Virgin Galactic Holdings, Inc. (SPCE) Earnings

Management highlights

### Spaceship Development and Testing Progress - The first production Delta-class spaceship reached the weight-on-wheels milestone in April 2026, moving from the assembly hangar to the test and launch hangar at the Phoenix campus; ground testing is underway, on track to start flight testing in Q3 2026 and commercial spaceflight in Q4 2026. - Structural assembly of the non-flying static test article is progressing rapidly per plan, and fabrication of the second operational spaceship has begun. The second spaceship is expected to enter service between late Q4 2026 and early Q1 2027, keeping the company on track to scale flight cadence in the first half of 2027. - A comprehensive parallel off-ship ground testing program is leveraging new investments in test infrastructure (including the Ironbird test platform at the Irvine Safety and Test Center) to reduce on-ship testing time and produce a more robust program than the original Unity spaceship. Dozens of components, including the central flight control computer, have completed qualification testing this quarter. Integrated vehicle ground testing will begin in June 2026. - The prototype Unity spaceship will return to flight for glide tests in late May 2026 to train pilots for the new Delta-class spaceship, ahead of the first Delta flight test. ### Commercial Operations Preparation - The company has provided ~650 founding astronauts (representing roughly one year of advanced bookings) with expected flight windows in 2027 and early 2028; most will fly in 2027, with the remainder flying in H1 2028. - Virgin Galactic opened a limited tranche of bookings priced at $750,000 per seat for flights in mid-2028 in April 2026, and has received strong, global interest from customers across more than 20 countries, with deposits already secured for a meaningful portion of available seats. Management expects to fully allocate this tranche during Q3 2026 glide testing, after which bookings will pause for onboarding before a subsequent tranche opens likely at a higher price. - Construction has begun on a new rocket motor assembly line at the Phoenix campus, adjacent to existing spaceship assembly hangars, which is expected to be operational in Q4 2026 to support steady motor supply for growing flight cadence. - Hiring for core commercial operations roles, including an expansion of the pilot team, is underway, with most hiring planned for Q3 and Q4 2026 to maintain cost discipline. The Part 450 licensing process with the FAA is progressing well, and management expects to receive the required operator license prior to the first powered flight in Q4 2026. ### Financial Progress - Peak spending on spaceship development is in the rearview, and spending has declined quarter-over-quarter as the company shifts from R&D to production and testing. Debt retirements are occurring on or ahead of schedule, and liquidity is sufficient to support the transition to commercial operations.

Guidance

- Revenue for Q2 2026 is expected to be approximately $100,000 from future astronaut access fees. - Q2 2026 free cash flow is projected to be between negative $87 million and negative $92 million, with capital expenditures accounting for less than half of this amount. Free cash flow is expected to improve modestly in Q3 2026, as reductions in capital spending more than offset growth in operational functions ahead of commercial launch. - Q4 2026 will see continued spending improvement and the start of commercial spaceflight revenue. Quarterly operating expenses (including variable flight costs) are expected to reach $70 million to $80 million by Q4 2026, aligned with the company's long-term business model. - Flight cadence is guided to reach 4 flights per month in January 2027, increasing to 8 flights per month by Q2 2027. Q4 2026 flight activity will be intentionally constrained to allow for operational learning between initial flights. - Modest quarterly positive free cash flow is expected to be achieved in 2027, as the backlog of lower-priced historical reservations are flown. Annualized adjusted EBITDA aligned with the company's base business model is expected to be achieved in 2028, as average ticket prices rise.

Segment performance

Virgin Galactic operates as a single commercial human spaceflight segment for this reporting period. In Q1 2026, total revenue was $200,000, generated entirely from access fees for future astronaut bookings. Total operating expenses were $66 million, representing a 26% reduction from $89 million in the year-ago Q1. Net loss improved 23% year-over-year to $65 million, compared to $84 million in Q1 2025. Adjusted EBITDA improved 24% to negative $55 million, from negative $72 million in the prior year period. Capital expenditures were $40 million, down from $46 million in Q1 2025. Free cash flow was negative $93 million, a 23% improvement from the year-ago quarter. The company ended Q1 2026 with $251 million in cash, cash equivalents, and marketable securities.

Risks & headwinds

- All forward-looking statements related to development timelines, commercial launch, and financial performance are inherently subject to risks and uncertainties that could cause actual results to differ materially, as detailed in the company's periodic SEC filings. - Complex aerospace development programs carry inherent schedule risk, even with consistent progress to date. - Regulatory licensing carries process risk, though management is confident it will complete all requirements on schedule.

Analyst Q&A

• Q: What has been the nature of recent booking demand for the new $750,000 tranche, what are the implications for future pricing, what lessons from the first spaceship will improve construction of the second and future ships, and what is the plan for the ATM equity program going forward? /

  A: Demand is diverse and strong, including individual dreamers, groups, researchers, smaller governments, and corporate clients, with a much more positive market tone than in prior years. The company will maintain its strategy of increasing price per tranche as demand holds: the current $750,000 tranche will close, and the next tranche will open at a higher price. Lessons from the first ship have improved manufacturing consistency for the second: carbon parts are now produced more reliably, small design clashes have been resolved, resulting in faster assembly and lower production costs for subsequent ships. The $300 million ATM program has $87 million remaining; it will be used for growth initiatives like expanded rocket motor capacity and launch vehicle development, but the company expects declining reliance on external capital as it becomes operationally self-sufficient once commercial launches begin.

• Q: How does Virgin Galactic differentiate its business from SpaceX, and what is the outlook for additional revenue streams and spaceport expansion? /

  A: Virgin Galactic is primarily focused on commercial human spaceflight at a much lower price point ($750,000 versus ~$50 million for SpaceX's human offerings), focused on the consumer experiential market. The broader growth of the commercial space industry, including the upcoming SpaceX IPO, is a positive tailwind that generates broader investor and customer interest in space. The company is continuing to develop a second spaceport in Italy, and holds active discussions with other countries for additional spaceports, which will leverage existing fixed infrastructure to drive incremental high-margin revenue. The company is also exploring additional ride-along research and government mission opportunities, leveraging its high flight frequency, and holds IDIQ qualification under the U.S. Golden Dome program.

• Q: What is the status of Part 450 licensing with the FAA, and are there any regulatory obstacles to ramping up flight cadence? /

  A: The company has already submitted and received acceptance of its spaceflight operator license application under the new Part 450 regime, working closely with the FAA for years on the transition. The structured approval process is expected to conclude on schedule before the first powered flight in Q4 2026. Recurring experimental airworthiness certificates for new spaceships follow the same established process the company has used for Unity and the Eve launch vehicle for years, with no expected regulatory obstacles to scaling flight cadence; any prior constraints on turnaround were internal, not regulatory.

• Q: Can you provide an update on the planned Italy spaceport project? /

  A: The core technical and regulatory planning (including flight path and airspace deconfliction work) for the Italy spaceport is complete. Next steps focus on finalizing the business model, timing, and public-private partnership structure with Italian partners. The company remains very excited about the opportunity, and is holding positive ongoing discussions with other potential host countries for additional future spaceports.