Virgin Galactic Holdings Inc
NYSE:SPCE
Earnings Call Analysis
Q3-2023 Analysis
Virgin Galactic Holdings Inc
The company accomplished an extraordinary feat by completing 6 human spaceflights in 6 months using VSS Unity, showcasing both technical proficiency and the exceptional value of their spaceflight experience to customers. This milestone demonstrates repeated system reliability and foreshadows the future of suborbital travel. The robust demand proves that the Virgin Galactic spaceflight experience surpasses customers' wildest expectations, turning them into enthusiastic ambassadors for the brand.
The Delta class ships are set to revolutionize the company’s operations with the capability to perform up to 8 flights per month, significantly enhancing revenue potential by up to twelvefold compared to the Unity model. This underscores Virgin Galactic's commitment to advancing space travel and underpins the potential explosive growth in capacity and revenue. With a solid cash position and 1.1 billion dollars in securities, the enterprise is tactically allocating resources to transition to the Delta program, anticipating the ships to come into service in 2026 and reach cash flow positivity.
Virgin Galactic's diligent financial management led to R&D expenses at $45 million, substantially lower than the previous year, resulting from strategic repurposing and cost reductions. The company holds a cash reserve of approximately $1.1 billion, increased through capital raising endeavors. Revenue for the fourth quarter is projected at $3 million. A near-term restructuring aimed at an annual $25 million cost savings aligns resources towards the Delta program, demonstrating agile financial stewardship.
Virgin Galactic's proficient technical team is instrumental in optimizing spaceship turn times, collaborating closely with design engineers to reduce maintenance demands between flights. The development of test systems like Copper Bird and Iron Bird showcases the company's proactive approach to design validation, enhancing confidence in an 8x per month flight capability for Delta class ships. This rigor in operations presents a calculated pathway to achieving the ambitious turnaround goals set for 2026.
Looking towards 2026, the company is prudent in giving itself up to a year to efficiently integrate and optimize new Delta ships, ensuring a seamless transition into high operational tempo and cash flow breakeven. This strategic maneuvering is indicative of Virgin Galactic’s measured yet progressive approach to scaling its spaceflight services.
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Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's Third Quarter 2023 Earnings Conference Call. [Operator Instructions]I will now turn the call over to Mr. Eric Cerny, Vice President of Investor Relations.
Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's Third Quarter 2023 Earnings Conference Call. On the call with me today are: Michael Colglazier, Chief Executive Officer; and Doug Ahrens, Chief Financial Officer. Following prepared remarks from Michael and Doug, we will open the call for questions. Our press release and slide presentation that will accompany today's remarks are available on our Investor Relations website.Please see Slide 2 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 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 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 metrics 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 now turn the call over to Michael. Go ahead.
Good afternoon, everyone. Virgin Galactic successfully achieved several important milestones in the third quarter, which, in combination with some important adjustments we are making in our near-term operating model has set the company on course to define and lead the suborbital space travel industry.We're going to cover a lot of ground today, so I'll open the call with 4 key headlines:First, we have demonstrated that our spaceflight system works on a repeatable basis. As planned, we completed 6 spaceflights in under 6 months with our initial spaceship, VSS Unity. This is an unprecedented achievement in human spaceflight.Second, the virgin Galactic customer experience has been overwhelmingly positive and meaningful, and the value of our experiential product is exceeding our high expectations. The backlog of demand for our experience is robust, and our early customers are Virgin Galactic astronauts, I love it.Third, we expect the advances being built into our Delta class ships will enable each of these new ships to fly up to 8x per month during steady-state operations. This turn time metric is unrivaled in the industry and will enable breakthrough capacity and revenue generation.And fourth, we forecast our quarter end cash and marketable securities position of approximately $1.1 billion, provides sufficient capital to bring our first 2 Delta ships into service and to enable our crossover to positive cash flow in 2026. We look forward to sharing details behind these headlines on today's call.Turning to our agenda on Slide 3. I'll start with an overview of the Virgin Galactic astronaut experience and shared customer insights from our first 6 flights. We'll review progress from our Delta spaceship program and talk more specifically about the expected unit economics of our Delta class ships. We'll then discuss adjustments to our near-term operating model, including restructuring actions announced yesterday, that will redirect resources towards our Delta program as we focus the entire company on realizing the profit potential from these ships. Finally, we'll share financial results for the quarter and discuss the expected spending profile of our Delta program in greater detail. Following our prepared remarks, we will open the call for your questions.Turning to Slide 4. Since our last earnings call, we completed 4 space missions on the monthly cadence that we had planned. Each mission was an incredible success, and we are now graduating customers from our future astronaut community into the Virgin Galactic astronaut community. Our Virgin Galactic astronauts experience their spaceflight in ways that are unique to their background and motivation for traveling to space, 1 point of commonality though, has been that the overall experience is dramatically impacting our customers in an extremely positive way.Moving to Slide 5. The quotes on this page are from some of our astronauts following their spaceflights, and they capture just a sliver of the meaning that our customers have come away with. I'll read just 3 of them on today's call. The first is a quote from a Galactic 02 astronaut. "This has been the best day of my life, the most sensational day of my life, and it can't get any better than that. It exceeded my wild streams." The second is from a Galactic 04 astronaut, who said, "I always knew it was going to be the most extraordinary experience of my life. I always knew that, and people kind of told me it was going to be. But then when it is, and it's on another level to the experience you thought you were going to have and it's very difficult to explain." And from our youngest astronaut, who shared, "I was shocked at the things that you feel. You are so much more connected to everything than you would expect to be. You felt like a part of the team, a part of the ship, a part of the Universe, a part of Earth, it was incredible, and I'm still starstruck"Vastly exceeding the expectations of our customers is the best way to convert those customers into ambassadors for our company. Based on initial feedback, we are delivering a truly incomparable experience that our astronauts will carry with them for their lifetimes. We will continue to learn and adjust the overall customer journey, but the early results have been exceeding our very high expectations.Moving to Slide 6. Our focus on the astronaut's journey and the very way in which we bring people to space is paying off and the overall experience. Our training takes place at Spaceport America an incomparable facility built by the State of New Mexico, and the stunning setting has been a hit with astronauts and their guests alike. The 90-minute spaceflight experience, including the climb to release altitude while attached to our mothership, is proving to be an experiential advantage. The smoothness of it all, combined with the raw power of the rocket motor during the boost phase has been a standout feature for our astronauts. The view of the earth and natural habitat of space has literally taken breath away and drawn tears and deep emotions because of its stunning beauty and brilliance, and the fact that we land back on the same runway where we took off with all the friends and family awaiting has made for a completely magical return experience.Our training program is a huge differentiation point. We took the opportunity on our early flights to have our astronaut instructors observe the customer experience from within the cabin to guide adjustments to our ground-based training process. This process was valuable and has been successfully completed. Starting with Galactic 06, we will open up this instructor seat, and all 4 Unity seats will have paying customers. 6 human spaceflights in 6 months with VSS Unity is a tremendous accomplishment that establishes new turn time records for reusable human space light systems. It's important to note that the primary business objectives of Unity's missions are to demonstrate the efficacy of our spaceflight system to build learnings that inform our Delta program and to showcase the incredible emotion, impact and value of Virgin Galactic spaceflight experience. We have done that.These flights have built confidence in our spaceflight system, increased credibility as we consistently deliver on plan and clearly demonstrated the powerful customer benefits of a Virgin Galactic spaceflight. The success of these flights has been accomplished through the collaborative effort of our entire company, and I'd like to call out the incredible work from our teammates who have made this possible.Moving to Slide 7. Virgin Galactic spaceship and mothership both have industry-leading reusability metrics, but our airplane-based mothership has the additional benefit of fast turnaround times. Our primary goal with the Delta program is to also bring that fast turn time capability to our spaceships to unlock a step function increase in capacity.In this regard, the next page, Slide 8, makes it clear why we are so focused on our Delta ships, 2 metrics that will be of importance to our industry; our revenue per flight or RPF, and flights per month or FPM, which is referenced on a per ship basis. Taking a look at the table on Slide 8. Our 4 seats spaceship 2 model, Unity, has a revenue per flight potential of $1.8 million to $2.4 million at our current prices depending upon if it is flying private astronauts, research customers, or a mix. Unity has an average flights per month of around 1, and the product of those 2 metrics leads to modest revenues.As I mentioned earlier Unity's flight objectives are to demonstrate our system, showcase our astronaut experience, and provide learnings for our Delta program. Our 1 flight per month with Unity is a material step above competitive offerings, the total cost to support unities flights surpassed the relatively modest monthly revenues. Delta ships will have 50% more seats than Unity. So using our most recent pricing at $450,000 per seat or $600,000 for research seats, the revenue per flight for a Delta ship is $2.7 million to $3.6 million.With our current expectation of Delta ships turning twice per week in steady state operation, Delta ships would have a flight per month metric 8, which makes the monthly revenue potential of a Delta ship up to 12x that of Unity. As a high temperature carbon-composite space plan, we expect each Delta ship to have a vehicle lifecycle of 500 or more flights. And as we shared previously, we expect each new Delta ship to cost around $50 million to $60 million in steady state production.Our Delta class ships are powerful economic engines. Because of their breakthrough capacity and revenue generation, we are choosing to leapfrog past our third generation ship VSS Imagine and move directly to our fourth generation, the Delta class as the model type basis for our production fleet. VSS Imagine will be used to support ground-based elements of the Delta program and we will not bring that ship into service. Our Delta program continues to track to the key milestones, we've laid out. Tooling builds have already started and our spaceship factory in Phoenix is well underway and will come online in Q2 of 2024. Ground and flight-based testing of Delta class ships is on track to begin in 2025 with revenue service beginning in 2026.The top image on Slide 9 shows progress that is being made on our spaceship factory in Phoenix. Construction has been advancing on schedule, and we expect to begin interior fit-out in April with major assemblies from our primary suppliers, Bell and Qarbon, beginning to arrive midway through 2024. We are making several upfront investments in test infrastructure, and we'll be conducting extensive ground testing of our Delta ships. This is a key factor in accelerating our flight test program and in our ability to verify the durability and longevity of our ships. Build-out and installation of this test infrastructure has begun and build-out will continue into the first half of 2024. We will incur onetime expenses for these important test assets during those periods. The first test asset is known as a Copper Bird systems mock-up. The Copper Bird will allow us to configure and test our avionics, flight controls, and electrical systems.As you can see in the image on the lower left of Slide 9, this effort is already underway at our engineering headquarters in Orange County, California, along with the design and testing of our updated cabin interior, including our new seat design shown here on the lower right. The second test system also located in Southern California is known as an Iron Bird, and it will be verifying and cycle testing our mechanical systems and validating our designs. Each of these test systems as well as a dedicated static test article will enable us to verify the performance of the key elements of our Delta ships that are driving our improved turn times and will reduce the amount of time needed for final assembly, ground test and flight test.Moving to Slide 10. We expect near term uncertainty in capital markets to continue as high interest rates persists and geopolitical unrest expands. In response to this environment, Virgin Galactic has taken several important actions to ensure our existing cash runway is sufficient to reach positive cash flow. As a growth company that is also defining a new industry, Virgin Galactic has been pursuing 2 parallel work streams. Our Spaceline Operations teams have been demonstrating our technology and customer experience with our Unity spaceship, while our Programs and Engineering teams have been developing a production platform that will deliver profitable growth with our Delta program. Both of these areas consumes substantial resources and both have been critical to our company.That said, our company's financial growth is built around our production space ships, the Delta class, and we are shifting all company resources towards the safe, efficient and successful execution of this program. This necessitates 4 changes to our near term operating model:First, we will reduce net spending within our spaceline operations by decreasing the cadence while increasing the revenue per flight of Unity's remaining missions. Galactic 06 is expected to take place in January as planned and we will move to a quarterly fight cadence versus a monthly flight cadence for Unity's remaining space missions. We expect the average revenue per flight for Galactic 06 and Galactic 07 to be in the range of $2 million to $2.5 million, which is approximately 4x greater than the revenue per flight that Unity realized in the third quarter. This increase is driven in part by the additional revenue seat that had previously been occupied by an astronaut instructor and in part due to a customer mix that includes research revenue. Additionally, when we have openings in the flight manifest, we are making those seats available to customers who are interested in participating in an earlier spaceflight at a premium price. These seats as they become available, have been priced closer to $1 million than to our prior price point of $450,000.Second, we will be pausing Unity space spaceflight in mid 2024. So our highly skilled spaceline operations teams in New Mexico can support the final assembly effort of our first Delta ships. This is cost efficient, as it allows us to optimize our total workforce. It also provides our technical operations teams hands-on experience with the Delta ships during the build process, which will be invaluable for maintenance and turn time support and those ships moved to Spaceport America for flight testing revenue service. Flights from Spaceport America are expected to start again in mid 2025 with Delta Flight Test.Third, and as shared on our last call, we have resequenced the timing of our next mothership to coincide with the ramp up of our spaceship fleet. This allows us to better manage the timing of our capital expenditures and it allows our engineering teams to complete the bulk of the Delta work, before pivoting to the next mothership effort. We expect the first of our next 2 motherships to enter service in 2027, which will support the timing of additional spaceships coming off the line in Phoenix. Our existing mothership, Eve, is performing well following its enhancement program, and Eve will carry our first 2 Delta ships during their flight test program and into revenue service in 2026 where it will support meaningful revenue and cash flow positivity.And fourth, as we focus the entire company towards a successful execution of the Delta program, Mike Moses, with his deep expertise from both NASA and Virgin Galactic, will take on the expanded role of President of Virgin Galactic Spaceline. We will be aligning the entirety of our technical engineering and non-customer facing operations team under Mike, with a full company focus on bringing our production fleet into service, crossing over to cash flow-positive operations, and readying our company to scale and continue to lead this exciting industry.With these adjustments to our plans, we project our end of quarter, cash and marketable securities position of nearly $1.1 billion to be sufficient to support the development and entry into service of our first 2 Delta ships and to achieve cash flow positivity in 2026. These adjustments to our near-term operating model have impacts on our flight manifest and on our staffing levels. Regarding manifest impacts, with Unity's fewer seats and low flight cadence, these changes will have minimal impact on total astronaut carried. However a subset of customers who are early in the manifest, will have a longer time extension before their flights. Internally at Virgin Galactic, achieving this plan has required us to make the difficult decision to reduce the size of our teams that support our spaceline operations and our staff areas.Our teammates at Virgin Galactic are talented, purpose-driven and excel in their professions and it is deeply unfortunate to part ways with some of our coworkers and our friends. With the restructuring announced yesterday, along with headcount management efforts that have been taking place across the year, we expect to enter 2024 with approximately 840 full-time employees. By taking these actions now, we ensure Virgin Galactic continues to have access to the resources needed to reach positive cash flow and to deliver on our mission, bringing the wonder of space to our existing customer base and to the generations of customers who will follow.Doug, let's turn the call over to you.
Thanks, Michael. Good afternoon, everyone. Turning to Page 11 and our financial results. In his opening remarks, Michael provided some important information about the company's operations and the related economics. As a follow-up, I'd like to share some additional context relating to both our near term and long term financial outlook.First, I'll explain the new expense category called spaceline operations and what trends to expect going forward. Second, I'll review the financial results for the third quarter and provide guidance for the fourth quarter. Third, I will describe the shift has begun towards the building of capital assets, our longer-term projections for overall spending and the expected path to positive free cash flow. And fourth, I'll expand on the attractive future economics we foresee with the expansion of our Delta class fleet.Let's start by taking a closer look at the new expense category, Spaceline Operations, and how that plays into our third quarter results. In our last earnings call in August we previewed the introduction of spaceline operations, which followed the launch of commercial service, an achievement of technological feasibility for our current Spaceline system. In order to understand and interpret what spaceline operations represents. It is important to recognize at Virgin Galactic is somewhat unique as a company that both producers and operates space vehicles. We first built fixed assets such as spaceships and motherships, then we utilize those assets to provide spaceflight services.While we were able to capitalize certain costs for production of vehicles, some production cost cannot be capitalized and must be recognized as an expense. These noncapitalizable production costs reflected in spaceline operations along with the current cost of conducting spaceflights. Note that the presentation of Spaceline operations does not indicate an increase in spending, but rather a remapping of expenses that were previously in R&D or SG&A. I'll share more about our expectations for the Spaceline Operations Expense category following a discussion of our results for the third quarter.Turning to Slide 12. We generated revenue of $1.7 million, driven by commercial spaceflights during the quarter and future astronaut membership fees. Total operating expenses were $116 million compared to $146 million in the prior year period. Spaceline operations expenses were $26 million compared to approximately $1 million in the prior year period with the increase attributable to the updated presentation of expenses. R&D expenses were $45 million compared to $97 million in the prior year period, with the $52 million decrease primarily due to remapping of some expenses to spaceline operations and lower outside vendor costs. SG&A expenses were $42 million compared to $46 million in the prior year period, with the $4 million decrease primarily due to remapping of some expenses just spaceline operations.We reported a GAAP net loss of $105 million compared to $146 million in the prior year period, primarily driven by lower operating expenses and a $9 million increase in interest income from returns on our portfolio of marketable securities. Adjusted EBITDA was negative $87 million in the third quarter, compared to negative $129 million in the prior year period, primarily driven by lower operating expenses. Free cash flow was negative $105 million, compared to negative $102 million in the prior year period. Free cash flow came in better than our guidance of negative $120 million to $130 million due to the timing of certain vendor payments.Moving to Slide 13. At the end of the third quarter, cash, cash equivalents, and marketable securities on the balance sheet totaled approximately $1.1 billion, a sequential increase of $108 million from the second quarter of fiscal 2023. During the quarter, we raised $211 million in gross proceeds as part of our aftermarket equity offering program.Moving to Slide 14 and our Financial Outlook. For the fourth quarter, we expect revenue to be approximately $3 million, primarily driven by 2 commercial spaceflights; Galactic 04, which occurred in October; and Galactic 05, which occurred last week. Our capital expenditures for the fourth quarter are projected to be between $25 million and $30 million. We expect to approximately double our capital expenditures over the third quarter, primarily due to the construction of the spaceship assembly facility in Phoenix, and building of tooling for the Delta class spaceships.We expect our forecasted free cash flow for the fourth quarter of 2023 to be in the range of negative $125 million to $135 million to account for both the timing of vendor payments that favorably impacted our third quarter, as well as the increase in capital expenditures, just mentioned. In connection with the restructuring effort that Michael mentioned and which is already underway, we estimate a one-time restructuring charge of approximately $5 million and an annual cost reduction of approximately $25 million relative to our current cost base. This cost reduction will be realized beginning in the first quarter of 2024.Now I'd like to provide some context around our longer-term financial outlook. Let's move to Slide 15. For clarity, it is helpful to first consider our business model, our economic life cycle began with a multiyear research and development phase to create and prove out our initial spaceflight system. We have successfully demonstrated that by conducting regular commercial spaceflights on a monthly cadence with our Unity spaceship, and mothership Eve. We are in the upfront investment phase of our production vehicles, the Delta class spaceships, which are expected to deliver 12x the monthly revenue capacity of the initial spaceflight system.A period of nonrecurring engineering or NRE is followed by a period of upfront capital investment to build the fixed assets such as a factory and tooling that are then available to produce multiple vehicles, namely spaceships, on a continuing basis and at a relatively low recurring cost per vehicle. Each of these vehicles are additional assets and expected to have significant ongoing profit-generating potential based on the performance criteria we have specified.Through 2023 as spending has predominantly gone toward operating expense mostly tied to nonrecurring engineering costs for the development of our spaceflight system. As we achieve certain milestones in the development of the Delta class vehicles in 2024, these engineering costs begin to be capitalized. In addition, we are investing in fixed assets, such as the space-up assembly factory, tooling, sub-assemblies, test assets, and spaceport facilities that will drive future growth. This chart shows how our spending is expected to shift primarily to CapEx in 2024.While this chart is for illustrative purposes, we're not giving specific cash flow guidance for multiple years. You can generally see that the 2-year average spending for 2024 and 2025 will be below that of 2023. Spending is expected to be weighted more to the front end because of our planned CapEx investments in fixed assets that enable future revenue growth. Earlier, we discussed the actions we're taking to reduce our cost structure. Because of the reduced slight cadence our spaceline operations expense is forecasted to decrease in 2024 compared to our current spending level.Other reductions in headcount and streamlining of operating expenses contribute meaningfully to our lower spending footprint going forward. Given the strength of our balance sheet with approximately $1.1 billion in cash, cash equivalents, and marketable securities available, combined with our actions to reduce spending, we have paved the way to positive free cash flow in 2026 with our existing capital.I'd now like to provide more insights about our expected future economics upon the completion of the Delta class spaceships. While cash flow breakeven is 1 milestone along our journey, we clearly intend to capitalize on our unique high-margin product offering to drive top line growth and strong shareholder returns. By 2026, we expect to be entering the cash-positive growth phase, as shown on the chart on Page 15. We mentioned on a previous call, that we project the contribution margin from our spaceflight to exceed 75%. Given this margin profile, we expect that we will cross over to positive free cash flow in 2026, when we have 2 Delta ships in service. At this point, cash inflows from spaceflights are projected to exceed our overall cost base.Importantly, by 2026, we anticipate we will have completed the upfront investments in manufacturing capacity to produce incremental Delta class spaceships at a cost of $50 million to $60 million each. Given the expected flight rate and revenue capacity of these ships, we expect a payback period of less than 6 months for each new vehicle that we added to our fleet. Additional motherships will also be required to accommodate the expanded fleet of spaceships. Given these compelling economics, we are singularly focused on the delivery of Delta class spaceships.As mentioned earlier, our $1.1 billion balance of cash, cash equivalents and marketable securities, is expected to be sufficient to achieve positive free cash flow. While not required in the near term, we intend to utilize the approximately $113 million left on the current at-the-market equity offering, which would support further investment in revenue generating assets like additional motherships, additional Delta class ships or to further strengthen our balance sheet. To summarize, with a focus on cost management, we are mitigating the risk associated with accessing capital markets in order to meet our longer-term objectives. We project we have sufficient capital to build the revenue-generating assets necessary to achieve positive free cash flow.With that, I'll hand the call back to Michael for some closing comments.
Thanks, Doug. To recap the key items from today's call, our spaceflight system works on a repeatable basis, and the astronaut experience is exceeding our very high expectations. With each new Delta ship delivering steady-state revenue capacity of up to 12x greater than VSS Unity, we expect to cross into cash flow positivity in 2026 as we bring our first 2 Delta ships into service.Our end-of-quarter cash and marketable securities balance of approximately $1.1 billion is expected to be sufficient to bring these first 2 Delta ships into service as we tightly manage and prioritize our resources against the Delta program while reducing expenditures associated with flying VSS Unity. All of these factors support our business model, which is highly profitable and cash generative at steady-state. While the upfront capital costs are meaningful, ongoing CapEx needs for each spaceport are relatively modest given the long lives and high capacity of our ships. Variable costs are relatively low, in relation to our ticket prices and incremental spending to expand our fleet is expected to bring high operating leverage, high double digit contribution margins, and excellent return on investment.I'd like to thank our Virgin Galactic customers, shareholders, and fans for their support as we work to ensure our company's future for the long term. And I'd like to sincerely thank our teammates for the incredible work they have been delivering, while also recognizing the loss that will be felt across the company as we part ways with some of our friends and coworkers. We are now, stepping forward and placing all focus on safely, efficiently, and successfully executing the Delta program.With that, we'll turn to questions. Operator, we are ready to begin the Q&A portion of the call.
[Operator Instructions] Your first question comes from the line of Matt Akers with Wells Fargo.
This is Eric Yan on for Matt. Could you discuss more details around that Delta works you've done this year so far? And if there are any updates to the plans or milestones you laid out for the next couple of years?
Sure, Eric. I think, as we shared in the prepared remarks, we've been executing Delta on our plan, on our schedule. This year is primarily about adapting the designs from all the learnings that we've done in building out our first initial spaceflight system. In particular transitioning those designs to a different carbon-composite system is a big part of that, that has a lot of benefits into the process. That design process and taking advantage of the things that we've learned from flying Unity on a monthly basis have led us build in and confirm the much improved turn times that we're going to see from the Delta shifts along the way.We've also begun working through our test asset systems, we clearly are designing for this churn rate, we're also building the test assets to verify them. You heard us referencing a Copper Bird and an Iron Bird, those systems have started up. We've been working closely with our partners, our key partners that will be building these ships with us, in particular Bell from Bell Textron, and Qarbon, they tightly interwoven with our efforts and using the same software platform along the way. And the tooling that those companies are building that will then do the parts has already begun, initial parts are coming off those tools, but the majority of parts and fabrication will happen in 2024, in line as we bring our spaceship factory in Phoenix done.If you see the image of the spaceship factory, I think it's Page 9 in the attachment, the core and shell that's all done, we're going to be starting to do the interior build out of the factory in the first quarter of next year, actually probably end of this year and then we plan to occupy that somewhere around April so that we can then put in our own systems to begin the final assembly of the ships. So that's all tracking as previously shared and that puts us on the path to our flight testing in 2025, and putting these into revenue service in '26
Okay. Got it. That's very helpful. Also wanted to ask if you have a more specific timing on the Delta launch now? Is it more like the first half or later in the year?
Nothing more specific for today, but I will say you're going to see them flying in 2025 as we do our flight testing. Flight test will include, they'll start with what we call captive carry flights, then they'll move to what we call glide flight, where we're releasing without the power of rockets, and then we'll start to power the flights up towards space. So you'll be seeing all that happening in 2025.
Your next question comes from the line of Greg Konrad with Jefferies.
Just to start with one clarification question, I mean you talked about pausing Unity flights in mid 2024 and I think you mentioned Galactic 06 and 07, is 07 going to be the last Unity flight? And is there any commercial flight activity between mid 2024 and the introduction of Delta into service in 2026?
Yes, just kind of more color on what we're doing. Obviously, we've had incredible success line Unity and as we are sharing the business reasons for flying Unity are to demonstrate what this industry is about, both the safety, how the ships work, the fact that we can repeat them. And importantly, getting a chance to showcase the customer experience. Because unlike whether you are a new electric vehicle startup or something similar, people are familiar with the business model and human space flight is something that private citizens have really never had the chance to do. So Unity is demonstrating all that, but it is very resource consumptive as we do it. So the big move, we're making here is pivoting the resources that are -- have been being put into the Unity flights and redirecting them over to get the Delta ships done with the cash we have on hand, and you take that kind of market risk off the table.So as we're doing that, we will continue to fly it, and we're moving to quarterly because it allows us to reduce cost as we do that and we know we'll go on -- January is when we're doing Galactic 06 and we'll do Galactic 07 probably in the earlier side of the second quarter. And then whether we do Galactic 08 with Unity before we move our team or not is really around the specific timing of when our very skilled teams that are in New Mexico, both technical operations and engineers. We want them to be a part of the build process of our Delta ships, it's better from a spending standpoint. So we aren't ramping up as many incremental folks along the way. And it really the importance as it allows our teams that will maintain these ships to have the hands on experience of building them and that will help us more quickly ramp up to rate as we bring them into service.So whether that starts, I'd say at the tail-end or the beginning of the third quarter or the tail end of the second quarter, beginning of the third quarter or a little later will depend upon whether we fly Galactic 08 with Unity or not. So we're not going to make that call today, and we're going to let the Delta program and need for those team members to drive that. And then we will take a pause with Unity whether it's after 07 or after 08 as we put our attention on building these Delta ships, because that's where we will drive the economic value of the company.
That makes sense. And then the 8x per month on Delta, I think previously maybe you talked about weekly flights if I remember correctly. What's kind of changed there or got you comfortable with that higher expected flight cadence?
Yes. Previously, we've been talking weekly. My direction internally to our engineers really will be weekly, we should be able to turn these on a bi -- twice a week basis. But the team had work to do on that. And so, the first piece that's informed that is just the progression of our designs. And specifically designs that are enabling us to do less between each flight.Now, the Unity flights have been really important in that as we've gone through the 6 and 6 months and built that operating cadence, it's very dialed in. Our technical operations teams are pros and they know exactly what they're going to be doing between those flights. And while that work happens to turn Unity, that also shows our engineers and design teams exactly the things that we would like to engineer out of the Delta systems, so that we don't have to put that work in between flights, because we built the ships in a way that it doesn't require. That work has been kind of validated on the design side, as we've learned the specificity of maintenance on the Unity flights. So that's been super, super helpful.And then, you heard us talking about the test articles that we're putting in here. We're not going to wait all the way until flight test to validate that. We're going to be validating these designs with our Copper Bird and Iron Bird in our static test article systems along the way. I'm really proud of what the engineers have been able to do and what our technical operations teams have delivered, it's that collaborative effort that lets us speak with confidence on a 2x a week or kind of 8x a month on average flights for Deltas when we get to steady-state.
And then just sneaking one last one in. I mean 8x12, 96 or so flights a year for each Delta. How are you thinking about capacity for each spaceport? I mean I think, you've in the past you maybe talked about 400, just thinking about how many spaceships to fill up the first spaceport and kind of start planning for a second?
Yes. You're bringing up a great point. With the turn time objectives on Delta, now something we've got confidence in, this has great benefit in reducing the amount of CapEx needed for every spaceport, right? So with each spaceship being able to do round about 100 flights a year on a steady-state basis, you probably need 4 to 5, right? And that's what we would put in at a spaceport.And so, we'll probably start with 4 and just see how we're doing with those and do we need to add a fifth, as kind of 1 that's always kind of available on the side. We will take I'm sure, a month out of that year. I'm giving you monthly rates on average. We'll take a month of the year as a more intensive overhaul, like an annual overhaul, like you would see in other aerospace type vehicles. But the average of the year will be 8x a month, 96-ish a year. So hopefully, that gives you a little bit of perspective on that.
Your next question comes from the line of Myles Walton with Wolfe Research.
I was hoping to pick up where that left off maybe. As you get into 2026 and you're sort of going to this very, very high OPTEMPO. How quickly have you assumed getting to that OPTEMPO in the cash flow breakeven analysis?
We're giving ourselves in 2026 time to sort new ships out. Now we have gone through the whole flight test and ground test and with the extensive ground test assets we've talked about. In this type of work, in our internal modeling, we're giving ourselves half a year, a year to ramp that up. I would note the skill of our technical operations teams. We've given ourselves several flights before we were kind of sure if we'd hit a monthly cadence on Unity, and we hit a monthly cadence pretty much right out of the gate. So I'm very proud and impressed with that team, and they'll be moving that as quickly as we can, but we think it's prudent to be conservative at this point.
Okay. And obviously, this is not -- the company has not been one to run the business without cash on hand, so I just want to make sure I understand the $1.1 billion is what you require to get to cash flow positivity. Is that without thinking about just a normal level of cash on hand? Or is $1.1 million basically the CapEx and operating costs to get from here to there, is another way to ask it?
Yes. This is Doug. Yes, sufficient to get there. And we mentioned, we would likely at some point, tap into the ATM, what's the remaining of $100 million, we don't need to in any near term timeframe. So we haven't put like a minimum cash balance out there, but we foresee that the $1.1 billion is sufficient to get through to cash flow positivity by 2026.
One thing, Myles, I'd probably add is context to that, we often will look to say how much of that time runway do you want to have on hand. As we get out into 2025 and move into 2026, the overall cost footprint of the company is also much less than it's been. At this point, we are through all sorts of things. We're through all the upfront engineering, the nonrecurring engineering. We're through all the upfront tooling and infrastructure test assets go in. We're in through all the infrastructure of the factory. We've got the supply chain built out and going. And so all of those costs are behind us at that point in time and we're at a lighter footprint. So the need for cash on hand is less than you may have seen from us in the past.
And just one other one. The mothership you said, the second one, you're planning enters in 2027. I think, the mothership is more restrictive in terms of how many flights you can actually achieve. Can you remind us of what the status is on that, because obviously, you've made pretty good progress on the Delta? What's the current status of limitations of flights on the mothership?
So our first mothership, Eve, as we fly with Eve and Unity, Unity is the bottleneck in the system. Eve -- we'll be able to turn Eve as an airplane around quickly, and we feel Eve is able to do 2 or more flights a week on spaceflights and Unity can't keep up with that. So generally [ if you look into ], we think there's probably some opportunity to go above 2 with Eve. But that means Eve will be the kind of constraining factor as we bring the first Deltas on board. So that also balances out as we're learning to turn the Deltas on that twice a week cadence by having 2 of them out, they'll probably balance out with Eve alone.
Your next question comes from the line of Michael Leshock with KeyBanc Capital Markets.
I wanted to start just asking now that we're in commercial service for some time now, you've had several successful flights. I wanted to ask on how Unity has really influenced the Delta class production and design of that fleet, and how are you thinking about Delta class differently versus maybe 3 or 6 months ago in terms of flight cadence or technical capabilities. You have the 8x a month flight right now, but anything else that's different than what we had initially expected?
Sure. The flights have been fantastic. I've had a chance to talk to the majority of the astronauts who have flown. It's very, very meaningful. We put just a few of the quotes in here today. And that's been very rewarding to the entire company. But business wise, it's super meaningful. I've never contemplated an experience that is having the value that this is having for people and I think that will bode incredibly well for us as we go forward. So Unity has been delivering that. There are a lot of things on Unity that are like, this is fantastic, and it will carry forward.We love the design of our cabin. We love the way the cabin interior generally is laid out. I would love the mirrored element in the back. We love the way we have the windows scattered around the sides and the ceiling kind of becomes a glass bottom boat as we flip the ship outside down. The collection of all those and being able to see almost kind of like through, the French doors looking out on able to use your peripheral vision as you're above the planet and see the vast expanse of space. All that in Unity is amazing and will be carried forward into the Delta ships.Now Unity has things that we want to change, right? It is heavier than the Delta ships will be. And so Deltas, of course, will come out with 6 seats, so you're adding 50% to the capacity along the way. We're changing the system, the composite system of Delta. And that's really what's driving the majority of the work on the Engineering side as we update the parts elements for that. So then, as you kind of pivot to what is really different in Delta than where we've been before. From our Engineer standpoint, not much is different than where they are before. They're just confirming for me what I'd ask them to be able to deliver is, we should be able to turn these ships on a twice a week basis. And as we've advanced our design, that charge kind of extra credit charge they had for me, they have been delivering against. So, that's very compelling and that's why we're feeling comfortable sharing that with you here today.There are smaller things that I think we're learning around the flight. But the biggest things that we've picked, I'd say, of value on this type of call is by understanding what it takes to turn Unity on a month by month basis, we know that very specifically. We can target those things specifically in our design and verify it and test, so that we don't need to do all those things flight by flight, and that's how we're going to turn this so much more quickly.
And then, I wanted to ask on research flights. Would you look to increase your mix in terms of more research versus private astronaut flights before you get to free cash flow positive just given the higher revenue per flight? Or are you still targeting that 10% research number?
Yes. I think, the mix is going to be important. It's incredibly -- for our future, we have to be commercially -- in a commercially reasonable cadence with our early flights. And while we have, I'd say the long term is 10%. I've been very pleased listening to our researchers; both the Italians, Alan Stern and Kellie Gerardi, have been very powerfully speaking about the benefits of this, and the cost benefit of this for research. So I think we're going to lean into that.One of the things you're seeing in the revenue per flight we kind of pointed out for Galactic 06 and Galactic 07, it's meaningfully higher than what we've seen in the early flights, and that is leaning in, has the 4 seat of course, leaning in heavily to the research mix also has a place where we've had -- if seats have become available in the manifest, we are offering those up kind of a market rate. And that market rate, as I mentioned, has been closer to $1 million on a seat versus our kind of based pricing that we'd had last at $450,000.And so, all those things kind of combine into the mix of a revenue per flight. When we come into Deltas, we clearly want to be moving through our existing customers. They've been very patient. We also have to use commercially reasonable efforts to make sure we've got the revenue coming in to maintain a cash positive and a profitable position, so we'll work with the mix to balance all that out.
Your next question comes from the line of Oliver Chen with TD Cowen.
Michael and Doug, there's a lot of very helpful information on the Delta class contribution margin as well as cost. On the 75% contribution margin, what would you articulate as some of the major sensitivities there in terms of upside or downside potential?And then Michael, as you continue to enhance the customer experience, it sounded like there's a lot of great personalization as well. What are your thoughts in terms of retaining the customers that experience the flight? And any earlier thoughts on customer lifetime value as you think ahead and continue to innovate commercially?
Oliver, this is Doug. I'll take the first question. So, regarding the contribution margin, we have a good line of sight into the cost structure, because we are already flying, right? We know how much it costs to purchase or build the items that get consumed in the flight. So, the cost part of that is something we can see and we'll continue to drive efficiencies there over time. That has things in it like the rocket motor and the fuel and that sort of stuff -- things.The more variable item is the revenue per flight. And Michael talked about some of the variation there that can occur depending on the mix of the manifest -- and the -- we've got the standard astronaut ticket pricing or we have some research mixed in there or any other variety. So, I'd say there's some upside in that more than downside, because when we gave you that 75% that was using a $450,000 per ticket price. So, we've indicated today that there's upside there based on what we're seeing today and the flights that are coming. So, I'd say more upside than downside in that metric.
And thanks for the notes, Oliver, we have tried to bring forward good information for everyone today. You talked about what we think we've been learning from the experience talking about retaining people, and then lifetime value and future opportunities, so I'll try to hit those. It's hard to describe how powerful this experience is, and the customers -- the future astronauts who are now graduating to our astronaut community, they're just bode over and so happy and so pleased, and it has been a long way, it has been so worth it. And that experience is going to help in kind of retaining of others as they share that, of course. But as I kind of move into like the value of that group, some of those people, not all -- but some of those people will themselves want to repeat. They want to repeat at Spaceport America or they'll want to repeat as we move to other spaceports.The other thing, I think, second, in value is all of their direct friends that are here. So, what we've learned in these last 6 spaceflights is the event and the moment that is happening around these spaceflights. So, currently, these are just kind of opened up to the friends and family of our astronauts who are flying and it is happening. It's emotional, it's meaningful. It's fun. There's -- of course, there's celebration and ceremony that goes with that. And so, there's some, I'll call it, ancillary revenue opportunity just around that. That probably gets bigger as we open up the spaceports to more have viewing because it is an event, and we keep hoping to get people out to witness this. And I hope you have a chance to come do this. It is just super meaningful to even watch.But then [ not ] only the friends coming to watch, that's the best chance we have to convert somebody, as bringing friends to watch and like your friend or your family member goes and you see what this is about in person, it is very compelling to then want to move those people forward. And then, the next piece of that is, when you've had a meaningful experience at this level of depth and emotion is much easier to become missionary and a passionate ambassador for our company going forward. And that's where you really get the multiplicative value to us. That's where you get lifetime value of an individual customer, but also through them bringing in new people into our community.So those are a bit, I'll call it, the direct side. As we graduate people into the astronaut community, we absolutely are going to look how to curate that for additional value to those, now Virgin Galactic astronauts, but also, of course, driving value to the company. So we're just starting to build that community up, but I have a lot of high interest and engagement of what we can do with a very kind of passionate and deep allegiance to the company group of people like that.
Okay. That's really helpful and innovative. Last question, the spaceship factory is on track to open in mid 2024. I mean in the past, there were supply chain disruptions, of course, and timing and also the cost and time and money. What's ahead with that in terms of what you're monitoring? And is that enough cushion in terms of what you see in the current environment with availability and the flexible arrangements you're using as well?
So we've got a team on the program management side of this, I'll call it more so than the engineers per se and our supply chain team, these groups are pros. And the big thing that's going on now, of course, are scanning out the long lead items and there's a little bit of whackable with that, but we whack down things when we see those things pop up. And by having our Delta design be a derivative design, not a brand-new thing, it's a derivative design of the work that we've done in the past, we know what those long lead items are. And so, we've got the time to be out searching and adapting as we need to.We're working with really seasoned partners in Bell and Qarbon, they've been incredibly responsive, we've started to bring some of their team members and leaders out to see our spaceflights. I think it's really important that those teams feel part of our team and feel part of the emotion and the huge value of doing this, so that helps us build kind of cultural momentum there as well and it's a collective effort. So I -- this is an aerospace project, and there's always things that are popping up, but we've got the right focus and the right team and the right buffers built into our plans and schedules that we feel good on them. And we're going to continue to manage day-by-day, week-by-week, month-by-month on that.
There are no further questions at this time. This will conclude today's conference call. We thank you for joining. You may now disconnect your lines.