Q2 2022 Virgin Galactic Holdings Inc Earnings Call
It allows us to work quickly and efficiently with our partners utilizing a single digital threat database for all production activity across the supply chain.
In July we executed a long term lease for a new final assembly facility for the Delta class spaceships facilities.
Facilities planned to have capability to produce up to six patients per year, providing scalability needed to support our business model.
Construction has already started and we anticipate the facility will be fully operational by late 2020.
Supporting our goal of rolling out the first off the ships in 2025.
The location of the Phoenix Mesa Gateway Airport is highly advantageous to our plants the greater Phoenix area as an innovation hub with outstanding Engineering and technical talent driven by a long history of aerospace development reach.
There are excellent aerospace technicians grows in the area and the facilities location on the airport ramp allows for new patients to be picked up by our mother ship to new Mexico for flight testing commercial operations.
But the Aurora, our new final assembly facility in Phoenix, and our soon to be selective Delta class patient collaborators. We will have in place most of the core pieces of supply chain manufacturing footprint that leverages the best in the aerospace industry.
We are confident this manufacturing approach, we will be able to deliver the quality speed to market that we desire to scale quickly.
Turning to slide six.
A major part of delivering the astronaut experience so technical operations the team of maintenance ground services support engineering and quality assurance personnel that ensures our space flight systems fit and ready to fly on the intervals that we expect.
We have a terrific tech ops team at Spaceport America carried us through our flight test program, we will be expanding the capabilities of this group as we enter commercial service.
To lead this expansion and the architect of the operations model the technical infrastructure processes differently.
10 times on the ships I am very excited to share that Mike Moore has signed on to Virgin Galactic as executive Vice President baseline technical operations reporting to me.
Mike has a 37 plus year career in aerospace starting as an airforce mechanic and most recently serving as senior Vice President maintenance operations and MRO services group for Delta Airlines reflect global technical operations for one of the nation's premier air carriers.
We are thrilled to bring a leader of Mike's caliber and the Virgin Galactic charter courses, we position as a critical part of our business our highway service and operations.
Turning to our customer experience on slide seven.
For the first year as a commercial operation our astronauts will spend several days before their space flight training together Spaceport America, which has facilities can support several bikers per month.
However, as our Delta class ships come off the line of Phoenix and flight volume increases materially Spaceport America will transition from a multipurpose facility to a high volume eight point, a technical inside operations facility or groups of people arrive on a near daily basis to embark on a life changing triptans phase two project black.
At this stage, we will need separate facilities to accommodate train and engage larger volumes estimates and their guests during the multi day lead up to the site experience, while still providing a personalized high touch truly distinctive experience, but a signature of the bridge.
Dislocation or as we refer to as the astronaut campus, that's where the elements of the consumer experience coming out.
As we shared earlier this week, we acquired land in <unk> County, New Mexico, which will be home to our first astronaut cats.
Our intention for each restaurant campus has created distinct one of a kind destination.
Handzus restaurants, Cherokee by taking design and programming inspiration from the location on Earth above which we fly.
Our first campus in new Mexico will do just that.
As you can see from this aerial view of demand, which is located in driving proximity to Spaceport America, our astronauts will be training for their flight from a perfect location.
The Master plan for the campus will include training facilities, purposeful accommodations and tailored experiences as well as an observatory wellness center recreation activities and unique dining options all underpinned by Virgin signature hospitality.
Campus will be built against this study picture us landscape with a focus on sustainability and minimal impact to the surrounding environment.
Campus will be designed to work in synergy with new Mexico spectacular natural surroundings, and the build out will be timed to match the expansion of our future fleet.
We havent heme a best in class experience creators working too dramatic designed to create an immersive environment and we will look forward to sharing more about the estimate campus experience in future updates.
On slide eight I'd like to spend a moment on our astronauts membership experience.
As a reminder, when customers join our future ASP that community at the point of sale. They gain access to one of a kind experiences events trips and activities around the world all curated through enhanced gastro journey and delivered with trademark merchant side.
This time of the community is essential to keeping easy understanding and appreciation of space and preparing our customers emotionally and physically for the transformative experience in a way.
We are developing this membership experience around three core pillars education, and enrichment astronaut development and training and impacted inspiration.
An example of our approach will be our Mark key Precipitant space for the curious.
The inaugural Ventas scheduled for early fall and we intend for it to become an annual or twice yearly event and we can export from markets around the world as we continue to grow our global footprint.
This upcoming event will be a three day program for future astronauts set against that backdrop and dark night Sky of Lam.
It's been curated to enhance our customers' understanding of why space exploration matters and to give them access to world class insight expertise and skills to help optimize their own space by experience.
Even includes thoughtful discussion outdoor activities music and hospitality experiences designed to support those three core pillars to <unk>.
High level programming will include guest speakers to facilitate education and enrichment and help prepare and develop our future astronauts airplane.
Discussions on the importance of space to science research and planning activities.
Activities focused on health wellness and preparation for the journey to space and a wide range of social activities that will inspire and excite including star gazing with professional astronomers.
And Vincent activation like these are all purposely designed to ensure our customers two to three near term.
The journey that culminated with a trip to space on board our distinctive patients is even more enjoyable transformative.
As expected.
While the first of these future astronauts will begin flying in space next year. The limited capacity of our initial fleet into our later booking customers, who have a waiting period beyond the two to three year journey, we prefer.
We expect this extended wait period will resolve as we near completion of our delta questions and enhance our fleet capacity.
Turning to slide nine for growth markets.
As we look ahead to higher volumes, we are using to limited availability remaining in our initial tranche 1000 reservations to purposely developed two market segments that we expect will contribute meaningfully to our future demand.
The first of these market segments of scientific and government research. We have a long stated goal of building a meaningful research business by offering routine and reliable access to space with a flight profile that can be tailored to the payloads onboard we are able to offer something entirely new highly valuable private and government research market.
This is a strategically helpful market for our business model is it commands a significant price premium to our current commercial passenger price plan.
Also provides a positive brand benefit to the company are contributing to scientific advancement.
Market interest and feedback around our research product has been very positive.
We continued to yield increase for research missions from across the world, including from government and scientific researchers and we plan to see this market now to develop its volume in advance of our future capacity increases.
We have learned the nature research and Austin the research funding by cycle means these customers require a shorter and more clearly defined timeframe between sale and place an.
In order for us to continue cultivating this market, we need to allocate near term availability of research seats to match funding cycles, the logistics for research projects.
To strategically pursue and Steve This market, we reserve, 10% of our first 1000 seats for science and technology research missions.
We will manage these through a separate bike manifest it runs alongside the private astronaut manifest.
This limited allocation will allow us to meaningfully engage in growth the research marketplace over the next one to three years without having a material impact on the final timing of our private astronaut customers.
The second market, we wish to develop as the luxury travel sector.
As commercial spaceflight becomes more normalized during the next few years, we expect the high end luxury of adventure travel markets to price a material percentage of our demand.
We expect to ramp our internal sales team to capture much of this business and we've recently hired a dedicated vice president of sales to begin to build up the industry.
We've also received interest from travel industry experts some of our deep connections within specific geographic markets to augment our internal sales efforts.
To assess the potential of a travel industry partner as previously announced we're very pleased to provide exclusive access to a limited number of our remaining seats to <unk> the world leader experienced driven luxury travel.
Similar to how we are aligning with the aerospace industry scale at fleet. When we look at ramping customer acquisition scale. This alliance with virtual observer as a natural extension for us and a strategic cost efficient way to access new customers.
Partnering with virtuoso gives us immediate access to deep relationships with customers around the world who are looking for a one of a kind journey, who may not yet have considered spacecraft.
We will continue to manage our own sales process and plan to continue selling our product directly.
Same time, it makes sense to explore a superb quality partner that opens the door to an untapped established and diverse clientele as we expand interest and increased access to space.
As a referral arrangement virtuoso will leverage that network and expertise to identify and refer potential speaks to Virgin Galactic and we'll maintain control of our high touch end to end customer sales check and the powerful data and insights to come with that.
Allowing for the research and virtuoso allocations that will help prime these future growth markets, we're reaching the end of our first tranche a 1000 seats.
Tenda reserves, the remainder of the SEC and are available at the current $450000 price point referrals from our existing customers.
We plan to open our next tranche has been slight reservations. After we began flying our current customers.
On the topic of applying our current customers, let's move to slide 10, and the enhancement program associated with our efficiency.
Enhancements to eat immunity are designed to significantly improve the durability and reliability of these ships.
<unk> higher frequency slight rate for commercial service.
Last quarter, we shared that like many companies around the world, we are experiencing elevated levels of supply chain disruptions as well as labor constraints.
Many of these conditions have persisted through Q2 and are keen to put forth incredible efforts to navigate the many challenges presented.
I want to thank everyone at Virgin Galactic has been part of that ongoing effort.
However, despite our best efforts progress on our enhancement program and Mohammed, particularly the complex work to prepare you for commercial service is taking longer than we planned.
Our customers our investors and indeed, our entire team are all desiring to ease in the back of the skies kicking restaurants to space.
On ease of course must be completed before we fly and we have shifted resources within the Mojave team to bring additional support and help bring eases investment program to successful and expeditious conclusion.
Given where we are in the east enhancement program and factoring in appropriate contingency. We are shifting the expected launch of commercial service from Q1 to Q2 of 2023.
We anticipate conducting spaceflights with VSS unity in Q1 of 2023.
The work specific to <unk> enhancement program, which we can report is nearly completed should allow a monthly turnaround time.
The image you see here because the peak at year to date, new metric being installed at Spaceport America.
As we have concentrated our Mojave based talent to support the work on our mother ship the.
The plan timeline for VSS imagine will be extended due to this reallocation of resources.
As it stands today imagine is scheduled to commence test flights in mid 2023, and private <unk> servers as soon as Q4 of 2023.
Imagine as a new vehicle and will require a sequence of plans test slides before Terry's private estimates.
The variability inherent in flight test makes it prudent for us to allow for appropriate scheduled flexibility, which could potentially extend the measures window private as strong service into early 2024.
Work on Ive needed to complete and we are very excited to hear come out of the hangar this phone.
Even more exciting are the building blocks that we've put in place for the development of our future fleet and our astronaut experience.
Continue to manage the company for long term growth and value and we are very pleased with the progress being made in that regard.
I'll now turn the call over to Doug for an update on our financials.
Thanks, Michael and good afternoon, everyone.
Turning to slide 11 on our financial results for the second quarter.
Generated revenue of $357000 in the second quarter, driven by future asset membership fees.
Operating expenses were $110 million compared to $74 million in the prior year period.
The increase of $36 million.
This is primarily attributable to higher R&D costs tied to our fleet enhancement activity and the ramp up development work on our future motherships spaces.
We reported a GAAP net loss of $111 million compared to $94 million in the prior year period.
Adjusted EBITDA was negative $93 million in the second quarter compared to negative $56 million in the prior year period, primarily driven by an increase in operating expenses.
Free cash flow was negative $91 million at the high end of our guidance for the quarter compared to negative $66 million in the same period last year.
The increased spending is largely due to higher operating costs tied to our fleet enhancement activity and the ramp up development work on a few some other symptoms basis.
Our balance sheet remains strong with over $1 $1 billion in cash cash equivalents and marketable securities.
The details Michael shared with you around our manufacturing approach with analysis of patients and the investments we are making our future there.
Are all consistent with our long term commentary, we have shared with you in prior quarters regarding our approach to the business model.
Leveraging aerospace industry supply chain those major sub assembly allows our team to focus on design Engineering final assembly and ongoing operations and maintenance.
Collaboration with companies such as Aurora allows us to minimize our capital expenditures for infrastructure required to scale the fleet.
And significantly accelerates our time to market.
As you can see we are rapidly moving ahead on our plans to scale the business.
Many of the building blocks that Michael and I have talked about over the last several quarters are now in place.
We are making strategic investments from a position of financial strength.
The momentum of the business at a healthy balance sheet.
Furthermore, we believe it is appropriate to take steps to give us financial flexibility going forward.
And today, we filed a prospective supplement and established an aftermarket program to sell up to $300 million of additional common stock.
We are excited about the investments we've outlined the <unk>.
<unk> mother, and infant sector surrounding Asphaltic spreads, we therefore plan to always maintain a solid balance sheet, enabling us to fulfill our strategic plan of becoming a scaled commercial baseline.
Moving to guidance on slide 12.
For the third quarter, we forecast free cash flow to be in the range of negative $110 million to $120 million.
As we continue to ramp up our efforts to scale. The business. We anticipate this number will continue to grow over the next several quarters.
I'll hand, it back to Michael for some closing comments.
Thanks, Doug.
2022 here, we set ourselves up for scale and for the long term.
We're moving into a building phase of our future.
Building out the factories cultivating the partnerships and growing the campuses teams to networks that will take us into the future.
Shifting our commercial service launch to Q2 2023 is a short term challenge, but does not carryover to our longer term objectives.
We are taking an intentional value driven approach to the business and we now have several core elements in place for us to scale the world's first commercial baseline in a meaningful way.
These include development of our next generation mother ship for Tomorrow.
Bridging the aerospace supply chain to provide major sub assembly spread delta class patients at our new spacious accurate themes.
And bringing together, an unforgettable and truly deep consumer experience in new Mexico.
How many months will continue to be very busy for us and looking forward to sharing updates on our progress and with that I will turn to questions.
We're ready to begin the question and answer portion of the call.
Thank you speakers.
Ladies and gentlemen, if you would like to ask a question. Please press Star then one on your telephone keypad now if you wish to withdraw your question. Please press star followed by number two.
When preparing to ask a question. Please ensure your phone is on mute it locally.
Our first question comes from Greg <unk> from Jefferies. Greg Your line is open.
Good evening.
Maybe to start.
I don't know I Didnt hear an update on kind of backlog I know last quarter. It was at 800 seats.
Where does that stand today and then given the commentary is there any government seats in there today and does that mean that more than 5% of the.
Remaining competencies theyre going to the government with the rest for Ferro.
Yes so.
As of the last quarter.
We had talked about having approximately 800 trash trucks.
That's been very very few of those where the research market.
And as we were and we went ahead and closed out some more of those private astronauts that were there earlier in London earlier in the quarter.
As we have been looking to build our research market.
We have great response, and we also have very great consistency.
The research that I have needs to go in a certain timetable.
And if I'm coming in at the end of the manifest.
While I understand why that would be I can't commit because I need to get my research going at this timetable.
And also again not surprisingly the funding cycle for research, whether that'd be private or government is a shorter duration and so in order for people to apply for their funding for the grants.
To have a day ahead of time and we just didn't have any inventory because we were putting it at the end to be able to offer it up to this market and so we made a decision to make a strategic shift and take 10% of that first thousand seats.
And put into the research market.
And.
As I kind of mentioned earlier. The reason is we want to see this I think this has potential to grow but we need to allow people to actually use our platform for this and we had to create a parallel manifested to them but.
So it takes us from eight.
800.
There's another 100 basically for research allocations, we closed some more earlier in the quarter before we basis kind of a strategic shift to the research piece and then the second growth market. We're trying to go after.
Is luxury adventure travel now on all but I'd say, a heavy percentage of the people that we have right now and that are fine our space enthusiasts somewhere on their background has been a natural end.
Instinct and interest in getting into space and then that will continue.
There is a much much larger group out there that does very high end luxury adventure travel and as this gets normalized right over the next few years when people do that that will be a phase III one cabin.
Those people are all around the world and this partnership with virtuoso gives us a chance.
In a limited way with the limited number of seats, we have left to see if they can kind of expeditiously go after people that they already know.
And offer up the seats, so that we start to see that luxury market and we get kind of a run with a world class partner and see if they can bring great people to us So we have given.
Less than 100, we have left we gave the majority of those over to virtuoso they have about 20000.
Partners within their group to do that so we won't have a big enough slug that people had a chance to.
Acquire one of these remaining seats.
And then we've kept a few I'll use the word.
How seats.
We will use for referrals from our own team just because I think we will have some of those as well and that.
Roundabouts gets us to the 1000, we had as I mentioned.
I'd like to have the time for win.
Restaurant signs on with us too when they fly in the two to three year range I think thats, an appropriate development of the journey and the personal kind of journey people will be going on here.
Our.
Capacity of these initial shifts relative to the 1000 has extended us past that so we want to burn that down and then reopen up sales as we start flying our current folks and that's getting us closer to where the delta ships come onboard. So we can keep closer to that two to three year period.
Okay.
And then on the cash usage of 110 to one.
Hundred $20 million for Q3, I mean, you announced the number of agreements in the quarter.
How does that compare to peak and maybe what is accelerating when we look about versus Q2 and any more idea of kind of what peak cash usages given the initial agreements in place.
First.
Yes regarding the increase between Q2 and Q3.
Primarily around the scaling of the aerospace activities. We have so we've got the continuation of the enhancement trade, but on top of that now we have the beginning of the work with Aurora for the New mother ships, we've got the ramping of engineering for Delta class spaceships.
Type of things, so it's really aerospace driven for finishing the current programs and then ramping up the new programs.
So that's that's where we land for an export who've indicated this week.
Grow and we see a growing past that.
<unk> early to call a peek into the future because that's.
Pretty far out and we really give just one quarter guidance.
Cds layers continue to build right around the spaceship some other ships the campus.
Things the factory for the spaceship. So those things are going to come together, the exact timing and magnitude of that could move around a bit so it wouldn't be appropriate to get us to put a number out there like a year or two out but.
Hopefully that gives enough color to kind of see the layers that will build.
BMO.
Thank you.
Thanks, Greg.
Thank you.
Our next question comes from Matt Akers from Wells Fargo, Matt Your line is open.
Hey, good afternoon. Thanks for the question.
I wanted to ask about.
The partnership's.
Delta and kind of progress on the Rfps and if theres any.
<unk> on a matter or sort of the timing of when do you think you might be able to announce the update there.
Oh.
I'll, probably start sort of specific timing of announcement there, but the RFID are our long due in the rfps have been out for a while and we'll be coming back in.
In the upcoming kind of month or two here and then we have to.
At the time and the selection process, but we are clearly a parallel path with the teams that we've been working with we've been really pleased with both the quality of the companies that are interested in working with us specifically.
Specifically, we're looking for people.
Not only have the technology and scale, but also we're sorting for people who have capacity within both their manufacturing and their engineering organizations, because we will need separate teams that will focus on these two ships. So we've been really pleased at who we're speaking with their really quality firms and we're actually in a tour.
With them and doing sidewalks, along the way as well so I think thats going to be in our near future, we'll be able to bring those names in and as I mentioned they will the structure will be similar to what we are doing with Aurora.
Where we're having them both help on the manufacturing and in some cases engineering side.
Well clearly we will be doing a lot of the engineering on Delta there so space ships, but they were able to partner with us and get to scale in that way as well and they will do final assembly and the new Phoenix facility.
Okay. Thanks, and then.
Yes, one more just on the kind of the delays on the eve upgrades.
If you could dive into more detail I mean does that.
Supply chain disruption labor availability.
Just kind of scope change or if you could just talk about sort of what the biggest kind of drivers of that delay work.
Sure.
<unk> and both supply chain everywhere.
<unk> remains.
<unk> is something we're working on our teams have done a really good job, putting a box around the supply chain issues that we talked about earlier.
Again, we're still.
Not out of the woods as a country and supply chain issues.
But that's not really the driver the driver is around.
The amount of time it is taking us to accomplish the work scope.
On the Eve.
The particular part that's probably.
Most acute all happens around the center wing area.
That's where as you're probably aware we are changing what had been a three point a pilot that attaches suspicious, but to a core point Taiwan.
A couple of things that are going on in that.
One is we have amazing people that are excellent designers and they take the drawings that we have and draw the.
The installation on the ship.
And the ships as built are different enough from the drawings that we had that we need to go back and and conform those drawings to the as built since then.
Yeah, it's a practical situation of labor.
Whether people are out with Covid, and we are waiting a little bit for the engineer to come back.
Whether it is.
Limited working environments, there if you've seen the wing of this airplane to narrow when Theres a limited number of axis panels, and so everything can't happen in parallel there's quite a bit of materials that goes into this effort and that's that's kind of what's going on here. It's compounded we have.
All of this happening in Mohave labor.
Labor availability for this specific technical needs. We have there are while we are able to keep and bring in a it is a challenging labor market in that area.
What we've done is we have as we saw he's worked not progressing over these last couple of months, we have shifted resources from imagine who do have the technical expertise we need to also finish out is because we need to get units back in the air and we need to get you fly. So hopefully that gives you a little bit of a sense there. It is.
We have really amazing people and they are working hard to do this I would say we had our planning of how long each of these pieces of work would take.
Is where we're at Mrs. We did not plan for.
Full amount of time, that's proven necessary to get this work accomplished.
Okay, Yeah, that's great color. Thank you.
Thank you.
Our next question comes from Oliver Chen from Cowen Oliver Your.
Your line is open.
Alright, Thank you, Michael and Doug regarding the astronaut campus.
Should we know about our cash flow and Capex implications.
Also as you think more globally over time.
This planned manifest it sounds quite experiential and positive.
Second on the space for the curious event I'm, just curious about what metrics might be important for you.
To determine the success and return on investment there.
And then lastly on the on the delay.
Did it make did you consider.
Doing the delay even further to Q3 just.
Just to give yourself some more cushion because theres a lot of uncertainty, but some of it's uncontrollable.
Yes.
Let me, Doug and I are looking at each other like who wants to take the first question. There. So because I was writing notes down over I'm afraid you'll have to start Doug and I'll just try to kick in.
So the question on campus.
So in terms of timing and cash flow. So it will be occurring over a period of years.
It's a real estate development project and the intention is to have it ready the Delta class is ramping as we've got it available for the customers.
It will be the funding of our adult class so.
That's a multiyear project.
We aren't going to put a specific price tag on it we've got we're still finalizing Dr mounts, but I.
I can tell you its significantly less than the other parts of our key investments which would be.
Spaceships, the mothership, so to put it in perspective, but you would expect to see some incremental real estate development costs over about four years.
Now I'll just give you all were a little bit of scope.
We're building this for when we have our capacity on the Delta shifts out so that we're hitting exactly on whether or not in our way.
Daily basis. So we will have effectively at any one period of time five individual groups of your crew.
<unk> of spaceship participants right pizza restaurants that are turning into restaurants. So each of those five groups has up to 60, and then and so we have a size youre going to end up with 30 or so.
Kind of individual parties, that's another strike, sometimes we'll get a family party that will be in a place that gives you a size, it's not a giant facility out in the desert because we are turning these over I. Each day, one group goes out and another group comes in so we need enough for kind of 5% and a concurrent basis. So hopefully that gives you a little bit.
A scale I'd tell you you can probably see from the picture. This is a glorious location. It sits out there looking over the Rio Grande Valley.
It has you saw one view of it on the other view are just these incredible Mesa is the.
The distance its one of the things, we love about new Mexico, the ruggedness of natural beauty and that's important because as you've heard US talk we are taking people to get a perspective of the planet and as you do that last.
Several days of preparation, having a good anchor to the planet Youre, leaving is very important so we're really really thrilled with the site.
You talked about the space for the curious event and.
Metrics. Just you also were kind of asking a return on investment piece.
The events like this some of our events are free.
Free virtual events, where there are people come and visit our facilities.
That's true for those are all kind of included in cost of such but are very meaningful to the astronauts these types of events.
They are kind of on an Ala carte charge, so the astronauts who choose to come as not all of them.
Restaurants, who choose to come are effectively covering their cost to it and then our cost are they more small and managed because especially on our internal time and got some of the speaker engagements that we do so what will we look forward.
Over the course of time you know this is one of them. We're giving you. The example, with is penetration of the market. How many of the future astronauts are we engaging in how many of these types of events, but the big ones like the one we're discussing in space with curious a smaller virtual events or in person moments, how often are we able to keep the touch point.
With these folks.
And what percent of the overall base to refined archive actively engaged versus partially MAGE engaged or might be engaged. So those are the type of metrics that we will use because again, we are carrying people through a two to three year journey along the way.
These more intensive ones deeper and personal ones are kind of big steps forward, but they need to match with a bunch of smaller lighter steps as well. So you have a collective experience before you come into the campus that we're talking about so hopefully that gives you a little sense on metrics and then.
You asked about the delay should we have thought about a longer delay.
<unk>.
But are you all especially our future astronauts in our teams.
We wanted to have these ships flying and we have to do them. The right way. So we are absolutely taking the time to do the work correctly and get that out we've laid out we call. It laid out the schedule flat right everything from what has to happen now on shipped one and ship to to kind of stay on our schedule. So we're able to now March and manage this.
On a day by day basis, and you see our move from Q1 of 'twenty three to Q2.
That gives us the contingency that we need for even unity because the entities as you saw from delivery going up it's kind of wrapped up now.
What you are seeing us do.
With imagine is take a greater degree of contingency in there.
We had to redirect resources from it.
And we are wanting to make sure that we give at the time it needs to do the flight test program and while we have contingency built into our flight test.
And this is the first ship is different annuity. It does have differences that will need at some point test.
Program. So we want to make sure we are giving ourselves flexibility in that regard and that's why we ask.
So that may end up moving into Q1 of 'twenty for how our teams are going to work hard to bring these to the left.
But I think we have the appropriate contingency at this point.
Very helpful. Thank you best regards.
Thank you.
Thank you.
Our next question comes from Kristine <unk> from Morgan Stanley Christine Your line is open.
Hey, good afternoon guys.
Hi, Christine.
Hey, Michael Thanks for the color on <unk>, but with a longer time and what sounds like a more complicated work scope can you provide more color on how much the enhancement of the program will cost versus your initial expectations.
Sure we can sound like a lot.
So if we look at the collection of the three vehicles are working on and what we had planned for.
We were actually seeing some savings initially.
Initially because of.
The cost of the contracts that we have the contract labor in place and everything So we had been building up some savings along the way.
What we're finding is the extension of the schedule is eating up that savings.
With basically <unk> and unity of kind of consuming the.
The savings we had were back to where we originally budgeted I think this new.
Central with imagine is incremental so there.
Down to one <unk> versus.
Versus three but thats, probably the incremental part so overall more but we're fortunate that we had some savings in the beginning to offset some of the things that happened later.
Thanks, and then just a follow up to that can you provide some numbers around the imagine.
Cost increase.
Well, that's a multi year effort.
I think it's hard to put it in perspective, given what's been going on for several years. So I think.
What we're talking about it's up.
Talking moving from mid 'twenty three to the end of 'twenty three for the enhancement of Q4.
So you can just think of it as a.
Quarter and a half if you take the midpoint, there kind of extension, but to try and put a price tag on it relative to the total cost it will take us about this.
Helpful, But I'm just kind of put in perspective, it's one shipped out of the three so it's it's a fraction of all of the effort and the bulk of the spending right now is on getting most of the attention and imagination is next in line, but hopefully that puts up again I guess the other thing.
Just a little bit of added color of whats left on them I imagine it's not so there is there's a little bit of.
And Hans on the ship.
Finishing things out, but that's the smaller part of the what we're going to be doing it as imagine is.
Moving it through its test program on the ground and in the air and so that's a different slice of engineering resources that we need for that obviously, we have people in Mojave that are working to ship throughout but it's.
It's the cost that will spend moving through test as opposed to you know.
Giant groups of people that are building at that moment.
Thank you for all the color guys.
Youre welcome Thanks Christine.
Okay.
Thank you, ladies and gentlemen, as a reminder, if you would like to ask a question. Please press Star then one on your telephone keypad now if you wish to withdraw your question. Please press star followed by number two when people are preparing to ask a question. Please ensure your phone is on mute it locally.
Our next question comes.
It comes from.
Pete <unk> from <unk> Securities. Your line is open.
Hey, good afternoon.
It's quite a question see R&D expense.
Start commercial operation.
Second quarter of next year.
Are you going to see any meaningful step down R&D expenses during the first ship up and running or.
The work Youre doing with <unk>.
And Delta.
Be more of just a real resources, where you would expect to see R&D continue at or maybe above where it is right now.
No.
We would expect to see it at or above where we are now because we will be ramping heavily on.
<unk> Delta class and the next generation Motherships, Yes, we will be rolling off on one hand, it has the period about pivoting and growing resources on the other side. So.
This is our when I talk about spending increasing quarter over quarter and then continuing into next year. This is the category will go into it will be R&D, primarily so.
You'll see that that type of trend.
Alright with that one.
Thanks Pete.
Thank you.
Currently we have no further questions. That's all I would like to say, thank you to our speakers for that time and presentation. During this event and ladies and gentlemen. This concludes today's conference call. Thank you for being with US today have a lovely day ahead you may disconnect your lines now.