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spk06: Good afternoon. My name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's first quarter 2022 earnings conference call. All lines will be placed on mute to prevent from background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star alt by one on your telephone keypad. If for any reason you'd like to remove that question, please press the pound key. Thank you. Hosting today's conference call will be Liz Calvillo of Investor Relations. As a reminder, today's call is being recorded. I would now like to turn the conference over to Ms. Calvillo. Please go ahead.
spk07: Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's first quarter 2022 earnings conference call. On the call with me today are Michael Colblazier, Chief Executive Officer, and Doug Aarons, Chief Financial Officer. Following prepared remarks from Michael and Doug, we will open the call for questions. Our press release was issued about an hour ago and is available on our Investor Relations website, as well as the slide presentations that will accompany today's remarks. Let me refer you to slide two of the presentation, which contains our safe harbor disclaimer. During today's call, we may make certain forward-looking statements These statements are based on current expectations and assumptions, and as a result, are subject to risk and uncertainty. 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 company's filings with FTC files by Virgin Galactic from time to time. Readers are cautioned not to put undue reliance on forward-looking statements and the company specifically disclaims any obligation to update the forward listening statements that may be discussed during our call. Please also note that we will refer to certain non-GAAP financial information on today's call. With that, I would now like to turn the call over to Michael.
spk01: Thanks, Liz, and good afternoon, everyone. 2022 is an important and busy year for us. We've made good progress across our core priorities, which are the enhancement program for our current fleet, preparations for commercial service, and setting up the business to operate at scale. I look forward to sharing updates on all these priorities with you today. Moving to slide four in today's agenda. I'll start with an update on the enhancement program in our flight schedule, followed by an update on our future fleet, and then I'll turn to our commercial strategy. Finally, I'll hand the call over to Doug, who will provide a financial review of the quarter. Moving to slide five in our vehicle enhancement program. We continue to make good progress on the enhancements to our current fleet, including our mothership Eve and our spaceship Unity. As a reminder, these enhancements are designed to significantly improve the durability and reliability of these ships, enabling a higher frequency flight rate for commercial service. We've outlined the details of this work in previous earnings, but let me give you one example of what we've recently completed. Eve's enhancement program includes modifications to the center wing and launch pylon to enhance durability in a high-frequency commercial setting. A launch pylon is a mechanical attachment that holds the spaceship and passes air and electricity from the mothership to the spaceship until the spaceship is released. We are implementing a new pylon design that attaches to the mothership wing with a four-point construction rather than the three connection points we had previously. If you're following the presentation, on slide five, you'll see an image from when the launch pylon was installed in April. This was a major milestone for the program, and these various other enhancements continue to progress The work we are doing on BSS Unity is also moving ahead, and we continue to expect that Unity's enhancements will be completed in advance of the schedule for ETH. Last quarter, we shared that we are closely monitoring increased supply chain risk and are proactively working to mitigate issues. Like many companies around the world, we're experiencing elevated levels of supply chain disruption. We have an outstanding team dedicated to managing this increasingly complex environment, and they are actively working to address and mitigate these supply challenges as they rise. We are also growing our talent base amid a constrained labor market. While we are having much recruiting success, our talent growth rates have not kept pace with planned ramp-up. These combined labor and supply chain challenges are bringing out the best of Virgin Galactic's innovation and resourcefulness, and we've been able to mitigate most scheduled risks as they arise. At this point, though, our projections on hiring base and our forecast of certain long-leave material deliveries suggest we may need additional scheduled contingency. For this reason, we are shifting the expected commencement of commercial service from Q4 of 22 to Q1 of 23, turning to slide 6 in our flight update. While our commercial flights are expected to start at Bidley, we anticipate BSS Unity to return to space in Q4 of 22 as part of our planned post-enhancement period flight test procedures. We expect our second spaceship, VSS Imagine, will make its debut test flight to space in Q1 of 2023. Following several revenue-generating test flights, we expect VSS Imagine to commence private astronaut service midway through 2023. Flight testing will remain critically important as we design and build our new spaceships and motherships. In March, we announced the promotion of Kelly Latimer to Director of Flight Test. Kelly is a veteran pilot who's been with the company more than six years. She brings a wealth of experience to the role, having previously worked on system development and aircraft design at Boeing, following 20 years of service with the U.S. Air Force. As Director of Flight Test, she will oversee the conclusion of our test program for Unity and Imagine, while working in parallel to design our test program for the Delta Spaceships and Next Generation Motherships. We're excited to have Kelly in this important role. When Unity and Imagine achieved their planned cadence for commercial space flights in 2023, We expect to fly to space about three times per month, which will be an incredible achievement. But the market for human spaceflight is large and growing, and the real step change in our ability to meet the demand for experience will come with our future fleet. So let's turn to slide seven and our manufacturing and design update. As we shared previously, the Delta class is our production model spaceship, which we are designing to fly once per week. The Delta fleet and next-generation motherships are evolutions of our current vehicles, More than 17 years of research and development have enabled us to build space vehicles that are differentiated and elegant. We've proven both that our technology works and that our spaceship design delivers the one-of-a-kind consumer experience it was intended to. For our next generation fleet, we are adjusting the existing design of our ship to make it faster to produce and easier to maintain to support faster vehicle turn times. As we move towards scale, we are evolving from a primarily in-house vertically integrated manufacturing process to one that leverages Tier 1 and Tier 2 suppliers for major sub-assemblies such as the wing, fuselage, and feather. A key goal of our strategy is to utilize the nationwide aerospace ecosystem to access pre-existing innovation, new technology, and existing highly skilled labor tools. For example, by working with new Tier 1 suppliers, we are now able to incorporate a more efficient high-temperature composite that will reduce weight and improve production lead times. Establishing these third-party relationships is critical to how we scale our business. It will be long-term, high-dollar value contracts, and we are working through a methodical and competitive process to identify and onboard partners to conform to the backbone of our future supply chain. I'm pleased to share that we are making good progress on selecting these important partners. Turning to slide eight, in March, we hosted a supplier conference at our engineering and design headquarters in Orange County and our manufacturing facility in Mojave. It was well attended by Tier 1 and Tier 2 suppliers who expressed interest in working with us on the sub-assemblies for our Delta fleet. The caliber of available and interested suppliers is excellent and gives us great confidence in our path forward. We've now issued RFIs and are working through a meticulous process to identify the primary suppliers we will work with. Turning to slide nine. we are deploying a digital twin architecture that underpins our Delta-class next-generation mothership schedules. This approach enables a comprehensive digital database for each vehicle, which captures the vehicle's system requirements, physical design, as well as manufacturing and operations data to create a digital thread for all production activity across the supply chain. This digital thread enables seamless integration with our partners, allowing for real-time collaboration, strong governance, and an increase in production, efficiency, safety, and reliability. A key benefit of this approach is that it allows our in-house team to focus on the complex and critical elements that are core to our intellectual property around design and engineering and final assembly. We continue to progress design and location choice for the new final assembly facility for our Delta-class spaceships. We expect the facility to be operational in late 2023. We're planning for this facility to eventually employ hundreds of urgent galactic technicians and engineers with production capability of up to six spaceships a year. We look forward to sharing an update on this soon. In summary, we've made good progress this quarter towards establishing our long-term manufacturing model. We feel confident that our manufacturing approach will improve our speed of market, help us minimize supply chain disruption, and realize meaningful efficiencies. Our new slide 10 is our commercial strategy. In February, we announced Blair Rich as our President and Chief Business Officer of Commercial and Consumer Operations. In the near term, Blair and her team are focused on three top priorities, sales, the customer journey and experience, and building our global brand. I now take these in turn. Ticket sales continue to progress well, and we're seeing strong uptake across our product offering. This includes single seats, as well as multi-seat and full-flight vials. we remain on track to have our first 1,000 committed astronauts ready for the launch of commercial service. We currently have approximately 800 future astronauts in our community. Our approach to sales is high-tech and personalized, and is proving to be extremely successful at converting consumer interest into ticket sales. These early sales are also helping us build a valuable bank of customer data and insights that will help us refine and scale our sales process as our business expands. We shared before that one of our key differentiators is our end-to-end customer journey, which starts at the point of sale and extends far beyond the space flight experience as part of our astronaut alumni. The multi-year anticipation of our flight is intentional. Our customers place a high value on the enrichment and opportunities this membership provides. We build this community. We're expanding the membership experience around three core pillars, education and enrichment, astronaut development and training, and impact and inspiration. The training and space experience components may be familiar to you. I'd like to take a moment to explain the focus on education. Many future astronauts have a keen desire to use their time in the future astronaut community as an educational experience by deepening their understanding of space, engineering, technology, and the planet. Examples include multi-seat and full-flight miles for parents and families who emphasize the role that they would like the pre-flight astronaut experience to play for their now teenage children. during the run-up to the flight. Our customers are hungry for knowledge, and giving them a peek behind the hangar door and access to the experience and expertise within our team is something they highly value. It's also something that sets us apart. For our membership community, we have the opportunity to curate and personalize the customer journey, further enhance our product distinction, and leverage signature Virgin customer experiences, which will, in turn, attract potential customers. On building our brand, as we resume space flights following our enhancement period, we expect to see a spike in global engagement as we saw in previous flights. We've shown how effectively we can use these milestone flight events to capture the imagination of millions of people and the attention of global media, which in turn builds our global cultural relevance, engages our brand fans, and increases affinity towards Virgin Galactic. I'll now turn the call over to Doug for an update on our financials. Thanks, Michael, and good afternoon, everyone. Turning to slides 11 and 12, let's review our financial results for the first quarter. We generated revenue of $319,000 in the quarter, driven primarily by future AFSANAP membership fees associated with new ticket sales. Operating expenses for the first quarter were $92 million, compared to $81 million in the prior year period. The increase in expenses is primarily attributable to higher manufacturing labor spend as we're progressing through the fleet enhancement period. GAAP net loss for the first quarter was $93 million, compared to a loss of $130 million in the first quarter of 2021. The smaller net loss is primarily due to there no longer being any remaining warrants, and there being no associated change in fair value of those warrants flowing through the income statement. Adjusted EBITDA was a negative $77 million, compared to a negative $56 million in the prior year period. Free cash flow was negative $68 million compared to negative $50 million in the same period last year. The increased spending was primarily attributable to growth in manufacturing headcount during the fleet enhancement period, as well as an increase in marketing expenses. Regarding our guidance for the second quarter, we forecast free cash flow to be in the range of negative $80 million to $90 million. The projected growth in spending quarter over quarter is expected to be driven by the ongoing work during the fleet enhancement period, combined with the ramp and design effort for our future fleet, as well as investments to increase the scale of our flight operations leading up to commercial service. Our balance sheet remains strong, with over $1.2 billion in cash, cash equivalents, and marketable securities. Going forward, we'll continue to evaluate opportunities to raise capital as we grow and scale our business. We plan to use a combination of cash on hand revenue from commercial space flights as well as future inflows of capital to fund our strategic objectives. I'd like to now hand the call back over to Michael. Thanks, Doug. I'm pleased with our positive start to 2022 and the progress we've made so far. As the global backdrop of escalating supply chains and labor constraints, our teams are containing the majority of issues to minimize impact on schedules. We look forward to returning to space in Q4 and launching commercial service first quarter of next year. To recap, we expect to begin spaceflight later this year with commercial launch in the first quarter of 2023. We are seeing strong uptake across our product offerings, including multi-seas and full-flight buyouts, as well as interest in research flights. Our future astronaut community stands at approximately 800 reservations. The design work for the next generation of our spaceflight system is well underway, and we are making progress in establishing the infrastructure to scale our business. The coming months will continue to be very busy for us as we complete our enhancements and approach commercial service, and I'm looking forward to sharing updates on our progress. With that, we'll turn to questions.
spk00: Operator, we're ready to begin the Q&A portion of the call.
spk06: Thank you. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by 2. Again, to ask a question, press star one. And as a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We'll pause here briefly as questions are registered. Our first question comes from Robert Spingarn with Mellius Research. Please proceed.
spk01: Good afternoon. Michael or Doug, With all the changes to the spaceship and the mothership, do you foresee a scenario where the FAA wants the updates to go through a different certification process than just a few test flights? Does anything change there? No, we do not foresee that, Rob. The ships are the same. You're familiar with our licensing process, I believe. The updates that are going through here aren't changing the foundational structure of the ship or any of the systems there. They're, like I said, strengthening various structures and getting things ready for higher volume commercial use. So the license that we operate on will stay the same. Okay. And then just on the process of developing these spaceships, you've talked about leveraging the aerospace supply chain. to build both the ships and the motherships with the struggles that a lot of suppliers are having now with raw materials and labor, just general supply chain issues, and the work they have with others.
spk05: How are you getting them to agree to work with Virgin Galactic under these conditions? Or are the volumes so low at this point they really don't have to make these decisions?
spk01: So I think you've got a couple of things going on. One thing that we've been purposeful about doing is, as we talk about evolving, right, because it's an evolution of our current ship that, you know, 17 years behind it to this Delta class, the main work is allowing us to take what used to be many, many kind of subsystems or subassemblies and consolidating that down to just a few. such that when we take those few major sub-assemblies out into the market, they're substantial dollars, right? They're substantial contracts that are meaningful to people. So that's one thing that has allowed us to attract people to the table. I think the essence of what we're doing is also kind of exciting into the marketplace there. But people need to make money, and we're putting together contracts and buys that will be material for folks. The availability of capacity within the market is still good and still solid for us. And so we were really pleased to see the turnout and the responses as they're starting to come in on the RFI process. I think the supply chains are snarled around the world and there's a lot going on with that. The timing, I'm not gonna try to predict two, three years out, but what we're doing upfront isn't dealing with major things in supply. Upfront is going to be working with each other on the engineering of this, deciding how we're going to determine what part of the design we will finish ourselves and what we'll ask these suppliers to do. And so the main material ramp up is going to come later. So I think we're ahead of it and everyone will have time to manage that appropriately. But the big thing we're doing is making sure we have material contracts that are just good for people's business. And I think we're seeing great response to that. And you mentioned these dollars. Maybe Doug can take this. Should we see any kind of movement in CapEx here over the next several quarters as more and more people get involved, or it just doesn't happen that soon? What you'll see is R&D expense. It doesn't actually become CapEx until we get to a later stage. It'll cross over perhaps like in 2020, late 2023, 2024. It's actually an accounting convention that everything is reflected as R&D until we reach that point. Fair enough, but then how does that trend? So the trend in the spending, yeah. So what you'll see, you know, we gave one quarter guidance of, you know, 80 to 90 million. You'll see a ramp happening through 2022 into 2023. We didn't quantify that, but you can see the layers of spending coming in between, you know, the design work and the building out of the factory and other infrastructure. So you'll see a ramp into 2023, but we haven't quantified that publicly. Okay.
spk00: Thank you very much. Thanks, Rob.
spk06: Thank you for your question. Our next question comes from Oliver Chen from Cohen. Please proceed.
spk03: Hi. Hi, thank you very much. On the decision to delay to Q1, I'm just curious about the rationale there and would it have made more sense to give yourself more cushion to Q2, just given a lot of the uncertainty that we're seeing out in the market. Also, with regards to the ticket sales and the demand that you're seeing, would love your thoughts on if it's been volatile and any updated thoughts on the ticket window. That'd be helpful. Thank you.
spk01: Sure. Hi, Oliver. It's Michael here. On the first one, we tried to provide as accurate a point of view on scuttles as we can. And we've been, I think, improving our ability to forecast out. So we're still several months away. We're here in early May now. But the teams have been doing an incredible effort to basically contain all these little issues that pop up that have potential to push schedules back. And they've really done an excellent job on that. But cumulatively, we are seeing both enough things that have taken a week here, two weeks there, that have kind of extended on our critical path. So we think it's appropriate to add further contingency in. So you asked, you know, have we given ourselves enough? As we do expect to have flight back to space with unity in the fourth quarter and so that gives you kind of a little bit of sense of containment on schedule and so moving from q4 to a projection of q1 of 23 for commercial service we think is appropriate we've built in you know an assessment of our own schedules and we've added contingency against this new schedule as well we want to be accurate again we don't want to be in a spot where we're not meeting the date, but we also don't want to be so padded that we're also not being accurate in that sense. So we think we've given the right direction on where these are going. That's how we came up with these dates. Oh, sorry, Oliver, you asked about, could you ask the ticketing part of that again? Was it just, are we seeing, I heard you use the word the volatility. Yeah, the volatility in what way?
spk03: curious about the demand profile and also the duration of the sales window in terms of any updated thoughts on what you're seeing. Thanks for ticket sales.
spk01: No, no, of course. Ticket sales are going really well. And what we generally have right now is a backlog of people that have gone through our CRM processes and said, yes, I'm ready to go now. Can you please call? And we have What's effectively a two-way interview with people, just understanding what they're looking for, people understand how the service and the experience will work, and the timetable's in there. It's going really well. We are, as you said, we have about 800 people right now. That's quite a bit of backlog relative to starting commercial service in Q1 of the upcoming year. So we're not, I'd say, in an internal race with ourselves to complete out. We only have 200 left to go.
spk00: So it's a...
spk01: a very small team that is taking these calls one by one as they come through. Our conversion rates are excellent. And at this stage where we only have 200 left, we don't need to add more people to that. So we feel we're kind of right on track to get ourselves, you know, the thousand people we wanted to put as kind of our first thousand as commercial service launches. We're really good there. And then, like I said, we're doing this with, you know, effectively one, you know, very small team. I'll just put it that way. And what we're learning from that is as we then get you know further down and we start to get closer to where the delta teams are flights are going to ramp. We know we can basically replicate the process we've been doing and that's how we'll scale this up as we go along so it's been it's been really good and the people who are coming in, have been. Mostly still going for single seats, but we're also starting to see purchases across our spectrum, right? Multiple seats as well as full-flight buyouts. And that's been really exciting to see people have understanding they want to do this, not just as an individual pioneer, but also groups and families that are encouraged to make this a meaningful part of their lives. So I like how that's played out.
spk03: Okay, and that's very helpful. Last question on the membership community comments. Do you have any updated or further thoughts on what kinds of partnerships and or experiential focuses you have? And then on the digital twin, that was interesting. What's the implication for that kind of technology? I assume speed, agility, and quality, and it enables you to really collaborate in more real-time across suppliers. Thank you.
spk01: Sure. So I don't say something not necessarily new in what we're trying to do in our community piece, but the importance of it, we just continue to emphasize on each of these calls. It's a meaningful part of the dialogue we have with customers as they come in. I think they very much recognize this is a journey to a critical moment and that journey matters. So some of these things are going to be virtual moments that we can include the entire community. Some things are going to be very meaningful gatherings. We've got one that will come up in the fall in Wyoming that will be very purposeful with speakers that will be very interesting. Some things are more for social engagement along the way. So I don't think we have anything new to share in that regard other than the importance in that and the appeal of this as we discuss it with the customers as they're joining on. remains really strong. So we like that part of our strategy. We think that differentiates us a lot. And then Doug, we've been talking a ton on the digital twin. Ty, do you want to take that part? Sure. Yes, we have a summary of it in page nine of our deck. But to go into the details of it, you can think of it as a platform or a suite of tools, digital tools that really enables higher quality and velocity through the design and production cycle So this has been proven out by leading aerospace companies and allows us to integrate seamlessly with the supply chain because we have a digital database that we're all using together. But to go a little deeper, it gives you the ability to do model-based systems engineering and design. So we get all of the aircraft requirements into this database and do our CAD. We can do the simulation and optimization of the design across all of the disciplines. And then it extends through to product line management. So we collaborate, and it gives the governance on the whole system for change control and such. They put all this together, allows us to work very seamlessly and much, much faster than we did before. So it's going to be very helpful to our rapid aircraft development program that we're going into.
spk03: Thank you. Best regards.
spk06: Thanks, Oliver. Thank you for your question. Our next question comes from Greg Conrad from Jefferies. Please proceed.
spk10: Good evening. Just maybe to start, on Unity and Imagine, you mentioned three flights per month once those get ramped. I mean, is there any learning curve or once those enter commercial service, should we think about that three flights a month when they're both in service as kind of happening right away?
spk01: I think on Unity, we understand that ship well. We've been working with it for so many years. We understand what we've put into this enhancement program. Our teams in New Mexico are getting ready to do that. So we expect to see that come together well. We will have, if you call it right, we will have a test flight coming out of the enhancement period. And there will actually be two. One will do what we call a glide flight. where we take Unity up and release and come down in an unpowered fashion. And that just kind of confirms all the air handling services and flight dynamics. And then we'll do a power trip to space as well. So those two things also allow us to cut our teeth on how we're going to turn the ship. So by the time we start commercial service, we feel good and confident we'll be able to do that on that month interval. Imagine we'll be doing the same thing while it will be starting, commercial service we expect midway through 23, it will itself be going through a series of flight test program. And those are ones we'll also do a little bit more analysis because it'll be the first time out of the barn, so to speak. It will give our maintenance teams time to basically practice that and cut our teeth on that. So by the time we get to commercial service, I think we will be pretty close to where we're expecting on turning. There may be one or two flights in which we learn a little bit in between. But on average, I think we're targeting that every two weeks. So, you know, a little bit of time maybe after those first two commercial flights, but pretty close.
spk10: And then just kind of checking the math question. I mean, when we think about the 750th to 800th customer, is it fair to assume they're offered a slot in the 2026 timeframe? Or how do we think about the current customers that are signing on when their flights are planned?
spk01: Yeah, I think that's a fair estimate. We have the same conversation with our customers as we do on these calls. We talk about our expected rates for Unity and expected rates for Imagine. We talk about the first of the... flights coming out on Delta in 25 with commercial service really starting at 26 for the Delta so everybody does that same math and says okay by the time I'm on the tail end of this first thousand that's likely kind of 26 area there so people recognize that and that's again very related to why this community not only is important on the journey it's helpful to understand This is what I'm going to be engaging with and how I'm going to get value by signing up now here. It also gets people, and there's only 1,000 of the first 1,000. Right now, there's only 200 left, and I think people are understanding the scarcity of this particular group, and that's helping as well.
spk09: Thank you. Thank you for your question.
spk06: Our next question comes from Pete Osterlin with Truist. Please proceed.
spk05: Hey, good evening. This is Cheatham for Mike Trimoli. Thanks for taking our questions. First, just regarding the labor constraints you called out, for what kind of roles within the company are you mainly seeking to expand your hiring for right now, and what have been the biggest challenges that you've encountered on the labor front? Do you see this dynamic improving over the next quarter or two, or does it seem like the situation could be becoming more challenging?
spk01: primarily the place where we have labor constraints within the engineering group. Manufacturing, we've actually been able to staff our team well there, both with our own team and supplemented by some contracted forces as we go. The engineering piece is where we have amazing people. I'll put it in two ways. On one hand, we're ramping up engineering for the future fleet, and we're having great success there. I think I spoke with our head of the people organization. We've got 40 engineers showing up this month. So we're doing a great job on hiring. But the enhancement program, we're really using our engineering force that knows our ships because the new people are hiring. They're going to be on the future fleet. And where we had been, we had an engineering team that mostly had been building one ship, imagine, because Unity and EVE were more in-flight tests and more of an operational footing. We now have that same engineering team that has experience spread over all three shifts, and they're doing incredible work, but there's obviously much more scope. So we've been supplementing them as they go, but that supplementing has come at a somewhat slower rate than we've been able to keep our schedule against, and that's why you see us talking about labor constraints. It's within the experienced engineering group as we split our existing team from a main focus on one shift to working on three all at once. So that has a contained box to it, right? As we finish up the enhancement programs, we'll be rolling, you know, many will continue with the existing shifts as they're in service, but many of those experienced engineers will also transition as planned into our Delta class and new mothership designs. So that gives you maybe some parameters around it.
spk05: Okay, yes, that makes sense. And then just a question on pricing. Just, you know, with broad-based inflation on everyone's mind right now, has there been any indication at all in your conversations either with customers that currently have reservations or prospective customers that would suggest that, you know, demand or interest has, you know, maybe slowed down at all versus what you were expecting at the beginning of the year? And, you know, is there potential that, you know, you would need to modify your pricing strategy at all?
spk01: No, we're not seeing that. And, you know, two things. I think the customers that have been with us from early on are in a really good value position, right? You know, they came in at $200,000, $250,000. I think they're in a great value point of view. So that's, if you kind of look at inflation rates, you know, they invested early, and I think that's a good thing. And we will be taking up to the rest of this first thousand at $450,000. We don't plan to, I'll call it, inflate that price for the remaining 200 tickets. You know, but once those kind of full, those last 200 are gone, we'll assess pricing appropriately against the market there. But I think, you know, in the world, inflation is hitting the cost of other things. We're not taking the cost of these remaining 200 seats. We don't plan to take those above the 450,000 we've announced.
spk09: All right, thanks for taking the questions.
spk00: Of course, thanks.
spk06: Thank you for your question. Our next question comes from Christine Luag with Morgan Stanley. Please proceed.
spk08: Hey, good afternoon, guys. Hi, Christine. Hi. Hey, Michael. Hey, Doug. On the supply chain issue, I mean, you touched on this a lot. I was wondering if you could provide more details on exactly what you're facing. I would have thought that with parts for INSPIRE that you would have some spares.
spk00: Sure.
spk01: I'll give you one piece and just cut for everybody listening. INSPIRE is a ship that was going to be following Imagine and we have many other parts built for that. because I know you're aware, the majority of our ships are carbon, right? And we join carbon to carbon with epoxies and things. But there are places throughout all of our ships, motherships and spaceships, where we use high-performance metallics, sometimes to be in between joining carbon to carbon pieces. Sometimes we're joining carbon into the metallics. It's metallics where we're really seeing delivery times that are quite extended. So we've been handling these as they come up, and I'll give you an example. We had a part that is built out of an aluminum alloy, and that particular part is part of this process, came into a redesign area. Through the redesign, the kind of block of raw material, the billet of aluminum, grew in size from what's generally a standard aluminum millet to something that's often a bit more custom. Those particular, you know, getting a block of material that we would need might have been a very short, you know, couple, three weeks' lead time. We see those really extending out. And the supply chain has done a great job beating those back from what could have been material schedule impacts to finding alternative sources of supply and being very creative in that. So we've been able to pull back from what could be more complicated scheduled extensions to things that are pretty managed. But cumulatively, these things start to add up. And so that's where I think supply is part of the topic. As we talked on an earlier question, just the pace at which we're moving through the engineering drawings that get to the work instructions that allow people to get on the ship as we spread kind of our experienced engineers over three shifts versus one. The combination of these things have added up where we thought it was appropriate to add more contingency into our schedule. It's not more than that, but it's not less than that. These are the two things that we're really seeing together combined. That's why we made a call early to share what we expect to see our schedule shifting.
spk08: That's really helpful, and thank you for the additional details. And then also, when we think about the enhancement actions on Unity and EVE, Can you describe the milestones you've already achieved? You've been going through the process for eight months now, so I'd imagine you guys have accomplished quite a lot. Can you just share with us what some of those milestones have been?
spk01: Sure, and the teams have just been amazing to watch them go on this because, again, our existing team got a 2 to 3x ramp up in work, and obviously we're growing again for the future. So people have really stepped up. Unity is in solid shape. It will be, you know, the scope that we gave Unity, it will complete, you know, I'll call it on our original schedule. So the Unity team will probably have some time just to do a few extra bonus items there. Eve is really the ship that's got the longer piece of time in there. But the milestone that we put in the presentation today was talking about the launch pylons. For those who aren't familiar with what's going on on our ships, it's probably a hard picture to understand, but this is the piece that attaches the spaceship to the center of the wing of the mothership, not only on a structural level, but also this is where all the electricity moves through there, the air moves through there. It's a very important part. And the original design of that had three points, and that was fine for the work and the efforts we were doing with it in flight test. But as we move into commercial service, we just want to open up the envelope of conditions that we would fly within, and we wanted something structurally much, much more robust. But it's going in and doing some reasonable amounts of surgery onto the wing and opening that up. And so you saw that picture coming in back in April where we were actually able to fit a new part into an existing effort in the wing with all the structural efforts kind of done and ready to go. That was a big milestone. We actually brought everybody together, got a big picture around that. So I think that was the biggest one we've seen, and that was also kind of just a good one to have behind us. So now we have more things to fit and finish up, but as far as big, big milestones, that was the one that we went through in April, and we were pleased to see it.
spk08: Well, great. Well, thank you very much for all that color. Really helpful.
spk09: Thanks, Christine. Thank you for your question.
spk06: Our last question comes from Miles Walton from UBS. Please proceed.
spk04: Hey, Miles. Good evening. Hey, hey. So maybe to just delve into the Delta a little bit. I think, Michael, you had said, reiterated on the call, late 25 is still the target for that. And so this current slip on the reentering commercial service or entering commercial service, it's not in any way having a ripple effect in terms of constraints or anything like that. It's still late 2025.
spk01: Yes, the timing table we've got out on Delta, we believe, is not impacted by this. At a practical level, some of those, I'll call it experienced engineers, will be a little later over to the party. But in the schedule we've laid out for ourselves there, we don't think that has a material impact. Okay.
spk04: And then on the RFIs that you are in the process of issuing or have issued, I guess, Sue, does this mean that you are in a firm design at this point? Or are you still in collaborative design with what their capabilities are and deciding what you're going to outsource versus insource? Or is this RFI stage telling that you've frozen the design, you know what you're going to insource, you know what you're going to outsource, and now it's just a question of price?
spk01: Well, let's see. I think, just again, speaking because a lot of folks are probably listening, it's important for the grounding, this isn't a brand new ship going forward, right? This is an evolution off of our current ships. And that matters, right? Because the vast majority of that design is done as an intact. And what we're doing heavily is now reworking that design, when we use these words, design for manufacturability, allowing it to come together in fewer, larger sub-assemblies that can be sent out. So that's There's much of that design work that is done in place from that standpoint. What we are finding out through the RFI process is we mentioned one example around high temp composites in the discussion earlier. But we're finding where people have either some new capabilities that we didn't fully recognize or maybe a supplier might have multiple capabilities that we thought might be in two different suppliers, things like that. So that's causing us to continue to make some trades on, you know, what do we want to do if we could give more out to this group? Is that a more efficient process along the way? So there's still trades being made in that category, those types of categories. So I'd say, you know, in detail, it's not locked from design because we're making trades with these suppliers. We still have to down select them. But again, this is an evolution of the current designs. Relative to a new airframe, a ton of our design is locked.
spk04: Got it. And sorry, in the first point, which must be the last one, where you issue those acceptance or you get them back and you issue the contracts for supply, do you think that is sort of end-of-year type of timeframe for the major assemblies?
spk01: I think sooner than the end of the year, for sure. Okay.
spk09: Great. Thanks so much.
spk06: Thank you. Thank you for your question. There are no further questions waiting at this time, so I'll pass the conference back over to the management team for any closing remarks.
spk01: No, I think we always appreciate everybody who both are on the call with questions and all of those who are listening in.
spk09: We're excited for what's still to come, and thank you for your time today. That concludes the Virgin Galactic's first quarter 2022 earnings conference call.
spk06: Thank you for your participation. You may now disconnect your lines.
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