Virgin Galactic Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2024

Key Takeaways

  • Virgin Galactic launched commercial operations in 2023 with six back-to-back monthly flights aboard Unity, flying 24 customers since May and commanding resale prices above historical levels (up to $800K+ per seat) against a ~725-astronaut backlog.
  • Delta class spaceships remain on track for ground and flight testing in 2025 and commercial service in 2026, offering 50% more capacity (6 seats vs. 4), eight flights per month vs. one, ~$3.6M revenue per flight at current pricing and a targeted incremental build cost of $50M–$60M each.
  • The company ended 2023 with ~$982M in cash and equivalents, reported Q4 revenue of $2.8M and improved EBITDA losses, but expects negative free cash flow (~$125M–$135M) in Q1 as it shifts from R&D to CapEx spending for Delta production.
  • Virgin Galactic estimates a total addressable market of ~300,000 potential private astronauts (growing ~8% annually) and projects each fully utilized spaceport (4–5 ships) could generate $1.1B–$1.4B in annual flight revenue.
  • An FAA review of a detached alignment pin on Unity concluded with minor corrective actions in progress and no impact to the planned Galactic 7 flight in 2Q 2024, underscoring ongoing safety and regulatory compliance efforts.
AI Generated. May Contain Errors.
Earnings Conference Call
Virgin Galactic Q4 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's 4th Quarter and Full Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

I will now turn the call over to Eric Cerny, Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's 4th quarter and full year 2023 earnings conference call. On the call today with me are Michael Colglazier, Chief Executive Officer Mike Moses, President of our Spaceline Doug Ahrens, Chief Financial Officer. Following our prepared remarks, we will open the call for questions.

Speaker 1

Our press release and slide presentation that will accompany today's remarks are available on our Investor Relations website. Please see Slide 2 of the presentation for our Safe Harbor disclaimer. During today's call, we may make certain forward looking statements. These statements are based on current expectations and assumptions and as a result are subject to risks and uncertainties. Many factors could cause actual events to differ materially from the forward looking statements made on this call.

Speaker 1

For more information about these risks and uncertainties, please refer to the risk factors in the company's SEC filings made from time to time. You are cautioned not to put undue reliance on forward looking statements, and the company specifically disclaims any obligation to update the forward looking statements that may be discussed during this call, whether as a result of new information, future events or otherwise. Please also note that we will refer to certain non GAAP financial information on today's call. Please refer to our earnings release for a reconciliation of these non GAAP financial metrics. With that, I would like to turn the call over to Michael.

Speaker 1

Please go ahead. Good afternoon, everyone.

Speaker 2

Thank you for joining us. 2023 was incredible for Virgin Galactic as years of R and D and flight test culminated in launching our commercial space line and successfully flying back to back monthly space flights, each delivering an exceptional experience for our customers. Importantly, 2023 proved that each time we fly to space, we change lives for the better. And I'm incredibly proud of and thankful to our Virgin Galactic team for the successful year. Since our inception, the vision for our company has been clear and consistent to make space more accessible to people around the world and to do it in a way that's transformative and unforgettable.

Speaker 2

That vision, that dream behind Virgin Galactic came into sharp focus as we repeatedly flew spaceship Unity in 2023. Now in 2024, we're poised for even more meaningful accomplishments as we build the fleet of spaceships that will turn the dream into reality and long term success. It's a new day for Virgin Galactic. We've entered Phase 2 of our company's journey having grown beyond our R and D and prototype roots into an engineering, manufacturing and astronaut driven consumer space company with an industry defining product and customer experience. At the top of the call, I'd like to share that our Delta class spaceships remain on track to begin ground and flight testing next year and commercial service in 2026.

Speaker 2

And our balance sheet continues to be strong with cash, cash equivalents and marketable securities at just under $1,000,000,000 Turning to the agenda on Slide 3. I will start with a recap and overview of 2023 covering our launch of commercial operations, the incomparable life experience we are delivering to our customers and related to that experience, the strong value and pricing opportunities we are seeing. I'll then revisit our strategy to scale the business and drive long term growth. Because our Delta class spaceships play a pivotal role in our future, I've asked Mike Moses, President of Virgin Galactic Space Line to join today's call and dive deeper into how these next generation vehicles are being built and how they will accelerate value creation for the company. Finally, Doug will share financial results for the year and Q4, thoughts on the size of the commercial space travel market and our growth model as we build out our spaceport operations.

Speaker 2

Following our prepared remarks, we'll open the call to your questions. With that, let's get started on Slide 4. We officially commenced commercial operations last year with great success proving that we can execute as a commercial space line flying safe, regular and repeatable missions. We've created a customer experience that sets the industry standard for years to come. The comments from our newly minted astronauts have been overwhelmingly positive.

Speaker 2

To hear them describe it, the customer journey delivered by Virgin Galactic from pre flight activities and immersive training to the spaceflight itself is perhaps the most meaningful experience of their lives. We're not only taking our customers to space and back. Our customers tell us it's an incomparable life moment and we're seeing what's called the overview effect in action where the experience of seeing the earth from space literally changes you. It's a thrilling and overwhelming sensory experience to be sure, giving everyone who does it the adventure of a lifetime. But it's also the visceral realization of the vastness and the brilliance of the earth and the enormity of the human endeavor that brought them to this point.

Speaker 3

This is

Speaker 2

a life journey and it matters like nothing else people have experienced. Because we take off and land from the same spaceport runway, our astronauts can have their family and their friends share in this journey and that is just wonderful. They watch their loved ones rocket into space, see them floating in awe above the planet and then cheer as they gracefully glide back down to the spaceport. The reunions and the hugs are deeply emotional. Because we thoughtfully integrate family members and friends into the scheduled activities and overall experience, the days at Spaceport America become a shared experience that is completely unique and deeply meaningful for everyone involved.

Speaker 2

On Slide 5, for our last flight, Galactic 6, we hosted our largest crowd of friends and family since launching commercial service and the energy was undeniable. We host this group for the benefit of our customers, but this service also enables invaluable sharing in testimonials via word-of-mouth, which will be of great value to the company when we reopen sales ahead of the Delta ship's arrival. In addition, many of our flown astronauts have become ambassadors for our product, which will draw more people to the adventure and discovery associated with our spaceflight experience. Our astronaut testimonials are very moving and I encourage you to go listen to our more recent ones from Galactic 6 on our social channels. Since May of 2023, we brought 24 people to space, bringing Virgin Galactic's current total to 32 astronauts.

Speaker 2

This is almost 5% of human history's total number of astronauts and we will surpass the 5% mark with our next mission, Galactic 7 later this year. All this was done with our first prototype ship and these numbers will be dwarfed as we scale up the Delta class fleet. Everything I just discussed, how we deliver successful flights along with the superlative customer experience has tangibly demonstrated the appeal and the value of being a Virgin Galactic astronaut. And our experience with actual customers has reaffirmed the company's strong market opportunity. As a practical example of this market opportunity, we have sold recent openings in our manifest at a market rate that is substantially above our historical pricing.

Speaker 2

Our next spaceflight, Galactic 7, will have a blended manifest of researchers and private citizens, and we expect the revenue for that flight to exceed an average of $800,000 per seat. With the current backlog of approximately 7 25 future astronauts, new sales are not planned to open until we are closer to the launch of our Delta fleet. However, we have a limited number of house seats that we have made available to private astronaut referrals from our future astronaut community. We have moved the entry price point of these private astronaut seats from $450,000 to $600,000 in line with the entry level price per seat of our research flights. We believe these prices continue to reflect outstanding value for the product and lifetime experience we are delivering.

Speaker 2

And as Doug will share in a moment, we believe there is a large and robust addressable market at these price points. Before I hand the call over to Mike and Doug, I want to clarify and reaffirm our vision and growth strategy for the company. Moving to Slide 6, let's start with the building blocks of our core business model. We have laid out the unit economics of a single Delta ship. With 6 seats, these ships can deliver a revenue per flight of $3,600,000 at current pricing levels.

Speaker 2

We are targeting each Delta ship to average 8 space flights per month, allowing for annual maintenance cycles and an appropriate amount of redundancy. We expect each spaceport will be optimized with a fleet of 4 to 5 spaceships and 2 motherships. This set of assets should enable a range of 300 to 400 space flights per year per spaceport in steady state operation. To illustrate, a spaceport that operates 300 flights a year at $3,600,000 per flight generates over $1,000,000,000 per year in revenue from the space flights themselves. But that's not all that we expect to have going on at a spaceport.

Speaker 2

As we've demonstrated with our early flights, witnessing a spaceflight in person is an extremely compelling experience, not only for friends and family, but also for people who are interested in space and aerospace technology in general. As we approach a flight cadence that is closer to daily than weekly, we expect many people will wish to be part of that experience. Some of those people will eventually become astronauts themselves and some will be satisfied with being part of human spaceflight from the ground. All of them, however, will have an outstanding experience during the day at our spaceports and this can be accomplished at prices that are much less than our space flights. This larger volume of attendance at our space flights is very important to the communities where we operate.

Speaker 2

On top of the high wage jobs generated directly and indirectly from our operations at the spaceport, additional jobs and positive economic impacts should flow into the community as all the people in attendance during their spaceflight days spend time and money within the surrounding areas. At a macro level, it is this fully utilized spaceport that is the primary economic engine for both Virgin Galactic and our communities. It will be a compelling public private partnership that we're working to first scale up and realize at Spaceport America in New local space economy. I want to note that the upfront infrastructure we are now building for our Delta class ships, including our final assembly spaceship factory in Phoenix, is planned to support this future expansion. This is where we expect to drive excellent contribution margins and this is where we see significant upside potential in our business model.

Speaker 2

Once our upfront infrastructure is in place, we expect to lean into the profitable expansion of our fleet. While the capital we have on hand is sufficient to bring our first two ships into service, we do expect to bring on additional growth capital to fund the assets needed, primarily additional spaceships and motherships to expand our business at an appropriate rate. With high margins and short payback periods on additional spaceships and motherships, we forecast returns on this growth capital when deployed to be very attractive and value accretive to the company. Our primary effort right now, however, is to remain laser focused on completing the upfront design, build and test work so we can launch our Delta fleet and move into cash flow positive operations. With that in mind, I'll hand the call over to Mike Moses, President of Virgin Galactic Space Line for an update on our Delta ships.

Speaker 4

Thank you, Michael. It's great to join all of you today. It's a tremendously exciting time for our company and I'm thrilled to be part it. I'll start by addressing a couple of questions that I hear frequently because the answers will help everyone better understand the strategy and design behind our next generation spaceships. The first question I hear most frequently, how is Delta different than Unity?

Speaker 4

Typically, that question is quickly followed with, what gives us confidence that we can deliver the 1st Delta class ships next year to begin ground and flight tests ahead of commercial service in 2026. Let me start on Page 7 with the first question. What is different between Uniti and Delta? Simply put, Delta will look almost identical to Uniti. The dynamics of the flight, the shape of the vehicle, our pilot led approach and our fundamental customer experience won't change, but each of the aspects will be enhanced.

Speaker 4

The spaceship system emphasizes safety first and then ultimately reusability and frequent flight rate. While it will look very similar, there are differences and they can be broken down into 3 categories: capacity, flight rate and cost. 1st, each Delta spaceship has increased cabin capacity. Delta will be able to carry 6 astronauts in addition to the 2 pilots compared to only 4 astronauts in Unity. This is a 50% increase in seating capacity, which directly translates into increased revenue per flight.

Speaker 4

A key metric that highlights why we are so focused on the Delta fleet is revenue per flight. More seats in each spaceship means more revenue per flight. We achieved the increased capacity by removing weight from the design. 1 of the key enablers to reducing the weight is the composite materials that we use to build each ship. We have switched to a high temperature composite resin system called bismalamide, typically abbreviated as BMI.

Speaker 4

The ability of the base composite material to withstand higher temperatures reduces the amount of thermal protection required through each Delta ship, thus saving weight and increasing our cabin capacity. In addition, we are optimizing the structural skeleton of the Delta spaceship. Because we know from Unity flight experience exactly how we need the ship to perform, we can size and locate various structural parts more precisely, which in turn saves weight. The second difference is the increased flight rate of a single spaceship. It should go without saying, but a spaceship is more beneficial to the business the more often it is safely flying as opposed to sitting on the ground.

Speaker 4

Quicker turn times will enable us to grow the business quickly. This highlights another key metric, flights per month. Delta will be capable of flying 8 times per month compared to the once a month for Unity. Coupled with increased revenue per flight, Delta can generate 12 times the revenue compared to Unity. We achieved this through thoughtful and precise design and testing of the Delta spaceships.

Speaker 4

Turn time is how much time you spend on the ground between flights and the biggest impact on turn time stems from periodic inspections required to check that the system and structure are performing as desired. A major advancement with Delta is that we are building specific dedicated test articles that support cycle testing on the ground. One such article is the static test article. This is essentially a Delta ship. It's the major assemblies of the spaceship built as if they were being used in a Delta spaceship, but installed into ground test rigs.

Speaker 4

We will then pull, push, bend and twist that piece of structure until it breaks, verifying its capabilities compared to computer model predictions. This type of testing is common in aerospace manufacturing and it allows you to have high confidence in your limits and capabilities. With Unity, we did some of this testing, but because our original prototype didn't always have a test part capable of being broken on the ground, we adopted a strategy of inspecting Unity regularly to validate our performance. A static test article represents a significant investment in time and materials, but the payoff is well worth it, similar to how modern airliners are maintained. The Delta fleet will have test data to inform the number and frequency of inspections that will be needed, with the ability to space these out over the course of its lifetime.

Speaker 4

While Uniti needed an average of 14 days of inspections between flights, the Delta fleet will only need less than a day. Delta spaceships are being designed for easier access to the areas that do require inspection. Knowing specific maintenance tasks required ahead of the design process, we can ensure that parts requiring regular inspection aren't buried deep within the ship and that access panels can be removed and reinstalled quickly without requiring special tools or equipment. Finally, there is a significant difference in the cost to build each spaceship. Unity was a hand built spaceship.

Speaker 4

The parts were laid up by hand and assembled piece by piece when our company was vertically integrated, meaning that we did almost everything in house. For Delta, we are leveraging the best practices of modern aerospace manufacturing. We are using a digital twin that models all of the parts electronically and stores all relevant metadata in a common graphical data structure. This process facilitates smoother manufacturing and assembly and has great benefits in test and verification as well as commercial operations and maintenance. We are leveraging aerospace industry expert suppliers, Beltextron and Carbon Aerospace to develop, build and assemble Delta's major sub assemblies, the wing, fuselage and feather assemblies.

Speaker 4

These parts will be fully built and integrated with wiring, subsystems and components and delivered to our new Phoenix based final assembly facility, where Virgin Galactic will combine those elements and perform final ground checkout before starting flight test. Investing in the design and drawing release process upfront will enable a much smoother and quicker assembly phase. In addition to shorter assembly times, this development approach reduces the variable cost per spaceship dramatically with an estimated cost per incremental delta ship in the range of $50,000,000 to $60,000,000 This is the new way to make spaceships. Addressing the second question I'm often asked about Delta, What gives us the confidence in our schedule to deliver Delta for commercial service in 2026? You can break our schedule down into 3 phases: design, build and assemble, and test.

Speaker 4

As I've highlighted, Delta is based on the learnings of Unity and that is the most relevant fact that drives our confidence. In the design phase, we know that Delta needs to fly the same way as Unity. It has the same shape or outer mode line, flies through the same environment and follows a similar path to space. Thanks to Unity's flights, our designers already have the end well defined. In the build and assemble phase, I just highlighted the key changes that drive confidence there.

Speaker 4

The digital models, integrated major sum assemblies and development test equipment that allows us to check components before they go on the ship. On Pages 89, you can see the continued progress we are making on the build out of our spaceship factory. In the test phase, we again build off the foundation of Unity. We are not flying into new and unknown territory. We need flight testing, but for Delta, we are looking at the performance of what has changed, not learning new things on each test flight like was needed for Unity.

Speaker 4

In the test world, this is more like regression testing as opposed to new envelope testing. Finally, for those with a more detailed interest in how our spaceships are being built, Page 10 shows examples of tools that Carbon Aerospace is using to build the BMI composite parts. These tools work much like molds that allow us to build and cost effectively replicate parts for multiple spaceships. The carbon fiber parts are laid up into these tools and then cured in pressurized ovens called autoclaves that are located at Carbon's facilities. Page 11 shows the Delta Flight Deck simulator we have recently installed at our engineering headquarters in Orange County, California.

Speaker 4

This critical test asset supports the evaluation of our cockpit layout and human control interface, evaluation of flight controls and updates to pilot procedures and checklists. It has taken a tremendous amount of expertise and experience to arrive at this exciting point in our trajectory. Every flight we have taken, every lesson we have learned, every leap forward we have made, all have brought us here. What we are accomplishing with Delta and the scaling of Virgin Galactic is nothing short of amazing. And I look forward to sharing more details as continued progress is made.

Speaker 4

Now I'll hand over the call to our Chief Financial Officer, Doug Arens for a financial overview.

Speaker 5

Thanks, Mike. Good afternoon, everyone. Turning to Slide 12 and our financial results for the Q4. We generated revenue of $2,800,000 driven by commercial space flights and future astronaut membership fees. Total operating expenses were $117,000,000 compared to $154,000,000 in the prior year period, primarily driven by lower R and D and SG and A expenses.

Speaker 5

We reported a GAAP net loss of $104,000,000 compared to a net loss of $151,000,000 in the prior year period with the improvement driven by lower operating expenses and an increase in interest income

Speaker 1

from our marketable

Speaker 5

securities. Adjusted EBITDA was negative $84,000,000 in the 4th quarter compared to negative $133,000,000 in the prior year period. Turning to Slide 13. For fiscal year 2023, we generated revenue of $6,800,000 driven by commercial space flights and future astronaut membership fees. Total operating expenses were $538,000,000 compared to $502,000,000 in the prior year.

Speaker 5

We reported a GAAP net loss of $502,000,000 compared to $500,000,000 in the prior year. Adjusted EBITDA for the year was negative $427,000,000 compared to negative $431,000,000 in the prior year. Free cash flow was negative $114,000,000 in the 4th quarter compared to negative $135,000,000 in the same period last year. Our free cash flow is better than guidance due to variation in timing of payments to suppliers. For the year, free cash flow was negative $493,000,000 compared to negative $397,000,000 in the prior year.

Speaker 5

Moving to Slide 14. Our balance sheet remains strong with $982,000,000 in cash, cash equivalents and marketable securities. In 2023, we generated $484,000,000 in gross proceeds through an at the market or ATM equity offering program. We did not utilize the ATM in the Q4. Moving to our projection.

Speaker 5

Revenue for the Q1 of 2024 is expected to be approximately $2,000,000 Forecasted free cash flow for the Q1 of 2024 is expected to be in the range of negative $125,000,000 to $135,000,000 Michael mentioned earlier the strong value being delivered to our customers and he shared we have updated our private astronaut pricing to align with our research pricing at $600,000 per seat. I'd like to now discuss how we view the size of the commercial space travel market that we are pursuing. We've triangulated a few sources of research to help us better understand the total addressable market or TAM. Leveraging a 2021 Jefferies report, a 2023 Credit Suisse report and our own proprietary data, we have estimated the number of individuals that have both the desire to fly to space and the resources to do so. Using conservative assumptions, we believe the TAM for private astronaut space travel is approximately 300,000 individuals growing at an estimated annual rate of 8%.

Speaker 5

Putting that market opportunity into context, one fully operational spaceport supporting around 2,000 astronauts per year would represent less than 1% market penetration. This type of market analysis combined with the tremendous customer feedback we're seeing from the spaceflight experience shows the clear opportunity to keep expanding our fleet of spaceships and motherships with the goal of adding multiple spaceports around the globe. In the prior earnings call, we stated our ability to achieve positive cash flow with 2 Delta class spaceships. We have allocated sufficient capital to bring them into service. But our growth aspirations do not stop there.

Speaker 5

We plan to continue to expand our fleet and fill additional spaceports. The one time capital investment plan for 2024, which includes tooling its suppliers and the opening of our spaceship assembly factory in Arizona will give us the manufacturing capacity needed to continue building additional spaceships at relatively low incremental costs. Let's now discuss the economic model behind a fully operational spaceport. We believe the most effective utilization of the spaceport will occur at 300 to 400 flights per year. If we were to assume average ticket pricing of $600,000 for now, we would generate approximately $1,100,000,000 to $1,400,000,000 of revenue per spaceport annually from space flights.

Speaker 5

The spaceships and motherships are the high return, quick payback assets that are expected to drive the outstanding economics for each Spaceport. Because of the attractive economics just described, at some point in the future, we would expect to bring in additional growth capital to acquire additional spaceships and other ships, the revenue generating assets that increase profits. We forecast the returns on this growth capital when deployed to be very attractive and value accretive to the company. For now, however, having recently rightsized the company, we are prudently managing our resources and focusing the organization on good execution to bring our 1st Delta class spaceships into service. I will now turn the call back over to Michael.

Speaker 2

Thanks, Doug. To recap the key takeaways from today's call, the bold dream of commercial spaceflight was realized in 2023 as we officially launched our commercial space line with 6 flights in 6 months demonstrating the Virgin Galactic Spaceflight System is designed for safety, reliability and repeatability. Our astronaut journey is delivering an incomparable life experience that is of great value to our customers. We see positive indications for both pricing and the overall potential size of the commercial space travel market. 2024 marks a new phase as we move past our R and D and prototype routes and are now advancing the development of our production spaceships with ground and flight testing expected to commence in 2025 and entry into service expected in 2026.

Speaker 2

We continue to pursue our high growth business model of creating fully utilized spaceports with plans to first scale operations at Spaceport America with a fleet of 4 to 5 spaceships followed by expansion to additional spaceports in compelling locations. With that, we'll turn to questions. Operator, we're ready to begin the Q and A portion of the call.

Operator

Thank Your first question comes from the line of Greg Konrad with Jefferies. Your line is open.

Speaker 1

Good evening. Hi, Greg.

Speaker 3

Maybe just to start on CapEx, I mean, guiding to $40,000,000 to $45,000,000 Q1, I think you spent $18,000,000 in Q4 $44,000,000 in 2023. How do we think about the ramp there and how much of that is higher activity? And then also just given accounting with R and D, how much of that is coming over from R and D just kind of thinking about R and D spend for 2024?

Speaker 5

Yes. Thanks, Greg. Yes, you've noted trend in the shift. What's happening here is we've shifted from this heavy R and D phase as we've gone through the nonrecurring engineering into the building of capital assets. It starts with tooling and the factory and then parts fabrication and so on.

Speaker 5

So we're seeing a shift because we're moving into this next chapter where we're building these revenue producing assets. So you're going to see that trend continue into 2024 2025 where you'll see more CapEx than R and D. We don't guide the split specifically, but you will see the majority shifting to CapEx. We have said in the past and this still stands true that if you look at the total cash spending, we do expect the average spend for 2024 and 2025 to be lower than it was in 2023. And that's because of this shift that's happened where we are now moving through the addition of these assets.

Speaker 5

A lot of this happens in 2024 and then it starts to ramp down because we have these assets in place and now can move into the production of spaceships. So that hopefully gives you some color, Greg.

Speaker 3

That helps. And just in terms of spaceport, I mean, you sized each spaceport at capacity of 4 to 5 spaceships. And in the past, you've talked about Delta production capacity at 6 per year. So it seems like you could fill up the first one fairly quickly. Any color around when you would look to add a second spaceport and any initial conversations or when those conversations need to happen with potential locations?

Speaker 2

Sure. We just kind of harking back to the last call, one of the big advancements we've seen from Delta was to be able to turn those ships on a twice a week basis, well more than our Unity ship, of course, but even stronger than we had originally put forth. And so therefore we need functionally about half the number of spaceships at every space port going forward. So as you note, the factory capacity that we built, when we're thinking these could turn on a weekly basis versus twice a week, gives us, I think, plenty of capacity within the factory to build the ships out. To your specific question on next base port, generally that's about a 5 year process.

Speaker 2

And so 2029 seems to be kind of the right place for a second spaceport. I note there are many places that we could go in the world. We can go to other places in the U. S. We could also functionally double our infrastructure at Spaceport America and kind of run a twin operation there if we so chose.

Speaker 2

So there's many places we can have that next base port come forward and then ideally more following from that. But 5 years out from today is about the right target for that.

Speaker 3

Thank you. I'll leave it at that.

Operator

Your next question comes from the line of Oliver Chen with TD Cowen. Your line is open.

Speaker 5

Hi, Michael and Doug.

Speaker 6

Delta class has a really nice contribution margin once it's running. I would love your thoughts on upside or downside to the 75% contribution margin on Delta Class. And second, in terms of revenue modeling, as we think about the ramp of customer deposit liabilities on the balance sheet, Doug, any thoughts on how we should look to model that? And then 3rd, the Galactic 6 experience that we had really showed a lot of differentiation of the product. How are you thinking about competition in your pricing relative to competition and the different kind of experience that you offer as well?

Speaker 6

Thank you.

Speaker 5

Thanks, Oliver. This is Doug. I'll take the first two questions and then have Michael comment on the 3rd. So regarding the contribution margin, 75% that we've stated before, that was actually based on a lower ticket price and we're talking now. So that was based on the $450,000 ticket price and that was a full Delta class ship and a variable cost of around $400,000 So that was giving us a contribution margin of greater than 75%.

Speaker 5

Now with ticket pricing at $600,000 that contribution margin will expand because the variable cost doesn't change. We are just bringing in more revenue per flight. In terms of the customer deposits, we model those being in the area they are now, which is around $100,000,000 until we reopen ticket sales in the future, and we've talked about that on the call. But until then, it would be fairly constant. But in the future, just when we think about capital planning, we are fulfilling our CapEx requirements and our operational expenditures without any plans to utilize those deposits, those are set aside.

Speaker 5

So our CapEx and so on is funded through the other money we have on the balance sheet and in any future growth. So that's how we think about customer deposits. But Michael on GLICTITY-six?

Speaker 2

Yes, I'll talk. I think Oliver, your question is both on competition and relatedly pricing. It's very difficult to compete with us. There's a huge technology and capital boat around human spaceflight, right? That's why it's of course previously only been a few governments that could afford to get there.

Speaker 2

So really where SpaceX and governments are sending people further out, the only people doing anything in our competitive set is the Blue Origin company. And I don't have privy to their specific pricing. Anecdotally from the media, they seem to have been pricing greater than $1,000,000 as a base. So that's I'd say the only real kind of comparative from a competitive standpoint. So then I look internally and in anything that is a luxury or consumer offering you want to look at the price value relationship and the value has to be there to drive price.

Speaker 2

So we have had I think everybody's tracking with us when we've had very recent openings, right? We've flown, had openings on some of the flights that we've just done. And when that opening comes up, we have basically sold that opening at a market available price that's been very close to $1,000,000 And that probably in line with what you're also seeing elsewhere and when you can fly kind of right now, that's where the market has shown for something right here. So then the question is, well, how's the value at that price? Because we've flown people that have been waiting for 17 years that were at $200,000 and we've flown people that are closer to $1,000,000 And I can tell you having spoken with everyone, the value of what we are creating is so extraordinary that the price part of that equation is kind of diminished or minimized as an impact.

Speaker 2

So we feel that the value is so high. Our price value is good. We feel great that we're delivering enormous value at these recent prices we've been doing. I noted, I think Doug noted too that while we don't have sales open right now, we do maintain some house seats on our own. If we get a referral from our founders or customers, we can sell a few of those seats at the end of the queue.

Speaker 2

And we've moved those seats to $600,000 in line with our research pricing. I don't expect when we open up sales going forward to be going lower than that. I think the price value maintains pressure on the price point more towards the upward angle of that. But that's where we sit right now. And again, I just don't think it's easy for people to come into this market compete with the amount of upfront technology investment and diligence that has to be done.

Speaker 2

It's very complicated endeavor.

Speaker 6

Thanks a lot. And one follow-up, Michael, the spaceport experience in many ways felt like being in a movie. What are your thoughts for the community engagement part? And what have been your learning so far from Spaceport and what you do there with the guests before and after and also as you think hospitality more broadly?

Speaker 2

Thank you. Thanks, Oliver. The you heard me mention we had a larger number of friends and family and invited guests at the last space flight. Still I'd say small versus what the capacity of that kind of spaceport wants to look like on a flight day. And the more we bring in the better this experience is for everyone.

Speaker 2

We're able to take all the groups that come and on the day before the flight actually break people and give fairly robust tours of the spaceport itself, meet with leaders within our team, understand the technology, understand the incredible rigor that our maintenance and technical operations, our pilot teams, our mission control teams put into this. And it just builds the momentum and the excitement the more context we provide people. So that's like one day in advance and obviously we can program 1 or 2 days in front of that as we choose to going forward. And then on the day of the flight, having that large group around that has that context just adds energy as you experienced to everyone that's there. I think we're just at the tip of the iceberg of what that could become.

Speaker 2

But at a practical level, we have to get our spaceships built so that we can bring the space flights and do that on a multiple times a week basis. And then from there, I think we can add this ancillary nontrivial, but ancillary growth on top as we bring more people in. You mentioned hospitality, obviously, that means people will need some place to stay, some place to eat and likely will want to do other things. That's a big part of why, in this case the state of New Mexico has been so excited to have us come and get the business scaled because that starts to drive benefits that have multiplier effects throughout the community. So we definitely will pursue growth in those angles.

Speaker 2

But first things first, let's get the ships built and then we can go after scaling the rest.

Speaker 5

Thanks a lot. Best regards.

Operator

Your next question comes from the line of Myles Walton with Wolfe Research. Your line is open.

Speaker 7

Hi, thanks. Good evening. I was hoping to first touch on GALACTIC 6 and it doesn't sound like there was a delay implication from the alignment pin departure for the GALACTIC 7, which is still scheduled for 2Q. Is that correct? And have you already remediated anything with the FAA?

Speaker 2

I'm tracking this one obviously closely. But since we've got Mike here, Mike, I'll throw the question over to you and nice to hear from you Myles, by the way.

Speaker 4

Yes. Thanks, Michael. So Myles, yes, I can speak to this. I've actually been sitting in on our regular status updates to the FAA. So we are making really solid progress.

Speaker 4

We've done a fair bit testing on the ground and that's actually really allowed us to close out most of the actions in the investigation and we could recreate the circumstances where that pin came free and kind of narrow down the conditions that could have caused that. So we're in the corrective action phase to kind of enhance the robustness of the retention mechanism out of the discovery phase kind of into the reporting side. So we don't anticipate any impact on GALACTIC 7 at all for quarter 2 and the investigation has been going really well with the FAA and partnership.

Speaker 7

Okay. And Mike, while I have you, thanks for the outline of sort of the architecture delta where it's different and the testing profile. Can you put a little more meat on the static testing? And I imagine getting over that hump will be pretty critical to defining the fatigue characteristics and getting you to the confidence in those inspection profiles, which basically is the game changing for the economics. But when specifically does that static testing occur?

Speaker 7

Is it in parallel to the flight testing? Is it basically by the end of 2024 you'll have a good sense?

Speaker 4

Yes, Mas. So I think that's a really good deep question. I highlighted the significant benefit of a static test article into inspection definition, but it also clearly validates models, allows you to look for manufacturing process improvements and things like that. So it has a lot of payoffs besides just inspection, having an article that you're able to kind of validate your models on. You can also check out your instrumentation data gathering systems and validate a lot of other things as well.

Speaker 4

And so we'll run those in parallel. We'll have a static test article built up and installed down here in Orange County at our engineering design headquarters. So we get close integration with our test and engineering facilities here. And we'll have some of those parts that we want to make sure we clear before we get to certain milestones in flight test and others that will occur a little bit later on as relates to lifetime in cycle testing. So, not a specific answer for you on exactly when that is up and running, but the article will be up and running in 2024 and ready to do testing.

Speaker 4

And again, some of that will be subcomponent, but what we're really looking forward to there is the major sub assembly testing, which will be later than that.

Speaker 1

Okay. Thanks again.

Speaker 2

Thanks,

Operator

Your next question comes from the line of Sam Strysekar of Truist Securities. Your line is open.

Speaker 4

Hey, guys. On for Mike Schmolly this evening. Thanks for taking

Speaker 8

the question. I was just curious if you could give any more detail on sort of the quantity of those referral seats that you guys mentioned, there's a lot of people to enter the queue if you will to do that. And then also I was just hoping for some clarity on you said you had these openings that came up on recent flags that you sold at market value. What was the motivation behind kind of selling those as new seats versus pulling in someone from the queue to fill those spots? Thanks.

Speaker 2

Sure. The first question, Sam, is, yes, those are we don't have sales open, so they are in smaller volumes, single digits, low double digits over the course of time, more in response as opposed to proactively going out. So that's just kind of there is almost a service to our existing base. The question you had on when we have a seat opening what we've done, We obviously have had a large number of amazing future astronauts, many with us for 15 years or even a little more. And before we reopened sales back at the $450,000 point, we took the opportunity to move all of those people forward into our queue, into the manifest.

Speaker 2

So for instance, I might have signed up at number 50 in line and Sam you were number 51 and for whatever reason I had to drop out, we would have moved everybody up into my space. And so some people moved up quite a bit at that time. And at that time, we communicated with our astronaut future astronaut base that we're going to do that once. And then if there were openings that came up in the manifest along the way, that we would bring those forward more to market rate, but we would give kind of first nod within the community. And that's what we've been doing there is while we're no longer continuing to move people up, we don't move people back either.

Speaker 2

We are giving that opportunity and so we asked to the existing base of future astronauts who would be interested if an opportunity presented itself to fly earlier and it would be at a premium price if that happened and that's where we built that list up and that's where people have been the people who have flown at those higher rates at the earlier times have come from our existing base.

Speaker 8

Got it. Thank you.

Operator

Your next question comes from the line of Kristine Liwag with Morgan Stanley. Your line is open. Hi. This is Gabby on for Christine. Thanks for taking the question.

Operator

So I was just curious if you could provide some color on if there are any design or manufacturing changes required to either the mothership or spaceship as a result of the pin detachment last month? And if so, does this inform any design changes to the Delta class as you progress through development? Thank you.

Speaker 4

Yes, Gabby. So no changes to the design on either the mother ship or the spaceship. Again, the pin issue we had posed no safety threat at all during the flight and actually other than having fallen away at the end, performed its function. It's there to hold the ships in alignment while we're both mating on the ground and while we're flying. So as long as we're attached, it did its job as it should.

Speaker 4

Clearly, we don't want it to fall away, but the fact that it did meant it performed its function. So we're looking at a pretty minor change to the existing design just to give it some extra retention capability, But nothing that would be anything of significance to either mother ships or spaceships.

Operator

Thank you. There are no further questions at this time. That will conclude today's conference call. We thank you for joining. You may now disconnect your lines.

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