Good afternoon. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic’s Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

[Operator Instructions] I would now like to turn the call over to Eric Cerny, Vice President of Investor Relations..

Thank you. Good afternoon, everyone. Welcome to Virgin Galactic’s third quarter 2022 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 filings with the SEC filed by Virgin Galactic from time to time.

Readers are cautioned not to put undue reliance on forward-looking statements and the Company specifically disclaims any obligation to update the forward-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 like to now turn the call over to Michael..

Good afternoon, everyone. We had a very productive third quarter, making significant progress on our immediate objective of returning to flight and launching commercial service in the second quarter of 2023. We also continued to execute on our long-term business objectives to scale our future fleet. Turning to Slide 3 and today's agenda.

We will start with our commercial readiness efforts, including an update on the enhancement program of our initial ships, followed by progress on our future fleet development. Finally, I'll hand the call over to Doug, who will provide a financial review of the quarter. So let's turn to Slide 4 and a discussion around commercial readiness.

As we approach commercial service, we recognized the significance of getting back to the business of Spaceline and providing our existing customer base with an unforgettable experience. During the quarter, we made great progress on our enhancement program for our initial ships.

Work on VSS Unity is complete and the ship is ready to commence test flights. We are tracking to have work on VMS Eve completed in the fourth quarter. As a reminder, the modifications we have made are designed to significantly improve the durability and reliability of both ships, enabling a higher frequency flight rate for commercial service.

As you can see in the photo from Spaceport America on Slide 5, one of the final steps in Unity's enhancement program was the design and application of the ship's delivery. With the installation of Unity's enhancements now complete, we anticipate reduced maintenance needs for the spaceship and the ability to support a monthly flight cadence.

On Eve, the new launch pylon has been completed, new horizontal stabilizers have been installed, and upgrades to avionics and mechanical systems are wrapping up. We are now on the process of completing final flight preparation task.

Subject to successful completion of each task, we expect the first test flight for Eve to occur in early January, if not before, with the ship returning to its home base in New Mexico shortly thereafter.

After the verification test flights of Eve, we will move to a glide flight of VSS Unity, and then to a spaceflight with Virgin Galactic mission specialist on board. The crew will assess various elements of the astronaut experience and make final refinements to our training program for our first commercial passengers.

As always, our approach to test flights is methodical and iterative, and following the sequence of test flights, commercial service is expected to commence with the Italian Air Force Research Mission, followed by private astronaut spaceflights.

In the coming weeks, we will begin communicating with our founder astronauts regarding their flight assignments for their life-changing trip to space. I've spoken in the past about the value of our unique customer journey, both as a key product differentiator and as a customer retention and lead generation engine.

Key to that is our membership community of future astronauts and the exclusive events and programming that it offers. In late September, we held the inaugural Space for the Curious summit in Wyoming. This is our marquee membership event for future astronauts.

The images on Slide 6 provided glimpse of the dynamic programming designed to enrich our customers’ anticipation and readiness for their space journey. Many of our future astronauts brought friends and family members who are able to interact with our team and other members of the community.

We continually hear feedback that this community access and interaction is a key differentiator for Virgin Galactic, and it is something foremost in our customer's minds when they decide to fly with us.

Our future astronauts are incredibly excited for us to bring them to space, which is why the launch of commercial service in Q2 of 2023 is so important. Also, critical to our success is the ability to grow our fleet. So let's turn to Slide 7 and our future fleet development.

As we shared with you before, our production model spaceships, the Delta Class, are intended to materially increase our flight frequency. These ships will be the key driver of revenue growth and profitability for the company. We are leveraging the existing aerospace ecosystem to enable greater speed to market than with a fully vertical operation.

Last quarter, we announced our agreement with Boeing subsidiary, Aurora Flight Sciences to build our next generation motherships, and we shared that we had issued request for proposals for major sub-assemblies of our Delta Class Spaceships.

As announced yesterday, we have selected two very experienced companies in aviation and aerospace, Bell Textron and Qarbon Aerospace as our primary suppliers for the Delta ships. As illustrated on Slide 8, Bell Textron will supply our unique feathering system and flight control surfaces.

Among many strong attributes, Bell Textron's expertise and tiltrotor technology is complimentary to the feather technology used on our spaceships. Qarbon Aerospace, known for its expertise in constructing large, complex composite parts for aerospace and aviation, will produce the fuselage and wing of our spaceships.

Along with Aurora, these important relationships propel our production strategy and we are excited to be joining forces with aerospace companies of this caliber. Work will begin immediately with Bell and Qarbon and initial production, including tooling efforts is targeted to begin in 2023.

The Virgin Galactic team will retain responsibility for the overall system architecture and design authority for all components. Final assembly and integration of the new ships will be done in our facility in Phoenix, Arizona. Flight test and acceptance testing of the new ships will take place at Spaceport America in New Mexico.

Regarding our next generation motherships, our collaboration with Aurora Flight Sciences is also progressing well. We will soon be moving into the tooling phase and the next generation mothership program remains on track to begin flight testing ahead of the first Delta ship coming off the line in Phoenix in 2025.

With this schedule in mind, we are dedicating significant engineering resources to the work that proceeds production of the future fleet. Simultaneously, we are focused on the launch and flight consistency of Unity and Eve to begin bringing our customers to space and to demonstrate the value of our product.

Prioritizing our resources against these important efforts will likely impact the pace of work on our second spaceship, VSS Imagine, and we are reassessing its schedule for entering commercial service. I'll now turn the call over to Doug for an update on our financials..

Thanks, Michael, and good afternoon, everyone. Turning to Slide 10 and our financial results for the third quarter. We generated revenue of $767,000 in the third quarter, driven by future astronaut membership and event fees and revenue recognized for research activities.

Operating expenses were $146 million compared to $86 million in the prior year period. The increase is primarily attributable to higher R&D costs tied to our fleet enhancement activity and the development work for our future fleet.

We reported a GAAP net loss of $146 million, compared to $48 million in the prior year period, driven by higher R&D costs and the favorable change in the fair value of warrants in the prior year.

Adjusted EBITDA was negative $129 million in the third quarter compared to negative $68 million in the prior year period, primarily driven by higher R&D costs. Moving to Slide 11. Free cash flow is negative $107 million in the quarter, slightly less than the low end of our guidance compared to negative $53 million in the same period last year.

The increased spending is largely due to higher R&D costs. Our balance sheet remains strong with $1.1 billion in cash, cash equivalents and marketable securities. We intend to maintain that strength while prudently investing in the business.

During the quarter, we raised $100 million in gross proceeds through the issuance of 15.6 million shares of common stock as part of the aftermarket offering announced on August 4, 2022. At the end of the third quarter, our issued and outstanding share count was approximately 274.5 million shares.

While the weighted average diluted share count for the third quarter was approximately 263.9 million shares. For the fourth quarter, we forecast free cash flow to be in the range of negative $120 million to $130 million. With that, I'll hand the call back to Michael for some closing comments..

Thanks, Doug. As we approach our launch of commercial service in Q2 2023, we recognized what a significant milestone this will be for the team, one that advances our mission to become an astronaut-driven consumer-facing Spaceline. We continue to invest in our team and infrastructure to prepare us for that transition.

We have the right structures and leadership in place to support commercial service and fleet expansion. Across the business, I am confident in our approach and the progress that we are making.

In summary, with the enhancement work on VSS Unity now complete and VMS Eve nearing completion, we will begin verification flights in the coming months and we remain on track to start commercial service in the second quarter of 2023.

Our future fleet is progressing well and with agreements in place with Bell Textron and Qarbon Aerospace, we continue to expect to roll out the first Delta ships for flight testing in 2025 with private astronaut service on the Delta’s plan for 2026.

I want to take this opportunity to thank the Virgin Galactic team for all the hard work that they have done throughout the enhancement and modification period. It has been an important time, and thanks to this critical and complex work, our ships will now have improved durability and reliability. We are all excited to get back to space.

And with that, we'll turn to questions. Operator, we're ready to begin the Q&A portion of the call..

Thank you. [Operator Instructions] The first question today comes from the line of Oliver Chen from Cowen. Please go ahead. Your line is now open..

Hi, Michael and Doug, and congrats on the announcements of the partnerships.

So as we look to think 2023, as you begin initial production on the Delta Class Spaceships, what are the key catalysts or moments in 2023 that we should look forward to with respect to that? And more generally, as you pursued this flexible and agile approach to working with suppliers, are there other partnerships that you need in terms of scaling that you have in mind? Second question is previously you mentioned disruptions in acquiring materials.

Is that still happening? Or if you could tell us a little bit about how the supply chain looks given we're in such a dynamic environment? Thank you..

Thanks, Oliver. This is Michael responding. I'll just take that last one. Well, I'd say supply chain for us and for everywhere, still carries across the world degrees of disruption. We've managed that disruption really, really well. So we don't have anything that is constraining us at the moment from a supply chain standpoint.

It's still a disruptive market. We still look and manage proactively against it. So don't want to say that any companies out of the woods for that, but we don't see issues in that area right now. So that's good. As to the Delta ships, what you'll see, we're very excited to have Bell Textron and Qarbon Aerospace on board.

And I think those companies and the teams are also very excited to be partnering with us on this. It is a program where as we said, we're going to take the lead on the upfront design and overall design authority.

And what that means is we're going to have our engineers, especially some of our most experienced engineers with our ships, really working through the upfront design to basically modify our existing ships design, same outer mold line as we've discussed, but modify them in a way such that Bell and Qarbon can take those designs and then put them through their own shops, their own areas and manufacture them in a very efficient way, in a very both time and cost efficient fashion.

So things that we'll be doing, we have to get the design piece done, and there are milestones that we could work against internally for that. You'll see us then we'll be ordering materials and the materials will first be used to build the tooling that these partners will be using in the manufacturing process.

And as we get the material order, then we'll get the tooling built, then you'll see parts actually getting built using those toolings. And that's mostly what's going to be happening in the 2023 timeframe.

Doug, anything you'd add to that?.

That was complete..

Thank you. And Michael, you have a really experience – like experiential team in terms of membership and marketing and driving a bigger consumer experience.

Any updates there on plans and strategies in terms of what you're doing? And also related on the demand side with the encouraging campus and training facility announcements, what have you been seeing in terms of demand and regarding tickets? Thank you..

Got it. So I'd say we're generally following the path we've laid out Oliver. So our design process on the astronaut campus continues. Again, we think that campus will be coming online kind of in parallel with the Delta ships coming on in line. So that's still got a way. So 2023 is still primarily a design phase for that effort.

Well, that's coming along quite well. I've spent time with some of our future astronauts both in Europe, in the UK as well as in the U.S. They're just very pleased and excited to both be part of the company, but also looking forward to going to space. So we mentioned on this call, we had our first major event.

Internally, we call it the Space for the Curious Event. And I participated in that with 60 to 80 or so of our future astronauts and guests. And the main takeaway there is how important the journey is.

And I think for all the people who attended that as well as the dialogue I've been having kind of across the Board with our future astronauts, it continues to come back and focus on. This isn't an up and down, right? This is a journey. And the development of the milestones on that journey are incredibly important along the way.

And what we really focused on in that Space for the Curious piece is helping people recognize how they're going to prepare so that the moments that are fairly fleeting in space will be still anchored in their memory when they come back. That's what you're going to carry forward for the rest of your lives.

So it was very reinforcing to attend that event and to talk with these folks, so we feel like we're definitely on the right track there. Now on demand, as we shared in the last quarter's earnings calls, we had 800 or so people that had come in. We took 100 seats out of our first 1,000 block and repurposed and dedicated those to the research market.

And that has been a good move on our part. You may recall the research groups can't plan for something that's four years out. They need the ability to make decisions for funding and for using their experiments on shorter timetables.

So by able to reserve that 100 seats and basically be able to feather those in along the way, it's opened up our opportunity to talk to a lot more people. You may have noticed we announced a partnership on research with Axiom Space, that came out this morning.

And they're going to use us to help train astronauts that they will be taking up to the space station on deeper exploration missions. So we found good momentum from countries, universities, Axiom in the case of today's example. So that's a good market. And then we have the bulk of the remaining of those first 1,000 seats off with Virtuoso.

And I would imagine those tickets will get momentum through their large network of travel advisors as we start flying. So that's where I think we'll see the push there. And then we've – as I said, we've carried a few house seats.

So we've effectively with that allocation to Virtuoso and research, had closed our efforts on sales at that $450,000 price point. We think that was a right piece to have for this moment. We are very successful with that. And then as we're back to space and flying again, we'll reopen for the next tranche of sales..

Very helpful. Best regards..

Thanks, Oliver..

The next question today comes from the line of Matt Akers from Wells Fargo. Please go ahead. Your line is now open..

Hi. This is Eric Yan on for Matt. Thanks so much for the question. It looks like you guys used less cash than expected for the quarter.

Is the higher Q4 number a good run rate to assume for next year? Maybe it's close to the [indiscernible]?.

Yes. Thanks for the question. This is Doug. Yes. So we spent a little bit less in the third quarter than we projected, just like $3 million below the range we gave. But we are seeing that ramp in the fleet development. We've got both of the work going on the finishing of the enhancement period plus the ramp with Aurora on the next generation mothership.

Those are the things that are layering in there. So we've guided for the fourth quarter to be $120 million to $130 million spending level. And that's because we're still finishing up the flight test period here, yes, following the enhancement period.

And then we've got the ramp of Aurora continuing and then the introduction of the new suppliers for the Delta Class. So you're seeing that trend. I've talked about before how these layers will combine. Next year what you see is some ramp down on the initial fleet because we will have finished the enhancement period.

We've moved into flight tests and we're finishing it up, going into commercial service, and then the ramp up of the future fleet. So the net effect of that is some growth from where we are guiding for the fourth quarter. But we do see ourselves getting closer to our peak level of spend. So as these layers are coming in, that's kind of how it stacks up.

So getting closer to that peak..

All right. Thanks. If I can do one more, just like to know how many passengers are still in the backlog now? Is it still roughly 800-ish? Not sure if anyone has dropped out..

Yes. Eric, we’re tracking. We have 800 future astronauts that it's signed up before we took the, I'll call it remaining seats and allocated 100 off for research, and then the bulk of the rest to Virtuoso. So we're kind of holding at that collective number of kind of 1,000 at the $450,000 price point that we've put out.

And as we get back and start flying again, we'll reopen up from there..

Okay. Thanks so much..

Thanks, Eric..

Thank you. The next question today comes from the line of Kristine Liwag from Morgan Stanley. Please go ahead. Your line is now open..

Hey. Good afternoon, everyone..

Nice to hear from you, Kristine.

How are you?.

Great. So maybe following up on your announcement with – that Bell will provide Delta's feathering system. You've got flight control surfaces and Qarbon Aerospace with fuselage and wing. I mean, these are pretty important partnerships.

Can you provide more color on the contract arrangements with these two suppliers? Will these be costs plus contracts for you? Fixed price? Are they risk sharing partners? What sort of investment and capital cost do you estimate this will be in 2023? And also, if you have a multi-year outlook that would be better than just 2023?.

Sure. Doug, I'll take a little bit of that and you can kind of pick up there. So probably as you would expect the contracts are going to be a combination of time and materials when we are in periods where definition is still varying which are these early phases right now, right, as we're kind of clarifying the design specificity with each other.

And then we will move them into firm fixed price contracts, as we lock down the design. And so the partners know what their job is with more specific detail in them. So that's how those will work.

And just I think we'll move into the fixed price version of that when design is appropriately locked down and that allows for time and materials in a place where we can work easily with each other to find the most efficient way forward and people aren't trying to hedge to kind of cover bets because they don't know what's coming.

So that's why we set up, first T&M and then go into firm fixed price.

Doug, do you want to talk on either risk or other?.

Sure. So regarding the risk sharing, it's similar to what we did with Aurora, and yes, there's a risk sharing element to it where the suppliers are incentivized to go faster. And if things take longer or there's performance challenges along the way, there's some degradation in the price. So we're in it together, right, as a partnership.

In terms of the cost, we aren't disclosing the cost – the run rates for 2023 or the cost per vehicle at this time because for the reasons Michael mentioned, we're entering the design phase with them and we lock down the design and from that, that specifies the remainder of the – like the recurring costs that we'll see with the vehicles.

So because that's an ongoing process with the vendors, it's really not in our best interest to put that out there publicly, what that is, because that's an ongoing interaction between all of us together. So for that reason, we don't disclose it. But hopefully that gives you enough color..

Yes. Thank you very much. That's really helpful color. And it's great that you were able to line up these experienced manufacturers to help you build these very sophisticated flying machines, right, or space machines.

So maybe in terms of the follow-up on cash, I mean, for 3Q 2022, you've burned about $107 million, for 4Q you're looking at the burn rate of $120 million to $130 million.

Is that the run rate we should expect leading up to the commercial service next year or have you done the bulk of the work and does that taper off leading into commercial service?.

So we only give one core guidance on that, Kristine, so we've got a midpoint of 125 for Q4.

But what you'll see directionally, as we go forward is, probably still some growth because of the fact that we're still finishing up the flight tests phase, getting ready for commercial service while we're also ramping up the fleet expansion efforts, the fleet development with the outside vendors.

So you've got kind of some flaring on there, which directionally should drive costs a little higher.

But as we get to commercial service, then you start to see some ramp down on the current fleet because we've finished that flight testing process and we're now in a sustainment mode and maintenance mode and see that starts to come down, but at the same time, you've got the vendors ramping up.

So that's how the different components should work together..

Great. Thank you very much..

Thanks, Kristine. Good to hear from you. And yes, we are really excited to have both of these organizations on board with us. They bring facilities, they bring expertise, and they bring ideas on how to help us move quickly and cost effectively. And the leadership and their teams are all also really excited to be part of it. It's exciting work..

Thank you. The next question today comes from the line of Greg Konrad from Jefferies. Please go ahead. Your line is now open..

Good evening..

Hey, Greg..

Hi, Greg. Good evening..

Hey.

Just to follow-up on Bell and Qarbon, I mean, those are obviously the major structural components, but when we just think about the out percentage, are you through and kind of locking down the supply chain? And I know you're not disclosing costs, but through these discussions, any indication of how the price of the vehicles tracking with maybe internal plans?.

Well, let's see. I think as far as the supply chain goes, while there will be obviously Bell and Qarbon on their own will have further supply chains that they pull in on their side. From our standpoint, these are by far the large bulk for the Delta ship as Aurora is the large bulk for the motherships.

Like in Aurora's case, we'll be bringing in engines from Pratt and some smaller elements.

For the spaceships, the Delta Class, outside of what Bell and Qarbon will be doing, examples of what we'll be doing in addition to the final assembly or what's involved with final assembly, we'll probably do the interiors, we'll bring the gear and install the gear, things like that.

So the waiting of this is heavily to Bell and Qarbon, and there will not be – we're not expecting any other major supplier or relationship that we need for the Delta spaceships. So that's great news..

Also regarding costs relative to….

Regarding costs, I'd say relative to our expectations, first I'd say as Doug mentioned, we start these relationships in a time and materials basis so that we can kind of work through the design specificity with each other together, and then we move to firm fixed price. So we have to get through that process to really kind of lock that down.

I'd say through the RFP process that we did, and as part of our selection criteria with both Bell and Qarbon, the pricing that they were looking for, which is raw pricing at an RFP level, is consistent in the area that we had projected internally. So I think that was your question. So I'd say yes, we're still tracking in a consistent fashion there..

And Greg, I can add that we had our own parametric studies that we had done, and so we had our projections what these things would be and yes, it's consistent – materially consistent with what we thought it would be..

And then I might have missed it. I think you maybe mentioned it briefly.

How are you thinking about the schedule for Imagine as of today, I mean, it seems like the first part of the schedule hasn't slipped, but how are you kind of thinking about that coming into the flight plan?.

Yes. So we put the emphasis on, number one, I'd say, ensuring that Eve and Unity, not only are flying, but have the engineering resources to fly on a consistent basis, as we said, and just make sure we have the ability to have the staff ready if there's anything we need to settle out in the early flights.

At the same time, the economic momentum of the company is around the Delta ships, and we are the kind of first domino to fall internally of needing to get the engineering done up front to help get definitions so that Bell and Qarbon can get going. So those two things are really priority.

What's consistent amongst both those two is they require not just engineers, they require the engineers that have the most history with our existing ships and that is a limited resource. We have a large engineering pool, but we need to make sure we focus those deeply experienced engineers on those two things.

Now it happens, a lot of those engineers are also the ones that will be in some of the flight testing phase for Imagine.

So we're doing some resource prioritization there, and as we start to learn how quickly we'll be able to pull folks back from Eve and Unity and how quickly we'll move through some of these early design phases on Delta that will influence how many people we get back on to Imagine.

So what we said in the prepared remarks was we're reassessing Imagine schedule. I can say that, we will not be in 2023 for commercial flight with Imagine. So I think, we've kind of passed that mark, but kind of where it falls, will depend on how quickly we're able to pull people back from Eve and Unity and from Delta..

Thank you..

Thanks, Greg..

Thank you. The next question today comes from the line of Myles Walton from Wolfe Research. Please go ahead. Your line is now open..

Thanks. Good evening..

Hi, Myles..

Hey, I was wondering on the schedule for return to commercial service, Eve getting back in the air in early January, and then I heard a Unity glide flight and then a Unity spaceflight, and then the Italian.

Was the plan always to just have the one powered flight and has the schedule compressed at all? I realize that the starter commercial services remain steady, but has the schedule compressed at all?.

Schedule has not compressed. But what you are seeing is the flight that following Unity 2022 that we did with kind of Richard and our internal team, we had planned two flights following that. One was going to be an internal flight, one was going to be the Italian Air Force research flight that we'd announced.

And at that time, we were going to then go into this kind of modification enhancement period. What we've done is, as you know, we pulled the modification enhancement period, went into that first, so we're bringing back those same two flights that we planned before.

What's additional is we're adding a glide flight of Unity, and that's primarily a verification flight because Unity had some upgrades to it, and Eve had some upgrades.

So we want the whole spaceflight system to be able to go through for those who aren't familiar on the call, a Glide Flight is where we bring the spaceship Unity up to altitude and release it. But instead of powering it's a space with our propulsion system, the pilots take it through a series of maneuvers as they glide back to Spaceport America.

That is the additional flight that we've put in the system, the other two are the same as we were before..

Okay. Good. And I think in the Q, it talks about in this relationship, Virgin Galactic would continue to own the airworthiness certificate and award it for the manufactured product, which makes sense. But can you just remind us the airworthiness certificate that goes along with the Delta Class.

How different is that versus what you currently carry for Unity?.

Each vehicle will have kind of a – in our what it's a spaceship that is functions as an air vehicle in the lower parts of the atmosphere. Each of these will have a reasonable launch vehicle license. So each vehicle has its own license. But the FAA license to carry commercial passengers to space as an operating license.

And while we will clearly kind of show the FAA, the work we've done on Delta, our dialogues with them so far, we feel each side feels these will all be part of that same license. So we do not expect having to create a new commercial license for the Delta ship.

They'll fall under the same operations license, but each vehicle will need its own reusable launch certification..

Okay. Got it. And then the last one was on – I know you said that the cash flow from R&D running hot with enhancement costs as well as future fleet.

Is there any way maybe, Doug, you could sort of break down how much is going to the future fleet today versus enhancement?.

Today, I'll just say it's more on enhancement, but that's rapidly shifting to future fleet. At Q3, it was more an enhancement, now shifting over..

Okay..

Thanks, Myles..

Thank you. The next question today comes from the line of Sam Struhsaker from Truist Securities. Please go ahead. Your line is now open..

Hey. Good evening, guys. I'm on for Mike Ciarmoli this evening. I was just curious, you guys mentioned kind of putting some engineering force behind your various initiatives.

And I guess if you guys just elaborate, have you looked into adding any additional labor? Or are you guys having any kinds of shortages there or anything like that? And then kind of on the same note, I think you said you're managing supply chain all right, but have you guys had any issues with pricing pressures? And if you could just add any detail there..

Let me take that. In the supply chain, we have not seen, I'll call it, pricing pressures. Sometimes a miscellaneous part or something that's in demand, we may expedite from a shipping or expedite to kind of get ourselves to the front of the line. That's, I think, more like day in and day out of the supply chain world.

But nothing, I'd call it structurally that we've seen at this moment. I'm looking at Doug, in case I'm missing something there..

No. The other factor is that the bulk of our costs are labor, not materials. So labor is more fixed in terms of pricing. So even with the contractors and so on. So yes, it really doesn't show up as a material thing for us any supply chain cost changes..

And then I'd say on the engineering side, we have a great number of incredible engineers that are very smart. The number of those engineers that have historical experience with our ships is more limited because that came over the time kind of earlier in the company's time when our engineering core was smaller.

And it's those more deeply experienced engineers that we have kind of two – three demands on their time. One of them is, as we put Eve and Unity into service, those are the people who are very familiar to the flight test program. And we just want them kind of on the job on site, ready to help us turn those ships.

So that's one where we need that specific group. And then the design phase upfront as you would expect, you want to bring that deep expertise in. Once we get through some of the early design pieces, you get more larger groups of incredibly smart engineers, but who may not have as much historical expertise.

It's that core that also is important for some of the early testing of Imagine. And so we want to make sure that we put focus on the first of those – two of those, Eve and Unity and Delta. And that's what's given us a little bit of schedule flexibility in what we're trying to think about with Imagine. So as I said, that will push us out to 2023.

But it's for that specific cadre of engineers..

Great. And then if I could just sneak in one more. You guys, I think, mentioned that the production on the Delta Class would begin in 2023.

Is there any way you could give any more detail on kind of when that would be more back half or not?.

I don't think we're kind of at the point where we're putting specifics out on that.

However, we will follow a fairly standard process that we'll go through from a design upfront as design is completing, and we get certain parts of that ahead we are able to start tooling exercises, right? So you design the tools and then you can order the material for the tools and you can then build the tools that tooling exercise can happen as design is completing on some of the more detailed efforts.

And then you go into actually manufacturing process there. So if you think about that sequence, you can probably make some assessments on that. But that's probably the right level of discussion at this stage..

Great. Thanks guys..

Thanks, Sam..

Thank you. [Operator Instructions] The next question today comes from the line of Anthony Valentini from Goldman Sachs. Please go ahead. Your line is now open..

Hey guys. This is Anthony on for Noah.

How are you?.

Hi, Anthony. Welcome. We're well..

Thanks for taking my question. I just want to go back to the reservation for a minute.

It sounds like the reservations are closed at this point in time, but is the sales process also like completely closed at a full stop halt? Or do you guys thought people out there that are drumming up business for future customers?.

Yes. So just kind of both for you, but also for anybody is listening. So we have a backlog of tickets that have been already sold that's greater than three years. And so those are obviously the people that we want to be flying to space along the way.

And so as mentioned earlier, that's where we are building to the 800 that we have and then the 100 research flights. And then kind of to your question here, we've got a number of those remaining 1,000 that we've allocated with a luxury and adventure travel partner, Virtuoso.

Those folks, I think, will be putting their energy towards this as we go back to flight. That will be from my overall that would probably be the most efficient way for them to go at that. But these are – again, we've got kind of pushing towards four years of backlog along the way.

So from that standpoint, we've had a call it, closed the $450,000 price point Virtuoso tickets that they'll be selling will be at that $450,000 piece.

So at this point then if people are coming in, we're obviously taking those names, we will add them to the interest list to come online as well and make sure that we're ready to follow-up when we do reopen things up. And we also have kept some house seats. So when we get referrals from our existing future astronaut core.

We have the ability to bring some of those folks in as well. Sometimes that's with, "Hey, I'd like to bring a family member" or somebody else's things start to get real for them. So we want to keep a few tickets available for that. But then as we get back to flight and we are flying again, then we'll reopen up sales.

And so our effort for our sales team right now is primarily structured on what are the kind of sales infrastructure and mechanisms that we will use as we need to scale sales up at higher levels as we get closer to the Delta’s coming online. So this is a good time period for us to get that work done..

Okay. Yes. That's really helpful and makes sense. I'm curious in terms of just like the trend color and information on people that are coming to you with interest.

Have you guys seen that slowing as there's been recessionary fears, stock market decline, business profits down, things like that?.

What I – we have even talked just to our existing core, right? We're generally maintaining the existing base. Everybody is impacted by world events, companies and individuals. For the most part, the people who are coming at these kind of early phases have the economic capacity to do so.

But undoubtedly, everybody pays attention when markets are going up and down and things like that. So with kind of near four-year backlog, it's not really the concern for us at the moment. We're more focused on what's the infrastructure going to be as we begin our flights back to space and taking that momentum to really ramp the sales.

And we've got a little bit of time for that. So it hasn't been – the economy and the world events have not, I'd say, be a weighting factor on us, but we will look to kind of get back – focused on sales as we get back to flight..

Okay. Great. Last one for you here. On supply chain, you guys touched on it, but I'm curious if there's like any specific parts you guys are seeing that require longer lead times or anything like that. A lot of companies that we're hearing that are in A&D generally are really harping on the fact that the supply chain has taken a major hit here.

So I'm just curious to get your thoughts..

A lot of what we've got going on right now is Qarbon, and we have that. We had some issues that we were concerned about with some of the thermal protection system materials we use, and that took some scrambling to pull shipments in from Australia because that had been sole sourced out of Ukraine as an example.

I think things that are very particular types of metals, metallics that are used in aerospace can be tricky. So we had some work to do on a certain type of aluminum that we needed that was there that took us a while to get to. And so those were some of the earlier things we faced.

But at this point, we've kind of worked through those and the things that we're working on in the near-term have not been problematic for us at that point.

Doug, anything you've seen?.

Nothing that I would mention beyond that. No..

Okay..

Thank you..

Thanks, Anthony..

Thank you. There are no further questions registered. So this concludes today’s question-and-answer session and today’s conference call. Thank you all for your participation..