Virgin Galactic Holdings, Inc. (NYSE:SPCE) Q2 2022 Earnings Conference Call August 4, 2022 5:00 PM ET
Company Participants
Eric Cerny – Vice President, Investor Relations
Michael Colglazier – Chief Executive Officer
Doug Ahrens – Chief Financial Officer
Conference Call Participants
Greg Konrad – Jefferies
Matt Akers – Wells Fargo
Oliver Chen – Cowen
Kristine Liwag – Morgan Stanley
Pete Osterland – Truist Securities
Operator
Good afternoon. My name is Irene, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic’s Second Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions]
I would now like to turn the conference call over to Eric Cerny, Vice President of Investor Relations. Eric, please go ahead.
Eric Cerny
Thank you. Good afternoon, everyone. Welcome to Virgin Galactic’s second quarter 2022 earnings conference call. On the call with me today are Michael Colglazier, Chief Executive Officer; and Doug Ahrens, Chief Financial Officer.
Following 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 two of the presentation for our Safe Harbor disclaimer. During today’s call, we may make forward-looking statements. These statements are based on current expectations and assumptions and as a result are subject to risks and uncertainties.
Many factors could cause actual events to differ materially from the forward-looking statements made on this call. For more information about these risks and uncertainties, please refer to the Risk Factors in the company’s filings with the SEC.
Readers are cautioned not to put undue reliance on forward-looking statements and the company’s specifically disclaim any obligation to update the forward-looking statements that may be discussed during this call.
Please also note that we will refer to certain non-GAAP financial information on today’s call.
With that, I would now like to turn the call over to Michael.
Michael Colglazier
Good afternoon, everyone. First off, I’d like to welcome Eric Cerny to Virgin Galactic. As many of you know, Eric joined us a couple of months ago to lead our Investor Relations function. We are excited to have him on the team and I am confident you will all enjoy working with him as well.
We are more than halfway through the transformational year for Virgin Galactic. Over the last few months, we have put in place significant pieces of our strategic roadmap for our medium- or long-term operations.
We have in the past talked about what we intend to do. But these recent steps lay out the specifics as to how we will ramped the production of our future fleet and deliver hundreds of spaceflight each year to space ports.
We are progressing to the enhancement program in our initial fleet. However, important work on our mothership need have taken us longer to complete than we planned and we now anticipate private astronauts service commencing in Q2 of 2023. While the short-term schedule flight is unfortunate, our team in Mojave is working diligently to complete the work and we continue to take a long-term approach to managing the business. Initiatives we set in motion are powerful. I look forward to sharing more detail about some on today’s call.
Today’s agenda on slide three, we will start with advancements of future fleet, followed by a commercial strategy update. Well then get into enhancement program and updated flight schedule for our initial fleet beforehand the call over to Doug who will provide a financial review of the quarter.
Let’s turn to slide four and production of our future fleet. Increasing the frequency of flight for each of our spaceships is how we unlock the true economic impact of commercial spaceflight. We are scaling our business, our space line very intentionally around the space clean architecture, which enabled us to collaborate with outstanding firms in the aerospace industry, companies that have the knowledge, technology and capacity to help us produce vehicles with high frequency turn on characteristics and volumes that can quickly meet our needs.
Our next generation motherships and spaceships are production versions of our existing vehicles, rather than so called clean sheet designs. This means that the fundamental aerodynamics and core engineering of the thing, allowing us to move through the development process with our partners at a much faster pace than we are starting a new vehicle design process from scratch.
A major part of our production approach is evidenced in our recently executed strategic agreement with Aurora Flight Sciences to design and manufacture next-generation motherships. These vehicles are planned for final assembly at our facility in Mojave.
Aurora business is built around agility, innovation and creativity. This is exactly the type of company that we want to be working with. As a subsidiary of Boeing, the largest aerospace company in the world and a longtime supporter and partner of Virgin Galactic. Aurora also has access to the industry’s top engineers and manufacturing facilities, as well as an existing base of supply and strategic partnerships.
It’s been time to see the leaders from both Aurora and Boeing and I have watched their teams collaborate. There’s genuine excitement from both sides about what we are going to achieve together.
We began working with Aurora several months ago to develop and design specifications, as well as workforce and resource requirements. It’s a long-term agreement now in place. We are full steam ahead on development.
Under the agreement, Aurora will deliver two new motherships, the first of which we expect to enter service in 2025 and time to begin carrying the first of the completed Delta class spaceships as they begin test flights and research payments fleet and two motherships will support our plan 400 flights a year Spaceport America in New Mexico. The agreement also enables us to realize costs and speed benefits for additional motherships as we expand other spaceports.
Turning to slide five, our production line spaceships, the Delta class. Last quarter, we shared the bid issue for RFIs to Tier 1 and Tier 2 suppliers who expressed interest in working with us to deliver major services for our Delta class spaceships.
We are very encouraged by the response RFPs have been released and while we are ready to share which specific firms will be joining our supplier base. The approach is generally consistent with our first two motherships, with major sub-assemblies test out to premier aerospace firms and final assembly and test taking place at Virgin Galactic facilities.
Important to the design and integration efforts over Delta ships is the digital twin technology we are utilizing, which allows us to work quickly and efficiently with our partners, utilizing a single digital thread database for all production activity across the supply chain.
In July, we executed a long-term lease for a new final assembly facility for the Delta class spaceships, facility to plan to have capability to produce up to six spaceships per year, providing scalability needed to support our business model. Construction has already started and we anticipate the facility will be fully operational by late 2022, supporting our goal of going out the first off the ships in 2025.
The locations at the Phoenix Mesa Gateway Airport is highly advantageous to our plants. The Greater Phoenix area as an innovation hub with outstanding engineering and technical talent, driven by a long history of aerospace development there. There are excellent aerospace technician close in the area and facilities location on the airport land allows for new spaceships to be picked up and flown by our mothership to the Mexico for flight testing commercial operations.
With Aurora, our new final assembly facility teams are soon to be selected Delta class spaceship collaborators, we will have in place, most of the core pieces of supply chain, manufacturing footprint that leverages the best in the aerospace industry. We are confident this manufacturing process will be able to deliver the quality, speed to market that we desire to scale quickly.
Turning to slide six, a major part delivering the astronaut experience is the technical operations, the team of maintenance, ground services, support engineering, quality assurance personnel that ensure our spaceflight are stable and ready to fly on the intervals that we expect. We have a terrific tech ops teams in Spaceport America who carried through our flight-test program. We will be expanding the capabilities of this group as we enter commercial service.
To lead this expansion and architect of the operations model and the technical infrastructure and processes needed for weekly turn times on ships. I am very excited to share that Mike Moore signed on to Virgin Galactic as Executive Vice President, Spaceline Technical Operations reporting to me.
Mike has 37 plus year career in aerospace, starting as an Air Force mechanic and most recently serving as Senior Vice President, Maintenance Operations & MRO Services Group for Delta Airlines like global technical operations for one of the nation’s premier air carriers. We thrilled to bring a leader of Mike’s caliber in the Virgin Galactic chartered course as we position this critical part of our business, high rate service and operation.
Turning to our customer experience on slide seven. For the first years of commercial operation, our astronauts will spend several days before their spaceflight, training together Spaceport America, which has facilities that can support several flight crews per month. However, as our Delta class ships come off the line in Phoenix and flight volume increases materially, Spaceport America will transition from a multipurpose facility to a high volume spaceport, a technical and flight operations facility where groups of people arrive on a near-daily basis to embark on a life changing trip to space with Virgin Galactic.
At this stage, we will need separate facilities to accommodate, train and engage larger volumes of astronauts and their guest during the multi-day lead up to the flight experience, while still providing a personalized high touch and truly distinctive experience of signature divergent.
Dislocation or as we refer to it, the astronaut campus is where the elements of the consumer experience come together. As we shared earlier this week, we acquired land in the Sierra County, New Mexico, which will be home to our first astronaut campus.
Our intention for each astronaut campus is to create the stage one of the kind destination that enhances astronauts journey by taking design and programming inspiration from the location on Earth above which we fly. Our first campus in New Mexico will do just that.
As you can see from this aerial view of land, which is located in driving proximity to Spaceport America. Our astronauts will be training for their flight from a perfect location. The master plan for the campus will include training facilities, purposeful accommodations and tailored experiences, as well as an observatory, wellness center, recreation activities and unique dining options, all underpinned by Virgin signature hospitality.
Campus will be built amidst a stunning picturesque landscape with a focus on sustainability and minimal impact to the surrounding environment. Campus will be designed to work in synergy with New Mexico’s spectacular natural surroundings and the build out will be timed to match the expansion of our future flight.
We have a team of best-in-class experience creators working through the somatic designs to create an immersive environment and we will look forward to sharing more about the astronaut campus experience in future updates.
On slide eight, I’d like to spend a moment on our astronaut membership experience. As a reminder, when customers join our future astronaut community at the point of sale, they gain access to one of the kinds of experiences, events, trips and activities around the world, all curated to enhance the astronaut training and delivered with trademark Virgin style. This time the community is essential to deepening the understanding and appreciation of space, preparing our customers emotionally and physically for the transformative experience that awaits.
We are developing this membership experience around three core pillars, education and enrichment, astronaut development and training, and impact and inspiration. Example of our approach will be our marquee membership event Space for the Curious.
Inaugural event is scheduled for early fall and we intend for it to become an annual or twice yearly event that we can export to markets around the world as we continue to grow our global footprint.
This upcoming event will be a three-day program for future astronauts, set against the rugged backdrop and dark night sky of Wyoming. It’s been curated to enhance our customer’s understanding of why space exploration matters and to give them access to world class insight, expertise and skills to help optimize their own spaceflight experience.
Even includes thoughtful discussion, outdoor activities, music,and hospitality experiences, design and support those three core pillars. At a high level the programming will include guest speakers to facilitate education and enrichment and help prepare and develop our future astronauts to how to fly.
Discussions on the importance of space to science, research and planet, activities focused on health, wellness and preparation for the journey to space and a wide range of social activities that will inspire and excite including stargazing with professional astronomers.
Events and activations like these are all purposely designed to ensure our customer’s two-year to three-year journey, journey that culminates with a trip to space to on board our distinctive spaceships is even more enjoyable, transformative and fun than expected.
While the first of these future astronauts will begin flying space next year, the limited capacity of our initially fleet and our later booking customers will have a waiting period beyond the two-year to three-year journey we prefer. We expect this extended wait periods will resolved as near completion of our Delta class ships and enhance our flight capacity.
Turning to slide nine for growth markets. As we look ahead to higher volumes, we are using the limited availability remaining in our initial tranche 1000 reservations to purposefully develop two market segments that we expect will contribute meaningfully to our future demand.
The first of these market segments is scientific and government research. We have a long stated goal of building meaningful research business by offering routine and reliable access to space. With a flight profile that can be tailored to the payloads on board, we are able to offer something entirely new, highly valuable private and government research market.
This is a strategically helpful market for our business model as it commands a significant price premium to our current commercial passenger price point and also provides a positive brand benefit to the company by contributing to scientific advancement.
Market interest and feedback around our research product has been very positive. We continue to get inquiries for research admissions from across the world, including from government and scientific researchers. We plan to see this market now to develop its volume and advance of our future capacity increases.
We have learned the nature of research and often the research funding lifecycle, means these customers require a shorter and more clearly defined timeframe between sail on flight. In order for us to continue cultivating this market, we need to allocate near-term availability of research teams to match funding cycles and logistics for research projects.
To strategically pursue and speed this market, we are reserving 10% of our first 1000 seats for science and technology research admissions. We will manage these through a separate flight manifest runs alongside the private astronaut manifest.
As limited allocation will allow us to meaningfully engage and grow the research marketplace over the next one year to three years without having a material impact on the flight timing of our private astronaut customers.
The second market we wish to develop is the luxury travel sector. As commercial spaceflight becomes more normalized during the next few years, we expect the high end luxury and adventure travel markets to comprise a material percentage of our demand.
We expect to ramp our internal sales team to capture much of this business and we have recently hired a dedicated Vice President of Sales to begin to build up in this team. We have also received interest from travel industry experts, some of the deep connections within specific geographic markets to augment our internal sales efforts.
To assess the potential of a travel industry partner, as previously announced, we are very pleased to provide exclusive access to a limited number of our remaining seats to Virtuoso, the world leader and experience driven country travel and learn to how we are aligning with the aerospace industry to scale our fleet.
When we look at ramping customer acquisition scale, this alliance with Virtuoso serves a natural extension for us in a strategic cost efficient way to access new customers. Partnering with Virtuoso gives us immediate access to deep relationships with customers around the world who are looking for one of a kind journey, but who may not yet have considered space travel.
We will continue to manage our own sales process and plan to continue selling our product directly. Same time it makes sense to explore a superb quality partner that opens the door to an untapped, established and diverse clientele, as we expand interests and increase access to space.
As a referral arrangement, Virtuoso will leverage the network and expertise to identify and refer potential leads to Virgin Galactic and we will maintain control of our high touch end-to-end customer sales journey and the powerful data and insights that come with that.
Allowing for the research and Virtuoso allocations that will help prime these future growth markets, we are reaching the end of our first tranche of 1000 seats. We intend to reserve the remainder of the seats that are available at the current $450,000 price point for referrals from our existing customers. We plan to open our next tranches based by reservations after we begin flying our current customers.
On the topic of flying our current customers, please turn to slide 10 and the enhancement programs associated with our [inaudible]. The enhancement to Eve and Unity are designed to significantly improve the durability and reliability of these ships, enabling higher frequency by rate for commercial service.
Last quarter, we shared that like many companies around the world, we were experiencing elevated levels of supply chain disruptions, as well as labor constraints. Many of these conditions have persisted through Q2 and our teams have put forth incredible efforts to navigate the many challenges presented.
I want to thank everyone that Virgin Galactic has been part of that ongoing effort. However, despite our best efforts progress on our enhancement program in Mojave, particularly the complex work to prepare need for commercial service is taking longer than we planned.
Our customers, our investors, and indeed our entire team are all desiring to community back in the skies taking astronauts to space. Work on ease of course must be completed before we fly and we have shifted resources within the Mojave team to bring additional support and help bring this enhancement program to a successful and expeditious conclusion. Given where we are in this enhancement program and factoring in appropriate contingency, we are shifting the expected launch of commercial service from Q1 to Q2 2023.
We anticipate conducting spaceflights with VSS Unity in Q1 of 2023. Work specific to Unity’s enhancement program, which we can report nearly completed should allow a monthly turnaround time. The image you see here is a peek Unity’s new metric being installed at Spaceport America.
As we have concentrated our Mojave based talent to support the work on our mothership Eve, the plan timeline for VSS Imagine will be extended due to this reallocation of resources. As it stands today, Imagine is scheduled to commence test flights in mid-2023 and private astronauts service as soon as Q4 of 2023.
Imagine is a new vehicle and will require a sequence of planned test flights before it carries private astronauts. The variability inherent in flight test makes it prudent for us to allow for appropriate schedule flexibility, which could potentially extend imagines window private astronauts service in early 2024.
Work on Eve needs to complete and we are very excited to see that come out of the hangar this month. Even more exciting are the building blocks that we have put in place for the development of our future fleet and our astronaut experience. Continue to manage the company for long-term growth and value and we are very pleased with the progress we have made in that regard.
I will now turn the call over to Doug for an update on our financials.
Doug Ahrens
Thanks, Michael, and good afternoon, everyone. Turning to slide 11 and our financial results for the second quarter. We generated revenue of $357,000 in the second quarter, driven by future astronaut membership fees. Operating expenses were $110 million, compared to $74 million in the prior year period. The increase of $36 million is primarily attributable to higher R&D costs tied to our fleet enhancement activity and the ramp up development work on our future motherships and spaceships.
We reported the GAAP net loss of $111 million, compared to $94 million in the prior year period. Adjusted EBITDA was negative $93 million in the second quarter, compared to negative $56 million in the prior year period, primarily driven by an increase in operating expenses.
Free cash flow was negative $91 million, at the high end of our guidance for the quarter, compared to negative $66 million in the same period last year. The increased spending is largely due to higher operating costs tied to our fleet enhancement activity and the ramp up development work on our future motherships and spaceships. Our balance sheet remains strong, with over $1.1 billion in cash, cash equivalents and marketable securities.
The details Michael shared with you around our manufacturing approach for the motherships and spaceships, and the investments we are making in our future astronauts space are all consistent with the long-term commentary we shared with you in prior quarters regarding our approach to the business model.
Leveraging aerospace industry supply chain built major sub-assembly allows our team to focus on design, engineering, final assembly and ongoing operations and maintenance. Collaboration with companies such as Aurora allows us to minimize our capital expenditures for infrastructure, required to scale the fleet and significantly accelerate our time to market.
As you can see, we are rapidly moving ahead on our plans to scale the business. Many of the building blocks that Michael and I have talked about over the last several quarters are now in place.
We are making strategic investments from a position of financial strength with momentum of the business and a healthy balance sheet. Furthermore, we believe it is appropriate to take steps to give us financial flexibility going forward. To that end, today we filed a prospectus supplement and established an aftermarket program to sell up to $300 million of additional common stock.
We are excited about the investments we have outlined, the spaceships, mothership and infrastructure surrounding astronaut experience. We therefore plan to always maintain a strong balance sheet, enabling us to fulfill our strategic plan of becoming a scaled commercial Spaceline.
Moving to guidance on slide 12. For the third quarter, we forecast free cash flow to be in the range of negative $110 million to $120 million. As we continue to ramp up our efforts to scale the business, we anticipate this number will continue to grow over the next several quarters.
With that, I will hand it back to Michael for some closing comments.
Michael Colglazier
Thanks, Doug. 2022 is a year we set ourselves up for scale and for the long-term. We are moving into a building phase for future, building out the factories, cultivating partnerships and growing the campuses, teams and networks that will take us into the future.
Shifting our commercial service launch to Q2 2023 has a short-term challenge but does not carry over into our longer term objectives. We are taking an intentional value driven approach to this business and we now have several core elements in place for us to scale the world’s first commercial Spaceline in a meaningful way.
These include the development of our next-generation motherships with Aurora, leveraging the aerospace supply chain to provide major sub-assemblies for Delta class spaceships and our new Spaceship factory in Phoenix and bringing together unforgettable and truly unique consumer experience in New Mexico. In coming months will continue to be very busy for us and looking forward to sharing updates on our progress.
And with that, we will turn to questions. Operator, we are ready to begin the question-and-answer portion of the call.
Question-and-Answer Session
Operator
Thank you, dear speakers. [Operator Instructions] Our first question comes from Greg Konrad from Jefferies. Greg, your line is open.
Greg Konrad
Good evening. Maybe to start — I don’t — I didn’t hear an update on kind of backlog. I know last quarter was at 800 seats. Where does that stand today and then given the commentary, is there any government seats in there today and does that mean that more than 0.5% of the remaining 1000 seats are going into the government, with the rest for referrals?
Doug Ahrens
Yeah. So as of the last quarter, we talked about having approximately 800 future astronauts and it’s kind of mix, but very few of those were in the research market and as we were — and we went ahead and closed out some more of those private astronauts that were there earlier on the — earlier in the quarter.
As we have been looking to build our research markets, we have great response and we also have very great consistency of, hey, the research that I have needs to go into certain timetable and if I am coming in at the end of the manifest, while I understand why that would be. I can’t commit because I need to get my research going at this timetable.
And also, again, not surprisingly, the funding cycle for research, whether that would be private or government is a shorter duration. And so in order for people to apply for their funding for the grants, they have to have a date ahead of time, we just didn’t have any inventory.
I think we are putting it at the end to be able to offer it up to this market. And so we made a decision to make a strategic shift and take 10% of that first 1000 seats and put into the research market.
And as I kind of mentioned earlier, the reason is, we want to see this, I think, this has potential to grow, but we need to allow people to actually use our platform for this and we had to create a parallel manifest to do that. That takes us from 800. There is another 100 basically for research allocations. We closed some more earlier in the quarter before we made this strategic shift to the research piece.
And then the second growth market, we are trying to go after is luxury and adventure travel. Now, not all, but I’d say, a heavy percentage of the people that we have right now and that are flying are space enthusiasts, somewhere their background has been a natural instinct and interest in getting into space and then that will continue.
There is a much, much larger group out there that does very high end luxury and adventure travel and as this gets normalized, right, over the next few years and people do that, that will be a place we want to tap in. Those people are all around the world.
And this partnership with Virtuoso gives us a chance just in a limited way with the limited number of seats we have left, to see if they can kind of expeditiously go after people that they already know and offer up the seats. So that we start to see that luxury market and we get kind of a run with a world-class partner and see if they can bring a great people to us.
So we have given less than 100 we have left. We gave the majority of those over to Virtuoso. They have about 20,000 partners within their group that do this, so we want to have a big enough slug that people had a chance to acquire one of these remaining seats.
Then we have kept a few, I will use the word house seats that we will use for referrals from our own team just, because I think we will have some of those as well. And that round about gets us to the 1,000 we had.
As I mentioned, I’d like to have the time from when future astronauts signs on with us to when they fly in the two-year to three-year range. I think that’s an appropriate development of the journey and the personal kind of journey people will be going on here. Our capacity of these initial ships relative to the 1,000 has extended us past that.
So we want to burn that down and we will then reopen up sales as we start flying our current folks and that’s getting us closer to where the Delta ships come on board, so we can keep closer to that two-year to three-year period.
Greg Konrad
And then on the cash usage of $110 million to $120 million for Q3, I mean you announced the number of agreements in the quarter. I mean, how does that compare to peak and maybe what is accelerating when we look about versus Q2, and anymore ideas kind of what peak cash usages given the initial agreements in place?
Doug Ahrens
Sure. Yeah. Regarding the increase between Q2 and Q3, it’s primarily around the scaling of the aerospace activities we have. So we have got the continuation of the enhancement period. But on top of that, now we have the beginning of the work with Aurora for the new motherships. We have got the ramping of engineering for Delta class spaceships. That type of thing. So it’s really aerospace driven for finishing the current programs and then ramping up the new programs.
So that’s where we land for next — what you have indicated is we grow and we see growing past that, of course, a little early to call a peak into the future, because that’s pretty far out and we really give just one quarter guidance. You would see these layers continue to build right around the spaceships, motherships, the campus, these types of things, the factory for the spaceships.
So those things are going to come together. We got timing and magnitude of each that could move around a bit. So it wouldn’t be appropriate to get — to put a number out there like a year or two out, but although it gives you enough color to kind of see the layers that were build for your model.
Greg Konrad
Okay. Thank you.
Michael Colglazier
Thanks Greg.
Operator
Thank you. Our next question comes from Matt Akers from Wells Fargo. Matt, your line is open.
Matt Akers
Hey. Hi. Good afternoon. Thanks for the question. I wanted to ask about the partnerships, Delta and kind of progress on RFPs and if there’s any update on that or sort of the timing of when you think you might be able to announce an update there?
Doug Ahrens
I will probably start sort of like specific timing announcement there, but the RFIs are long due and the RFPs have been out for a while and will be coming back in the upcoming month or two here and then we have to spend the time in the selection process.
But we are clearly parallel passing with the teams that we have been working with. We have been really pleased with both the quality of the companies that are interested in working with us. Specifically we are looking for people who not only have the technology and skills but also we are sorting for people who have capacity within both their manufacturing and their engineering organizations, because we will need separate teams that will focus on these spaceships.
So we have been really pleased at who we are speaking with, they are really quality firms and we are actually touring with them and doing sidewalks along the way as well. So I think that’s going to be in our near future as we will be able to bring those names in, and as I mentioned, they will — the structure will be similar to what we are doing with Aurora, where we are having them both help on the manufacturing and in some cases engineering side.
Well, clearly, we will be doing a lot of the engineering on Delta’s ourselves spaceships, but they are able to partner with us and get us scale in that way as well and then we will do final assembly in the new Phoenix facility as discussed.
Matt Akers
Okay. Thanks. And then, I guess, one more, just on the kind of the delays on the Eve upgrades, and I guess, if you could dive into more detail, I mean, is that — the supply chain disruptions, labor availability, just kind of scope change or if you could just talk about sort of what the biggest kind of drivers of the delay were?
Doug Ahrens
Sure. It’s not scope change and while supply chain everywhere remains challenged and is something we are working on, our teams have done a really good job putting a box around the supply chain issues that we talked about earlier, and again, we are still not as it was as our country and supply chain issues, but that’s not really the driver.
The driver is around the amount of time it is taking us to accomplish the work scope on Eve. The particular part that’s probably most acute all happens around the center wing area, that’s where, as you are probably aware, we are changing what had been a 3 point highlight that attaches to spaceship to a 4 point pile on.
And a couple of things that are going on in that, one is, we have amazing people that are excellent designers and they take the drawings that we have and draw the installation on the ship and the ships as built are different enough from the drawings that we had that we need to go back and conform those drawings to the as built.
So then it’s a practical situation of labor, right, whether people are out with COVID and we are waiting a little bit for the engineer to come back, whether it is just limited working environments there, have you seen the wing of this airplane, the narrow wing, there’s a limited number of axis panels. And so everything can happen in parallel, there is quite a bit of seriousness that goes into this effort and that’s kind of what’s going on here. This is compounded.
We have all this happening in Mojave, labor availability for the specific technicalities we have there. While we are able to keep and bring in, it is a challenged labor market in that area. And so what we have done is, we have, as we saw Eve’s work not progressing over the last couple of months, we have shifted resources from Imagine who do have the technical expertise we need to also finish out Eve because we need get Unity back in the air, we need to get Eve fly.
So hopefully that gives you a little bit of a sense there. It is — we have really amazing people and they are working hard to do this. I’d say we had our planning of how long each of these pieces of work would take is where I missed this. We did not plan the full amount of time that is proven necessary to get this work accomplished.
Matt Akers
Yeah. That’s great color. Thank you.
Operator
Thank you. Our next question comes from Oliver Chen from Cowen. Oliver, your line is open.
Oliver Chen
Hi. Thank you, Michael and Doug. Regarding the astronaut campus, what should we know about the cash flow and CapEx implications and also as you think more globally over time, how might this plan manifest, it sounds quite experiential and positive? And second on the Space for the Curious event. I am just curious about what metrics might be important for you to determine the success and return on investment there? And then lastly on the delay, did it make — did you consider doing the delays in further to Q3, just to give yourself some more cushion, because there’s a lot of uncertainty that’s some of its uncontrollable? Thank you.
Michael Colglazier
Let me, yeah, Doug and I are looking each other like who wants to take the first question there. So because I writing notes down overall for you, do you want start Doug and I will try to kick in…
Doug Ahrens
Yeah. I will with the question on campus. So in terms of timing and cash flows so it will be occurring over a period of years, right, it’s a real estate development project and the intention is to have it ready, the Delta class is ramping and so we have done it available for the customers that will be flying our Delta class.
So it’s a multiyear project. It’s — we aren’t going to put a out specific price tag on it. We have got — we are still finalizing that amounts. But I can tell you it’s significantly less than the other parts of our key investments, which should be spaceships and motherships. So put it in perspective. But you would expect to see some incremental real estate development costs over about a four-year period.
Michael Colglazier
And I will just give you over a little bit just scope. We are building this for when we have our capacity on the Delta ships out, so that we are hitting effectively whether not in our way at the daily basis. So we will have effectively at any one period of time five individual groups, crews of spaceship participants, right, future astronauts that are turning into astronauts.
So each of those five groups has up to six teams in it and so we have a size, you are going to end up with 30 or so kind of individual parties that at the most, right, sometimes will get family party that will be in same place.
So it gives you a size. It’s not a giant facility out in the desert, because we are turning these over each day one group goes out and another group comes in. So we need enough for kind of five in a concurrent basis.
So hope that gives you a little bit of a sense of scale. I tell you, you can probably see from that picture. This is a glorious location. It sits out there looking over the Rio Grande Valley. It has — you saw one view of it. On the other view are just these incredible places out at the distance. It’s one thing we love about New Mexico the — just ruggedness and natural beauty.
And that’s important, because as you heard us talk, we are taking people to get a perspective of the planet, and as you do that last several days of preparation, having a good anchor to the plan that you are leaving is very important. So we are really thrilled with the site.
You talked about the space for the Curious event and metrics. Just also were kind of asking a return on investment piece. The events like this. Some of our events are, I will call it, free virtual events where their people come and visit our facilities. That’s true. Those are all kind of included and no cost as such, but are very meaningful to the astronauts.
These types of events, I’d say, are kind of an à la carte charge. So the astronauts who choose come to all of them. The astronauts who choose to come are effectively covering their costs to it. And then our costs are then more small and managed because it’s mostly our in — our internal time and some of the speaker engagements that we do.
So what will we look for, over the course of time, this is one of them, we are giving an example with is penetration of the market. How many of the future astronauts are we gauging and how many of these types of events, but the big ones like the one we are discussing Space for the Curious, smaller virtual events or in-person moments. How often are we able to keep the touch points with these folks and what percent of the overall base do we find are actively engaged versus partially engaged or lightly engaged.
So those are the type of metrics that we will use, because again we are carrying people through a two-year to three-year journey along the way. These more intensive ones deeper and personal ones are kind of big steps forward, but they need to match with a bunch of smaller lighter steps as well. So you have a collective experience before you come into the campus that we are talking about. So, hopefully, that gives you a little sense on metrics.
And then you asked about the delay, should we have thought about a longer delay. But are — you all are, especially our future astronauts and our teams, we want to have these ships flying and we have to do them the right way. So we are absolutely taking the time to do the work correctly and get that out.
We have laid out, we call it, laid out the schedule flat, right? Everything from what has to happen now on shift one and shift two to kind of stay on our schedule. So we are able to now march and manage this through on a day-by-day basis. And you see our move from Q1 of 2023 to Q2. That gives us the contingency that we need for even Unity, because Unity is as you saw from delivery going up, it’s kind of wrapped up.
Now, what you are seeing us do with Imagine is take a greater degree of contingency in there. Imagine we have had to redirect resources from it and we are wanting to make sure that we give it the time it needs to the flight test program. And while we have contingency built into our flight test, its flight test, and this is the first ship is different than Unity. It does have differences that will need its own flight test program.
So we want to make sure we have given ourselves flexibility in that regard and that’s why we have said that may end up moving into a Q1 of 2024. Our teams are going to work hard to bring these to the left. I think we have the appropriate contingency at this point are.
Oliver Chen
Very helpful. Thank you. Best regards.
Doug Ahrens
Thank you.
Operator
Thank you. Our next question comes from Kristine Liwag from Morgan Stanley. Kristine, your line is open.
Kristine Liwag
Hey. Good afternoon, guys.
Michael Colglazier
Hi, Kristine.
Kristine Liwag
Hey, Michael. thanks for the color on Eve. But with a longer time and what sounds like a more complicated work scope. Can you provide more color on how much the total enhancement of the program will cost versus your initial expectations?
Michael Colglazier
We can comment on that. So if we look at the collection of the three vehicles we are working on and what we had planned for, we were actually seeing some savings initially, because of the costs of the contracts we had, the contract labor and place and everything. So we had been building up some savings along the way.
What we are finding is, the extension of the schedule is eating up that savings with basically Eve and Unity is kind of consuming the savings we had. We are back to where we originally budgeted. I think this new extension with Imagine is incremental. So there’s done one step versus three. But that’s probably the incremental part. So, overall, more, but we are fortunate that we had some savings in the beginning to offset some of the things that happened later.
Kristine Liwag
Thanks. And as a follow up to that, can you provide some numbers around the Imagine cost increase?
Michael Colglazier
Well, that’s a multiyear effort and so I think it’s hard to put it in perspective given it’s been going on for several years. So, I think, what we are talking about is, it’s — we are talking moving from mid-2023 to the end of 2023 for the enhancement period in q4. So you can just think of it as a quarter and a half. If you were to take the midpoint there kind of extension, but to try and put a exact price tag on it relative to the total cost, they don’t think is helpful.
But just kind of put it in perspective, it’s one ship out of the three. So it’s just a fraction of all of the effort. The bulk of the spending right now is on Eve is getting most of the attention and Imagine is the next in line. But hope that put some perspective.
Doug Ahrens
Yeah. I guess the other thing just a little bit add color of what’s left on Imagine, is not so — there is a little bit of — I will put hands on the ship just finishing things out. But that’s the smaller part. The — what we are going to be doing at Imagine is, moving it through its test program on the ground and in the air and so that’s a different slice of engineering resources that we need for that. Obviously, we have people in Mojave that are working to ship throughout. But it’s the cost that we are still moving through test as opposed to giant groups of people that are building at that moment.
Kristine Liwag
Thank you for all the color guys.
Doug Ahrens
You are welcome. Thank you, Kristine.
Operator
Thank you. [Operator Instructions] Our next question comes from Pete Osterland from Truist Securities. Pete, your line is open.
Pete Osterland
Hey. Good afternoon. I have just got a question for you on R&D expense. So you start commercial operations in second quarter of next year, you can — are you going to see any meaningful step down on the extent of getting the first ship up and running or the work you are doing with Imagine and Delta, would it really be more of just a reaction of resources where you would expect to see R&D continue at or maybe above where it is right now?
Doug Ahrens
We would expect to see it at or above where we are now, because we will be ramping heavily on the Delta class and the next-generation motherships. So we will be rolling off on one hand with the enhancement period, but pivoting and growing resources on the other side.
So this is our — when I talked about spending increasing quarter-over-quarter and then continuing into next year. This is the category we will go into will be R&D primarily. So you will see that that type of trends.
Pete Osterland
Okay. [Inaudible]
Michael Colglazier
Thanks, Pete.
Operator
Thank you. Currently, we have no further questions. Therefore, I would like to say thank you to our speakers for their time and presentation during this event. And ladies and gentlemen, this concludes today’s conference call. Thank you for being with us today. Have a lovely day ahead. You may disconnect your lines now.
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