Good afternoon. My name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's Second Quarter 2020 Earnings Conference Call. . Hosting today's conference call will be Michelle Kley, Executive Vice President, General Counsel and Secretary at Virgin Galactic.

As a reminder, today's call is being recorded. I would now like to turn the conference over to Ms. Kley. Please go ahead..

Thank you, and good afternoon, everyone. Welcome to Virgin Galactic's Second Quarter 2020 Earnings Conference Call. On the call with me today are Michael Colglazier, Chief Executive Officer; George Whitesides, Chief Space Officer; and Jon Campagna, Chief Financial Officer, who will provide prepared remarks. .

Thank you, Michelle, and good afternoon, everyone. I'd like to start by thanking each of you for joining us today. I hope that you and your loved ones are continuing to stay healthy and safe. Today marks the start of my third week at Virgin Galactic.

Over the past 2 weeks, I've been focused on meeting our team and getting up to speed on the primary efforts taking place within the company. I knew this would be the case, but my excitement and my passion about joining this talented team continues to grow each day.

I've joined Virgin Galactic from The Walt Disney Company, where I gained over 3 decades of experience developing and growing consumer-oriented businesses. Although clearly different companies, Virgin Galactic and Disney Parks have similarities in many respects. Both companies share a central focus on safety.

This is built into the engineering, operations, processes and culture here at Virgin Galactic, and this is something I'm very familiar with from my time at Disney. And like Disney, Virgin Galactic will provide amazing transformational customer experiences.

It's the core of what we're offering at Virgin Galactic, and I look forward to working with our team as we proceed with momentum towards commercial service. .

Thanks, Michael. Before I begin, I just wanted to say that we feel tremendously privileged that Michael has joined the company. He and I have now been working closely for the past couple of weeks and that has only solidified my view that he is exactly the right person to lead the company through its commercial growth phase.

Michael's deep experience building and scaling fantastic customer experiences all around the world will serve this company well. So welcome, Michael, and thank you for joining this incredible team. Today, we will start our discussion of the quarter by providing a recap on the main areas of progress.

We will then provide updates on our flight test program as well as the ongoing impact of COVID-19 on our operations and fleet production. We will then discuss our business highlights for the quarter and close by covering new developments in our future business opportunities. Jon will then provide detail regarding our financial performance.

Turning to Slide 4. We achieved a significant number of milestones during the quarter in both our spaceflight operations as well as our advanced development initiatives. I will provide a short summary here and provide details on each during the call.

We conducted a number of successful flights from Spaceport America as we prepare for the next stage of our test program. And we made important progress in our process to gain clearance to fly paying customers under our commercial launch license from the FAA. We saw strong growth in customer pipeline and stability in our existing customer community.

We hosted a virtual event last week to unveil our spaceship cabin, which I hope you all had the opportunity to watch. This morning, we announced a new series of steps in our high-speed flight strategy. And today, I'm excited to be able to share some important news in the development of our commercial orbital spaceflight initiative.

All of this has been achieved at the same time as we have had to navigate the inevitable challenges brought on by the COVID-19 crisis, which we will cover later on in the call. .

Thanks, George. Looking at Slide 19. Our second quarter results reflect our ongoing work as we prepare for commercial launch. We remain in a strong cash position and ended the quarter with cash and cash equivalents of $360 million on our balance sheet as of June 30, 2020.

The net loss for the quarter was $63 million compared to a $60 million net loss in the first quarter of 2020, our first full quarter as a public company. Non-GAAP SG&A expenses and non-GAAP R&D expenses have been adjusted to exclude stock-based compensation.

GAAP SG&A expenses for the quarter were $26 million compared to $27 million in the first quarter of 2020. Non-GAAP SG&A expenses for the quarter were $23 million, which was consistent with the first quarter of 2020. GAAP R&D expenses for the quarter were $37 million compared to $34 million in the first quarter of 2020.

Non-GAAP R&D expenses for the quarter were $35 million compared to $33 million in the previous quarter. Adjusted EBITDA, which excludes stock-based compensation, totaled negative $54 million. This is compared to adjusted EBITDA of negative $53 million in the first quarter of 2020.

Cash paid for capital expenditures was $6 million in the second quarter of 2020 compared to $4 million in the first quarter. Capital expenditures in the second quarter consisted primarily of vehicle tooling costs and investments in Spaceport America as we continue to prepare that facility for commercial operations. Turning to Slide 20.

I'd like to take some time to run through some of the line items in our income statement to provide more context on the drivers behind some of those numbers. As you know, our primary focus is executing on our test flight program in ensuring the safety of our workforce, given the challenges associated with the COVID-19 pandemic.

As a result, we did not generate any revenue during the quarter, and we anticipate modest revenue during the remainder of the year given our continued focus on these areas. Turning to R&D. As a reminder, our vehicle costs currently sit within R&D and will continue to be expensed there until we achieve technological feasibility.

While subject to change, we anticipate achieving technological feasibility once we have completed a powered test flight to space with four mission specialists in the cabin. At the point of achieving technological feasibility, we will begin to capitalize our vehicle costs.

Our R&D expenses for the quarter totaled $37 million, an increase of $3 million compared to the first quarter of 2020, primarily due to an increase in allocation of facility costs from SG&A to R&D as a result of the transition of our vehicles to New Mexico as well as an increase in personnel costs.

Our SG&A expenses for the quarter totaled $26 million, a decrease of $708,000 compared to the first quarter of 2020, primarily due to the aforementioned facility cost allocation to R&D. Turning to Slide 21, and looking at the cash flow statement.

The decrease in cash and cash equivalents over the quarter totaled $59 million, which was generally in line with Q1 cash burn. Although we are not providing specific guidance, as we noted last quarter, we continue to believe this is an approximate indication of our ongoing cash burn for the incremental public company-related costs.

However, there may be some strategic initiatives that we decide to invest in that may lead to an increase in our burn rate. Cash paid for capital expenditures increased from the prior quarter by $2 million to $6 million.

Capital expenditures for the quarter were primarily attributed to continued investments in Spaceport America, operational readiness and vehicle tooling costs. I would now like to turn the call back over to Michael for some final remarks..

Thanks, Jon. I'd like to spend a few moments briefly recapping our next steps. As we navigate through these unprecedented times, our number one priority remains the health and safety of our employees and our families and the communities in which we operate.

As George mentioned earlier on the call, we expect to advance to the next phase of our test flight program by conducting the first rocket-powered spaceflight from Spaceport America this fall. After that flight, we will conduct a second powered flight from Spaceport America, which is expected to include 4 mission specialists in the cabin.

In addition to conducting a variety of functional tests within the cabin, these specialists will help us block and choreograph the ways we will capture and cover Richard Branson's history-making flight.

If all goes as expected on this fully accrued flight, we would then plan to fly Sir Richard Branson on the third powered flight from Spaceport America, which we anticipate will occur in the first quarter of 2021.

As always, safety will remain our central focus, and we will continue to progress with a step-by-step diligent approach throughout the test flight program as we prepare for commercial service. As such, our schedule may adjust as we process data from each of our test flights.

Before we close the call, I'd like to recognize and congratulate George on successfully bringing us to this inflection point in Virgin Galactic's journey towards commercialization of human space flight.

I'm incredibly excited to work with George and the team as we develop our advanced technology efforts, including our participation in the commercialization of orbital space flight and our work in high-speed travel. Thank you, everyone, for joining today's call. We appreciate your interest and support.

We look forward to sharing more with you on future earnings calls..

That concludes today's conference call. You may now disconnect..

End of Q&A:.