Virgin Galactic Holdings, Inc. (SPCE) Earnings Call Transcript & Summary

Thanks. Good afternoon, everybody. This is Virgin Galactic's Third Quarter 2026 Earnings Conference Call, and I'm joined today by Michael Colglazier, our Chief Executive Officer, and Doug Ahrens, our Chief Financial Officer. Once we've finished our prepared remarks, we'll take questions from the call. You can find our press release and the slide presentation that goes with today's remarks on our investor relations website. Our safe harbor disclaimer is on slide two of the presentation. On today's call, we may make certain forward-looking statements. Such statements rest on current expectations and assumptions and are therefore subject to risks and uncertainties. Actual events could differ materially from the forward-looking statements made on this call because of many factors. Regarding those risks and uncertainties, we encourage you to review the risk factors contained in the company's SEC filings, which we make periodically. We advise against placing excessive weight on forward-looking statements, and the company expressly disclaims any duty to revise forward-looking statements that might come up on this call, whether due to fresh information, later occurrences, or any other reason. Also, please be aware that during today's call we will mention some non-GAAP financial information. You can find a reconciliation of those non-GAAP financial measures in our earnings release. Now, if you'll open the slide presentation to page three, I'll hand things over to our Chief Executive Officer, Michael Colglazier.

Hello, everyone, and thanks for being on the call today. We handed over Apeiron, the first spaceship in our Delta-class fleet, to Spaceport America in late October, and that milestone represented a thrilling transfer from our manufacturing group to the space line operations team. The new spaceship is a magnificent vehicle, and we are delighted that Apeiron has been moved to its permanent home. I'll begin today's call by explaining what comes next for Apeiron on the path toward launching commercial space flights in early Q2 2027, along with an update on construction of our second spaceship, which we expect to start commercial space flight in late Q2 or early Q3 2027. I'll provide details on new growth initiatives that we expect to generate substantial revenue and profit growth, including a specific investment aimed at raising space flight capacity to 150 space flights per year from our initial two spaceships. I'll also share some of the enthusiasm we are hearing from our astronaut community, since we have moved more than 100 individuals into the readiness phase of their upcoming space flights. After that, I'll hand the call to Doug Ahrens for a financial review, which will cover our planned use of the new $250 million at-the-market equity offering program announced earlier today. Turning to page four. Apeiron, the Greek word meaning boundless, is a fitting name for the lead spaceship of our Delta-class fleet. It captures the spirit of our astronauts, and it fuels the ambitions of our company. Apeiron is shown here arriving at Spaceport America in New Mexico. It is now being readied for its flight test program, with the most intensive activity being completion of software-hardware integration testing. As we previously announced, we needed additional time to finish this effort. We have extended our schedule and added resources so the teams can complete the work, and I am pleased with how thorough the effort has been and the pace of progress the teams are making. The extra time has delayed the start of flight test, which will begin with a captive-carry flight above Spaceport America, where we will run in-flight functional checks of the spaceship's systems while it remains mated to the launch aircraft, flying at high altitude and cold temperatures. Next comes Apeiron's first glide flight, which we expect in January. As previously announced, Apeiron's first space flight is expected in early Q2 2027. Moving to page five, I want to share highlights of progress on construction of our second commercial spaceship. The images on this page show major parts of the wing, fuselage, and feather sub-assemblies for our second spaceship coming together. Our partners at Bell have been making excellent progress on the feather assembly, and we have already received over 95% of the carbon composite parts for the wing and fuselage from Qarbon Aerospace; we expect the last two major parts for the wing and fuselage to arrive in early December. This is great news. Our manufacturing team has already taken what we learned building our first spaceship and used it on the structural test articles, which has improved efficiency. Those lessons are now being carried over to the second spaceship, which is currently making its way through the factory. That second spaceship should enter commercial service alongside Apeiron in late Q2 or early Q3 2027, and at that point we'll start ramping our flight cadence toward 125 space flights per year. With that, let me turn to page six and talk about some of the underlying assumptions we have regarding flight cadence and capacity from our first two spaceships. As we've said before, Apeiron and the Delta-class spaceships that come after it were designed with maintainability in mind, targeting a cadence of two flights per week per spaceship; with two ships in the initial fleet, that gives theoretical capacity of roughly 200 space flights per year. Our launch aircraft, VMS Eve, has been through several enhancement programs to get ready for that cadence, and our teams are aiming for VMS Eve's space flight launch capacity at about 175 flights per year. So our theoretical baseline capacity, with two spaceships plus VMS Eve, comes to approximately 175 flights per year. We expect three factors to bring that theoretical capacity down to a lower actual space flight rate. Flight day weather and unplanned maintenance activity are the first two. Weather in southern New Mexico is generally very good for space flights, but we do expect some flight days to be scrubbed because of rain or very high crosswind conditions. While we can often make up intermittent scrubbed flights over the following week, we expect an efficiency reduction of roughly 25 flights per year from flight day weather and unplanned maintenance combined. The third factor affecting flight capacity is exposure to overnight weather conditions. Our fueling operations have traditionally been conducted outdoors, which leaves the operation exposed to overnight squalls that can also lead to flights being canceled; we've estimated an efficiency loss of about 25 flights per year from that overnight weather exposure. Together, these three factors are expected to bring our two spaceship operational capacity down to 125 flights per year, which is the annualized rate we've been projecting for some time. I'm pleased to share that our teams have found a way to structurally eliminate the overnight weather impacts and raise our operational capacity by 20%, from 125 to 150 space flights per year. Turning to page seven, we've included a rendering of the high cadence launch hangar and fueling infrastructure, which will bring fueling and pre-flight operations indoors and eliminate cancellations caused by overnight weather. Once it's complete, we expect this growth investment to deliver 20% more annual space flights from our first two spaceships. Since our cost base is largely fixed, a substantial portion of this revenue should flow through to the bottom line. On to page eight; this image shows our rocket production line coming together as planned. This line is going to manufacture rocket motors for our space flights in New Mexico, and it also has room to expand so it can support more spaceports. As a lot of you know, government and defense sectors right now show strong demand for rocket systems. We think our know-how in designing and producing rockets can be tailored to meet those needs, and as we go after these opportunities, we intend to grow our rocket production capabilities through targeted growth investments. Before I turn the call over to Doug Ahrens, I want to talk a little about how our astronaut community has mobilized and give an update on bookings reopening for space flight expeditions. Please go to page nine. As we announced earlier, we have moved more than 100 astronauts into the first phase of readiness preparation before their space flight, and the image on this page shows the change in their astronaut portal indicating that the countdown process has started. As you can imagine, making these calls has been a joy, and our astronauts have been thrilled to get them. While we prepare the initial astronauts for their journey, we have opened a limited number of bookings once again for Virgin Galactic space flight expeditions. One of the strongest drivers of our business is how much people love this experience and the possibilities it represents. When bookings reopened at the end of Q3, we followed up on the success of our $750,000 tranche by opening an additional limited tranche priced at $850,000 per expedition. We keep seeing meaningful demand at this price point, and as happened last time, I expect the price of a space flight expedition to rise after this current tranche closes. Our astronaut expeditions team is developing a bookings model that can grow without compromising exclusive pricing. Referrals sit at its core, reflecting the deep enthusiasm people feel for our experience, and curated events, hosted experiences, and brand partnerships will further support these referrals. I will now hand the call over to Doug for a financial update and insight into how we plan to deploy our capital.

Michael, thank you — and good afternoon to all of you. After today's market close, we announced an at-the-market equity offering program totaling $250 million. In our view, this covers the entire remaining capital need across three principal areas: keeping operations funded through the commercial service ramp and until we reach positive free cash flow; putting money into targeted growth initiatives that we expect to produce high returns; and paying down debt so our capital structure is stronger. I'll now spend a moment on each of those three areas. If you'll turn to slide 10 — first, as we've mentioned before, we've moved the anticipated beginning of commercial space flights to early Q2 2027, which allows us to finish additional work on software-hardware integration testing. That timing lands about two months behind our original schedule. Because of that, part of this program will bring in cash as anticipated, which should sustain us while commercial space flight operations ramp up. Beyond that, this capital will bolster the balance sheet until we get to positive free cash flow. Next, we intend to put money into two particular growth opportunities. If you look at slide 11, Michael went over the operational advantages of a high cadence launch hangar, and I'll concentrate on what this investment means economically. This slide shows what happens when we raise our flight rate from 125 to 150 per year: our first two spaceships would bring in an extra $90 million in revenue and $75 million in contribution margin. Since the same fleet can handle that higher cadence, most of that strong contribution margin from the space flights ought to drop straight down to the bottom line. The high-cadence launch hangar is how we intend to capture these economies of scale — once it is up and running, we anticipate Adjusted EBITDA growth of more than 50% from our initial fleet. We expect the hangar to pay for itself in under a year. If we put growth capital into this project over the near term, our expectation is that the high-cadence launch hangar will be up and running during the second half of 2028. The second growth investment involves rocket production capabilities, which Michael talked about. A modest capital investment lets us expand our rocket production capabilities so we can go after additional opportunities with the government and defense industry. Third, part of the proceeds from the ATM program is going to be used to pay down our future debt obligations. By directing roughly one-third of the ATM proceeds toward debt retirement, as our lien holder agreement requires, we will strengthen our capital structure and lower the interest expense on our first lien debt. Once those early payments we’re expecting are completed successfully, the amount still owed on our first lien debt should fall to around $92 million, and that won’t come due until December 31, 2028. Separately, today we announced an anticipated exchange involving a substantial chunk of our 2027 convertible notes, which is set to take place next week. We expect to retire more than $12 million of debt maturing in February 2027 by using stock rather than cash. Following that exchange, we anticipate the remaining balance on our convertible notes will decrease to approximately $5 million. Taken together, these steps push our total outstanding debt under $100 million, cut our interest expense considerably, and leave us with very few principal payments coming due across the next two years as we scale space flight operations. Moving to slide 12, I'll give a brief overview of our financial projections. For the fourth quarter of 2026, revenue is expected at approximately $100,000. Free cash flow in the fourth quarter is expected to fall between negative $80 million and negative $90 million. On the 2027 income statement, we expect revenue to start early in the second quarter, and we forecast that expenses in space line operations will rise as commercial space flights ramp up. Our projection is that free cash flow turns positive by the first quarter of 2028 at the latest. To wrap up, we think these actions leave us ready to launch commercial space flight operations backed by a healthier balance sheet, and to pursue near-term growth chances using our first two spaceships. Revenue growth will hinge on two main things: the number of flights we finish and the typical price customers pay for astronauts' space flight expeditions. We anticipate that meaningful revenue starts once our first spaceship begins commercial service in early Q2 2027, with further growth coming as our second spaceship enters service in late Q2 or early Q3 2027. After that, as we move through older bookings that in the past went for lower prices, we likewise anticipate revenue to rise once pricier space flight expeditions are flown; during 2028, we expect these factors to strengthen each other. Bookings at higher prices should make up a larger share of our flights, while the high-cadence flight hangar we have planned would increase yearly flight capacity. Additional flights at elevated average expedition prices would generate more revenue and contribution margin, further amplifying our potential to produce profit; having said that, I'll return the call to Michael.

Thanks, Doug. If we go to page 13, Apeiron now being at Spaceport America means the company has turned its attention to operations, since we're getting ready for flight test and preparing to host astronauts along with their friends and family when commercial spaceflight begins. Doug laid out our capital plans; we're being deliberate and efficient in how we use funds so we can reach positive free cash flow, grow profitability, and handle our debt in a balanced way. The next thing for us is getting Apeiron into the skies for its flight test program while we keep building our second spaceship, keep expanding our bookings, and get ready to welcome our astronauts to space in 2027. With that, let's open the call for questions.

Hello, everyone. I really appreciate you making the time. I just wanted to ask about the schedule moving to the right somewhat — given everything you know at this point, do you see any risk of yet another delay in 2027, and does that timeline include any cushion?

Thanks, Tom. This is Michael here. The shift in our schedule comes almost completely from what our teams refer to as software-hardware integration as we work through it. The software is complete, and the hardware is complete. When you bring the two together, we run a very thorough testing process to make sure everything comes together and performs the way it should. From a project-management angle, the timeline for working through that effort came up short of what we had expected. You saw us move the date back, and when we give you a range of early Q2 rather than one fixed day, that adds some contingency beyond what we anticipate the team will actually achieve. To offer a bit of context on what is happening: the ship, as I mentioned, is magnificent and beautiful, and it has now left Spaceport America. During the integration testing of software and hardware, the team has encountered a larger number of test cases requiring fixes than they had budgeted time for, so we need to allow them that time. To offer a couple of examples, Tom — this is for you and for everyone — a number of these issues are fairly minor and straightforward. They mainly involve confirming that data signals are reaching the correct locations in our display. For instance, we have sensors positioned throughout the ship. These feed into what we refer to as digital or data acquisition units, DAUs. We transmit, for the sake of illustration, roughly 30 channels of information up to the pilot displays. Among those is the question of what position our brakes are in. Here's a totally separate item: where do our feather systems stand? When we combined the software and hardware, we found that those channels had been swapped, so they had to be reprogrammed so they'd show up in the correct spots on the pilot display; that's fairly clear, it makes sense, and it's a simple software task. Let me offer another one, which I'd describe as important yet easy to act on. As we've mentioned before, we build a lot of redundancy into all our systems. We don't merely add redundancy—we test edge cases to confirm that the redundancy, should it ever be needed, would perform as intended. We use those edge cases both in our simulations and in real efforts. Let me offer a single illustration. Our actuators are what push the flight control surfaces when pilots move the control sticks, and small computers—we refer to them as controllers—govern how quickly those actuators travel; the actuator controllers are redundant, correct? That constitutes one of the backup locations. Should we ever have to abandon the primary actuator controller and cut over to a backup, the software holds a reset time that we configure in milliseconds, and that portion is software. However, once we got it onto the vessel for real-world testing—actually moving it and handing off control between controllers—the millisecond timing the hardware genuinely needed turned out to be a bit different. All right, having discovered that, we now need to rewrite the software. To give you some idea of why this is consuming our time: as we rewrite the software, we also create a highly detailed test script that the software will be run through. Once that test script is finished, we then spend considerable effort verifying the test script. When that's complete, the software is complete. After that, we verify it once more, followed by regression testing, so we can confirm our modifications haven't introduced any unintended side effects—and that whole effort takes time. Once it's finished, as happened in this instance, wonderful, it's complete. That matter is resolved, and we proceed to the following item; yet the procedure I just outlined for the significant items is precisely the same one we apply to every minor item, as I mentioned at the start; that's the area where a workable quantity of these items still consumes the time we allotted ourselves when we pushed our timeline out. I hope that provides you with a little bit of added context. To begin with your question, we built extra cushion into the dates we’re projecting—more than what our hardware and software groups are actually aiming for.

All right, that's genuinely useful. If I might just slip in one quick follow-up: how should investors view the appropriate blended rate as you work through that backlog of earlier book reservations and eventually reach 2028 and beyond? I'm just a bit curious, on the current timeline, what the cadence might look like as you progress through 2027 and into early 2028, and how that blended rate shifts along the way. Thanks again for the time, everyone.

Sure. I'll begin, and Doug, please jump in whenever you'd like. Pricing has risen from where it originated at $200,000 for a space flight expedition to $250,000, to $450,000, to $600,000, to $750,000 by now, and currently $850,000. Broadly speaking, we intend to work through that sequentially. As I've said before, there will be a limited number of space flight expeditions whose participant winds up among the first 1,000 people to space. We've noted previously that we hold a very limited number of those, offered at a substantially higher price point. Some of those will get blended in by default, since those people need to be among the first 1,000 people to space. You'll also see us blending in certain research flights, typically priced around $750,000, $800,000 or so for a seat equivalent on the research we conduct. So you'll see a mix, but as I said, we'll do our best to follow sequential order. As Doug mentioned, our blended rate will start lower and then climb, so by the time we reach 2028, and particularly once that launch hangar comes in, you'll begin seeing figures in the $600,000, $800,000 range. Clearly, that makes a big difference in flow-through. Doug, anything you'd like to add?

You covered it all. That was accurate. Are you still there?

Hi there, good afternoon. I'd like to ask about cash burn as we head into Q1 2027 — is there any reason to think there'd be a meaningful improvement, or do you expect the burn to be more gradual before that first flight? I'm just trying to figure out whether there's any basis for expecting a big step change in cash flow while you work through the milestones toward commercial service, or does it not really shift meaningfully until you're actually flying?

Thanks, Mike. Doug here. Yes — we guided the fourth quarter to a free cash flow range of negative $80 million to $90 million. Looking just a bit further out, Q1 of 2027 will probably land in that same ballpark, since nothing really changes structurally over that period while we're gearing up for our first space flight. In Q2, you begin to see some pickup, because at that point inflows from customers start coming in more meaningfully, and that's where it begins to turn up; but there's no added need or extra spending on a quarterly basis between now and when commercial service starts.

Just to share this, Doug — I know you already know it, but for clarity: that will involve the SpaceWorks team building the ship ramping down and the spaceflight teams that will operate the ship ramping up, and those two things are simply going to cross each other as one goes down and the other goes up, keeping that balance.