Good afternoon. My name is Nadia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Virgin Galactic's Second Quarter 2021 Earnings Conference Call. . Thank you. Hosting today's conference call will be Seth Zaslow, Vice President of Investor Relations. As a reminder, today's call is being recorded. I would now like to turn the conference over to Mr. Zaslow to begin. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Virgin Galactic Second Quarter 2021 Earnings Conference Call. On the call with me today are Michael Colglazier, Chief Executive Officer; and Doug Ahrens, Chief Financial Officer. Following prepared remarks, we will open the call for questions. Our press release was issued about an hour ago and is available on our Investor Relations website. as is the slide presentation that will accompany today's remarks. Let me refer you to Slide 2 of the presentation, which contains 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 section of the company's Form 10-K filed with the Securities and Exchange Commission and other documents 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. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in our earnings press release. With that, I would now like to turn the call over to Michael.

Thanks, Seth, and good afternoon, everyone. It has been an extraordinarily active and successful 3 months for our company. Since our last earnings call, we've achieved significant milestones on our path towards technical and operational readiness for commercial launch. We've also gathered tangible evidence of the deep consumer interest in our service, which reaffirms confidence in our approach. Our Unity 22 flight in July was a landmark achievement. After 17 years of research, engineering and innovation, we executed a successful spaceflight with a full crew in the cabin. Unity 22 demonstrated further proof of our technical readiness, and we were able to share this event with the world as over 19 million viewers around the globe enjoy the excitement and wonder of the spaceflight experience through our live stream and live television broadcast. Watching VSS Unity streaked, once again above the atmosphere, arc back towards Earth into a perfect viewing position and feather gracefully for return to Spaceport America, validated the inherent safety and design of our system. The feedback we got from Serica Bandola, Colin Bennett, Beth Moses and Richard Branson gave us incredible validation of the customer experience we've created, and the extraordinary global response to the flight makes us even more confident in the significant untapped market as space enthusiasts and the power of our global human center brand to attract them. With the successful results from the Unity 21 test flight in May and Unity 22 in July, we stepped closer to completing our spaceflight program and launching commercial passenger service in '22. And as we advance towards that goal, we are excited to announce today that we will immediately open ticket sales to our significant list of early hand raisers, prioritizing our Spacefarer Community who as promised will be given first opportunity to reserve their…

Thanks, Michael, and good afternoon, everyone. Before I review the financial results for the quarter, I'd like to begin with a few comments on our broader financial strategy. Turning to Slide 10. As you heard from Michael, incredible response to the Unity 22 flight reinforced the enormous interest and demand there is for our offering globally. To begin to address that demand, our long-term objective is to operate a near daily cadence of spaceflights, and not just from New Mexico, but from multiple locations around the world. As we've said previously, this is going to require a significant increase in manufacturing capacity, with each spaceport needing high single-digit to low double-digit numbers of spaceships, along with multiple motherships to carry the spacecraft to launch altitude. Of course, how many ships we need will depend on how quickly we can turn them around, which is why we are laser focused on refining our ships to make turnaround and maintenance even more streamlined. As we are building the design of our next generation of spacecraft, we are incorporating learnings as we go. Our current production facilities have been sufficient for the needs of the business so far as they provide capabilities for developing, manufacturing and testing spacecraft and related systems. These facilities will continue to play a valuable role in our future plans. But as we've said before, in order to scale our fleet to the level we require, we must significantly enhance our production capabilities over the next few years. We're evaluating how to build our fleet most effectively and efficiently. And in addition to planning improvements our design and manufacturing capabilities, we're evaluating our supply chain and potential opportunities for strategic outsourcing to improve yield, quality and speed. We expect to share more details on these plans in the future…

Thanks, Doug. Turning to Slide 13. Before moving to Q&A, I want to take a moment to reinforce the outstanding success of the last 3 months. We've demonstrated the safety and success of our technology. We showcased to the world the emotional power of our consumer experience. And now we're intensely focused on scaling our operations, expanding our brand footprint and adding new customers to our future astronaut community. As we move ahead, we'll continue to stay focused on 3 key areas: completing our flight test and enhancement programs, expanding our fleet through scaled production facilities and operations and capturing and expanding consumer demand as we build out and deliver an incomparable customer experience. We are opening the door to greater access to space and bringing the awe and wonder space travel to humanity at large. And this quarter, we made enormous progress towards that goal. This is an exciting time for the company, and it's also an incredible moment for human exploration. There's an unprecedented level of innovation and momentum in this sector and a tremendous global consumer response. We are not just watching history being made. We have our sleeves rolled up, and we're making it happen. The milestones we've achieved recently are clear progress towards an exciting future, and I am thrilled to be a part of it. Operator, we are now ready to begin the question-and-answer portion of the call.

. Our first question today comes from Robert Spingarn from Crédit Suisse.

Michael and Doug, congratulations to everybody at Galactic the progress to date and especially earlier this in July. Just a couple of questions. What -- you talked about the experience in building out the campus. What what's the capital expense for that?

We're in the design phase of that right now. As you know, we've brought in a team of really world-class experts for that. So we haven't landed on the full scope of that program. So nothing to disclose today on that. I think it will be in line with the volume of people that we take up into space for every spaceport. The campus we're talking about is one that we'll use in our first base port. But that model, I think, will play forward into future spaceports around the world as well. And the real reason, Rob, for the campus is as we start moving at higher rate frequency and we fill up basically Spaceport America with departures. What in the short run -- while in the short run, Spaceport America in the short run will be used for that training program itself. When we get to higher rate, we need to move training off the spaceport and into its own place, and that's why we want to build a campus that combines that with the housing to lodging. And as we mentioned, much more broadly have a place that prepares people for this journey. As I mentioned, our real product is the memory that people come away with for life, and this is not just about going up and down. And so we want to make sure we're so thoughtful about preparing people for that. That thought will go into the design of the campus that we're talking about, and we look forward to sharing more about it as it comes together.

Okay. And then just a couple of things on timing. When should we expect the Delta Class ships to be ready for commercial service? And then if I think about the 600 deposits that you have today, which I guess could be accommodated on roughly 100 flights if all those flights were full, based on the plan that you laid out a little while ago, by when might these 600 tickets be fulfilled?

Well, you are clearly hitting on kind of the key to our ramp-up, which is really leaning heavily into the Delta Class as well as getting other ships that will carry all those spaceships. We think the long-term demand has been demonstrated so strongly through Unity 22, and that's why we're opening sales up for it. But in the short run, we will be flying on Unity and Imagine using our mothership, Eve. And that's why you heard us today talking and sharing that the really big lift that we're going to have for Eve and the frequency of flight around that, the initial phase of those 600 future astronauts will be flying on Unity and Imagine and carried by Eve. And so that's why we're taking the time out to go into this enhancement period with an extended scope. That was a big win that came from our engineering team in late July with a path forward for us to improve the rates there. Getting those rates up will let us move to the first 600 as quickly as possible, but we expect the Delta Class will also be coming in for some of those people as well. And that's where you see us on the capital side of the house, raising funds to get us ready for the manufacturing and production facilities that we're going to need to move those more quickly.

So it sounds like you can't really put any more specifics around that time frame beyond that?

Yes, I think we tried to share today, I think, some good specifics on what we expect for churn rates on our existing ships, and we also have laid out what we want the program for the Delta Class to be. Today, it won't be the day that we kind of share the specific production strategy that we'll use for the Delta class. We do look forward to bringing that to you all, but we won't be sharing that one today. What I can say is that Delta Class and the new mothership programs clearly are the important new programs for us as a company, and we'll be aligning our energies towards them.

Our next question comes from Doug Harned of Bernstein.

Doug, when you talked about the need for the $500 million capital raise, you mentioned -- and part of this is about thinking of future spaceports and the expansion. So my guess is you've been thinking about that some white sand as a financial place to do this for a number of reasons. But when you look forward, what's the time frame when you're thinking about that next space for opening up? And what factors would go into a location decision?

Doug, do you mind if I kick in on that one?

Go ahead, Michael.

Doug, we're clearly going to focus the initial ships and the first ships coming out of our Delta Class production facility towards building out Spaceport America. But we're going to be building a production facility that will move multiple ships per year through, right, in a kind of a quick sequence following each other. So as we first then fill out Spaceport America, the year behind that, we will be able to put a heavy downpayment against ships for the next spaceport. After that, we should be able to kind of finish that one out and kind of so on as we go forward. So we will be in the market looking for where our next spaceport will go, not in this year, but I would expect we will be spending some time doing early research for that in '22. These are reasonably long lead items. What I think is really important is that we demonstrate value to New Mexico, both through a flight rate cadence that will bring lots of business directly, but also to the indirect benefits that will accrue to the community as we move to a high flight rate period. I think that will bring additional jobs. That will bring additional ancillary businesses. And with that kind of fully functioning spaceport product, we can move to other communities around the world that I think will have high interest for that. So we know kind of how we want to go about that from a research and negotiating standpoint. You asked what would be places that are interesting. I think having a varied look of different places around the world, right? So we bring people up to look back upon the Earth from space, and I think seeing different parts of the Earth will be very different and unique. I would also call out that when we create a campus at each of our spaceports in the future, they will be very different from each other. So what we would do -- let's take Southern Europe. What we would do from Southern Europe would be a very different feel than what we might do from Asia or what we might do from the Middle East. And we could even see potential where if we are going someplace interesting that has great weather part of the year but not great weather the other part of the year, one of the great assets of our system is we can fly the motherships and the spaceships south for the winter, so to speak, and be able to allow us to get the best utilization out of multiple places. So I think we've got a really wide path open to us of interesting locales, but I would emphasize that the -- while the spaceship will function the same way at each of those spaceports, the experience we put around them will be incredibly different, and each will be unique.

And then when you talk about the microgravity experiments, it seems to me on the surface, 3 to 4 minutes of weightlessness, not a long time. What are the types of experiments that fit with this experience? And when you look at the interest you're seeing, how does the number of tickets in a sense for microgravity experiments, what sort of fraction do you see that being of the total?

Let's talk a little bit about just, I think, the market microgravity research, which goes in what has traditionally been 2 places, sounding rockets, right, that can go up that are both very high from a G-force impact to the research experiments. So not every research experiment can do that before you get more limited in like 0-G airplane flights or very limited duration. Now on the far side of that, you can go up to space station, right, and have lots of time in microgravity, and that's multiple orders of magnitude higher in cost. And so what you're seeing with the suborbital spaceflight system that we have is the ability to open up a new market that's significantly longer than what you'd see in a 0-G piece, significantly calmer on the experiments themselves and a system that has the ability for the first time outside of the space station to be human-tended. And that's a big breakthrough. So how do you then use the seat capacity when there's a human-tended research flight? And Serica Band actually tested that for us on Unity 22. Kelly Gerard is one of the researchers that will be flying in the human-tended space like coming forward. These folks will basically take a seat within the cabin. And oftentimes, their experiments will be handheld. There are other microgravity experiments that fit in what's in the industry often known as a payload rack, which we can put for the most part, I'll call it, 4 payload racks of a standard size for every seat that we have. So you can subdivide that a little bit, and that's where you see it when we talk about a $600,000 per seat equivalent for microgravity research experiments. That's kind of running on those types of subpricing. So how many of our seats, I think, will vary a bit. We definitely want to do some priority for each of our markets. There's a lot of people that have been waiting to fly to space in our future astronaut communities. So we'll give clearly the most priority into that market. But it's really important to do scientific research on our platform I think it will benefit the science community. It will benefit the research community, and it also brings a brand halo to what we're doing that I think is appropriate for the private astronaut market as well. So we'll keep a balance.

Our next question comes from Myles Walton of UBS.

Michael, thanks for the color on the pace of operations and the sort of lead time or separation time between flights on Inspire. So if you can give an update there. But also, I guess implied in the whole walk for schedule, you're talking maybe a maximum of 10 revenue flights in the back of 22. And then your sort of limited 24 to 36 flights a year, I guess, until the Delta Class shows up. Is that the takeaway I should have?

Well, I give you -- happy to go through the numbers again. You probably got them down there, what we think will be the flight rate schedules as we come out of this enhancement period for Unity and for Imagine as that goes and Eve, the big win because, as you know, we have a single mothership at the moment. Allowing Eve to go through this modification period and come out being able to fly effectively 10x more flights is what we'll be targeting before these longer maintenance and inspection durations than what we have today is a pretty material step for us, forward-looking step. So we're pleased with the benefits we're going to get out of that program. Flight wave will be tied to Unity and Imagine at the beginning. That's why you hear us putting such energy towards the Delta Class of ships and the need to shift off, as we mentioned, this kind of prototype historical manufacturing platform to one where we actually engineer for and design for manufacturability. The confidence we've built in the total addressable market, following Unity 22, really demands we move to a production fleet as quickly as possible. So you mentioned Inspire. We will pull forward Inspire when ready. Right now, Inspire has been paused as we take the resources we have still impacted by COVID. We've prioritized those against Unity, Eve and Imagine. But I would clearly deploy yours and everyone's attention towards the Delta Class is where we're going to be putting our energy and our capital.

Okay. And then one question on pricing. You said $450,000 is the starting price. How dynamic do you anticipate the pricing being both as it relates to the Spacefarers? And then I guess, beyond that, how curated will the pricing be?

Sure. We will be, I'll call it, reasonably specific on pricing for kind of each tranche of tickets that we put out. And where I said $450,000 is the beginning price as an example, if someone wants to purchase a full flight, right? You kind of buy out all the seats on the flight. There will be a modest premium that goes against that. But for the most part, that will be our starting point for the private astronaut experience. and we'll carry that through a consistent tranche of vehicles. I think that allows people to understand our product. The -- as I've said before, while this is an expensive proposition, this is I don't think about price. I think the question is always about value, and that's why we are really thrilled to be able to share Unity 22 at the world and get a glimpse of what that emotion and the value of that looks like for the spaceflight itself. And as we mentioned into the broader view, Virgin Galactic will be taking into the customer experience, it really does start at the moment someone signs up with us. So for the Spacefarers who will convert, for the people that come behind them on the priority list that we will bring into our future astronaut membership, their journey starts right there because this is relatively fleeting moments of your life that will be up looking about the Earth. And our full effort is to make sure that the emotions of that are so strong and the memory that's so powerful that, that lasts you for life, and you'll continue to share it there. So our energy will be against that, and I think the value that will come from an approach like this is incomparable. And so having the price value relationship where we want is really what factor we'll be looking for there. We feel very confident at this price point in that regard.

Our next question comes from Oliver Chen of Cowen.

Congratulations as well. The pricing, our surveys indicated a lot of pricing leverage given that it's -- there's so much demand and a supply constraint. What was your framework in thinking about the right pricing? And also, given that you're very supply constrained, what are you thinking about in terms of the number of tickets you may sell? Also, as we think more broadly about customers and community and customer lifetime value as well as experiential and beyond the first experience, what should we focus on? What's on your mind in terms of driving that long-term relationship and how that may tie in the potential revenues as well?

Thanks, Oliver. Let's see. So as to the price itself, we want to have a price that obviously creates appropriate value for the company and drives value for our shareholders, and that's very important. We want a price that is understandable and delivers such great value that the people who experience this journey with us can't help but recommend it, want to do it again, want to bring their friends and family and do it again and drive a repeat and referral dynamic that becomes kind of a self-perpetuate demand-making machine for us. So we're putting a price point out that we think achieves all those goals. It's thoughtful and purposeful, and it will be for a tranche of tickets that set of ticket starts being offered to the 1,000 or so spacefarers communities. They're call it, early handraisers that have also been involved and wanting to be a part of this for a while. And then as we move through to the degree, there's room in this next tranche of beyond that group, we are building and we'll open this up shortly a new priority list that will allow us to take advantage of the just really incredible response that came from Unity 22. The volume that we've seen coming in asking for information about flights blue is away, and we're very pleased by that, and so we're going to create a priority list to capture that. And you'll see us use the concept of a priority list ongoing Obviously, we want to keep more demand, I'll call it, on our books in excess of the supply we have. But then clearly, we're focused on ramping up our supply, and we'll always keep demand ramped up ahead of that. Oliver, you mentioned lifetime value, I think that's a really…

And our last question is the enhancement period sounds very important for scaling and efficiency. There are a lot of variables that may be out of your control. What are risk factors? And what will be the tougher aspects of the enhancement period as we're all living in a very dynamic environment right now?

Sure. Functionally, this is kind of a life extension program on Eve. And so that's, I think, very well known in the aerospace industry of how to go about that. So I'll leave it at that. As you mentioned, we're keeping an eye on the pandemic. We're keeping an eye on what that will do to allow us to bring our teams in and work efficiently together. That I'd say is one that I -- like everyone is hoping it's not a risk to the system, but it's one that we're clearly keeping our eyes on. That's probably our biggest thing that I'm focusing on from a risk profile. We're still finishing the designs. This is an idea that was brought forth and proposed at the end of July. So we definitely want to close the design process and be fully confident in the scope, but we wanted to share our best look at that today was adding an additional four months going forward.

Our next question comes from Kristine Liwag of Morgan Stanley.

On Eve, I want to clarify, while it's going through enhancements and modifications, are you still able to fly it or will be grounded completely?

These are reasonably robust modifications to Eve. So it will be coming back to our primary facility in Mojave to do this. We'll be bringing back Eve for this extended period. It will be going through efforts that make it not able to fly during that period of time. And then when Eve comes back out, which we estimate in mid- we'll use Unity and Imagine both as we kind of start moving Imagine through its flight test and Unity. We'll basically do one Unity 24, one more fully crew flight to just ensure we've got all the modifications to our cabin on the way we want to and there all functioning right. And then that will allow us to bring Unity 25 in, where we really start to open up the private astronaut experience. So this will be then we're expecting end of September following Unity 23 with the Italian Air Force. We'll bring Eve in right after that and come back in mid-'22 is our expectation.

I see. With the mothership being a limiting factor in terms of your ability to keep flying, how do you prioritize building more mothership versus investing in the ability to enhance the spaceships and also build Delta? Can you give us an idea of what your priority is in terms of these projects?

Sure. And as you guess, they are all linked factors in the equation, but the reason we are taking the additional scope and the additional time for this enhancement period of Eve is because the flight rate that we will derive from Eve following this enhancement period is we plan to build that to effect. It's almost 10x greater between major inspections and what we've been doing now. That will give us an ability to fly Eve much more frequently, and that's really important to our initial group of future astronauts as well as the people that we're going to be signing up starting today because they want to see movement, and we also want to be bringing as many people back as we can to be advocates and missionaries for us as they go out. So that's really critical this Eve modification period. We're very excited by what we'll get from that. And then really, the big priority of scaling the business comes around from the match pairing of the Delta Class of vehicle production ship that we're targeting to be able to fly on a 1-week interval and pairing those with motherships that like Eve will function similarly but can fly at an even more robust level, and those are the major programs of the company. You will see us using the funds that we have raised to develop new manufacturing production capabilities and facilities so that we can build those on as quick a rate as possible. Those are the big priorities.

Our next question comes from Noah Poponak of Goldman Sachs.

Could you give us a little more detail on specifically what you're physically doing with Eve? Just because a 10x increase in pace is really massive, it would just help you better understand how you're achieving that.

Sure. And just for clarity, what we're getting is 10x, and we're going to build up to this to make sure that the enhancement that we do, we'll test them along the way up to that factor. But what we're looking to do is enable Eve to build up to fly 100 flights before we do a major maintenance and inspection process. Currently, we do this inspection process after every 10 flights. And the reason for that, if you go back, Eve was built, as was Unity, in a fashion that's used in prototype facilities. And in building prototype facilities, they're meant to fly with specific windows, and they've been built in a way that has a fixed amount of durability. And so that's why ships that are built in that fashion have very frequent inspection processes. What we're really doing here is adding durability into the ship. This will allow it to tolerate longer periods of time with the portions of the components. And so specifically, we'll be enhancing structural components, strengthening structural components on the ship itself. And what will give us the ability to then as we come out of this enhancement period, we will fly it many times, do an inspection, confirm that everything is working the way we want. And that will then, the next time, let us do a longer period of flight before doing an inspection. And that will go sequentially up to what we expect will be a place of 100 flights between major inspection periods. That's really powerful for us and lets Eve support more spaceships than we had originally thought it might.

Okay. That's very helpful. That helps clarify it. And then, Michael, you spoke about wanting to sort of maintain demand that's just above supply as you ramp supply. Can you talk about how you're thinking through, how you want to manage that gap? Because I imagine you have the algorithm of trying to triangulate demand versus supply versus price versus timing of getting folks in. So maybe -- I know it changes as time goes by, but if you could speak to, at least in the near to medium term, how you intend to handle that and how big you want that gap to be, that would be helpful.

Sure. I think one thing that probably not well known outside of the existing future astronaut is one of the secret weapons of Virgin Galactic is our astronaut office. This is a group of people who have brought together these 600 people into a true community. And as I've met many of our future astronaut, the shockingly consistent feedback that comes from them is effectively being a part of this journey, and on this journey is far more valuable than they're envisioning the flight. So I think they're going to find that incredibly valuable, too. But they say it's far more valuable than what they even expect of the flight because this is a life-transitional journey. And I bring that up here because it's the community and bringing these new customers that we'll bring in into these communities. Right from the moment they sign up with us, that is going to be where the value starts to derive. And that's not well understood outside the existing 600 people. But when you talk to those existing 600 people, it's top, top of mind and very powerful. And so what then will kind of gate our growth above our supply is how we want to absorb people into the community and how we want to carry that forward, and we think we've got quite a bit of headroom there. We have an enormous amount of confidence in the total addressable market that's been kind of shown from the response to Unity 22. So we won't be absorbing all of it, but we do think we can make a major step forward here. And then once that's, I'll call it, absorbed appropriate in the community, then we can grow from there. We'll also then, I'd say, keep a proportionate demand -- excess demand against our supply. So right now, our supply is very low, and we have 600 people. We'll be adding more to that as we start adding the Delta Class ships in, as we bring Inspire on, as -- I'm sorry, as we bring Imagine on and Eve comes out of its modification period. That will give us even more opportunity to bring more people into the community. So we'll always stay proportionally ahead of it. And finally, we'll get to a steady-state point for Spaceport America and New Mexico, and then you'll see us moving to the next spaceport.

That's really helpful. Is it correct to expect this current reopening of the sales window to be fairly short-lived given where demand sits and where supply sit at the moment?

We haven't shared how long we think this will go. What I can tell you is the response has been really, really strong. But what we want to do and the reason is we want to go do what we promised, which is moved to the Spacefarer Community. These are 1,000 people who signed up, they put deposits down saying they wanted to be first in line, and we're going to give them that chance. And so the number we will do beyond that Spacefarer Community, we'll get to once we've got through the Spacefarer Community itself. But I think it will be a meaningful number. We have, I think, plenty of time to get it done. We'll be reporting out on how we go along the way with that. But I think it will be a good sales process, and there will be a lot of energy around it.

Our next question comes from Michael Ciarmoli of Truist Securities.

Just on the pricing, the $450,000, can you talk maybe what that does to your overall financial model and specifically the contribution margin? I mean, I know you guys had laid out a contribution 66% margin based on the $250,000. I mean -- or should we be thinking that all of this price is going to drop right to the bottom line? How should we be thinking about other costs being layered into the model that might possibly be an offset there?

So I think -- I don't know, perhaps in some of the early documents before the company went public is maybe what you're referring to. I don't believe we've given guidance on specific margins. Obviously, raising price and price at these levels has quite a bit of flow-through potential. So we do expect to see quite a bit of flow through. We will be investing to add value to the experience for certain. So that we will not be just taking all that money through. We will be investing as part of what the campus will be about. But the cost on a per passenger, per astronaut basis relatively are small in the relative sense from what will come from that campus versus the prices for the flight. The real cost of the business, as you would imagine, is the ramp-up of the fleet. And that's why we're so focused on getting the Delta Class with next generation of mothership, that platform going, that's where we really get efficiency. That's where we get scale. That's where you'll really see the flow-through come because we'll have a fixed cost basis that is easy for us to communicate and easy for us to contribute the trade for efficiency down the road. So I don't think I'm giving you a specific answer to your question on this one other than to say we do expect a heavy amount of flow through, but it will be only after we've delivered the value to the customer.

Got it. Got it. Just another one. I mean the planned enhancements, I mean maybe this is counterintuitive on my part, but did you guys have a discussion about just keeping the momentum going with current flights and current equipment and burn through that 600 passenger list and keep supply constrained and demand pent-up while you maybe even create more demand and focus on Delta and maybe a new mothership Eve building? Was that kind of talked about?

Yes. So this proposal came up in late July, and the opportunity to have Eve fly at a much more frequent basis is very powerful, and it's clearly the right thing to do on the business. So the question was now versus later. And in that discussion, we -- if you look where we are in our evolution of our company, right now, we're flying with one ship with Unity. We'll be flying with 2 ships with Imagine. And then over time, we're going to be fine with more ships. So the time to take a period of an extended enhancement is when we have the newest ships available, right? That's the kind of least impact over time. So that was probably the biggest factor is now is the time to get this done at the start. We don't want to take Eve down later once we've really started to ramp up our private astronaut business because I think that's harder for people, right? They were like, okay, I'm started up, and I know the first X number of us got out. And then to kind of come back and do an intended period of time didn't make as much sense. So what we are able to do now, though, during this down period is also get focused on the Delta Class and also get focused on the next generation of motherships so that we are keeping those things moving in parallel and not waiting on people, too.

Nadia, we have time for one last question, please.

Okay. Our final question today comes from Pete Skibizzi of Alembic Global.

I just want a little bit of a follow-on to Michael's line of questioning with regard to the income statement. I don't know if we could talk too much about this yet, but I'm starting to get more curious now about if it takes kind of through the end of 2023, let's say, or so to get through the first tranche of 600 customers, is it reasonable then to assume that we'll take a pretty pronounced step-up in gross margin as we hit the Spacefarer tranche, and I guess that will be roughly 2024 just directionally. And then I'm wondering kind of if you guys have an internal view of what annual rate of flights you need to hit to get to free cash flow positive.

So maybe, Doug, I'll do a little bit and feel free to kick in here. I would say the last flight that we had with our first 600 future astronauts, the last section of those were priced at around $250,000 per person. And some of those in the early phases were less for the very, very early customers who are very happy, I think, with they're investing even though it's taken a little bit of time now. So as we fly those and recognize that revenue, the revenue we recognized on the earlier flights will come through with those prior sales prices. And then as we fly people who will be our new customers coming in, those will obviously come through at our new pricing, which will have a greater degree of revenue flow through. So I think you're probably recognizing there will be an inflection point as we start to fly the next tranche of future astronauts. That is accurate. Doug, anything you'd like to add to that?

Yes. We gave information about the flight rates on Unity and Imagine which you can, therefore, estimate the number of flights in '22 and '23. And so you can see rate of flying the future astronauts we have on board now. And then that points to the next stage in our growth, which is with the Delta Class, right, and how we then -- with the expansion of the fleet and the faster turn times, we're able to really expand our rate of flight to the number of passengers we're taking with that expanded fleet. So that's what we're really working towards and why that's so important.

Just to follow up one last time on that. Is it reasonable to think that as that -- the more recent tranche starts flying in 2024, that, that could be the year maybe in the back half? Do you become free cash flow positive? Is that kind of a ballpark time frame? Just because we're a little bit less CapEx level, I think.

Yes. So the CapEx, we talked about the need to expand our fleet manufacturing capacity. So you'll see that kick in, in the interim period. But it's going to, again, depend on the point in time where these things cross, right, where we've got Delta Class kicking in and the readiness of the fleet and where that crosses over with the 600 customers we have at the original price and the new ones kicking in. So again, it's the timing of when that comes online, and that's what we're working towards. But it's a little early to say exactly when that point in time is, but we'll have more to say in the future on that.

So at this point -- well, at this point, we want to thank everyone for joining the call and for your interest in Virgin Galactic. Nadia, you can conclude our call now. Thank you.

Thank you, ladies and gentlemen. This concludes today's call. Thank you all for joining. You may now disconnect your lines.