Closing Bell - Manifest Space: Virgin Galactic CEO Michael Colglazier 6/29/23

Episode Date: June 29, 2023

After a series of development spaceflights, all eyes are on Virgin Galactic's first flight of paying customers. The company will send three Italian crew members on a suborbital ride to the edge of space. In an exclusive interview, CEO Michael Colglazier discusses the milestone with Morgan from New Mexico.

Divergent Galactic launching commercial service today. This was a big, long-awaited milestone after a string of delays for Richard Branson's 19-year-old company. Galactic One, that's what this mission was called, it was a 72-minute trip with a Unity space plane launching from the air, traveling to an altitude of 53 miles, so just past the U.S.-defined start of space. The crew, which included three paying customers for the Italian Air Force, conducting experiments and research during their few minutes of weightlessness before Unity glided back and landed smoothly on the runway. Now, I spoke with astronaut Colonel Walter Villaday, who is also slated to travel to the International Space Station with Axiom. Take a listen.

In this case, I was trained to look at experiments and to follow some procedures. So it was a kind of in a nutshell, a kind of compressed space flight mission. And let me say that this kind of approach that both the commercial space flight Axiom and Virgin are bringing in this new commercial space flight sector is amazing.

It's a great opportunity for all of us. This really speaks to this new era of commercial space and what it's enabling not only for so-called tourists, but also for governments and researchers, too. Now, for Virgin Galactic, pending inspections and reviews, the plan now, monthly space flights. Still, the stock did fall double digits today, down almost 11 percent on the day post spaceflight. KeyBank writing, quote, we believe investors could view the successful flight as a sell the news event, as a full ramp of its commercial operations via its next generation Delta class fleet, which is under development, still remains years away. Now, Virgin Galactic also recently announced

plans to raise more capital by selling shares. But we're going to discuss all of that and so much more. Joining me now is CEO Michael Colglaser. And of course, we are in front of VSS Unity, which is the spaceship that went to the edge of space today. Major, major milestone. What comes next? Next thing we're going to do, Morgan, is do it again. So today was an incredible flight for us. Obviously, the first commercial flight, that's a big deal for the company. But more importantly, the dream is now kind of coming into play.

And to be able to take customers and see the reaction of our customers changes the entire attitude of the company. We've done the hard work, now we're going to move into service delivery. And so as we get repetition, as we fly our Galactic 2 flight in August, as we start on monthly cadence after that, I think we're going to demonstrate to the world just how powerful the experience in this company is. You do have this backlog of about 800 people. How are you going to decide who flies when? And I ask that in part because we're talking about ticket prices that span from $200,000 to $450,000 and up. Sure. And we also have research customers, like you saw with the Italians today. And those seats generally start at about $600,000 on a seat equivalent basis. So we carry two manifests. We carry a separate manifest for

research clients like the Italians today. And in parallel, we run a manifest with our future astronauts, as we call them, private astronauts. And those folks are generally going to go in order, right, kind of a FIFO order, and we'll bring them through. So you'll see the people who signed up quite some time ago as our early flyers. And then we'll be flying this spaceship, Unity, on a monthly basis, which is amazing for human space flight and commercial space. It's pretty small economically. And when we then bring our Delta ships,

the production model that we're working on, into service, which we expect to be in 2026, that's when you'll see the volume really take off. So we're gonna see a ramp in revenue then, as you do see these monthly flights. But to your point, Delta class coming online 2026. Many analysts say this is the moment when you start to see a path to profitability. How many flights is it going to take for that to happen?

The Delta ships on a variable basis are incredibly profitable, right? As you would expect in a fixed cost, capital intensive industry. Once you're through with the prototypes and building now production models, you can deliver this service on that and variable basis. And it's so powerful, because while we expect them to cost 50 to $60 million on a variable basis, once we've invested the NRE and the tooling efforts,

we can fly them, we expect 500 times or so. And so they'll be very profitable to fly. How quickly we expand the fleet then determines how much of our profits we're injecting into growing and scaling the business versus dropping through to the bottom line. And we'll make those calls as we get closer in. And now you're selling more shares to raise more capital. In focus for the market, another $400 million currently, I think, being sold or underway. Is this going to be enough cash to bring Delta online? So we always are going to keep strength in our balance sheet.

I think it's been something that's been very important for Virgin Galactic, these early commercial space companies there, and obviously as what has been a pre-revenue company and for the next few years a fairly modest revenue company, it's incredibly important to keep strength in our balance sheet. So yes, we put a $400 million ATM structure out there now. That gives us a lot of runway. We have choice as we scale the business as kind of all starting firms that are capital intensive do. How much do we invest and what pace do we invest in the

scaling of the fleet? Now, we want to scale it. That's where we're going to drive the greatest return for our shareholders and we believe the capital markets will be available at whatever need we have for that. But if we find the capital markets are tight we can always bring back the pace at the fleet scaling and manage our balance sheet that way. How big is the total addressable market for these private space flights? I think it's going to be very large. I think it's going to be a capacity-constrained market for quite some time. And obviously the size of the market is somewhat... Why do you think that? Does a recession change that?

No. Because the experience is just so shockingly, powerfully important and meaningful to the people who go. And so I've seen this through and had extensive conversations with our own team that we brought up. Talked to Colonel Villeday today from a researcher, a government astronaut in training, how meaningful this experience is. And so the price, which is expensive, but I want to talk about it relatively, is high, but the value is so strong. I think that's where the market comes from because the experience is so worth it. And it is an expensive piece. $450,000 is our entry price point. Now,

relatively, that's about two orders of magnitude less than the price of somebody who wants to go to the space station. Now, that's a very different experience, but that's very unattainable. And as we scale our fleet, as we put the fixed cost in, as we now get low variable cost ships, and we start to be able to bring our cost structure down, I think the market expands far faster than our capacity will be able to keep up. And so that really becomes the objective of the company is to scale this fleet. Commercial human spaceflight, private space tourism, it's been thrust into the spotlight for better or worse, right or wrong, in the midst of this tragic incident that we saw with the submersible that was diving to the

Titanic last week. Talk to me about safety and whether you've seen any kind of impact to demand or questions raised about safety from your own customer base in the wake of that. First, Morgan, like from people all around the world, our hearts are going out to the family and to the friends of the crew that was lost. It was an incredibly tragic incident that we all were horrified to watch unfold. Second, comparing that to the commercial space industry is just simply an apples to oranges comparison. Virgin Galactic ships are built, they're designed, they're maintained in a way that leverages decades of experience in the aerospace industry. We are regulated by the FAA. We've had an operator's license from the FAA since 2016. We've had the ability to fly commercial paying passengers since 2021 on that FAA approved license.

I think most importantly, we've been sharing our data with the FAA through this entire company's history. The FAA sits with us in mission control at every flight. They were here at our flight today. And so they're embedded in with us and able to be growing as we grow our company, as we grow this industry. And while humans going to space with commercial companies

is relatively new, the bedrock foundation of safety that this entire company is built around is not new. All of our industry, especially Virgin Galactic, is going to build this and fly when we're safe. And we do the data analysis. We do the hard engineering work. We maintain it the right way. And we don't fly until we're ready. We're ready today.

And that's why we launched our commercial service. Where is Richard Branson? This has been his baby. He's still the largest stakeholder. How actively involved is he in this company now? It's incredibly awesome to have a founding story and a founder that's as authentic and just passionate and fun as Richard is

and his joy of this company. Now, the Virgin Group remains our largest shareholder. They're very active. Richard and I are kind of, you know, what's happening today and talking about what's going on at the flight. But we're a public company. We have an independent board of directors. We're setting great strategy. And as you'd expect, we keep our largest shareholder group highly involved. But Richard's passion for this company is going to continue. And our passion for Virgin and trying to be a pinnacle of the Virgin experience is something that's very important to every team member at Virgin

Galactic. And he's certainly been very active on social media, even though he is not here in person, I suppose, in here in spirit. Presence is always here. That's right. Michael Colglazier, thank you so much for joining me exclusively post-flight on this major day for Virgin Galactic and for commercial human spaceflight and human spaceflight in general as we do enter this new era where it becomes more

accessible. And yes, we're talking about six-figure price tags, but more affordable as well versus what history has bared out. That does it for this episode of Manifest Space. Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.