Virgin Galactic Holdings, Inc.

Good afternoon. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's third quarter 2025 earnings conference call. All lines having place on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw a question, press star one again. Thank you. I will now turn the call over to Eric Cerny, Vice President of Investor Relations. You may begin.

Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's third quarter 2025 earnings conference call. On the call with me today are Michael Colglazier, Chief Executive Officer, and Doug Ahrens, Chief Financial Officer. Following our prepared remarks, we'll 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 see 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. Viewer caution not to put undue reliance on forward-looking statements, and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call, whether as a result of new information, future events, or otherwise. Please also note that we'll 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, and the agenda for today's call that can be found on page three of the earnings presentation.

Good afternoon, everyone. We have much to cover today with important progress updates on our spaceship program and a company-wide pivot toward operational readiness as we prepare to enter 2026. We remain full steam ahead, bringing our new spaceships into service. We continue to make excellent progress across the many elements of the program, and the number of outstanding items on our production checklist continues to decline with each passing week as we knock out the work. I'll start the call highlighting progress within our spaceship program, including major milestones being crossed and proof points supporting our flight rate and reusability assumptions. I'll share insights on our preparation for the launch of commercial service in Q4 next year, which is just a short year or so from today. I'll then pass the call to Doug for updates on our Q3 financial performance and a look ahead. Before diving into the details, I'm pleased to share the expected dates for flight test and our first space flight remain essentially unchanged from our prior forecast. With our flight test program expected to begin in Q3, and our first space flight in Q4 of 2026. I'll note that we are now using Q3 instead of summer and Q4 instead of fall, as we've had feedback from customers and investors in the southern hemisphere who point out that fall in the U.S. is actually spring in other parts of the world. Shifting to quarters helps make this more clear. Last quarter, we shared expectations for a modest extension of our critical path due to complexity in manufacturing a large part within our fuselage sub-assembly. That particular part, the lower skin of our forward fuselage, arrived in our spaceship factory earlier this month, well within the time extension we had expected, which is great news. Since last quarter, the fuselage has been and continues to be the pace-setting sub-assembly that drives the critical path of our spaceship program. Our team has focused intensely on resolving the manufacturing and supply chain needs of the fuselage with strong results. and we are currently forecasting the first fuselage to wrap up just a bit earlier than we expected last quarter. Over the last three months, we have seen the expected completion dates of our wing and feather subassemblies shift modestly to the right. However, both of these subassemblies remain ahead of the critical path, and the shifts, therefore, are not expected to have an impact on our flight dates. I'll share detail around the main issues we've been tackling, how we've resolved them, and insights into remaining items on our watch list as we get into the call. On page four, we've provided a link to the new Galactic 10 video that released this afternoon, as well as links to our recent episodes of our We Build Spaceships series. These short videos provide an excellent visual rundown of the program's latest accomplishments. Let's start the program update on page five with the structural parts that make up the spaceship. You'll recall our spaceships are built with three major structural sub-assemblies, the wing, the feather, and the fuselage. This page highlights progress on the wing, shown here with our team in the spaceship factory fitting the wing skins onto our first ship set. This group of skilled technicians is excited and proud of the work they're doing, and they are showcasing how the investment we put into production tooling is paying off, as the precision fit of the spaceship parts allows them to advance the assembly process smoothly. The wing in this image, which is destined for our first spaceship, will wrap up this phase and come down from this tool in December. Even more exciting, parts for the second wing ship set have already arrived in the spaceship factory and will immediately start to load into this wing up tool as soon as the first ship set moves forward. Moving to page six, I recently visited Bell Aerospace's facility in Fort Worth, Texas, to see the progress they've been making with our second major sub-assembly, the Feather. Bell's rapid production team has done incredible work leveraging their expertise in high temperature composites and tilt rotor assemblies to deliver one of the most unique and important parts of the spaceship. The photos on this page show the large feather boom skins finishing assembly and undergoing detailed imaging inspections. On page seven, I'm very pleased to share the first complete ship set of feather boom skins have all been delivered to Bell's final assembly facility. This is a major milestone, and Bell's top flight manufacturing technicians are already hard at work building the feather assembly that will become part of our first spaceship. Just like I described with the wing, the parts that will make up the next feather assembly are fast following, so the second ship set can start assembly as soon as this first feather ship set is sent off to Phoenix, where it will combine with the wing and the fuselage. Moving to page eight. the major elements that comprise our third major sub-assembly, the fuselage, have also been making good headway. Although, as I mentioned before, this part of the ship is driving our critical path. Broadly speaking, the fuselage has three major sections. The oxidizer tank, which sits in the heart of the fuselage and carries the liquid oxidizer used by our hybrid rocket motor system to power the spaceship. The forward fuselage, which houses our pilots and astronauts, and the aft fuselage, which houses the hybrid rocket motor itself. On page nine, I'm going to start with the oxidizer tank because our rocket systems team just passed a huge milestone by qualifying this new tank for the entire life of our ships. To give a bit of context on this achievement, in our original spaceship, VSS Unity, an earlier model tank had been built and qualified for 40 flights. While 40 flights is very impressive for first-generation space vehicles, the 40-flight limit would have imposed substantial downtimes in cost every time it needed to be swapped out, which would have limited our revenue generation capacity. The image on this page shows our next-generation tank during its qualification testing. We cycled this tank 4,000 times and it passed with flying colors. This new tank design is now qualified for the life of our Delta-class spaceships which we expect to be 500 or more space flights. This is an order of magnitude increase in reusability, and this tank is one of hundreds of parts where we have leveraged our years of R&D and engineering experience to build new spaceships with unprecedented durability and reusability. Page 10 shows the first flight article of this new line of tanks in our spaceship factory, where it will be prepped and installed within the heart of the fuselage assembly. Big shout out to our rocket systems teams for delivering this major milestone on time for our overall production schedule. Page 11 shows an image of the lower skin of the forward fuselage section. This is one of the largest parts on the spaceship. It has been the part driving our critical path, and it required a couple rounds of process refinement to get right. This first fuselage skin arrived in our spaceship factory earlier in November and was unboxed with great excitement. Happily, work on the fuselage can now advance with this part located in the final assembly tool shown here. For those on the call who aren't close to carbon part manufacturing, it's helpful to note that the need to resolve manufacturing challenges likely faced with this fuselage skin is fairly typical, especially when large, complex carbon parts are produced for the very first time. While time extensions are not desired, they are not unexpected. And as I mentioned earlier, we had reserved schedule contingency for the part fabrication phase, and we have stayed within that contingency. As the premier company defining suborbital human spaceflight, we will always take the necessary time to work out whatever process or design changes are needed to produce safe, flight-ready parts. And that's what we did here. Our partners at Bell had to resolve some similar manufacturing issues with the big feather skins that we discussed earlier back on pages six and seven. Those challenges have been sorted by the Bell team, and the time involved in sorting them extended the forecasted delivery date of the feather assembly to Phoenix from late Q4 2025 to the first half of Q1 2026. This push of the feather delivery into Q1 does not impact the timing of our flight test or our first space flight because the fuselage remains the driver of the critical path of our program. On page 12, I'd like to share a couple of the remaining items on our watch list. You'll see in the graphic we have two skins that make up the forward fuselage. The green shaded upper skin where the windows are located and the orange shaded lower skin that we just spoke about. The oxidizer tank I mentioned earlier is located directly behind the pilot and passenger cabin that is formed by these upper and lower skins. You'll also see we have skins for the aft fuselage located behind the oxidizer tank. The upper skin and the aft skins are currently in production and are expected to arrive in the spaceship factory in December. We have applied all the manufacturing process improvements learned over the last several months to the fabrication of these remaining parts. Assuming these parts arrive as expected in December, we'd anticipate our first spaceflight to take place earlier in Q4 of 2026. If these parts need some extra time to resolve, we'd expect our first spaceflight to be later in Q4 of 2026. Moving to page 13, I'd like to highlight some of the areas within the company where we see additional economic potential beyond our suborbital space business. The first of these opportunities sits within our avionics team. Like the rocket systems team I mentioned earlier, these people are world-class and passionate, and their work plays a central role throughout both our spaceships and our launch vehicles. We recently released an episode of We Build Spaceships that focuses on our avionics efforts. and I encourage you to watch it to better understand the scope of this team's capabilities. We have strategically organized both our rocket systems and avionics teams to take advantage of potential opportunities within commercial space that could benefit from adaptations of our products and expertise. The primary near-term focus for both these teams is bringing our new spaceships into service. However, once we are cash positive and have refined our spaceship production process, we plan to pursue incremental business opportunities in these areas, leveraging our outstanding talent and IP. The second opportunity I'd like to highlight is connected with our launch vehicle, EVE. An outstanding team of engineers, technicians, and pilots were behind a terrific upgrade program for EVE, and they recently returned the ship to the skies above New Mexico, as shown on this page. This group executed on time and under budget while substantially improving each flight interval and inspection program. I'm excited to say our launch vehicle is now capable of flying spaceships on successive days, and we're planning to ramp to an average availability of three to four flights a week. We expect this enhanced capability will support excellent utilization of our first two spaceships, as E's ability to launch on successive days provides us with great flexibility to handle weather and unexpected issues so we can deliver our targeted rate of 125 space missions per year with our first two spaceships. With this upgrade, EVE will have potential to support additional missions that demonstrate the capabilities of Virgin Galactic launch vehicles. Hats off to everyone involved in this project. I'll close out the program update with a final observation before shifting to our commercial readiness efforts. I continue to see the number of outstanding items on our production checklist decrease as we continue to lock in outstanding supplier delivery dates, resolve manufacturing issues, and generally knock out the work. I'm also pleased to see the amplitude or range of potential impacts posed by remaining issues moderating as we get more and more of the work done. This is how almost all major development or construction programs go, and ours is no different. Everyone who has built or remodeled a house knows things get more predictable as progress advances. And everyone who has built or remodeled a house knows that sometimes a few elements take longer than expected. But the majority of work continues to progress while those lagging elements catch up. One measure of progress we've been watching is how many of the structural parts needed to build the first spaceship have arrived on the dock in Phoenix. By mid-December, we expect to have approximately 90% of the carbon and metallic parts for the first ship in hand. That is super helpful, and it's allowing our procurement and project management teams to really focus on bringing in the final components and keeping us on track. Moving to page 14, I'd like to spend some time on our commercial readiness plans. I'm very encouraged to see teams across the entirety of our company begin to pivot to commercial operations. The progress with the shifts is exciting for everyone, and the added energy that comes with operational planning is palpable. We're hiring a chief growth officer to lead our consumer launch and revenue development initiatives. We're interviewing the best of the best of the world's pilots to join our pilot corps. And we're planning for the growth of our customer operations teams to take care of both our astronauts and their guests when they're onsite at Spaceport America. With all this happening, we remain on track to open in Q1 of 2026 our first tranche of sales opportunities for future space missions. In preparation, we have a full rebuild of our digital presence underway, with a particular focus on sales funnel progression and a dedicated astronaut portal. We'll unveil our new digital presence in the new year, although the astronaut portal will always be a special and private experience reserved for those within our community of astronauts. I hosted a customer event in Miami a few weeks ago, with people coming in from Europe, Latin America, New Zealand, and of course from Florida and the eastern U.S., The discussions I had with our customers that evening reminded me yet again how passionate and supportive this group is and how meaningful their journey to space will be in their lives. This group has been incredibly patient and loyal, and they fully appreciate our diligent approach to building their spaceships the right way. With that said, they are definitely ready for their space journeys to begin, and excitement is building as that moment draws closer at hand. We expect most of our current customers will take their space journey during 2027. As these bolstered flight rate capability, combined with the quick turn time expected from our first two spaceships, should allow us to ramp our capacity fairly quickly. In addition to private astronaut space journeys, we continue to advance the space research side of our business, and you may have seen the recent announcement about our partnership with Purdue University. Scheduled for 2027, the Purdue One mission will carry a five-person crew of Purdue faculty, students, and alumni, along with a rack of research experiments. We are excited by the potential of these types of missions as they represent a meaningful opportunity for us to partner with world-class research universities and institutions.