Virgin Galactic Holdings, Inc. Q2 FY2025 earnings call

Spaceship Program - Progressed with next-generation human spaceflight vehicles, with the We Build Spaceships series showcasing production processes. Fuselage schedule slipped, moving first research flight to fall 2026, private astronaut flights expected later that fall. - Maintained financial prudence with over $0.5B in cash, reducing cash spending and redirecting resources. ### Launch Vehicle Program - Focus on LV-X project, collaborating with Lawrence Livermore National Laboratory on a feasibility study for potential government applications.

Revenue in the second quarter was approximately $400,000 from future astronaut access fees. Total operating expenses decreased 34% to $70 million compared to $106 million in the prior year period. Adjusted EBITDA improved to negative $52 million. The company had over $0.5 billion in cash, cash equivalents, and marketable securities.

Revenue - Q3 2025 revenue expected to be approximately $400,000 primarily from astronaut access fees. ### Cash Flow - Q3 2025 free cash flow forecasted to be in the range of negative $100 million to $110 million. ### Spending - Cash spending to continue declining, with Q4 2025 expected to be below $100 million. ### Commercial Flights - Anticipated first commercial spaceflights in fall 2026.

• Fuselage skin issues requiring root cause analysis involving material science adjustments, such as addressing core weight and thermal expansion issues. - Schedule risks due to part fabrication and assembly challenges, including fuselage skin and wing spar delays.

Q: Maybe just to follow up on the fuselage skin comment. Appreciated the details. But you mentioned a root cause analysis and some of the things that you're potentially looking at. Can you just clarify, has there been a determination or resolution at this point in time? And what adjustments need to be made?

A: Sure. I'll get -- for an earnings call, may get a little technical, but just a little depth in. So the fuselage skins, these are, I'll call it, like the tube of the cabin of the spaceship, for those who aren't as familiar with what we're talking about here, that fits in between the 2 bulkheads that are in the deck. Those skins are made of BMI carbon composite, and they have what's known as a core, kind of like a honeycomb structure, and that helps provide stiffening -- not exactly the same, but somewhat like you'd see corrugation in cardboard makes it a stiffer cardboard. And so as we are curing those parts, we're working with the process to ensure that we have good fit across that core. What we had in the first part -- this is getting into the material science, was different weights of core, which is generally different densities to handle different level of compressor forces. And the thermal -- the coefficient of thermal expansion between those different weights allows for a different degree of expansion during the process in the autoclave. So we've assessed that, understand that's where the issue is. We're generally going at that through simplifying the types of core that we use in here, and we'll finish that process out and then work for the next part. So hopefully, that gives you a little context into what's going on there. And for those who are less interested in the material science, sorry for the detail.

Q: Myles Alexander Walton: Michael, I think last quarter, you spoke to opening or reopening ticket sales in 1Q '26. I imagine given the private astronaut flights haven't moved much, that's still the plan?

A: That is correct. We still plan to do that in Q1 of '26. We haven't settled on or haven't like shared, I guess, where we'll end up on pricing there. So our -- I think what I said last time still holds. Our last stated price was $600,000 a ticket. I don't expect that to go down when we reopen sales, but we haven't been specific on the sales price yet.

Q: Oliver Chen: Michael and Doug, as we think about fourth quarter, is it reasonable to expect that the free cash flow burn would be in the negative $100 million to $120 million region? Or anything we should know about for fourth quarter would be helpful. Also, as you think about the LV-X launch vehicle program, do you have any general thoughts on the total addressable market and your interest there? And I think you commented on this, but anything that we should know about how you're pacing or thinking about R&D related to that? And then finally, any thoughts on developments with customer experience and the luxury customer experience at scale for fall 2026?

A: Thanks, Oliver. This is Doug. I'll take the first question and hand it over to Michael. So regarding the free cash flow, we have indicated that the third quarter coming up, we expect to be between $100 million and $110 million. And then consistent with what we've expected from the past is Q4 will be under $100 million. So we expect to exit the fourth quarter of this year at a spending level below $100 million, and that continues. So we would also continue to see reductions in spending going into 2026 as well. So that's our forecast at this time. Michael A. Colglazier: So Oliver, I'll take LV-X and then customer side. So the very clear need that we'll have for more launch vehicles will be for Virgin Galactic suborbital spaceflight business. So the X in the LV-X program is you can have different variants of the ship. The place that we will put our primary focus at this stage is in a Virgin Galactic variant of that ship that will look very similar to our Eve mother ship that's there existing and probably have a few upgrades as you'd expect the new models to have. The way we can approach the engineering of that also can take into account what we are learning as we're reaching out into kind of government and research and defense areas to say, hey, is there a need in the marketplace for a high-altitude, heavy lift, reasonably long-endurance vehicle? And given what that need might be, how do we ensure that we are building into the design of the Virgin Galactic variant the capacity to adapt that to a government variant. So we've been pushing that through, and that part is very, very clear. Now you talked about kind of size of that market. That is a little less. What are we -- I'd say types of use cases. There's clearly lots of testing of things that are needed to be at a high altitude that will eventually turn into other ships or planes or equipment that goes there. So there's a lot of testing capability. That's probably a smaller demand on total vehicles. And then I think it just depends on are there systems and needs that the government would have, likely the defense side of the government, to have a larger number. We're not there yet. We're just doing the assessments we need to understand what are the needs that the government may have for the use of a vehicle like this, who are the teams that we could partner with in that regard, and that will help us build an understanding of the business potential. So the note I put out with a feasibility study with Lawrence Livermore -- those people are fantastic. And that's one of the ways, not the only way, but one of the ways we're building our understanding of what this market could be. So nothing more on that at this time, but encouraged, I would say, by the general response we see for what a vehicle that does what our launch vehicles can do could be used for. As to the customers, this is getting fun for the customer side of the business who's been on -- waiting to be flying. So a lot of the work right now, Oliver, is in the details of how do we scale and keep the true world-class piece, right? You're talking about luxury customer. But obviously, this is an intensive adventure piece but also very high end, very high touch, and that means very one-to-one personal efforts. And how do we then take that and do at a higher cadence, right, as we're going from 1 flight a week to 2 flights a week to 3 flights a week and being able to move from there and adapt our facilities and scale up the -- basically the customer hosting and training and all the guests of these things, these become big major events and how to handle that. So that's a lot of logistics. Now that's not a strange topic for us to do, but it requires detail and thought and how the facilities will be able to handle that and we make sure that we keep the individualized attention as we have higher volumes. So that's a big thing. We're starting to see the mock- ups of our space suits come in because those will be changing, and that's exciting to see. We are building an astronaut portal for our astronauts that will come as part of a website update as we go into sales. That is -- they're kind of behind the rope of what they will need for their journey and how our training will play out ahead of their flight. So good preparation for this. But obviously, next year is when this will really ramp up for sure.