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spk07: Good afternoon. My name is Irene, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's second quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's 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, please press star, then two. Thank you. I would now like to turn the conference call over to Eric Cerny, Vice President of Investor Relations. Eric, please go ahead.
spk02: Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's second quarter 2022 earnings conference call. On the call with me today are Michael Colglazier, Chief Executive Officer, and Doug Ahrens, Chief Financial Officer. Following the report, prepared remarks, from Michael and Doug, who 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 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 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 the SEC. Readers are cautioned not to put undue reliance on forward-looking statements, and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call. Please also note that we will refer to certain non-GAAP financial information on today's call, With that, I would now like to turn the call over to Michael.
spk04: Good afternoon, everyone. First off, I'd like to welcome Eric Cerny to Virgin Galactic. As many of you know, Eric joined us a couple months ago to lead our investor relations function. We're excited to have him on the team, and I'm confident you will all enjoy working with him as well. We're more than halfway through the transformational year for Virgin Galactic. Over the last few months, we've put in place significant pieces of our strategic roadmap for our medium and our long-term operations. We have in the past talked about what we intend to do, but these recent steps lay out the specifics as to how we will ramp the production of our future fleet and deliver hundreds of space flights each year at our spaceports. We're progressing through the enhancement program in our initial fleet. However, important work on our mothership Eve has taken us longer to complete than we planned, and we now anticipate private astronaut service commencing in Q2 of 2023. While the short-term schedule slide is unfortunate, our team in Mojave is working diligently to complete the work We continue to take a long-term approach to managing the business. Initiatives we've set in motion are powerful. I look forward to sharing more detail about them on today's call. Today's agenda on slide three will start with advancements in our future fleet, followed by a commercial strategy update. We'll then get into the enhancement program and update a flight schedule for our initial fleet. Before handing the call over to Doug, we'll provide a financial review of the quarter. Let's turn to slide four and production of our future fleet. Increasing the frequency of flight for each of our spaceships is how we unlock the true economic impact of commercial space flight. We are scaling our business, our space line, very intentionally around a space plane architecture, which enables us to collaborate with outstanding firms in the aerospace industry, companies that have the knowledge, technology, and capacity to help us produce vehicles with high-frequency turn-time characteristics at volumes that can quickly meet our needs. Our next-generation motherships and spaceships are production versions of our existing vehicle rather than so-called clean sheet designs. This means that the fundamental aerodynamics and core engineering are the same, allowing us to move through the development process with our partners at a much faster pace than if we were starting a new vehicle design process from scratch. A major part of our production approach is evidenced in our recently executed strategic agreement with Aurora Flight Sciences to design and manufacture our next-generation motherships. These vehicles are planned for final assembly at our facility in Mojave. Aurora's business is built around agility, innovation, and creativity, which is exactly the type of company that we want to be working with. As a subsidiary of Boeing, the largest aerospace company in the world, and a long-term supporter and partner of Virgin Galactic, Aurora also has access to the industry's top engineers and manufacturing facilities, as well as an existing base of supply and strategic partnerships. I've spent time with senior leaders from both Aurora and Boeing, and I've watched our teams collaborate. There is genuine excitement from both sides. about what we are going to achieve together. We began working with Aurora several months ago to develop design specifications, as well as workforce and research requirements. With the long-term agreement now in place, we are full steam ahead on development. Under the agreement, Aurora will deliver two new motherships, the first of which we expect to enter service in 2025, and time to begin carrying the first of the completed Delta-class spaceships as they begin test flights and research payload flights. These two motherships will support our planned 400 flights a year of Spaceport America in New Mexico. The agreement also enables us to realize cost and speed benefits for additional motherships as we expand to other spaceports. Turning to slide five, our production model spaceships, the Delta Class. Last quarter, we shared that we had issued RFIs to Tier 1 and Tier 2 suppliers who expressed interest in working with us to deliver major sub-accessories for our Delta Class spaceships. We were very encouraged by the response. RFPs have been released, and while we aren't ready to share which specific firms will be joining our supplier base, the approach is generally consistent with our approach to motor ships, with major sub-assemblies tasked out to premier aerospace firms and final assembly and tests taking place at Virgin Galactic facilities. Important to the design and integration efforts of our Delta ships is the digital twin technology we are utilizing, which allows us to work quickly and efficiently with our partners, utilizing a single digital thread database for all production activity across the supply chain. In July, we executed a long-term lease for a new final sibling facility for the Delta-class spaceships. Facilities plan to have capability to produce up to six spaceships per year, providing scalability needed to support our business model. Construction has already started, and we anticipate the facility will be fully operational by late 2023, supporting our goal of rolling out the first Delta ships in 2025. The location of the Phoenix Mesa Gateway Airport is highly advantageous to our plans. The greater Phoenix area is an innovation hub with outstanding engineering and technical talent, driven by a long history of aerospace development in the region. There are excellent aerospace technician schools in the area, and the facility's location on the airport ramp allows for new spaceships to be picked up and flown by our motherships to New Mexico for flight testing and commercial operations. With Aurora, our new final assembly facility in Phoenix, and our soon-to-be-selected Delta Cloud Spaceship collaborators, we will have in place most of the core pieces of a supply chain manufacturing program that leverages the best in the aerospace industry. We are confident this manufacturing approach will be able to deliver the quality and speed to market that we desire to scale quickly. Turning to slide six, a major part of delivering the astronaut experience sits with technical operations, a team of maintenance, ground services, support engineering, and quality assurance personnel that ensures our spaceflight system fit and ready to fly on the intervals that we expect. We have a terrific tech ops team at Spaceport America who have carried us through our flight test program, and we will be expanding the capabilities of this group as we enter commercial service. To lead this expansion and to architect both the operations model and the technical infrastructure and processes needed for weekly turn times on our ships, I am very excited to share that Mike Moore has signed on to Virgin Galactic as Executive Vice President, Spaceline Technical Operations, reporting to me. Mike has a 37-plus year career in aerospace, starting as an Air Force mechanic and most recently serving as Senior Vice President, Maintenance Operations and MRO Services Group for Delta Airlines, where he led global technical operations for one of the nation's premier air carriers. I'm thrilled to bring a leader of Mike's caliber in the Virgin Galactic to chart our course as we position this critical part of our business for high-rate service and operations. Turning to our customer experience on slide seven. For the first years of commercial operations, Our astronauts will spend several days before their space flight training together at Spaceport America, which has facilities that can support several flight groups per month. However, as our Delta class ships come off the line in Phoenix and flight volume increases materially, Spaceport America will transition from a multi-purpose facility to a high-volume spaceport, a technical and flight operations facility where groups of people arrive on a near daily basis to embark on a life-changing trip to space with Virgin Galactic. At this stage, we will need separate facilities to accommodate, train, and engage larger volumes of astronauts and their guests during the multi-day lead-up to the flight experience, while still providing a personalized, high-touch, and truly distinctive experience that is signature of the Virgin. This location, or as we refer to it, the Astronaut Campus, is where the elements of the consumer experience come together. As we shared earlier this week, we've acquired land in Sierra County, New Mexico, which will be home to our first Astronaut Campus. Our intention for each astronaut campus is to create a distinct, one-of-a-kind destination that enhances an astronaut's journey by taking design and programming inspiration from the location on Earth above which we fly. Our first campus in New Mexico will do just that. As you can see from this aerial view of the land, which is located in driving proximity to Spaceport America, our astronauts will be training for their flight from the perfect location. The master plan for the campus will include training facilities, purposeful accommodations, and tailored experiences, as well as an observatory, wellness center, recreation activities, and unique dining options, all underpinned by Virgin's signature hospitality. Campus will be built amidst a stunning, picturesque landscape with a focus on sustainability and minimal impact to the surrounding environment. Campus will be designed to work in synergy with New Mexico's spectacular natural surroundings, and the build-out will be timed to match the expansion of our future place. We have a team of best-in-class experience creators working through systematic designs to create an immersive environment, and we all look forward to sharing more about the astronaut campus experience in future updates. On slide eight, I'd like to spend a moment on our astronaut membership experience. As a reminder, when customers join our future astronaut community at the point of sale, they gain access to one-of-a-kind experiences, events, trips, and activities around the world, all curated to enhance the astronaut journey and delivered with trademark origin style. This time in the community is essential to deepening the understanding and appreciation of space and preparing our customers, emotionally and physically, for the transformative experience that awaits. We are developing this membership experience around three core pillars, education and enrichment, astronaut development and training, and impact and inspiration. An example of our approach will be our marquee membership event, Space for the Curious. The inaugural event is scheduled for early fall. and we intend for it to become an annual or twice-yearly event that we can export to markets around the world as we continue to grow our global footprint. This upcoming event will be a three-day program for future astronauts set against the rugged backdrop and dark night sky of Wyoming. It's been curated to enhance our customers' understanding of why space exploration matters and to give them access to world-class insight, expertise, and skills to help optimize their own spaceflight experience. The event includes thoughtful discussion outdoor activities, music, and hospitality experiences designed to support those three core pillars. At a high level, the programming will include guest speakers to facilitate education and enrichment and help prepare and develop our future astronauts ahead of flight, discussions on the importance of space to science, research, and the planet, activities focused on health, wellness, and preparation for the journey to space, and a wide range of social activities that will inspire and excite, including stargazing with professional astronomers. Events and activations like these are all purposely designed to ensure our customers' two- to three-year journey, a journey that culminates with a trip to space on board our distinctive spaceships, is even more enjoyable, transformative, and fun than expected. While the first of these future astronauts will begin flying to space next year, the limited capacity of our initial fleet means our later booking customers will have a waiting period beyond the two- to three-year journey we prefer. We expect that the extended wait period will resolve as we near completion of our Delta class shifts and enhance our flight capacity. Turning to slide nine for growth markets. As we look ahead to higher volumes, we are using the limited availability remaining in our initial tranche of 1,000 reservations to purposefully develop two market segments that we expect will contribute meaningfully to our future demand. The first of these market segments is scientific and government research. We have a long stated goal of building a meaningful research By offering routine and reliable access to space, with a flight profile that can be tailored to the payloads on board, we are able to offer something entirely new and highly valuable to the private and government research market. This is a strategically helpful market for our business model, as it commands a significant price premium to our current commercial passenger price blank, and it also provides a positive brand benefit to the company by contributing to scientific advancement. Market interest and feedback around our research product has been very positive. We continue to get inquiries for research missions from across the world, including from governments and scientific researchers. And we plan to seed this market now to develop its volume in advance of our future capacity increases. We have learned the nature of research and, often, the research funding life cycle means these customers require a shorter and more clearly defined time frame between sale and flight. In order for us to continue cultivating this market, we need to allocate near-term availability of research to match funding cycles and logistics for research projects. To strategically pursue and seed this market, we are reserving 10% of our first 1,000 seats for science and technology research missions. We will manage these through a separate flight manifest that runs alongside the private astronaut manifest. This limited allocation will allow us to meaningfully engage and grow the research marketplace over the next one to three years without having a material impact on the flight timing of our private astronaut customers. The second market we wish to develop is the luxury travel sector. As commercial spaceflight becomes more normalized during the next few years, we expect the high-end luxury and adventure travel markets to comprise a material percentage of our demand. We expect to ramp our internal sales team to capture much of this business, and we've recently hired a dedicated vice president of sales to begin the buildup of this team. We've also received interest from travel industry experts, some who have deep connections within specific geographic markets to augment our internal sales efforts. to assess the potential of a travel industry partner. As previously announced, we're very pleased to provide exclusive access to a limited number of our remaining seats to Virtuoso, the world leader in experience-driven luxury travel. Similar to how we are aligning with the aerospace industry to scale our fleet, when we look at ranking customer acquisition at scale, this alliance with Virtuoso is a natural extension for us in a strategic, cost-efficient way to access new customers. Partnering with Virtuoso gives us immediate access deep relationships with customers around the world who are looking for a one-of-a-kind journey who may not yet have considered space travel. We will continue to manage our own sales process and plan to continue selling our product directly. At the same time, it makes sense to explore a superb quality partner that opens the door to an untapped, established, and diverse clientele as we expand interest and increase access to space. As a referral arrangement, Virtuoso will leverage their network and expertise to identify and refer potential leads to Virgin Galactic, and will maintain control of our high-touch end-to-end customer sales journey and the powerful data and insights that come with that. Allowing for the research and Virtuoso allocations that will help prime these future growth markets, we're reaching the end of our first round to 1,000 seats. We intend to reserve the remainder of the seats that are available at the current $450,000 price point for referrals from our existing customers. we plan to open our next tranche of spaceflight reservations after we begin flying our current customers. On the topic of flying our current customers, let's move to slide 10 and the enhancement program associated with our actual fleet. The enhancements to Eden Unity are designed to significantly improve the durability and reliability of these ships, enabling a higher frequency flight rate for commercial service. Last quarter, we shared that like many companies around the world, we were experiencing elevated levels of supply chain disruption as well as labor constraints. Many of these conditions have persisted through Q2, and our teams have put forth incredible efforts to navigate the many challenges presented. I want to thank everyone at Virgin Galactic who's been part of that ongoing effort. However, despite our best efforts, progress on our enhancement program in Mojave, particularly the complex work to prepare Eve for commercial service, is taking longer than we planned. Our customers, our investors, and indeed our entire team are all desiring to see EVE and Unity back in the skies and taking astronauts to space. The work on EVE, of course, must be completed before we fly, and we have shifted resources within the Mojave team to bring additional support and help bring EVE's enhancement program to a successful and expeditious conclusion. Given where we are in EVE's enhancement program and factoring in appropriate contingency, we are shifting the expected launch of commercial service from Q1 to Q2 of 2023. we anticipate conducting space flights with VSS Unity in Q1 of 2023. The work specific to Unity's enhancement program, which we can report is nearly completed, should allow a monthly turnaround time. The image you see here is a peek at Unity's new livery being installed at Spaceport America. As we have concentrated our Mojave-based talent to support the work on our mothership Eve, the planned timeline for VSS Imagine will be extended due to this reallocation of resources. As it stands today, Imagine is scheduled to commence test flights in mid-2023 and private astronaut service as soon as Q4 of 2023. Imagine is a new vehicle and will require a sequence of planned test flights before it carries private astronauts. The variability inherent in flight tests makes it prudent for us to allow for appropriate schedule flexibility, which could potentially extend Imagine's window for private astronaut service into early 2024. Work on EVE needs to complete, and we are very excited to see her come out of the hangar this fall Even more exciting are the building blocks that we've put in place for the development of our future fleet and our astronaut experience. We continue to manage the company for long-term growth and value, and we are very pleased with progress being made in that regard. I'll now turn the call over to Doug for an update on our finances. Thanks, Michael, and good afternoon, everyone. Turning to slide 11 and our financial results for the second quarter. We generated revenue of $357,000 in the second quarter. driven by future astronaut membership fees. Operating expenses were $110 million compared to $74 million in the prior year period. The increase of $36 million is primarily attributable to higher R&D costs tied to our fleet enhancement activity and the ramp of development work on our future motherships and spaceships. We reported a gap net loss of $111 million compared to $94 million in the prior year period. Adjusted EBITDA was negative $93 million in the second quarter, compared to negative $56 million in the prior year period, primarily driven by an increase in operating expenses. Free cash flow was negative $91 million, at the high end of our guidance for the quarter, compared to negative $66 million in the same period last year. The increased spending is largely due to higher operating costs tied to our fleet enhancement activity and the ramp of development work on our future mother system spaceships. Our balance sheet remains strong, with over $1.1 billion in cash, cash equivalents, and marketable securities. The details Michael shared with you around our manufacturing approach for the motherships and spaceships and the investments we are making in our future astronaut experience are all consistent with the long-term commentary we have shared with you in prior quarters regarding our approach to the business model. Leveraging aerospace industry supply chains, those major sub-assemblies, allows our team to focus on design, engineering, final assembly, and ongoing operations and maintenance. Collaboration with companies such as Aurora allows us to minimize our capital expenditures for infrastructure required to scale the fleet, and it significantly accelerates our time to market. As you can see, we are rapidly moving ahead on our plans to scale the business. Many of the building blocks that Michael and I have talked about over the last several quarters are now in place. We are making strategic investments from a position of financial strength with momentum of the business and a healthy balance sheet. Furthermore, we believe it is appropriate to take steps to give us financial flexibility going forward. To that end, today we filed a prospective supplement and established an at-the-market program to sell up to $300 million of additional talent stock. We are excited about the investments we've outlined, the spaceships, motherships, and infrastructure surrounding the astronaut experience. We therefore plan to always maintain a strong balance sheet, enabling us to fulfill our strategic plan of becoming a scaled commercial space line. Moving to guidance on slide 12. For the third quarter, we forecast free cash flow to be in the range of negative $110 million to $120 million. As we continue to ramp up our efforts to scale the business, we anticipate this number will continue to grow over the next several quarters. With that, I'll hand it back to Michael for some closing comments. Thanks, Doug. 2022 is the year we set ourselves up for scale and for the long term. We're moving into a building phase for our future, building out the factories, cultivating partnerships, and growing the campuses, teams, and networks that will take us into the future. Shifting our commercial service launch to Q2 2023 is a short-term challenge that does not carry over to our longer-term objectives. We are taking an intentional, value-driven approach to this business, and we now have several core elements in place for us to scale the world's first commercial space line in a meaningful way. These include development of our next-generation motherships with Aurora, leveraging the aerospace supply chain to provide major sub-assemblies for our Delta-class spaceships at our new spaceship factory in Phoenix, and bringing together an unforgettable and truly unique consumer experience in New Mexico. Heavy months will continue to be very busy for us, and looking forward to sharing updates on our progress. And with that, we'll turn to questions.
spk00: Operator, we're ready to begin the question and answer portion of the call.
spk08: Thank you, dear speakers.
spk07: Ladies and gentlemen, if you would like to ask a question, please press star, then 1 on your telephone keypad now. If you wish to withdraw your question, please press star, followed by number 2. When preparing to ask a question, please ensure your phone is unmuted locally. Our first question comes from Greg Conrad from Jefferies. Greg, your line is open.
spk09: Good evening. Maybe just to start, I didn't hear an update on kind of backlog. I know last quarter it was at 800 seats. Where does that stand today? And then given the commentary, Is there any government seats in there today, and does that mean that more than half percent of the remaining thousand seats are going to the government with the rest for referrals?
spk04: Yeah, so as of the last quarter, we had talked about having approximately 800 future astronauts, and it was kind of a mix, but very few of those were in the research market. And we went ahead and closed out some more of those private astronauts that were there earlier in the quarter. As we've been looking to build our research markets, we have great response, and we also have very great consistency of, hey, the research that I have needs to go in a certain timetable. And if I'm coming in at the end of the manifest, while I understand why that would be, I can't commit because I need to get my research going at this timetable. And also, again, not surprisingly, the funding cycle for research, whether that be private or government, is a shorter duration. And so in order for people to apply for their funding for the grants, they have to have a date ahead of time. And we just didn't have any inventory because we were putting it at the end to be able to offer it up to this market. And so we made a decision to make a strategic shift and take 10% of that first 1,000 seats and put into the research market. And as I kind of mentioned earlier, the reason is we want to see this. I think this has potential to grow, but we need to allow people to actually use our platform for this, and we had to create a parallel manifest to do that. That takes us from 800, there's another 100 basically for research allocations. We closed some more earlier in the quarter before we made this kind of strategic shift to the research piece. And then the second growth market we're trying to go after, is luxury and adventure travel. Now, not all, but I'd say a heavy percentage of the people that we have right now and that are flying are space enthusiasts. Somewhere in their background has been a natural instinct and interest in getting to space. And then that will continue. There's a much, much larger group out there that does very high-end luxury and adventure travel. And as this gets normalized over the next few years and people do that, that will be a place where you want to tap in. Those people are all around the world. And this partnership with Virtuoso gives us a chance, just in a limited way with the limited number of seats we have left, to see if they can kind of expeditiously go after people that they already know and offer up these seats so that we start to seed that luxury market. And we get kind of a run with a world-class partner and see if they can bring great people to us. So we've given, you know, of the less than a hundred we have left, we gave the majority of those over to Virtuoso. They have about 20,000 kind of partners within their group that do this. So we want to have a big enough slug that people had a chance to basically acquire one of these remaining seats. And then we've kept a few, I'll use the word house seats that we'll use for referrals from our own team, just because I think we'll have some of those as well. And, and that, Roundabouts gets us to the 1,000 we had. As I mentioned, I'd like to have the time from when a future astronaut signs on with us to when they fly be in the two to three year range. I think that's an appropriate development of the journey and the personal kind of journey people will be going on here. Our capacity of these initial ships relative to the 1,000 has extended us past that. So we want to burn that down and we'll then reopen up sales as we start flying our current folks, and that's getting us closer to when the Delta ships come on board so we can keep closer to that two- to three-year period.
spk09: And then, you know, on the cash usage of $110 million to $120 million for Q3, I mean, you announced the number of agreements in the quarter. I mean, how does that compare to peak, and maybe what is accelerating when we look about versus Q2? And any more idea of kind of what peak cache usage is given the initial agreements in place?
spk04: Sure. Yeah, regarding the increase between Q2 and Q3, it's primarily around the scaling of the aerospace activities we have. So we've got the continuation of the enhancement period.
spk03: But on top of that, now we have the beginning of the work with Aurora for the new motherships. We've got the ramping of engineering for Delta-class spaceships, that type of thing.
spk04: So it's really aerospace-driven for finishing the current programs and then ramping up the new programs. So that's where we land for next quarter. We've indicated this would grow, and we see it growing past that. Well, it's a little early to call a peak into the future because that's pretty far out, and we really give just one quarter guidance. you would see these layers continue to build right around the spaceships, the motherships, the campus, these types of things, the factory for the spaceships. So those things are going to come together. The exact timing and magnitude of each is, you know, that can move around a bit. So it wouldn't be appropriate to put a number out there like a year or two out. But hopefully that gives you enough color to kind of see the layers that we'll build for your model.
spk00: Thank you.
spk03: Thanks, Greg.
spk08: Thank you.
spk07: Our next question comes from Matt Akers from Wells Fargo. Matt, your line is open.
spk03: Hey, hi, good afternoon. Thanks for the question. I wanted to ask about, you know, the partnerships on Delta and, you know, kind of progress on the RFPs and if there's any update on that or sort of the timing of when you think you might be able to announce the update there.
spk04: I'll probably start sort of like specific timing announcement there, but the RFIs are long due and the RFPs have been out for a while and will be coming back in the upcoming month or two here. And then we have to spend the time in the selection process. But we're clearly parallel passing this with the teams that we've been working with. We've been really pleased with both the quality of the companies that are interested in working with us. Specifically, we're looking for people who not only have the technology and skill, but also we're sorting for people who have capacity within both their manufacturing and their engineering organizations because we will need separate teams that will focus on these new ships. So we've been really pleased at who we're speaking with. They're really quality firms, and we're out actually touring with them and doing site walks along the way as well. So I think that's going to be in our near future, is we'll be able to bring those names in. And as I mentioned, the structure will be similar to what we are doing with Aurora, where we're having them both help on the manufacturing and, in some cases, the engineering side. Well, clearly, we'll be doing a lot of the engineering on Deltas ourselves with spaceships. But they're able to partner with us and get a scale in that way as well. And then we'll do final assembly in the new Phoenix facility, of course.
spk03: Okay, thanks. And then I guess one more just on the kind of the delays on the EVE upgrades, and I guess if you could dive into more detail, I mean, is that the supply chain disruptions, labor availability, you know, just kind of scope change, or if you could just talk about sort of what the biggest kind of drivers of the delay were. Sure.
spk04: Now, it's not scope change, and while supply chain everywhere remains challenged and something we're working on, Our teams have done a really good job putting a box around the supply chain issues that we talked about earlier. And again, we're still not out of the woods as a country in supply chain issues. But that's not really the driver. The driver is around the amount of time it is taking us to accomplish the work scope on EVE. The particular part that's probably most acute all happens around the center wing area. That's where, as you're probably aware, we are changing what had been a three-point pylon that attaches the spaceship into a four-point pylon. And a couple things are going on in that. One is we have amazing people that are excellent designers, and they take the drawings that we have and draw the installation on the ship. And the ships as built are different enough from the drawings that we had that we need to go back and and conform those drawings to the as builds and then you know it's it's a practical situation of labor right whether people are out with covet and we are waiting a little bit for the engineer to come back whether it is it's just limited working environments there if you've seen the wing of this airplane it's a narrow wing there's a limited number of access panels And so everything can't happen in parallel. There's quite a bit of serialness that goes into this effort. And that's kind of what's going on here. It's compounded. We have all this happening in Mojave. Labor availability for the specific technical needs we have there, while we are able to keep and bring in, it is a challenged labor market in that area. And so what we've done is we have, as we saw ease work not progressing over these last couple months we have shifted resources from imagine who do have the technical expertise we need to also finish out eve because we need to get unity back in the air we need to get you flying so hopefully that gives you a little bit of a sense uh there it is we have really amazing people and they are working hard uh to do this uh i'd say we had our planning of how long each of these pieces of work would take uh is where where miss is we did not plan be a full amount of time that's proven necessary to get this work accomplished.
spk00: Yeah, that's great, Tyler. Thank you.
spk08: Thank you.
spk07: Our next question comes from Oliver Ken from Cowan. Oliver, your line is open.
spk05: Hi, thank you, Michael and Doug. Regarding the astronaut campus, what should we know about cash flow and CapEx implications and Also, as you think more globally over time, how might this plan manifest? It sounds quite experiential and positive. And second, on the space for the curious event, I'm just curious about what metrics might be important for you to determine the success and return on investment there. And then lastly, on the delay, did you consider... doing the delay even further to Q3, just to give yourself some more cushion, because there's a lot of uncertainty. Some of it's uncontrollable. Thank you.
spk04: Doug and I are looking at each other like he wants to take the first question there, so I was writing notes down all over on all three. Do you want to start, Doug, and I'll try to kick in? Sure, yeah. I'll start with the question on campus. um so in terms of timing and cash flows so it will be occurring over a period of years right it's a it's a real estate development project and the intention is to have it ready as the delta class is ramping and so we've got it available for the customers uh you know that will be flying our delta class so uh you know it's a multi-year project um it's it's uh we aren't going to put a specific price tag on it you know we've got We're still finalizing exact amounts, but I can tell you it's significantly less than the other parts of our key investments, which would be spaceships and motherships. So I put it in perspective. But you'd expect to see some incremental real estate and development costs over about a four-year period. And I'll just give you, Oliver, a little bit of just scope. We're building this for when we have our capacity on the Delta ships out so that we're hitting effectively, whether or not in our way, a near daily basis. So we will have, effectively, at any one period of time, five individual groups of crews of spaceship participants, right, future astronauts that are turning into astronauts. So each of those five groups has up to six seats in it. And so we have a size. You're going to end up with 30 or so individual parties. that at the most, right, sometimes we'll get a family party that will be in the same place. So I'll give you a size. It's not a giant facility out in the desert because we are turning these over, right? Each day one group goes out and another group comes in. So we need enough for kind of five in a concurrent basis. So hopefully that gives you a little bit, a sense of scale. I tell you, you can probably see from that picture, this is a glorious location. It sits out there looking over the Rio Grande Valley. You saw one view of it. On the other view are just these incredible mesas out in the distance. It's one of the things we love about New Mexico, just ruggedness and natural beauty. And that's important because, as you heard us talk, we are taking people to get a perspective of the planet. And as you do that last several days of preparation, having a good anchor to the planet you're leaving is very important. So we're really, really thrilled with the site. You talked about the Space for the Curious event. Metrics, you also were kind of asking a return on investment piece. The events like this, some of our events are, I'll call it free virtual events. We're there. People come and visit our facilities. That's true. Those are all kind of included and don't cost us much but are very meaningful to the astronauts. These types of events, I'd say, are kind of an a la carte charge. So the astronauts who choose to come, not all of them, the astronauts who choose to come are effectively covering their costs to it. And then our costs are then more small and managed because it's mostly our internal time and some of the speaker engagements that we do. So what will we look for? Over the course of time, and this is one event we're giving an example with, is penetration of the market. How many of the future astronauts are we engaging and how many of these types of events both big ones like the one we're discussing in Space of the Curious, smaller virtual events or in-person moments. How often are we able to keep the touch points with these folks? And what percent of the overall base do we find are actively engaged versus partially engaged or lightly engaged? So those are the type of metrics that we will use because, again, we are carrying people through a two- to three-year journey along the way. These more intensive ones, deeper and personal ones, are kind of big steps forward, but they need to match with a bunch of smaller, lighter steps as well. So you have a collective experience before you come into the campus that we're talking about. So hopefully that gives you a little sense on, on metrics. And then, um, you asked about the delay. Should we have thought about a longer delay? Um, but are you all, uh, especially our future astronauts and our teams, um, uh, we want to have these ships flying and we have to do them the right way.
spk00: So we're,
spk04: Absolutely, taking the time to do the work correctly and get that out. We have laid out. We call it laid out the schedule flat right everything from what has to happen now. On shift one and shift to to kind of stay on our schedule. So we're able to now march and manage this through on a day by day basis and you see our move from Q1 of 23 to Q2, that gives us the contingency that we need for even unity. Because unity is, as you saw from the livery going up, it's kind of wrapped up. Now, what you are seeing us do with imagine is take a greater degree of contingency in there. Imagine we had to redirect resources from it, and we are wanting to make sure that we give it the time it needs through the flight test program And while we have contingency built into our flight test, it's flight test. And this is the first, the ship is different than Unity. It does have differences. It will need its own flight test program. So we want to make sure we've given ourselves flexibility in that regard. And that's why we've said that may end up moving into a Q1 of 24. Now, our teams are going to work hard to bring these to the left. But I think we have the appropriate contingency at this point on.
spk05: Very helpful. Thank you. Best regards.
spk00: Thank you.
spk08: Thank you.
spk07: Our next question comes from Christine Lee Wag from Morgan Stanley. Christine, your line is open.
spk06: Hey, good afternoon, guys. Hi, Christine. Hey, Michael. You know, thanks for the caller on Eve. But with a longer time and what sounds like a more complicated work scope, Can you provide more color in how much the total enhancement of the program will cost versus your initial expectations?
spk04: Sure, we can comment on that. So if we look at the collection of the three vehicles we're working on and what we had planned for, we were actually seeing some savings initially because of the cost of the contracts we had, the contract labor in place and everything. So we had been building up some savings along the way. What we're finding is the extension of the schedule is eating up that savings with basically Eve and Unity is kind of consuming the savings we had. So we're back to where we originally budgeted. I think this new extension with Imagine is incremental. So there's down to one chip versus three. But that's probably the incremental part. So overall, more, but we're fortunate that we had some savings in the beginning to offset some of the things that happened later.
spk06: Thanks. And as a follow-up to that, can you provide some numbers around the Imagine cost increase?
spk04: That's a multi-year effort, and so I think it's hard to put it in perspective given it's been going on for several years. I think what we're talking about is it's a We're talking moving from mid-23 to the end of 23 for the enhancement period, Q4. So you can just think of it as a quarter and a half, if you were to take the midpoint there, kind of extension. But to try and put an exact price tag on it relative to the total cost, I don't think is helpful. But just kind of putting it in perspective, it's one shift out of the three. So it's a fraction of all of the effort. And the bulk of the spending right now is on EVE, is getting most of the attention, and Imagine is the next in line. But hopefully that puts it in perspective. Yeah, I guess the other thing, just a little bit out of color of what's left on Imagine, is not so, there's a little bit of, I'll call it hands on the ship, just finishing things out. But that's the smaller part. What we're going to be doing at Imagine is moving it through its test program on the ground and in the air. And so that's a different slice of engineering resources that we need for that. Obviously, we have people in Mojave that are working the ship throughout. But it's the cost that we'll spend moving through tests as opposed to giant groups of people that are building at that moment.
spk06: Thank you for all the color guys.
spk00: You're welcome. Thanks, Christine.
spk08: Thank you.
spk07: Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star then one on your telephone keypad now. If you wish to wait for your question, please press star followed by number two. When preparing to ask a question, please ensure your phone is unmuted locally. Our next question comes from Pete Osterland from Trist Securities. Pete, your line is open.
spk01: Hey, good afternoon. Just had a question to you on R&D expense. So when you start commercial operations in the second quarter of next year, are you going to see any meaningful step down in R&D expense of getting the first ship up and running or the work you're doing with, you know, Magin and Delta, would it really be more of just a reaction of resources where you'd expect to see R&D continue at or maybe above where it is right now?
spk04: So we would expect to see it at or above where we are now, because we'll be ramping heavily on the Delta class and the next generation motherships. Yes, we'll be rolling off on the one hand with the enhancement period, but pivoting and growing resources on the other side. So this is our, when I talk about spending increasing quarter over quarter and then continuing into next year, this is the category we'll go into. We'll be R&D primarily.
spk00: you'll see that type of trend.
spk08: Thank you. Currently, we have no further questions.
spk07: Therefore, I would like to say thank you to our speakers for their time and presentation during this event. And ladies and gentlemen, this concludes today's conference call. Thank you for being with us today. Have a lovely day ahead. You may disconnect your lines now.
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