Good afternoon. My name is Joel, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's First Quarter 2023 Earnings Conference Call. [Operator Instructions]. I'll now turn the call over to Eric Cerny, Vice President of Investor Relations..

Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's First 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 information 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 turn the call over to Michael. Michael, please go ahead..

Good afternoon, everyone. Thank you for joining us on our first quarter earnings call. We last spoke with you just 2 months ago. And within that short period of time, we have made significant progress. As you saw yesterday, we are at a defining point for the company.

We announced our return to space with our Unity 25 mission planned for late May, and it will build from there. We will be opening access to space, applying scientific researchers and civilian astronauts on a regular basis, beginning with our Galactic 01 flight planned for late June. Turning to our agenda on Slide 3.

I'll start with our commercial space line operations, followed by an update on our future fleet development. Before turning the call over to Doug, who will provide a financial review and commentary on our economic model. Following our prepared remarks, we'll open the call to take your questions.

So let's turn to Slide 4, commercial space line operations. Our team completed ground testing of our mothership in February, including fit checks where we validated modifications to the upgraded launch pylon on VMS Eve. We then conducted several validation flights with VMS Eve in both solo and made configurations.

These flights validated enhancements that were made to increase Eve's flight rate capability and overall service life. Test points included functional checks of the new horizontal stabilizers, upgraded avionics and mechanical systems.

On April 26, we successfully completed a glide flight above Spaceport America, taking Unity up to 47,000 feet and releasing the vehicle to glide back to the runway. That flight verified the performance of VSS Unity in the glide phase, including the handling qualities and flight controls of the space ship.

The ability to conduct these tests without the need for rocket power further highlights one of the many benefits of our distinctive flight system. We are very pleased with the way both our ships performed and the flight provided the necessary data to clear the vehicles for our next mission, Unity 25.

Unity 25, scheduled for late May, will mark our return to space with 2 pilots and 4 Virgin Galactic mission specialists making a final assessment of the full space flight and customer experience before opening commercial service later this quarter.

Our first commercial flight Galactic 01 is planned for late June and will be a scientific research flight with members of the Italian Air Force. We plan to follow Galactic 01 with both civilian astronaut and research customers flying on regular intervals thereafter. Turning to Slide 5.

As we shared in February, our commercial space line has 2 major areas of focus. The first is flying our current ships, VMS Eve and VSS Unity on a recurring basis. We are removing barriers to allow private citizens and scientific researchers unprecedented access to space.

The second focus is progressing the development of our future fleet, particularly the Delta class space ships which will be the key driver of revenue growth and profitability as we scale the business over the long term.

On our last call, we shared a high-level overview of the production road map associated with this multiyear fleet development program. With our manufacturing strategy and primary suppliers in place, 2023 is focused on completing designs for the delta space ships, building the required tooling and beginning the parts fabrication for the ships.

As we move into 2024, we anticipate parts fabrication will continue, and the assembly phase for the Delta class spaceships will also begin using the subassemblies from our suppliers.

We are working through the interior design, production layout and fit-out phases of our manufacturing facility in Phoenix, Arizona, to support the final assembly of the deltas. This facility is expected to be operational in 2024.

We can continue to operate on a time line that supports testing in 2025 and advance of the first Delta ship entering commercial service in 2026. Doug is going to share some of the compelling economics behind the Delta program in his financial review.

Given the strong returns we see in the Delta class, investing in this program is our top priority to drive future growth and profitability. At the same time, we recognize that financial markets are more challenged today, and this requires us to maintain optionality, exercise cost discipline and be strategic in how we deploy our capital.

As we said before, we have flexibility around the sequencing of our various programs, and Doug will be able to share an example as part of his remarks. And with that, Doug, let's turn the call over to you..

Thanks, Michael. Good afternoon, everyone. Turning to Slide 6 and our financial results for the first quarter. We generated revenue of $392,000 driven by future astronaut membership fees. Operating expenses were $164 million compared to $92 million in the prior year period.

The increase is primarily attributable to a $58 million increase in R&D costs tied to engineering work for our future fleet and the enhancement period on the current fleet.

SG&A increased $13 million, primarily driven by nonrecurring legal and severance costs as well as investments in our supply chain and other support organizations as we scale the business. We reported a GAAP net loss of $159 million compared to $93 million in the prior year period, primarily driven by higher R&D costs.

Adjusted EBITDA was negative $140 million in the first quarter compared to negative $77 million in the prior year period. Moving to Slide 7. Free cash flow was negative $139 million in the first quarter compared to negative $68 million in the same period last year.

Our balance sheet remains strong with $874 million in cash, cash equivalents and marketable securities. During the quarter, we raised $32 million in gross proceeds through the issuance of 5.8 million shares as part of our aftermarket or ATM equity offering program.

We are committed to maintaining a strong balance sheet, while prudently investing in growth initiatives where we see the highest returns. To that end, we've often said that the Delta class will be the driver of revenue growth and profitability for the company.

So let's turn to Slide 8, and I'll share additional detail around our Delta ships that illustrates the strong financial return that we anticipate these ships will bring to the company. We expect very attractive margins from the operation of our 6 seat Delta class vehicles.

As we begin to fly our recently ticketed astronauts with a price of $450,000 or more per seat, we expect to generate at least $2.7 million in revenue for each space flight.

We have relatively low variable costs of approximately $400,000 for space flight, including the rocket motor for the spaceship, fuel for the mothership and training and hospitality costs for the astronauts.

Following the nonrecurring costs associated with the development of the first Delta ship, we anticipate the cost to produce an incremental Delta ship will be in the range of $50 million to $60 million.

Assuming a useful life of at least 500 flights per ship, we would estimate the amortized cost of the spaceship to be approximately $100,000 to $120,000 per flight.

Extending that analysis, following the nonrecurring development costs associated with the first mothership, if we were to include amortized costs of both the mothership and the Delta spaceship to each passenger flight, we expect to see margins exceeding 75%.

Looking at this another way, the payback period for each incremental delta ship is expected to be approximately 6 months, assuming a weekly flight cadence. With such attractive economics associated with the Delta class, we remain laser-focused on the progression of the program.

This is why the production model we are pursuing for our unique spaceflight system is so advantageous as it delivers strong cash flow-through and significant return on investment as we scale the fleet. As we drive our strategic programs forward, we're also managing our spending in the back half of the year to protect our strong balance sheet.

For the second quarter, we forecast free cash flow to be in the range of negative $130 million to negative $140 million. In the third and fourth quarters, we anticipate that our free cash flow will improve and be in the range of negative $120 million to negative $130 million per quarter.

Clearly, the current economic environment demands operational flexibility. We are fortunate to have effective levers that can be employed to manage costs. One of these levers is adjusting the sequence of our various programs.

As an example, given the strong performance of our mothership following the modification period, VMS Eve now has the capability to carry the initial Delta ships through their flight test programs.

This increased capacity of Eve enables us to sequence our next-generation mothership to enter service later than originally planned, but still in time for the ramp of the Delta fleet. This is just one example of where we are leveraging our flexibility to manage spending while simultaneously executing on our future growth drivers.

We continue to monitor capital market conditions and are committed to maintaining a strong balance sheet in order to fulfill our business priorities. With that, I'll hand the call back to Michael for some closing comments..

Thanks, Doug. The excitement continues to build, and we are finally at the cusp of what will be a defining moment for our company, commercial space line operations. We are starting regular flights to space beginning this month.

We are building a production system that will deliver Delta ships with excellent economic returns, and we are delivering a best-in-class astronaut experience. We are being vigilant with our cost management, while at the same time, ensuring continued focus on our core programs.

We have multiple paths available to us as we progress forward to become a strong, profitable and inspiring company at the vanguard of a new industry. With that, we'll turn to questions. Operator, we're ready to begin the Q&A portion of the call..

[Operator Instructions]. The first question is from the line of Greg Konrad with Jefferies..

Good evening. Just to start, I always appreciate the additional information. But just in terms of the forward-looking free cash flow usage, you have a modest improvement in H2, and you talked about that a little bit. Can you talk about where we see that, whether it's R&D coming down? Is it revenue coming online, you mentioned Eve.

Like where will we see it in the financials? And then kind of with that, should we think about H1 free cash flow usage as kind of the peak and maybe H2 kind of the run rate as we go into next year?.

Thanks, Greg. This is Doug. So what we are seeing in terms of our spending is really in the R&D coming down. The first thing that's happening is we've completed the enhancement period and the investments associated with that around Eve and Unity. So now they're moving into commercial service, so we don't have to be spending so much on that.

And then secondly, we talked about the sequencing of the program spending on the future fleet. So we're focused on the Delta program, which is first and foremost. And then we have this opportunity to shift the timing, the spending on the mothership, the new mothership into the future.

So those are some of the things that you see as kind of larger levers that are changing the R&D rather than a revenue impact, as you asked about. So we did give guidance through the second half of this year. And while we're not giving guidance past that, I think it is reasonable to assume that this is an appropriate level of spending going forward.

And we may toggle that up or down as we see opportunities and always focused on the growth engine of the company. And adjusting our spending as appropriate. There may be some lumps in there. If something comes along like some tooling in a particular quarter. But I think that's a reasonable spending level to assume for the foreseeable future.

The key is we're going to keep flexibility, and we have levers that we can continue to exercise up or down as needed..

And then just on Delta, I mean you've made, obviously, a lot of amount since the past 2 quarters around the supply chain and production. When you think about that $50 million to $60 million for the recurring part per Delta.

How much of that's locked in? And then what production expectation is assumed within that $50 million to $60 million?.

Sorry, Greg, just for clarity, how much is locked in and how much is production? Could you just clarify the question for me? Happy to answer..

Yes. So I mean, you obviously have reached out to the supply chain. What percentage of the cost of building that do you have 100% visibility into. And then obviously, there's some fixed costs.

So are you assuming -- I know you said you have capacity for 6 a year? I mean does that assume you get to that 6? Is it 3 just thinking about fixed costs around production..

Doug, do you want to take this one?.

Sure. Yes. So we are quite a way through the planning and estimating process with our suppliers. And in the beginning, it's time and materials and then it moves to a firm fixed price kind of basis.

But we're moving through the scoping and scheduling and refining those estimates to the point where we were able to give that out today with the range we were comfortable with based on what we know today. So we -- it's not tied to any particular production level.

The way to think about it, right, is there's the NRE for the first one, the development cost.

And then the per ship cost, when we think about the labor and the materials to produce each incremental one is the range we gave you, which is $50 million to $60 million, it isn't in our mind, particularly sensitive to the volume given the range we provided..

And just for clarity, the volume we expect, we're building the Phoenix facility to handle 4 to 6 ships on a yearly basis. We'll ramp up on the first year of that. But that gives you a range of volume that we expect to produce in that facility that matches against these numbers..

The next question is from the line of Mike Leshock with KeyBanc Capital Markets..

Good afternoon. I wanted to start following up on the peak cash burn. It appears we're at or near the rate -- the peak rate given some of the guidance that you provided. In the past, you talked about the flexibility that you have, and you gave the example here.

But as I'm looking at the guidance for the next 3 quarters, does that assume that the investment that you have planned or scheduled and going as we thought would progress 3 months ago? Or have you made any -- have you incorporated any flexibility into that cash burn guidance?.

The main thing that is in there that changed was the sequencing of the mothership. If you think about the phases of spending on each program, for example, the Delta class, there's an engineering phase and then some tooling investments and then you move into parts fabrication.

And by staging these in such a way that the next mothership follows that peak spending on the Delta class program, it allows us to kind of layer in the work on the mothership and maintain roughly that level of spend is what we're modeling today.

So I would say in plus or minus, right, there can be some bumps as I talked about it, but fundamentally, it's maintaining the same growth engine and those key deliverables that we have talked about before, just staggering the spending, so they're not laying on top of each other and creating a peak in 2024, as I indicated last time.

This is allowing us to smooth that out by staging one after the other..

This is Michael. I'll just kick in with, hey, what enabled us to do that now. So originally, we plan to have Eve our mother shipped it's in service, it is flying Unity to space and bring the next-generation mothership in time to fly the test flight program of the deltas, which would have the mothership showing up as early as 2025.

We're quite happy with how Eve came through the modification program. And when you look at the capacity we have with Eve, it can fly far more frequently than Unity can fly. And so we have enough capacity within our existing mothership to carry us through the delta class test program.

So that gave us the opportunity to then sequence the next-generation mothership. We don't need it for the flight test program, we do need it when we're ramping up the delta class fleet. And so what you're seeing here is our taking advantage of that opportunity and just kind of having a more consistent cash burn going through the next couple of years..

And then looking longer term on some of the Delta class testing, are there any technological advancements or things you've learned over the past few years from the Unity and Eve testing that could potentially reduce the time and/or the number of flights that you might need for Delta class testing? Or do you expect it to be a similar process as we've seen in the past?.

It will definitely be a faster, I'd say, much faster test program than what you saw in Unity, which happened over many, many years. So we expect to start that test program in '25 and conclude that test program in '26. So within a year-ish or so.

And the main things that we're changing, you may have heard from us in the past, we're keeping the look, the shape, technically the outer mold line of the vehicle, the same. We are changing the composite system and moving with a high temp composite with that.

That gives us the ability to reduce weight in a variety of places, change the way we manage the thermal forces upon the ship. We will make updates into our avionics packages, things like that, and generally take advantage of all the learning that we've had across the flight test program and across the development of Imagine.

All those things combined give us confidence to design a ship that will be able to turn on a weekly basis, which is versus Unity, which currently turns on a 1-month basis. So -- but I think the flight test program itself will be constrained within roundly a year..

The next question is from the line of Matt Akers with Wells Fargo..

I wanted to follow up on the $50 million to $60 million cost for the Delta class ship. I think we usually see on the commercial aircraft side is the first aircraft is much more expensive, then the second one is a little bit less and it sort of goes down steeply and then there's a learning curve.

So I guess are you expecting a similar learning curve on these? And if so, is that $50 million, $60 million like the cost of ship, too? Or is it like somewhere kind of further down the learning curve?.

I don't think it will be too far down the learning curve. And I think the range we're giving is generally a good one. We've built -- this isn't a from scratch design, right? We have a flying ship that is fundamentally the same as what we're building here.

And so that advances our confidence in all things far more than you would see on kind of a clean sheet new ship that's being built. So what we are planning, though, is to have the tooling done, so that's going to stay the same. We feel confident that, that keeps the parts generally in the same piece as they're doing.

Our primary suppliers for Delta in Bell and Qarbon will be doing -- adding those parts up into major subassemblies. They'll have a bit of up and down with that, but those are sophisticated companies that should be able to dial that in fairly quickly. And then we'll final assemble these in Phoenix.

And we plan to open up the Phoenix facility a little early, actually get in there ourselves and, I'll call it, rehearse, if you will, with before the actual subassemblies arrive. Just so we start to dial in the processes we'll use so that we're a little bit quicker off the gate.

But I think there will be a little bit of difference in the time that it takes us to assemble the first couple that will be our flight test vehicles. But then as we start -- and we have time with those flight test vehicles. And then as we start to really move into the production side of that, we do expect to be fairly well dialed in..

Okay. That makes sense.

I guess -- is there a way to think about sort of what percentage of the parts or the content is kind of common to the prior design? Or how much is that?.

Well, we could probably come back with a little bit more specifics of that. Generally, the ship is very common, right? It's same outer mold line, same feathering design generally the same aerodynamic handling facility there. What we are doing, as I said, we're changing the composite materials.

We're upgrading systems, avionics systems, mechanical systems so that the general ability to fly and maintain and turn the ships are there. So those are the real changes that are going in. I don't have a, I'll call it, a part count there.

What we are doing is when we change the composite system, we do go back in and touch most parts with that, especially, anything Qarbon is getting retouched, but we know what we want the function of the part to be we just have to go through the process with the new material system..

The next question is from the line of Oliver Chen from TD Cowen..

This is [indiscernible] on for Oliver Chen.

Can you discuss some more of that construction progress with the Delta classes manufacturing facility in Phoenix? Are there any other major milestones ahead that you're looking forward to? And sort of what's the time line on that?.

Sure. You saw a, I'll call it a rendering in our presentation there of that facility. Probably at our next call, we'll bring some just in-progress construction photos just to share as well. But the general timetable in this year, outside of the Phoenix facility is when tools are being built and parts are starting to be fabricated.

So we're not using the Phoenix facility this year. We're doing the designs here in Orange County, and partnership with Bell and Qarbon. Bell & Qarbon are building tools and beginning to knock out the parts for those tools.

In 2024, while that parts fabrication is continuing, and being put into subassemblies with Bell and with Qarbon, the Phoenix facility will become operational for us and those subassemblies and parts will begin to arrive in Phoenix, that will start us in 2024. So that's when you'll see that plant actually up and operating.

And then 2025, we'll continue the assembly of the initial vehicle that we used in flight testing. And then we'll actually start testing that. We'll come in, have Eve come in, pick that vehicle up out of Phoenix, we'll probably have a couple of flight test vehicles.

We'll pick up out of Phoenix and bring those to Spaceport America where they will go through their ground and flight testing. And then that leads into 2026, where we'll conclude through the testing program and into commercial service with the early ships..

Okay. Got it. That's very helpful. And then just briefly on ticket sales.

Do you plan to issue more tickets for sale? And how have those ticket sales through your travel agent partner? How have those been trending?.

You're welcome,. So we have generally held our sales process just as you know, we have a 3-plus year backlog already with the 800 or so that we have. We've seen minimal cancellations in that, and we do expect to open sales back up after we start flying.

So you've heard us today talk about Galactic 01 will be the start of commercial service, and then we will start with civilian astronauts and then on a recurring basis.

So as we get a few flights under our belt and get momentum there, we will go ahead and when we have a kind of clear eye towards the, I'll call it, the length of time somebody would be on the manifest, then we'll go ahead and open sales back up.

But right now, I would expect the Virtuoso group as the group you're talking about, I would expect that they will make their sales pushed following our Galactic 01 and Galactic 02 flights, where we're kind of in the market with momentum, makes it a little easier on their side.

The next question is from the line of Myles Walton with Wolfe Research..

Thanks for the color on the economics on a flight basis, I was curious, you lay out some of the variable economics. A couple of the items that weren't in here, if you could just touch on insurance on a per-fleet basis, maintenance, the ground operation costs.

All 3 of those, I kind of think is variable, maybe that maybe you were thinking the ground operations is more fixed.

But can you size those relative to the 400,000 you have what's on side?.

There's multiple pieces there. This is Doug. So the insurance actually, we did include in that cost. So that's in the $400,000. There's fairly small costs there relative to other components, but that's included.

In terms of the ground operations and other fixed costs, what we are outlining for you is something similar to a contribution margin, right, for our -- after the variable cost. So it's contribution towards our fixed costs such as the ground operations, which would be one of our larger costs running the company and maintaining that flight cadence.

We didn't lay that out for you yet in terms of what that cost would be per flight. That's something that as we get more practice and we get more efficient and we scale, we'll have better visibility into. But we have estimates, but that will be what our team will be focused on is that efficiency and getting the economies of scale there.

So I think it's a little premature to put that out there, but it's something we'll be focused on to make sure we get the best economics we can out of each flight..

And Doug, what about maintenance, I would think that's variable, but maybe you think of it as more fixed..

Yes. They put that in the fixed cost as well. So think of it as all the costs associated with our Spaceport. So out there, we have our technical operations team, and we have our space missions teams that support maintenance and the flight crew and all of these things, which are fundamentally fixed.

Those are costs that would be there if we have a flight on a day or not. So we looked at it that way, but they are important ones to manage as we go forward. But I did put those in the fixed bucket for this discussion..

Okay. And then maybe a high-level one, Michael, the FAA mandate around dual mandates for commercial human spaceflight, I think, still expires in October.

What's sort of your expectation as to how that gets renewed, if it doesn't get renewed, what does it mean? And do you anticipate any impact to sort of your operating plan over the next couple of years?.

Are you talking the learning period, Myles?.

Yes, the that they have to both ensure safety as well as promote human spaceflight..

Right. Just for clarity, you're not talking our operating licenses here..

No, not your operating licenses, just FAA....

Yes. So I think you know this right. We've partnered with the FAA from the very foundation of this program all the way through having the FAA in our mission control at each step along the way. So the -- we typically, I'd say shorthand, that is the learning period that's gone on with commercial space.

Is that to expire, there's a lot of review with government, with the FAA, with industry. We are part of those conversations along the way. From our standpoint, obviously, it's early in commercial space and of course, we and our other industry partners are continuing to learn.

However, wherever the FAA chooses to go and whether the government chooses to go with that, we feel we will be continuing our operation just fine in those regards. So we maintain an active voice, Mike Moses, our President, is Chair on the Safety Committee for ComStack, and I think those are really good dialogues that are going on.

I see it as an important part of evolving commercial space as an industry, but I don't see it in the way -- one way or the other, really, to our business model and how we'll grow..

[Operator Instructions]. The next question is from the line of Kristine Liwag with Morgan Stanley..

Maybe I could start off with Unity. I know a lot of questions have been focused on Delta today, and that might be my follow-up question. But on Unity, with Unity 24 test last month, it's very encouraging to see you complete these tests.

How have the data from Unity 24 compared to your expectations? And do you anticipate to make any tweaks between now and the Unity 25 test later this month?.

Thanks for the question, Kristine. And we're all really proud and excited for Unity. And of course, momentum is very high and continues to build in the company for these flights. So the glide flight was an important flight for us, but I call it -- it was a time where we were validating changes that had been made.

So we were expecting the flight to perform just as we thought. It did perform as we thought. And so we made -- it was a very successful flight from us -- for us, validating the data, giving us the data to analyze that came through clean. So we've cleared ourselves to move forward.

And what's happening now is we're only 2.5 weeks away or so from the Unity 25 flight. At this point, this is pretty much dialed into the technical operations team moving through their procedures. So nothing we are planning to add at a level of materiality between here and there..

Great. That's really helpful color. And then a few follow-up questions on Delta.

So when you talked about the recurring expected cost of $50 million to $60 million, at what unit delta do you anticipate to get to that $50 million to $60 million cost? Is this after a full year of production? Is it after a few units? Or are we talking about closer to 2030 when you've had a few years of full production of delta?.

Thanks, Kristine. This is Doug. Yes, so Michael touched on part of this earlier about the learning curve. And we haven't made dramatic changes to things like the outer mold line, and we're making some refinements how we manufacture and such to the ship, which helps us in terms of not starting with a clean sheet of paper.

The other thing I might mention is we're leveraging really the latest digital technologies to partner with our suppliers, so we are using all the same databases, working through all of the practical side of manufacturing so that we streamline that process as much as possible and eliminate surprises.

So again, these are things that help us go much faster than we have in the past. So it shouldn't be too long into that, the manufacturing cycle where we expect to see those types of costs. So we'd be a short ways in. I wouldn't put a specific number on it, but we expect to be much faster than we've been before.

And hitting that learning curve benefits much earlier in the cycle than you might otherwise expect..

Yes, well before 2030, right? I think the first 2 vehicles out, which will be embedded in our flight test program, I'm sure we'll do learning on those. And then as you shift into more of kind of a run rate effort, that should be a much faster ramp-up in learning..

That's really helpful.

And in terms of production, with your conversations with suppliers and your partners for Delta as that matures, how are you expecting to manage cost overruns should they arise? Is there a component of the contract that the shared cost or risk sharing partnership with your suppliers?.

Yes. There is risk sharing built into the contracts. So it works both ways, right, if things are running ahead, that benefits them. If they're running behind, there's penalties for that. So yes, we're in it together with a risk-sharing arrangement..

Great. If I could sneak one last one.

On Delta, can you provide more color on the nonrecurring engineering costs, annual dollar spend that you anticipate for the program?.

So we haven't quantified that in its entirety. I think it's just best to think of it in terms of that cash flow that we've talked about. You can see it in our R&D spend. That's going to be a bulk of our R&D going forward and fitting inside that $125 million envelope. But to date, we haven't put the NRE total cost out there.

That's something that we're still working through with everybody, but we're comfortable at the spending envelope that we've given you..

Thank you. That concludes today's Q&A session. With that, we will also conclude today's conference call. Thank you for your participation. Please enjoy the rest of your day..