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 Second Quarter 2021 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 Trations.
As a reminder, today's call is being recorded. I would now like to turn the conference over to Mr. Zaslow to begin. Conference call. Please go ahead.
Thank you, and good afternoon, everyone. Welcome to Virgin Galactic's 2nd quarter 2021 earnings conference call. On the call with me today are Michael Koleglazer, 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. Conference call.
For more information about these risks and uncertainties, please refer to the Risk Factors section of the company's Form 10 ks to put undue reliance on forward looking statements and the company specifically disclaims any obligation to update the forward looking statements You can find reconciliations of the non GAAP financial measures to the most comparable GAAP measures in our earnings press release. Conference call. 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 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 19,000,000 viewers around the globe to enjoy the excitement and wonder of the spaceflight experience through our live stream and live television broadcast. Watching VSS Unity streak 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 Sirisha Bandla, 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 of space enthusiasts and the power of our global human centered 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 test flight program and launching commercial passenger service in 2022.
And as we advance towards that goal, we are excited to announce today that we will immediately open ticket sales We have a purposeful range of product offerings in order to satisfy the different ways people will want to share this experience. For the private astronaut flights, our products will include a single seat, a multi seat couples, families and friends package and a full flight buyout. Prices for this next phase of private astronaut sales will begin at $450,000 per seat. Microgravity research and professional astronaut training flights remain priced at $600,000 on a per seat equivalent basis. I'll have more to say about our commercial plans later in my Turning to Slide 4 and the agenda for today's call.
I'm going to start with a recap of our flight test program and the momentum that it's created for our company and our commercial plans. I'll follow with an update on our fleet readiness, including efforts to reach moderate rate commercial cadence as we parallel path to the design of our production model spaceships and motion. I'll then share an overview of our approach to the Virgin Galactic customer journey and how it will differentiate our product in the marketplace. Then I'll turn the call over to Doug, who will provide a financial update and discuss our strategy to expand our production capabilities to meet the high levels of anticipated demand. Turning to Slide 5, let's start with our flight test program and to the enormous impact of our recent flight, Unity 22.
Unity 22 flight was an important milestone for the company, But it did not stand alone. It was part of a methodical test flight program with each achievement building on the one before. With our Unity 21 test flight in May, we successfully completed our 3rd spaceflight, the first one from Spaceport America, New Mexico. Now the focus of this flight was to validate our technical approach and flight profile and it did exactly that. The flight tested and affirmed the SpaceShip's upgraded flight controls and horizontal stabilizers and it also collected the data needed for our final two verification reports for the FAA.
After the Unity 21 flight, we submitted that data to the FAA and following a detailed review, the FAA announced in late June It is had approved the expansion of our commercial space transportation operator license to allow for the carriage of spaceflight participants. This marks the first time the FAA licensed its baseline to flight customers. It was further validation of the inherent safety of our system. With those technical pieces in place, in July, We turned our focus to testing the cabin experience for our private astronauts and researchers. This was the 22nd flight for VSS Unity, the 4th test flight to reach space and the first test flight with a full crew in the cabin.
The crew of Unity 22 successfully fulfilled a host of test objectives related to the cabin and customer experience. But my favorite part happened when each of them stepped off the ship and they came into Spaceport America before they headed out to the stage to celebrate. As age came up to me and gave me a hug, seriously, the first thing that popped out of their mouths was, I just want to go do that again. And then they stammered, and it was kind of stammering. They're very joyous in an attempt to find the words to describe the view that they had seen.
I'm sure that all of our astronauts are still absorbing this moment and what it will mean for them personally, but I think those initial sentiments confirm the most important test points for us of all. Turning to Slide 6. The Unity 22 flight was an inflection point for our global brand. We created a cultural moment. We saw incredible global engagement with viewership coming from over 65 countries.
Millions of space enthusiasts around the planet shared a glimpse into the journey that Virgin Galactic's future astronauts can expect and they loved it. The interest in Unity 22 was expressed in several ways. Extensive media coverage, which we estimated generated billions of impressions and through the incredible influx of traffic to our website potential space travelers and fans have been signing up to receive information on our products and to learn how to reserve a flight. We also announced an initiative with Omaze It raises funds for Space for Humanity, a non profit organization where individuals from any walk of life can apply for an opportunity to go to space. To date, Over 125,000 people from 190 countries around the world have donated to this cause and we're still in the early phase of the campaign, which Fantastic.
Moving to Slide 7. Our commercial focus now is to capitalize on this interest in Enthusiasm. The data we gain from this consumer response will continue to feed us with meaningful insights, insights that will be used for our next phase of sales, to curated content and engagement, including sharing exclusive content from our upcoming test flights. In combination with targeted performance marketing, to approximately 1,000 spacefares who've already expressed an interest in our product through our One Small Step program. For the private market, we will have 3 different consumer offerings.
A full flight package where the buyer can purchase all of the availability up All the seats and all the availability on a flight, a multi seat package for couples, friends and family and a single seat for individual astronauts. We expect many consumers will want to fly with friends or family and we will customize the experience to meet their individual preferences. Leveraging the substantial demand we have seen to our website, I am pleased to announce that we will soon open a priority list for future space travelers who wish to be next in time. We will reach out first to this list with any available inventory following the conclusion of our spacefear conversion process. Registration for this list will soon be made available on our website.
Going forward, we expect to maintain priority list to ensure a continuous demand overhang as we grow our supply. Moving to Slide 8. Following our Unity 22 flight, we conducted thorough inspections of both Eve and Unity. Both ships returned in excellent condition And we are pleased with the performance of our new horizontal stabilizers and our new flight control systems. We received amazing remarks on the flight experience and the views from our mission And they also gave us several notes as to how we can optimize the interior for our commercial customers.
These notes included the request for additional handholds for when people are floating in, weightless in space for all the And for researchers who are often busy with both hands, request was for some footholds to be added to the cabin design. While all safety and flight related elements of the ships performed as expected, the live video feed from the cabin to the ground to We've experienced intermittent connection and we are reworking the video transmission system for our next flight. This is not a flight issue and it's not a safety issue, But it is relevant to our consumer experience and we want to have a resolve for our next flight, Unity 23. Since Unity 22 was Incredibly successful in giving us the required feedback on the private astronaut experience. We are optimizing our schedule and we'll now have Unity 23 focus on the microgravity research and professional astronaut training experience.
We're working schedules right now with the Italian Air Force, We expect Unity 23 to take place in late September. Unity 23 will be our first full revenue flight. Following Unity 23, we will begin our planned enhancement period for our mothership, Eve, which I'll discuss in a moment. After completion of our modifications and enhancements to EVE, we'll conduct the 1st flight test of SpaceShip 3 Imagine, a glide flight, As well as the Unity 24 mission, which will be a fully crewed flight to space that will validate the enhancements to Eve as well as serving as the final confirmation of the As we reopen sales and expand our book of future business, we remain focused on building a fleet of production spaceships, which we call our Delta Class vehicles. Our objective for the Delta class is to build ships that are capable of turning on a 1 week interval.
We are also developing our 2nd generation mothership that is planned to frequently, reliably and cost effectively carry our spaceships to launch altitude. Our team of engineers completing the design trade studies for both the next mother ship platform as well as the Delta ships later this month. We look forward to sharing more about our progress on to these important platforms and future updates. While the Delta class and the next mother ship platform will constitute the bulk of our flight capacity over time. Our near term capacity is determined by flight rates of EVE, Unity and Imagine.
Currently, EVE and Unity have been on low rate intervals and this cadence is throttled by the amount and frequency of maintenance and inspection work that is performed after each flight. Finding a path to enable moderate flight rate intervals from our existing ships has been a key priority of our aerospace team. In late July, our team brought forth a recommendation to enhance EVE and Unity that could meaningfully improve flight rates. I want to take a moment to summarize the benefits of these enhancements with respect to each of our vehicles as the improvements will expand both the scope and the duration of our upcoming enhancement For VSS Unity, the ship has been performing very well during these last space flights, requiring little work outside the normal inspections that we With these additional enhancements subject to testing and verification, we will be targeting a reduced turnaround flight between Unity flights 4 to 5 weeks, and that's down from what is at best been 7 to 8 weeks. For VMS to potentially allow Eve to fly 100 flights between major maintenance inspections.
This is up from the current interval of 10 flights between major inspections today. This will be an incredibly important success factor during the early commercial service period, while we are in process of manufacturing additional mother ships. Although the designs for these improvements are still in progress, we estimate these enhancements will extend our planned vehicle enhancement period by approximately 4 months. The benefits of this extended work, however, are clear and advantageous to the business and the results will enable greater commercial flight So to achieve the improvements in flight frequency as soon as possible, we will start the planned enhancement period immediately following our Unity 23 flight in late September. BSS Imagine will complete its flight testing in parallel with Unity's commercial service operations.
And we expect the early rocket powered flight test for Imagine to be revenue producing as we'll provide access for microgravity research customers. Once in service, We expect Imagine's turnaround time between flights to be meaningfully shorter than the 4 to 5 weeks we have targeted for Uniti. For those who are tracking, let me recap the integrated schedule that comes with our expanded enhancement efforts. We expect Unity 23 to to launch a new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch of the new launch. As for years to come.
We expect EVE to complete its enhancement program around mid year 2022. In early Q3, Imagine is planned to begin flight testing and Unity 24 will fly a full crew of mission specialists to confirm the cabin interior adjustments are functioning Unity 25, our first commercial private astronaut flight is planned for late Q3. For clarity, the Delta Class and the next generation mothership programs are not impacted by the extended enhancement period and they continue on independent pass. Turning to Slide 9, I'd like to provide some insight into our customer experience journey. Virgin Galactic is creating a consumer business within comparable experiential offerings built around the heart of a world class aerospace firm.
Our commercial success will depend upon the quality of the experience we offer to our future astronauts, the word-of-mouth recommendations of that experience and the impact of our consumer brand and marketing strategy. Our consumer offering is at its most fundamental essence, a lifelong memory. And so our focus is on curating the customer experience across the entire journey. From the moment someone reserves their place to space To the time they reach Apogee and graduate into the Virgin Galactic astronaut community and beyond. This will create a memory so powerful and so deep We are developing and bringing to life a one of a kind consumer journey for our future astronauts and their guests.
This will include building an immersive multi day experience around the spaceflight. We plan to create a distinct and notable destination for to our customers as a meaningful extension of the astronaut experience. This will include luxury accommodations, services, training facilities It will be a campus shared by future astronauts and guests, which will serve to enhance, enrich and heighten the astronaut experience. Choice. Our true product though goes far beyond the week of the spaceflight.
It's about entrance into a community of people We're united by a singular aspirational experience. We've already built a thriving community of approximately 600 future astronauts with whom we regularly engage. We intend to take that much further, creating a membership community that will engage and prepare future astronauts before, during and after the trip to space. This adds significant value. It starts immediately with a commitment to reserve one's place in line.
We will have more to share on our consumer experience as we move forward. We have some of the best minds in the business working on this and we're incredibly excited about what we're building. I will now turn the call over to Doug for financial update.
Thanks, Michael, and good afternoon, everyone. Before I review the financial results for the quarter, I'd like to begin with a few comments to our broader financial strategy. Turning to Slide 10, as you heard from Michael, the incredible response to the Unity 22 flight reinforce 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 space flights 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 mother ships 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, to 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 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 call. Turning to Slide 11. Last month, we announced our intent to raise $500,000,000 of capital through the sale of our common stock Via an at the market or ATM equity offering. In connection with this offering, we issued approximately 13,700,000 shares at an average price to $36.39 Going forward, we will continue to evaluate opportunities to raise capital as we grow and scale our business.
We plan to use a combination of cash on hand, revenue from commercial space flights, as well as future inflows of capital to fund our strategic objectives. Our balance sheet remains an area of strength for us and the step we took last month provides for our growth and further strengthens our position. We remain well capitalized with cash and cash equivalents of over $1,000,000,000 which represents the balance as of the end of the second quarter adjusted for the proceeds from the July offering. I also wanted to take a moment to discuss another topic that some investors have expressed 2019 capitalization of our spaceflight system. To date, our policy has been to expense the development costs associated with our human spaceflight system expect it in mid-twenty 22.
As mentioned earlier, we anticipate that the planned improvements will significantly reduce the turn time between flights which will enhance our economic model. Let's review our results for the Q2. Free cash flow was a use of $66,000,000 compared to prior guidance of approximately $60,000,000 primarily due to the acceleration of marketing expenses for the Unity 22 flight as well as working capital changes. Looking ahead, we anticipate 3rd quarter free cash flow of approximately negative $65,000,000 plus
or minus
a few $1,000,000 Turning to Slide 12 and the income statement. We generated revenue of $571,000 in the quarter Related to payloads, which were flown on Unity 21 in May, as well as revenue earned from the completion of certain technical milestones related to payload services. Total GAAP operating expenses for the quarter were $74,000,000 compared to $63,000,000 in the prior year period. The increase in expenses was primarily attributable to higher non cash stock based compensation expense. Total non GAAP operating expenses were $57,000,000 compared to $55,000,000 in the prior year period.
GAAP net loss for the Q2 was $94,000,000 plus increases in stock based compensation and other operating expenses. Adjusted EBITDA was negative $56,000,000 compared to negative $54,000,000 in the prior year period. I'd like to now hand the call back to Michael.
Thanks, Doug. Turning to Slide 13. Before moving to Q and 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, to expand 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 of space travel to humanity at large. And this quarter, to make 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. You're not just watching history being made, The milestones we've achieved recently are clear progress towards an exciting future and I am thrilled to be a part of it.
Our first question today comes from Robert Singan from Credit Suisse. Robert, please go ahead. Your line is open.
Well, good afternoon.
Hi, Ross. Michael and Doug, Congratulations to everybody at Galactic for the progress to date and especially earlier this in July. Just a couple of questions. What's the capital expense for that? We're in the design phase 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 to update you 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 at our first spaceport, but that model, I think, will play forward into future And we fill up, basically Spaceport America with departures. What in the short run, Spaceport America, well, in the short run, will be used for the 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, the 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 mother ships that will carry all the spaceships. We think the long term Demand has been demonstrated just 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 mother ship, Eve. And that's why you heard us today, talking and sharing that the really big lift that we're going to have for East and The initial phase of those 600 future astronauts will be flying on Unity and Imagine and carried by EVE.
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 through the first 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 So it sounds like you can't really put any more specifics around that timeframe beyond that. Yes. I think we've tried to share today, I think, some good specifics on what we expect for turn rates on our existing ships.
And we also have Laid out what we want the program for the Delta class to be. Today 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 to 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 toward them. Okay.
Thanks very much.
Thank you, Robert. Our next question comes from Doug Harned of Bernstein. Doug, please go ahead. Your line is open.
Very good. Thank you. Doug, when you talked about the need for the 500,000,000 capital raise. You mentioned and part of this is about thinking of future space for us and the expansion. So my guess is you've been thinking about that.
White Sands is a natural place to do this for a number of reasons. But When you look forward, what's the timeframe when you're thinking about that next space for it opening up? And what factors would go into a location decision?
Hey, Doug, do you mind if I kick in on that one?
Go ahead, Michael.
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 down payment 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 base port will go, Not in this year, but I would expect we'll be spending some time doing early research for that in 2022.
These are reasonably long lead items. What I think is really important is that we demonstrate value to New Mexico, both through 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 I think that will bring additional jobs, that will bring additional ancillary businesses. And with that to 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 space ports 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 field than what we might do from Asia or what we might do from the Middle East. And we could even seek 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 mother ships and the spaceships South for the winter, so to speak, and be able to allow us to get 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 for microgravity research, which goes in what has traditionally been 2 places, Now on the far side of that, you can go up to the 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 new market that's significantly longer And 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 Sarisha Bandla actually tested that For us on Unity 22, Kelly Girardi is one of the researchers that will be applying in the human tenant spaceflight 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 That's where you see as we talk about a $600,000 per seat equivalent for microgravity research experiments, that's Kind of running on those types of sub pricing.
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 community. 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 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 it balanced.
Very good. Thank you.
Thanks, Doug.
Thank you, Doug. Our next question comes from Myles Walton of UBS. Myles, please go ahead. Your line is open.
Hi, Myles.
Thanks. Good evening. Hey, Michael, thanks for the color on the pace of operations And the sort of lead time or separation time between flights, BMS and Spire, 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 And then you're sort of limited 24 to 36 flights a year, I guess, until the Delta class shows up. Is that The takeaway at Chitano.
Well, I'll give you, I'm happy to go through 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 Yundi and for Imagine as that goes. And EVE, the big win because, as you know, we have a single mother ship at the moment, Allowing Eve to go through this modification period and come out being able to fly effectively 10 times 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 rate 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've 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 2022 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 ploy 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 spacefares and then I guess beyond that, How curated will the pricing be?
So, we will be, I'll call it reasonably specific on pricing for kind of each tranche of tickets that we put out and where it said $450,000 is The beginning price, as an example, if someone wants to purchase a full flight, right, and buy out all the seats on the flight, There'll 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. 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 with the world and get a glimpse of what that emotion and the value of that looks like for the spaceflight And as we mentioned into the broader view, Virgin Galactic will be taking into the customer experience. It really does start the moment someone signs up with us. So for the space fairs 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 of that is so powerful that, that lasts you for life and you'll continue to 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
Thank you. Our next question comes from Oliver Chen of Cowen. Oliver, please go ahead. Your line is open.
Hi, Oliver.
Thank you very much, Michael. Congratulations as well. The pricing our surveys indicated a lot of pricing leverage Given that there's so much demand and its supply constraint, what was your framework in thinking about the right pricing? And also, Given that you're very supplied 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 into potential revenues as well. Thank you.
Thanks, Oliver. Let's see. So as to the price itself, we want to Have a price 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 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 tickets starts being offered to the 1,000 or so Space Care Communities.
They're, call it early hand raisers that have also been involved in 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 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 blew us 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 to 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 good place to be aware of. This is a lifetime moment for people.
I don't think it's a once in a lifetime moment. I think it's a lifetime moment that we'll be wanting to be shared. And so I think you can think about lifetime value in several ways. One of them is, as people move through being a future astronaut graduate into the astronaut community. I think they're going to come back and they will be by far the most outspoken And successful sales agents for us, right?
I don't call it sales. I think it will just be very natural in how people will share the to experience and I think them sharing the experience will not only let people say how wonderful it was, it will bring normalcy to the concept of human spaceflight. So This group of people as we bring them in, the lifetime value is all around demand and continuing to increase the total addressable market as they go out there to share what they've done. With that said, I think there are also derivatives that will come off of this as we extend people through the community after the space In addition to future space flights and future spaceport. So we haven't talked about that yet.
Today is probably not the day for that. But this is a really interesting community of people. You heard us talk about the database that we're building. So we brought in world class kind of marketing customer relationship management tools. And we will be very purposeful about curating the experience for this community going forward.
So that is Not just aspirational to be a part of, but inspirational to be a part of. And again, I think the more we bring value to the community, the more that community will bring value
Jobs. Thank you. 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
Functionally, this is kind of a life extension program on EVE. And so that's, I think, very well 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 is 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 Fully confident in the scope, but we wanted to share our best look at that today was adding an additional 4 months going
Thank you. Our next question comes from Kristine Liwag of Morgan Stanley. Kristine, please go ahead. Your line is open.
Hi, Christine.
Hi, Mike. Hi, Doug. On Eaze, I want to clarify, while it's going through enhancements and modifications, Are you still able to fly it or be grounded completely?
These are recently robust Modifications to Eve. So it will be coming back to our primary facility in Mojave to do this. So 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-twenty 22, 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 crewed flight to just Sure, we've got all the modifications to our cabin done the way we want to and they're 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 Eden right after that and come back in mid-twenty 2 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 mother ships 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 have guessed, they're all linked factors in the equation. But the reason we are taking the No. 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 We plan to build that to a fact it's almost 10 times 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 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 vehicles, production, ship that we're targeting to be able to fly on a 1 week interval And pairing those with mother ships 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.
That's really helpful. Thank you very much.
Thanks, Christine.
Thank you. Our next question comes from Noah Poponak of Goldman Sachs. Noah, please go ahead. Your line is open.
Hi, Noah.
Hi. How's it going? 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 to better understand how you're achieving that.
Sure. And just for clarity, What we're getting is 10 times and we're going to build up to this to make sure that the enhancements that we do, we'll test them along the way up to that factor. What we're looking to do is enable Eve to build up to find 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 force on it. And so specifically, we'll be enhancing structural components, strengthening structural components on ship itself.
And that's what will give us the ability to then, as we come out of this enhancement period, we will You'll fly at 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 flights 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 to 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's 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 astronauts, 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 So I think they're going to find that incredibly valuable too. But they say it was 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 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 to Excess demand against our supply. So right now, our supply is very low and we have 600 people will 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 there. So we'll always stay proportionally ahead of it. And finally, we'll get to a steady state point for Space Corp America New Mexico and then you'll see us moving to the next big one.
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 sits 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 move to the spacefarer community. These are 1,000 people Who signed up, they put deposits down, saying they wanted to be 1st in line and we're going to give them that chance. And so The number we will do beyond that space fair community, we'll get to once we've got through the space fair community itself.
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'll be a lot of energy around it.
Thanks so much. I appreciate it.
Thank you.
Thank you. Our next question comes from Michael Harmi Oli of Tuohy Securities. Michael, please go ahead. Your line is open.
Good evening, Michael. Hey, good evening.
How Thanks for taking the questions.
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 66 percent contribution margin based on the $250,000 I mean, 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 at 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 kind of per passenger per astronaut basis, relatively are small in the relative sense for mobile company 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 an exploration of mothership, that platform going. That's where we really get efficiency. See, 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 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 1 ship, Unity. We'll be flying with 2 ships with Imagine. And then over time, we're going to be flying with more So the time to take a period of an extended enhancement is when we have the newer 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 lead down later, once we've really started to ramp up our private astronaut Because I just think that's harder for people, right? They're like, okay, I'm started up and I know the first X number of us got out and then to I come back and do an extended 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 mothership So that we are keeping those things moving in parallel and not waiting in sequence yet. Got it. Got it.
Perfect. Thanks a lot guys. Nadia, we have time for one last question, please.
Talk. Okay. Our final question today comes from Pete Skibitski of Alembic Global. Pete, please go ahead. Your line is open.
Good evening, Pete.
Yes. Thanks guys for squeezing me in. Good afternoon. Yes, just wanted a little bit of a follow on to Michael's line of questioning with regard 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 today 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 space fare tranche in, 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 to $2,000 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 their investment Even though it's taken a little bit of time now. So as we fly those and recognize that revenue, the revenue we recognize 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 what you can therefore to estimate the number of flights in 2022 and 2023. And so you can see our 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 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 to the 2020 passengers we're taking with that expanded fleet. So, that's what we're really working towards and why that's so important.
Is it just a 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 timeframe?
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 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. It's a little early to say exactly when that point in time is, but we'll have more to say in
Great. Thanks, guys. 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.
Conference Call. Thank you. Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect your lines.