Valuentum Retail Equity Research Visit us at www.valuentum.com Ratings as of 10-Sep-2021 Data as of 10-Sep-2021 Virgin Galactic SPCE FAIRLY VALUED Buying Index™ 3 Value Rating Economic Castle Estimated Fair Value Fair Value Range Investment StyleSector Industry Unattractive $30.00 $15.00 - $45.00 MID-CAP BLEND Next Generation Disruptive Innovation Richard Branson, founder of Virgin Galactic, recently flew up to space in one Investment Considerations of the company's test flights, a milestone for the firm and the nascent private DCF Valuation FAIRLY VALUED space industry. Relative Valuation NEUTRAL Stock Chart (weekly) ValueCreation™ POOR ValueRisk™ VERY HIGH 2,000,000,000 57.00 ValueTrend™ NEGATIVE 52.00 Cash Flow Generation WEAK 1,500,000,000 47.00 Financial Leverage LOW 42.00 37.00 Growth AGGRESSIVE 1,000,000,000 32.00 Technical Evaluation BEARISH 27.00 Relative Strength WEAK 500,000,000 22.00 Money Flow Index (MFI) NEUTRAL 17.00 Upside/Downside Volume (U/D) BEARISH 0 12.00 Near-term Technical Resistance, 10-wk MA 27.00 DCF = Discounted Cash Flow; MFI, U/D = Please see glossary. MA = Moving Average Business Quality ValueCreation™ The week with the highest trading volume out of the last 30 weeks was a week of heavy selling, or distribution (red bar). ValueRisk™ Very Poor Poor Good Excellent Company Vitals Investment Highlights Low Market Cap (USD) $5,561 • Virgin Galactic is an aerospace entity that is Avg Weekly Vol (30 wks) 122,932 pioneering space flight, not just for astronauts, but for Medium 30-week Range (USD) 14.27 - 57.51 everyday private individuals like you and me. Its space Valuentum Sector Next Generation vehicles will allow customers a multi-day flight to High 5-week Return -0.8% experience weightlessness and view the Earth from space. The Virgin brand is a key asset when it may 13-week Return -30.0% come to capital raising. Very High 1 30-week Return -48.4% Firms that generate economic profits with little operating variability score near the top right of the matrix. Dividend Yield % 0.0% • Our fair value estimate range is huge because Virgin Dividends per Share 0.00 Galactic is a risky stock with hard-to-predict future Relative Valuation Forward P/E PEG Price / FV Forward Dividend Payout Ratio 0.0%forecasts. Operating costs to fly into space may be Monster Beverage 36.3 2.7 95.4% Est. Normal Diluted EPS 0.32uneconomical, and one tragedy similar to the Roku 720.3 NMF 97.3% Challenger disaster could derail the entire business. P/E on Est. Normal Diluted EPS 79.0 Wayfair 60.1 7.5 86.7% Est. Normal EBITDA 177 Zoom Video 64.5 3.5 83.0% • According to the US Chamber of Commerce, as Forward EV/EBITDA -15.1noted in Virgin Galactic's regulatory filings, 'the Peer Median 62.3 3.5 91.0% EV/Est. Normal EBITDA 27.5 commercial space market is expected to grow 6% per Virgin Galactic -17.8 NMF 84.6% Forward Revenue Growth (5-yr) 573.0% year, from $385 billion in 2017 to at least $1.5 trillion Price / FV = Current Stock Price divided by Estimated Fair Value Forward EPS Growth (5-yr) -212.6% by 2040, reaching 5% of US gross domestic product Financial Summary ----- Actual ----- Projected NMF = Not Meaningful; Est. = Estimated; FY = Fiscal Year (SPCE 10-K). The company is investing heavily, but Fiscal Year End: Dec-19 Dec-20 Dec-21 barriers to success are enormous. Returns Summary 3-year Historical Average Revenue 4 0 3 Return on Equity -154.5%• The market for commercial human spaceflight for Revenue, YoY% 32.7% -93.7% 1173.1% Return on Assets -60.6%private individuals is brand new, with fewer than 600 Operating Income -213 -275 -336 ROIC, with goodwill Negative ICpeople ever having traveled into space. Virgin Galactic Operating Margin % -5640.4% ######### -11100.9% ROIC, without goodwill Negative ICsees a huge opportunity for high net worth individuals Net Income -211 -273 -328 ROIC = Return on Invested Capital; NMF = Not Meaningful to provide a spaceflight experience. Tickets now cost Net Income Margin % -5576.9% ######### -10813.1% ~$450,000 each. Leverage, Coverage, and Liquidity Diluted EPS -1.08 -1.25 -1.42 In Millions of USD • Other companies are trying to do what Virgin Diluted EPS, YoY % 52.1% 14.8% 14.3% Total Debt 0Galactic is attempting. Blue Origin (private). SpaceX Free Cash Flow (CFO-capex) -229 -250 -361 Net Debt -679and Boeing are others. The current reality for Virgin Free Cash Flow Margin % -6044.0% ######### -11918.0% Total Debt/EBITDA 0.0 Galactic is that it continues to rack up losses and its In Millions of USD (except for per share items) future success is far from likely, in our view. Net Debt/EBITDA NMF MID-CAP EBITDA/Interest Excellent Structure of the Aerospace and Defense Industry GOOD Current Ratio 6.3 The global commercial aerospace duopoly is being challenged by encroaching international competitors who are intent on Quick Ratio NA increasing market share, but Boeing and Airbus continue to dominate the large commercial aircraft segment. Long-term NMF = Not Meaningful demand for commercial aircraft is cyclical and depends on the health of the credit markets, airline customers, and lessors, but massive backlogs and a strong multi-decade demand outlook are reasons for confidence. The defense industry has strong competition in all market segments and remains dependent on government funding decisions and competing budget priorities. The information and data contained in this report is not represented or warranted to be timely, complete, accurate, or correct. This report is for informational purposes only and should not be considered a solicitation to buy or sell a security. Before acting on any information in this report, you should consider whether the information is suitable for your particular circumstances and, if necessary, seek professional advice. Assumptions, opinions, and estimates are based on our judgment as of the date of the report and are subject to change without notice. Valuentum is not responsible for any errors or omissions or for results obtained from the use of this report. Redistribution is prohibited without written permission. To license Valuentum research, contact us at [email protected]. Page 1 Valuentum Retail Equity Research (10=best) Data as of 10-Sep-2021 Virgin Galactic SPCE FAIRLY VALUED Buying Index™ 3 Value Rating Economic Castle Estimated Fair Value Fair Value Range Investment Style Sector Industry Unattractive $30.00 $15.00 - $45.00 MID-CAP BLEND Next Generation Disruptive Innovation Economic Profit Analysis ValueCreation™ POOR Return on Invested Capital (ROIC) The best measure of a firm's ability to create value for shareholders is expressed by 1693.4% comparing its return on invested capital (ROIC) with its weighted average cost of 2000.0% capital (WACC). The gap or difference between ROIC and WACC is called the firm's 1500.0% economic profit spread. Virgin Galactic' 3-year average invested capital (without 1000.0% 766.6% goodwill) is negative, making it difficult to calculate a true economic profit spread. 558.7% However, earnings (EBI) last year were weak, indicating that the potential for economic 500.0% 124.7%159.9% profit creation is POOR for the company. In the chart to the right, we show the probable 195.2% path of ROIC in the years ahead based on the estimated volatility of key drivers behind 0.0% WACC, 11.8% the measure. The solid grey line reflects the most likely outcome, in our opinion, and -500.0% represents the scenario that results in our fair value estimate. -1000.0% ROIC - WACC Spread, 3-year historical average NMF -1500.0% ROIC - WACC Spread, 5-year projected average -549.8% These spreads equal the firm's annual average ROIC (excluding goodwill) less its WACC. -2000.0% ValueTrend™ NEGATIVE -2500.0% -3000.0% The firm's invested capital is often negative, and earnings last year declined from the -3500.0% year before, indicating deteriorating fundamentals. We expect ROIC (excluding goodwill) to be in the ballpark of about 160% by the end of our discrete forecast period. Weighted Average Cost of Capital (WACC) The graph above shows the firm's ROIC (excluding goodwill) compared with historical averages and its WACC. ROIC Calculation ---------- Actual ---------- Capital Structure 0.0% Equity Fiscal Year End: Dec-18 Dec-19 Dec-20 Debt Preferred Earnings before Interest Operating Income after Depreciation -167 -213 -275 - Adjusted Taxes (at 2% of EBIT) -3 -4 -6 + Amortization 0 0 0 100.0% + Non-cash Operating Items -13 4 0 - Minority Interest 0 0 0 Earnings before Interest -177 -205 -270 Cost of Equity Invested Capital Risk Free Rate Assumption4.3% Inventories - - - Fundamental Beta (ERP multiplier)1.2 + Receivables - - - Estimated Equity Risk Premium6.5% + Current Deferred Income Taxes - - - Cost of Equity Assumption 11.8% + Other Current Assets 38 44 49 + Property, Plant and Equipment, Net 34 49 53 After-tax Cost of Debt + Goodwill, Net (Cost in Excess) 0 19 20 Risk Free Rate Assumption4.3% + Intangibles - - - Synthetic Credit SpreadNA + Non Current Deferred Income Taxes - - - Cost of Debt AssumptionNA - Accounts Payable - - - Cash Tax Rate Assumption2.0% - Other Current Liabilities 106 116 115 After-tax Cost of Debt Assumption NA Invested Capital, with goodwill -32 -3 10 Cost of Preferred Stock Invested Capital, without goodwill -32 -22 -10 Preferred Dividends 0 Value of Preferred Stock 0 Return on Invested Capital, with goodwill 558.7% 1182.5% -7722.1% Cost of Preferred Assumption NA Return on Invested Capital, without goodwill 558.7% 766.6% 1693.4% In Millions of USD Weighted Average Cost of Capital (WACC) 11.8% Note: Valuentum may provide an adjusted ROIC measure to better reflect the economic substance ERP = Equity Risk Premium of a company's operations, as in the case of companies with negative invested capital.