Virgin Galactic - Earnings Call - Q4 2024

Executive Summary

• Virgin Galactic reiterated Delta program milestones and increased specificity: first research spaceflight in summer 2026 and first private astronaut flight in fall 2026; assembly of the first Delta SpaceShip begins March 2025.
• Q4 2024 financials reflected the planned pause in commercial flights: revenue $0.43M vs. $2.81M YoY; GAAP opex fell to $82.4M from $117.1M, net loss improved to $(76.4)M, and Adjusted EBITDA improved to $(63.4)M.
• Liquidity ended 2024 at $657M in cash, cash equivalents and marketable securities, and Q4 free cash flow of $(116.7)M landed at the low end of prior guidance; Q1 2025 FCF guided to $(115)-$(125)M.
• Management emphasized a shift from R&D to capital investments in manufacturing assets, forecasting high contribution margins with two Delta ships and highlighting potential for HALE-derivative applications of the carrier platform as longer-term optionality.
• Near-term catalysts for investor focus: 1) start of Delta assembly (March 2025); 2) Q1’25 FCF trajectory and 2025 spend deceleration; 3) additional business development (Redwire payload lockers, Italy spaceport feasibility).

What Went Well and What Went Wrong

What Went Well

• Cost discipline: GAAP opex down to $82.4M from $117.1M YoY in Q4; Adjusted EBITDA improved to $(63.4)M from $(83.8)M, driven by lower operating expenses and the shift from R&D to capex. CFO: “spending has shifted from R&D to capital investments in manufacturing assets”.
• Program execution clarity: “first commercial research spaceflight expected in the summer of 2026 and the first private astronaut spaceflight in the fall of 2026”; assembly starts in March 2025, reflecting “line of sight to the delivery dates of each and every tool and part”.
• Liquidity and guidance delivery: Ended FY24 with $657M cash & securities; Q4 free cash flow of $(116.7)M matched the guided range (low end), and Q1’25 FCF guided to $(115)-$(125)M; management expects 2025 spend to decelerate with exit run-rate below $100M in Q4’25.

What Went Wrong

• Revenue compression from flight pause: Q4 revenue fell to $0.43M from $2.81M YoY as commercial flights were paused to focus on Delta ship production.
• Continued heavy cash burn and capex: Q4 free cash flow $(116.7)M; capex $35.7M vs. $18.4M YoY; full-year free cash flow $(475)M underscores extended pre-revenue investment phase.
• Dilution and deposits drift: Issued $29M via ATM in Q4; weighted-average shares rose to 30.3M (vs. 20.0M LY), and customer deposits declined to $84.5M from $97.8M YoY.

Transcript

Operator (participant)

Good afternoon. My name is Louella, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's Fourth Quarter and Full Year 2024 Earnings Conference Call. All lines have been placed 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 your question, press the pound key. Thank you. I will now turn the call over to Eric Cerny, Vice President of Investor Relations. Please go ahead, sir.

Eric Cerny (VP of Investor Relations)

Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's Fourth Quarter and Full Year 2024 Earnings Conference Call. On the call with me today are Michael Colglazier, Chief Executive Officer; Mike Moses, President of our Spaceline; and Doug 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 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. You are cautioned 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 today, whether as 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 those non-GAAP financial metrics. Turning to our agenda for today's call on page three, Michael will open the call with a recap of 2024, followed by an in-depth update on the progress of our SpaceShip program.

Mike Moses will join the call, followed by Doug Ahrens, who will provide a financial overview before we turn the call over to Q&A. With that, I would now like to turn the call over to Michael. Michael, go ahead.

Michael Colglazier (CEO)

Thanks, Eric. 2024 marked an inflection point for Virgin Galactic. We opened the year with our prototype SpaceShip demonstrating the amazing customer experience delivered by Virgin Galactic Space Flights, and we closed 2024 by wrapping up the multi-year design phase of our groundbreaking new SpaceShip. 2025 will be a year of momentum as we are now building the SpaceShip that will dramatically expand human space flight with unprecedented levels of safety, rapid reusability, and cost efficiency. Fabrication of tools and parts for these ships is well underway, as you'll see in a moment, and our teams are excited to kick off assembly of our first SpaceShip next month at our SpaceShip Factory in Phoenix.

The production and launch timeline for the new ships remains on track, with our first commercial research space flight expected in the summer of 2026 and the first private astronaut space flight in the fall of 2026. We are able to be more specific with projecting our timelines because we now have a line of sight to the delivery dates of each and every tool and part that supports assembly. With this work accelerating, we will spend time on today's call showcasing the advances already made, as well as the milestones that will mark our progress going forward. One of the things that I am most excited about has been the transition of Virgin Galactic from an R&D-focused company to a company that builds real assets that drive real value. I would like to highlight five of these key assets that differentiate our company. Turning to slide four.

First is our new SpaceShip. These ships will have longer life, faster turnaround times, and lower cost per flight than any human-rated SpaceShip in the world. They are designed to fly twice a week, with a lifespan of over 500 spaceflights. This is a breakthrough design and a huge step forward in commercial space. Second is our SpaceShip Factory. We've made the needed non-recurring infrastructure investments, and we are now able to add ships to our fleet quickly and cost-effectively, with a start-to-finish cycle time of new SpaceShip measured in months versus years. Third, our rocket system. We have created the world's most powerful hybrid rocket system, which is proudly on display in the Smithsonian.

Our rocket system has outstanding safety features that are part of its elegant and reliable design, and the quick change capability of our rocket motor supports the fastest refueling and turnaround time of any single space vehicle that is capable of human space flight. Fourth, our customer and client experience, which is beyond compare. We have curated, honed, and demonstrated our industry-leading customer experience, delivering human-first space flight for private astronauts and unparalleled microgravity environments for space research and space scientists. Our fifth, and enormously valuable asset, is our carrier ship platform, internally known as our mothership, which rarely gets the attention it deserves. Let's give our carrier ship some airtime as we turn to slide five. The first of our carrier ships, named Eve, has supported every test flight and commercial space flight for Virgin Galactic to date. This aircraft has several incredible capabilities.

Its unique design allows it to reach altitudes of over 50,000 ft, and it can carry payloads weighing up to 35,000 lbs. Many aircraft can carry heavy weight to mid-level altitudes, and some aircraft can carry modest payloads above 50,000 ft. This combination of high altitude, heavy lift capability is very rare. We believe this is an opportunity. Turning to slide six, as we've worked with industry experts to advance the design and planning of our next carrier ship, we believe the same high altitude, heavy lift capability that supports Virgin Galactic's suborbital space flight business can also be of value to government and research customers, especially when a derivative model adds extended flight duration.

HALE aircraft, HALE being an acronym for High Altitude Long Endurance air vehicles, are needed for several types of government and research missions, and we plan to explore the opportunity for a unique HALE-heavy derivative of our carrier platform in the future. First things first, and the absolute first thing is to bring Virgin Galactic to EBITDA-positive operations by putting two of our new SpaceShip into service. Let's turn to slide seven and talk about how we are unlocking the growth and profitability of Virgin Galactic. 2024 was the year we designed our new SpaceShip. 2026 will be the year we fly our new SpaceShip. 2025 is the year we actually build the first of these amazing new vehicles. With safety above all as the bedrock value of Virgin Galactic, we are working diligently to bring these ships to life with exceptional quality embedded at every stage.

One of the places we have invested heavily in quality is the long-lasting aerospace tools that are used to build the parts of our SpaceShip. These tools are key to creating the best possible parts and the most efficient assembly for each and every SpaceShip. These tools are also key to creating long-term value as they will be used again and again to expand our fleet. Slides eight through thirteen of the presentation have been included to provide a glimpse into the incredible progress that's been made by our Virgin Galactic teammates, as well as by the hugely dedicated teams at Qarbon Aerospace and Bell Textron. While I can't name them all on this call, we are extremely appreciative of the outstanding work that is happening across the many companies who make up our extended supply chain.

All these groups are excited to be part of commercial SpaceShip development, and they are building momentum as our collective efforts become very visible and tangible. This is an unusual topic for an earnings call, but I think it's important to share this level of detail as it underpins our progress and our forecasted delivery dates. There are three structural elements that come together to build our SpaceShip: the fuselage, the feather, and the wing. If you're following along with the presentation, there will be a graphic of the SpaceShip in the upper right corner of these upcoming slides, and the images on the slide refer to the sections highlighted in green. In slide eight, you can see the primary fuselage sub-assembly tools that are located in Qarbon's fabrication facility. These tools are used to fabricate the upper and lower skins of the cabin shell.

Moving to slide nine, you can see the feather sub-assembly tooling. These tools have highly complex geometries, and they are used to make the largest part in our SpaceShip. Slide ten shows the bulkhead, which is the major structural element that separates the cabin from the rocket system. The image shows the sheets of carbon fiber being laid up within the bulkhead tool before the entire assembly is sent to the autoclave to cure the part. On slide eleven, we are using an example with the wing to give you a sense of how the entire part fabrication process works. Starting at the left, the first image shows technicians placing layers of carbon fiber in precise patterns with varying thicknesses on the tool.

Once this layup process is complete, the tool and the carbon fiber are moved into an autoclave, which is a huge pressurized oven that cures the part in a way that gives our composite structures their strength. On the right, you can see the finished wing part ready for inspection and shipping to the SpaceShip Factory in Phoenix. On slide twelve, you can see the process steps used to create our oxidizer tank. This tank is a critical component of the SpaceShip that holds our liquid oxidizer for the rocket motor, which powers the SpaceShip to space. The oxidizer tank in our prototype ship, Unity, only supported 40-50 flights before needing replacement, which would have required extensive maintenance downtime. The first of our new tanks is complete and is shown here in the test stand, about to enter cycle testing.

Cycle testing will establish the expected lifespan of the tank, which we project to be many times higher than Unity's. This is one example of the many places we have redesigned our SpaceShip to minimize maintenance downtimes and enable multiple spaceflights per week on a sustained basis. Our next tank will be entering the autoclave this coming week. This tank is designated for our first SpaceShip, and it is on schedule to arrive in Phoenix in time for installation into the fuselage. Slide thirteen shows a still frame from a video our Spaceline President, Mike Moses, released this morning, highlighting the top ten things he was excited to see happen over the last month. If you haven't seen it, it's a quick and a fun way to showcase our progress, and I encourage you to watch it on our website or social channels.

This will be an ongoing feature for Mike every month or two, and we will make it available to our customers, our investor base, and our fans so they can track along with our progress. Slide fourteen previews several key milestones that will be taking place in 2025 and 2026. In March, we'll start assembly of our first SpaceShip in our new SpaceShip Factory. This moment has been years in the making, and our manufacturing team in Phoenix is chomping at the bit. Building and testing of the first ship continues throughout the year, and we'll be highlighting the many tangible milestones along the way to mark our progress. Our first test flight, a glide flight, is expected in spring 2026, which will lead to our first research space flight in summer 2026, and our first private astronaut flight, which is expected in the fall of 2026.

It's exciting to see the momentum and visible progress ramping up. As the ship comes together, we will be inviting our customers into our SpaceShip Factory to meet the team and see how the ships that will bring them to space are being built. Speaking of our customers, I was recently talking with one of our future astronauts about how different our approach to building these new SpaceShip is relative to how our prototype SpaceShip was built. She was very curious to understand how we are building and flight testing new SpaceShip so much faster than we had done in the past. I imagine that if a long-term customer is curious, as likely some of you are as well. I have invited Mike Moses, our Spaceline President, to share his perspective on the changes that drive confidence in our current schedule. Over to you, Mike.

Michael Moses (President of Spaceline)

Thanks, Michael. I've been part of Virgin Galactic as we built and did the flight testing for SpaceShip Unity. Building and flight testing are two important phases. I want to talk about how we are approaching both of them in a different way with our Delta-class program. Let me start by talking about the build phase, where we have high confidence in the schedule based on three factors: design software, high-quality suppliers, and an experienced team. First, before we even started making tools and parts, we built the SpaceShip digitally using advanced model-based software. This digital twin of our SpaceShip allows for precision in the design, especially as it relates to how various parts will fit together and interact in the real world.

Each part is referenced to a fixed plane exactly where it will be placed in the SpaceShip, and this lets us determine everything from where to place the bolts on one part to the bolt holes on the adjacent part to where the brackets need to be placed to hold the wiring and the plumbing. Despite best efforts, sometimes parts do not perfectly line up, so our design allows for certain parts to have tolerance to float and absorb any small deviations that may occur during manufacturing. This allows for a speedy assembly as the parts arrive into Phoenix. Second, our parts are being made by suppliers who are industry leaders, companies that are used to mass-producing parts. They have proven processes and controls in place to make and inspect all parts before shipping them to our SpaceShip Factory in Phoenix.

Coupled with the digital thread I just mentioned, we are making these Delta SpaceShips in the same manner and with the same suppliers as modern aircraft. By comparison, our prototype SpaceShip, Unity, was built and assembled in a very linear fashion, often requiring the assembly sequence to pause as we needed to rework parts to ensure the proper fit. Lastly, our team has experience with assembling SpaceShip. The folks setting up and running our SpaceShip Factory are our most experienced technicians and leaders. They built Unity and will be bringing all of these learnings to bear. Our factory itself is laid out based on our past experiences. We have assembly work areas designed to provide an extremely efficient and effective build flow, and our engineering teams will be deployed directly to the shop floor so they can enable rapid resolution of any issues that may arise.

In summary, Delta was designed intentionally to allow for an efficient build using aerospace industry-proven methods. The model-based software, the precision of the tools, combined with our suppliers' process controls and our highly experienced assembly team, enables a much shorter timeline. Now let me pivot to discuss what happens once the SpaceShip is built, which is flight testing. It's important to keep in mind that Delta is able to take advantage of the years of flight testing that went into SpaceShip Unity. Unity required moving in small incremental steps to build up the knowledge about the SpaceShip's performance and limits. The test flights of Delta will be much more like regression testing, where we are incrementally expanding how Delta flies, but doing so by comparing it to how we know Unity flew. We aren't forging ahead into unknown territory.

Another key difference between Unity and Delta is the use of our Iron Bird, a full-scale engineering test bed of the Delta SpaceShip systems and electronics. Gathering this test data prior to flight tests helps shorten the timeline. Finally, while Delta will fly a similar number of test points, its ability to fly more frequently means that we will complete flight testing in months instead of years. These specific differences in how our Delta ships are being built and tested underpin the confidence in our delivery, and we are incredibly excited to send our first Delta ship to space in the summer of next year. With that, I'll hand the call over to our CFO, Doug Ahrens, to share a financial update and outlook.

Doug Ahrens (CFO)

Thanks, Mike. Good afternoon, everyone. Turning to slide fifteen, in addition to presenting our recent financial results, I'll share my perspective on the tremendous strides we've made to build the assets that will create a powerful economic engine for Virgin Galactic. Starting with the fourth quarter of 2024, we generated revenue of $400,000 from future astronaut membership fees. As our Delta SpaceShip program advances, it drives a favorable trend in operating expenses. Total operating expenses for the fourth quarter were $82 million compared to $117 million in the prior year period, as our spending has shifted from R&D to capital investments in manufacturing assets that will be leveraged to build multiple SpaceShip. Adjusted EBITDA showed a favorable trend as well, being -$63 million in the fourth quarter compared to -$84 million in the prior year period.

Free cash flow was -$117 million in the fourth quarter, at the low end of the range we guided in our last earnings call. Turning to slide sixteen, for the full fiscal year 2024, we generated revenue of $7 million, driven by two commercial spaceflights as well as future astronaut membership fees. Notably, average ticket prices on the last space flight rose to $800,000 per seat compared to just over $300,000 per seat in the prior year, indicating the incredible value being delivered to our astronauts through our space flight experience. The favorable trends in our financials were even more visible for the full year. As a result of cost reduction efforts and a shift toward investment in manufacturing assets for SpaceShip production, total operating expenses were $384 million in 2024, reflecting a 29% reduction from $538 million in the prior year.

We reported a GAAP net loss of $347 million, representing a 31% improvement compared to $502 million in the prior year. Adjusted EBITDA for the year was -$289 million, an improvement of 32% from -$427 million in the prior year. Obviously, these improvements are a result of Virgin Galactic moving beyond the heavy R&D phase of SpaceShip design and now building manufacturing assets we will use to cost-effectively build our fleet. Michael showed pictures of the tooling that has been created to build SpaceShip components. These are high-quality, value-creating assets that give us the capability to repeatedly build additional SpaceShip at a relatively low variable cost of $50 million-$60 million each, enabling a payback period of under six months for each new SpaceShip.

Approximately half of our spending in 2025 is expected to be for one-time capital expenditures for tooling, manufacturing capacity, and the production of our first two new Delta-class SpaceShip. Our balance sheet reflects this growing capital investment, which appears as Property, Plant, and Equipment, or PP&E. With these investments, the book value of our PP&E currently exceeds $200 million, and the book value of PP&E is expected to continue to grow and to nearly double by the end of 2025. Moving to slide seventeen, we ended the year with $657 million in cash, cash equivalents, and marketable securities. In 2024, we generated $138 million in gross proceeds through an at-the-market, or ATM, equity offering program. Moving to our projection, revenue for the first quarter of 2025 is expected to be approximately $400,000 for astronaut membership fees.

Forecasted free cash flow for the first quarter of 2025 is expected to be in the range of negative $115 million-$125 million. We expect cash spending to decelerate through 2025 as we complete the investments in tooling and manufacturing capacity to build SpaceShip. We are tightly managing our spending with fiscal discipline across the board. Turning to slide eighteen, we are providing a recap of our economic model, which clearly shows the business opportunity in front of us. Right now, we are laser-focused on achieving the economics in the first column with the introduction of our initial fleet of two new Delta-class SpaceShip. With just two SpaceShip and current pricing of $600,000 per seat, we expect to achieve an annualized level of approximately $450 million of revenue.

Because of the tremendous value being delivered to our astronauts at current pricing of $600,000 per seat, our contribution margins are forecasted to exceed 80%, resulting in adjusted EBITDA of about $100 million per year with just our first two SpaceShip in service. Profits have the potential to grow exponentially as we add SpaceShip and another launch vehicle to our fleet at Spaceport America in New Mexico. Michael outlined the outstanding progress we are making with SpaceShip production and the key milestones ahead, leading up to commercial spaceflights next year. As we progress through these exciting milestones and march toward profitability with two new SpaceShip, we will continue to evaluate opportunities to optimize our balance sheet and also deliver a winning outcome for all our stakeholders. With that, I'll turn the call back over to Michael.

Michael Colglazier (CEO)

Thanks, Doug. As you can see, outstanding progress is underway across the company. As I mentioned at the opening, 2025 is a year of momentum, and that momentum has already begun. Our entire company is laser-focused on delivering these first two Delta SpaceShip in a timely fashion, consistent with the scheduled milestones discussed today. We are driving effective execution across all elements of the program, and we do so with a belief in our mission and excitement to see our first ship in space next summer. Let's open the call for questions.

Operator (participant)

At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. Before we take our first question, I'd like to turn the call over to Eric Cerny, Investor Relations. Please go ahead.

Eric Cerny (VP of Investor Relations)

Thank you. For awareness, we filed a couple of post-effective amendments to our Form S-3 registration statement and a prospectus supplement this afternoon. These filings relate to our existing ATM program and our filing status. There is no new ATM program. Thank you, operator. We're ready for the first question.

Operator (participant)

Your first question comes from the line of Greg Konrad with Jefferies. Please go ahead.

Greg Konrad (Analyst)

Good evening. You know, appreciate all the detail with the timeline of flights in 2026, but how quickly do you think you can kind of ramp up from there? And then if we think about your baseline initial fleet model, is that a good baseline for 2027 now that, you know, timeline has been locked in, just thinking about the speed of flights in 2027?

Michael Colglazier (CEO)

Hey, Greg, it's Michael, and I'll give a start to that. And Mike Moses is as a bonus with us today, and I'll let him add his two cents as well. We will have done the ground testing and the flight testing to give us confidence in the vehicles, and we will have planned and have planned our maintenance strategies to enable these ships to turn on the pace that we've talked about twice a week, pretty much from the time we're ready to put them into private astronaut service, which we talked about in the fall. To your second part of your question, 2027, we feel we should be pretty much on track for the pace we've been talking. I think it's prudent for us to give ourselves a little bit of pacing, help our teams, you know, get ready to what will be truly unprecedented volumes of not just commercial space, but any humans in space at that volume, and make sure that we are delivering the best customer experience every time.

We will prudently ramp ourselves up a little bit as we lean into that, but I believe 2027, if not right, January 1st, you know, right at the beginning of that year, we should be up at a pace that we've talked. Mike, anything you'd like to add on that?

Michael Moses (President of Spaceline)

Yeah, no, just in support of that, you know, our test campaign, if you're familiar with flight testing, kind of can be made up of several parts, a thing called DT and OT, development test and operational test. We're able to combine the two. While we do our flight-testing program, we'll be testing out the operational side of things, both in the air and on the ground.

You'll see some turnaround times during our flight test program that are fairly short, representative of the commercial service turn times, and you'll see some that are longer as we do more detailed data analysis. The idea being, we get our feet underneath us in the development program, the test program, and then that last part of 2026. Michael, as you said, we would hit the ground running at full rate in 2027.

Greg Konrad (Analyst)

I mean, and I guess just as a follow-up to that, you know, first research space flight in summer, first private astronaut flight in fall, should we expect, you know, multiple research spaceflights in that window before you get to the first private astronaut or kind of what's in the manifest between those two events?

Michael Moses (President of Spaceline)

Yeah, Greg, exactly. I won't give specific guidance on the numbers of flights planned, but yeah, on the order of, you know, six to ten spaceflights to test out all the various aspects. We'll be flying a mix of research payloads, employees, test subjects, you know, checking out the cabin. Really, the point is to test out the systems as they go to space. Again, in my remarks, you heard me say, just as a reminder, this isn't the first SpaceShip to go to space, right? We're building off the back of Unity. We're really just testing the differences that we built into Delta. A similar number of test points, but yeah, I think we'll be able to go rapidly through the test program.

Greg Konrad (Analyst)

Maybe just one last one, you know, as the schedule has firmed up and you kind of have dates, like what's your current thinking around reopening the order book and maybe any indications when we could see that happen?

Michael Colglazier (CEO)

It's back to Michael, Greg. I still believe the right timing for people to come on in Virgin Galactic is around a two-year window. And as you, I believe, know, we have a solid book of business that will consume up our first year. As we reach, I'd say the end of this year, you know, perhaps the opening of next, but probably the end of this year, I think that's the right time to begin opening up, opening up, say, reasonable size tranches of sales. I don't think we'll just throw the gates open.

I think we'll pull in a group at a time and continue to ensure we've got an order book in advance of the capacity of our vehicles going forward.

Greg Konrad (Analyst)

Thank you.

Operator (participant)

Your next question comes from the line of Michael Leshock with KeyBanc Capital Markets. Please go ahead.

Michael Leshock (Analyst)

Hey, good afternoon, everyone. I wanted to ask first, maybe on the rocket motor, I know you've been testing the propulsion systems for the rocket motor, and have there been any changes in the propulsion system for Delta compared to Unity? Do you expect those to have similar thrust, efficiency, and burn time?

Michael Moses (President of Spaceline)

Mike, this is Mike Moses. No changes to the motor itself from what we flew in Unity to what we'll be flying in Delta. As you saw in our presentation today, we did make a little bit of change to the tank, the propellant tank that holds our liquid oxidizer. It is a slightly new design aimed at giving us lifetime, so basically more uses out of that tank on the order of hundreds of flights. That is a change, but we will be able to check all that out on the ground before we get into flight. As it relates to the motor itself, similar thrust, similar performance profiles as to what we were doing on Unity.

Michael Leshock (Analyst)

On the first Delta flight being for research payloads, as we think about maybe the first year or two of Delta ships in commercial service, have you considered having a higher percentage of research flights at that higher margin, at least initially, to kind of accelerate your path to positive free cash flow?

Michael Colglazier (CEO)

I think we'll do a mix. You know, there's balancing of all the constituencies here. Of course, we will prioritize ensuring the company is in good financial state and ensuring that as we fly our ships, those are driving EBITDA positive operations for us. We can do that and bring in a substantial percentage of those flights for customers that have been in the queue for a while, even though they've been in earlier and earlier price points, which were much less. They've all been waiting super patiently, and it's time for us to fly them to space. We'll be doing both.

What's really important to know, especially for our astronauts who've been waiting so long, but for everyone, the capacities that we have with these Delta ships enable, you know, we've put out, we believe, you know, with a conservative estimate, 125 flights a year at six people per ship on those flights. We'll be able to move through our existing backlog of people fairly quickly. We can bring in a high percentage of research flights at, as you mentioned, probably higher rates than some of our early pieces, and also bring in our existing astronaut base and fly them quite quickly. I think the capacity will give us the chance to do both, and then we scale from there.

Michael Leshock (Analyst)

Okay. Lastly, for me, on the Redwire announcement, it was good to see that. How do you see the commercial research market evolving over the longer term? Maybe you could talk a bit about that agreement that you have and just wondering if you see more opportunities for similar contracts going forward or if you've maybe thought about the size of what that addressable market might be. Thanks.

Michael Colglazier (CEO)

It's nice having Mike Moses on this call. You and I look at each other. I'm like, "Hey, okay, you're from NASA and you're past. Why don't you take that one and I'll pick up on it?" Go ahead, Mike.

Michael Moses (President of Spaceline)

Sure thing. Yeah, the agreement with Redwire is fantastic, and I think it highlights, you know, not only what we're doing here at Virgin Galactic, but what you see in the commercial space flight industry in general, which is a real surge in the commercialization opportunities that space flight offers.

Our platform, while maybe not unique in its capability, certainly offers a unique way to tackle what I would call a really fun and kind of game-changing thing where researchers can fly with their science, right? In most other scientific fields, you design an experiment, you go into the lab, you do it yourself, you get your results, but in space flight, you hand that over to a professional astronaut who's up on the space station and they execute the science for you. The human-tended research opportunities, I think, are immense in space flight. The commercial suborbital market offers a chance to fly very frequently, rapid reflight of your payload and your research. You can tune it. It does not have to be—it can be less cost because it does not have to be highly automated and live on a space station for years at a time.

I think that's going to be groundbreaking in what we can do. I do think there's a big appeal to the research market. The Redwire contract specifically really kind of advances the technology application that we'll be applying. The science, the meat of that agreement, right, is a smart locker that has power, has data, has communications with the payloads and the ship, and allows the researcher to have access to much more capability in the back of our SpaceShip.

Michael Colglazier (CEO)

It's Michael, I believe I've shared this before, but as we watch the government, especially, really push both to the moon and to Mars, those will have lots of science and research being able to be, you know, leveraged and take advantage of those flights. It's still going to be very expensive to get to the moon. It's still very, it's incredibly expensive to get to Mars.

Any research that is going to be on those ships for those longer duration missions wants to be really figured out. The best way to really figure out is to test and test and trial and trial. That is where we believe we have an incredible platform to allow people to refine, maybe adapt, toughen, or change their research that is planning to go further places. We provide an excellent stepstone into the longer duration missions that research is so important to.

Michael Leshock (Analyst)

Great. Thanks, everyone.

Michael Colglazier (CEO)

Thanks, Mike.

Operator (participant)

Your next question comes from the line of Myles Walton with Wolfe Research. Please go ahead.

Myles Walton (Analyst)

Thanks. Good evening.

Michael Colglazier (CEO)

Hi, Myles.

Myles Walton (Analyst)

I was hoping you could touch on the potential augmentation of the mothership for other applications. I know that your plan is, I think, for 2026 to start on the mothership too. Is there a way, or do you see a path where co-funding is possible to maybe take away some of that burden as you bring on additional mission profiles?

Michael Colglazier (CEO)

Let me put the question to a bit of context, Myles, and then get to some of the specifics. We have been consistent sharing our business model growth path. First things first, we need to get our first two ships into Spaceport America, get to EBITDA positive operations. Next thing we do, as Doug even alluded to in one of his pages today, add two more SpaceShip and another SpaceShip launch vehicle into New Mexico so that we, you know, fundamentally build out that first spaceport, and we get all sorts of leverage on the fixed cost side to drive great exponential growth. That is phase one, a fully functioning spaceport in New Mexico.

Phase two is to take that operation and replicate it in other parts of the world. As we've shared, we've had great progress moving with the Italians and looking at a potential air force base in the Puglia region of Italy. That is one of several places we could go, but a very, very exciting one, and we're making good progress with them. To take the model that we've effectively built and, you know, as we're now talking, all these tools that we showed all the pictures of today, those are the same tools that will build SpaceShip for a spaceport in Italy, right? We've already built them. The design is already done. It is quite effective for us to then add incremental ships. Phase II of our business plan is to go to second spaceports. Then there's like, okay, what's next?

There are many things that could be what's next. Obviously, we need—we've been using the word mothership internally. A lot of people don't understand it. To make it clear, we're calling it a SpaceShip launch vehicle. Eve is our first one. As we've been working on the—not just the beginning design phases, we're reasonably through our conceptual design, moving towards a solid preliminary design, doing the trade-offs we need to do there. We brought in outside experts to help us in that regard. We all pull back into what we've known, you know, for a decade. Eve and any derivative of Eve is hugely powerful in its ability to carry heavy weight to high altitude. We talked about that on the call. Myles, now specifically to your question, we put in an image there.

Obviously, these carrier ships, these SpaceShip launch vehicles can carry SpaceShip, but if you can carry something that heavy to the height we do, you could also carry a pod that can do other things. There are a lot of efforts there. You're aware, Myles, there can be ISR, for those who do not know the acronym, Intelligence Surveillance Reconnaissance Missions. There are testing missions that go along with that. There is a lot going on in the U.S. right now, as I'm sure you're aware, that could use something that could carry heavy payloads to high altitudes. Our derivative would need to have further range, you know, getting to the long endurance part of HALE. We understand how we would modify the existing Eve ship to enable that.

Specifically to your question, is there opportunity for people to partner with us, and will we look for people who might want to partner with us? I think that's a super smart opportunity for us and one that we are actively paying attention to because we think this is a real potential for the government. With that said, first things first, we have to keep ourselves laser-focused on getting to the first of these two ships out and then the second one right behind it so we get to EBITDA cash flow operations.

We are staying almost entirely on that, but the small group, the tiger team we have against these carrier ship platforms as we grow, absolutely is looking into how we could partner with other people, largely in who do more military support for the government and seeing if there's an opportunity to partner for good for everyone.

Myles Walton (Analyst)

Okay. No, that's crystal clear, Michael. Doug, I think I heard you right, but just correct me if I'm wrong. Did you say that 2025 cash consumption would be below the $475 in 2024? I think on the last call, you were looking for 2025 first quarter to potentially tick up in cash flow consumption, which doesn't look like it's happening. Has there been sort of re-sequencing of cash profiles since the last call for the better?

Doug Ahrens (CFO)

No, there's been no real changes other than the, you know, we talked about a peak in Q1. I think that peak's a little lower than we projected. The trend down for the year will continue. Exiting, you know, we had talked about exiting below $100 million spend by the fourth quarter. Yes, definitely lower spend in 2025 than 2024.

Myles Walton (Analyst)

Okay. Thank you.

Operator (participant)

Your next question comes from the line of Oliver Chen. Again, if you would like to ask a question, press star one on your telephone keypad. Mr. Oliver Chen, please go ahead.

Tom Nass (Analyst)

Hi, it's Tom Nass on for Oliver. I wanted to ask a follow-up on the previous free cash flow question. Between now and summer of 2026 or fall of 2026, how should we expect the trajectory of free cash flow to ramp to positivity over time?

Doug Ahrens (CFO)

Okay. This is Doug. Thanks for the question, Tom. Yeah, to expand on this, I think it's important to get some perspective of where we're at. We're in a really good position right now with our balance sheet. You know, we had been in the process earlier of building up cash that prepared us to convert that cash into assets now. That's in the form of manufacturing capacity, tooling, and now our first two SpaceShip. I mentioned on the earlier remarks, you can see this in our book value, right? It's now over $200 million in the property, plant, and equipment, and that will continue to grow substantially. Now you're going to see spending going down through 2024 and then, excuse me, 2025, and then going into 2026 because that investment in that capital will be behind us and we're just moving towards commercial operations.

The way to think about this is we enter 2026, we've got some great assets available now. We'll have a couple of SpaceShip and we're going to be going into commercial service. What happens then is now we would start to see cash inflows ahead of the flights. You know, at this point, when we're entering commercial service and all of that, I mean, to use a football term, we're first in goal, right? We're in a really good position here. I think that the value of the company becomes really obvious as we hit these milestones and move towards commercial service.

To put it in perspective, you know, we would be trending down through 2025, as I said, and then 2026 is an inflection year because commercial service is in the summer of 2026, and that's when we start to see cash inflows coming in and we become positive around the time of beginning spaceflights.

Tom Nass (Analyst)

Great. As a follow-up, I wanted to ask about any potential updates you might have on the customer experience side of the business, especially given the potential progress on a second spaceport in Italy. Overall, given the potential for a second spaceport, is there any updates to your existing private astronaut TAM estimate?

Michael Colglazier (CEO)

I'll take that one, Tom. It's Michael here. One thing, if you watch the top 10 video that Mike Moses put out this morning, it's great. It's quick. It's fun. One of the things you'll see in there is where we had a group from ENAC, the, I'll say the FAA of Italy, was at Spaceport America. One of the things that we've done is been able to adapt our pilot simulator. It can get geographically accurate in the world and looked at various flight profiles and ways to go from the base in which we're talking about in southern Italy. You just even look at that video, you can imagine how glorious it is to not just look over the boot of Italy, but all of what you're seeing in southern Europe there is pretty spectacular. That's, you know, real progress being made against that. I think I'm looking over to Mike Moses. I think that effort wraps up in 2025, the exploratory effort there.

We'll have some points of view by the end of this year about how we go forward in Italy, but it's a really good partnership and working relationship. You asked the question about TAM. I think you asked it specifically with the notion of the next spaceport. I think the ability to go to space from everybody that we've taken up and everybody we've heard that has gone to space is so stunning and so impactful that people will really travel to where the opportunity is. If you wanted to climb Everest, you have to go to Everest. I think people will travel for this, and they clearly are. We have our astronaut bases from all across the world, 60+ countries. With that said, I think being able to see different parts of the world increases the frequency of repeat visitation on this.

I think it is not a one-and-done experience. I think being able to have just the visceral experience of going and seeing the Earth from space is worth doing multiple times. When you can see different parts of the planet, I think that becomes an opportunity to not just go again, but then if you're going again, bringing other people. That is one way I'll call it. The individuals do not change, but the number of times an individual goes to space probably does. I also think there is just something natural to having deeper penetration of a market when you're kind of around your home base. I would imagine we'll see deeper penetration from Europe if we have a spaceport in Italy. We'll see deeper penetration from Southeast Asia if we have a spaceport in Southeast Asia. Same thing in the Middle East.

We're excited to be over multiple places, but again, right now we're just focused on New Mexico and bringing that spaceport up to full capacity.

Operator (participant)

Mr. Chen, your line is still open.

Tom Nass (Analyst)

Great. Thank you. No more questions from me.

Michael Colglazier (CEO)

Thanks, Tom.

Operator (participant)

That concludes our question-and-answer session. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.