Virgin Galactic Holdings, Inc. (SPCE) Q3 2020 Earnings Call Transcript

Virgin Galactic Holdings, Inc. (NYSE: SPCE) Q3 2020 earnings call dated Nov. 05, 2020

Corporate Participants:

Michael A. Colglazier — Chief Executive Officer

Michael P. Moses — President, Space Missions and Safety

Jonathan Campagna — Chief Financial Officer

Analysts:

Adam Jonas — Morgan Stanley — Analyst

Robert Spingarn — Credit Suisse — Analyst

Myles Walton — UBS — Analyst

Ronald Epstein — Bank of America Merrill Lynch — Analyst

Oliver Chen — Cowen and Company — Analyst

Noah Poponak — Goldman Sachs — Analyst

Pete Skibitski — Alembic Global Advisors — Analyst

Presentation:

Operator

Thank you and good afternoon everyone. Welcome to Virgin Galactic’s Third Quarter 2020 Earnings Conference Call. On the call with me today are Michael Colglazier, Chief Executive Officer; Mike Moses, President Space Missions and Safety; and Jon Campagna, Chief Financial Officer, who will provide prepared remarks.

Earlier today, we issued a press release and made a slide presentation available on our Investor Relations website, which provides an overview of our business and financial highlights for the third quarter 2020.

During today’s call, we will make certain forward-looking statements within the meaning of the Federal Securities laws. Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and as a result are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this communication. For more information about the factors that may cause actual results to materially differ from forward-looking statements, please refer to the earnings press release we issued today and other documents filed by Virgin Galactic from time to time with the Securities and Exchange Commission including those risks and uncertainties included in the Risk Factors section of our Form 10-Q for the third quarter of 2020.

Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements. Please also note that we will refer to certain non-GAAP financial information on today’s call. You can find reconciliations of these non-GAAP financial measures to the most comparable GAAP measures in our earnings press release issued earlier today, which is available on the Investor Relations section of our website at virgingalactic.com.

With that, I’d like to turn the call over to Michael Colglazier.

Michael A. Colglazier — Chief Executive Officer

Thanks, Michelle and good afternoon everyone, I hope you and your loved ones are keeping healthy and safe. When I last spoke with you, I was two weeks into the job and over the last three months I’ve immersed myself in the company’s engineering, operations, brand, commercial, and financial areas and I’m well underway and getting to know our incredibly talented team members. Let me start this call by saying that the exposure I’ve gained in just three short months has caused my excitement to far exceed my expectations from when I joined.

I’ll start today with a brief recap of our Q3 accomplishments and an update of how we are working within the constraints of the COVID-19 pandemic. And then I’d like to give you a glimpse into some of the key insights and observations that I’ve had in my first 100 days. I’ll then ask Mike Moses to share an update on our upcoming flight and a review of our flight-test program, which I know many of you are eager to hear about. We’ll talk about progress with our second spaceship and then I’ll share initial thoughts on our commercial plans and provide an update on reopening sales. After that, John will provide detail regarding our Q3 financial performance.

With that, let’s get started with a summary of our Q3 accomplishments beginning on slide four. Despite the challenges brought on by the pandemic, we accomplished many milestones this quarter across the company. We made good progress, preparing our spaceflight system for our Fall flight including completion of data analysis that follows the June 25 glide flight and installing the cabin camera system and the hardware needed to provide live video downlink. We completed build-up of the astronaut exclusive training facility at Spaceport America and we also made solid progress on our second spaceship in preparation for rollout including application of the thermal protection system on the Wing and Fuselage, progress on systems installation and successful completion of Pilot Simulator evaluation. I’ll share more about our second spaceship later in the call. We continued to advance our efforts around high-speed point-to-point travel in Q3. And I’m very excited by the team’s early work and also by the long-term market opportunity within the hypersonic space. While we won’t be covering high speed during this earnings call, we will accumulate our progress and bring a deeper dive discussion to one of our future earnings calls.

Turning to slide five, I’d like to speak to some of the impacts we are continuing to experience on our operations and our fleet production due to COVID-19. As you might imagine, building spaceships during a pandemic is materially less efficient than normal. Our team members though have been simply incredible and everyone has stepped up to continue progress on our key initiatives while working under stringent COVID protocols. Many tasks involved in buildings spaceships require close quarters work including inspection and maintenance task on our first spaceship and mothership and installation of systems in our second ship. This type of close-end work is still progressing albeit slower than expected.

Our team members have moved to staggered shifts to lower density and we have reworked communications processes with engineers who are primarily working from home. While it continues to be difficult to quantify the full impact to our overall flight-test program, we are still experiencing schedule and cost inefficiencies and we expect these to continue into 2021. Despite the pandemic, our team has managed to keep our Fall flight on track, which has been really inspiring to watch. There is tremendous dedication to our mission and I’d like to take this moment to thank all of them for their commitment and their efforts.

Turning to slide six. As I said upfront, after 100 days of learning, I am incredibly excited about the growth potential of this company and I’d like to tell you why. To start, we have three incredible assets, our spaceflight system being our spaceship to hybrid rocket motor and mothership is one of a kind. It is first and foremost designed for safety, is elegant, beautiful, thrilling and unique and it is built for the express purpose of providing a transformative experience for our customers. Asset number two is our intellectual property. We have built an incredible economic mode of experience, data, and knowledge that’s been accumulated over 15 years of developing our system. And asset number three is our talent. We have an incredibly diverse and talented team of people who have come together for the shared purpose.

The second reason I’m excited is that the transformational experience we are creating is just so over the top fantastic. As you’d expect, I’m looking forward to bringing some of the creative development approaches that I learned in my prior roles to build-in even more value as an incomparable experience can support our pricing strategies over time. And third, I’m excited about our strategy to monetize and scale this business. After 15 years of development and testing, we are at the cusp of achieving technological feasibility. And this marks an inflection point in the company’s journey.

Turning to slide seven, the first chapter of Virgin Galactic has been to accomplish an incredibly difficult task, creating a space flight system that can fly humans to space, give them a gift of a changed perspective and then bring them safely home. We are close to completing this task and the team has done an incredible job to bring us to this point. The next chapter of Virgin Galactic is to use this system to bring thousands and thousands of people to space and deliver our purpose of opening space to change the world for good. At a recent subjective, we are embarking on a multi-year effort that will lead to flying not once a month or even once a week, the target is flying 400 flights per year per Spaceport. I am very bullish on the transformational experience that we intend to deliver and the price points we believe we could command for this one of a kind supply constrained product. The approach we are taking suggest we could generate meaningful revenues of $1 billion a year per Spaceport. And a fully utilized Spaceport can create an incredibly powerful economic engine, an engine that will come first in New Mexico, but also an engine that should have great appeal across other locations in the world.

If you turn to slide eight, to accomplish this, we must refine the organization to shift from R&D to production. I mentioned before that we have some amazing world-class talent in this organization and we have already begun to assign individuals the key roles as we make this shift. On this page is a group of fantastic leaders who will be playing important roles in our next chapter. One example is Tom Pugh, our Senior VP of Programs and Engineering. Tom came to us following a 32-year career at Lockheed Martin Advanced Development Programs. Tom started his career at Skunk Works supporting the SR-71 Blackbird and he played a part in many programs, including the F-117 and the F-22 along with other initiatives. Tom and the other great team members on this page are only a small slice of the extraordinary people we have across all levels of the company. As we set the organization up for growth and scale, I expect to see us recruit additional talent to play key roles in our next chapter and we will also become a great stepping-off point for people’s careers as Virgin Galactic has long been an incubator of talent for early-stage innovative companies.

Turning to slide nine. This image captures our space flight systems shortly after launch in New Mexico. Enabling this, to happen 400 times a year per Spaceport is a multi-year objective that accelerates now. As part of the transition from R&D to production, we plan to find spending efficiencies in early ’21 as we get people in place, so that we can then go forward as efficiently as possible. My experience and career have been built around taking incredible creative ideas, developing them in ways that are market and economically viable and driving in the scale to bring value to both customers and shareholders. And 100 days in, I am incredibly excited to now be taking Virgin Galactic on a similar path of this inflection point in the Company’s journey. With that said, our immediate focus is to complete our flight-test program and get to a commercial operation.

Turning to slide 10. As we said last quarter, our plan is to fly our first spaceflight from New Mexico this fall with two pilots. We would then continue our flight testing with the second rocket powered flight with the full cabin of mission specialist in addition to our pilot. Once analysis of that flight is completed, we will follow with a third rocket powered test flight that would include our founder, Sir Richard Branson. Richard’s flight will be a momentous occasion and will provide us with important feedback on the cabin design and the astronaut experience. At this stage, we are on track for each of these flights. As always, our progress towards next flight depends on the results or detailed reviews of our prior flights and our engineers may recommend conducting additional tests flights. For our Fall-Flight, I am pleased to announce that we have entered our final flight preparation phase and we expect to launch from Spaceport America between November 19th and November 23rd. We have a number of activities to complete between now and then, which could cause slight adjustments to the specific date, and as with any space flight, there are a number of external factors such as weather that could also impact our launch date. We are extremely excited about this flight. It will mark the first human spaceflight ever to depart from the State of New Mexico and this is a huge milestone for the people of the State, which has built the world’s first commercial Spaceport.

I’d like to ask Mike Moses, our President of Space Missions and Safety to share more about this upcoming flight.

Michael P. Moses — President, Space Missions and Safety

Thanks, Michael. Since our last powered flight to space, we have relocated our teams to New Mexico and we have integrated our operations with the local agencies here. New Mexico Spaceport Authority, White Sands Missile Range, FAA Albuquerque Center and several other New Mexico state agencies. We have also flown two successful glide flights as part of our testing program. During this time, we have made several planned upgrades to our spaceship, VSS Unity.

In our current development and test phase, a big part of what we do on these flights is assess any modifications and changes that may be required to optimize the vehicles for operations, customer experience and of course, safety. One of the upgrades we made is in the passenger cabin. As you saw with our cabin reveal in quarter three, we have put significant work into the interior design. We’ve installed the crucial elements of that cabin in preparation for the full testing of the customer experience in our upcoming quarter one flight.

On our upcoming November flight, we will test the new cabin hardware including our reclining seats with test mannequin strapped in the seats. We will also test the full complement of cabin cameras and downlink hardware, which will allow us to access our capacity to live stream future flights. This upcoming November flight will also include test points to continue evaluation of our upgraded horizontal stabilizers and flight control system. The horizontal stabilizers also known as H-Stabs are the flight control surfaces on the outboard side of the feather booms. We’ve made improvements to these surfaces as well as upgrading the flight control system that drives them. This system was already in development for future spaceships and is now installed in Unity. These changes will increase performance during the boost phase of flight. Both the H-Stabs and the flight control system have been extensively tested on the ground as well as in previous two glide flights here from Spaceport America and now we plan to verify their performance during this next rocket powered flight.

Another key feature of our November flight, is that the cabin will be outfitted with four payloads racks. Three of these will carry NASA payloads as part of NASA’s Flight Opportunities program, making this a revenue generating flight. Carrying payloads means our pilots will be flying the vehicle slightly differently to how they would fly the vehicle with future astronauts on-board. Once in space, we will pitch the vehicle 270 degrees following boost to get into the re-entry attitude as soon as possible. This maneuver will maximize time for payloads to remain in the zero gravity data collection mode. I’d like to point out here that a great part of our system is that it is pilot flown as this allows us to fly different mission profiles and to more specifically meet the needs of our different customer markets.

In addition to the NASA payloads, for the first time we are enabling our team members to include small personal items as a payload that we’ll fly to space on their behalf. It takes our entire company pulling together to achieve our mission and this is a wonderful opportunity to share this momentous occasion with them.

Finally, this next slide will also contribute to our current FAA commercial license. As we said on our last earnings call, we need data from a rocket powered flight to complete the final two verification and validation elements that are required by the FAA under our current commercial spaceflight license.

Back to you, Michael.

Michael A. Colglazier — Chief Executive Officer

Thanks, Mike. Upon successful completion of this November flight including a satisfactory review of the post-flight data and check-out of the vehicles our flight-test program will move to the next phase. This will begin with our second rocket powered flight for New Mexico, which we expect to launch in Q1 when a space flight specialist will test and verify cabin interior hardware, the weightless experience in space and our live stream camera systems. We expect the third rocket powered test flight also planned for Q1 will include our founder Sir Richard Branson. I’ve been speaking to Richard frequently about his flight and needless to say, he is incredibly excited and we are all looking forward to seeing this wonderful milestone event [Phonetic].

Turning to slide 11, in our second spaceship. Our next spaceship is planned to roll out for ground and flight testing in Q1. We had originally planned to have this vehicle ready for rollout by the end of the calendar year and this is one of the areas where the inefficiencies of operating with pandemic protocols have contributed to some delays. We have an exciting virtual event planned for the unveiling of the second spaceship and I don’t want to spoil that, but there are some important things to note about this rollout. For context, rollout means the vehicle is ready to commence its comprehensive integrated vehicle ground testing program or IVGT for short, one of the many acronyms, I’ve been learning in my first 100 days, I might add. During IVGT, we will test the functionality of all the installed vehicle systems. This rollout will be a huge accomplishment for the company.

We were able to take lessons learned from the build of spaceship to Unity to enhance the fabrication and assembly processes to deliver the vehicle in a more streamlined and efficient manner. And this spaceship differs from VSS Unity and that it has been designed for higher rate service with reduced turnaround time between flights. Higher flight rates with minimized downtime improve our efficiency as we scale and the learnings incorporated into this ship’s design will help form the basis for how we design our spaceships at increased rate and efficiency in the future. In terms of our third spaceship, we expect to commence final assembly in 2021.

Moving to an update around our commercial plans on slide 12. I believe Virgin Galactic is at the Vanguard of the experience economy as we will be providing our customers with the transformative journey, a journey that starts when they join our future astronaut community which is a peak during the [Technical Issues] they will spend at Spaceport America and then becomes a part of their lives for long after their space flight is complete. Now this is a creative and a business model, which I know how to scale and monetize and I’m looking forward to pairing our world-class team of aerospace and spaceship designers with the team of world-class creative and experienced designers to ensure this transformative journey is like no other. We will be materially enhancing the experience for both future astronauts and also for their friends and family who will join us in the days leading up to the flight to New Mexico. These efforts are targeted to support a revenue model that expands beyond the astronaut ticket sales. And I look forward to sharing more of our plans and designs in upcoming calls.

As I’ve learned more about the company, I have been struck by how our 600 future astronauts are far more than ticket holders for the upcoming spaceflight. These future astronauts have joined a truly incredible community with benefits that precede [Phonetic] their flight and extend well after they have achieved their astronaut status. I believe the LTV of this community is an enormous asset, an opportunity for our company as we begin to grow. We will restart sales and add new members to this future astronaut community following Sir Richard Branson’s flight. As promised, we will provide the first sales opportunity to those people who have registered for our space fair program, a group that currently numbers close to 900. And with the planned reopening of sales, we will be retiring the space fair program at the end of the calendar year.

I would now like to turn the call over to Jon for details about our third quarter financial results.

Jonathan Campagna — Chief Financial Officer

Thanks Michael. Looking at slide 14, our third quarter results reflect the progress we have made completing the final steps in preparation for VSS Unity’s first powered flight from Spaceport America and our ongoing work ahead of commercial launch. We remain in a strong cash position and ended the quarter with cash and cash equivalents of $742 million as of September 30th, 2020. In the period, we completed a public offering of 23.6 million shares of common stock at a public offering price of $19.50 per share generating over $440 million in net proceeds.

Net loss for the quarter was $77 million compared to a $63 million net loss in the second quarter of 2020. The increase in net loss primarily reflects certain non-cash expenses, which I will cover shortly.

Non-GAAP SG&A expenses and non-GAAP R&D expenses have been adjusted to exclude stock-based compensation and non-capitalized transaction cost is applicable. GAAP SG&A expenses for the quarter were $31 million compared to $26 million in the second quarter of 2020 due primarily to additional cash charges and non-cash stock-based compensation costs including those incurred in connection with the hiring of our new CEO and the appointment of our Chief Space Officer, as well as increased costs incurred to ensure proper COVID related safety standards. Non-GAAP SG&A expenses for the quarter were $26 million compared to $23 million in the second quarter of 2020.

Looking forward, for Q4 and later, we expect non-cash stock-based compensation expenses to increase due to the scheduled grant of additional equity awards, which relate back to the closing of our transaction of Social Capital Hedosophia. GAAP R&D expenses for the quarter were $46 million compared to $37 million in the second quarter of 2020. The increase in R&D expenses primarily reflects a one-time $5 million non-cash charge related to the identification of certain inventory items determined to not meet our policy for capitalization before achieving technological feasibility. As a result, similar to other vehicle build costs, these items were expensed to R&D during the quarter. In addition, incremental cash and non-cash personnel costs as well as travel costs incurred as a result of more frequent employee travel between locations contributed to the increase. Non-GAAP R&D expenses for the quarter were $43 million compared to $35 million in the second quarter of 2020.

Adjusted EBITDA, which excludes stock-based compensation, totaled negative $66 million for the quarter. This is compared to adjusted EBITDA of negative $54 million for the second quarter of 2020. Cash paid for capital expenditures was $4 million in the third quarter of 2020 compared to $6 million in the second quarter. Capital expenditures in the third quarter consisted primarily of vehicle tooling and other equipment costs.

Turning to slide 15. I’d like to run through some of the line items in our income statement to provide more context on the drivers behind some of these numbers in our income statement. As expected, we did not generate revenue during the quarter given our continued focus on flight test. We anticipate modest revenue related to the payloads, which will be flown in the fourth quarter as Michael outlined earlier.

Turning to R&D. As a reminder, our vehicle costs currently fit within R&D and will continue to be expense there until we achieve technological feasibility. What we mean here is that once we have completed a power test flight to space with four passengers in the cabin, we will begin capitalizing our vehicle costs. Our R&D expenses for the quarter totaled $46 million compared to $37 million in the second quarter of 2020. As I outlined previously, this reflects a $5 million non-cash charge related to the expensing of certain inventory items to R&D and an increase in personnel and other costs. Our SG&A expenses for the quarter totaled $31 million, an increase of $5 million compared to the second quarter of 2020, primarily due to the granting of equity awards, including those granted to our CEO and Chief Space Officer, as previously mentioned.

Turning to slide 16 and looking at the cash flow statement. Free cash flow was negative $59 million for the quarter, which was generally in line with our Q2 free cash flow of negative $58 million. Although we are not providing specific guidance, we expect our negative free cash flow to increase in the fourth quarter of 2020 due primarily to the typical timing of annual premium payments for certain insurance coverages, which are concentrated in Q4.

I would now like to turn the call back over to Michael.

Michael A. Colglazier — Chief Executive Officer

Thanks, Jon. I’ll now hand over to the operator for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Your first question is from the line of Adam Jonas with Morgan Stanley. Please go ahead.

Adam Jonas — Morgan Stanley — Analyst

Thanks everybody. Just a couple of questions. First, on the COVID issues that you highlighted. You expect them to persist into the first quarter yet the Branson flight is on track for Q1. Is this because the Q1 Branson flight already factors in these delays or is it that the delays just aren’t as significant for that part of your operation due to differences in working conditions in close quarters?

Michael A. Colglazier — Chief Executive Officer

Thanks, Adam.

Adam Jonas — Morgan Stanley — Analyst

— first question, thanks.

Michael A. Colglazier — Chief Executive Officer

Thanks, Adams. This is Michael. We are seeing impacts from COVID. As I said, there’s a lot of close quarters work that is just delayed as we spread out and follow our protocols. What we’ve been doing though is really focusing our talent and the resources that we can get into the shifts on our flights, the upcoming flights, that’s one of the reasons why you see a bit of a delay coming in our second spaceship coming off. So today, we do believe we have in the schedule the ability to successfully do this flight like I said November 19th to 23rd. We expect the second one to go off in Q1 and it’ll probably be the end of Q1, but we do expect our third rocket powered flight to go still within that quarter. Of course, we’re going to assess the date after each one of these flights and there’s always things that we may learn, but that is our expectation.

Adam Jonas — Morgan Stanley — Analyst

Thanks, Michael. A question on the modest revenue that you highlighted for the payloads. How should we be thinking about that test payload revenue for the quarter, order of mag?

Jonathan Campagna — Chief Financial Officer

Yeah. This is Jon. Yes, I mean, I think, best way to look at that is it’s probably in the sort of $400,000 range for the payloads, but there’s three NASA payloads that will be on that flight that we have planned, as Michael mentioned earlier, for later this month.

Adam Jonas — Morgan Stanley — Analyst

Okay, that’s great. And just finally if I can flip one more in. Your price per ship, can you remind us of the kind of telemetry of cost reductions, obviously your spaceship manufacturing capabilities are proprietary and something that gives you that that edge, that moat. If you could tell us kind of from first to second now that you’re getting really close to final testing for the second ship of getting to that phase what the price is. And then as you start seeing line of sight to the third spaceship, just give us an order of magnitude of how much the cost per ship are declining. Thanks very much.

Jonathan Campagna — Chief Financial Officer

Yeah, Adam. So on that point, I think we’re still evaluating those reductions that we’re going to have as Michael mentioned as we moved from an R&D focus to a production focus over the coming months here, in particular we’ll continue to look at how we’re driving down those costs for future shifts from second and third and onward. At this point, we’re not in a position to sort of give an estimate as to what those cost reductions are, but as we are able to, we will certainly share that with you.

Adam Jonas — Morgan Stanley — Analyst

Thanks, Jon.

Operator

Your next question is from the line of Robert Spingarn with Credit Suisse. Please go ahead.

Robert Spingarn — Credit Suisse — Analyst

Hi, good afternoon. Michael, I wanted to ask you a sort of a longer-term question. You mentioned $1 billion per year per Spaceport. I guess that’s a mature revenue number. And I wanted to understand that a little bit better just what the flight portion of that is relative to the ancillary because that number is about double where we would get with 300 flights, but you mentioned 400. So it sounds like you’re going to perhaps utilize the spaceships a little bit more and I was hoping you could elaborate on that, maybe talk about if pricing bridges some of that gap between our number and yours and maybe talk a little more about the ancillaries.

Michael A. Colglazier — Chief Executive Officer

Thanks, Rob. One thing I am really, really bullish on is the nature and truly transformative experience that we’re going to be providing. I spent time talking to those in our company that have made this journey and it will be incredible. I am also looking forward to expanding what we’ll do. I think we focus so far on the space flight itself, which of course is going to be the peak emotional part, but this transformative journey really starts from the moment people sign on with us. And when they come to New Mexico, we will build an experience kind of [Indecipherable] being around the flight itself. That’s one where I believe there will be a lot of opportunity for friends and family to join in and participate in parts of that. And then we think, of course, the experience will carry on.

We’re going to be adding into what that the value that that experience will deliver. And I think when we add value in there, we will not have so much of a demand problem, it’s more about supply. So I do think that will help support pricing over the experience as we go and we will continue to look to ways to expand and widen the revenue footprint beyond the ticket, I’ll call it on the space flight itself and we’re looking forward to that. So I think that $1 billion does reflect those things.

Robert Spingarn — Credit Suisse — Analyst

Is it too soon for me to ask you to quantify that in terms of ancillaries relative to ticket price? It sounds like it could be as much as 50%.

Jonathan Campagna — Chief Financial Officer

Yes, I think our pricing strategy is going to evolve off the experience, but one of the things that I am excited about is when you have a truly incredible product and one that will be supply constrained as opposed to demand constrained, it gives a lot of flexibility into our pricing model. So I am looking forward to being able to share in future calls what our experience looks to be and will bring pricing strategies around that experience at that time.

Robert Spingarn — Credit Suisse — Analyst

Okay. And then just to finish, just on the timeline, I wanted to clarify is the Branson flight a third test flight, a third powered test flight or is it build as a first commercial flight? How should we think about that?

Michael A. Colglazier — Chief Executive Officer

Sure. We, as you know, are continuing our flight test program. The first one coming up November 19th to 23rd, the second flight test program we think will be in Q1 and that’s where we’ll bring for the first time a full cabin for four passengers to go, those who all be employees. The flight with Richard will be part of the flight test program and I think who better to assess the experience of what we’re doing here. Our flight test is so far mostly focused on the technology and how we’re getting up there. We also want to make sure that we are testing the weightless experience, how the cabinet environment will go and we think Richard as not only our founder, but kind of adventurer in chief [Technical Issues] to join on that flight.

Operator

Your next question is from the line of Myles Walton with UBS. Please go ahead.

Myles Walton — UBS — Analyst

Thanks, good evening. I was wondering if Michael you could comment on the transition here from retiring the one small step to initiating the ticket sales. And in particular, the retirement of the one small step is that because you want to maintain scarcity in the funnel and how much of the one small step population do you expect to create to the astronaut deposits? Thanks.

Michael A. Colglazier — Chief Executive Officer

So we’re looking forward Myles — hi, by the way — to opening up sales following the flight we do with Richard Branson. One thing I have learned in speaking to some of our future astronauts is how important and incredible being part of this community has been to them. And so we’re going to be thoughtful how we open those up. But the One Small Step program has been very helpful. We are a little uh shy of 900 people so far that have registered interest. And as we look to really opening sales up, we are going to do what we promised and we will start with calling each one of those people and assessing their interest in joining this future astronaut community. But once we’ve decided it’s time to reopen sales, I think that’s where people are going to shift and the focus there. And so it’s not really much more complicated than that. I think the space fair program has been really helpful in letting people sign up and register a degree of interest, but we’re looking forward to now fully reopening sales following Richard’s fight.

Myles Walton — UBS — Analyst

Okay. And maybe one other question in terms of after the Branson flight, is that when you’ll go into significant uptake in pace of flights or should we think of that as something that happens much later in 2021?

Michael A. Colglazier — Chief Executive Officer

I think as you’ve probably heard from us before, as we close our flight test to achieve technological feasibility and then push into commercial service, we do plan to take that in a slow and measured way. We’re going to focus on safety first as we always do, but we also really want to focus and ensure we get the experience just right. The objective of all the people that we have signed up and who will come in the future is to truly have this transformative life experience. We want to make sure that is really dialed in. So you’ll see us do a slow and measured start and then we will be increasing that also as we increased our fleet size.

Operator

Your next question is from the line of Ron Epstein with Bank of America. Please go ahead.

Ronald Epstein — Bank of America Merrill Lynch — Analyst

Hey, good afternoon guys. So Michael, just a big picture question for you. You’ve been at the company now, what, maybe 100 days, a little longer, but what’s been the surprises, what’s been the challenges and if you can kind of give us your 100 day perspective.

Michael A. Colglazier — Chief Executive Officer

Sure, a couple of surprises. I was really pleasantly surprised with the depth of talent that we have, really going up and down across all levels of the company. And for a company doing what we’re doing, it is grounded in talent. So that was really excellent to see. As I mentioned earlier in the call, the quality of the assets that we have is really incredible between the space flight system itself, but also what we’ve developed in our learnings have been gone through 15 years of flying and designing these things is really important. What I am also excited about is the ability now to monetize and scale this business. And I think this is what’s come to-date has really been an incredible first chapter. We’re on the cusp of technological feasibility of this. And now as we move into the second chapter, it is going to be about growing the business and that will require a shift in footing for us as we move away from prototype and R&D focus and into manufacturing for scale. And I’m really excited, yeah, surprised that we have such great talent that we can already put into some of those key roles as we now look to build a business.

Ronald Epstein — Bank of America Merrill Lynch — Analyst

And maybe a little bit of a different question. It seems like maybe we’re on the cusp of a change in presidential administration and the Trump administration was very, very friendly on commercial space, right. If nothing else, the administration was a big believer in space, Secretary Ross, Department of Commerce, was pushing commercial space in very positive ways. If we were to see a change in administration, do you think we’ll see a change in how they feel about commercial space and not just the investments in commercial space, but Department of Commerce is a real cheerleader for commercial space. What do you expect to see happen if we see a change?

Michael A. Colglazier — Chief Executive Officer

Well, like I’m sure everybody on the call have been following the elections closely. I appreciate your time breaking away from that to join us today. One thing I will say is really regardless of where the next administration plays out, over our 15 years we’ve got a really great history of working with administrators and leaders and government on both sides of the aisle and I fully expect that will continue. We have excellent relationships with government teams and I think we’re going down the good path forward regardless where the election plays out.

Operator

Your next question is from the line of Oliver Chen with Cowen. Please go ahead.

Oliver Chen — Cowen and Company — Analyst

Hi. Thank you. Michael, in your remarks you mentioned customer lifetime value. How are you thinking about that opportunity and also scaling accretive and experience like what will be more challenging or the bigger opportunities as you seek to scale that part of the equation? Our surveys indicate a lot of pricing leverage on both the up-raising as well as lower. And would also just from a modeling perspective, as we think about Spaceport, the 400 flights per year, what has that assumed for spaceship, and as we look longer out, the number of spaceports and the opportunity ahead? Thank you.

Michael A. Colglazier — Chief Executive Officer

Thanks, Oliver. On the first part of that, well, let me take the second part first, if you don’t mind. So when I think about 400 flights per year, we obviously are going to need several motherships to accomplish that in a Spaceport, many spaceships and obviously lots and lots of rocket motors. In our current footing, we’ve been focused on flight test and in order to now pivot to be able to supply the demand that we expect here, we are going to have to ramp up manufacturing in that regard. But I think it will be on the order of a few motherships, many spaceships and like I said, a rocket motor for every flight as we go. When we reached that, and I think 400 is a good approximation something that we’re now going to see as a target for a fully utilized Spaceport. I think that will be an incredible economic engine. It will drive economics for our company, but as well as the communities in which we operate. Our first focus of course is New Mexico and I think as that comes together this will be a really powerful product if you will, that will be of interest in other parts of the world. How many parts, I think we’ll see in the future, but I’m very, very excited about that.

And I’m sorry, Oliver would you mind just restating the first part of your, your first question for me one more time?

Oliver Chen — Cowen and Company — Analyst

Just thinking about customer lifetime value and maximization there and not likely intersect with scaling a creative and experiential, I mean, as well as plans for pricing, so [Indecipherable] and what you see that’s being the hypothesis —

Michael A. Colglazier — Chief Executive Officer

Thank you. Obviously, I’m coming from a background where a relationship with a customer is not a one-and-done experience. And while we believe this is truly going to be a transformative experience, I don’t think it’s a once in a lifetime experience. I think the opportunity to fly and get this perspective from space is going to be so compelling that people will want to bring others with them if they come back and do that. And I think as we look over-time to scale to different markets, it will be a different experience from different spaceports. So the fact that right now as I talked to our 600 future astronauts here, the commitment to the community that they have joined and the kind of shared journey that they’re on has been really powerful. I think there’s a lot of opportunity in that, but we’ll focus on delivering value for our customers and I think a lot of ways that will play out over-time.

Oliver Chen — Cowen and Company — Analyst

Okay. And on Spaceport, the number of Spaceports globally and how will you approach Spaceport unit expansion and thinking about the capital required there and/or partnerships to make it more capital light possibly globally? Thanks.

Michael A. Colglazier — Chief Executive Officer

Thanks. I think at this stage, as you would imagine we’re really focused in the near term on completing our flight test, getting our technological feasibility proven, starting to get commercial operations going and then growing into a fully utilized Spaceport. So I think it’s probably a little premature for me to put forth thoughts on how and how we’ll fund future spaceports. But I do believe the economic engine that will be generated here will provide a lot of opportunity. And I think it will be good partnerships with as we expand around the world with that.

Operator

Your next question is from the line of Noah Poponak with Goldman Sachs. Please go ahead.

Noah Poponak — Goldman Sachs — Analyst

Hi, good evening everyone. Hey, how’s it going? Just want to make sure I have it clear that the move from October to November for Unity first powered flight is 100% completely COVID restriction related as opposed to anything technical or otherwise. And then, how aggressive or not do you feel about the spacing have between powered flight 1, 2 and 3 with Unity?

Michael A. Colglazier — Chief Executive Officer

On the first part of your question, Noah, not actually COVID at all on that. We have always said we will be flying our first powered flight from New Mexico in the fall. What I think you may be referring to is as part of an FCC license request for spectrum that we’ll use as we’re transmitting our downlinks, we had to open up a flight window and that flight window was put out on October 22nd. That was never planned to be part, when we’d be flying Unity here. So we’re feeling good on our flight window there.

As to spacing, well I’ll say this. At this stage today we feel good about the second flight in Q1. We feel good about our third rocket powered flight; it’ll be at the end of Q1. But with that said, as we always do, we take each of these flight by flight and that’s very purposeful. We are going to go forward prudently with safety, absolutely it’s the first thing in mind. And so what we do after each of these flights is we analyze all the data that comes from it. We look at the ships as they come back down and we make our decision there. So it’s always possible that our engineers will find something that they want us to retest or additional tests they would like. But as we sit with our knowledge today, I feel good about the upcoming flight dates.

Noah Poponak — Goldman Sachs — Analyst

Okay. With regard to the second vehicle, can you tell us more about the milestones that will be in the schedule after you’ve rolled that out? I mean all that, how much of a full test program will that have? What kind of timing will you we be looking at with that vehicle?

Michael A. Colglazier — Chief Executive Officer

Sure. So our second spaceship, we will have come off and for rollout in Q1, and when we bring this out into rollout in that fun acronym, I learned of IVGT, what we’ll start with is ground testing. As we finish ground testing, then we will move into flight testing and we will carry through the same type of data analysis that we had here. So right now, we won’t be giving guidance on the timing of all of those pieces, but we are excited because this ship I do think will give us a ship that provides higher rate, higher service, shorter turnaround time and that will be a model for our ships going forward

Operator

And your final question is for the line at Pete Skibitski with Alembic Global. Please go ahead.

Pete Skibitski — Alembic Global Advisors — Analyst

Yeah. Good evening, guys. Just a couple of quick ones. Getting back to the discussion on the math of getting to 400 flights and one of your slides mentioned the second ship is designed for higher rates. I think I have my model each ship being able to do five flights per month. Can you talk about at this point, the second ship going to do six, seven. How are you guys thinking about these follow-on ships and the rate that they can do?

Michael A. Colglazier — Chief Executive Officer

Well, I think for today we’re going to focus more about the target of where we’re going and to hit 400 flights a year as we build our manufacturing into that. Obviously, we’ll need ships that move at a reasonably high return rate. In the overall model, I think the ships themselves, the main factors how quickly we can turn them, less about probably the specific cost of the ships. And so that’s part of the learning that we will have going forward. I think it’s probably a little early to give guidance in that regard. But we do know the second ship is designed to have a better turnaround time, it’s designed in a modular fashion that lets us get and we will maintain it in a more quick and easy fashion. As one thing, we will be committing to is as we do get the clarity of learnings here, we will be committing to inform our view about those things so that you can be closer with your own modeling.

Pete Skibitski — Alembic Global Advisors — Analyst

Okay. That’s great. I appreciate it. And just last one for me, a little technical, but I’m curious on the upgrades to the flight control system, particularly the horizontal stabilizer you guys mentioned, maybe Mike mentioned. But what does that do for the ship? Does that allow you to reach a higher altitude or just maybe improve the safety or smoothness of the ride? Can anybody speak to that maybe?

Michael P. Moses — President, Space Missions and Safety

Yeah. Pete, this is Mike Moses. I can answer that one. So the horizontal stabilizers are actually one of our primary flight controls that we use. So when we drop the vehicle, we’re flying kind of straight level and then the horizontal stabilizers turn and allow us to bite in and turn the ship up on its tail and boost straight up. So they are very critical system for us. So anything we can do to kind of improve their reliability, the control that they have, the fine tuning really does help us with performance, because it allows us to net curve, if you want to sort of speak of that boost profile. So it really gives us a little more robust system. And maybe more importantly, talking to what Michael just talked about, it allows us some room to improvement in the future even more with an electronic system that has software upgrade capability and again, we were developing this for future ships and we decided to go ahead and put it in Unity now to get some run time on it, but it’s got some great expansion capability for us in the future, as we look to a future of higher flight rates.

Operator

Thank you. And at this time, I will turn the call back to Michael for closing remarks.

Michael A. Colglazier — Chief Executive Officer

Hey, I’ll be brief here. First, I just want to thank everybody for joining this call. There’s a lot going on at the election news, and I appreciate you taking the time. I do want to take a moment to thank our entire team at Virgin Galactic. People have been working so hard, preparing for this first powered flight for New Mexico, but people in New Mexico, people in Mojave, and the support has been incredible. I know I speak for all of us when I say we cannot wait for this upcoming space flight and to all of you on the call, we appreciate your continued interest and support of our company. We look forward updating each of you on our progress after the spaceflight in a few weeks and during next quarter’s earnings call as well. Thanks everybody. Have a good day.

Operator

[Operator Closing Remarks]