Good afternoon. My name is Francis, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic’s Fourth Quarter and Full Year 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] Thank you. 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 fourth quarter and full year 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. Michael go ahead..

Good afternoon, everyone. I'm please to host today's Q4 earnings call, and as we get started, I'd like to acknowledge how great it is to have our mothership the MSC back home in Spaceport America and on the path to bring our first spaceship VSS Unity back to space.

Eve returned to the skies two weeks ago, and the ship flew back to New Mexico yesterday. We are making good progress on validating the enhancements made throughout 2022, and we remain on track for commercial service in Q2 of this year. Our agenda on Slide 3 starts with a brief recap of 2022.

Before moving into our commercial readiness efforts, we will discuss progress on our future fleet development. Now then turn the call over to Doug to provide a financial review before opening the call to take questions.

Turning to Slide 4, in 2022, we made important investments in the infrastructure and the partnerships that will lead us into the future. First, we invested in our near-term operations by improving the durability and capability of our current vehicles to support higher frequency flight rates as we enter commercial service.

The largest effort in this area was enhancing our mothership VMS Eve. We replaced and upgraded the launch pylon which is the structure at the center of the cantilevered wing to which the spaceship attaches.

The pylon not only gives the spaceship a secure ride to launch altitude, but it also regulates the cabin temperature, air quality, power and data connections during maiden flight.

In addition to the work on the launch pylon, we fabricated and installed new horizontal stabilizers, and we made numerous enhancements to our avionics and mechanical systems. All this comprehensive work on Eve took longer than we originally planned.

We have now completed our enhancements, and I am incredibly appreciative of our team for the long hours that they put in to return these shifts to play. The work we completed in 2022 will serve us well for many years ahead. Second, we invested in our supply chain and spaceship fabrication infrastructure to enable our business to scale profitably.

2022 bring on experienced design and manufacturing partners to fabricate our major subassemblies, and we also broke ground on our spaceship final assembly factory in Phoenix. Also in 2022, we laid the foundation for an astronaut experience that will be unrivaled.

We completed the conceptual design for our first of its kind astronaut campus, and we acquired an incredible site for the campus close to Spaceport America that will be reserved exclusively for Virgin Galactic future astronauts and their guests as they prepare for their journey to space.

On Slide 5, as we enter 2023, our near term focus is on commercial spaceflight operations. This includes three areas of operation first, safely flying our current ships, VMS Eve and VSS Unity to space on a recurring basis. This is the role of our spaceflight missions and safety team.

Second, preparing, inspecting and returning our ships in ready for flight condition on regular intervals. This is the role of our spaceflight technical operations team. And third, hosting, training, preparing and celebrating our future astronauts, which is the role of our customer operations team.

All three of these groups are actively preparing to bring our customers to space, and we are rehearsing and making preparations for the launch of commercial service. In recent weeks, we conducted flights with Eve from Mojave, and yesterday, Eve reunited with Unity at Spaceport America.

We are very pleased with the way the mothership has performed in each of these flights, which ensure the modifications that we have made performance expected under real flight conditions.

Our next steps in the validation process will include a series of flights, including the glide flight, where VMS Eve, carries VSS Unity to high altitude and releases the spaceship to perform an unpowered glide down the Spaceport America.

Following successful completion of those steps, we'll look to conclude the validation process with a powered flight to space that will include a Virgin Galactic crew, who will be assessing the implied experience and verifying components of our ground based training program.

Following successful completion and verification of the analysis for those missions and consistent with our recent outlook regarding the flight schedule, we expect to commence commercial service in Q2, beginning with a research focus flight with the Italian Air Force, followed by regular private astronaut and research missions thereafter.

In between these validation flights, our space line teams are preparing for safe and repeatable flying by executing mission control simulations, training exercises, and other dress rehearsal activities with full integration of government agencies and partners at Spaceport America to ensure a seamless flight and astronaut experience.

The customer operations team is preparing Spaceport America for the increased flight cadence and delivery of an unforgettable experience for our customers. And they are working through rehearsals and simulations to ensure the astronaut experience before during and after the flight is truly one of a kind.

Turning to Slide 6, I like to share some insights into our future fleet development, specifically the Delta Class spaceships and our next generation motherships. As these production vehicles will be the key enablers of revenue growth and profitability for the Company over the long-term.

At a high-level, this is a multiyear fleet development program that is running concurrently with our near-term commercial operations which utilize Eve and Unity.

Our future fleet development roadmap calls for the first of our Delta Class spaceships to come off the line at our Phoenix assembly facility in time for entering commercial service in 2026 whereas 2022 was about establishing our design and manufacturing strategy, selecting our primary suppliers and building up our internal teams.

2023 is now focused on completing designs for both the next generation motherships and delta spaceships, building the required tooling and beginning the parts fabrication for the ships. Moving into 2024 we anticipate parts fabrication will continue.

And the assembly phase for both the next generation motor ships and Delta Class spaceships will also begin utilizing the sub assemblies from our suppliers. Ground testing and flight testing is expected to commence in 2025 in preparation for commercial service in 2026.

In conjunction with that roadmap, we are making progress on our final assembly facility in Phoenix, Arizona. We are currently working through the interior design, production layout and fiddle phases of the project to support initial assembly, with parts expected to arrive in 2024.

With our roadmap in place, the teams are working hard to achieve the various milestones that will lead to the scale needed to drive our business in the future. I'll now turn the call over to Doug for an update on our financials..

Thanks, Michael. Good afternoon, everyone. Turning to the Slide 7 and our financial results for the fourth quarter and full year, starting with the fourth quarter, we generated revenue of $869,000, driven by future astronaut membership and events these. Operating expenses are $154 million, compared to $81 million in the prior year period.

The increase is primarily attributable to a $62 million increase in R&D costs tied to our fleet enhancement activity and the development work for our future fleet. We reported a GAAP net loss of $151 million compared to $81 million in the prior year period driven by higher R&D costs.

Adjusted EBITDA was negative $133 million in the fourth quarter, compared to negative $65 million in the prior year period. For fiscal year 2022, we generated revenue of $2.3 million, primarily driven by future astronaut membership and event fees and revenue recognized for research activities.

Operating expenses were $502 million, compared to $323 million in the prior year. The increase is primarily attributable to a $170 million increase in R&D costs tied to our fleet enhancement activity. The development work for our future fleet and an $8 million increase in SG&A, primarily due to higher employee costs to support our growth.

We reported a GAAP net loss of $500 million compared to $353 million in the prior year, driven primarily by higher R&D costs. Adjusted EBITDA for the year was negative $431 million, compared to negative $245 million in the prior year. Moving to Slide 8.

Free cash flow was negative $135 million in the fourth quarter, compared to negative $67 million in the same period last year. For the year, free cash flow was negative $397 million compared to negative $235 million in the prior year. Our balance sheet remains strong, but $980 million in cash, cash equivalents and marketable securities.

We intend to maintain that capital strength while prudently investing in the business. In 2022, we generated $425 million in gross proceeds to the issuance of convertible notes, and $103 million in gross proceeds issuance of 16.3 million shares as part of an aftermarket, our ATM equity offering program.

Specific to the fourth quarter, we raised $3.8 million in gross proceeds utilizing the ATM. At the end of fiscal 2022, our issued and outstanding share count was approximately 275 million shares, compared to 258 million shares at the end of fiscal 2021.

For the first quarter of 2023, we forecast free cash flow to be in the range of negative $135 million to negative $145 million. As we begin commercial service, we anticipate each flight will recognize the revenue equivalent of approximately $600,000.

Keep in mind that the first six flights are so we'll include one of our astronaut trainers, who will be making in person assessments of the cabin experience and recommending any adjustments to our ground based training programs as necessary.

This will result in one last revenue see during these first flights, after which Unity will carry four passengers or research seat equivalents. As you would expect working through the flight manifest and the reservations that carry higher ticket prices will change the revenue profile of later flights.

With that, I'll hand call back to Michael for some closing comments..

Thanks, Doug. In conclusion, 2022 was the year for investing in our future to support our commercial space line goals.

We focused on preparing our current fleet for commercial service, mobilizing our manufacturing partnerships to build our future fleet, supporting an astronaut experience that is unmatched anywhere in the world, including setting the stage for a unique astronaut training campus.

And we strengthened the balance sheet by raising capital to support the necessary investments in the business that will drive our long-term growth. We enter 2023 focused on commercial spaceflight operations. Near-term, we plan to deliver regular repeated flights with our current fleet and demonstrate experiential power of our product.

Concurrently, we are diligently progressing the development of our future fleet to scale our business over the medium long-term. With that, we'll turn to questions operator are ready for the Q&A portion of the call..

[Operator Instructions] Our first question comes from the line of Greg Konrad with Jefferies. Please go ahead, Greg..

Maybe just to start, you've burned 135 million free tasks on Q4. The guidance for Q1 is that a similar level and I appreciate it the granularity of kind of the Delta plan.

How are you thinking about peak free cash flow usage is Q1 and Q4 a good run rate? Or is there some accelerators in there and just 2023 in general is that kind of the peak?.

Thanks Greg. This is Doug. So, yes, we guided $135 million to $145 million of negative free cash flow in Q1. And so, you can see that's just slightly up from Q4. What we're seeing right now is the ramp down of the effort on the enhancement period.

So there are some reduced spending in that area, while at the same time we're picking up the spending on the fleet development activities. So this is building out the Delta Class and the next generation mothership so the design work in particular.

So what you'll see now is that starts to ramp and going forward, there will be some increases, because we have the efforts on that fleet development, as well as some infrastructure to go along with that. But the thing is, we do have some flexibility in how we pace ourselves in this ramp.

So while it increases, we can either continue to accelerate or slow down as we see fit, we do see very attractive returns on all of these investments. So we want to lean into these opportunities as much as we can, but we do have the opportunity to slow the pace if we need to preserve cash or something like that.

But we do you see attractive returns want to invest in those things, because we think it'll generate great economic benefits for the shareholders. With all the moving parts between the fleet and the infrastructure, it's a little hard to put a number on the exact peak spend.

But I wanted to give you kind of a directional guidance there on what to expect..

I appreciate that. And in the prepared remarks, you mentioned regular intervals.

I guess how far out in advance do you plan missions? And when you think about that first commercial flight in Q2, can you reach kind of that one slight a month right away? Or is there kind of a learning curve or ramp to generating that kind of regular interval?.

Hey, Greg, it's Michael. I think I would be kind to our baseline technical operations teams to let them get a couple of flights under their belt just to kind of work out the kinks there. But in speaking with that group, is very capable. We see a path to be on a monthly cadence and reasonable short order.

So give yourselves two or three to kind of work that out, but there's nothing kind of specifically in our way of being at a monthly cadence, I think it's just kind of shaking out the operation, and learning how to turn the ship on a consistent basis.

So we have our plans in place, we're rehearsing them now, actually, now that we got those ships together. So a few flights to kind of check it out, and we should be on that target..

And then one last one for me.

I mean, I don't think you mentioned imagine that all in the script, any update there, or how you're kind of thinking about that spaceship?.

Yes, same as where we were last call.

So I've specifically directed all of our team members on two primary groups of work, right? First is leveraging Eve mothership to just get back to Spaceport America with unity, and let's just start hitting regular flights to space, do so safely do so exquisitely and create incredible experiences for people, I think that's going to be very powerful and showcasing to the world the power of this product.

So that's priority one. Priority two is the work that's going to create the value drivers for the Company. And that's getting a production vehicle that has relatively low variable costs so that we can bring money to the bottom line. That's the Delta Class, spaceship and next generation mothership.

And I've moved everybody in the organization in support teams onto those priorities. So that leaves imagine and I'll call it an idle capacity right now. And it's okay there.

We're going to make sure we have both of those aforementioned scopes of work dialed in and well in hand, and when that happens, we'll come pick up imagine and see where we want to go. But for now, we're leaving it at an idle capacity..

Our next question comes from Oliver Chen with Cowen. Please go ahead, Oliver..

You have really great consumer marketing talent, would love thoughts on pre and post commercial flight, customer engagement strategies and how you're contemplating that? Also, as we look forward longer term as 400 flights per Spaceport have the right permit parameters still as you scale.

And then as you think, further in advance, how are you thinking about international operations as well?.

Thanks Oliver.

So, I'm not sure, on the customer topic, are you more interested in what our astronaut experience will be as we start off or more long-term?.

Customer lifetime value and optimizing the membership once the customer experienced it, but both topics are great..

As you will know, we have an incredible group of what we call future astronauts will be bringing more and more of those people in they're very interesting people, and very passionate people about what we do. In the notion of customer lifetime value, we're starting the journey with these folks, some many, many years.

But our plan for anyone we bring in will be a two to three year journey, very specifically building to the moment of the space flight so that we can anchor that memory in.

And in addition to just paying off the effort and delivering on the product, I think that experience is going to be so compelling that these folks become are by far strongest advocates, not only in recommending to other people to come, but I think will be wanting to come back and fly with us again in other places.

I'll jump to international for a minute and then come back to the foreign flights. The notion of flying, everybody who's gone has kind of come up and said, I would like to go again, to a person that's gone with us. So I think that is going to continue I think people want to bring friends and family along the way.

And that can happen in the same location. I think it will also be very powerful to see other parts of the earth from space. You've often heard us talk about when it'd be amazing to look down over the boot of Italy or over the Sea of Japan or other places.

So that international Spaceport concept is very important and strong for us, which is why we're building a factory in Phoenix that can continue to produce spaceships, not only for Spaceport America, but it can continue to populate additional Spaceport.

So we've always said that's, you know, probably a four to five year exercise to be into a new Spaceport, my guess probably closer to five. And we thought we would be going back and reaching out to interested countries in that regard. Around the time we're coming back to flight. So I think that that existing strategy still holds today.

The 400 flights per year per Spaceport has a very important planning parameter for us. We're building our capacity across all the different parts of our business around that objective.

We could do more or we could do less right, we're generally saying let's go out on daily flights, and realizing that weather won't always cooperate with us as it didn't just last week. It took us a few days to get out of Mojave with our mothership due to the weather in California.

We also want the ability to fly more than once a day at a particular spaceport. So once we have that capacity in mind, conceivably we could do more than 400 flights at a specific Spaceport, but I think we'll probably first look to leverage multiple locations in other parts of the world. But we do have that flexibility to go higher if we so chose..

Okay. Last question on the Delta Class production, which is very important for scaling. What are the milestones or critical points we should think about and the R&D spend growth over the next few years? Are there things we should be aware of? Thank you best regards..

Thanks Oliver. So just a little bit more color on the milestones around the Delta classes example. So this year, we'll be completing designs after the ship, and actually building the tooling for the parts and we will be starting parts fabrication.

Now, the parts we'll be doing in 2023, are the kind of big, longer lead outer mold line, which is already consistent parts. So that would be in the fuselage, the skins for the spaceship itself, the foundation, molded parts of the wing, the parts of our feather assembly.

So those will actually start this year, later in the year, because we're still putting the designs and locking those down. But those will actually start after we build the tooling, and then get that parts back going. In 2024, you'll see parts fabrication continue but we'll then start the assembly of the chips in 2024.

And that then wraps up so that when we get into 2025, we're doing first grounded in flight testing on the vehicle. So those are the details that are going through there. We've got our supply chain partners signed on and already working with us in this regard.

But you'll want to, as we keep coming back quarter after quarter, all right, how those designs progressing, right? When are you starting to tooling on that, it's part fabrication still looking kind of at the tail end of '23.

Those will be milestones that will be checkpoints for making sure that we're continuing on the path to commercial service in '26..

Thank you. Just lastly, on that R&D question.

Anything we should know for the modeling? And also, if it goes to CapEx, is that correct from an operating expense over time?.

Hi, Oliver, this is Doug. Yes, so we are in the design phase now. So you'll see non recurring engineering costs as we developed the first article, and then we'll be investing in the tooling and the parts applications, you'll see the spending ramp up there.

It does shift over to CapEx once we reach a certain stage of the finalization of the design, and then we'll do the accounting adjustment to switch over to CapEx, we'll see a change there. In terms of the magnitude of it, we've got two, two main suppliers helping us with the Delta Class.

And the way we've set up these contracts is it's a set of task orders that are under development. And we're doing what people would refer to as a rapid aircraft development program where we do a lot of steps in parallel. So we're doing things concurrently. So we develop each of these cost estimates for the subsequent task orders as we go.

And we have the model of course, but it wouldn't be in our best interest to put those numbers out there right now because they're still under negotiation with our major suppliers. So hopefully you can understand that..

The next question comes from Emily Dutchman with Wolfe Research. Please go ahead..

Just a quick question. So first, on headcount.

Major headcount arrive at the end of the year and secondly, with that, how are you all thinking about the pace of hiring in the next year?.

Headcount we ended last year talking to Doug here, I didn't have that one of my fingers. I thought 1,100, 1,200 or so on a headcount bases for the Company. And we'll do a quick double check on that one. But I think that's about right. And last year was definitely a growth year for us and adding headcount as we ramped up our team.

We have a few places left to continue to build. So we're still in somewhat of a growth mode. But we've hired the majority of the people and the roles that we need to carry us both in commercial operations, and on the development path kind of our programs and engineering in developing these new ships.

Now, our partners, right, there'll be building up their teams, or reallocating folks from some of the larger companies will be reallocating, as our work starts to flow to them and that will happen.

But what we're also able to do is now as we're finished the work on our enhancement program, with Eve, in particular we're able to redeploy the talent that had been occupied on those efforts into our operating areas so both into our kind of spaceflight and technical operations in New Mexico, but also into helping, as we get into final assembly in Phoenix.

So I'd say modest growth in a few targeted areas, mostly engineering. When we get into the 2024 period in Phoenix, and we really start our assembly processes there, that particular site will ramp up further as we go, but for '23 modest growth..

One other thing I can add, there, as with the headcount, we did have a lot of contractors here during the enhancement period. So as that has completed, we've ramped down that headcount. And so now you're seeing us add more permanent headcount for the next phase, it's not a net add of heads with the numbers we gave you.

But those are the full time equivalents that will be here while we ramp down the contractors..

Thank you. And then one more, if I may fund the customer pipeline, the future astronaut pipeline.

Sorry, if I may have missed this in the commentary, but are you able to size that pipeline at the moment? And do you all get as granular as the geographical spread of the customer pipeline?.

Well, a couple ways on that. So, the TAM, if you will on, on this industry is obviously one that's been built, because the industry is being built. A couple of your counterparts have done some good research I think into associate that market and kind of leave those works to stand on their own. But we're obviously building this up as we go.

You mentioned international on our customers, we have astronauts from over 62 different countries or I think 62, maybe 63 different countries across the world. So, we obviously track our existing base there. And now we know where we have kind of greater and lesser momentum. So that brings us to the end as we consider international spaceports.

Europe is a logical place for us. Middle East is a logical place for us. Asia is a logical place for us. I feel pretty good about Spaceport America for North America right now and you know, right there kind of gives you the where we think the big markets are aggregated.

And obviously, the groups that we're bringing in do travel and are willing to travel to different parts of the world. So, I do think we can bring a global audience to any of our individual sites that will eventually have, but I think it's helpful to be located in proximity to large markets as well..

The next question comes from Michael Leshock with KeyBanc Capital Markets. Please go ahead..

So, first question, I appreciate the milestones you laid out for the Delta Class.

I wanted to ask on which milestone or which year that you laid out, do you expect to be the most capital intensive? So whatever that peak burn rate is, and I know there are a lot of moving parts, but I'm just trying to get an idea for the duration of that rate, or what steps would require the larger cash outlays?.

Sure, '24, you'll see the continuation of parts fabrication, the assembly is going to be going on not only at our Phoenix plant for final assembly, but within our supply chain partners for their major subassembly. So that's where you're kind of getting the peak non-recurring engineering and the peak assembly of initial ships.

And then as we move those into ground and flight testing, that would start to come down, we would expect.

As Doug mentioned, we have some good capability, I would say, to accelerate or kind of keep the accelerator down or hedge back up on our pace as we feel we need to, we feel really good about the return on investment of the money that we're putting in.

And so, we would like to go ahead and get this fleet built up and start delivering on the experience. But we have flexibility in that if we need to. But specifically to your question, I think 2024 is likely to be our peak..

In how far in advance of Delta's first revenue flight do you plan to begin that testing of the Delta ships? You said 2025, but is that a few months or is that the better part of the year? And how does that compare to the length of testing for Legacy ships? Is that the same amount of testing you needed for Unity for example or can you check a lot of those boxes off for Delta, just given the testing that you've already completed on the Legacy fleet?.

Yes, we don't expect to see some of the Unity was a very expensive flight test because it was breaking new ground almost on every flight. Delta's flight tests are going to be flying similar flight profiles with an outer mold line that's fundamentally the same very similar to our last ship.

And but with different material properties and some different handling characteristics inside. So the scope of the flight testing is less than what you would see in unity, but it is a new vehicle. I know I put a parameter probably this early on the team have exactly how many months that that will be. It's measured in months.

And I think the focus of that is just as we always do a nice sequential test, learn, expand the envelope and analyze go forward with that. But it is off a much deeper base of knowledge.

We'll also have many flights under our belt by that time that have also built up our knowledge, and we're able to do a lot more modeling, right with our arrow dynamic models and our Flight Sciences group that also help. I'd say make that as an efficient process we can.

The other thing we can do by virtue of having built tooling and getting a non-recurring engineering done with the tooling is we can have more than one ship embedded into the flight test program.

So, that's something that we're evaluating now is being able to kind of work on different points with multiple ships in the process there because it doesn't take us relatively not long to do a final assembly on the ship. So hopefully that gives you a little bit of color into that process..

And lastly, for me, the issuance of shares through your aftermarket program was minimal in the quarter relative to the 100 million 3Q.

How are you viewing the cadence of any further issuance as we move through 2023 given the 200 million or so remaining?.

Well, we have the 200 million, as it says there for us to utilize. And it's always based on market conditions that we're always watching and trying to optimize. And it has to do with things like share price and volume and that sort of thing. So, we'll use it appropriately when there's opportunities to do so..

The next question comes from Michael Ciarmoli with Truist. Please go ahead..

Maybe just to kind of stay on that sort of capital spending in CapEx.

So should we basically broadly think that cash burn '23, '24 should equate to about a billion dollars? I mean, is that the right way to think about this?.

So thanks for the question. As I mentioned, it's not something we want to put a total number on, just because of the number of moving parts in between both the timing and the magnitude of the spend. So I tried to give you directionally what to expect. And we did highlight here that it'll be growing most likely into 2024.

But there's enough moving parts in there that it's a little difficult to put a total number on it that we want to put out there for on a multiyear guidance basis just because you've got the Delta Class plus the motherships plus we have the factory for the manufacturing as well as the spaceport expansion and the asset campus.

So, there's enough things in there that are all lining up in terms of being ready for service. There's a little movement in there, I think it's be reaching to put a specific number out there for two years spent at this point..

Yes, I think part of what goes into Doug back there is we have flexibility on how many of those things we choose to run concurrently or not..

And then it's just I mean, are you guys comfortable with just having a mean, we're going to you're going to have one shift and operation through 2026? I mean, is that from an operational risk standpoint, and sort of deemphasizing imagine if are you guys comfortable with that kind of model?.

Well, one, we're, I'm very excited and comfortable with Unity and excited to have the mothership back there so we can get that going. So that's all good news. Second thing is, we want to really get the volume of this up. That's what we're all in this company for is to take hundreds and then hundreds and in tens of thousands.

Eventually, people spaces where we're trying to go to and that require a production model. So that's why you're seeing us focus first on Unity, so that we can just regularly prove out and showcase the experience.

We'll continue to learn technically, of course, but I think it's really going to help normalize to the marketplace and showcase the power of what we do, but we really are needing to get focused to the production model. So that puts imagine as an option value in the middle.

And we can turn to it when we've got everything else well in hand and humming along as we want to, and then come back to imagine. But we look here to have our delta ships, beginning flight testing in 2025. And that's, a couple of years out now, it's still to come. But we're moving well ahead on that I think we'll get all of our learning on Unity.

So, it's helpful to have imagine, as that option to go to when we want to go to it, but first things first once deliver our experience with unity. And let's make sure that we're building out the low variable cost production unit in Delta..

Last one I guess or maybe two quick ones.

Is there any FAA certification needed or required for the modifications that were made to Eve this that part of the validation?.

Right, two different things, we have a commercial operator's license, we talked about that, I think on the last call and that's good through July of 2024. I think it does go on to year renewals. And then, each of our ship has an experimental airworthy, airworthiness certificate that Eve just renewed hers. And so that's a yearly basis.

We'll go and renew Unity's later this year..

And last one, I think the customer deposits on the balance sheet down a little bit sequentially, Can you talk to maybe ticketed passengers and backlog or any trends there?.

I'll just in the general trends, so we are kind of same place where we've been before we've, we have right around 800 or so people on board in the future astronaut category, we pulled 100 of our first 1,000 seats off to use for research that we're going to call it feather in to the manifest along the way.

And you'll start by seeing the Italians on a research flight, first step in commercial service. And then, we have a group that we're working with a virtuoso that we've given an allotment of inventory to. So I think my guess is virtuoso will probably pick up on their efforts as we move back to space.

So no real changes in that category that we saw on last year 2022, some people have our 800 base drop off wasn't our largest year of dropping off, as you might imagine with everything and the disruption going on in the economy in the world.

It was a bit higher than some, and we generally backfill that with what I referred to as house seats, friends and family referrals from existing future astronauts they kind of kept our overall numbers basically the same..

Thanks, guys. Thank you. Thank you. The next question is from Kristine Liwag with Morgan Stanley. Please proceed..

Following up on Mike's questions earlier on cash, if we analyze your one two cash guide that could be a free cash flow usage of 560 million per year, you guys have a $980 million cash balance, so that would only leave you with four 20 million by year-end. Doug, you mentioned that you can accelerate or slow down investments to preserve cash.

Can you quantify the flexibility is that in the tens of millions or hundreds of millions? And maybe I'll stop there and I've got a few follow ups on that..

Thanks, Kristine. This is Doug. Yes, the ability to flex our spending is actually pretty significant. It's more in the hundreds of millions range versus tens.

We'd rather not do that, because we see great returns on these investments, and we want to invest in the vehicles and expansion because the economics of producing more chips is very attractive because each copy is relatively inexpensive, compared to the engineering and the work that we do up front.

So we want to be able to make these copies get those economics running. So we'd rather not slow down, but we could if we needed to and spend less on the infrastructure and the fleet development as needed. We will have some pretty significant leverage there in terms of what we could do, if necessary..

And is there a minimum cash balance you're comfortable with? And then also, when you think about that ramp of those ships, are there other creative financing solutions that you can look to so you can continue to accelerate production without compromising your cash position, maybe like secured asset our financing or anything like that? Are those available? Are these two are spaceships still too niche for that?.

Sure. So on the main cash, so there's not a specific number we put out there, but we do like having a strong balance sheet. For the reasons I mentioned, we see great opportunities in the investments we have, we want to have that flexibility. So our preference clearly is to maintain that strength and not let it shrink. So, we will strive to do that.

But I wouldn't put a specific number out there. In terms of alternative financing others, there's equity, there's debt, and you mentioned some other secured methodologies. We haven't pursued that at this stage. Because we have the 980 million, we have the flexibility we talked about the equity markets have been supportive.

We were able to raise debt before and we have that potential again in the future and we would look to that as an alternative. But we can explore other alternatives, if we want to get more creative at this stage kind of sticking to the basics..

And if I could squeeze one on Eve, I mean, you've now had two successful test flights.

How's the operating data comparing to what you anticipated? Are there any surprises? And is 100 flights before the next major maintenance overhaul still where it's tracking?.

So great question, Kristine. Just because it's a broad call and people listing in and reducing the word verification or validation flights. What we're doing here with Eve is not trying to break new ground. These are fundamentally regression testing flights. So we use them to gather actual flight data.

We use that to correlate our Flight Sciences models because we made some structural shifts within the plane right specifically in the center wing, where we made a heavier and beefier launch pylon.

There's some difference structural strength in that part of the wing and there's some actual small elements that have changed slightly kind of profile of the wing. In fact, if you look in one of our slides, whatever slide number was, where we kind of showed the launch pylon and the horizontal stabilizers.

If you look closely in that, you'll see a couple of small protrusions on the leading edge of the wing. There's same on the back. We use what we call them an exoskeleton approach to add be the way that we would attach the pylon onto the wing. And that created a little bit more material in those areas.

And so what you're seeing on those protrusions are fairings, very small fairings. So we don't expect those to have any impact. And we're using these tests as an example, to confirm that there's not any material, aerodynamic impact to that. So those tests have gone very well, so far, we continue to do them sequentially.

The next flight we will use to kind of continue to expand, if we've done regression testing to gather data. We're also looking to ensure that nothing that we did would create an opportunity to introduce any flutter characteristics into this area, so that we work our way up to that. So, that's what these first two flights have done.

We'll do another flight and carry it out to max speed in that regard. But we've been very pleased with the performance of the ship. It's correlating as expected. We're just going to continue on that process. Now pilots had nice things to say, which was good to hear..

The next question comes from Austin Moeller with Canaccord. Please go ahead..

Hi, good evening. Just my first question here, just given the cash that you have on the balance sheet and the plans for production through 2026.

Do you expect that to yield one Delta Class suborbital space plane and one next generation mothership? Or do you expect additional units that you should be able to produce with what you have on hand?.

Well, let's see Doug, it yes, you can kind of we can tag team on this one, I framed the start of this Austin with our strategy is to invest in non-recurring engineering work, both in the engineering design and in the building of tooling that allows us to build parts and an ongoing basis and final assembly infrastructure that allows us to continue to assemble copies of this production model, both of these production models ships at relatively quite relatively low variable cost.

That's where we'll get the economics. That's where we'll drive the margins in the business. That's where we're going to flow through from a shareholder value standpoint. So that's the same on both that approach is the same on both the Delta Class ships, and our next generation motherships.

In both of these internally, as well as with our supply chain partners, we're creating the tooling and doing that and kind of long wear tooling, such that we can go ahead and continue to create replicas of those, as we both build out Spaceport America, and then look even further ahead into being able to continue to populate spaceports and other locations in the world.

So, that's been our manufacturing strategy all along. So obviously, as we get into those ramp-up years we'll also be flying shifts, and then you have more income coming in. And so that you can kind of balance that on an internal cash generation basis.

So going forward, Doug you shared a lot on economics, I don't know if you have anything else you want to add..

Just regarding the cash we have and then the cost of vehicles, I think it's getting too close to quantifying the cost of a spaceship and a mothership at this stage given what I mentioned about the negotiations that are ongoing. So, I think we've got Michael's description is the calories gave this hopefully helpful to you..

Okay. And then just another question the astronaut campus is being built New Mexico by 2026.

But just thinking about incremental revenue opportunities for the Company, have you guys considered doing like a rose cosmos star city style astronaut training service to help add to revenue generation just in addition to the actual spaceflight?.

I think just so I say the same thing to you that I'm saying to everybody in our team Virgin Galactic. We're first going to stay focused on fine Unity to space with Eve second on getting our Delta Class and next gen motherships up.

So that's that is very clearly where we're putting our attention right now and being super efficient with our spend as we do it. So with that said, I think there's a lot of opportunity for widening out our revenue potential as we start to get regular flights to space.

But I do think, the heaviest bulk of getting a leverage to have additional revenue streams like the ones you're talking about, really get enabled as you start to get closer to closer to at least a weekly, if not a multi-times a week cadence there, because there's just a lot of excitement, huge emotional excitement, just being around and seen our ships go to space.

And we can, you can envision opportunities around that that would be materially smaller price points, of course. But I think that's for the future a little bit right now. We just want to stay focused in 2023 on getting the job done with Unity and Eve and getting our Delta Class next gen motherships going..

And then just one more, if I may.

Have you had any customers come to you through the marketing process that have complained about the high pricing on Blue Origin's suborbital flight relative to yours?.

Our customers are amazing people. Some people are observing their multiple choices in the world. I think we're excited for everybody to be going into space. I won't comment on relative pricing, but I do note that there are different price points as you as you point out..

Thank you for thank you for your question, Austin. There are no further questions in the queue. So that will conclude today's Virgin Galactic fourth quarter and full year 2022 earnings call. Thank you for your participation. You may now disconnect your lines..