Q3 2021 Virgin Galactic Holdings Inc Earnings Call
Okay.
Yeah.
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Good afternoon. My name is Cynthia and I will be your conference operator today at this time I would like to welcome everyone to the Virgin Galactic <unk> third 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 you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Like to withdraw your question press the pound key. Thank you hosting today's conference call will be Seth 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> third quarter 2021 earnings conference call.
On the call with me today are Michael Coe, Glaser, Chief Executive Officer, and Doug Aron 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 is the slide presentation that will accompany today's remarks.
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.
These statements are based on current expectations and assumptions and as a result are subject to risks and uncertainties.
Any 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 the company's 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 you.
You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in our earnings press release.
With that I would now like to turn the call over to Michael.
Thanks, Jeff and good afternoon, everyone.
It has been an incredibly busy and important quarter for us.
In July we flew our first space flight with a full crew in the cabin.
It's a great achievement for Virgin Galactic and a global cultural moment tens of millions of tuning in from around the world.
In August we began selling spaceflights exclusively to our space Farer community group of early Hendry's Yours would reserve the right to be first in line <unk>.
The response from this group has been fantastic.
And in October we began our fleet enhancement period to meaningfully improve the durability reliability and predictability of our vehicles and enable high cadence commercial service.
Before I walk you through the details on these updates on other important developments during the past three months I'd like to take a step back.
I've been CEO for a little over a year now and have spent that time listening analyzing and identifying the adjustments needed for us to progress against our long term goals.
We've made several changes over the last nine months in this regard.
We've aligned people and processes to focus our efforts on long term scale and profitability.
And this new focus is enabling our transition from a prototyping space and later to the global scaled commercial operation we are becoming.
I'd made key strategic hires.
<unk>, a new CFO, a new president of aerospace and new head of engineering people at.
All to ensure we have the right leaders and systems in place to realize our vision.
And over the past year, we've strengthened our balance sheet to capital raising.
Giving us approximately $1 billion on hand to design and execute our long term plan.
I am confident that these changes and those we'll talk about today have placed us on the correct path to launch commercial operations and achieve our long term vision.
We are building a new industry from the ground up.
All of you on the call who follow this sector than aerospace is a complex endeavor and to grow to 400 flights per year at multiple spaceports weakness manufacturer and operate efficiently and predictably.
And while unexpected setbacks are a normal part of aerospace, we can and will do more to anticipate them and lessen their impact on our timeline.
And focused the company on three primary work effort.
And they all ladder up to commercial service at scale.
Okay readiness fleet expansion and commercial strategy and execution.
On fleet readiness, we are beginning our vehicle enhancement program.
This will be a game changer in terms of predictability durability and slight rate capability more on that in a moment.
At the same time we.
We are planning for the expansion of our fleet with our Delta class B ships next generation mother ships to be known demand for our product to support our global ambitions.
And we're developing our customer base for commercial service.
Gaining a strong and engaged pipeline and future astronauts, while continuing to refine our consumer experience.
We are executing on all three strategic pillars simultaneously.
The work that's been done to align our organization to strengthen our balance sheet and ensure we have the right leaders in place will enable us to execute successfully.
The coming months, we'll continue to be busy for our company and for commercial space more broadly our peers like us continue to pass important milestone and as I've said before this is good for us.
Fueled demand normalizes the concept of space travel.
At the same time, we are building something very different.
We fly spaceships.
Visually amazing.
Purpose designed for safety and experience and they are distinctly different.
Our experience is different.
We focus on the journey and the memory not just on the right.
Our future astronaut community is different.
And all of these differences enable us to build a business for the long term.
Turning to slide four I'm going to start with an update on commercial sales I will follow with an overview of our enhancement program and near term timelines and close with our fleet expansion plan.
And then I'll turn the call over to Doug who will provide a financial update.
Moving to slide five and our commercial sales efforts.
We have open sales to our early hand raisers and we're selling chicken ahead of the pace we had planned.
Our pricing strategy, we announced last quarter has been well received.
A private house comp sales process is effective and efficient and it is architected to be scaled.
Given the newness of our product we start by broadly showcasing the all inspiring aspirational value of our experience.
We captured top of the funnel interest with leading CRM tools.
You needed 20 to accomplish this and brilliant fashion and brought tens of thousands of requests for information on our product.
After filtering this large demand in a highly qualified sales leads and convert these into signed contracts via a one on one sales discussions.
We then on board, our new customers into our unique future astronaut community.
With regard to the sales pace, we plan to onboard new future astronauts ahead of that in conjunction with the growth of our fleet.
For the current sales cycle, we are targeting to have our first 1000 future astronaut confirmed by the startup commercial Sir.
We've tested our sales process over the last two and half months or their space Spirit community.
As a reminder, this is a group of early hand raisers, who in 2020 placed a modest fully refundable deposits over $1000.
Reserve the right to be awkward reservations when they first became available.
It's worth noting that these deposits were made before we announced our updated ticket price.
The early sales indicators from this space peer group have been strong.
Since the timber space tourists are purchased approximately 100 seats that our new pricing of $450000 per seat each.
Each contract includes a $150000 deposit $25000 of which nonrefundable.
We believe these results from a relatively small group that had little Prequalification show, the incredible strength and appeal of our flight and our membership community.
They also indicate the significant value that people are recognizing our product at current price points.
We plan to closeout sales efforts with our initial space Fair group and other early Henry just before the holidays.
Beginning in early Q1, using a similar filtering process with the more than 60000 people, who have recently inquired about flight information.
We will offer the remaining slots to become one of our first 1000 astronauts.
The overflow demand from this group will be channeled into a new space apparent program, whose members will be given first access to the next tranche of space flights when they are made available.
As we've said many times, we know the traveling to space is perhaps the most meaningful journey that can be experienced.
Preparation in anticipation substantially deepen the impact of transformational experiences.
Is why Virgin Galactic focuses on the entirety of the journey not just the space flight.
This distinctly Virgin approach offers future astronauts community with access to unique and exclusive experiences let's start at the moment of sale continued during the buildup to the flight and then extend long after.
Our intention is to always have a committed group of future astronauts exceeds our near term capacity with embedded list of space fairs at the ready to convert ahead of new tranches of tickets becoming available.
Our private astronaut market, while the most visible as one of the three markets. We are built to serve.
The micro gravity research and sub orbital trading for professional astronauts.
The pricing strategy, we announced last quarter reflects this diverse offerings and is proven effective across all markets. We.
We continue to field inquiries for reservations across the world, including from governments and scientific researchers.
Shifting now to our flight test and ship enhancement programs on slide six.
The <unk> 22 flight was important for testing our customers.
It is important for jump starting our commercial sales process.
And perhaps most importantly, it allowed us all the dream.
The photos of Serratia, Colin that's been Richard peering down at her without Lookabaugh on their faces said it all.
It is clear that it was a transformative experience for them and prove to me that the <unk>.
We are offering is unmatched.
The flight was watched by tens of millions of people around the world what are the sharing the experience through our live stream.
That's the power of what we're doing.
Our in flight there was a significant amount of media coverage on an FAA investigation to an aerospace aviation that we failed to communicate in real time.
We were in a flight test program and testified as designed for constant learnings improvements.
We addressed the learnings and we move forward as we've done in this case.
Since much of the coverage in this topic has the potential to be misconstrued I want to address it is clearly and concisely as I can.
Our pilots anticipate plan and train for a range quite conditions, an acceptable flight path to take our ships to space and back safely.
Play conditions during unit 22 led to a flight that in line with our training and procedures that reached basis plant.
Less steep climb to space.
On a glide back to the runway sufficient briefly left our previously permitted airspace.
This is a scenario that requires notification to the FAA.
While the FAA is always in our control room during flight our flight test procedures did not have a specific protocol for mission control to communicate the situation to air traffic control in real time.
This required rectification.
We worked diligently and in full partnership with the FAA to identify solutions that was approved by the FDA in September and which concluded the investigation.
As depicted on slide seven the solution included the expansion of the protected their space for future flights, providing room through a variety of future flight trajectories, including the trajectory that was flown by <unk> 22.
We also implemented enhanced communication protocols specific George Spaceflights to ensure mission control related notifications to FAA air traffic control in real time.
These updates to our aerospace and notification protocols has strengthened our preparations for the commercial launch of our space by experience.
Moving to slide eight and our planned modifications for even unity.
These enhancements are designed primarily to meaningfully increase the flight rate capability of our original ships.
These changes will favorably impact the business for years.
Allow us to work through our backlog of demand and unlock the routine access to space as part of our value proposition and business model.
Want to take a moment to talk to the enhancements being made to each vehicle.
The majority of modifications will be performed on our mother ship.
We recently flew from Spaceport America in New Mexico to our manufacturing facility in Mohave, our work has already begun.
And just as an aside the picture you see here on slide eight is a real shot that was taken with a long land buy a company fan watching his recent client can do Mexico back to Mojave.
Beautiful reminder of just how elegant and aspirational spaceflight system.
As shown on slide nine these enhancements will focus on three areas.
First we're modifying the centre win and launch pilot.
This area is challenging to inspect and we're changing the design to a more robust structure that will greatly reduce the frequency of required inspections.
Second we plan to replace the horizontal stabilizer <unk> located at the back of the vehicle.
Third is the body of work to upgrade our avionics and mechanical systems and strength in various areas across the ship.
The volume of regular inspections and increased blight kids.
These modifications will increase the service life of the vehicle overall.
The combination of these efforts subject to testing and verification will see US target Inc. To complete 100 flights between major maintenance inspections up from the current interval of 10 flights between inspections.
While it is not flying we're taking the opportunity to enhance BSM community with the same goals in mind.
Program work is designed to reduce the amount of unplanned maintenance by reinforcing upgrading and replacing various joints and components located throughout the ship.
By reducing how often we need to expect these parts.
As with.
The culmination of these efforts will be improved flight frequency less maintenance and longer certified.
Subject to testing and verification our goal is a four to five week turnaround for unity.
Once our enhancement program is complete we will validate the upgraded vehicles through appropriate testing and begin commercial service.
Slide 10 depicts our expected flight schedule following the enhancement program.
Well first of all I E solo to validate the enhancements made to the ship.
In the second half of 'twenty two it will then carry VSS imagine to its permanent home at Spaceport America.
This is going to be an exciting milestone that will mark. The first time, we have two active spaceships and surface.
Unity should begin revenue flights, starting with research flights and adding private astronaut flights in the fourth quarter.
DSS imagine will begin its flight test program in 'twenty, two it's lifeline and we expect to imagine to begin revenue space flights in the first quarter of 2023.
Imagine we'll start with research payloads and then proceed to joined unity with private astronaut white.
As previously announced we recently re ordered our schedule and moved our research flight with the Italian Air Force to follow the enhancement program.
Although this change does not have a material impact on our revenues or timing of commercial service I'd like to touch on the reasons for the scheduled shift.
Our.
<unk> for the enhancement program include durability testing not materials used within our vehicles to better understand and enhance their service life and readiness for commercial service.
As part of this we've been conducting lab based test to expand our database on material properties.
These test help assess how certain structures could behave over their lifetime with an aim to improve quite rates by increasing the time between major inspections.
One particular test quite a possible reduction in the strength margin of materials used to modify some specific John.
For clarity, we have not observed any damage on our ships.
Over the test did flag the need to further analyze these joined to determine what if any enhancements would be needed to further increase their strength and enabled to find interval objectives. We are targeting.
Given the time needed to complete this work with logical and beneficial to avoid delay of the enhancement program by choosing to complete this work in parallel.
We expect the required analysis and if necessary in the follow on modifications will be completed within the schedule of the overall enhancement program.
Turning to slide 11 complete expansion.
As we said we are targeting a flight came to 400 flights per year per spaceport.
To get there we need to efficiently expand our fleet and that means growing both our talent base in our footprint.
To start we're investing in a new engineering design and collaboration center.
Our design and engineering team has been located at our facilities in the high <unk>.
Stronger it's Bobby has been a great facility for us and we will continue to maintain our presence there.
But we also recognize that growing the business requires us to be in locations, where we can access additional talent at scale.
We've made the decision to locate our center for design and engineering and the southern La Basin, where it has a strong aerospace quarter ranges from <unk>, all the way to San Diego.
Just recently, we leased the location in the heart of this aerospace quarter that will serve as the primary hub for R&D and the design and engineering of new vehicles.
Likely the Delta class patient in our next generation of other ships.
We expect to ramp up engineering and support team talent against these programs over the coming three quarters.
I want to take a moment to talk about these next generation vehicles, starting with the Delta the glass.
This is our production models patient, which is being designed to fly once per week over time, we anticipate delta class.
From an investment standpoint.
While the concept phase is typically only 10% to 15% of the program's overall effort.
Where can this phase usually determines around 70% of the total cost base.
Getting key design and manufacturing efficiencies.
And built and now it's absolutely critical for the success of the program over the long term.
These decisions are being made by a cross functional team of leaders, including engineers manufacturing and maintenance experts and pilots.
In addition to the conceptual design work, we've been exploring options to house, our Delta class station facilities, as we will need more space and is available at our mahogany factory.
We've been in contact with multiple municipalities about locations and have received interest from at least three states.
We expect interest to grow, but we estimate we will be creating more than 1000, new jobs and we're looking forward to the new opportunities and community relationships and our expanded footprint will brand.
As we add these patients.
We will need additional motherships beyond <unk>.
Since the mothership relies primarily on airplane technology, which is industry standard theres opportunity for us to benefit from third party expertise for the majority of parts and fabrication.
This will allow us to increase our speed to market and realize meaningful cost efficiencies without sacrificing quality or performance.
We are in advanced negotiations on a strategic relationship for the production of our new motor ships and we will provide updates on our progress on both the Delta class and Nextgen mother ships on future calls.
Regarding our second patient three vehicle BSS inspire we're continuing to evaluate the most efficient path forward.
Our priority is commercial service and scale and then the immediate term we are directing our resources towards Eve community and imagine all simultaneously expanding our engineering team for the development of the Delta class Nextgen membership.
Update you on inspire in future earnings calls.
I will now turn the call over to Doug for a financial update.
Thanks, Michael and good afternoon, everyone turning to slide 12.
Before I review the financial results for the quarter I'd like to begin with a few comments on our broader financial strategy.
As you heard from Michael we continue to see enormous demand for our space flight services.
To begin to address that demand our objective is to expand our fleet efficiently and the <unk>.
Short term enhancement period is a critical element of that strategy.
Creasing, the flight rates and extending the service life of our current fleet will provide meaningful benefits for years to come we.
We are pleased to be embarking on a central phase of work because it brings us closer to the start up commercial service next year. In addition during this phase we are completing the preparation of BSS imagine, thereby adding a second space ship to our fleet.
In connection with the enhancement period, you'll see a noticeable increase in the Companys expenditures next quarter as we will be actively working on multiple ships concurrently.
Looking further out we expect that the elevated activity level look spend into 2022 as we complete our planned enhancements.
An elevated level of spending is also expected to continue in the second half of 2022 as we focus on expansion of our fleet, namely the development of the Delta class of next generation mothership.
We plan to scale, our engineering teams engage the supply chain and develop tooling for these new vehicles. We are excited to be transitioning to this important phase in our company's overall journey to scale up our capacity to meet the tremendous demand for space flight services.
We expect to share more details on these programs on future calls.
Our balance sheet remains an area of strength for us.
We are well capitalized securities of approximately $1 billion.
As of the end of the third quarter.
Going forward, we will continue to evaluate opportunities to raise capital as we grow and scale our business.
We plan to use a combination of cash on hand revenue from commercial space flights as well as future inflows of capital to fund our strategic objectives.
Let's review our results for the third quarter.
Free cash flow was negative $53 million.
Compared to negative $39 million.
Prior year period, and our guidance of approximately negative $65 million for the third quarter.
The variance to guidance was primarily due to a shift in the timing of the unity <unk> III flight as well as the start of the enhancement program both of which resulted in lower spending than previously forecast.
We also received higher than expected cash inflows from the sale of private reservations following the reopening of ticket sales.
Looking ahead to a negative $85 million to $95 million.
The increase in spending relative to the third quarter is expected to be driven primarily by the increased activity I mentioned related to the <unk> period as well as the work we are performing on the Delta class mothership programs.
Insistent with prior years, we also expect to incur certain public company costs in the quarter.
Turning to slide 13 in the income statement.
The generated revenue of $2 6 million in the quarter related to sponsorship activity from the unity 'twenty two space flight in July as well as revenue earned under government contracts from progress on the completion of certain technical milestones related to payload services.
Total GAAP operating expenses for the third quarter were $85 million.
Compared to $77 million in the prior year period.
The increase in expenses was primarily due to marketing related costs attributable to the units 22 space flight and the reopening of ticket sales as well as an increase in employee costs and noncash stock based compensation expenses.
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 $70 million compared to $66 million in the prior year period.
GAAP net loss for the third quarter was $48 million compared.
Compared to a loss of $92 million in the third.
Third quarter of 2020.
The decrease in net loss was attributable to the change in the fair value of warrants, partially offset by an increase in stock based compensation expense.
Adjusted EBITDA was negative $68 million.
<unk> to negative $66 million in the prior year period.
I'd like to now hand, the call back to Michael.
Thanks, Doug.
Before moving to Q&A I want to leave you with a few observations about our industry.
<unk> why I'm, so confident on our future.
Demand for space travel will outstrip supply for the foreseeable future.
Second we are truly differentiated in the sector.
What others are doing is helpful and their success is good for the industry overall.
We have a different approach not just the space like to the entire consumer experience right from the moment of sale.
Finally, we are selling much more than a chance to tier three space.
That loan is remarkable.
Created a meaningful community and we continue to find that there's a strong desire to join us as evidenced by our ability to convert our followers and the future astronauts.
It's an exciting time for the company our long term vision is strong our goals are clear and we're making meaningful progress.
So with that we'll turn to questions. Operator, we are ready to begin the question and answer portion of the call.
Okay.
And lean now.
Now begin the question and answer session.
I'd like to ask a question. Please press star followed by one on your Touchtone keypad. If for any reason you would like to remove that question. Please press star followed by Tim again to ask a question. Please press star one as a reminder.
Speaker phone, please remember to pick up your handset before asking your question, we will pause briefly to allow questions to generate in Q.
With Cowen you May proceed.
Hi, Thank you Michael as we look ahead.
The supply chain will be very important.
Some key aspects in terms of the priorities there.
The.
Some of the bigger challenges slash opportunities you have as you formulate and construct a really robust supply chain and capabilities there.
On the.
There is a balance of magic and logic here on the magic side and the consumer experience it sounds like the.
The ticket sales were very well received.
What are your thoughts going forward as you think about the more broad consumer experience.
Youll incorporate friends and family and as well as thinking more broadly about pricing and opportunities. Thank you.
Thanks Oliver.
So the first one on supply chain.
I think there is we have three components of our space flight system. There is some other ship the spaceship in our propulsion system and our approach to each of those will heavily integrate the aerospace supply chain aerospace organizations within the supply chain, but in different ways. So for the mother ship.
We are actively pursuing a strategic relationship.
To kind of accelerate in advance.
Engineering and tooling development as well as the then manufacturing and assembly of that piece.
Our mother ships as Youre aware our.
More of a standard aircrafts piece its unique clearly, but we can leverage supply chain really well there so that will be taken heavy advantage of the supply chain there.
Very pleased with the progress we've been making on that with our spaceships.
Okay.
As we scale now have more opportunity to go into the aerospace supply system with greater volume and that allows us to do more leveraging the supply chain both for parts.
Sub assemblies and for some of those can be very large sub assemblies, along the way as it goes so as patients will also take heavy it's done we brought in a new leader of our supply chain business Lisa She is fantastic.
Okay great.
Great experience started with Honeywell and has gone through aerospace.
Supply chain for quite some time and she's really ramp.
Jumpstarted our efforts here.
As to the kind of magic and the logic.
Yes, we were very encouraged with the response from our space Farer community.
They're wonderful for people, who have been along with I was just for a little bit but reasonably at little work on our part D kind of around 100.
Spaceflight reservations.
From that that group at the new price points, we just thought it really showed the value of what we're doing now you are talking about.
Okay.
Where are we going on the consumer experience, we didn't bring much to talk about today, but we are parallel passing.
<unk>.
We're generally looking at it as kind of a word of the astronaut campus that we will be <unk>.
<unk> is a place where as we start to scale up with multiple flights in quick succession, where will that people would be preparing and the number of days before and the day. After their flight that work is very exciting we will be bringing that forward in future earnings calls and embedded within that work Oliver is.
Parallel experience tracks for friends and family to come in we do expect the astronauts to bring friends and family we do expect that.
That is kind of incorporated into the price point as they come.
Along the way so that $450000 price point includes the ability to bring some friends and family and we think that is a variance for the astronauts stronger.
I think this is going to be the first people raising their hands, saying I would like to go next.
<unk> been through and seeing what's happening up close to having the most of that so good progress.
<unk> on that one and more to come in future calls.
Thank you best regards.
Thanks Oliver.
Question comes from the line.
Hernandez with brands.
Thank you.
Hey, Doug I wanted to.
Hi, I wanted to first make sure I understood.
On the demand side, so you had.
And then you've added 100 since you.
So the higher price point of 450 K.
But you said you've got about 60000.
Expressions of interest.
Easily it seems that way.
You sort of filled up those last 300.
Slots pretty easily out of that.
How does that work.
Why is that not the case that you really could get immediately to that 1000 level.
Well first let me kind of clarify.
Clarify the numbers and how to think about each of them and then generally I I agree with you. We are very positive and optimistic on on filling the last thousand which would be our first 1000 before commercial service sales fair community.
1000 people with pretty little Prequalification as we discussed.
And.
We actively use that.
Quite beta test, but used it to test our sales process right. We have CRM tools that we've brought to bear against this.
On a fairly small audience population could test the kind of customer journey, we would use to take that group into very highly qualified leads and with those leads is where we've invested the time for one on one sales the conversion rates from the sales calls to actually committed spaceflight reservations was.
Very strong.
The other thing that we're pleased pleased about along.
The way so we like how our CRM mechanisms did the right level of filters and from from that going forward now separate from.
Following unity <unk> 'twenty two.
We opened up our kind of our interest list just that just kind of raise your hand, if you're interested in learning about our products and we had around 60000 people say, yes. Please send me information about your product your space flight I'm interested in finding space.
Once you actually make the trip with.
All of what's involved but some of them as they learn about the information we will probably be aspirational asks.
We're down the road. So this is now that we use the space fair group to assess the customer journey.
By that effectively at the 60000 or bring back.
Quality.
Candidates to put the effort of our individual calls.
So that's how we're doing that.
Reason, we are being purposeful in the pace is each one of these people we onboard into our future astronaut community and that's very very important because this is where people will spend the time mentally and kind of emotionally preparing for this space flight.
We have the time to do it we know we've got.
Eight to nine months expansion Alright enhancement program in front of Us and we know we'll be starting to fly up conversion service in the.
<unk> fourth quarter.
What we're expecting so we are trying to do this well that's why we started with this first group of space fares.
We'll see what we do expect.
People are going to likely have much more demand versus the remaining 300 or so.
We have left in our first 1000.
And we will then take the overflow that 60000 demand funnel into a new space Fair group and Thats. The group, we will give first access to the next tranche of ticket. So we're always going to stay active at the top of the funnel, but then released tickets and tranches. So that we can put a dedicated sales effort against this and always stay ahead of the pace.
And then if I can on the schedule that you've talked about.
For the next mother ship for the <unk>.
Delta class now as I understood. It before the intent had been to do.
30 about 36 flights.
In 2023, and then have the Delta class ready before 2024.
The change in schedule.
<unk> talked about and then also some of the things is a new development center. It seems like you've got a lot to do here.
How long does that schedule change default if at all.
So.
A couple of things I'd say, while there is clearly work to do as we grow our commercial business as I kind of set out at the beginning of the call. That's where we've really spent the last nine months positioning the company to be.
You want to handle that work.
And the focus of the company with additional resources that we brought in at the leaders in building up the teams to go. After this all of which is done in a way that we can move off of.
A couple maybe a milestone focus which is done during the project type.
In phase two.
Very specific and purposeful.
As $2 23.
What we've tried to give is we expect community, which will be coming onboard for commercial service in the end of.
'twenty two we.
We expect it to fly it basically on a monthly basis, and then with I imagine it will start its flight test program in the first quarter of 'twenty three.
That will be using those will be ready as we get into the second half of 'twenty three we will flip imagine over from research into private.
Astronauts rights, so and we think.
Imagine we expect to run on kind of a twice a month every two week basis. So that gives you some ability to do some calculated on flight rate in 'twenty three we have not.
Provided guidance on the timing on the Delta class, but what I would tell you is.
We expect the Delta program to be on par with other rapid aircraft development programs are staying with the mother ship. There. So we are.
The design center down in the southern L. A basin.
Keeping up our engineering resources why.
Hi chain with some strategic relationships right.
Right off the bat all of these are to get this work going.
Strong order.
Okay very good thank you.
Thank you Mr Ahmed.
The next question comes from the line of Christine the lag with Morgan Stanley You May proceed.
Hi, Christine.
And are you there.
Maybe you're on mute.
Operator, why don't we go to the next question and it Christine comes back into the queue. We can come back there.
Certainly.
Mccain So Christine your line is now.
Now open.
Chris can you guys hear me.
Yes, Hello again.
Oh, great. Thanks, sorry about that.
Michael.
Fleet expansion can you discuss the cash investment requirement for the <unk>.
Even hansman enhancement and the timeline of that cash cost.
So I'll give just a note on what we're doing and maybe let Doug pick up any specifics behind it but youre seeing our spend going.
Two a larger amount in the fourth quarter is kind of guidance, we're giving and that makes sense alright. We are working on multiple shifts as we go into this enhancement program that enhancement program is going to carry itself out.
Kind of in the manufacturing facility all the way through the first half of next year, So that's where.
Heard Doug sharing that we expect that elevated level of spend to continue into 'twenty two and then as Thats happening. We are of course also building up our.
Our design efforts moving into tooling and moving into.
Kind of the early ways in which we're going to get the Delta and the mother ship programs.
Have accelerated beyond concept and design and into those later phases. So that was the structural piece I'll, let Doug maybe talk anything further from a specific standpoint, you would want to hear you Doug.
I think it's important to think about the phasing of this work and we're really excited to be moving into this next chapter here with expansion of our fleet.
With the new mother ship than the adult class at the front end you've got the investments in NRT.
The initial part which is.
It's geared towards that first first started back there in the fleet and you'll see that investment that we then get the leverage as we go forward because we now have invested that.
Time in the design and then we make copies basically as we roll forward. So we've got sort of that.
Front front end investment that pays dividends for years, but as Michael mentioned <unk> got the Emory phase interconnected.
Tooling gets going and you start to get into supply chain development, and then leading into.
What parts fabrication and assembly, so they'll phase in that traditional order, but the front end will be mostly focused on the entry.
I see and maybe following up on the VSS inspire.
From what I understand you guys have the parts that can build that space ship already what would make you was it a decision tree here in terms of building that or maybe going straight from imagine to delta.
Sure. So we have about 85% of the parts of inspire have been completed.
The priority for us is to get to commercial service and scale it.
Our clear first into areas getting through this enhancement programs. So that we can bring unity imagine with the mother ship Eve.
Greater capacity with it now.
We'll be as Doug mentioned, while we kind of go through it in our <unk> period here that we're going to be making copies right. That's a production model space ship that will be less expensive.
To build and operate on a per spaceflight basis and at a much.
Much higher rate of service that we will get more throughput on it.
That was a clear that along with the new mother ship that will carry that Delta program of ships. Those are the main priorities right now and so then inspire allows us an optionality.
And so we're taking our time to assess when and where and how to go forward with inspire but we are clearly putting our efforts right now into those three legacy ships as well as the future fleet with Delta and the next motion program.
Great. Thank you very much.
Thanks Christine.
Thank you Ms Carrie long.
The next question comes from the line of Ron Epstein with Bank of America. You May proceed.
Yes.
Thank you.
So just maybe a follow on to some of the prepared remarks.
You guys mentioned potential future inflows of capital to help finance all of those are you thinking about that.
More equity.
The converts I mean, what are you thinking about.
Sure I'll take that Ron so thanks for the question.
So we're headed into an important phase of activity right here, which is I think kind of provide some great catalyst for our company. We've got the enhancement program going on getting us ready for commercial service. We've also got delta in excess of other shift.
Work going on to expand our fleet. So do you expect those to be good catalysts for our company as we move forward.
Keeping in mind, we have a $1 billion of cash.
Cash and equivalents on the balance sheet, so that gives us a great runway for this work.
I know you've got space flight revenue starting to kick in already deposits coming in and that will continue and so then that leaves us with opportunistically looking at the capital markets as needed, but again, we've got a good.
We have options right.
Multiple ways to go about that whether it's equity or debt. Those are all available to us and we'll look at those more closely as we get to that point.
Got it and then maybe just a follow on the supply chain.
How would you.
As you guys want to wrap up.
As we're all of civil aerospace will be ramping up.
The.
Oems will be ramping the business jet manufacturers will be ramping.
How are you going to manage that.
Typically.
The big guys trying to get first dibs at the trough.
No.
How do you think about that and how do you manage that risk.
But I think it's a lot of that goes to selecting your supply chain partners thoughtfully.
With supply chain partners that are excited and looking forward to diversify their business with things of what we're doing.
Versus somebody who just really needs to focus on giant volume of commercial air.
So, but there is a <unk>.
Wide ecosystem as you're well aware in that category now and the management of that ecosystem.
Tend to be.
As with most supply chain efforts, ensuring the quality and the partnership with those.
<unk> is really really critical so we will be building our supply chain team to be present, both with the suppliers when theyre large major pieces as well as a very intensive quality efforts.
Parts fabrication and things like that but.
But we think there is going to be great response, we've seen great response in the supply chain for what we're looking to do and the volumes in which we are doing it there.
But we just we will be thoughtful and we have enough.
Current options in front of us.
We're not concerned I think to the question you are raising.
They're just going to be no capacity in the aerospace.
By area, we do think the economy's coming back we do see aerospace coming back, but we still see plenty of supply and partners who are interested in working for us.
Got it got it and then and then maybe just one last one.
Given all the changes in the programmatic.
What's going on when do you expect to be cash flow positive.
So the key to that will be really the ramp of the Delta class and that's what our focus is on.
When you start to see the volume.
Ships ramp there in the passenger car.
<unk> ramp that provides.
Real significant increase in our in our cash inflows, which.
That's kind of a point in time to think about.
Thanks, Ron.
Thank you Mr. Epstein.
The next question comes from the line.
Hi, Scott Forbes with Jefferies. You May proceed.
Hi, Thank you just to kind of circle back to the demand side, you talked about some positive feedback around the updated pricing, but has there been any impact to order conversion from the slight delay in have you seen any meaningful change in the demographics of your customers.
Let's see first on delay we have not seen.
I would call it any impact to our demand or really even to our existing base for future astronauts from.
From the shifting schedule and we're just.
And the movement of units 23, just for clarity, while we move the unity 23 flight.
That one individual flight from the beginning of the enhancement period to the end so that one flight.
Has has I'd say a multi month.
Shift.
The actual shift our overall program.
De Minimis.
So we.
Imagine will come onboard the delta classes and impacted by this change in when you did 23 is so our actual building up of real flight capacity and movement of the future astronauts isn't impacted by this much at all so we haven't seen an impact from that standpoint, and then Im sorry, Scott one was.
What was the second part of your question there.
Just the changing demographics and our customers.
Okay.
We are we're still early we've had 100 people come in from this space Fair Group and this was a group that was.
I would say.
On board and hand, raising even before <unk> 22 in our next outreach. So we will have to go through and sort the demographics of it but probably is more relevant as we then go through this next 60000 to kind of close out the first thousand people.
That's where I think we'll start to have enough data in front and we can bring some of that data back on future calls. So I think it's a good question.
And then one quick follow up I mean, you've been able to largely navigate through these issues as they arise pretty pretty well into the development phase but.
From a overarching risk perspective, where do you see yourself on the learning curve as you kind of move towards unlocking this full flight potential.
This is as I put kind of I think even on the front slide.
At the beginning here. This is a really important period for us and we talked about it it's going from a prototyping space innovator.
Which is where this company has been and really a powerful and audacious task has been completed and now we're going to become a global scaled commercial enterprise and that comes along with a bit of.
That comes along with the requirements to be able to plan and in a more focused and more predictable fashion.
The work we've done over.
The last nine months has been building towards this how we focus the company.
Whereas as a.
Typer.
Okay, let's.
Let's get to the next slide.
Let's get to the next singular flight and everything kind of running on that milestone what youre seeing now is just a very good example, we're taking.
A multi month period here to take the ships to where they can be.
Bolstered to where they are able to fly without.
Inspections on a flight by flight basis, and that moves our cadence up right. Those are long term decisions.
All of our focus is trying to move the decision making of the company to create value for the long term.
And then we've taken that focus added.
Really strong leadership coming in we have incredible engineering and manufacturing challenges, we're now adding to that so this is the period, where we're moving we feel very confident.
Baseline system.
That was what that Big first chapter was is getting that technical risk worked through and put into a place where we are now ready to commercialize. It. So we feel very confident in how we're moving forward now with this phase and Thats why youre seeing us take longer time periods to basically kind of lock it in and takes longer time periods.
To get that.
Design of the Delta class that we can now deliver those on cost effective basis that allow flow through to happen on cash side. So that we can really.
Thank you.
Thanks Scott.
Thank you Mr. For your next question comes from the line of.
You May proceed.
Hey, good evening guys.
Thanks for taking the question, maybe just a follow up on Ron how are you on Ron's line of questions.
And commercial partners I think earlier you mentioned some NRI cost are you guys bearing all of these in R&D costs and just how are you maybe negotiating contracts with some of these potential.
Please follow me now built to print work.
Are you asking supply chain to potentially take on for Mark.
And it varies by component of the program.
So with the mother ship.
Again as kind of more things in common with classical.
Okay.
There are some choices there and some of the supply chain can help accelerate our design.
That part is a unique mother ship it has unique functionality.
It is.
Okay.
Less the core of our intellectual property around our space flight system and so we can take advantage of engineering partners as well as tooling manufacturers parts manufacturers fabrication and assembly and all that so that's on that one on the <unk>.
Ships that is really a core technology that we are really pleased to have <unk>.
Love. The fact that we fly Wink based planes and we will maintain the engineering and design of that ourselves.
Then there is all sorts of opportunity around parts and sub assemblies with that and we will explore even into their options. We have around kind of assembly as you carry that towards the final instead.
Program, So a lot of choices in that but the spaceship itself I think youll see us hold on to kind of the core IP around that.