Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Virgin Galactic Holdings Inc (SPCE, Financial) announced an increase in flight operations with the mothership VMS Eve, now expected to support three space missions per week, a 50% increase over prior estimations.
- The company expects to generate approximately $450 million in annualized revenue within the first 12 months following the entry into commercial service with the first two Delta ships.
- Virgin Galactic Holdings Inc (SPCE) has a strong pricing strategy, with the upcoming Galactic seven flight expected to realize an average per seat price of over $800,000, the highest to date.
- The company is making significant progress in the Delta program, with the design phase expected to wrap up soon, moving into tooling, parts fabrication, and final assembly stages.
- Virgin Galactic Holdings Inc (SPCE) maintains a robust balance sheet with $867 million in cash, cash equivalents, and marketable securities, providing a solid foundation for ongoing operations and development.
Negative Points
- Virgin Galactic Holdings Inc (SPCE) reported a negative free cash flow of $126 million in the first quarter, although this is an improvement from the previous year.
- The company is still working through a backlog of ticket holders at lower price points before it can fully transition to higher pricing, potentially affecting short-term revenue growth.
- Operational and weather inefficiencies could affect the planned capacity to conduct 125 flights per year, impacting revenue projections and operational scheduling.
- Virgin Galactic Holdings Inc (SPCE) is in the midst of legal issues with Boeing, which, despite not being expected to impact operations, could still pose a distraction or risk.
- The company anticipates 2024 to be the peak cash burn year, with significant capital expenditures expected as it ramps up the Delta class spaceship program.
Q & A Highlights
Q: How much backlog of lower ticket prices exists before reaching the higher price point of $600,000 per seat, and how should we think about near-term revenue given some launch pricing?
A: Douglas Ahrens, CFO of Virgin Galactic, explained that there are over 600 tickets sold at lower price points and some at $450,000. He noted that with a flight rate of 125 flights per year, the company can serve up to 750 astronauts annually, quickly moving through the backlog. The annualized run rate of $450 million is expected about 12 months after transitioning through the backlog, applying the newly announced ticket pricing of $600,000.
Q: Will the first two Delta class ships roll out at the same time and enter commercial service simultaneously? Also, how does the mothership capacity relate to the Delta ships' operations?
A: CEO Michael Colglazier confirmed that the bottleneck against the Delta ships' capacity would initially be the mothership, Eve. Once a second mothership is introduced, the Delta ships would then become the limiting factor. The arrival of a new mothership would be paired with additional Delta ships to balance the growth of the fleet.
Q: Given the expected quick processing of the backlog, what is Virgin Galactic's strategy for reopening the sales window and managing the backlog to maintain a predictable operational pace?
A: Michael Colglazier mentioned aiming for a two-year backlog, which helps both from a customer journey perspective and operational planning. Sales are expected to start in 2025 to build up a year's backlog by the time operations commence in 2026. This strategy balances maintaining pricing power and allowing customers and the company sufficient planning time.
Q: What are the expected peak cash burn years and quarters as the Delta class schedule progresses?
A: CFO Douglas Ahrens affirmed that 2024 is expected to be the peak cash burn year, with a ramp-up in spending anticipated in Q3 and Q4, particularly as the company moves heavily into parts fabrication and completes tooling.
Q: How will the ongoing legal issues with Boeing impact the plans for the next mothership?
A: CEO Michael Colglazier clarified that the legal issues with Boeing are not material and will not impact the progress of the mothership program. The company's position is clear, and the details are outlined in their countersuit, asserting that the intellectual property in question is either owned outright or duly licensed by Virgin Galactic.
Q: Is Virtuoso fully utilizing their ticket allocation, and will Virgin Galactic continue leveraging this partnership for future ticket sales?
A: Michael Colglazier indicated that Virtuoso has not fully used their allocation and has scaled back sales until closer to operation resumption. While direct sales are expected to be the primary sales channel, partnerships like Virtuoso could be beneficial as the company scales and the concept of commercial space travel becomes more mainstream.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
