Q3 2024 Virgin Galactic Holdings Inc Earnings Call
Good afternoon, My name is Christina and I'll be your conference operator today at this time I would like to welcome everyone to the Virgin Galactic <unk> third quarter 2024 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. During this time you can press star one again.
Speaker Change: I'll now turn the call over to Eric Cerny, Vice President of Investor Relations, Sir the floor is now yours.
Eric Cerny: Thank you and good afternoon, everyone welcome to Virgin Galactic <unk> third quarter 2024 earnings conference call on the call with me today are Michael Cole Glaser, Chief Executive Officer, and Doug Aron Chief Financial Officer. Following our prepared remarks, we will open the call for questions.
Our press release and slide presentation that will accompany 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 are subject to risks and uncertainties. Many factors could cause actual events to differ materially from forward looking statements made on this call.
More information about these risks and uncertainties. Please refer to the risk factors in the company's 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 the 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 information on today's call. Please refer to our earnings release for a reconciliation of these non-GAAP financial metrics.
With that I would like to turn the call over to Michael now.
Michael: Thanks, Eric we've had a powerful and productive quarter at Virgin Galactic.
Michael: I'll lead with three main points to open the call.
First and as planned we moved into the build phase of our spaceship program.
Michael: This is the phase when we're building tools fabricating parts and assembly space ships.
Michael: I have to give a shout out to our engineering teams, whose tireless work as successfully elevated our prototypes shipped to a true production model.
Michael: We now have a space ship design that can be manufactured efficiently and maintained effectively with enormous improvements and reusability and turn time, while keeping safety above all.
Michael: We are hyper focused on the critical path of the build phase.
Michael: Working in close coordination with our partners at Bell Textron and carbon aerospace our spaceship program remains on track to begin commercial operations in 2026.
Michael: Second we.
Michael: We are directing our efforts towards the next phase of growth by expanding our fleet beyond our first two space ships.
Michael: We have an exciting opportunity to capture economies of scale from our existing investments.
Michael: The nonrecurring investments we've made in design engineering and manufacturing infrastructure allow additional space ships to be built relatively quickly and cost effectively.
Michael: This enables a straightforward path to add a third and four space ship at Spaceport America.
Michael: Taking advantage of the flight capacity provided by a third and fourth spaceship requires the addition of a second mother ship.
Michael: But the strong progress made on the Delta program. We now have the engineering capacity to pick up the design work on a second mother ship.
Michael: This additional mother ship in two additional space ships are the keys to unlocking substantial economic expansion.
Michael: Third with confidence in our customer experience and clarity in our business model, we plan to accelerate this economic expansion to the targeted use of growth capital.
Michael: While our existing capital on hand is projected to be sufficient to bring our first two space shifts into service and drive positive operating cash flow.
Michael: Space ship operation does not capture the full economic potential of the spaceport.
Michael: The growth capital, we plan to employ will allow Virgin galactic to deliver a second mother ship and two additional spaceships much earlier than if we were to fund these ships solely through organic growth.
Michael: Our strong cash position gives us flexibility and timing and pace of acquiring this growth capital and this allows us to make prudent progress on fleet expansion, while maintaining continuous strength in our balance sheet.
Michael: Importantly, the expanded fleet enabled with this growth capital creates an economic engine for Virgin Galactic.
Michael: While we may adjust our capital structure from time to time, we expect the cash generated by this economic engine will be sufficient to fund operations going forward.
Michael: <unk> further fleet buildup and expansion to additional space ports.
Speaker Change: With that let's get started on slide three with the agenda for today's call.
Speaker Change: I'll share visibility into the progress challenges and solutions that have shaped our spaceship program during the quarter.
Michael: We will then revisit our business model and growth strategy, which sets the stage for our fleet build out and the launch of our second generation mother ship program.
Speaker Change: Doug will then cover our financial results for the quarter, including how we're thinking about growth capital to optimize our revenue and profit growth.
Speaker Change: As I shared in the opening we are well into the building phase of our spaceship program with tools being completed and parts beginning to be produced.
Speaker Change: Our near and medium term milestones remain the same as we shared last quarter.
Speaker Change: As a reminder, we expect part fabrication will continue ramping up in Q4.
Speaker Change: Assembly of the space shifts in Phoenix is expected to commence in Q1 of 2025.
Speaker Change: With the rollout and testing of our first ship expected in the second half of 2025.
Speaker Change: Since our last call we have refined our schedules to include day by day management tool deliveries parts fabrication and the build assembly sequence.
Michael: As I shared at the opening we expect to launch commercial operations in 2026.
Michael: We are well through the majority of the nonrecurring engineering investment also known as <unk> in our E associated with our Delta spaceship program.
Michael: Engineering design and manufacturing facilities comprised the largest part of NRT.
Michael: But the tools used to make the parts for our space ships are also a large nonrecurring item.
Michael: These high quality tools will enable us to quickly fabricate the parts for future space ships with the full cost of an incremental space chef estimated at $50 million to $60 million per ship.
Michael: Page four shows examples of completed tools that are being used to create carbon fiber parts for our spaceships.
Michael: Our tools are made with a material known as <unk>.
Michael: And Nicole Iron alloy, which provides the gold standard in delivering precision parts time after time.
Michael: Moving to page five.
Michael: Our testing work will continue throughout the duration of our spaceship program and this effort is also well underway.
Michael: The Lear jet shown here is owned by Cal Spin our company well known Inspite to circles for testing fly by wire configurations in advance of actual flight testing.
Michael: Working with Cal span our engineers since spaceship pilots are able to assess flight control software on a flying testbed prior to the first flight of our Delta spaceship.
Michael: This is one of many ways, we are able to test critical parts of our system well in advance of our first spaceship flight test.
Michael: Turning to page six.
Michael: We are ramping our hiring in the Phoenix Mesa area. This quarter in advance of the spaceship Assembly work in early 2025.
Michael: Hiring emphasis is on A&P mechanics manufacturing engineers quality inspectors and other key personnel to augment our experienced teammates who have relocated to Phoenix.
Michael: Many of our highly experienced maintenance and technical operations teammates from New Mexico will also be joining the team in Phoenix for the building of our first two ships.
Michael: After which they will return with the shifts to Spaceport America to support flight test and commercial operations.
Michael: We are all excited as our spaceship factory comes alive.
Michael: Moving to page seven.
Michael: Earlier today, we released a short video to give a glimpse into the exciting work that is happening at our partner facilities as major tools continued to arrive in parts fabrication ramps up.
Michael: As to be expected in a project of this scale complexity and the manufacturing of certain parts can often lead to design revisions and the overall design process can take longer to complete than originally expected.
Michael: Working with Bell and carbon who in turn are working with their suppliers, we have identified and implemented opportunities to reduce the impact of these design extensions.
Michael: Together, we have been able to re sequence elements within our build planning to maintain overall program momentum and delivery within our expected timelines in.
Michael: In summary, lots of great work underway with our spaceship program moving us forward as planned and on track for commercial service in 2026.
Michael: Turning to slide eight.
Michael: I want to add more context around our strategy for growth.
Michael: Last quarter, we shared a video describing our business model and page eight shows a copy of the economic slides that we highlighted in that presentation.
Michael: Many of the cost required to operate a spaceport are fixed or semi variable and you can see this in the difference between the initial fleet and the expanded fleet comps.
Michael: This provides an excellent opportunity to drive economies of scale as we expand the number of ships in our fleet.
Michael: The nonrecurring investments we have made in our Delta spaceship program allow us to cost effectively deliver a third and fourth space yet.
Michael: Unlocking the profitability of those spaceships requires an additional mothership to support them.
Michael: So turning to slide nine.
Michael: With the strong progress we have made in our Delta program. We now have the engineering capacity to restart work on our second mother ship.
Michael: The second generation mother ship will look and perform similarly to our current mother ship beef, which has performed well for us following an extensive modification in 2022.
Michael: The bar at the top of this slide provides an illustrative look at the schedule for our next mothership.
Michael: Spending is expected to be limited through most of 2025 as we complete our design efforts with commitments increasing as we approached the build phase of the mother ship in 2026 weeks.
Michael: We expect the pace of the second generation mother ship to pick up as resources are released from the Delta spaceship program.
Speaker Change: I'll hand, the call over to Doug to share the quarterly update explain more about our growth plan.
Doug Aron: Thanks, Michael turning to slide 10 revenue for the quarter was $402000 driven by future astronaut membership fees.
Doug Aron: Total operating expenses were $82 million compared to $116 million in the prior year period, primarily driven by lower R&D and SG&A expenses.
Doug Aron: Capital expenditures for the quarter was $39 million compared to $13 million in the <unk>.
Doug Aron: Prior year period, as we ramped up investment in property plant and equipment related to development of our Delta class fleet.
Doug Aron: Free cash flow was negative $118 million in the third quarter compared to negative $105 million in the same period last year.
Doug Aron: Turning to slide 11, our balance sheet remains strong with $744 million in cash cash equivalents and marketable securities.
Speaker Change: Moving to our projections forecasted free cash flow for the fourth quarter of 2024 is expected to be in the range of negative $115 million to $125 million.
Speaker Change: While we typically have not provided a multi quarter outlook for free cash flow, we think providing additional color on the free cash flow profile for 2025 is helpful.
Speaker Change: As we are now in the build phase for the Delta spaceship program, we protect an uptick in spending in Q1 2025, as we reached the peak of payments for tools and parks with.
Speaker Change: With these capital investments behind us costs are expected to be meaningfully reduced through the remainder of 2025 as we progress through assembly and test of our new spaceships.
Speaker Change: The lower spending trend contributes to the delivery of our initial fleet of two new delta spaces into service with the capital. We currently have.
Speaker Change: The ships are expected to generate positive operating cash flow, which can be used to organically expand our fleet.
Speaker Change: While this is good.
Speaker Change: Stamps greater returns can be achieved by accelerating the development of our expanded fleet.
Speaker Change: As Michael described with the addition of another mother ship plus Delta three and four we expect to double our revenue while quadrupling EBITDA by leveraging our fixed cost base at Spaceport America in New Mexico.
Speaker Change: Relative to the pace at which we can expand our fleet organically by utilizing future cash flow from operations, we see a tremendous opportunity to accelerate revenue and profit with an infusion of growth capital.
Speaker Change: Targeted investments in our new mothership and two more spaces, we protect that the additional growth capital has enabled us to achieve a fully utilized space in 2028 at least two years earlier than we would otherwise.
Speaker Change: From there our first fully utilized spaceport becomes the economic engine to generate more than enough cash flow to expand to other space ports around the globe.
Speaker Change: We foresee that the right amount of growth capital to achieve the above goals, while also maintaining appropriate cushion on the balance sheet at all times is $300 million.
Speaker Change: Our strong cash position gives us flexibility and timing and pace of acquiring this growth capital and this allows us to make prudent progress on fleet expansion, while maintaining continuous strength of our balance sheet.
Speaker Change: Furthermore, the value that can be created because remaining growth capital is expected to far outweigh the cost of that capital we could go and not raise growth capital without would delay EBITDA expansion and the significant value that EBITDA expansion represents.
Speaker Change: To wrap up we are excited with the progress made on the Delta specific program building. Upon this foundation. We are now looking to capture the profit that can come from a fully utilized spaceport paving the way for further self sustaining global expansion back to you Michael.
Speaker Change: Thanks, Doug.
Michael: We're pleased with our progress with our Delta spaceship program as well as our plans to accelerate the growth of Virgin Galactic Q.
Speaker Change: Q4 will bring more milestones for the Delta program as we prepare to assemble the first two patients next year.
Speaker Change: We're excited to advance our growth strategy and start the design process of our second mothership.
Speaker Change: So operator, let's open the call for questions.
Speaker Change: Thank you and at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again Thats star one to ask a question, we'll pause for just a moment to compile the Q&A roster.
Speaker Change: Thank you and your first question comes from the line of Matt Akers of Wells Fargo. Your line is open.
Matt Akers: Yeah, Hey, good afternoon, guys. Thanks for the question.
Matt Akers: I was wondering what's your latest thinking on sort of reopening ticket sales given the species of three and four it sounds like will open up.
Speaker Change: A bit of additional capacity just curious how you think about sort.
Speaker Change: Sort of the phasing of when you might sell tickets for those.
Speaker Change: Thanks, Matt.
Speaker Change: I think youll see us opening ticket sales when we are.
Speaker Change: Within.
Speaker Change: A year or less of flying private citizens on our delta chips, so somewhere towards the back half of 2025 is when that's most likely to be there and the reason is as we've shared before.
Speaker Change: We want to hold right now we want to make sure. We're taking advantage of yielding we have a business that we expect is quite supply constrained relative to demand and we think it's appropriate to have people generally with a two year time window from the time they sign on board.
Speaker Change: Building up the journey, and then going ahead and letting them.
Speaker Change: Coming to new Mexico forward that we could training before flight once we get out in front of two years is not as beneficial and so that's that's a good sense of timing for us.
Speaker Change: Got it. Thank you and then I guess.
Speaker Change: Just a question on <unk>.
Speaker Change: Any additional equity issuance for the yeah as you pursue the mothership I know you've talked about sort of the optionality of how fast we want to accelerate I guess do you foresee more equity issuance under that program.
Speaker Change: Given the current program and is there sort of a minimum.
Speaker Change: Kind of cash balance we should thank you guys. Thank you need on the balance sheet.
Speaker Change: Kind of going forward here.
Speaker Change: Yes. This is Doug thanks for the question, so we've talked about growth capital.
Speaker Change: And to put that in perspective, we've described how we have enough cash on the balance sheet today to get the first two deltas into service and become cash flow positive. There is an opportunity to bring in growth capital along the way to accelerate the growth and that would be really targeted.
Speaker Change: The mother ship.
Speaker Change: Couple more delta as to round out the fleet Spaceport America. So we see this big opportunity.
Speaker Change: To go forward with that because it brings in the economies of scale and we had an economic chart in here that shows the magnitude of that with the extra vehicles in our fleet. So another mother ship into more spaceships, we can double our revenue and quadruple our EBITDA. So we are very interested in pursuing that.
Speaker Change: It's available because we have a fixed cost base and the more volume we have the more often we fly.
Speaker Change: Our leverage we get that goes to the bottom line. So we don't have an immediate need to bringing that growth capital, but we do see the opportunity to do that ahead of any vehicle investments. So we have a mother ship ready by 2028 is the timeline, we're targeting and also to ensure we always have a strong balance sheet along the way.
Speaker Change: So there is no minimum cash balance that were putting out there, but the growth capital. We mentioned is more than enough to support all of our needs for growth and also keep the balance sheet Tom.
Speaker Change: Okay, great. Thank you.
Speaker Change: Your next question comes from the line of Oliver Chen from TD Cowen Your line is open.
Oliver Chen: Hi, Michael and Doug were in.
Oliver Chen: A dynamic environment, what are your thoughts around the potential for tariffs and anything we should know as you think about sourcing is as that man.
Oliver Chen: And some risks.
Oliver Chen: The production and then as we think about your partners.
Speaker Change: Your partners, how is everything going with your manufacturing partners Bell, Thanks, Scott and car Bonne any thoughts there and then on the marketing side and just keeping engagement up it sounds like everything is going really well as plan. What's on your mind in terms of the consumer engagement and marketing during this period and key priorities you have there.
Speaker Change: <unk>.
Speaker Change: Thanks Oliver.
Speaker Change: As far as I think tariffs or other things that may be going on.
Speaker Change: Possibly in the future we are reasonably insulated on our supply chain most of our efforts are coming from the United States and we build everything here in the United States. Our suppliers are all here in the United States. So our supply chain I think is connected to the United States in that regard.
Speaker Change: Bell and carbon have been really good to work with we are as we said in the midst of the build phase you probably haven't had a chance to see it we put just a real brief video out.
Speaker Change: Okay.
Speaker Change: What it is like one of carbons factories. They have two that are working with us as the one in Georgia and they've been bringing in the tools that they use to build the carbon parts that need to be made before of course, we can assemble the inventory space yet.
Speaker Change: And we had a couple of really big ones coming in there so.
Speaker Change: That work has been going is continuing and the parts fabrication will be ramping up.
Speaker Change: The teams at carbon and Bell.
Speaker Change: Super important partnership because it's complex.
Speaker Change: KOSPI development program like this all sorts of things and come up.
Speaker Change: Where we think we're on a path to finish a design, which will create a tool that will allow us to order that tool through the supply chain and get it built and Theres all scheduled for this and then as we evolve we learn something needs to change.
Speaker Change: In order to get that tool manufactured the right where the part manufactured the right way it ripples back through we make a small change in the design that requires a change in the tool and so forth. So thats happening back and forth frequently and to your question Oliver Bell and carbon has been outstanding to work with in this regard because we all see these topics at the same.
Speaker Change: We can all jump onto the issue we can work to resolve it either right away or if certain things are going to take us longer we can work together with them to re sequence the order in which things come. So you heard me talk about.
Speaker Change: We're really hyper focused on the critical path of the program, we do that in day to day hour to hour partnership with our friends at Bell and carbon and Thats, how we are maintaining our schedule going forward and so you heard us talk about really no change in our milestone expectations from the last quarter because we are.
Speaker Change: The progress that we need and expect.
Speaker Change: You asked about.
Speaker Change: Consumer marketing obviously, we've.
Speaker Change: <unk> taken not not a full hiatus, but.
Speaker Change: Much more quiet approach to our marketing during this phase because we're really focused on building that will change as we move through the back half of 2025, but what you will see from US is as these big tools are coming into bell and carbon as the big parts come out as we.
Speaker Change: Really start to assemble things that start looking like a spaceship. That's when we think its relevant for us to lean forward, a little bit and start sharing those stories not just like here on an investor call, but putting that out for our retail investors putting that out for our customers and fans. So that the excitement starts to build that Oh. These are the shifts that are going to carry a meter space there.
Speaker Change: They're coming along and you'll see us ramp up both marketing and event strategies around that.
Speaker Change: Okay. Thank you and the Delta class announced.
Speaker Change: Regarding the third and fourth ship.
Speaker Change: Encouraging what's underlying that decision and what youre seeing in doesn't interrelated to your thoughts on demand. Thank you.
Speaker Change: Okay.
Speaker Change: It does kick in here.
Speaker Change: The.
Speaker Change: On one hand. This is our strategy all along has been to build the economic engine of fully utilized spaceports right you've heard us talk about that for quite a while.
Speaker Change: I would say over the prior year, we've really put our heads down to focus on the first two delta shifts so getting those out the door so that with our existing mother ship is already in new Mexico, we can reach a cash positive basis and in the effort of doing less super well.
Speaker Change: And on time, we've just kept our focus on that and that has progressed very well as we talked about in the prepared remarks. So now is the right time to get back to okay, well, we want to add more space ships. So that we can carry more customers drive more profit and as Doug said, there is a lot of fixed and semi variable.
Speaker Change: Cost in running this space port so as we add capacity at the top and drive revenue. It really flows down with a lot of leverage. So the goal is to take advantage of these economies of scale and capture the EBITDA growth earlier than we would if we just funded everything through kind of the organic cash flow generated from operations because of.
Speaker Change: Otherwise, we can wait a while it's really timed well because as we move through design phase and into the build phase of the Delta ship will start to be able to free up engineering capacity that had been our engineers have been working on this space ship can now move over to the mother ship and that works out really well in kind of load balancing our engineering workforce.
Speaker Change: So this is the right time to get that going and as Doug said by starting these now it allows us to bring not only the second mother ship, but also the third and fourth Delta ship in by 2028 that will allow us to have a nice step up in capacity at Spaceport America and then of course, we've already now built the tools and the manufacturing infrastructure.
Speaker Change: Structure to keep going which is how we will then be able to self fund growth to the next spaceport in where we go from there.
Speaker Change: Thank you sounds encouraging best regards happy holidays as well.
Speaker Change: Thanks same to you Oliver.
Speaker Change: Your next question comes from the line of Greg Conrad from Jefferies. Your line is open.
Greg Conrad: Good evening.
Speaker Change: Hi, Greg.
Speaker Change: You gave some helpful color around 2025 free cash flow and the uptick in Q1, and then kind of reduction through 2025.
Speaker Change: The commentary around growth capital.
Speaker Change: The multi year free cash flow outlook in the past I think you had talked about 2024 and 2025 relative to 2023 has there been any change to kind of expectations around 2025 free cash flow usage.
Speaker Change: No change because we've been planning this all along so we have a trend down in 2025, just because of where we are in the lifecycle of Delta when we got the capex going into tooling and parts fabrication and so then the next phase is just a low.
Speaker Change: Your cost base, because we are focused on assembly and test.
Speaker Change: The mother ship coming in it starts off.
Speaker Change: With a lower spend profile.
Speaker Change: Because it's the engineering work at the beginning and then the the spending ramps up later.
Speaker Change: At a higher level, when we get to tooling and parts fabrication just like we did with Delta. So yes. The overall profile for 'twenty three 'twenty four 'twenty five is the same so we're expecting a trend down in 2025, and we can also add a little more color that we expect to be exiting 'twenty.
Speaker Change: Five of the a level below $100 million a quarter.
Speaker Change: Quarter of spend.
Speaker Change: And just one more.
Speaker Change: Bit of information that's helpful.
Speaker Change: More than half of our spend it will be in Capex as we will see a shift from expense to capital expenditures.
Speaker Change: There will be this ramp in tooling and parts fab that I talked about and then throughout 'twenty five.
Speaker Change: Half or more of our overall spend will be capital expenditure. So it shows we're maturing through the process here and getting that infrastructure in place and the parts coming in.
Speaker Change: And then when you talked about growth capital and kind of bridging to that acceleration and that was really helpful. You talked about the $100 million burn for us.
Speaker Change: Exiting 2025 does that reaccelerate on those growth initiatives or it just doesn't improve as quickly because now you are filtering in those growth capital on top of the production of the first and second Delta.
Speaker Change: So I think the right way to look at this this is where we're at in 2026 by then you start to see cash coming in from.
Speaker Change: The flights that we're doing with the Delta class so the whole thing.
Speaker Change: First the change to a <unk>.
Speaker Change: Cash flow positive business.
Speaker Change: As we enter commercial service, what's the delta in the ramp that up first two deltas. So the.
Speaker Change: Youll see the cash burn continue to improve over time because of that shift towards money coming in now with commercial operations and then we become self sustaining at that point and then as we.
Speaker Change: Continue to add to the fleet with this growth capital.
Speaker Change: Build up even more cash inflows from that which means additional expansion of the fleet and into other spaceport. So it sets us up for the future beyond that.
Speaker Change: That's the way to look at that trend.
Speaker Change: And then maybe one last one for me I mean, it was helpful. You kind of size growth capital at 300 million you said recurring production of Delta $50 million to $60 million can we think about the delta between that $300 million in the two delta is kind of going toward.
Speaker Change: The development of the second mother ship, just thinking about NRT in and maybe the production of that.
Speaker Change: The main use of.
Speaker Change: The growth capital is really to get.
Speaker Change: Get going on the mother ship, because we're still working on Delta is one and two.
Speaker Change: The next thing to be focused on the design and then tooling and then certain parts valve on a mother ship, so youll see that as the real.
Speaker Change: Use for that gross capital and then we already have the factory in the tooling and everything in place for the space shifts that we would add to pair with that.
Speaker Change: And then I'll be coming together.
Speaker Change: Same time, so we have a fully utilized space port with the mother ship in our opinion spaceships horizon.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Myles Walton of Wolfe Research. Your line is open.
Myles Walton: Thanks, Good evening.
Myles Walton: I was hoping to maybe just make sure I understand the mothership.
Myles Walton: Second second mothership timing for 2020, I think earlier. This year you also had a timing for 2028 for the second mothership is that is that right.
Speaker Change: And if that's correct and is there something in the schedule Thats actually moving with the growth capital Youre talking about or what within the schedule is being enabled by the growth capital.
Speaker Change: What we've been trying to do very clearly is ensure first things first let's take the cash we have on hand and use that to build these first two delta shifts so that we get to operating cash positivity and.
Speaker Change: We can kind of manage our destiny from there. So that's where we've been truly focused that's going well and as planned so what we.
Speaker Change: Want to do is obviously bring in enough funds that stay ahead of the cost ramp that will come with building. This mother ship. So that we aren't dipping into funds that we will be using for those first two space ships that timing to your point miles is the same as we've described before we want the mother ship to.
Speaker Change: Come in in the 2008 timeframe as well as the third and fourth spaceship, which we probably haven't been as explicit about in the past so not only the mothership, but also those next two space ships would be together coming in in 2008, so that we cannot.
Speaker Change: Put them all to use together and start driving profits from it.
Speaker Change: Got it. So this is more of a green light exercise than a change of your plan. It sounds like it's consistent with your plan, that's more youre, gaining the capital investment.
Speaker Change: That's correct, where you're just managing that through and I guess be more explicit about the timing of delta three and four okay.
Speaker Change: Okay Cool and then Michael you talked about the Delta design feedback loops and it it sounded like it was more on the tool design that.
Speaker Change: We're having the feedback loops at the moment is that indicative that you haven't got down to component level feedback loop designs or.
Speaker Change: Are you are you through much of the component level design.
Speaker Change: The actual delta.
Speaker Change: Delta class.
Speaker Change: And you're more into the manufacturing process design, and Thats, where you havent feedback.
Speaker Change: Yes, so it's a combination of I would say tool manufacturing feedback loops. So we're really working through the details of the loss is some and then.
Speaker Change: An example that may be as relevant for a wider group.
Speaker Change: We're in this the drawings left are really assembly drawings and the manufacturing work instructions that will come for building and just as a fairly simple example, the interior of our cabin has a floor to it and it has sidewalls that go in there and these are all built in <unk> and the modeling software we use.
Speaker Change: <unk>.
Speaker Change: People are working on those different parts and as they were brought together there is I'll call. It a flange that we use to kind of both these back down and when we brought these together for how we're going to assemble we realized we had a conflict in those areas and so as a fairly easy conflict.
Speaker Change: <unk> resolved from a design standpoint.
Speaker Change: <unk>.
Speaker Change: Just the plans and make that into a different place, but that one little simple thing on the design made a change to the tool that was already in process and so therefore, we have to now rethink through the tool dynamic and it all works out and we had plenty of time to sequence that into.
Speaker Change: How we build it so we don't lose time off the critical path for that but that's what we're trying to share is just it's kind of the blocking and tackling of moving through assembly drawing some manufacturing work instructions. We continue to identify elements that need revision, sometimes those are pretty straightforward sometimes it <unk>.
Speaker Change: It's a tweak to the design, sometimes that's it sometimes those designs ripple back through the tool path and then we have to start adjusting scheduled sequencing to keep everything on track. So I was just trying to give a little bit of color.
Speaker Change: Color into those are the things that our teams are just battling day by day.
Speaker Change: As is typical of a program like this.
Speaker Change: Makes sense alright, thanks for the color.
Speaker Change: Youre welcome.
Speaker Change: And once again, if you do have a question. Please press star one.
Speaker Change: Next question comes from the line of Michael <unk> of Keybanc capital markets. Your line is open.
Michael <unk>: Hey, good afternoon, I wanted to follow up on cash flow previously you had expected 2024 to be the largest cash burn year related to the Delta class ships, but now it's looking like it could come in a bit lower with this due to the timing of some spending being pushed into 2025 or.
Michael <unk>: Did you come in under budget in certain areas and how is delta class progressing relative to your initial budget for the ships.
Speaker Change: So overall, we've been very actively managing our spending so some of the.
Michael <unk>: Lower numbers come from just our active control of of what we spend our money on and trying to be as lean as possible.
Michael <unk>: There is always a little bit of timing shift.
Michael <unk>: Within quarters, but I think we were also trying to be conservative previously.
Michael <unk>: <unk>.
Michael <unk>: The highlight what 'twenty 'twenty four would look like and again paint that picture for the year over year profile was still stands. So 'twenty 'twenty four is still the peak 2025 will be lower.
Michael <unk>: Yes, so we gave that guidance a while ago I think we came in pretty close but we are expecting.
Michael <unk>: And then the second part of your question could you remind me Mike.
Mike: Just overall, how the Delta class is progressing relative to your initial budget for the for the program.
Michael <unk>: Yes, it's tracking very well so we've been very diligent about tracking all of the different.
Michael <unk>: Elements of the program and we've been very pleased with the.
Michael <unk>: The aggregate spend for that program from NRA through the.
Michael <unk>: The tooling development in and what we project for the remainder of the program is on track with what we had projected.
Speaker Change: Okay, and then on the head count additions at the Arizona facility.
Speaker Change: Are you seeing in terms of labor availability, just trying to get a sense, how fast you could add head count.
Speaker Change: And how much additional labor would you need to add at that facility.
Speaker Change: Thank you it's Michael Thanks, Mike.
Speaker Change: Just for context, if you think what's going to happen through Phoenix in the <unk>.
Michael <unk>: Let's call it over the course of the next year.
Michael <unk>: We'll be assembling these first two ships.
Michael <unk>: Fairly intensive hands on phase and then we will move those ships into ground testing at which point in time, we will fly them after that to Spaceport America, where they'll go through their flight test program.
Michael <unk>: And then there'll probably be a little bit of that.
Michael <unk>: Time period, while were out working on flight testing and getting those delta shifts in before the mother ship that we've been talking about is kind of rolling into Phoenix for assembly there. So.
Michael <unk>: What we're trying to be thoughtful about is not ramping up I'll call. It an excessively large.
Michael <unk>: Permanent group in Phoenix at this time.
Michael <unk>: The larger ramp will probably come when the mother ship comes in because then we'll have a more consistent mother ship build spaceships build to another space ship to another mother ship. It will be consistent. So we were handling that is we have a great.
Michael <unk>: A very talented team in new Mexico.
Michael <unk>: Heavy A&P mechanic group they maintain all of our ships a lot of those folks have agreed to come to Phoenix.
Michael <unk>: And.
Michael <unk>: Bring the lead and the expertise to help US go through the building phase and then as we bring those first two delta shifts back to new Mexico that team that's based in new Mexico will lead Phoenix and go back home.
Michael <unk>: To put them to the flight. So I'll give you all that context, because it means the amount of hires that we need to do in Phoenix is relatively modest because we will be bringing in folks from new Mexico, and a few from Mojave as well.
Michael <unk>: With that said.
Michael <unk>: This is a sex are highly sex appeal a job. This is building space ships and the Phoenix market is very strong and what we're trying to do in general and we believe we will compete and be an employer of choice there as we come in so.
Michael <unk>: Yes, we have to go do that that will come later in the fourth quarter. So we'll be putting our energies to that but I believe the market depth relative to the amount of people we need is quite deep.
Speaker Change: That's helpful. Thank you guys.
Speaker Change: Thanks, Mike.
Speaker Change: We do thank you for your questions and we do thank you for your time today. This does conclude today's conference call and you may now disconnect have a great day everyone.
Michael <unk>: Yeah.
Michael <unk>: Okay.
Michael <unk>: Yeah.
Michael <unk>: Yeah.