Good afternoon. My name is Louella and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's First Quarter 2025 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. [Operator Instructions] Thank you. I will now turn the call over to Eric Cerny, Vice President of Investor Relations.

Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's first quarter 2025 earnings conference call. On the call with me today 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 today, 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. Turning to our agenda for today's call on Page 3. Today, we'll cover progress in developing our next-generation SpaceShips, a look ahead at future commercial initiatives, and a financial update. I'll now turn the call over to our CEO, Michael Colglazier.

Thanks, Eric. Welcome, everyone, to our first quarter earnings call. We opened 2025 driving solid progress toward putting our next-generation SpaceShips into commercial service. An enormous amount of work is taking place across our company as well as at our key suppliers. And we continue to expect our first research spaceflight will take place in summer of 2026 with private astronaut flights following in fall of 2026. Our company wide focus on controlling expenses continues as we move with purpose through the remainder of our pre-revenue phase. Year-over-year operating expenses have continued to decrease as our spending has shifted to create the capital assets that drive our business model. This focus on cost has kept our balance sheet strong with well over $0.5 billion in cash, cash equivalents and marketable securities on hand. Turning to Slide 4. Progress on our new SpaceShips is an important topic for all our stakeholders. And I will spend time on today's call providing color across many of the areas that make up SpaceShip production. We released a short video recap of our progress this morning, and I encourage you to check that out. Since we have far more going on than we can cover in an earnings call or a highlight video, I will also share some new ways we are going to bring you behind the scenes to follow along with our progress in more detailed ways. This slide highlights many of the concurrent work streams that are underway to deliver our new SpaceShips. These include rocket and propulsion systems, avionics and flight controls, mechanical systems and the ongoing development and delivery of carbon parts. So let's get into it on Slide 5. Our hybrid rocket motor system is a huge strategic advantage that supports the long service life of our SpaceShips while…

Thanks, Michael. Good afternoon, everyone. Turning to Slide 19 and our financial review of the first quarter. Revenue was approximately $500,000 from future astronaut access fees and event fees. Total operating expenses for the first quarter decreased 21% to $89 million compared to $113 million in the prior year period. We remain highly focused on managing our expenses across all areas of the company. Consistent with the trend during 2024, we continue to see a reduction in operating expenses as our spending shifts from research and development to capital investments in manufacturing assets that can be used to repeatedly build SpaceShips. With production of our first two SpaceShips underway, we've also been capitalizing the components that are being manufactured or purchased. Capital expenditures for the first quarter grew to $46 million compared to $13 million in the prior year period. Adjusted EBITDA improved to negative $72 million in the first quarter compared to negative $87 million in the prior year period. Free cash flow was negative $122 million in the first quarter, within the range of our guidance. Moving to Slide 20, we ended the first quarter with $567 million in cash, cash equivalents and marketable securities. During the quarter, we generated $31 million in gross proceeds to an at-the-market or ATM equity offering program. The ATM program remains in place both as a potential source of growth capital and as a means to bolster the balance sheet when appropriate. Today, you will see some additional SEC filings from us about the program, but those are all just technical filings and they all still relate to the same existing $300 million program we entered in November 2024. The filings are not establishing a new or outsized program. Moving to our projection, revenue for the second quarter of 2025 is expected to be approximately $400,000 for astronaut access fees. Forecasted free cash flow for the second quarter of 2025 is expected to be in the range of negative $105 million to $115 million. This projection represents lower spending going forward as the required peak investment level is now behind us. We'd further project that cash spending will continue to decline through 2025 as we complete this phase of investment. Moving through the final assembly and testing phase, we expect to continue converting some of our cash on hand into manufacturing assets and SpaceShips as we bring our initial Delta fleet into service. We anticipate that approximately half of our spending in 2025 will be for onetime capital expenditures for tooling, manufacturing capacity and the production of our first two new Delta Class SpaceShips. On our last call, I highlighted that our growth in capital expenditures is reflected in property, plant and equipment or PP&E on our balance sheet. We expect that trend will continue to play out in 2025. At the end of the first quarter, we reported $249 million in PP&E compared to $209 million at the end of 2024. With that, I'll turn the call back over to Michael.

Thanks, Doug. Closing on Page 21. Q1 demonstrated strong progress advancing the build of our new SpaceShips and keeping pace with our plans to begin commercial spaceflight in 2026. I'm encouraged by the momentum and responsiveness of the teams across Virgin Galactic and our supply partners. And I'm looking forward to showcasing how we build SpaceShips in our new series that will launch next month. We are moving through the necessary steps to conclude the pre-revenue phase of the company. The assets we are creating during this phase are tremendous, including the SpaceShips that will go into commercial service as well as the IP, tooling and manufacturing infrastructure that will be used to expand our fleet. We believe these assets will open up a powerful and profitable business model that will benefit from an industry leading cost structure, fixed cost leverage as we scale and an unparalleled customer experience. We're excited to see our new ships come to life in 2025, and we can't wait to begin flying our customers to space in 2026. Operator, let's open the call for questions.

Your first question comes from the line of Oliver Chen with TD Cowen. Please go ahead.

Hi, Michael and Doug. It's really encouraging about ticket sales opening in first quarter '26. How are you thinking about the total addressable market of 300,000 or more previously and any thoughts you may have there? Second question is the free cash flow is encouraging, especially given that peak investments are behind you. What are your thoughts longer term in terms of the free cash flow burn, reaching below $100 million or how would you think more medium to longer term there? And then I would love any tactical thoughts on tariffs are impacting some of your material inputs at all. Thank you very much.

Thanks, Oliver. This is Michael. I'll take the first one and the last one. Doug, I'll throw free cash flow over to you. So I don't think we have different inputs at the moment, Oliver, as to the macro 300,000 total addressable market and the growth of that. The analysis that went behind that a couple of years ago, I thought was pretty solid by several of the investment banks that covered the industry. So I don't have any updates to that from proprietary research. I do believe that at the start of this, we are going to see tremendous amount of activity through the sales process, and that's why referral and repeat visitation is so important to us. We put in one note, you probably caught, I just thought a nice piece of optimism on how powerful our experience is. We had three private astronauts on our last flight. We also had a Turkish government researcher on that flight. All three of those private astronauts have signed up again. It was that meaningful of an experience. So when I see the early years of this, I think we will grow, by sales and a heavy amount through referral and a decent amount through repeat. And so the amount we need to tap into the top of the funnel those 300,000 individuals, is really pretty light at the beginning, and I think that will grow over time as we scale the fleet up. Just, Doug, before I give it to you, I talked to our Head of Supply Chain a couple of times, both in advance of this call and just following along with tariffs. Most of our work as you'd expect is US sourced. As you go multiple layers down the supply chain, some of the raw materials can come from outside of the US. Because we've been working on this for a while, we have ordered all the long lead materials in advance. So all of -- all the stock we need for these first two ships is pretty much already in. There are small elements but relatively de minimis into the economics here. Packing and things we ship from -- we ship all of our parts and there's a lot of wood in the crates and wood is up because wood's coming from Canada, things like that. But most of the meaningful expenditures, that could have been subject to tariffs have already been purchased. So, Doug, on free cash flow?

Yes. Thanks, Michael, and thanks for the question, Oliver. So, yes, we're pleased that the peak spending is now behind us, and that's because we've been investing in tooling and all the R&D before that. But the -- we showed a lot of pictures of tools that have been already built and they're in the factory. That's a one-time investment, right, that allow us to make copies of SpaceShips now with that. But that's where the peak spending was coming from. So now as we go forward, we still have more investments to do as we finish that and really invest in these remaining two SpaceShips. But what that gives us is a trend where the spending the required spending by quarter goes down. So the trend through 2025 is a declining spend trend. And as you noted, yes, we're still targeting to be below 100 million spend by the fourth quarter of 2025. And then we ask -- you asked about long-term. We do expect that beyond that, the spending level will continue to decline into 2026. And then we start to cross over because in 2026 we have our two SpaceShips in operations. We start to get cash inflows ahead of the spaceflights, and that's when it turns over to a positive cash flow business model. So we're pleased with that outlook. Looking much longer term, I can refer you back to the economic model that we've shared in past calls. That's still valid. That's still what we are projecting that with two SpaceShips in service and with the launch vehicle Eve. We expect to be able to get to a revenue level of $450 million a year in steady state and that generates $90 million to call it $100 million of EBITDA and that can be all cash flow unless we choose to plow that back into building more assets. So that's the different phases of our cash flow projections, Oliver.

Thanks a lot. Very helpful. One follow-up. Michael, you have an extensive background from Disney and we lead luxury here at TD Cowen. We just love your latest views on anything that's changed or how you're thinking lately about customer engagement, experiential and the lifestyle brand aspect of what you're doing. Thank you.

Only thing I'd add on that note, Oliver, is it's in sight, and we are really excited as a company to start to make Virgin Galactic, a real name in that luxury and aspirational brand space. We have everything we need in kind of what this industry is, what the quality of our product is, the aspiration and exclusivity of the product, and now we're building the incredible machines that will allow us to do it. So we're excited to step in and be a real player here.

Thank you. Best regards.

Your next question comes from the line of Greg Konrad. [Operator Instructions] Mr. Konrad, your line is now open.

Good evening. Maybe just to follow-up on the reopening of sales in Q1. You mentioned a first wave, but just given how you're thinking about future flight cadence, any color in terms of how you think about the size of that first wave? And then what is the ideal backlog just given that flight cadence? You were at a thousand before you started flights the first time. Like how do you think about the ideal size of backlog given the overall market size?

Thanks, Greg. I think having a one to two year backlog is appropriate. I think once and that's consistent with where we've been. Once you're past two years, I think people are waiting a little longer than is helpful. And technically you need a month of backlog and it's just fine. But I think having a solid backlog is better. I also think having a year's worth of backlog, allows for greater flexibility from a yield management standpoint. So what we're trying to do now is we start with waves, because we will be putting our new ships into service. We will start them, they're all expected to fly twice a week, when we have the carrier ship capacity to do so. And we expect, in general, to be able to fly 125 flights over the course of the year. So we'll work to overhit that, but that's kind of our targeted numbers. So at six people per ship, 120 flights a year, that's the capacity that we'll, I'll say, target from an annual point until we expand our fleet. So that means we want to have 6 times 125, that many people signed up on a rolling basis a year in advance. And the question really becomes what price point do we want to bring those people in as our flight rate moves forward? That's one of the benefits of waves from a business standpoint is we can look at the value we're creating. I think we'll get continued referral and excitement. I do think that will continue to expand the demand pressure against, the existing fleet, and we can think about pricing appropriately there. The other thing, going in waves, which is super important to the customer experience, we're not just bringing people up and down the space. This is a life experience. It's a life journey. And we want to bring people in from the moment they sign on in a way that shows them this is something that is unique in the world and that experience starts from the moment they sign up. If we just kind of throw the doors open and can't handle the volume or ration the volume coming in, it makes it harder for us to give that white glove treatment to each and every individual astronaut that joins in. So that's why we do it from a customer standpoint. Business-wise, it allows us to yield manage and stair step pricing up as we go along.

And then, as a follow-up, you mentioned you were about halfway through a feasibility study for a second Spaceport in Italy. Can you maybe talk about what some of those main gating factors are in terms of establishing feasibility and do economics play into that decision in any way, whether that's funds in from Italy or how that gets funded?

Sure. So the -- I'll talk from our side, from the Italian side. What we're doing right now is establishing clarity of what airspace would be needed is a very important element there. So there's an air force base that is in the Apulia region of Italy that's been designated by the Italian government as a Spaceport region. President Meloni has designated a nontrivial amount of funds into helping move that region into a horizontal like a runway based Spaceport. So there's good government support in that area. Where we fly is dependent upon lots of factors. And so a lot of what's going on is, the specific flight paths, studying the wind and the weather patterns, both across seasons, across days and intraday across the hours, because depending upon prevailing winds and other factors, we would fly different flight paths, obviously, originating and returning to the same runway, but going in different ways. That has different implications to what airspace is either available or might need adjustment within the overall Italian airspace. So that's the heaviest one that we're doing right now. I think when it gets down to economics, the runway's already there. It turns into facilities and hangars for ships at a Spaceport and a place for us to train our customers along the way, obviously, than building the ships that would operate in there. Those are the primary, I'd say, upfront investment elements of the new Spaceport.

Thank you.

You're welcome.

Your next question comes from the line of Myles Walton of Wolfe Research. Please go ahead.

Hi, guys. This is Greg Dahlberg on for Myles. Thank you for the time. I kind of wanted to dig a little bit deeper into the repeat business aspect just because you guys have been emphasizing the importance here. I was wondering is there like a -- maybe a win rate you're assuming in your medium long-term planning assumptions for a repeat business? I guess just trying to gauge what it could look like when the cadence of flight starts to really kick up. Thank you.

I think early days, obviously, Greg, in being able to predict, we have a relatively small number of flights. And so the statistical significance is going to be a bit limited there. So more of what we -- as far as statistics go, we have, I'd say in the double-digits, low to mid-double-digits of people who have flown that have raised their hand and want to do a repeat with us, percentage-wise there. And but I think it's hard to really pull that as the statistical data point to go forward. What I look more closely at is how meaningful was the experience when I have a chance to talk to people who have flown with us and I get a chance to talk to them afterwards. How meaningful has it stayed? How relevant is this? How important is this in their ongoing life? How much are they talking about it, sharing about it? And just ask is this something you would like to do again? And if you'd like to do it again, would you like to do it with people you know? Your friends, your family, buddy group, whatever that is. And the feedback I get is very consistent in I would love to do this again. And so then I think it depends upon the individual and where their economic situation stands as to whether this is something that they would like to prioritize sooner or later. So we'll see how that all plays itself out. But I do think it's a meaningful piece. What's probably more meaningful is when you have a customer experience that's this powerful is the referral factor, right. Because all the people that our flown astronauts talk to become potential customers for us. And a lot of our flown astronauts know people within that kind of 300,000 total addressable market. And that makes more easier customer acquisition process through the referral effort.

Got it. Thank you for the time.

You're welcome.

If there are no further questions. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.