applications, in addition to our longer-term efforts round high-speed point-to-point journey.
Turning to Slide 14. I’m excited to announce that Doug Ahrens is becoming a member of us as our new CFO. With prior expertise as each a private and non-private firm CFO, Doug has led international groups to quickly develop firms in advanced know-how and manufacturing environments. Doug’s management and relational abilities, his capital markets and M&A experience will all be extremely beneficial as we scale and monetize the enterprise. Doug most just lately served as CFO at Mellanox, a public firm within the semiconductor trade, the place he was liable for all finance capabilities, main as much as the profitable acquisition by NVIDIA Company in 2020. And a enjoyable truth, like Swami and Steve, Doug can also be a pilot; and Doug, on this firm, you’re in nice firm there.
Turning to Slide 15. Our enterprise mannequin depends upon ramping the manufacturing of our fleet. Our business success may also be constructed on the standard of the expertise we provide to our future astronauts and the impression of our shopper model and advertising technique that may launch our gross sales effort and assist widespread shopper engagement. To assist these goals, we’re extremely lucky to have attracted two teams of advisors who’re lending their actually world-class experience to those endeavors.
First, on the business entrance. Earlier this week, we introduced that Joe Rohde will function our Expertise Architect and he’ll lead a workforce of inner and exterior consultants to develop and convey to life the general expertise for our future astronauts, their visitor and different clients. An unbelievable inventive pressure, Joe beforehand spent 40 years at Walt Disney Imagineering, the place he led initiatives that delivered to life a few of Disney Parks’ most genuine and compelling experiences, together with Disney’s Animal Kingdom.
I’m excited to share that Blair Wealthy has been engaged to assist our buyer model structure and advertising technique. Virgin Galactic story is huge and daring and requires a shopper engagement strategy that’s on an equal scale. Blair’s spent over 20 years at Warner Brothers, most just lately serving as President of Worldwide Advertising and marketing, and she or he is uniquely expert to advise us at this embryonic stage of our model and advertising efforts.
And at last, I’m thrilled that Geoff Goodman has been engaged to lend his experience to our income planning and new enterprise growth efforts. Geoff’s deep experience main World Enterprise Growth for Disney Parks and as Chief Business Officer for the Disneyland Resort is immensely useful as we construct our strategic roadmap to monetize the enterprise.
Shifting to Slide 16. We’ve additionally just lately introduced the institution of a Area Advisory Board. The Advisory Board will function an essential useful resource to me and to our senior workforce as we begin business spaceflight service, develop next-generation autos and work to encourage folks on a worldwide scale. The Area Advisory Board will include established world-renowned consultants throughout the aerospace trade. And it at present consists of George Whitesides, our founding CEO and former Chief of Workers of NASA, who will chair the Board.
Dr. Sandy Magnus, former NASA astronaut and deputy Chief of the Astronaut Workplace. Dr. Magnus is a member of NASA’s Aerospace Security Advisory Board and she or he has served in management roles on the Division of Protection and the American Institute of Aeronautics and Astronautics. Chris Hadfield, a former astronaut who served as commander of the Worldwide Area Station. Chris has flown to house 3 times, together with a visit to the Russian Area Station Mir. He has additionally served as Chief of Worldwide Area Station Operations on the NASA Johnson Area Middle. And Dr. David Whelan, who beforehand served as Chief Scientist, Boeing Protection Area and Safety and Director of DARPA’s Tactical Know-how Workplace. David is a member of the Nationwide Academy of Engineering and a former member of the Protection Science Board and the Air Drive Scientific Advisory Board.
I’d now like to show the decision over to Jon for a monetary replace.