Good afternoon. My name is Bethany and I will be your conference operator today. At this time, I would like to welcome everyone to the Virgin Galactic’s Fourth quarter and Full Year 2021 Earnings Conference Call. Hosting today’s conference call will be Liz Calvillo of Investor Relations. As a reminder, today’s call is being recorded.

I would now like to turn the conference call over to Ms. Calvillo. Please go ahead..

Thank you and good afternoon, everyone. Welcome to Virgin Galactic’s fourth quarter and full year 2021 earnings conference call. On the call with me today are Michael Colglazier, Chief Executive Officer and Doug Ahrens, Chief Financial Officer. Following prepared remarks from Michael and Doug, we will open the call for questions.

Our press release was issued about an hour ago and is available on our Investor Relations website as well as the slide presentation that will accompany today’s remarks. Let me refer you to Slide 2 of the presentation, which contains 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 filings with the Securities and Exchange Commission filed by Virgin Galactic from time to time.

Readers are cautioned not to put any undue reliance on forward-looking statements and the company specifically disclaims any obligation to update the forward-looking statements that maybe discussed during this call. Please also note that we will refer to certain non-GAAP financial information on today’s call.

You can find reconciliations of the non-GAAP financial measures for the most comparable GAAP measures in our earnings press release. With that, I would now like to turn the call over to Michael..

modifications to the center wing and launch pylon, replacing the horizontal stabilizers or h-stabs located back of the vehicle, and completing upgrades to our avionics and mechanical systems as well as strengthening various areas across the ship to reduce the volume of regular inspections.

All of these modifications are designed to increase flight cadence as well as overall service life. These three work streams on Eve are complex and interdependent, and I am pleased to share that all three are progressing towards completion in the third quarter. The work we are doing on VSS Unity is also progressing well.

The ship is expected to be completed in the third quarter. Unity’s enhancements are designed to reduce maintenance needs by reinforcing and upgrading various joints and components located throughout the ship. As with Eve, a result of these efforts will be improved flight frequency, increased time between maintenance periods and longer service life.

Subject to testing and verification, we expect a monthly turnaround time for Unity. As a reminder, we anticipate that VSS Unity will begin flying revenue-generating flights in the fourth quarter later this year. We remain on track to begin Imagine’s commercial service in the first half of 2023.

Flight testing is targeted to commence later this year, beginning with a captive carry flight. We will then move to glide flights and finally, rocket-powered flights.

We anticipate Imagine will begin conducting revenue-generating space plants in the first quarter of 2023, beginning with flying research payloads and then progressing to private astronaut flights alongside VSS Unity later in the year. We expect to see Unity flying monthly following its commercial launch.

And we expect Imagine to fly twice per month once it finishes its flight test program. We are very excited at the prospect of delivering this level of capacity from our current ships. We are operating more efficiently even as we absorb the continuing impacts of the pandemic and related labor disruptions.

We implemented a COVID vaccine policy in Q4 of ‘21 that required all employees to be fully vaccinated or have a legally entitled exemption. We are pleased that 94% of our workforce at the time complied with our policy and all new hires are also required to be in compliance.

This has helped the company minimize the impacts of the virus although we have experienced elevated SIC rates as a result of the Omicron variant. As an added step to mitigate disruptions from near-term labor shortages, we shifted certain non-critical work for the fourth quarter of ‘21 into 2022.

However, we do not expect these changes to impact the completion of our enhancement program or the launch of commercial service later this year. To-date, we have not encountered any critical supply chain issues, but we are monitoring this carefully as we recognize that supply chains worldwide are under pressure.

We are proactively planning ahead, assessing supplier health and ordering parts and materials further in advance to help mitigate potential raw material and labor availability issues. I’d like to extend a huge thanks to all of our teammates who have been working incredibly hard under pandemic-related protocols to deliver such great progress.

Turning to Slide 7, I am very pleased to share that Blair Rich has joined Virgin Galactic as our new President and Chief Business Officer for commercial and consumer operations.

In this newly created role, Blair will lead all aspects of our commercial strategy, including sales, marketing, business and product development, communications, operations and customer experience.

Blair brings a unique consumer-centric perspective to our company, with an incredible blend of business, digital and creative experience that she honed working with some of the most iconic brands in the entertainment industry.

For the past year, she has served as a consultant and strategic adviser to Virgin Galactic, including guiding the marketing for the Unity 22 flight, which would lead by tens of millions of people around the world.

Blair will continue to play a critically important role in shaping our commercial strategy and enhancing our customer experience ahead of our commercial launch. With Blair’s appointment, this rounds out our senior leadership team and ensures that we have deep expertise across all of our key areas.

Turning to Slide 8, last week, we launched our consumer brand and opened a limited number of space flight tickets to the general public and we plan to have our first 1,000 customers signed up in advance of the launch of our commercial operations later this year.

Given the robust response from our space fares and early hand raisers, we have approximately 250 seats remaining and demand through our direct sales channel is strong. As a reminder, we hold a $150,000 deposit against the total cost of $450,000, $25,000 of which is a non-refundable membership fee.

Following the closure of our first 1,000 astronaut window, we will build a highly qualified reservation pipeline of future customers through a priority list, with a $10,000 deposit required to join.

We expect to leverage earned and digital media as well as word of mouth referrals from our ongoing flights to continuously supply the top of the funnel with new prospects, which we can then efficiently filter using our CRM tools and sales processes. Turning to Slide 9 and our future astronaut membership.

Membership is included with ticket purchase, which adds additional appeal for customers and highlights our unique experience and service, extinguishing Virgin Galactic’s offering in the industry.

Future astronaut community members enjoy access to money can’t buy experiences, events, trips and activities around the world all delivered with trademark Virgin style. We provide opportunities to connect directly with the Virgin Galactic team, offering members a deeper knowledge of our aerospace, flight and engineering programs.

Customers also gain exclusive access to Spaceport America, enjoy parabolic flights, centrifuge training and VIP attendance at launches to name just a few of the benefits.

This will include memorable opportunities, like the inaugural space for the curious summit that we will be hosting later this year of multi-day destination experience as both intellectually engaging and entertaining. Activists have taken members to locations, including Antarctica and Idaho to view the Solar Eclipse and the world renowned.

This membership program builds engagement for the minute of purchase through the space flight. And we expect the high affinity that comes from these members to translate into repeat visitation, numerous referrals and extensive lifetime customer value. Turning to Slide 10 and the manufacturing strategy for our future fleet.

While 3 human space flights per month from our current ships is an impressive task, we seek to open space to a much larger audience and this requires a larger fleet capable of flying at much higher flight rates.

In the past several months, we have spent a significant amount of time redesigning our manufacturing approach, and I’d like to outline how this will enable us to scale our operations and maximize efficiencies. Our current ships, Unity, Imagine and Eve, have primarily been delivered in a fully in-house design, manufacturing and assembly lab.

This approach has been critical during our flight test space, although it is a relatively slow and expensive process. As we step forward into higher rate commercial service, we will be augmenting our capabilities with strategically selected Tier 1 suppliers to deliver major subassemblies in a cost and time-efficient manner.

This is particularly important for our Delta class spaceship and next-generation mothership programs. Our approach takes advantage of the nationwide aerospace ecosystem to tap into talented preexisting pools of labor and optimize timing of capital expenditures.

It also focuses our in-house expertise on design and engineering, final assembly and fabrication of complex and critical parts that are all important elements of our intellectual property.

Overall, we expect that this will provide us with a cost effective and highly efficient manufacturing model for building out our Delta fleet and future motherships.

As I mentioned on our last earnings call, we have established a new engineering design and corporate headquarters based on the strong aerospace corridor that runs from El Segundo to San Diego. This serves as our primary hub for R&D and the design of our new vehicles.

We are currently focused on evolving the designs of our spaceship and mothership to enable greater flight teams as well as to support third-party supply of major subassemblies. It’s an excellent location for innovation and collaboration and we continue to ramp up engineering and support team talent to this location.

We are also progressing designs and choice of locations for a new final assembly facility for our spaceships. We expect this final assembly facility to be operational in late 2023 and it will eventually employ hundreds of technicians and engineers with production capability of up to 6 spaceships a year.

Similar to our approach with the Delta class spaceships, where we focus on the upfront design and engineering as well as final assembly, we are in the late stages of negotiation with preferred suppliers to manufacture the next generation of our motherships.

We believe that leveraging strategic partners to build these major subassemblies will allow us to increase our speed to market and realize meaningful efficiencies without sacrificing quality or performance. Turning to Slide 11, I will now turn the call over to Doug for an update on our financials..

Thanks, Michael and good afternoon, everyone. Before I review the financial results for the quarter and full year, I’d like to begin with a few comments on our broader financial strategy and economic model. We are making good progress in preparing our fleet and laying the groundwork for more efficient operations going forward.

To help fund these initiatives, we raised $425 million through a convertible debt offering last month. We timed this capital raise to take advantage of the low interest rate environment ahead of expected rate increases. Furthermore, we entered a separate capped call transaction to effectively establish a 100% conversion premium.

In other words, we have hedged our equity dilution risk up to a share price of $20.06. As of the end of January, we had approximately $1.3 billion of available liquidity, which represents the balance as of the end of the fourth quarter adjusted for the net proceeds from the capital raise.

We are well-positioned to the investments we are making to drive the growth in the business. We continue to see significant demand for our space flight services. Our key objectives are to cost-effectively expand our fleet and set ourselves up for long-run profitability.

We will target investments in key areas to maximize shareholder value, while also preserving capital along the way. We plan to invest upfront in our nonrecurring engineering to optimize our design of the Delta Class ships for efficient manufacturing. This is a major leap forward for our manufacturing capability.

Following our NRE investments, we expect that the subsequent ships will be produced in a repeatable, scalable fashion that drives a significant reduction in cost per vehicle relative to our current ships.

What this means is that as our final assembly facility ramps up operations, we anticipate it will be capable of cost effectively producing up to 6 spaceships per year. We expect this will enable a rapid increase a flight capacity that will fully utilized Spaceport America and allow for fast expansion through additional spaceports.

Our manufacturing strategy is also geared to leverage the well-established supply chain in the aerospace industry. As Michael mentioned, we plan to internally retain and build upon our IP and design and engineering, while also trying upon Tier 1 suppliers to provide major subassemblies.

Virgin Galactic in turn will focus on final assembly and integration. This manufacturing approach streamlines our fleet ramp up by allowing us to rely on the best practices of existing supplier networks behind our direct suppliers. It will also reduce the total capital expenditure for infrastructure required to scale our fleet.

Where possible, we plan to preserve our cash in the near-term by deferring cash outflows to better match inflows.

Examples of this include leasing versus building or buying, leveraging development incentives where accretive to our business model, and selective use of high-quality partners in the aerospace ecosystem to leverage pre-existing workforce talent, infrastructure and supply relationships.

Turning to Slide 12, unlocking the economic potential of commercial space flight requires maximizing vehicle flight rate. As a reminder, following the completion of the current enhancement period, we expect to be able to fly our Unity spaceship on monthly intervals and our Imagine spaceship on 2-week intervals.

We plan to supercharge our flight rates with the introduction of Delta Class ships, which we expect to be able to fly on 1-week intervals. With support from the planning and design efforts that have been completed over the past few months, we are now able to provide more visibility into the economic model we are targeting.

While we are not providing multiyear guidance, we want to share additional insights about our objectives as we scale the business. Based on our current schedules, we anticipate our Delta Class ships could be ready to conduct revenue payload flights in late 2025 and progressed into private astronauts flight in 2026.

We are also planning to have next-generation motherships available to pair with the Delta Class spaceship as we scale the fleet.

Our factory expansion plans are targeting production levels of up to six new spaceships per year, taking into account the expected weekly flight cadence for the Delta class ships and the resulting growth in revenue from the expanding fleet, we are aiming for positive free cash flow by 2026.

We have a range of options with a level of investment which is to pursue given the strong demand we are seeing for spaceflights. Combined with the prior investments in NRE, factory capacity and other infrastructure, we foresee very favorable economics with the addition of each incremental spaceship to our fleet.

Therefore, we expect to lean into the growth trajectory and continue with the expansion of our fleet as a potential addition of multiple spaceports. Our projected operating model reflects a low variable cost structure for individual flights.

Our primary variable costs include operating expenses, such as a rocket motor and other fuels as well as lodging and training for the astronauts. Furthermore, we expect to realize economies of scale as we add multiple ships to our fleet, because we anticipate that we will be able to spread our fixed cost over more ships and flights.

Examples of our fixed costs are fleet maintenance, the flight crew and rent. With the planned addition of Delta Class ships to our fleet and the anticipated increase in utilization of the spaceport, adjusted EBITDA margins could be above 30%. Turning to Slides 13 and 14, I will now review our results for the fourth quarter and the full year.

Free cash flow was negative $67 million compared to negative $74 million in the prior year period. This cash outflow was less than our previously shared guidance for the fourth quarter.

The lowest spend was primarily attributable to labor efficiencies achieved during the quarter and by the ships in certain non-critical path work from the fourth quarter to 2022, both of which resulted in lower spending than previously forecast.

As Michael noted, this shift to work and the associated spend is not expected to impact our timing to complete our enhancement program for the launch of commercial service later this year. The shift of work reflects enhanced planning, foresight and contingency efforts from our team to ensure that we remain on track to deliver on time.

Looking at the income statement, we generated revenue of $140,000 in the quarter, primarily driven by astronaut membership fees associated with new ticket sales. GAAP operating expenses for the fourth quarter totaled $81 million compared to $74 million in the prior year equivalent period.

The increase in expenses was primarily due to higher employee costs and non-cash stock-based compensation expenses as well as the opening of ticket sales. These increases were partially offset by a decrease in contract labor and material costs associated with the development of our space flight system.

Total non-GAAP operating expenses were $65 million, compared to $60 million in the prior year period. GAAP net loss for the fourth quarter was $81 million compared to a loss of $104 million in the fourth quarter of 2020.

The reduction in net loss was attributable to there no longer being any outstanding warrants as well as an increase in stock-based compensation expense. Adjusted EBITDA was negative $65 million compared to negative $60 million in the prior year period.

Moving on to our financial results for the full year 2021, we generated total annual revenue of $3.3 million. We received revenue from sponsorship and payload services associated with two space flights conducted during the year as well as revenue earned from completion of certain technical milestones related to the Italian space flight agreement.

As previously mentioned, we also received revenue for astronaut membership fees associated with new ticket sales. Net loss for fiscal year 2021 was $353 million compared to $645 million net loss in fiscal year 2020. Adjusted EBITDA totaled negative $245 million fiscal year 2021 compared to negative $232 million for fiscal year 2020.

Our balance sheet remains an area of strength for us. As of December 31, 2021, we had cash, cash equivalents and marketable securities of approximately $931 million, which does not reflect our capital raise in January of this year.

Looking ahead and a point to note about how we will be presenting some of our financial information going forward, beginning with the first quarter of 2022, we will no longer be providing gross margin on our GAAP income statement. Ultimately, the nature of our company is that of a service provider rather than that of the manufacturer.

While we do manufacture our vehicles unlike the other aerospace companies, we do not offer our vehicles for sale as standalone products. Rather, we use the vehicles we produced to operate our spaceflight and as such, our revenue is derived from spaceflight services.

Within GAAP guidance, in 2022, we are adopting the format of an income statement continue to that of major airlines, hospitality and service companies. As I said earlier, given our differentiation as the first commercial spaceflight, our margin profile is expected to be much higher than typically seen in other industries.

As for our guidance outstanding for the first quarter, we are completing the enhancement period on multiple vehicles concurrently, while ramping the development work for our future fleet. We forecast free cash flow for the first quarter of 2022 to be in the range of negative $75 million to $85 million.

We are confident that this work will provide real benefits to our flight rate and service flight over the long-term, while also optimizing for shareholder returns as we expand the fleet. I’d like to now hand the call back to Michael..

Thanks, Doug. Turning to Slide 15, I am very pleased with the progress we made during the fourth quarter and the full fiscal year 2021. 2022 is an important year for all of us at Virgin Galactic. Thanks to the dedication of our team.

We are on track and on schedule to launch commercial service in fourth quarter and we expect to be flying 3x a month when Imagine joins Unity and passenger service admin ‘23. We are well on our way to signing up our first 1,000 astronauts before we launch commercial service and we are scaling our business in an efficient and methodical way.

Coming months will continue to be very busy for us and I am looking forward to sharing future updates on our progress. So with that, we will turn to questions, operator, we are ready to begin the Q&A portion of the call..

Thank you. The first question is from the line of Oliver Chen with Cowen. Please proceed..

Hi, Michael and Doug. Congrats on the opening sales. Michael, I would love your thoughts on the nature of demand that you’ve been seeing since you opened the sales and how it informs your view of pricing as well as thinking more broadly about friends and family and all the opportunities you may have ahead.

Also, Michael, on the commercial and consumer operations, I know you have new talent in that division. What are your thoughts about key priorities there and how they might work in conjunction with what you’re doing in terms of the Delta Class and the scaling efforts you’re making? Thanks a lot..

Thanks, Oliver. So the nature of the demand, as we talked on the last quarter, we had a group of folks who are kind of raised their hand earlier. We called them the space bearers. And there are around 1,000 people with a de minimis deposits that they have put down.

And we had around 300 of those – I’m sorry, around 100 of those people, 100 of those 1,000 joined. That brought us up to about 700 people. And what we just announced this past week that we could just pass is we’ve now opened up sales of our first – the remaining available slots within our first 1,000 future astronauts to the general public.

And that’s the first time that we’ve been really open up to the general public, leveraging digital channels to do so. We picked up plus or minus around 50 additional reservations before we open it up to the general public. Some of they carried in from the base fares, some from some early hand-raisers. And so you asked kind of the nature of the demand.

First, I’d say the way we’re processing our demand is by sharing what we do. The biggest thing was on that Unity ‘22 flight. That brings a lot of people into kind of our systems and allows us to engage in a conversation. It’s a pretty wide group of audience. Some of them are going to be brand fans, some of them will be people aspiring to the future.

But many of them are wanting to fly now. And we use a series of customer journey communications to bring them into a group that really has a high probability of wanting to fly right away. And then we use a one-on-one sales call around that.

We have seen the majority of the seats were still seen as individual flyers, but we have seen sales across all the products we offer. So individual flyers, couples, either friends or family together as well as just a full ship purchase. And also, of course, we continue to focus on sales in our research piece. So it’s a good mix across the product mix.

And the other thing I’d say in the nature of the demand is these are people who pretty uniformly aren’t looking at this as just kind of a quick transactional purchase. This is a life moment for them. And that’s why we put so much effort into our kind of membership community. And you mentioned maybe shifting.

Blair Rich joined as our President and Chief Business Officer for our Commercial and Consumer operations group. At the time when we are flying, part of that group’s responsibilities will be actually handling of all the future astronaut friends and family, managing the astronaut campus where people come.

But upfront, not only is this group managing the sales, but then immediately bringing people into this future astronaut community and engaging them. And the consistent thing that we have found in these early calls, are people recognizing the value of that. This is going to be something that is for their lives. They want to prepare thoughtfully for it.

And that’s also helped us kind of onboard people and quickly get them excited about the time period ahead, their flight and time out there..

Okay. And a follow-up, Doug, the guidance is very helpful. And cash flow of negative $75 million to $85 million in Q1 as we think about on your leveraging of strategically leveraging suppliers. How might the cash burn evolve in terms of that happening over time, any puts and takes or thoughts longer term? Thank you..

Thanks, Oliver. So we guided for one quarter and we didn’t guide beyond that, but I can tell you directionally that as you look at the work streams that will be coming in, where we are going through the NRE phase, the design, lining up the supply chain and the factory and so on.

We would expect to see some increases in our spending as we build out the fleet essentially. And the focus there, of course, is the fleet expansion because that’s where we’re going to get the great returns in the business. So that’s our primary focus for the investment. We are leveraging the supply chain, as you reiterated there.

And what that allows us to do is tap into their best practices, their processes, their suppliers behind them and also minimize our capital investment. So we pay them for the delivery of subassemblies rather than having to invest in the whole factory to do all the parts fabrication ourselves.

So that’s the type of efficiency we can get by tapping into that supply chain, which helps our overall capital investment in a favorable way..

Thank you. Best regards..

Thanks Oliver..

Thank you, Mr. Chen. The next question comes from the line of Kristine Liwag with Morgan Stanley. You may proceed..

Hey. Good afternoon guys. Michael, Doug, following up on Oliver’s question there on the free cash flow burn once you start investing in Delta.

Can you provide a little bit more color on that? How much will it cost? And then also, can you provide more color regarding the maturity of the design for Delta and your negotiations with these Tier 1 suppliers, are they fixed, or is this still currently in the works?.

Sure, Kristine. Thanks for the question. This is Doug. And I will take the first one and then hand over to Michael. So regarding the cost, we are at a stage now with Delta where we are narrowing the list of suppliers for the sub-assemblies.

We are working through that, and we are going through the process here in terms of defining that and basically entering the early stages of that process and negotiation process. So at this stage, it’s a little premature to be disclosing the cost per vehicle. So, I think you can understand our position, where we are at in that life cycle.

So, it wouldn’t be in our best interest to put all of that out there. But that’s something we will be able to share more on in the future as we narrow down the specifics with the supply chain.

But Michael, maybe you would like to talk about the progression on the Delta?.

Sure. Just we have few main parts of our program that we need to scale the fleet. First is with our motherships that takes us through the first stage and then the Delta spaceship class itself. The motherships are quite advanced in the discussions that we have had. We don’t have something to share today specifically by taking that hardest to future.

We will be coming back there and that’s been I think a good set of conversation that reinforces a strategy.

There are really quality people out there in the aerospace ecosystem that we can create value for them, while also keeping the right things that we do ourselves namely the design, everything set to put out major sub-assemblies and then we will do the kind of final assembly test, quality safety piece.

So, the mothership I think is quite advanced in that dialogue there. The Delta Class ships, we have been putting our investments and time. We have moved through the basic trade spaces. But we are now kind of getting into really we find requirements ahead of issuing the RFIs and RFPs. So, we have narrowed our list of potential suppliers into a pool.

We are well on the way to pick a location for where we will do our final assembly. So, we are not quite ready to announce that yet, but we have made great progress there. And as you heard from Doug, we have been able to share some context on that. It’s not appropriate to get multi-year guidance.

We do want to share context on our internal planning horizon, so it would be perhaps inside into our own goals and objectives that we are sharing with our teams..

And Kristine I can add a little more to about the costs, the way I think about costs. The approach we are taking here is we are investing in the NRE and the digital tools, and you will often hear about this digital twin approach, which the leading aerospace companies will take.

And what this allows us to do with this more advanced modeling and digital tools is we have more predictable parts fabrication to tolerances and then the easier manufacturing comes from that.

So, that allows us to again invest in that design which leads to a cost-effective and repeatable manufacturing approach where we can create copies of this vehicle at a much lower cost than what we have been able to do before.

So, the advancement in these tools and modeling capability is really going to help with that cost structure in the future versus how it used to be..

Great. Thank you for all the color guys. And if I could do one follow-up, I mean you talked about the return to service of Unity and Imagine and you are building the Delta class.

So, does this mean that Inspire is completely off the table, and it’s not going to be built at this point?.

Yes. It’s – we are keeping it right where we were before, it’s a good option value for us. We have the ability to finish it and complete it if we so choose. It also has potential use as part of the process to really go through and create a true production model vehicle. So, it has potential use in kind of a copper bird scenarios.

We are working through our avionics. But it’s also one that we can come back to. So right now, our focus, as you can tell, is really accelerating our work on the Delta class vehicle itself. So, we haven’t made the final choice on Inspire and just start keeping it kind of in our optionality base there. But our focus is clearly on pushing to the Deltas..

Great. Thank you very much..

Thanks Kristine..

Thank you, Ms. Liwag. The next question comes from the line of Myles Walton with UBS. Please go ahead..

Thanks. Good afternoon. Thanks for the color on the fleet buildup.

I was curious, as it relates to the 2026 positive cash flow, is the assumptions that you are at that stage, still running CapEx pretty aggressively at the six per year build rate for the spaceships and then maybe one of the motherships? And so you are positive cash flow with that level of CapEx, or is the idea that you are through the CapEx at that point? Thanks..

Sure, I will take that. Good question, Michael – Myles. So, we actually have a range of options of how much to lean into that growth. But the scenario is all kind of pointing the same general outcome, which is cash flow positive. The scenario we end up with here for the company in 2026, regardless of that number of ships.

So, we can get there with a more moderate number of ships of where we can continue to invest and we still crossover because of the rapid increase in the revenue and the profits that come from that, which starts to far outweigh the ongoing investment.

With that said, what we see is at that stage in our life cycle, because we have invested in all this NRE and the factory capacity in the spaceport, and everything, there are real benefits to continuing to invest and leaning into that growth trajectory, because the incremental profits from each added vehicles are really very attractive.

So the further we go, the further it moves us on that profit curve. So, are likely cases to continue to lean into that and invest in additional fleet expansion..

Thanks and I would add to this one. We will also we will be looking to the next spaceport, too. So, just continuing that trajectory we will have it I saw it coming. So, we would have the factory capacity ready to keep producing spaceships, we would like to leverage that.

And that would be kind of after we populate the first spaceport, we would be looking to continue those efficiencies and then populate the second spaceport and get the economies of scale in that second spaceport..

Okay. And I think you answered that one.

So, the only other one I had was for the first 1,000 space fairs, are you through the entire lot by the end of 2026 at this point, based on your plan?.

No, I am sorry I am probably just putting me I am looking at Doug. I believe we will – we have probably given you enough data out there to track those. So, we do expect our current fleet will be flying three times a month as we get going in having Imagine come in first half of ‘23.

So, that gives you kind of a sense of growth until we get our first Delta out. We think the first Delta – again, we are trying to have a balance here, it’s not appropriate to give guidance in multi-year phases given spaceflight program. But we also want to share some of our internal plans and objectives, right.

And so we are building our own kind of build out and project plan to see the first Delta coming out with research flights, revenue driving research flights at the end of ‘25, moving into private astronauts in ‘26. So, you can start to do some of that math on where the numbers will play.

I would just flag that as you start to then bring in Deltas on a much more accelerated ramp up. And again, with a weekly flight cadence and six seats, we will very quickly start to hit bigger numbers there. So, anything that’s not, I would say, quite taken up by that ‘26 period would be done very quickly thereafter..

Okay. Thanks again..

You’re welcome..

Thank you, Mr. Walton. Our next question comes from the line of Greg Konrad with Jefferies. Please go ahead..

Hi. Good evening. Can you just maybe talk about the 6-year production for Delta? You talked about that as a peak.

What’s the timing of making that decision? And what kind of drives peak rate? And how do maybe the economics of the spaceship change at 6 a year versus maybe at lower rates?.

So we – just to make sure I heard the question correctly, you are talking about the number of ships per year that we would use in our final assembly?.

Right. Exactly..

So, we definitely want to have kind of our supply chain and our final assembly plan able to handle that cadence. And the reason is as Doug mentioned when we have invested the NRE plant from what our plan show, we are going to have very attractive way economics on a per vehicle basis.

So, scaling that is really strong in the economics to support that approach. So, up to six is an interesting balance. It allows us to take the first year, 1.5 years of that and kind of finish out our top of Spaceport America from a fleet standpoint. And then that allows us to get to then a second spaceport.

And you have got now at the fast end probably 1.5 years, 2 years to help that run out and you can go out to the next in the spaceport. At some point you would start to come back around again to continue to update the fleets over time.

And so where we had six, they are really easy break points of you can run at four if we would prefer or six just from a ship team standpoint there and still take great kind of leverage of the tooling we have put in place and the launch we have put in place.

So, it gives us the ability to pace a little bit with our demand, but as we have continued to say so far we feel demand is going to out strip supply for quite a while. So, we don’t need to overdo it. I think that gives us the solid pace.

We definitely believe that the people will fly with us upfront who want to fly another locations and have word of mouth that will drive that. But we also think it’s important to get other locations in the world. I just think that will bring in both heavier localized markets as well.

But also variety and I just think we are going to build a great life time value with our existing customers who want to go and have different places they can see the world from space. So, there is good flexibility and I think allows us to kind of pace that as we see demand and as we choose to invest in the speed of growth..

And then this might be pushing it a little bit too much, but I mean, I appreciate the long-term business model. I mean I think you talked about 30% EBITDA margins, free cash flow positive in 2026.

I mean as you ramp, is there any way to think about conversion relative to EBITDA and maybe some of the offsets, whether it’s working capital or CapEx and how we kind of think about EBITDA converting to free cash flow as you kind of get scale?.

I am trying to make sure I understand your question. When you talk about converting.

Can you just – can you repeat the question?.

Just EBITDA converts at 50% free cash flow or 100% EBITDA to free cash flow conversion. Just trying to think about bridging EBITDA conversion, the 30% margin to maybe what the free cash flow potential is..

Yes. I think that question is related to the pace of growth, right. As we continue to move quickly into additional spaceports, obviously, we would use some of that free cash flow into the fleet itself to the degree we choose to go a little slower in there, then you are going to see more flowing through and truly being free.

So, I think it is – as we have said, it’s premature to guide. We are not trying to guide here. We are trying to give some awareness into our own internal planning. So probably, as you said, probably too much of a stretch at this moment. But I do think, as Doug said, we see really strong returns as we come out.

We have made the investments in the non-recurring engineering. The demand remains strong. It will be a good kind of financial return, which is really where we look at, how do we deploy our capital, what does that look like from a shareholder return basis. That feels like we will want to lean into that.

So, I think we will be trying to do so in a self-managed way by that point, but I think there is a lot of opportunity and upside for us as we do..

I may add regarding the timing of the EBITDA. So, when I was referring to EBITDA potentially being over 30%, that’s as we start to get utilization, good utilization of this spaceport. So, as you think about multiple Delta class spaceships, populating Spaceport America, starting to get some good utilization going.

It doesn’t have to be fully utilized, but well utilized. You start to get that kind of scale going. That’s when you get those – the free cash flow being positive and the EBITDA approaching those percentages I talked about..

Thank you..

Thank you, Mr. Konrad. There are no additional questions waiting at this time. That concludes the Virgin Galactic’s fourth quarter and full year 2021 earnings conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines..