Q3 2023 Virgin Galactic Holdings Inc Earnings Call
Good afternoon. My name is Sarah and I will be your conference operator today at this time I would like to welcome everyone to Virgin Galactic <unk> third quarter 2023 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 would like to ask a question during this.
Time simply press Star followed by the number one on your telephone keypad. If you would like to withdraw your question simply press Star one again.
I'll now turn the call over to Mr. Eric Cerny, Vice President of Investor Relations.
Thank you and good afternoon, everyone welcome to Virgin Galactic <unk> third quarter 2023 earnings conference call on the call with me today are Michael Cole Glazer, 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 and slide presentation that will occur.
Company today's remarks are available on our Investor Relations website.
Please see slide two of the presentation for 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.
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 in the Companys SEC filings made from time to time.
You are cautioned not to put undue reliance on forward looking statements and the company specifically disclaims any obligation to update forward looking statements that may be discussed during this call whether as a result of new information future events or otherwise.
Please also note that we will refer to certain non-GAAP financial metrics on today's call. Please refer to our earnings release for a reconciliation of these non-GAAP financial metrics with that I would now like to turn the call over to Michael go ahead.
Good afternoon, everyone.
Virgin Galactic successfully achieved several important milestones in the third quarter.
Which in combination with some important adjustments we are making in our near term operating model has set the company on course to define and lead the sub orbital space travel industry.
We're going to cover a lot of ground today, So I'll open the call with four key headlines.
First we have demonstrated that our space flight system works on a repeatable basis.
As planned we completed six space flights in under six months with our initial spaceship VSS unity.
This is an unprecedented achievement and human space flight.
Second.
The Virgin Galactic customer experience has been overwhelmingly positive and meaningful and the value of our experiential product is exceeding our high expectations.
The backlog of demand for experienced is robust and our early customers are Virgin Galactic astronauts love it.
Third we expect the advances being built into our Delta class ships will enable each of these new ships to fly up to eight times per month during the steady state operations.
This turn time metric is unrivaled in the industry and will enable breakthrough capacity and revenue generation.
And fourth we forecast our quarter end cash and marketable securities position of approximately $1 1 billion.
Provides sufficient capital to bring our first two delta shifts into service and to enable our crossover to positive cash flow in 2026.
We look forward to sharing details behind these headlines on today's call.
Turning to our agenda on slide three.
I'll start with an overview of the Virgin Galactic astronaut experience and share customer insights from our first six flights.
We will review progress from our Delta spaceship program and talk more specifically about the expected unit economics of our Delta class ships.
We'll then discuss adjustments to our near term operating model, including restructuring actions announced yesterday that will redirect resources towards our Delta program as we focus the entire company are realizing the profit potential from these ships.
Finally, we will share financial results for the quarter and discuss the expected spending profile of our Delta program in greater detail.
Following our prepared remarks, we will open the call for your questions.
Turning to slide four.
Since our last earnings call, we completed four space missions on the monthly cadence that we had planned.
Each mission was an incredible success and we are now graduating customers from our future astronaut community into the Virgin Galactic astronaut community.
Our Virgin Galactic astronauts experienced are spaced slides in ways that are unique to their backgrounds and motivation for traveling to space.
One point of commonality, though has been that the overall experience is dramatically impacting our customers in an extremely positive way.
Moving to slide five.
The quotes on this page are from some of our astronauts following their space slides and they captured just a sliver of the meaning that our customers have come away with.
I'll read just three of them on today's call.
The first is a quote from a galactic to astronaut.
This has been the best day of my life. The most sensational day of my life and you can't get any better than that.
Exceeded my Wildest dreams.
The second is from a galactic for astronaut who said.
I always knew it was going to be the most extraordinary experience in my life I always knew that and.
And people kind of told me it was going to be.
But then when it is and.
And it's on another level to the experience you thought youre going to have.
And it's very difficult to explain.
And from our youngest astronaut who shared I was shocked at the things that you feel you are so much more connected to everything then you would expect to be.
You felt like a part of the team are part of the ship are part of the universe of part of Earth. It.
It was incredible and I am still star struck.
Okay.
Exceeding the expectations of our customers is the best way to convert those customers into ambassadors for our company.
Based on initial feedback we are delivering a truly incomparable experience that our astronauts will carry with them for their lifetimes.
We will continue to learn and adjust the overall customer journey, but the early results have been exceeding our very high expectations.
Moving to slide six.
Our focus on the astronauts journey and the very way in which we bring people to space is paying off and the overall experience.
Our training takes place at Spaceport America, an incomparable facility built by the state of New Mexico, and the stunning setting has been a hit with astronauts and their guests alike.
The 90 minutes spaceflight experience, including the climb to release altitude, while attached to our mother ship is proving to be an experiential advantage.
The smoothness of it all combined with the raw power of the rocket motor during the Booth space has been a standout feature for our astronauts.
The view of the Earth and its natural habitat space has literally taken breath away and drawn tiers and deepen motions because of its stunning beauty and brilliance.
And the fact that we land back on the same runway, where we took off with all the friends and family awaiting has made for a completely magical return experience.
Our training program is a huge differentiation point.
We took the opportunity on our early flights to have our astronaut instructors observed the customer experience from within the cabin to guide adjustments to our ground based training process.
This process was valuable and has been successfully completed.
Harting with Galactic six we will open up this instructor seat and all for unity seats will have paying customers.
Six human spaceflight and six months with VSS unity is a tremendous accomplishment that establishes new turn time records for reusable human space flight systems.
It's important to note that the primary business objectives of these missions are to demonstrate the efficacy of our space flight system.
To build learnings that inform our Delta program.
And to showcase the incredible emotion impact and value of Virgin Galactic space flight experience.
We have done that.
These flights have built confidence in our space flight system increased credibility as we consistently deliver on plan.
And clearly demonstrated the powerful customer benefits are a virgin galactic space flight.
The success of these flights has been accomplished through the collaborative effort of our entire company and I'd like to call out the incredible work from our teammates who have made this possible.
Moving to slide seven.
Virgin Galactic spaceship and mother ship, both have industry, leading reusability metrics, but our airplane based mother ship has the additional benefit of fast turnaround times.
Our primary goal with the Delta program is to also bring that fast turn time capability to our spaceships to unlock a step function increase in capacity.
In this regard the next page slide eight makes it clear why we are so focused on our delta ships.
Two metrics that will be of importance to our industry, our revenue per flight or Rps and flights per month, our SPM, which is referenced on a per ship basis.
Taking a look at the table on slide eight.
Our four seat space ship two model unity has a revenue per flight potential of $1 8 million to $2 $4 million at our current prices depending upon if it is flying private astronauts research customers are a mix.
Unity has an average flights per month of around one and the product of those two metrics leads to modest revenues.
As I mentioned earlier unities flight objectives are to demonstrate our system.
Showcase our restaurant experience and provide learnings for our Delta program.
One flight per month with unity is a material step above competitive offerings. The total cost to support unities flights surpassed the relatively modest monthly revenues.
Delta shifts will have 50% more seats than unity.
So using our most recent pricing and $450000 per seat for $600000 research seats.
The revenue per flight for a delta ship is two 7% to $3 6 million.
With our current expectation of Delta shifts turning twice per week in steady state operation Delta.
Delta shifts would have a flights per month metric eight which makes the monthly revenue potential of a delta shift up to 12 times that of unity.
As a high temperature carbon composite space.
We expect each to help the ship to have a vehicle lifecycle of 500 or more flights.
And as we shared previously we expect each new delta ship to cost around $50 million to $60 million in steady state production.
Our Delta class ships are powerful economic engines okay.
Because of their breakthrough capacity and revenue generation, we are choosing to leapfrog past, our third generation chip BSS imagine and move directly to our fourth generation the Delta class as the model type basis for our production fleet.
VSS imagine will be used to support ground based elements of the Delta program, and we will not bring that ship into service.
Our Delta program continues to track to the key milestones we have laid out.
Julian builds have already started and our spaceship factory in Phoenix is well underway and will come online in Q2 of 2024.
Ground and flight based testing of our Delta class ships is on track to begin in 2025 with revenue service beginning in 2026.
The top image on slide nine shows progress that is being made on a spaceship factory in Phoenix.
Construction has been advancing on schedule and we expect to begin interior fit out in April with major assemblies from our primary suppliers belen carbon beginning to arrive midway through 2024.
We are making several upfront investments in test infrastructure, and we will be conducting extensive ground testing of our delta ships.
This is a key factor in accelerating our flight test program and in our ability to verify the durability and longevity of our ships.
Build out and installation of this test infrastructure has begun and build out will continue into the first half of 2024.
We will incur one time expenses for these important test assets during those periods.
The first test asset is known as a copper bird systems backup.
The copper bird will allow us to configure and test our avionics flight controls and electrical systems.
As you can see in the image on the lower left of slide nine. This effort is already underway at our engineering headquarters in Orange County, California.
Along with the design and testing of our updated cabin interior, including our new seat design shown here on the lower right.
The second test system also located in southern California is known as an iron bird and it will be verified and cycle testing, our mechanical systems and validating our designs.
Each of these test systems as well as a dedicated static test article will enable us to verify the performance of the key elements of our Delta shifts that are driving our improved turn times and will reduce the amount of time needed for final Assembly ground test and flight test.
Moving to slide 10.
We expect near term uncertainty and capital markets to continue as high interest rates persist and geopolitical unrest expanse.
In response to this environment.
<unk> has taken several important actions to ensure our existing cash runway is sufficient to reach positive cash flow.
As a growth company that is also defining a new industry Virgin Galactic has been pursuing two parallel work streams.
Our space line operations teams have been demonstrating our technology and customer experience with our unity spaceship.
While our programs and engineering teams have been developing a production platform that will deliver profitable growth with our Delta program.
These areas consume substantial resources and both have been critical to our company.
That said, our company's financial growth is built around our production spaceships. The Delta class and we are shifting all company resources towards the safe efficient and successful execution of this program.
This necessitates for changes to our near term operating model.
First we will reduce net spending within our baseline operations.
The decrease in the cadence, while increasing the revenue per flight of unities remaining missions.
Galactic six is expected to take place in January as planned and we will move to a quarterly Fi cadence versus a monthly flight cadence for unities remaining space missions.
We expect the average revenue per flight for Galactic <unk> and Galactic seven to be in the range of two to $2 5 million, which is approximately four times greater than the revenue per flight that unity realized in the third quarter.
This increase is driven in part by the additional revenue that had previously been occupied by an astronaut instructor and in part due to our customer mix that includes research revenue.
Additionally, when we have openings in the fight manifest we're making those seats available to customers who are interested in participating in an earlier spaceflight at a premium price.
These seats as they become available have been priced closer to $1 million into our prior price point of $450000.
Second we will be pausing the entity space flight in mid 2024, so our highly skilled spaceflight operations teams in new Mexico can support the final assembly effort of our first Delta ships.
This as cost efficient as it allows us to optimize our total workforce.
It also provides our technical operations teams hands on experience with the Delta shifts during the build process, which will be invaluable for maintenance and turn time support when those ships moved to Spaceport America for flight test in revenue service.
Flights from Spaceport America are expected to start again in mid 2025 with Delta flight test.
<unk>.
And as shared on our last call. We have re sequenced the timing of our next mother ship to coincide with the ramp up of our space ship fleet.
This allows us to better manage the timing of our capital expenditures and it allows our engineering teams to complete the bulk of the Delta work before pivoting to the next mother ship effort.
We expect the first of our next two mother ships to enter service in 2027, which will support the timing of additional space ships coming off the line in Phoenix.
Our existing mothership Eve is performing well following its enhancement program and evil carry our first two delta shifts during their flight test program and into revenue service in 2026, where it will support meaningful revenue and cash flow positivity.
And fourth as we focus the entire company towards a successful execution of the Delta program.
Mike Moses with his deep expertise from both NASA and Virgin Galactic will take on the expanded role of president of Virgin Galactic <unk> baseline.
We will be aligning the entirety of our technical engineering and non customer facing operations teams under Mike with a full company focus on bringing our production fleet into service crossing over to cash flow positive operations and readying our company to scale and continue to lead this exciting industry.
With these adjustments to our plans we project our end of quarter cash and marketable securities position nearly $1 1 billion.
To be sufficient to support the development and entry into service of our first two delta shifts and to achieve cash flow positivity in 2026.
These adjustments to our near term operating model have impacts on our flight manifest and on our staffing levels.
Regarding manifest impacts with <unk> fewer seats and low flight cadence. These changes will have minimal impact on total astronaut carried.
However, a subset of customers who are early in the manifest we will have a longer time extension before their flights.
Internally at Virgin Galactic, achieving this plan has required us to make the difficult decision to reduce the size of our teams that support our baseline operations and our staff areas.
Our teammates are Virgin Galactic, our talented purpose driven and they excel in their professions and it is deeply unfortunate to part ways with some of our coworkers and our friends.
With the restructuring.
<unk> announced yesterday, along with head count management efforts that have been taking place across the year, we expect to enter 2024 with approximately 840 full time employees.
Yeah.
By taking these actions now we ensure Virgin Galactic continues to have access to the resources needed to reach positive cash flow and to deliver on our mission.
Bringing the wonder space to our existing customer base and to the generations of customers who will follow.
Doug lets turn the call over to you.
Thanks, Michael Good afternoon, everyone, turning to page 11, and our financial results.
In his opening remarks, Michael provided some important information about the company's operations and the related economics.
Follow up I'd like to share some additional context relating to both our near term and long term financial outlook.
First I will explain the new expense category called baseline operations and what trends to expect going forward second I'll review the financial results for the third quarter and provide guidance for the fourth quarter.
Third I will describe the shift has begun toward the building of capital assets, our longer term projections for overall spending and the expected path to positive free cash flow and.
And fourth I will expand on the attractive future economics, we foresee with the expansion of our Delta class fleet.
Let's start by taking a closer look at the new expense category spaceflight operations and how that plays into our third quarter results.
In our last earnings call in August we previewed the introduction of space line operations, which followed the launch of commercial service and achievement of technological feasibility for our current space flight system.
In order to understand and interpret what's baseline operations represents it is important to recognize that Virgin Galactic is somewhat unique as a company that both producers and operates space vehicles.
First build fixed assets such as space up some other ships then we utilize those assets to provide spaceflight services.
Hello, we are able to capitalize certain costs for production of vehicles. Some production costs cannot be capitalized and must be recognized as an expense.
These non capitalized production costs are reflected in baseline operations, along with the current cost of conducting space flights.
Note that the presentation of baseline operations does not indicate an increase in spending but rather a re mapping of expenses that were previously in R&D or SG&A.
I'll share more about our expectations for this baseline operations expense category. Following a discussion of our results for the third quarter.
Turning to slide 12, we generated revenue of $1 $7 million driven by commercial space flights during the quarter and future asthma membership fees.
Total operating expenses were $116 million compared to $146 million in the prior year period.
Spaceflight operations expenses were $26 million compared to approximately $1 million in the prior year period with the increase attributable to the updated presentation of expenses.
R&D expenses were $45 million compared to $97 million in the prior year period with the $52 million decrease primarily due to re mapping of some expenses to baseline operations and lower outside vendor costs.
SG&A expenses were $42 million.
Compared to $46 million in the prior year period with the $4 million decrease primarily due to re mapping of some expenses just baseline operations.
We reported a GAAP net loss of $105 million compared to $146 million in the prior year period, primarily driven by lower operating expenses and a $9 million increase in interest income from returns on our portfolio of marketable securities.
Adjusted EBITDA was negative $87 million in the third quarter compared to negative $129 million in the prior year period, primarily driven by lower operating expenses.
Free cash flow was negative $105 million compared to negative $102 million in the prior year period.
Free cash flow came in better than our guidance of negative $120 million to $130 million.
Due to the timing of certain vendor payments.
Moving to slide 13.
At the end of the third quarter cash cash equivalents and marketable securities on the balance sheet totaled approximately $1 1 billion or.
The sequential increase of $108 million from the second quarter of fiscal 2023.
During the quarter, we raised $211 million in gross proceeds as part of our aftermarket equity offering program.
Moving to slide 14, and our financial outlook.
For the fourth quarter, we expect revenue to be approximately $3 million.
Primarily driven by two commercial space slides galactic for which occurred in October and Galactic five which occurred last week.
Our capital expenditures for the fourth quarter are projected to be between 25 and $30 million.
We expect to approximately double our capital expenditures in the third quarter, primarily due to the construction of the spaceship Assembly facility in Phoenix and building of tooling for the Delta class spaceships.
We expect our forecasted free cash flow for the fourth quarter of 2023 to be in the range of negative $125 million to $135 million to account for both the timing of vendor payments that favorably impacted our third quarter as well as the increase in capital expenditures just mentioned.
In connection with the restructuring effort that Michael mentioned, which is already underway, we estimate a onetime restructuring charge of approximately $5 million in an annual cost reduction of approximately $25 million relative to our current cost base.
This cost reduction will be realized beginning in the first quarter of 2024.
Now I'd like to provide some context around our longer term financial outlook, let's move to slide 15.
For clarity is helpful to first consider our business model, our economic lifecycle began with a multi year research and development phase to create and prove out our initial spaceflight system.
We have successfully demonstrated that by conducting regular commercial space lights on a monthly cadence with our unity space from other cities.
We are in the upfront investment phase of our production vehicles. The Delta class space ships, which are expected to deliver 12 times. The monthly revenue capacity of the initial space light system.
The period of nonrecurring engineering, our NRI is followed by a period of upfront capital investment to build a fixed assets such as a factory and tooling that are then available to produce multiple vehicles named.
Namely space ships on a continuing basis and at a relatively low recurring cost per vehicle.
Each of these vehicles are additional assets and are expected to have significant ongoing profit generating potential based on the performance criteria we have specified.
Through 2023, our spending has predominantly gone toward operating expense, mostly tied to nonrecurring engineering costs for the development of our space flight system as.
As we achieve certain milestones in the development of the Delta class vehicles in 2024, these engineering costs begin to be capitalized.
In addition, we are investing in fixed assets such as the space up Assembly factory tooling sub assemblies test assets and space port facilities that will drive future growth.
This chart shows how our spending is expected to shift primarily to capex in 2020 for.
While this chart is for illustrative purposes, we are not giving specific cash flow guidance for multiple years, you can generally see that the two year average spending for 2024, and 2025 will be below that of 2023.
Spending is expected to be weighted more to the front end because of our planned capex investments in fixed assets that enable future revenue growth.
Earlier, we discussed the actions, we're taking to reduce our cost structure.
Because of the reduced flight cadence as baseline operations expense is forecasted to decrease in 2024 compared to our current spending level.
Other reductions in head count and streamlining of operating expenses contribute meaningfully to our lower spending footprint going forward.
Given the strength of our balance sheet with approximately $1 $1 billion in cash cash equivalents in marketable securities available combined with our actions to reduce spending we have paved the way to positive free cash flow in 2026 with our existing capital.
I'd now like to provide more insights about our expected future economics upon the completion of the Delta class spaceships.
While cash flow breakeven is one milestone along our journey, we clearly intend to capitalize on our unique high margin product offering to drive topline growth and strong shareholder returns by.
By 2026, we expect to be entering the cash positive growth phase as shown on the chart on page 15.
We mentioned on our previous call that we project the contribution margin from a spaceflight succeed 75%.
Given this margin profile, we expect that we will cross over to positive free cash flow in 2026, when we have to delta ships in service.
At this point cash inflows from space flights are projected to exceed our overall cost base.
Importantly by 2026, we anticipate we will have completed the upfront investments in manufacturing capacity to produce incremental Delta class space ships at a cost of $50 million to $60 million each.
Given the expected slight rate and revenue capacity of these shifts we expect a payback period of less than six months for each new vehicle that we add to our fleet.
Additional mother ships will also be required to accommodate the expanded fleet of spaceships.
Given these compelling economics, we are singularly focused on the delivery of Delta class ships.
As mentioned earlier, our $1 1 billion balance of cash cash equivalents and marketable securities is expected to be sufficient to achieve positive free cash flow.
Not required in the near term, we intend to utilize the approximately $113 million left on the current at the market equity offering which will support further investment in revenue generating assets like additional mother ships additional delta class ships or to further strengthen our balance sheet.
To summarize with a focus on cost management, we are mitigating the risk associated with accessing capital markets in order to meet our longer term objectives. We project, we have sufficient capital to build the revenue generating assets necessary to achieve positive free cash flow with that I'll hand, the call back to Michael for some closing comments.
Thanks, Doug.
To recap the key items from today's call.
Our space flight system works on a repeatable basis and the astronaut experience is exceeding our very high expectations.
With each new Delta ship, delivering steady state revenue capacity of up to 12 times greater than VSS unity, we expect to cross into cash flow positivity in 2026, as we bring our first two delta shifts into service.
Our end of quarter cash and marketable securities balance of approximately $1 1 billion.
As expected to be sufficient to bring these first two delta shifts into service as we tightly manage and prioritize our resources against the Delta program, while reducing expenditures associated with flying VSS unity.
All of these factors support our business model, which is highly profitable and cash generative at steady state.
While the upfront capital cost or meaningful ongoing capex needs for each baseboard are relatively modest given the long lives and high capacity of our ships.
Variable costs are relatively low in relation to our ticket prices and incremental spending to expand our fleet is expected to bring high operating leverage high double digit contribution margins and excellent return on investment.
I'd like to thank our Virgin Galactic customers shareholders and fans for their support as we work to ensure our company's future for the long term.
And I'd like to sincerely. Thank our teammates for the incredible work they had been delivering while also recognizing the loss will be felt across the company as we part ways with some of our friends and coworkers.
We are now stepping forward and placing all focus on safely efficiently and successfully executing the Delta program.
With that I will turn to questions.
Operator, we are ready to begin the Q&A portion of the call.
Thank you if you have a question. Please press star one on your telephone keypad to withdraw your question simply press Star one again.
Your first question comes from the line of Matt Akers with Wells Fargo. Your line is open.
Hi, Eric Yuan on for Matt.
Thanks for the question.
Could you discuss more details around a thousand words, you've done this year so far.
And if there are any updates to the plans or milestones you've laid out for the next couple of years.
Okay.
Sure.
I think as.
We shared in the end.
The prepared remarks.
We've been executing delta on our plan on our schedule. This year is primarily about adapting the designs from all the learnings that we've done in building out our first initial baseline system and.
In particular transitioning those designs to a different carbon composite system is a big part of that that has a lot of benefits.
Into the process.
That design process.
And.
Taking advantage of the things that we've learned from client unity on a monthly basis have let us build in and confirm.
The much improved turn times that we're going to see from the Delta shifts along the way.
We've also begun working through our test asset systems.
We clearly are designing for this turn rate. We're also building the test assets to verify them hurt us referencing a copper burden and iron burden those systems have started up.
We've been working closely with our partners Cir key partners that will be building new ships with us in particular Bell Bell's restaurant and carbon.
They are tightly interwoven with our efforts and are using the same software platform along the way.
The tooling that those companies are building that will then do the parts has already begun.
Initial parts are coming off those tools, but the majority of parts and then fabrication will happen in 2024.
In line as we bring our spaceship factory in Phoenix done if you see the image of the spaceship factory I think it's page nine and the attachment.
Hi.
Core and shell, that's all done we're going to be starting to do the interior build out of the factory.
In the first quarter of.
Next year actually probably end of this year and then we plan to occupy that somewhere around April. So that we can then put in our own systems to begin the final assembly of the ships. So that's all tracking as previously previously shared.
And that puts us on path to our flight testing in 2025 and putting these into revenue service in 'twenty six.
Okay.
Okay got it thanks.
Very helpful.
Also wanted to ask.
You have a more specific timing on the Delta launch now.
Is it more like the first half or may during the year.
Nothing more specific for today, but I will say you are going to see them flying in 2025.
As we do our flight testing flight test will include they'll start with what we call captive carry flight.
I'll move to what we call glide flight, where we're releasing without the power of rockets and then we will start to power the flights up towards space. So you'll be seeing all of that happening in 2025.
Okay. Thanks, so much.
Thank you.
Your next question comes from the line of Greg Konrad with Jefferies. Your line is open.
Good evening.
Greg just to start with one clarification question I mean, you talked about pausing unity flights in mid 2024, and I think you mentioned Galactic <unk> seven is <unk> seven kind of be the last unity flayed and is there any <unk>.
<unk> flight activity between mid 2024 and the.
Delta into service in 2026.
Yes, let me just kind of more color on what we're doing.
Obviously, we've had incredible success line unity and as as we are sharing.
The business reasons for client unity are to demonstrate what this industry is about both the safety how the ships work. The fact that we can repeat them and importantly, getting a chance to showcase the customer experience.
Unlike.
Whether you're a new electric vehicle startup or something similar people are familiar with the business model and human space flight is something that private citizens have really never had the chance to do so unity is demonstrating all of that but it is very resource consumptive as we do it and.
So the big move we're making here is pivoting the resources that are.
Have been being put into the unity flights and redirecting them over to get the delta shifts done with the cash we have on hand.
Take that kind of market risk off the table, so as we're doing that.
We will continue to <unk>, we are moving to quarterly because it allows us to reduce cost as we do that.
And we know we will go on on a January is when we were doing in Galactic <unk>.
We will do Galactic seven probably in the earlier side of the second quarter, and then whether we do galactic eight with unity before we move our team or not is really around the specific timing of when our very skilled teams that are in new Mexico, the technical operations and engineers.
Want them to be a part of the build process of our delta shifts.
It's better from a spending standpoint, so we aren't ramping up as many incremental folks.
Along the way and it really the importance as it allows our teams that will maintain these ships to have the hands on experience of building them and that will help us more quickly ramp up to rate as we bring them into service. So whether that starts I would say at that.
The tail end or the beginning of the third quarter of this calendar second quarter, beginning of third quarter or a little later will depend upon whether we fly galactic eight with unity or not so we're not going to make that call today, we're going to let the delta program and need for those team members drive that and then we will take a pause with unity.
Whether it's after seven or after eight as we put our attention on building. These delta shifts because thats, where we will drive the economic value of the company.
Okay.
That makes sense and then the eight times per month on Delta I think previously maybe you talked about weekly flights if I remember correctly.
What's kind of changed there got you comfortable with that higher expected flight cadence.
Yes, our private previously we've been talking weekly my direction internally to our engineers really beat weekly we should be able to turn these on a buy twice a week basis.
But the team had work to do on that and so the first piece Thats informed that is just the progression of our designs and specifically designs that are enabling us to do less between each flight now the unity flights have been really important and that as we've gone through the.
The $6 six months and built that operating cadence is very dialed in our technical operations teams, our pros and they know exactly what they're going to be doing between those flights and while that work happens to turn unity now. It also shows our engineers and design teams exactly the things that we would like to engine.
Out of the Delta systems. So that we don't have to put that work in between flights because we built the ships in a way that doesn't require that.
That work has been kind of validated on the design side as we've learned.
<unk> of maintenance on the unity flight. So that's been Super Super helpful. And then you heard us talking about the test articles that were putting in here and we're not going to wait all the way till flight test to validate that we're going to be validating these designs with our copper burden for iron burden, our static test article systems, along the way.
I'm really proud of what the engineers have been able to do and what our technical operations teams have delivered it's not collaborative effort.
That lets us speak.
With confidence on <unk> at week eight.
Eight times a month on average flights.
Flights for Delta when we get to steady state.
And then just sneak in one last one that I mean eight times 12.
96, or so flights a year for each delta how are you thinking about capacity for each space Port I mean, I think in the past you maybe talked about 400, just thinking about how many spaceships to fill up the first phase <unk> kind of started planning for a second.
Yes, you bring up a great point.
The turn time objectives on Delta now something we've got confidence in this has great benefit in reducing the amount of capex needed for every spaceport.
So with each spaceship in El do Roundabouts.
Hundred flights a year on a steady state basis, we probably need 45, alright, and Thats, what we would put in at spaceport.
And so we'll probably start with four and just see how how we're doing with those and do we need to add a fifth as kind of one that's always kind of available on our side, we will take I'm sure a month out of that year.
Monthly rates on average will take a month of the year as a more intensive overhaul like an annual overhaul like you would see in other aerospace type vehicles, but the average of the year will be eight times, a month 96 ish a year.
So hopefully that gives you a little bit of perspective on that.
Perfect. Thank you.
<unk>.
Your next question comes from the line of Myles Walton with Wolfe Research. Your line is open.
Thanks, Good evening, I was hoping to pick up pick up where that left off maybe.
As you get into 'twenty, six and you're sort of going to this very very high op tempo.
How quickly have you assumed getting to that op tempo in the in the cash flow breakeven analysis.
We're giving.
Yourselves in 2026.
Time to just sorted.
Our new ships out now will have gone through the whole flight test to ground test with the extensive ground test assets, we've talked about.
Yes.
In this type of work in our internal modeling, we're giving ourselves half of the year year to ramp that up.
Wood.
No.
The skill of our technical operations teams.
<unk> given ourselves several flights before we were kind of unsure if we'd hit a monthly cadence on unity and we hit a monthly cadence pretty much right out of the gate.
No.
Very proud and impressed with that team and they'll be moving that as quickly as we can but we think it's prudent to be conservative at this point.
Okay, and obviously does not the company has not been one to run the business without cash on hand, so I just want to make sure I understand the $1 1 billion.
Is what you're required to get to cash flow positivity.
Positivity.
Is that without.
Thinking about just a normal level of cash on hand.
Or is $1, one basically the capex and operating costs to get from here to there is another way to ask it.
Yes. This is Doug.
Sufficient to get there and.
We mentioned we would.
Likely at some point tap into the ATM whats remaining of $100 million, although we don't need to in any any near term.
Timeframe so.
We haven't put like a minimum cash balance out there.
We foresee that the $1 1 billion is sufficient to get through.
To cash flow positivity by 2026.
One thing Myles I'd, probably just add as context to that.
We oftentimes, we'll look to say how much of that.
Kind of a time runway do you want to have on hand.
As we get out into 'twenty, five and move into 'twenty six.
The overall cost footprint of the company is also much less than its been at this point we are through.
We're through all sorts of things where through all of the upfront engineering the nonrecurring engineering, we're through all of the upfront.
<unk> infrastructure test assets go in we're in through all the infrastructure of the factory and we've got the supply chain built out and going and so all of those costs are.
Are behind us at that point in time, and we're at a lighter footprint. So the need for cash on hand is less than you may have seen from us in the past.
And just one other one the mothership you said the second one your planning enters in 2027, I think the mothership as more restrictive in terms of how many flights you can actually achieve you remind us of what the status is on that.
Because obviously you've made pretty good progress on the Delta what's the current status of limitations of flights on the mother ship.
So our first mothership Eve as.
As we fly with even unity unity is the bottleneck in the system.
We'll be able to turn eve as an airplane around quickly.
And we feel Eve Eve is able to do two or more flights a week upon spaceflights now unity can't keep up with that so generally we're looking to we think there's probably some opportunity to go above two with eve, but that means <unk> will be the kind of constraining factor as we bring the first deltas.
Onboard so that also kind of balances out as we're learning to turn the deltas on that twice a week cadence.
By having two of them out probably.
Probably balance out with eve along the way.
Okay, alright, thanks, so much.
Youre welcome.
Your next question comes from the line of Michael Mccormack with Keybanc capital markets. Your line is open.
Hey, good afternoon guys.
I wanted to start just asking now that were in commercial service for some time now you've had several successful flight.
I wanted to ask on how Uniti has really influenced the delta glass production and design.
Of that fleet and how are you thinking about delta glass differently versus maybe three or six months ago in terms of flight cadence our technical capabilities you have.
Eight times, a month flight right now, but anything anything else that.
Different than what we had initially expected.
Sure.
The flights have been fantastic.
I've had a chance to talk to.
The majority of the astronauts who flown.
Its very very meaningful we put just a few of the quotes in here today and.
It's been very rewarding.
The entire company, but business wise.
Super meaningful I've never contemplated an experience that is having the value.
This is having for people and I think that will bode incredibly well for us as we go forward.
Unity has been delivering that.
There are a lot of things on unity that right. This is fantastic and it will carry forward, we love the design of our cabin.
We love the way the cabin interior generally has laid out I would love the mirrored element in the back we loved the way we have the windows scattered around the sides in the sealing sealing kind of becomes a glass bottom boat as we flip the ship upside down the collection of all of those and being able to see.
Almost kind of like through.
The French doors looking out on able to use your peripheral vision as youre above the planet and see the vastness of space all of that in unity is amazing and will be carried forward into the Delta ships now unity has things that we want to change it.
Is heavier than the Delta ships will be and so deltas of course will come out with six seats, so adding 50% to the capacity along the way.
We are changing the.
System the composite.
System of Delta and that's really what's driving the majority of the work on the engineering side as we update the parts elements for that so then as you kind of pivot to what I was really different in delta than where we've been before.
Okay.
From our engineered standpoint, not much is different than where they are before theyre just confirming for me what I would ask them to be able to deliver as we should be able to turn these shifts on a twice a week basis and as we've advanced our design.
That charge kind of extra credit charge. They had for me they have been delivering against so that's that's very compelling and Thats why we are.
Feeling comfortable sharing that with you here today.
There are smaller things, but I think we're learning around the flight, but the biggest things that we've picked that I'd say there are <unk>.
On this type of call is by understanding what it takes to turn unity on a month by month basis, we know that very specifically, we can target those things specifically in our design and verify it and test so that we don't need to do all of those things flight by flight and that's how we're going to turn this so much more quickly.
And then I wanted to ask on research flights would you look to increase your mix.
Terms of more research versus private astronaut flights before you get to free cash flow positive just given the higher revenue per flight or are you still targeting that 10% research number.
I think the mix is going to be important incredibly.
Incredibly for our future we have to be commercially.
In a commercially reasonable cadence with our early flights and while we have I'd say the long term is 10% I've been very pleased listening to our researchers both the Italians allosteric Kelly gerardi have been very powerfully.
Speaking about the benefits of this in a cost benefit of this for research. So I think we're going to lean into that one of the things youre seeing in the.
<unk> revenue per flight, we kind of pointed out for galactic <unk> and Galactic seven <unk>.
<unk> meaningfully higher than what we've seen in the early flights and that is leaning in has the four seat of course leaning in heavily to the research mix also has a place where we've had it.
Seats have become available in the manifest we are offering those kind of a market rate and that market rate as I mentioned has been closer to $1 million on a seat versus our kind of base pricing that wed had last at $4 50, and so all of those things kind of combined into the mix of our revenue per flight.
When we come into Delta as we clearly want to be moving through our existing customers they've been very patient. We also have to use commercially reasonable efforts to make sure. We've got the revenue coming in to maintain.
Cash positive in a profitable position. So we will work with the mix to balance all that out.
Got it thank you.
Your next question comes from the line of Oliver Chen with TD Cowen Your line is open.
Hi, Michael and Doug There's a lot of very helpful information on the Delta class contribution margin as well as cost on the 75% contribution margin what would you articulate some of the major sensitivities there in terms of upside or downside potential and then Michael as you.
Continue to enhance the customer experience it sounded like there was a lot of great personalization.
Well what are your thoughts in terms of retaining.
The customers that experienced a flight in any earlier thoughts on customer lifetime value is as you think ahead and continue to.
Commercially thank you.
Okay. Thanks, Oliver This is Doug I'll take the first question.
So regarding the contribution margin.
We have a good line of sight into the cost structure, because we are already flying right. We know how much it cost too.
Purchase or build the items that get consumed in the flight. So the cost part of that is something we.
We can see and we will continue to drive efficiencies there over time.
Things like the rocket motor in the fuel and that sort of thing.
<unk>.
The more variable item is the revenue per flight and Michael talked about some of the variation there that can occur depending on the mix of the manifest and.
If we've got the standard astronaut ticket pricing or we have some research mixed in there or any other variety so the.
I'd say there is some upside in that more than downside because when we gave you that 75% that was using a $450000 per ticket price. So we've indicated today. If there is upside there based on what we're seeing today.
The flights that are coming so I'd say more upside than downside in that metric.
Patrick.
Oliver Thanks for the notes, although we have tried to bring forward good information for everyone today.
<unk> talked about what we've seen is we've been learning from the experience talking about.
Retaining people and then lifetime value and kind of future opportunities. So I'll try to hit those.
It's hard to describe how powerful this experiences.
And the.
The customers the future astronauts, who are now graduating to our astronaut community.
Just bowled over.
And so happy and so pleased and it has been a long way to spin so worth it and that that experience is going to help in kind of the routine of others as they share that of course, but as I kind of move into like the value of that group.
Some of those people not all but some of those people will themselves want to repeat I want to repeat at Spaceport America or they'll want to repeat as we move to other space sports. The other thing I think.
And value is all of their direct friends that are here. So what we've learned in these last six space slides is the event and the moment that is happening around the space flight. So currently these are just kind of opened up to the friends and family.
Restaurants, who are flying and it is happening as emotional it's meaningful it's fun.
Coursera celebration.
Ceremony that goes with that and so there is there is some I'll call it ancillary revenue opportunity.
Just around that that probably gets bigger as we open up the space ports too.
More have viewing because it is an event and we keep hoping to get people out to witness this and I hope you have a chance to come do this it is just super meaningful just even watch, but then not only the friends.
<unk> to watch.
That's the best chance, we have to convert somebody is bringing friends to watch and your friend or family member goes and you see what this is about in person. It is very compelling to then want to move those people forward.
And then the next piece of that is when you've had a meaningful.
Meaningful experience at this level of depth and emotion is much easier to become missionary and a passionate ambassadors for our company going forward and Thats, where you really get the multiplicative.
Value to us Thats, where you got lifetime value of an individual customer, but also through them, bringing in new people into our community. So those are a bit I'll call. It the direct side as we graduate people into the astronaut community. We absolutely are going to look how to curate that for.
Additional value to those now Virgin Galactic astronauts, but also of course driving value to the company. So we're just starting to build that community up but I have a lot of.
High interest and engagement of what we can do.
With a very.
Passionate and depot regions to the company group of people like that.
Okay. That's really helpful and innovative last question the spaceship Dr. <unk> is on track to open in mid 2024 in the past.
Supply chain disruptions of course, and timing and also cost and climbing money. What's ahead with that in terms of what you're monitoring.
Not enough cushion in terms of what you see in the current environment, it's availability and the flexible arrangements.
Arrangements youre using as well thank you.
Thanks, Oliver So we've got a team on the program management side of this I'll call. It more so than the engineers per se and our supply chain team. These groups are our pros.
And the Big thing that's going on now of course, our scanning out the long lead items and Theres, a little bit of whack, a mole with that but we lapped down things when we when we see those things pop up and by having our Delta design via derivative designed a brand new thing, it's a derivative design of of.
The work that we've done in the past.
We know what those long lead items are and so we've got the time to be out out searching and adapting as we need to and we're working with really seasoned partners and belt and carbon they've been incredibly responsive.
To bring some of their team members and leaders out to see our space flights I think it's really important that those teams feel.
Part of our team and feel part of the emotion in the just huge value of doing this so that helps us build kind of cultural momentum there as well and it's a it's a collective effort.
Yes. This is an aerospace project and there is always things that are popping up but we've got the right focus and the right team and the right buffers built into our plans and schedules that we feel good on them and we're going to continue to manage.
Day by day week by week month by month on that.
Thank you best regards.
Thanks Oliver.
There are no further questions at this time this will conclude today's conference call. We thank you for joining you may now disconnect your lines.
Yeah.