Virgin Galactic Holdings, Inc Q3 FY2024 earnings call

Spaceship Program

• Moved into build phase, with engineering teams elevating prototype to production model. Spaceship design is efficient for manufacturing and maintenance with improved reusability. On track for commercial operations in 2026.

Fleet Expansion

• Plan to expand fleet beyond first two spaceships, leveraging non-recurring investments to add third and fourth spaceships and second mothership. Delta program progress allows restart of second mothership design.

Growth Strategy

• Plan to use growth capital to accelerate fleet expansion, aiming for fully utilized spaceport in 2028, which would generate cash flow for global expansion. Strong cash position provides flexibility in acquiring growth capital.

Revenue for the quarter was $402,000 driven by future astronaut membership fees. Total operating expenses were $82 million, compared to $116 million in the prior year period. Capital expenditures for the quarter were $39 million, compared to $13 million in the prior year period. Free cash flow was negative $118 million in the third quarter, compared to negative $105 million in the same period last year. Balance sheet remains strong with $744 million in cash, cash equivalents, and marketable securities.

Quarterly Forecast

• Forecasted free cash flow for Q4 2024 is in the range of negative $115 million to $125 million.

2025 Projections

• Uptick in spending in Q1 2025 for tools and parts, then reduced costs through remainder of 2025 as we progress through assembly and tests of new spaceships.

Growth Capital

• Target $300 million growth capital to accelerate fleet expansion, aiming for fully utilized spaceport in 2028, doubling revenue and quadrupling EBITDA by leveraging fixed costs at Spaceport America.

• Supply chain risks: Complex aerospace program may face design revisions and delays in part manufacturing.
• Tariffs and supply chain issues: Potential impacts on manufacturing due to external factors.

Q: What's your latest thinking on reopening ticket sales?

A: Likely to open ticket sales towards the back half of 2025, wanting to take advantage of yielding and having people with a two-year time window from sign-on to flight.

Q: Any additional equity issuance for the mothership program?

A: We see opportunity to pursue growth capital, but we don't have an immediate need, and the growth capital is more than enough to support needs while keeping the balance sheet strong.

Q: Thoughts on tariffs and manufacturing partners?

A: Supply chain is reasonably insulated in the US. Bell and Qarbon have been outstanding partners, working through design revisions and resequencing work to maintain schedule. Marketing will ramp up as spaceships start looking like production models.

Q: Underlying decision for adding third and fourth ships?

A: To take advantage of economies of scale in a spaceport with fixed and semi-variable costs, allowing doubling revenue and quadrupling EBITDA by leveraging fixed costs. Engineering capacity freed from spaceship design can move to mothership design.

Q: Free cash flow outlook and growth capital?

A: Cash burn will improve over time as commercial operations with Delta class start generating cash. Growth capital is to accelerate fleet expansion to reach fully utilized spaceport earlier, with $300 million target for mothership and additional ships.

Q: Mothership timing and growth capital?

A: Mothership and third/fourth spaceships expected in 2028 timeframe, with growth capital to gate investment and keep on track with initial plans.

Q: Delta design feedback loops?

A: Combination of tool manufacturing feedback loops and assembly/manufacturing work instruction adjustments, with ongoing design revisions to keep schedule on track.

Q: Cash flow and Delta Class progress?

A: 2024 is peak cash burn, 2025 spending to decrease after Q1 ramp. Delta Class progress is on track with initial budget. Headcount additions in Phoenix are managed thoughtfully, with team from New Mexico assisting in building phase.