Virgin Galactic Q2 2026 Earnings Report

Virgin Galactic EPS Results

• Actual EPS: -$0.50
• Consensus EPS: -$0.64
• Beat/Miss: Beat by +$0.14
• One Year Ago EPS: N/A

Virgin Galactic Revenue Results

• Actual Revenue: $0.13 million
• Expected Revenue: $0.13 million
• Beat/Miss: Beat by +$7.00 thousand
• YoY Revenue Growth: N/A

Virgin Galactic Announcement Details

• Quarter: Q2 2026
• Date: 8/12/2026
• Time: After Market Closes
• Conference Call Date: Wednesday, August 12, 2026
• Conference Call Time: 5:00PM ET

Virgin Galactic (NYSE:SPCE) (NYSE: SPCE) is a commercial spaceflight company developing and operating spacecraft for private individuals and research customers. The firm’s primary business is suborbital human spaceflight, offering passengers a brief trip to the edge of space aboard its reusable spaceplane. In parallel, the company is building out infrastructure and support services for suborbital payload deployments and microgravity research missions.

The core flight system consists of a carrier aircraft, WhiteKnightTwo, which lifts the spaceplane SpaceShipTwo to high altitude before release. Once deployed, SpaceShipTwo ignites its hybrid rocket motor to carry passengers and experiments to altitudes above 50 miles, where they experience several minutes of weightlessness before gliding back to a conventional runway landing. Facilities include engineering and manufacturing sites in Mojave, California, and a dedicated launch complex and mission control center at Spaceport America in New Mexico.

Virgin Galactic was founded in 2004 by Sir Richard Branson as part of the Virgin Group and has since completed multiple test flights, achieving its first suborbital milestone in late 2018. The company went public in 2019 through a merger with a special purpose acquisition company and now trades under the symbol SPCE. Leadership is led by CEO Michael Colglazier and overseen by a board chaired by investor Chamath Palihapitiya. With a globally dispersed customer base, Virgin Galactic continues to pre-sell tickets for tourism flights and develop research partnerships to expand access to space.

Virgin Galactic Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Demand exceeded expectations: The latest $750,000 spaceflight tranche was oversubscribed, adding more than $50 million to expected future spaceflight revenue. Virgin Galactic plans to reopen bookings this fall at higher prices after onboarding its astronaut community, which now exceeds 700 members.
• Negative Sentiment: The first commercial spaceflight has been pushed to February 2027 from the prior timeline because hundreds of avionics and systems-installation tasks took longer than expected. Integrated vehicle ground testing is expected to begin later this month, with flight testing planned to start in October.
• Negative Sentiment: Near-term cash use is expected to worsen as the company adds labor and resources to complete the first spaceship. Third-quarter free cash flow is forecast at negative $95 million to $100 million, although management expects CapEx to decline again in the fourth quarter and throughout 2027.
• Positive Sentiment: Virgin Galactic ended the quarter with $286 million in cash, cash equivalents and marketable securities after raising $134 million and reducing debt principal by $93 million. Management says no additional capital is currently needed to reach positive quarterly cash flow in 2027, supported by customer cash inflows beginning with commercial operations.
• Positive Sentiment: Management reiterated ambitious long-term economics, including approximately $60 million to produce each spaceship, more than 80% contribution margins per flight and a target of at least 10 flights per month by the end of the second quarter of 2027. These projections could support annualized adjusted EBITDA of $100 million with two spaceships and more than $1 billion with two fully utilized spaceports, though they remain dependent on execution and demand.

Presentation

[Operator]

Thank you. I will now turn the call over to Ken Michaels, Vice President of Finance. Please go ahead.

[Ken Michaels, VP of Business Risk Management & Financial Governance at Virgin Galactic]

Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's second quarter 2026 earnings conference call. On the call with me today are Michael Colglazier, Chief Executive Officer, and Doug T. Ahrens, Chief Financial Officer. Following our prepared remarks, we will open the call for questions. Our press release and slide presentation that will accompany today's remarks are available on our Investor Relations website. Please refer to slide two of the presentation for our safe harbor disclaimer. During today's call, we may make certain forward-looking statements. These statements are based on current expectations and assumptions, and as a result, are subject to risks and uncertainties. Many factors could cause actual events to differ materially from the forward-looking statements made on this call. For more information about these risks and uncertainties, please refer to the risk factors in the company's SEC filings made from time to time.

[Ken Michaels, VP of Business Risk Management & Financial Governance at Virgin Galactic]

You are cautioned not to put undue reliance on forward-looking statements. The company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call, whether a result of new information, future events, or otherwise. Please also note that we will refer to certain non-GAAP financial information on today's call. Please refer to our earnings release for a reconciliation of these non-GAAP financial metrics. I would now like to turn the call over to our CEO, Michael Colglazier, who will begin our discussion on slide three.

[Michael Colglazier, CEO at Virgin Galactic]

I am pleased to share our recent tranche of spaceflight expeditions as booked out ahead of schedule, demonstrating strong demand from a wide range of customer segments. The allotment we had held at the $750,000 price point was oversubscribed, and we have added over $50 million to our expected future spaceflight revenue. We have moved our first commercial space flight to this coming February to allow additional time to complete avionics and systems installations. No single issue is driving the schedule push. Rather, we have experienced modest time duration extensions across hundreds of relatively small but important installation tasks involved in the first build of our new spaceship. Our teams bring disciplined urgency to their efforts, and they have made outstanding progress on both our first ship and the ship sets that are following. This progress required more time than we expected ahead of our integrated vehicle ground testing.

[Michael Colglazier, CEO at Virgin Galactic]

It was needed to complete the work with the thoroughness and precision we demand. This work is wrapping up in the next couple of weeks, and we expect to begin integrated vehicle ground testing later this month. We have incorporated the learnings from this first build into the schedule forecast for our second ship, which we now expect will join the fleet in New Mexico in March. That schedule continues to support the cadence of flight rate that we shared last quarter, and we maintain our projections to deliver positive quarterly cash flow within 2027. I will share some insight on the sales process and the additions we have made to our astronaut community, followed by some detail into the build process for our first spaceship, our static test ship, and our second spaceship.

[Michael Colglazier, CEO at Virgin Galactic]

I will then pass it over to Doug T. Ahrens for our financial discussion and further context into the unit profitability of our spaceships. Turning to page four in the slide deck. We now have over 700 members within the Virgin Galactic astronaut community, and we are very pleased to welcome our most recent arrivals. This new group, like those who have been in our community for a while, are passionate about space. As a cohort, they represent a diverse range of organizations and individuals who broaden our target market. One new trend we are seeing is an increase in multi-seat bookings. Approximately 60% of this new cohort is part of a group of some form or another, ranging from multi-generation expeditions of all sorts, to research missions, to corporate charters and nonprofit bookings.

[Michael Colglazier, CEO at Virgin Galactic]

Many are adventurers, but most are joining the community for the deep transformative experience that is enabled with our space flights. Many of our new arrivals see space as a platform for broader initiatives, including science-based and nonprofit endeavors. Consistent with our prior statements, we have now closed active bookings as we onboard our new astronauts and engage them in the community. We have retired the $750,000 price point, and we plan to open a new tranche of spaceflight expeditions this fall at higher price points. Moving to page five to discuss spaceship progress. I will start this section with one of the many fun facts around our spaceships. We have over 12 miles of wire running between the various computers, systems, and sensors throughout the entire ship.

[Michael Colglazier, CEO at Virgin Galactic]

Every one of those wires is designed, fabricated, bundled, and connected with detailed precision, and the image on this page gives you a glimpse into the complexity of installation within the unique configuration of our spaceship. The progress our team has been making is incredible, and they are doing their work with thoroughness, precision, and quality. As I mentioned at the outset, many of the hundreds of preparation and installation tasks have required more time to complete than we had estimated. We will always take the time that is needed, and that has caused us to move our first spaceflight expectation to February. We take the time needed for on-ship work and related engineering and quality assurance processes.

[Michael Colglazier, CEO at Virgin Galactic]

We also have added resources and improved process management to minimize the overall time impacts. We are operating with two shifts, seven days a week, and I am very proud of and grateful for the massive joint effort of our team and the extended workforce we have brought in from California, New Mexico, Bell Textron, and partner agencies to complete the effort. These added investments will show up as incremental spending in Q3 and to a lesser degree in Q4. But these added expenses bring high return by helping us maintain our expected flight cadence in 2027. On page six, we are highlighting progress with our static test ship, which we use to verify our as-built structural configurations. The image on the upper left shows the wing assembly, and the images on the lower left show the fuselage structure in process of assembly.

[Michael Colglazier, CEO at Virgin Galactic]

These will be joined together and shipped to the Southwest Research Institute for structural testing. Our feather assembly, shown in the image on the right, is already at the Southwest Research Institute and is being wired for testing, which will start in early September. As soon as the static test wing and fuselage are joined and shipped, we will pivot our manufacturing team to begin assembly of the second spaceship. Let us turn to page seven. These images show major parts of our second spaceship as they move through the production and assembly process. The image on the left shows a wing skin, the image on the top right shows a cabin skin being fabricated, and the image on the bottom right shows our nearly completed feather assembly. It is exciting to see multiple spaceships being built at the same time.

[Michael Colglazier, CEO at Virgin Galactic]

With that, I will turn the call over to Doug, starting on slide eight.

[Doug T. Ahrens, CFO at Virgin Galactic]

Thanks, Michael. Good afternoon, everyone. We are very excited about the upcoming start of commercial service, which is fast approaching. Ahead of this transition, we have strengthened the balance sheet, we have our sights set on growth. Starting with our balance sheet, during the second quarter, we raised $134 million to our current ATM or at-the-market equity offering program, which is now substantially complete. We ended the second quarter with $286 million of cash equivalents, and marketable securities, up from $251 million at the end of the prior quarter. Also during the second quarter, we reduced the principal balance on our 2027 and 2028 notes by $93 million and further aligned the timing of future payments with the expected ramp in our space flight operations. Specifically, we now have just $17.9 million in principal payments remaining for the 2027 notes.

[Doug T. Ahrens, CFO at Virgin Galactic]

The 2028 notes have no required principal payments due until March 2028. With a higher cash balance and reduced debt obligations, we are ready to launch the exciting growth phase of our business. Next, we will do a quick recap of our financial results for the second quarter. Please turn to slide 9. Operating expenses were $65 million, compared to $70 million in the prior year period. Capital expenditures were $41 million, down from $58 million in the prior year period, reflecting lower capital requirements overall as we progress through manufacturing our spaceships. Free cash flow is -$91 million, a 20% improvement compared to the prior year period. Let's move to our projections on slide 10. Revenue for the third quarter of 2026 is expected to be approximately $400,000 for future astronaut access fees and events.

[Doug T. Ahrens, CFO at Virgin Galactic]

While quarterly capital expenditures have generally been trending lower since last year, given the recent increased time and labor to complete the systems installations for the first spaceship, we now expect to see a temporary increase in capital expenditures in the third quarter. Therefore, free cash flow for the third quarter of 2026 is expected to be in the range of -$95 million to $100 million. While this represents a quarterly uptick in CapEx for this specific scope of work, we are very proud of the teams that are tirelessly and very skillfully building our spaceships. The work must be done with meticulous attention to detail, and these assets are being prepared to provide extraordinary experiences to our customers with the goal of also providing extraordinary returns to our shareholders. More on these expected returns from our spaceships in a minute.

[Doug T. Ahrens, CFO at Virgin Galactic]

We forecast the downward trend in capital expenditures to resume in the fourth quarter of 2026. We expect a corresponding improvement in free cash flow, which is projected to be in the range of -$80 million to $90 million. Revenue recognition for space flights is now expected to begin with the start of commercial space flight operations in February 2027. Furthermore, with the start of commercial space flight operations, we expect to begin receiving cash inflows from customers ahead of their space flights. These inflows represent the remainder of the purchase price for each space flight expedition, which is to be collected in connection with the customers signing the conditions of carriage prior to their space flight.

[Doug T. Ahrens, CFO at Virgin Galactic]

With our second spaceship entering service, we continue to forecast that we will achieve a flight rate of 10 or more space flights per month by the end of the second quarter of 2027. This flight rate is an unprecedented achievement in human space flight, and this is made possible with our highly reusable spaceship design. Given these flight rate expectations, we continue to forecast quarterly positive cash flow within 2027, followed by rapid growth in revenue and adjusted EBITDA as we manifest our more recent and higher-priced space flight expeditions. Let's turn to page 11 and circle back to the economic returns we project with each new spaceship. Our practical experience flying our first spaceship, Unity, and our design and manufacturing refinements in our new spaceships have yielded an elegant, purpose-built vehicle optimized for both repeatable production and repeatable operation. It's a beautiful machine with vast potential.

[Doug T. Ahrens, CFO at Virgin Galactic]

Now we are approaching the moment when we bring it all together with the ramp of commercial spaceflight operations. Let's do some quick math on what to expect in terms of unit economics for each spaceship. We've already created and refined the design for our spaceship, and we have invested in the tooling and manufacturing capability to make copies of that design. Our projections have stayed consistent, and we expect each new spaceship to cost approximately $60 million to produce. Given a conservative lifetime estimate of 500 flights per spaceship with six astronauts per spaceflight, average pricing of $600,000 for spaceflight expedition, and a contribution margin over 80% per spaceflight, each new spaceship has the potential to generate over $1.4 billion of lifetime contribution margin. In addition to turning the dream of human spaceflight into reality, it's clear that these financial returns are also expected to be spectacular.

[Doug T. Ahrens, CFO at Virgin Galactic]

These exceptional unit economics for our vehicles are what drive the economic model shown on slide 12. We've shown this model before, and it highlights the tremendous economies of scale that can be achieved as we build and operate multiple spaceships and expand to multiple space ports. To reiterate the model, with our first two spaceships in service, we expect to achieve the economics shown in the first column by the time the average price reaches $600,000 for each spaceflight expedition flown. Therefore, as higher prices flow through the flight manifest, we expect to achieve adjusted EBITDA during a quarter within 2028 that will result in an annualized adjusted EBITDA of $100 million, as shown in the first column of this page. As we noted at the start of today's call, we are pleased to report that we were oversubscribed for the recent tranche of spaceflight expeditions priced at $750,000.

[Doug T. Ahrens, CFO at Virgin Galactic]

This strong demand indication, combined with the economies of scale from expanding our fleet, are what make the tremendous economic return shown on this page possible. As we continue to add spaceships and launch vehicles to the fleet, we can move to the right on this page, and we see the potential flow-through of profit that we expect to achieve as we expand. While there is a variable cost component for each flight, much of our corporate cost structure does not need to grow materially as we increase the number of flights. Specifically, as we fully utilize one space port by doubling the size of our fleet from two spaceships to four and adding a launch vehicle, we project that adjusted EBITDA will more than quadruple to over $450 million per year. That is just for one fully utilized space port, and we plan to keep going.

[Doug T. Ahrens, CFO at Virgin Galactic]

With two fully utilized space ports, we expect to be able to generate over $1 billion of adjusted EBITDA annually. These economies of scale are expected to continue as we expand into additional space ports globally. With that, I'll turn the call back over to Michael.

[Michael Colglazier, CEO at Virgin Galactic]

Closing on page 13. Here's an image of our first ship having its livery installed. Livery and window transparencies are some of the last steps before integrated vehicle ground testing, and it's exciting to see this ship getting ready for the next stage. We're thrilled with the market response to our latest tranche of space flight expedition bookings, and we're pleased with the progress we are making on all our ships. We will incur some added expense in Q3 and Q4 as we absorb the added time to our schedule.

[Michael Colglazier, CEO at Virgin Galactic]

But the added efforts will help us maintain delivery of quarterly positive cash flow within 2027. Our astronaut community is growing and very engaged. Today, we had a group of them together in Mallorca to see the eclipse, and we have exclusive activities planned as they prepare for their upcoming spaceflights, which are soon on the horizon. Let's open the call for questions.

[Operator]

Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. Our first question comes from the line of Oliver Chen with TD Cowen. Your line is open.

[Julia Shalansky, Analyst at TD Cowen]

Hi, Michael and Doug. This is Julia Shalansky on for Oliver Chen. We have two questions for you this afternoon. First, regarding the commercial launch timeline shift, can you help us distinguish between timing and scope? Has any material work been added since the 1Q update, or is this primarily a de-risking decision to increase confidence in the flight test and the commercialization schedule? Second, on demand durability, you've now had two consecutive tranches sell out ahead of schedule at very high prices. Do you see any natural ceiling to that demand curve, and how are you thinking about pricing going into the next fall release? Thank you.

[Michael Colglazier, CEO at Virgin Galactic]

Hey, Julia. Excuse me. Hi, Julia, it's Michael. Let's see. Timeline, you asked the question on scope. Let me answer it this way and see if it addresses what you're asking. Generally, same scope

[Michael Colglazier, CEO at Virgin Galactic]

Same work, same expectations in finishing the installation of all of our avionics and mechanical systems. The work, which is hundreds, literally hundreds of reasonably short tasks. A lot of those tasks have taken us longer to complete than we had allotted in our estimates and schedule forecast. What are those things? It is not that it is a new scope per se. We put a picture in the deck. You will look at kind of where the pilots would be sitting. There is a panel that is not installed, so you can see kind of the degree of wires and cables and connectors that are involved. A lot of these examples are taking the 3D designs, taking all the parts and the kit that need to go in. One of our technicians, who are massively capable, does the work.

[Michael Colglazier, CEO at Virgin Galactic]

As they kind of put one wire harness in and another wire harness in, and metal tubes for our pneumatic systems in, some of it starts to, the whole, I will call it, height of those things going on top of each other may end up to be a few thousandths of an inch taller or shorter sometimes than our design had expected. Sometimes that is not an issue. Sometimes that starts to get to a place where we have a requirement that we will go and confirm through engineering analysis whether that needs to be adjusted or not. Whenever that happens, there is a whole process for it. Our quality inspectors look at every installation we do. They get the quality engineers, the quality engineers go find further engineers for assessment if necessary.

[Michael Colglazier, CEO at Virgin Galactic]

It all happens pretty quickly, but the number of those kind of, "Oh, we did not expect this to not fit just perfectly coming in," is higher than we had allotted for. That just has started to accumulate on us. It really picked up at the tail end of July. For a bit, we thought we could manage that end, but the team just needed more time to do it the correct way. So what we have done is we have flowed the time needed out, so that we can finish the task correctly and do it the right way. When you add that up, it means we will start our integrated vehicle ground test program almost a couple of months later than we had assumed, and we have flowed that through our schedule.

[Michael Colglazier, CEO at Virgin Galactic]

Happy to give you more examples of what it is, but it is a collection of small items, each of which have taken longer than expected, and the kind of summary of all those, adding up all those extra durations is added to our time. So, no different scope. We expect to wrap all this phase up later this month. We will start our integrated vehicle ground testing efforts through there. We have done power on in our ship, and so we will continue to be testing both the power and connecting everything in the sort of correct way, and all the mechanical systems are operating in the functions we like. Then we plan to send the ship out to New Mexico in October to begin our flight test program, and that will carry on just the way we thought before.

[Michael Colglazier, CEO at Virgin Galactic]

Hopefully that gives you a little bit of insight into what's behind the push. I think more excitingly is what's behind getting closer to the finish line on this build and to the start of actually carrying our astronauts to space. Shifting to your demand question, yes, we expected to close this first tranche of bookings about the time of our flight test. Not this early. We were getting near the end, and we sent the people that we were in conversation with still a note that we were going to close the booking. A number of those came in, and we were oversubscribed by a reasonable amount. That's great. We've closed this price point, as we said we would do.

[Michael Colglazier, CEO at Virgin Galactic]

We're going to focus on bringing all these people into our astronaut community and making sure they are prepared for the journey ahead of them. We expect this fall we will reopen our booking opportunities. It will be at a higher price point. You asked for some perspective on that. We're really the only people that will be carrying humans to space beyond if you want to kind of do a $50-plus million orbital flight, which are very few in capacity and very expensive. The real comparison was probably what the Blue Origin folks were flying. They never published their prices. Anecdotally, I think people were probably in $1 million-$2 million range. So there's demand, I think, for them at probably average that out to $1.5 million. I don't think we need to be driving our prices up that quickly.

[Michael Colglazier, CEO at Virgin Galactic]

There is strong and solid demand, and we do expect each time we release a tranche of tickets, it will be priced higher than the tranche before, and that's appropriate. I think you'll see us do that for a little bit longer.

[Julia Shalansky, Analyst at TD Cowen]

Thank you. Very helpful. Best regards.

[Michael Colglazier, CEO at Virgin Galactic]

Thanks, Julia.

[Operator]

Our next question comes from the line of Michael Leshock with KeyBanc Capital Markets. Your line is open.

[Michael Leshock, Analyst at KeyBanc Capital Markets]

Hey, good afternoon. I wanted to start with the rocket production starting in 4Q. Just given that it's the same propulsion that was used on Unity, will there be additional labor needed to start that back up? Or did the propulsion team shift to other areas for these new spaceships in development? Are they going to be moving back to propulsion? Secondly, how long does it take to produce one rocket motor?

[Michael Colglazier, CEO at Virgin Galactic]

Thanks, Mike. The team we have in Arizona are multitask capable. Right now they are finishing up the systems installation. You see a picture at the end of our deck, finishing up delivery installation, and we'll move the ship into the integrated ground, I can't even say it, IVGT, integrated vehicle ground test. When we do that, a lot of the technicians that we have in Phoenix will pivot back over, finish out the static test ship, and when that is shipped out, we will then have all the parts coming in for our second production spaceship, and they will build that. As we get ready to finish that and send the second ship out for testing and off to New Mexico, then the majority of that team will shift over into the rocket production area. We do not expect a big ramp-up of labor for that.

[Michael Colglazier, CEO at Virgin Galactic]

Most of the labor is currently there in Phoenix, and we will move people from one set of tasks to the other as we go. The pace we can do rockets is, with this new production line, quite rapid. We will be testing out and ramping initially up to about a three-motor a week capability, just to kind of keep up with the flight rate of our first two ships. The line itself and the equipment is built to handle more than that, and we can handle more of it with both adding extra shifts. What I gave you is a single shift, across a week duration, so we could always add extra shifts.

[Michael Colglazier, CEO at Virgin Galactic]

There are only a couple, I will call it equipment bottlenecks in that line, that when we are ready to have an expanded fleet at Spaceport America or a second spaceport, we can ramp the same infrastructure, this production line, to handle all of that. So probably closer to 15 motors a week when we are ready to go. We can also use that capacity for other things with rocket motors, but right now we are really focused on just supplying the fleet of spaceships that will be flying.

[Michael Leshock, Analyst at KeyBanc Capital Markets]

On the cash position, do you see the need to raise additional capital to get to that positive cash generation in 2027? I appreciate the color on the quarterly guide, but is there any reason we should expect a big step down in burn in early 2027, or just any way we should think about 2027's cadence once commercial flights resume? Thank you.

[Doug T. Ahrens, CFO at Virgin Galactic]

Yeah. Thanks, Mike. This is Doug. So we do not need to raise anything right now. We do not need additional capital at the moment. What we highlighted was what we already did with our ATM program. We raised $134 million during the quarter, so we have more cash at the end of the quarter than what we started with. We also managed our debt payments and created the time to get ramped on commercial service so we can time our operating cash flows with those debt payments. As we get into kind of the near term, when we get into the start of commercial service in Q1, that is when we start to see inflows coming from the customers. So we timed that for February of 2027.

[Doug T. Ahrens, CFO at Virgin Galactic]

With that, we get the remainder of the expedition price from the astronauts, and we actually start collecting ahead of some of the future flights. We start to get these inflows, and that changes the whole cash flow dynamics as we go forward. We are getting down to our cost base now as we finish up. I gave you the guidance towards the end of the year, but we get to our cost base as we exit because we are done with the manufacturing. We are just moving into the operating stage, but Q1 is that point when it crosses over and the inflows change. With that said, there will be a time when we want to drive faster growth, and that is when it would make sense probably to add some capital.

[Doug T. Ahrens, CFO at Virgin Galactic]

We can add more vehicles more quickly, expand the fleet, and that is why we spent some time highlighting these great unit economics for these spaceships. It can tie any future capital raises to some very attractive ROIs on additional assets that can be added more quickly with that capital. Again, there will come a time, and we will tie it to growth drivers and the rationale will be great for shareholders, in our opinion. But nothing to do today with the capital raise.

[Michael Leshock, Analyst at KeyBanc Capital Markets]

Okay, great. Thanks so much.

[Operator]

Next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open.

[Ceara Perry, Analyst at Jefferies]

Hi, everyone. This is Ceara Perry on for Sheila Kahyaoglu. Thank you so much for taking my question. On a similar note, I was wondering if you could frame how we should think about the trajectory for CapEx from the third quarter into 2027, based on the updated flight schedule. Thank you.

[Doug T. Ahrens, CFO at Virgin Galactic]

CapEx, in particular, is coming down significantly because what's driving that is the build of the spaceship. As we're wrapping that up, we've done the heavy lifting, right, which included the tooling and then all the parts fabrication and then all of the labor and everything that goes into the assembly of the ship. That's all CapEx. That's moving along, and with the first vehicle headed into ground tests and then the second vehicle coming pretty close behind, we expect CapEx to be coming down quite a bit by the fourth quarter and then quite a bit more in 2027, because it's just not a CapEx-driven cost structure at that point. Now we're moving into more OpEx for the commercial spaceflight. It's a shift. You'll see a continued drop in CapEx after we get by the fourth quarter.

[Ceara Perry, Analyst at Jefferies]

Thank you so much.

[Operator]

Next question comes from the line of Myles Walton with Wolfe Research. Your line is open.

[Analyst at Wolfe Research]

Hey, everyone, it's Emily on for Myles. How are you?

[Michael Colglazier, CEO at Virgin Galactic]

Good, Emily.

[Analyst at Wolfe Research]

Good. Good to connect. I just had a question on VMS Eve. Given it's the solo mothership for now, what is the current flight cycle or maintenance schedule that you're looking at for that? Are there any structural limitations on that ship as the Delta flight testing begins?

[Michael Colglazier, CEO at Virgin Galactic]

I'll talk on flight schedules. We have a very detailed maintenance program on Eve, like you would see with most airplanes, and their flight interval inspections. Some things are done on an every flight basis, some a three-flight basis, some 5, 7, 10, 30, things like that. When you carry that across the course of a year, we've stated on these calls publicly that we expect Eve to be flying on a three-times-per-week cadence. Our maintenance schedules allow us to go at greater rates than that, than three, just based upon how the stacking of the maintenance tasks are and how long they take to do. We're holding our kind of stated efforts at three times per week. We think that's appropriate right now until we're into it. But the maintenance schedule would suggest we can go more frequently than that.

[Michael Colglazier, CEO at Virgin Galactic]

The way you asked the question was, are there structural limitations on Eve related to the Delta ships? There are parameters on all of our ships that we don't exceed. How much weight can they carry? What are landing rates, sink rates that we have in tolerance, things like that. But nothing is different with our Delta ships than with our VSS Unity ship or in plan. Eve is an incredibly capable launch vehicle for these new ships that are coming off the line, and it's going to be a workhorse of a launch vehicle for us. It's been adapted and upgraded over the last couple of years to do that. We're very excited for that ship.

[Analyst at Wolfe Research]

Thanks. One quick follow-up on that. Do you have a parameter for the CapEx commitment or timeline for procuring and building the next mothership, or is that sort of paused at the moment until Delta gets into its operating cadence?

[Michael Colglazier, CEO at Virgin Galactic]

Not paused, but definitely the next launch vehicle is moving more slowly as we are putting all of our attention to finishing up the first spaceship, which is right around the corner. As we finish that up, we will pivot that team back to the launch vehicle and move through both engineering and then as we get into deciding the full supply chain details, that will give us more clarity around the total CapEx. We have our internal estimates for that, and we think they are pretty solid and reasonable, but we have not shared those out at this stage. Next stage with our launch vehicle is to have the engineers come off our ship and really lean into the launch vehicle design. Then we will start having kind of alternating production between spaceships.

[Michael Colglazier, CEO at Virgin Galactic]

We will build a launch vehicle, we will probably build a couple spaceships, we will match with another launch vehicle and grow the fleet in a balanced fashion like that.

[Analyst at Wolfe Research]

Great. Thanks for the color.

[Michael Colglazier, CEO at Virgin Galactic]

You are welcome. Thank you.

[Operator]

Our next question comes from the line of Kristine Liwag with Morgan Stanley. Your line is open. Ms. Kristine, your line is now open.

[Kristine Liwag, Analyst at Morgan Stanley]

Hi, and good afternoon, everyone. Apologies for being on mute there. I wanted to follow up on the economies of scale that you had laid out, right? For the initial fleet of two spaceships in operation, one in launch vehicles. You get to the adjusted EBITDA potentially at that run rate of $90 million-$150 million. I wanted to understand with that kind of EBITDA, what were the milestone payments already received? If that were to materialize, how should we think about the cash conversion of that EBITDA and operating cash, so taking away any potential impact of CapEx, just so that we understand that run rate and how you get to a positive free cash flow path.

[Michael Colglazier, CEO at Virgin Galactic]

Forgive me, your phone got a little muffled there. We got you through economies of scale and kind of repeating how we got to $90 million-$150 million. Would you mind repeating the question again, maybe just close to the microphone?

[Kristine Liwag, Analyst at Morgan Stanley]

Yes. If you could hear me now.

[Michael Colglazier, CEO at Virgin Galactic]

Sure.

[Kristine Liwag, Analyst at Morgan Stanley]

My question is, you've received deposits from customers in the past, and now with that EBITDA for that run rate, I was wondering what would be the operating cash conversion off of that EBITDA, considering deposits you've already received in the past? This is on operating cash, so no CapEx. Just understanding what the free cash flow run rate could be off of that EBITDA.

[Doug T. Ahrens, CFO at Virgin Galactic]

Okay. Yes, Kristine, good question. What we do see building into this is actually we're collecting cash ahead of this because we're getting cash for flights that are in the future. We actually have a little better free cash flow ahead of the EBITDA as we ramp into this. As we go forward, though it depends where we're at in the life cycle of future vehicle development, right? How much we're putting into CapEx at any one time. But what this model reflects is that we have quite a bit of R&D going into vehicle development, and there will be some conversion over to CapEx as we move through the development. But what we're seeing is very high conversion ratios. The cash conversion relative to EBITDA is very close.

[Doug T. Ahrens, CFO at Virgin Galactic]

The CapEx, it never becomes too high until we get out to about let's call it 2029 when we are getting into the bigger lift on a launch vehicle development, where you're getting into the assembly and so on with the vendors. There's a period there where we see a little more CapEx going on. But in terms of your overall modeling, it's a very high conversion ratio between the EBITDA and the CapEx.

[Michael Colglazier, CEO at Virgin Galactic]

Did we cover your question?

[Kristine Liwag, Analyst at Morgan Stanley]

Great. Super helpful. Following up on that, when you look at the growth that you could get with more flights, you are going to need more spacecraft, and you talked about the $60 million spend per incremental spacecraft. First question on that, is that $60 million number the run rate that you would pay for spacecraft number three and four, or is that a more mature production down the line? The second question I have regarding that growth is how do you intend to balance growing EBITDA, which then requires investment in CapEx versus generating more free cash flow and stability for the balance sheet?

[Doug T. Ahrens, CFO at Virgin Galactic]

On the first question, Kristine, yeah, that is what we are seeing for a spaceship cost going forward. That is not down the road. That is Delta III and IV kind of timeline based on our recent experience, because we have already built a couple, we have closely measured the cost for the parts and the labor and all the components, and so that is what we have dialed in. It turned out that our earlier estimates were quite accurate in that regard. That is not far down the road. That is near term, as soon as we start to get back into building additional spaceships. If you could, please repeat the second question one more time, Kristine. Thank you.

[Kristine Liwag, Analyst at Morgan Stanley]

Yes, and apologies for my connection. My second question is more about understanding the balance between growth, right? Because in order for your revenue to grow and be able to service more customers, you are going to have to buy more spacecraft, which then is a usage of cash. How do we balance growth versus stability in generating positive free cash flow to create more of a bolster for the balance sheet?

[Doug T. Ahrens, CFO at Virgin Galactic]

Yeah, I think the right way to think about this is why we've highlighted these amazing unit economics for these vehicles is the more we add we rapidly expand the profitability, the revenue and the profitability that we can generate from them. The payback periods on these is very short. If you look at a spaceship in particular, the $60 million it pays for itself in less than a year of flight time because of the returns we get from flying it, the high contribution margin. It's always going to make sense to expand and put that cash back into the business and build more to meet demand, as long as there's always demand to fulfill those. It's going to be very clear that we should be growing at the fastest rate we can in terms of adding vehicles.

[Michael Colglazier, CEO at Virgin Galactic]

I think just the way you asked the question, it's a bit of a both end, right? The company needs to be solid, the balance sheet needs to be solid, and we'll need to keep it in that place. We'll need to continue to demonstrate a backlog of demand that's very strong and growing. One of the things we are obviously very encouraged by today in today's announcement is closing our first tranche out early, even advance of when we're flying. In addition to just the timing of it, I'd say the broadening of categories of people within the demand we had. One of the things we want to do to not just bolster the balance sheet, but just bolster confidence in the business model, ongoing book of business, amazing results from the astronauts that we're flying so that you hear from the stories of them.

[Michael Colglazier, CEO at Virgin Galactic]

Are they missionary for us? Are they out referring and recommending other people to us? Which it's already in place, but I think you'll see more of that. Economically, we need to maintain a reasonable cash balance and manage our growth in a strong fashion. We have multiple options to do so, but those options are always stronger as we hit clear profitable operation, we hit the flight cadence that we expect to be hitting, and people see, "Oh my goodness, this is the solid business they've been telling us all the time." I think that opens up lots of doors to how to grow in a more rapid fashion.

[Kristine Liwag, Analyst at Morgan Stanley]

Great. Super helpful. Thank you.

[Operator]

There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.

Participants

Executives

• Ken Michaels, VP of Business Risk Management & Financial Governance
• Michael Colglazier, CEO
• Doug T. Ahrens, CFO

Analysts

• Julia Shalansky, Analyst at TD Cowen
• Michael Leshock, Analyst at KeyBanc Capital Markets
• Ceara Perry, Analyst at Jefferies
• Analyst at Wolfe Research
• Kristine Liwag, Analyst at Morgan Stanley