Q1 2021 Virgin Galactic Holdings Inc Earnings Call
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Good afternoon, My name is Rob and I will be your conference operator today at this time I would like to welcome everyone to Virgin Galactic <unk> first quarter 2021 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 if.
If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you'd like to withdraw your question press the pound key. Thank you hosting today's conference call will be zest Zaslow, Vice President of Investor Relations. As a reminder, today's call is being recorded.
I would now like to turn the conference over to Mr. Zaslow. Please go ahead.
Thank you and good afternoon, everyone.
Welcome to Virgin Galactic <unk> first quarter 2021 earnings conference call on.
On the call with me today are Michael Cole Glaser, Chief Executive Officer, Mike Moses President of space missions and safety.
Rami ire president of Aerospace systems, and Doug Aron Chief Financial Officer.
Following our prepared remarks, we will open the call for questions.
Our press release was issued about 45 minutes ago and is available on our Investor Relations website.
As is the slide presentation that will accompany today's remarks.
Let me, let me refer you to slide two 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 section of Virgin Galactic Second Amendment to its annual report on form 10-K filed with the Securities and Exchange Commission and other documents filed by Virgin Galactic from time to time.
Readers 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.
Please also note that we will refer to certain non-GAAP financial information on today's call.
Can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures I'd now like to turn the call over to Michael.
Thanks, Seth and good afternoon, everyone. I Hope you are all doing well.
As part of my plan to execute on our strategy to grow and scale the business I've brought in some exceptional talent in key areas.
Doug Aaron's as our new CFO and Swamy ire as our new head of aerospace systems.
Doug has extensive experience as a public company CFO with companies and complex technology and manufacturing environments.
<unk> leadership in relational skills.
His expertise in capital markets, and M&A will be incredibly valuable as we expand and monetize the business.
Swamy joined Virgin Galactic in March to lead the team responsible for building.
Building and designing our current and future fleet of vehicles Swamy.
Swamy brings great depth and expertise in business expansion, while also having the deep process and production orientation necessary to lead our aerospace teams as we build out commercial operations. We're incredibly pleased to have them both onboard.
Moving to the agenda for today's call I will start with an update on the business and our key areas of focus.
I will then ask Mike Moses to provide an update on our upcoming flight.
<unk> will talk about his initial impressions and how he is viewing our fleet expansion strategy and following <unk> remarks ill provide some comments on our commercial plan so with that let's get started turning to slide four.
Our focus remains on the following three areas number one fleet readiness completing our test flight program and preparing for commercial service.
Number two fleet expansion.
Adding new spaceships and mother ships to our fleet and pivoting the organization from an R&D phase to a manufacturing base.
And number three developing our customer experience and commercial strategy to create expanded revenue.
Revenue opportunities.
We set an ambitious schedule for 2021 and beyond.
It's a dynamic time for both our company and the space industry as a whole and we are entering what we believe is going to be a long period of growth and expansion.
Turning to slide five let's.
Let's start with fleet readiness.
Our planned flight test schedule consistent for flights. These flights are intended to demonstrate our capabilities for the three markets that we plan to serve with our suborbital spaceflight system.
Those are private astronauts microgravity research and sub orbital training for professional astronauts.
We are committed to delivering one of the world's most unique and transformational customer experiences with safety at the core of everything we do.
Safety is designed into our vehicles, our policy in force policies and procedures and our decision, making and safety is the foundation of our culture.
Typically we don't use an earnings call as a forum for a detailed discussion of the specifics of our engineering systems and processes. However.
However, given the level of interest around our space flight program today, we will share a more granular look into the steps that we've taken to prepare for our next slide.
I'll now turn the call over to Mike Moses.
Thanks, Michael moving to slide six.
Before I discuss the steps we've taken over the past few months it would be helpful to provide background on the testing program and modification, we have made to the <unk> over the past year.
As you know our testing program is designed to be a process of continuous improvement we have objectives that we target with every flight and each one of them is an opportunity to gather data to improve performance and move our space flight program fluidity.
That is the system that controls the horizontal stabilizers, which are the main likely full surfaces used on this space ship during the booth space of a rocket powered flow.
The upgrade allows for improved performance of the current system and provided an architecture for enhancements for future patient.
The change consisted of two new control computers, and some changes to the wiring harnesses in unity.
As you can see in the graphic on slide six.
The control computers are located within the cabin and our electric motor driven actuators in the tail boots right next to the horizontal stabilizers themselves.
These upgrades were kept it on the ground and during glide flight at Spaceport America last year with great results.
Our flight in December 2020 would have kept the net new system. During a rocket powered boost the final step of our testing program on the hardware.
And as you know our sales paperboard was triggered when the rocket motor computer locked connection.
The cause of the rocket motor computer issue was electromagnetic interference or EMI.
The source of that elevated EMI was the new flight control computer.
The system is designed to translate pilot inputs into commands to move an electric motor and it was the unintended feedback of those motor commands that generated EMR.
While this prevented us from reaching space. It was not a safety issue our pilots and systems returned to the runway safely as designed.
<unk> is not uncommon in aerospace systems, and our approach to managing it has been measured and methodical given that the actual reflect conditions can be difficult to replicate on the growth.
Over the past quarter, we've been working diligently to resolve the issue focusing on two major elements within our space yet.
First we address the EMI being generated by the new flight control computer.
We added hardware filters to suppress the EMI that is being generated within the computer access.
This change drastically reduces the amount of BMI at the source stopping you from ever entering into the larger system in the first line.
Second we improved the wire harness shielding and added components to suppressed conductive EMI. These changes were made to the wires that carry power as well as the signal wires that transmit measurement data back to the flight control computer.
Our approach has been systematic focus on eliminating as much of the EMI is profitable.
We were able to troubleshoot and test both in the lab as well as on our spaceship and worked to rapidly develop prototype solutions to refine our approach.
As of today the final installation of the flight hardware is complete and an end to end checkouts, we were able to compare the current EMI to previous levels and we can see that we've significantly reduced the EMI on the order of 10 to 20 difficult.
Now if youre not familiar with the terminology decibels or a measurement of noise intensity measured on a logarithmic scale. So a reduction of 10% to 20 decibels means that we've reduced the EMI intensity to a level that is over 90% lower than it was before.
Ah reduces concluded that we have sufficiently addressed in your mind issue and annuity is ready for flight and the start of its pre flight launch check.
I want to take a moment to thank our incredible team of engineers and mechanics and support staff for their diligence and hard work that led to this fantastic results.
Now as part of our readiness program for the next day slight we also conducted three flights with our mother ship Vms E over the past two weeks from Spaceport America in New Mexico.
Per our standard protocol, we perform a meticulous post flight inspection after each flight to identify among other things any maintenance that we may need to perform on the aircraft.
Following <unk> lapsed post flight inspection, we tagged a potential wear and tear issue as requiring further evaluation and analysis to see if any additional actions as necessary.
Our background like everyone in the aerospace industry, we have a schedule of modifications and upgrades that we plan for each of our vehicles and these post flight inspections are used to validate the timing of this schedule.
Our next maintenance cycle is planned for later this fall and prior to each Lifeflight all inspections confirmed our schedule was on track.
However, following this lacked inspection we identified an item on our maintenance calendar that needs further study to determine whether we need to take action now instead of the fall as planned.
Because of this issue just emerged at the end of last week, we're still determining what steps may be necessary to address it.
While this may impact our flight test schedule I want to emphasize that this is the nature of a test flight program and we're going to take the time, we need before moving forward.
Michael I'll turn it back to you to provide some more information on our flex day.
Thanks, Mike.
Our spaceship unity currently in pre flight procedures. Following the successful resolution of the EMI challenge.
<unk> requires our mother ship to carry it on the first stage of our space flight with this late breaking maintenance evaluation. We will report back to the market next week with an update on schedule implications to our next flight.
Moving to slide seven.
Upon the successful completion of this first test flight, we expect to fly a second flight, which will include two pilots with a full cabin of internal spaceflight participants.
Our third flight will include two pilots as well as for Richard Branson in the cabin.
And our fourth light is in partnership with the Italian Air Force. It will include three spaceflight participants in multiple payloads and they will conduct astronaut training. In addition to experiments during the flight.
We expect this flight will demonstrate our capabilities for both microgravity research and professional astronaut training.
And just to remind everyone of where we are in our journey. We expect the successful completion of this fourth light will mark the conclusion of our test flight program. After that we look forward to moving to commercial service.
In terms of fleet expansion I'd like to ask Rami to share some comments about this area of our business Swamy.
Michael turning to slide eight.
I'm excited about the opportunity to join Virgin Galactic and we'd be expansion of the fleet have been onboard for about 45 days during the time I've gone and seen all the facilities. That's been significant time walk into production floor engaging with members of the team at every level and I have been impressed with the talent.
For Ts and the organization.
One of the things that drew me to the company, whether the requisite development and scale up efforts. The company is entering into are ones that are a natural fit with my experience from the test pilot and a leading aerospace manufacturing companies.
So for me personally Virgin Galactic provides with a unique opportunity to truly exercise of Oman operations experience and tools to support the business and the team.
Additionally, the safety flight test manufacturing and engineering cultures of observed at this company and aggregation of the best practices from across the leading companies from a global aerospace ecosystem.
Other than due in no small part from the DNA of our aircraft base base split solution, which draws from a deep and broad base of 120 years of aircraft development, which in my mind provides significant safety engineering and manufacturing advantage and scaling up into a robust repeatable and reliable baseline.
<unk> the elegance of the design the experience of the team and the evolution of the technology provides the right conditions at the right time to scale into human terms per <unk> baseline and I'm honored to be a part of it.
Our focus going forward will be the scale of the fleet and structure, our processes precisely and accurately with an emphasis on rigorous testing and safety standards that we've been getting our final space both solution configuration lockdown by optimizing our spaceship mothership and rocket motors performance manufacturing methods and supply chain.
Again, leveraging off the larger aircraft industry ecosystem, we have the luxury of choosing the best of the supply base to ensure a high quality and predictable fleet expansion effort using the engineering and manufacturing excellence of our future partners.
We look forward to keeping all of you in the investment community updated on the progress that we're making in the year in this area on future calls Michael back to you.
And swamy.
Alright, turning to slide nine.
As we progress towards commercialization, we plan to create a comprehensive multi day consumer journey on the shoulders of our 90 minutes spaceflight experience.
Our goal is to ensure that the memory of this space flight last a lifetime, we believe our experience and approach will be distinct in the marketplace.
We are also developing our customer brand architecture and marketing strategy.
We intend to leverage the unique strength of the Virgin brand to create a bespoke experience.
We'll have more to share on this area of our business as we move forward.
I would now like to turn the call over to Doug for financial update.
Thanks, Michael and good afternoon, everyone I'm pleased to be here with all of you today from my first Virgin Galactic earnings call. It's now been two months since I joined the company, having had some time to observe and listen I'm, even more excited about the opportunity and the team of talented individuals within the organization I'm also looking forward to working with all of you in the investment.
Commodity.
Turning to slide 10.
For a review of the financial results for the quarter I wanted to begin with a few comments on our broader financial strategy.
As we look to prepare and subsequently scale our fleet for commercial service. We're also positioning the organization with the launch of our consumer brand and experience. We're using is operational objectives to inform our financial planning.
Pleased that our total number of future private astronaut remained steady at approximately 600 as of the end of Q1.
As we've disclosed we plan to reopen sales for our private asphalt market around the time of the flight with Richard Branson by reopening sales, we intend to satisfy a portion of the consumer demand with our expanding fleet size. They currently expect to have the sales funnel open for a limited period of time and plan to add a finite number of <unk>.
Incremental members to our private assets.
With this approach we will look to build an appropriate backlog relative to the pace of our overall fleet expansion. Our goal is to address some of the consumer demand for our service, while maintaining appealing price point with experience at an appropriate time horizon the flight from our private assets.
We have not yet released updated pricing for our private astronaut market. We have however, establish current pricing for our micro gravity research and private astronaut training markets.
As we've previously discussed we have planned in partnership with the Italian Air Force that will demonstrate our capabilities for these market share.
Expect this flight to generate $2 million of revenue or the equivalent of $500000 per seat on a per seat equivalent we're now entering into agreements at $600000 per seat.
We think these are excellent results for our introduction to the market. We're quite excited about this market and the pricing dynamics, we're seeing for this portion of our business.
Let's review our results for the first quarter on slide 11.
Since there are no flights in the quarter, we didn't generate any revenue.
As we've previously disclosed in response to recent guidance issued by the SEC, we revised our accounting treatment for warrants issued in connection with the company going public in 2019.
In the first quarter of this year, the new treatment resulted in a $49 million noncash.
Non cash expense related to the change in fair value of warrants compared to a noncash expense of $317 million in the prior year period.
Net loss for the first quarter was $130 million compared.
Compared to a loss of $377 million in the first quarter of 2020.
The decrease in net loss was attributable to the change in the fair value of warrants.
Notably less than 10% of the originally issued was currently remain outstanding.
Adjusted EBITDA was negative $56 million.
Compared to negative $53 million in the prior year period.
Total operating expenses were $81 million.
Compared to $61 million from the prior year period, the increase in GAAP expenses was attributable to an increase in noncash stock based compensation expenses.
Justin to exclude stock based compensation expenses were $59 million compared to $56 million in the prior year period.
Turning to capital allocation on slide 12.
In the first quarter free cash flow was a use of $50 million compared to a use of $60 million in the first quarter of 2020.
The decrease was primarily due to lower capital expenditures and favorable working capital dynamics.
Capex was $1 million in the quarter compared to $4 million in the period.
In the prior year period.
Looking ahead, we anticipate second quarter free cash flow of approximately negative $60 million importantly, our balance sheet remains strong we remain well capitalized with cash and cash equivalents of $617 million as of the end of the first quarter.
As we've discussed our business plan calls for the expansion of our fleet as well as the build out of our consumer experience.
We plan to use a combination of cash on hand, as well as future inflows of capital to fund our strategic objectives.
Historically, we've look to take advantage of favorable market conditions to raise capital from business going forward, we will continue to evaluate opportunities to access the capital market to grow and scale our business I'd like to now hand, the call back to Michael.
Thanks, Doug.
Turning to slide 13.
Before moving to Q&A I wanted to take a moment to thank our entire team who have been working diligently on our strategic objections.
And just to restate our focus remains on the following three areas fleet readiness later expansion and the development of the customer experience.
Operator, I think we are now ready to begin the Q&A portion of the call.
Thank you and as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
And your first question comes from the line of Robert Spingarn from Credit Suisse. Your line is open.
Hi, good afternoon.
Yeah.
Hi, Rob Michael Hey, Michael just a question.
About the market.
And the two players so both galactic and Blue origin are now approaching commercial service and they may send up a passenger as soon as July if they stay on target and it sounds like Youll update us on your schedule next week, how important are your relative schedules.
Especially from a future order capture perspective.
Sure one as I've shared before we're really excited to have multiple people.
Basically pay the new territory for human spaceflight and being able to take private citizens in this space.
This is something that I think most of us and the world would not have guessed even a few years ago that this was going to happen in our lifetimes and yet here. It is upon us. So I think it's really important that blue have great success.
We'll have great success, because it will normalize as the idea of human space flight to the market and I think the more people that are able to go up and get this perspective back on the planet, but more of their voices are going to come back and just inspire and engage other people and add more pressure into the market. Overall. So we're very excited for them and to your question on just the timing matter.
I think we have a company that's been built over years and decades as does blue and so while I think there'll be great media attention around both.
Moments when we are going up in the space I don't think it matters to our business overall.
Okay, and then just a quick one for Doug.
On the cash burn that you just talked about how does it progressed beyond Q2, so how do we see <unk>.
Which point you would want to return to the capital markets.
Thanks for the question so we haven't given specific guidance.
But there are.
Multiple dynamics in play to think about.
The first one is cash inflows as we reopen ticket sales we will get those.
Cash inflows coming in plus as we approach commercial service will collect the remainder of those.
Net revenue for those flights.
And on the other side as we expand our manufacturing capacity you would see an increase in capex as we as we scale the business and build out our fleet. So you have those two things working together.
Production you get a nice okay.
Through.
We have what we expect to be a low variable cost strategy. So you would have nice flow through of the revenue to the bottom line.
So with all of that we have.
Moving to put a minimum cash.
Out there, but certainly want to have all the flexibility to grow and scale the business has weighted.
Okay. Thanks, Doug Thanks, Michael.
Thanks, Rob.
Your next question comes from the line of Myles Walton from UBS. Your line is open.
Thanks.
I was wondering if I could ask Mike Moses.
Maybe elaborate a little bit more on the maintenance issue discovered on E class Squeak, if that was an issue too that was preexisting on the checklist to do during the downtime Paul and was it one of the larger items to do.
One of the smaller items to do.
And then maybe for Michael on the back of that with this is sort of a single point.
Clearly a single point.
In the critical path to flight how does it make you think about maybe having to pull forward capex on a white Knight to search.
Paul.
Thanks, Myles so so the item we found an ease.
Maybe let me just give some context of how those protocols. The net maintenance program has established which is actually very common in aerospace systems, we have a series of inspections.
And preventative maintenance tasks that are designed to kind of track and maintain their vehicles and look at them not only in the instance of the next slide or the next several but also looking at their lifetime and our ongoing health and with as with all complex systems. We have scheduled periods to allow for those modifications and upgrades that we deem necessary.
And as we previously said and as Youre alluding to we had one planned for this fall with even our other vehicles. So those infections less determined whether those modifications in the schedule for that is on track and valid and react to anything unexpected so.
After the pair of flights that we did last week for pilot training. We did flag an issue that was on our calendar to be addressed later in the fall, but that required. Some further assessment that just basically double check is there.
That's still a valid plan or do we need to potentially accelerate and address that items sooner than later. So that's the that's the type of thing we're looking at and I guess I will just say that.
This is the difference between this is a flight test program and issues, where we fly we inspect we monitor we adapt.
Versus the regular cadence that you would had to enter commercial service program that is one of those things that that upcoming modification period, which specifically meant to address is move the vehicles into that into <unk>.
Net profit.
Alright, and modest Youre talking about the.
Potential pull forward Capex on a second shift.
I would say is we are very excited to grow the fleet.
And as we've mentioned we have started the programs both for.
Space ship three we had our first unveiling of our first unit of spatial III VSS imagine.
In March.
But also we have initiated the program what we're calling the delta classes pay ships, which would be more of a production model I would say going forward at the same time, we have initiated the program development for a new mother ship because as we scale up to the volumes, we need we will definitely need more mother ships. So this kind.
Kind of maintenance topic that we kind of had pop up on us at the end of last week and that we're going to sort through and come back to you all with.
Update on the market, we will do that next week.
This maintenance piece isn't going to really impact the timing of our second mother ship program. That's often going it is in the early design stage, which is relatively low financial expenditures.
As Youre aware and I think it will stay in that design phase for a little while until we settle on where we're going.
I don't think it changes our plan going forward miles, but it does.
Just to kind of reemphasize, we have programs kicked off both on new mother ships as well as patients going forward.
Okay, and Mike sorry, just to come back per second.
Just to clarify you don't know if you'll have to do the issue youre still evaluating whether or not that will have to be done is that correct.
Yes, correct miles, so pretty late breaking and we found it.
Inspections, we were doing after our last flight, which was Tuesday of last week and so the total you brought that up.
We've done some extra inspections, and we're kind of in that middle of analysis now will be able to make a determination here pretty soon and we will get back to you. All next week with a market update as Michael said.
Thanks, so much.
Thanks miles.
Your next question comes from the line of Adam Jonas from Morgan Stanley. Your line is open.
Yeah.
Hey, everybody.
Wanted to simple clarification on the deposits can you remind us what how large the deposit is as a percentage of the.
Yes.
On the on the space right.
No. If there was price prior disclosure on that or when we could kind of think about within our range for when you reopen the funnel.
I don't believe we put prior disclosure on the size of the deposits we have some prior disclosure out there.
Price varied a little from moment to moment generally our last price pointed out was $250000 per per.
I guess, if you will and we have shared that we do expect that price will be going higher when we are able to reopen sales up so that I think has been a close I don't think we've talked about the scale of the deposits.
Hey.
Okay, that's fine Michael.
Second one from me.
You mentioned that once you.
Do the third flight.
The two pilots and.
Richard Branson that you would then.
Make the move towards commercial service can.
Can you help us because at that moment seems very important I would imagine for both Opex and capex.
Can you help dimension that for us.
One could think about it.
Eliminate stage of modeling that point between the third flight and then that path to commercial but also in terms of what kind of GAAP or what what order of magnitude of GAAP or are we talking months quarters.
The Richard flight and the first non Richard let's say commercial flight.
Thanks.
Sure Let me, let me take a shot at it and feel free to come back if I didn't quite catch the question perfectly. So let me go back to what we'd shared kind of at our last quarterly update which is we'd planned to.
To be having our next one.
And we had then two more flights following kind of one was an internal crew and one with so Richard Branson.
We'd shared we expected those to go in the summer.
And then we have a fourth test flight that we talked about that will be a revenue producing flight with the Italian Air Force and we thought that would be in late summer early fall and that's what I talked about on the last earnings call and we're looking forward to coming back in next week, and giving an update to that as Mike Moses just shared.
We're in flight test, we flagged a maintenance topic, and so we'll sort that out and come back to the market with an update on more specifically for you all there now as to your question of.
Well what happens is you then move into commercial service.
As we shared on the last call following the flight that we planned with the Italian Air Force kind of our fourth test flight. We have a period of time, we estimated to take at that point at about four months is what our estimates are and we will be lining up.
Basically upgrades and modifications to each of the three ships that we have active right now so ive, which we've talked about a little bit today has some upgrades and modifications that have been planned.
As well as unity and both even unities upgrades modifications are to help give them I'll call. It more reliability of predicting flight cadence as we ship those ships into commercial service. We also will be then doing updates on the first of our spaceship three vehicles VSS imagine.
And making the modifications there as we go from fly flight testing and then begin preparing for powered flight testing. Following this modification periods. So following that.
Kind of.
Period of modification and upgrade Adam is when we would move into commercial service and we will start commercial service with a spaceship unity and eve.
So that will start I'd say on a managed basis as we move through those kind of one at a time, so I don't think youll see.
Giant uptick in Opex at that standpoint, alright, thats going to come more as we scaled the fleet over time, but you will see different categories of Opex, because we will be bringing in our astronauts.
Into the area around Spaceport America, and actually applying them in hosting them. So I think it will be a.
More modest uptick in Opex at that point relative to revenues that you would be seen them.
I appreciate the extra color Michael Thanks.
Thanks, Adam.
Your next question comes from the line of Ron Epstein from Bank of America. Your line is open.
Again, Ron Epstein from Bank of America. Your line is open.
Sorry about that hi, Ron.
Back in February.
Guys gave us an indicator that there was maybe a hair under.
With the prospect pool got through a hair under 1000.
Potential books.
Do you have any sense on that.
From rental many measure on incremental.
That was February of 2020 actually.
And.
Incremental interest or how can you share with us any incremental demand anything like that because again in the release just 600 ish amount just from 600 for a while just trying to get a sense for.
Growth in <unk>.
And demand for you guys.
Sure.
And one thing I'd kind.
Kind of like there it has been 600 for a while and we think thats.
Because there is great excitement for this so we havent share guidance on where demand will go what Doug was talking about today.
We want to continue to keep an overhang basically kind of build a book of demand that runs in advance of our species fleet capacity. Obviously, we have 600, and we havent entered commercial service yet so that overhang of demand has been going for a while but as we begin commercial service as we then move our second spaceship.
<unk> into commercial service as it completes its flight test program and so forth with further ships. We plan to basically continue to build that overhang going forward. So there is always demand pressure against it.
We believe there is going to be really great demand I think you look at the excitement all around the human space flight concept and you see it in multiple players in the market I think youre going to see it as we mentioned with blues launch coming up we think this is going to be fantastic and that the initial people that come back from the space flights.
<unk> will be just so rabies that that will continue to further demand going forward. What we also talked about and what Doug was mentioning today is we're very excited about the demand for also microgravity research as well as training for professional astronauts.
And what we did share today is.
Price points that we've been seeing on the initial flights are those that we are encouraged by it.
Because that's going to be an important slice of our capacity and the size of our market. So.
We are very confident and robust feeling on the demand, but we haven't released any specifics for you here.
Got it and then and with the pricing question sort of a message from X direction would grow a little bit.
Do you have a sense for your pricing.
Your competitors.
So it's either going to fly on a trip on blue versus the triple with regards.
Comparable price a bit more expensive remarks, so congrats from sensors.
Okay.
Well so to.
To my knowledge Blue origin has not released pricing either I think what they're doing is.
I understand putting out effectively at auction for one seat on their first flight.
And I think that's exciting.
Honestly, but it will it will be a pretty high price if I had to guests and I think that will add excitement I'm sure. We will take advantage of it and I think thats really great because it will so.
Just how amazing this opportunity is going to be I'm, not sure where blue will settle their prices out yeah. We will see how that plays out over time, what I know we will do is ensure that the value that we deliver to the people who come fly with us and the value we deliver to the researchers that fly with us and the astronauts who trade with us is <unk>.
To be so outstanding I don't think the price points that we charge as we launch our commercial business will be the topic. It will be how can I get a seat and so that's really the goal for our company is ensuring the value is there and we feel really strong about that.
And then maybe from just one last technical question from me.
With the EMR issue, that's popped up.
Of course quite inspection issue that might be an issue.
A question just around reliability.
How are you thinking about that as you ramp up commercial labs.
Didn't have launches grows quicker.
It'll be the utilization of the assets will be more.
And maybe one of the one of the things I worry about this will.
We will be assets be robust enough to.
So execute the plan that you want them to.
The way you want them to.
Thanks for asking that question, it's an important one and I'd like to call out what is a difference between a flight test program and commercial operations and our flight test program.
One every time we fly.
We are looking to gain new data take that data analyze it compare it against our models and kind of confirm that we are on the right path and ready for the next flight test or Oh, we're going to make some modifications based upon the data analysis that we have and the essence of that flight test program, which is not unique.
Piece for Virgin Galactic, that's all flight test programs.
Variability in its schedule, along the way and we are making.
Adjustments after each of these tests going forward now what we talked about today with <unk>. Our mother ship is really a question of.
Planned maintenance schedules.
And we're trying to come back to you and confirm or are we going to maintain joined.
Joining us on our planned maintenance schedule, which we had said it was going to be October or are we going to go forward or pull that forward and we're going to come back and talk to you about that next week.
Then if I could shift the concept from flight test, which is what we're doing now into commercial operations.
Commercial operations require much more robustness and predictability and how we fly our ships. So one of the reasons, we have this down period with ease.
<unk>, our mother ship and unity in the fall is to make some modifications that will let the flight rates on those being more predictable.
As you've heard us discuss our spaceship three class with BSS imagine as the first of those the very purpose modular design the very purposeful inclusion of all the learnings that we've had from unity have gone into the design and manufacturing of those spaceships.
Intentionally to allow for greater predictability and kind of.
I caught out return time right once we fly how quickly do we fly again.
And what we're talking about what the Delta classes space ships is when we basically locked all of that profile down and now you're basically building a production model and you've got kind of ongoing.
Consistency in repetition and the way our operations work, so you're accurate in calling out commercial operations will be more reliable and repeatable I'd just like to emphasize our in flight test and this is what you should expect to see in flight test I think it's somewhat unique that flight test is happening in a pre revenue.
Public company and so that's why we often have these calls which is good but that's important information to share and I appreciate you bringing that topic.
Thank you.
Your next question comes from the line of Doug Harned from Bernstein. Your line is open.
Thank you and good evening.
Uh huh.
When when you think about.
Going through these four flights for three <unk>.
The upcoming and then the the test one with the Italian line.
So you go to that next one say four months.
What things are you looking for.
To be constantly you, where you want your where you want to be I mean, if we go back to kind of that 2017 19 timeframe.
Some of the slides they were completed they have some issues.
Do you what do you need to see here in other words, how kind of issue free do you need to be to be confident youre ready to go.
Sure Hi, Doug by the way excellent question. So let's talk about this upcoming flight. The next one we do.
As Mike talked about we have.
New controllers in that we'll give more precise handling on the flight control surfaces. As we go we've tested those in glide flight with great results.
We can test them, we do come from from high speed runs and pull back, but we do need to test those out under our powered flight and so the next slide we have with just the two pilots is really to prove that out we have great confidence from what we've seen in the system, but we wanted to see and operate under our powered flight.
That is a I'll call. It a technical tests that were looking for and as always we do on all of our powered flights. We will continue to evaluate just the overall performance of the ships and how the experience looks across it.
So then let's go to the next flight with a full crew admission specialist in the back.
The new piece of information for that flight is we got full crew people in the back and how is the experience for those folks in the back half their movements around the cabin how do they want to kind of find where the views are in great pieces. There what are the kind of pressures that all the people experience are they what we expect them to be we will also.
<unk> kind of confirm that what we saw on the prior flight. The first one with the two pilots is repeating right because you want to see kind of repetition and consistency there.
But the.
The first one has the technical piece, we're looking for the second one is kind of consistency of that same technical piece as well as now a day for cabinets and back.
The next to R. R.
Rinse and repeat isn't necessarily what an aerospace term would be but that's generally what we're doing okay, let's do it again.
And this time, we wanted Richard to come in as our founder and Chief Adventure and say, Okay is this what ive been envisioning all the way along here and add kind of that flavor and that feedback into the overall experience.
And we think that will be an excellent way to demonstrate what the private astronaut flight will be and we intend to kind of make some noise about that as we go forward.
And then the fourth light again, we're still basically repeating the same test objectives on the others, just getting repetition under our belt, but fourth light well then be purposely to do testing around our other two markets Microgravity research and professional astronaut training.
Things that we will adapt our ground operations. There are some things that we'll adapt about how the ship performs in space to focus on what the researchers need to adopt that and also use that as our demonstration flight. So that's kind of what we're looking at each stage and at each one of those stages. We will look for generally consistency in what we saw there but.
We won't be looking necessarily for something new.
I guess two.
Two things.
I'm just trying to picture.
It's been a few questions that have gone around this but.
First as Ive is I believe about 13 years old at this stage.
Now I've got the spaceship three coming out which is great. So you've got.
These assets, how I mean, how long lived do you expect them to be I'm thinking both just in terms of what anomalies you might be looking for on the test flights as well as.
Just the aging of these of these aircraft in a very different environment than we've seen for in most from most other types of aircraft.
Sure I'll start out from them feel free to kick in.
So Eva and I don't recall, the exact age, but let's go with 13 years as you said.
<unk>.
Not flown.
All right, it's not like it's a commercial airliner flying back and forth every day, putting flight hours on it at that time. So it's number of flight hours I'd say, a reasonably modest as far as airframe scope.
Eve is important to make sure that as we move into commercial service.
It has gone through some updates and modifications that will allow us to fly with consistent cadence right. That's really what we're looking to do there so that we're not.
Kind of looking on a flight by flight basis, and making sure. We're at that we've got good predictability.
And things like that.
So I think that's kind of a normal evolution for eve from a flight test program there.
I'll, let Mike or Swamy comment on age but.
I would kind of highlight from an hour's basis, it's still fairly.
Low use I guess compared to a normal airframe, yes, thats correct. Its first flight was in 2008 and the last slide we just flew was number 293.
So from an airframe perspective from.
I'm, an airliner or anything like that we still kind of be probably in the break in period. So we don't put a lot of time recycles.
Even though the profile we fly is it's certainly a unique one.
In terms of its life expectancy write a composite aircraft.
By definition really has some advantages over an aluminum framed aircraft when it comes to lifetime, but it's certainly something that still needs to be monitored and addressed which is what we're talking about when we talk about these ongoing maintenance inspection cycles, we have.
In engineering based assessment as to what that life would be how parts will wear and fatigue overtime and the wear and tear that they'll see and we're monitoring along the way to see if that is on schedule ahead of schedule behind schedule. So we can adjust.
Our program so that we don't want to do too much maintenance or you can cause problems.
Correct and over examine them you don't want to be on those sides, Idaho, where youre doing too little and so this is this ongoing continuous feedback improvement maintenance monitoring program and we will have the same on our space ships as well as the mother ships, but in terms of lifetime.
While we put them through a unique environment, we don't really put that many actual hours on them and thats all.
Take those lessons learned upfront and you hit the ground running even even faster with those those new models that come on the line.
Okay, great. Thank you.
Thanks, Doug.
Your next question comes from the line.
Your line is open.
Hello, Good evening everybody.
Hey, how are you.
I'm doing well how are you.
Good thanks.
<unk> issue is what.
Specifically it needs to be addressed.
Yes, so specifically.
We're looking at what we call a basically a fatigue or strict items. So like we were just talking about.
To make sure that we see how much the vehicle ages over time and how it how we address that and basically.
And we monitor these items that we regularly.
We have plans in place attract these issues followed these items along and in some cases like we've already identified.
Here do some modifications this fall, but what we what we flagged right now recently with micro double check that maintenance schedule based on the recent observations to make sure we don't need to do something earlier than that so that's basically we're looking at our family of items that relate to fatigue and long term.
Strength.
So in simple terms, you just want to make sure it's not fatigued or stress enough.
Doesn't need to be addressed before flying again.
Yes, exactly that's a great way to simplify right. So.
Fatigue and wearing Terry is a natural thing right every every item, whether it's an airplane aerospace ship or whatever it is followed that and you have a predictive model of when those things reach a place where you need to either refurbished repair upgrade and do preventive maintenance and so this is a check to see that the schedule that we had predicted is still valid and that we don't need to.
In an accelerated manner, if we determined we will and that's exactly what we're going to go do voluntary at the end of the day sales dispatching a flight is our number one priority, but that's the purpose of taking this extra time right now before we set up that day.
What's a reasonable amount of time it would normally take to address.
And any similar fatigue or stress fisheries such as this one.
One in terms of analyzing and assessing it and I think we're probably on a very short time scale just given we flew on Tuesday of last week.
And the inspections that we did involve combination. So let me talk just a little bit up those inspections that are combination of.
Visual inspections using video whether it's.
A camera or a horoscope into small places and then <unk>.
<unk> techniques non destructive inspection techniques using pulse echo ultrasound revenue gains things like that that allow you to kind of non destructively look through the skin like you would go to the doctor and get an MRI or an X rate and so we use a combination of those two technique those.
Those results give you an image map. If you then have to kind of not only look at the absolute value book do a relative comparison to the last time, you scan and Youre looking for comparison, so that takes it on the order of a week or so to gather the data analyze it and plug it back into our model turned it around and get an answer so that's why.
Unfortunately, the timing of this flight last week on the earnings calls per day didn't give us quite enough time to get to that final answer which is why we're coming given update metric.
And what about performing the actual from maintenance.
For that I think a little too early.
In the past to decide what that is we know what we were planning to do this fall and part of this will be in assessing how much of that either needs to be done early or do we partially due part of that that upgrade.
Look too early to tell.
Okay.
Your next question comes from the line of Oliver Chen from Cowen Your line is open.
Alright, thank you.
Good afternoon regarding FAA approvals.
How did the ones that you need intersect with the flight test program.
So regarding your brand and the brand architecture.
That you're innovating towards.
What are your thoughts on what might be important from an architecture point of view and how from a consumer point of view, you'll you'll set yourself apart. Thank you.
So I'll take the FAA when it might kind of kick in in case I missed something but.
We have two remaining provisos on our commercial license with the FAA.
As we said before fundamentally we will look to this next flight we do we need to have just a nice complete flight that goes to space and we gather all the data around that and as well as kind.
Some of the data that happens in the cabin itself, that's there and we'll turn that dataset into the FAA.
They know the dataset that they need we know what it is they know we're going to turn it in and then it will be in the Faa's hands to turn it back around but we expect to get that data on the next flight, we do need to get to space to complete that dataset and so thats really good.
Only thing in front of US right now so we expect to do that after this next flight.
Now as to the kind of consumer brand and brand architecture.
Okay.
We will come back with a very robust overview of how we are going to establish our place in space.
And what we're doing here, but in broad strokes. We are focused on the experience that we will this is going to be incredibly transformational and the moments that will be spent a weightless, even though we have kind of a 90 minute flight profile, even though we've got this.
John I'll take off in horizontal landing and the flight to space up will be exhilarating the moments in.
To the Earth.
Across the course of a lifetime are relatively fleeting.
So we will be taking a point of view that says how do we prepare these astronauts.
Not.
Such that they are so ready to take in.
The emotion of that moment that the memory becomes so strong and so core that they can't help that share that for the rest of their lives. There is a lot of art and science that will go behind the work that we do in this both at our consumer brand positions and the actual experience that we will deliver.
And we're looking forward to kind of bringing up.
In the area of Iraq.
Appropriate time to bring that to the market.
We'll be very unique.
Other people will go to space and we're excited for them, but we're very confident in our places.
Some space and how we will deliver it we think it will be sustainably differentiate it.
Thank you very helpful.
I know, we'll get an update next week, but.
As you articulate reevaluating the launch timing of that first test flight.
Asked another way what are what are.
Some of the parameters like within your control.
Some of the parameters not as well within your control.
You're you're analyzing right now for the launch timing of the first flight.
Sure well I'll take a shot at this and Mike kick in here.
I said, we went after the facts.
Alright, so that's generally what's going on so we as Mike said, we have.
Planned maintenance cycles planned enhancement cycles.
We've announced one it will be in October.
We also then do routine maintenance inspections and routine daily maintenance on chips after they fly.
And the way we evaluate these things is based upon.
Uh huh.
Basically the data analysis of what we see on the various components of the ships. So.
We have a hope that data rolls into our engineering team that compares that data against our expectations.
Okay.
If the data matches, our expectations and we move forward. If the data says Oh, you need to make kind of a maintenance repair piece here.
Not answer that whats in your control or not.
It's all in our control based upon the facts that we see and then we go forward with safety as our guiding principle.
And then just practical.
I think you've hit that well, we definitely did.
Decision process that is very factual based on the data leads us to where we go so things like double checking what if those assumptions are wrong.
Understanding of the model were using to make these predictions is it grounded in test all of that comes to play so long and we have some variability in the b.
Andrew which we apply against them.
Okay.
That we know is going to lap that.
But lifetime versus one that says just get us to the <unk> cycle, we have planned.
Safe and reliable and repeat.
A couple of places, where we're really going ahead. So.
Yes, I don't think I have much to say that what's in our control.
Prices, but the faculty.
Pretty straightforward.
Hey, Mark from.
Thank you Rob why don't we take one last.
It's dubinsky from Allianz Global your line is open.
Yes, good afternoon, everyone.
Hi, how are you.
Just one question from me guys.
We've talked a lot about the kind of a spaceship manufacturing.
Grade cadence on the call here, but I'm wondering if you could maybe take it down a level for us to kind of think about in 2022 2023 as you are ramping in your flights.
Partner.
Patients can choose a certain amount of time, but.
I think the plan is to basically reload the rocket every every time with new per pallet.
And so it's kind of aspect to the.
Hi process. So could you talk about how you kind of.
Aspect of the program.
And just because it seems.
So there's not that many people out there they are again.
Go through that many rocks plan too.
Love your thoughts.
Sure.
Hi.
I'll start this one and look over to Mike.
The propulsion system I'll use that.
That we have.
A hybrid rocket motor propulsion system.
That has been evaluated.
Extremely thoroughly and we are very confident in its robustness.
It includes a tank where liquid nitrogen oxygen is used as an oxidizer against.
Basically a solid motor.
<unk>.
And that's how we do our burn the part that is replaced.
After each flight is the motor itself and we have.
Really great quality and confirmation that we like the configuration that we're using.
What the real opportunity for US is is as we move from going through flight test and move and scale up to commercial operations.
Shift our manufacturing environment, because we know what this looks like we've got a configuration settled and basically move that into a factory setting and bring the cost down. So our go forward basis on this while we will always continue to kind of evaluate and improve our propulsion systems are fundamentally we are looking in this.
Case to shift more to a factory mode to drive down the cost of that particular item that we use Microsoft anything you'd like to add into that.
So simple per minute sat down with the team had gone from B B.
Each of the different proposal, particularly the rocket motor supply base, and where we're going to have.
Conversations about how we bring that together from an outsourcing strategy and from a construction management strategies, what they really need is.
They were fairly vertically integrated in the way we build these things.
Now, we're looking at what kind of.
Okay.
Positioning the factory won't per scale and mass to the curve of commercial flights, we intend to have over the next few years.
High emphasis on supplier quality.
Apply a relative yields in first pass yield on those products that are going to come to us assembly techniques and driving up the per unit Cogs of use of the rocket motor. So once we get into that position will get a sense of how I would optimize that but that strategy is.
<unk>.
Fairly well on deciding and to make sure that.
Purpose of the industry and we're picking the right partners and so it's actually probably the most mature going forward.
I would've expected commercial plate price of what I've seen now is just making sure we get the right suppliers the right deals to.
To make the Opex going forward something we want.
Okay. Thanks for the color guys.
And this concludes our Q&A session, Mr. Michael Pulse laser I turn the call back over to you for some closing comments.
Hey, Thank you all for joining today's call. Thanks for the questions. We had them for those who joined into listen we appreciate your continued interest and support and we look forward to updating you on our flight status next week. So for today, thanks very much come.
Come back to you shortly.
And this does conclude today's conference call. Thank you for participating you may now disconnect.
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