Virgin Galactic Holdings, Inc Q1 FY2025 earnings call

• SpaceShip Development: Progress on next-generation SpaceShips with concurrent work streams in rocket/propulsion, avionics, mechanical systems, and carbon parts. First flight ready oxidizer tank completed, avionics team won Jack Northrop Award, mechanical systems 95% of landing gear parts complete, carbon parts production ongoing.
• Commercial Initiatives: Plan to reopen sales in Q1 2026 with bespoke education/sales process, expect first wave of reservations in Q1 2026, price expected to increase. Midway through feasibility study for Italian Spaceport. Potential carrier aircraft use for government/research with DoD connections.
• Cost Control: Year-over-year operating expenses decreased, balance sheet strong with over $0.5 billion in cash, cash equivalents, and marketable securities.

Revenue for the first quarter was approximately $500,000 from future astronaut access fees and event fees. Total operating expenses decreased 21% to $89 million compared to $113 million in the prior year period. Capital expenditures for the first quarter grew to $46 million compared to $13 million in the prior year period. Adjusted EBITDA improved to negative $72 million in the first quarter compared to negative $87 million in the prior year period. Free cash flow was negative $122 million in the first quarter. At the end of the first quarter, PP&E was $249 million compared to $209 million at the end of 2024.

• Q2 2025 revenue expected ~$400,000. Free cash flow expected negative $105M to $115M in Q2 2025, with cash spending declining through 2025. Anticipate half of 2025 spending on one-time capital expenditures for tooling, etc. Expect cash flow to turn positive in 2026 with SpaceShips in service.

• Unforeseen delays in SpaceShip development or supply chain issues.
• Market uncertainties affecting pricing and demand for spaceflights.
• Regulatory challenges in establishing new Spaceports.

Q: Hi, Michael and Doug. It's really encouraging about ticket sales opening in first quarter '26. How are you thinking about the total addressable market of 300,000 or more previously and any thoughts you may have there? Second question is the free cash flow is encouraging, especially given that peak investments are behind you. What are your thoughts longer term in terms of the free cash flow burn, reaching below $100 million or how would you think more medium to longer term there? And then I would love any tactical thoughts on tariffs are impacting some of your material inputs at all?

A: Thanks, Oliver. This is Michael. I'll take the first one and the last one. Doug, I'll throw free cash flow over to you. So I don't think we have different inputs at the moment, Oliver, as to the macro 300,000 total addressable market and the growth of that. The analysis that went behind that a couple of years ago, I thought was pretty solid by several of the investment banks that covered the industry. So I don't have any updates to that from proprietary research. I do believe that at the start of this, we are going to see tremendous amount of activity through the sales process, and that's why referral and repeat visitation is so important to us. We put in one note, you probably caught, I just thought a nice piece of optimism on how powerful our experience is. We had three private astronauts on our last flight. We also had a Turkish government researcher on that flight. All three of those private astronauts have signed up again. It was that meaningful of an experience. So when I see the early years of this, I think we will grow, by sales and a heavy amount through referral and a decent amount through repeat. And so the amount we need to tap into the top of the funnel those 300,000 individuals, is really pretty light at the beginning, and I think that will grow over time as we scale the fleet up. Just, Doug, before I give it to you, I talked to our Head of Supply Chain a couple of times, both in advance of this call and just following along with tariffs. Most of our work as you'd expect is US sourced. As you go multiple layers down the supply chain, some of the raw materials can come from outside of the US. Because we've been working on this for a while, we have ordered all the long lead materials in advance. So all of -- all the stock we need for these first two ships is pretty much already in. There are small elements but relatively de minimis into the economics here. Packing and things we ship from -- we ship all of our parts and there's a lot of wood in the crates and wood is up because wood's coming from Canada, things like that. But most of the meaningful expenditures, that could have been subject to tariffs have already been purchased. So, Doug, on free cash flow?

Q: Thanks a lot. Very helpful. One follow-up. Michael, you have an extensive background from Disney and we lead luxury here at TD Cowen. We just love your latest views on anything that's changed or how you're thinking lately about customer engagement, experiential and the lifestyle brand aspect of what you're doing?

A: Only thing I'd add on that note, Oliver, is it's in sight, and we are really excited as a company to start to make Virgin Galactic, a real name in that luxury and aspirational brand space. We have everything we need in kind of what this industry is, what the quality of our product is, the aspiration and exclusivity of the product, and now we're building the incredible machines that will allow us to do it. So we're excited to step in and be a real player here.

Q: Good evening. Maybe just to follow-up on the reopening of sales in Q1. You mentioned a first wave, but just given how you're thinking about future flight cadence, any color in terms of how you think about the size of that first wave? And then what is the ideal backlog just given that flight cadence? You were at a thousand before you started flights the first time. Like how do you think about the ideal size of backlog given the overall market size?

A: Thanks, Greg. I think having a one to two year backlog is appropriate. I think once and that's consistent with where we've been. Once you're past two years, I think people are waiting a little longer than is helpful. And technically you need a month of backlog and it's just fine. But I think having a solid backlog is better. I also think having a year's worth of backlog, allows for greater flexibility from a yield management standpoint. So what we're trying to do now is we start with waves, because we will be putting our new ships into service. We will start them, they're all expected to fly twice a week, when we have the carrier ship capacity to do so. And we expect, in general, to be able to fly 125 flights over the course of the year. So we'll work to overhit that, but that's kind of our targeted numbers. So at six people per ship, 120 flights a year, that's the capacity that we'll, I'll say, target from an annual point until we expand our fleet. So that means we want to have 6 times 125, that many people signed up on a rolling basis a year in advance. And the question really becomes what price point do we want to bring those people in as our flight rate moves forward? That's one of the benefits of waves from a business standpoint is we can look at the value we're creating. I think we'll get continued referral and excitement. I do think that will continue to expand the demand pressure against, the existing fleet, and we can think about pricing appropriately there. The other thing, going in waves, which is super important to the customer experience, we're not just bringing people up and down the space. This is a life experience. It's a life journey. And we want to bring people in from the moment they sign on in a way that shows them this is something that is unique in the world and that experience starts from the moment they sign up. If we just kind of throw the doors open and can't handle the volume or ration the volume coming in, it makes it harder for us to give that white glove treatment to each and every individual astronaut that joins in. So that's why we do it from a customer standpoint. Business-wise, it allows us to yield manage and stair step pricing up as we go along.

Q: And then, as a follow-up, you mentioned you were about halfway through a feasibility study for a second Spaceport in Italy. Can you maybe talk about what some of those main gating factors are in terms of establishing feasibility and do economics play into that decision in any way, whether that's funds in from Italy or how that gets funded?

A: Sure. So the -- I'll talk from our side, from the Italian side. What we're doing right now is establishing clarity of what airspace would be needed is a very important element there. So there's an air force base that is in the Apulia region of Italy that's been designated by the Italian government as a Spaceport region. President Meloni has designated a nontrivial amount of funds into helping move that region into a horizontal like a runway based Spaceport. So there's good government support in that area. Where we fly is dependent upon lots of factors. And so a lot of what's going on is, the specific flight paths, studying the wind and the weather patterns, both across seasons, across days and intraday across the hours, because depending upon prevailing winds and other factors, we would fly different flight paths, obviously, originating and returning to the same runway, but going in different ways. That has different implications to what airspace is either available or might need adjustment within the overall Italian airspace. So that's the heaviest one that we're doing right now. I think when it gets down to economics, the runway's already there. It turns into facilities and hangars for ships at a Spaceport and a place for us to train our customers along the way, obviously, than building the ships that would operate in there. Those are the primary, I'd say, upfront investment elements of the new Spaceport.

Q: Hi, guys. This is Greg Dahlberg on for Myles. Thank you for the time. I kind of wanted to dig a little bit deeper into the repeat business aspect just because you guys have been emphasizing the importance here. I was wondering is there like a -- maybe a win rate you're assuming in your medium long-term planning assumptions for a repeat business? I guess just trying to gauge what it could look like when the cadence of flight starts to really kick up?

A: I think early days, obviously, Greg, in being able to predict, we have a relatively small number of flights. And so the statistical significance is going to be a bit limited there. So more of what we -- as far as statistics go, we have, I'd say in the double-digits, low to mid-double-digits of people who have flown that have raised their hand and want to do a repeat with us, percentage-wise there. And but I think it's hard to really pull that as the statistical data point to go forward. What I look more closely at is how meaningful was the experience when I have a chance to talk to people who have flown with us and I get a chance to talk to them afterwards. How meaningful has it stayed? How relevant is this? How important is this in their ongoing life? How much are they talking about it, sharing about it? And just ask is this something you would like to do again? And if you'd like to do it again, would you like to do it with people you know? Your friends, your family, buddy group, whatever that is. And the feedback I get is very consistent in I would love to do this again. And so then I think it depends upon the individual and where their economic situation stands as to whether this is something that they would like to prioritize sooner or later. So we'll see how that all plays itself out. But I do think it's a meaningful piece. What's probably more meaningful is when you have a customer experience that's this powerful is the referral factor, right. Because all the people that our flown astronauts talk to become potential customers for us. And a lot of our flown astronauts know people within that kind of 300,000 total addressable market. And that makes more easier customer acquisition process through the referral effort.