Intuitive Machines - Q2 2023

Transcript

Operator (participant)

Ladies and gentlemen, greetings, and welcome to the Intuitive Machines Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Josh Marshall. Please go ahead, sir.

Josh Marshall (Director of Investor Relations)

Good afternoon. Welcome to Intuitive Machines' Second Quarter 2023 Earnings Call. Chief Executive Officer, Steve Altemus, and Chief Financial Officer, Erik Sallee, are leading today's call. Before we begin, please note that some of the information discussed during today's call will consist of forward-looking statements, setting forth our current expectations with respect to future of our business, the economy, and other events. These include projections of financial items, statements on plans and objectives, and management expectations of future economic performance.

The company's actual results could differ materially from those indicated in any forward-looking statements due to many factors. These factors are described under forward-looking statements in the company's earnings press release and the company's most recent 10-Q filed with the SEC. We do not undertake any obligation to update forward-looking statements.

We also expect to discuss certain financial measures and information that are non-GAAP measures, as defined in applicable SEC rules and regulations. Reconciliations to the company's GAAP measures are included in the earnings release filed on Form 8-K. Finally, we are posting an earnings call presentation on our website, which provides additional context to our financial performance. You can find this presentation on our Investors Relations page at www.intuitivemachines.com/investors. Now, I'll turn the call over to Steve Altemus.

Steve Altemus (CEO)

Thank you, Josh. Welcome, everyone, to the Intuitive Machines Second Quarter 2023 Earnings Call. I'll begin today with a brief overview of our company for any new investors and analysts online. I'll provide updates across the company's four business units, followed by a summary of the quarter and upcoming milestones. After, I will hand the call to our Chief Financial Officer, Erik Sallee, for a review of our financial results for the second quarter of 2023.

Intuitive Machines is a space infrastructure and services company founded in 2013 that contributes to establishing lunar infrastructure and commerce on the Moon. We believe the company has a first-mover position in development of lunar space and operates through four distinct business areas: Lunar Access Services, Lunar Data Services, Orbital Services, and Space Products and Infrastructure, each with a specific focus and set of services.

Lunar Access Services provide reliable and affordable means for governments, companies, and individuals to explore and place spacecraft in cislunar space or on the lunar surface. Intuitive Machines has developed a complete lunar program that includes mission control, our Nova-C lunar lander, a space-to-ground communications network, and a series of launch vehicle contracts with SpaceX. The company has three missions on the flight manifest, with plans to increase the frequency and complexity of missions over time.

Lunar Data Services is a private and secure network called the Lunar Data Network that sends and receives secure communications, navigation, and imagery to and from the Moon. The LDN is designed to support data relay services for spacecraft in cislunar space and systems on the lunar surface. We expect LDN to provide backup services to NASA and the US Space Force. Orbital Services provide in-space orbital services for commercial and government organizations.

These services include repair, refueling, and raising the orbits of existing satellites, as well as rideshare. Finally, Space Products and Infrastructure offers its customers reliable and cost-effective space products. These offerings include propulsion systems, navigation systems, lunar mobility vehicles, including rovers and drones, power infrastructure, and human habitation systems. Intuitive Machines' core business unit supports NASA's $93 billion Artemis program and extends across new revenue streams, including defense and energy.

With that, let's move into our second quarter operational highlights. During the second quarter, we were laser-focused on the final assembly process in preparing IM-1 for launch. The test campaign set forward last quarter to prepare IM-1 for launch included a complete engine vibration test, a complete spacecraft test run, engine acceptance, and final assembly and integration. Today, our IM-1 lander is complete and will be prepared for delivery in September.

The company has secured a launch window from Pad 39A, preserving a six-day launch window starting on 15 November 2023. In case of unfavorable launch conditions in November or a change due to high priority launches on our launch pad, we have a second launch window in December. Right now, we are manifested on a Falcon 9 launch scheduled in November. With the congestion for launches using Pad 39A at Kennedy Space Center, we recognize that higher priority missions are always possible. However, our attention remains firmly fixed on the aspects we can control.

Our IM-1 Nova-C is completely built, and we continue to execute the rest of our business with the same intensity that will deliver a lunar lander ready to go to the Moon in September. Progress continues throughout the company. We're building the primary IM-2 structure, integrating payloads and mechanisms to the second lander.

This includes the integration of NASA's TRIDENT drill that will prospect for lunar water ice, completing payload deployment mechanisms, and the anticipated completion of our rocket-fueled drone, Micro-Nova, in September. This remarkable progress toward IM-2 is a capitalization on valuable insights gained from IM-1. We expect IM-2 to be completed in the company's new lunar production and operations facility at the Houston Spaceport.

Our ribbon-cutting ceremony, scheduled for 29 September 2023, will officially start operations inside our new home, designed to support NASA's Artemis program and growing commercial demand for each of our four business units. As our near-term launch approaches, we're focusing on sustainable and longer-term exploration. Throughout the first half of 2023, we invested time in advancing our in-space capabilities to extend our lunar missions and apply those technologies using nuclear power in the Orbital Services market.

Turning to recent awards and proposals, in July, NASA's Space Technology Mission Directorate awarded a $15 million Tipping Point initiative to an Intuitive Machines team for the development of a Radioisotope Power System that may enable lunar assets like Nova-C to survive and operate through the lunar night and in permanently shadowed regions of the Moon. The lunar night cycle refers to the period of darkness on the Moon that lasts approximately 14 Earth days.

During this time, temperatures on the lunar surface drop drastically, reaching as low as -279 degrees Fahrenheit. By surviving the lunar night, a mission on the surface of the Moon could extend from two Earth weeks to several years.

Intuitive Machines' role is to assist Zeno Power in developing an interoperable amErikium-241 radioisotope Stirling generator that may be integrated into lunar landers to enable it to survive the lunar night cycle. Unlocking this capability in support of NASA's Artemis program is paramount for Intuitive Machines and the entire space exploration industry. The application of these radioisotope power systems extends beyond lunar surface longevity.

Intuitive Machines entered the proposal pool for the Air Force Research Laboratory's Joint Energy Technology Supplying On-Orbit Nuclear Power, called JETSON, low-power contract this month. The proposal calls for Intuitive Machines and its team to develop satellite positioning and maneuverability solutions using radioisotope power systems in support of NASA's Gateway, a multipurpose outpost orbiting the Moon.

Intuitive Machines' JETSON team leverage its nuclear power systems, power generation, and space exploration expertise, building on our existing lunar Fission Surface Power reactor contract, which we briefed the US Department of Energy and NASA. The second phase, $4.5 million award for our Fission Surface Power contract, is expected later this year.

While NASA remains a fundamental pillar of our success, these nuclear in-space opportunities, spread across the defense, energy, and civil agencies, represent an exciting opportunity for Intuitive Machines to evolve as a dynamic, adaptable, and forward-looking company. In April, NASA awarded its five-year, $719 million Omnibus Multidiscipline Engineering Services contract, referred to as OMES, to develop technologies enabling services, including satellite servicing and refueling, satellite repositioning, and orbital debris removal.

In the days leading up to this call, the US Government Accountability Office affirmed NASA's evaluation of OMES's three proposals, resulting in Intuitive Machines retaining the award. We expect to start our transition soon and look forward to growing in Orbital Services marketplace. Since the first quarter, Intuitive Machines has submitted more than $3 billion in proposals spread across aerospace and defense sectors, including human spaceflight.

We submitted our bid as the prime contractor for NASA's Lunar Terrain Vehicle Services contract as the Moon RACER team for the exploration and development of the South Pole region of the Moon. The lunar terrain vehicle is a key part of NASA's Artemis program and would be Intuitive Machines' prime contractor debut in human spaceflight. The company is taking steps to positively mitigate the effects of outside controlled program award date changes.

For example, NASA's CP-22, which calls for a Nova-C-class lander to deliver a drill to the Moon's South Pole, has moved from the third quarter to November, and the agency's Near Space Network Services contract awards have moved from 2023 to early 2024. Before I conclude, I wanted to mention a new director. To help support and facilitate our growth trajectory, we have appointed Nicole Seligman to the Intuitive Machines Board of Directors.

Nicole's distinguished career has included senior leadership roles in global public companies. With Nicole's valuable expertise now enriching our board, we continue to forge ahead in our endeavors. With that, I'll turn the call over to Intuitive Machines' Chief Financial Officer, Erik Sallee.

Erik Sallee (CFO)

Thanks, Steve, and thanks to everyone joining us today. I'll begin by going through our second quarter 2023 results. We ended the second quarter with a contracted backlog of $137.3 million. This backlog does not include the NASA OMES III contract which, as Steve mentioned earlier, the protest resolved in our favor last week, clearing the way for us to start transition and begin work in fourth quarter of this year.

Driven primarily by NASA's Commercial Lunar Payload Services Initiative, or CLPS, the company concluded second quarter 2023 with $18 million in revenue compared to $19.2 million in revenue in the second quarter of 2022. Operating loss was -$13.2 million versus -$2.2 million in the year prior period.

This is primarily due to schedule impacts Steve mentioned earlier, as well as public company costs. We ended the second quarter of 2023 with a cash balance of $39.1 million. Given delays to government customer acquisition timelines and US federal budget uncertainty, we are withdrawing our previously issued financial guidance for full year 2023.

This is not a result of the loss of any anticipated material government customer commitments or contract awards. With that, operator, we are now ready for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press Star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star and two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from the line of Suji Desilva with Roth MKM. Please go ahead.

Suji Desilva (Managing Director and Senior Research Analyst)

Hi, Steve. Hi, Erik. Congratulations on the progress here. Certainly a lot of exciting things coming. Maybe you can talk about the, the program pushouts and, I guess, the withdrawn guidance. Maybe you can give us a sense, Erik, maybe, or Steve, the drivers here and how much each one's a factor, US government spending uncertainty versus what you cited in the press release, which is program delays and then launch pad congestion. I just want to understand which of these maybe is more of a, a meaningful factor.

Steve Altemus (CEO)

Yeah, Suji, thanks for the question. This is Steve. Let's see. With respect to US government funding, it's really the, the federal budget in this leading up to an election year provides an overall sense of uncertainty. We still see a commitment to human space flight and the Artemis program. We, we share generous bipartisan support in for the NASA budget, which is our primary source. In particular, you see that growth in human space flight with our contract bid for the Lunar Terrain Vehicle.

You also can look at geopolitics and, and globally and see the Russian launch recently to the lunar South Pole and the Indian launch to the lunar South Pole, which means this is right upon us, and it's good that we have a commitment from the federal government to support the human space life programs. You know, we did see some delays in major awards like the OMES contract. We talked about the protest. That award was initially offered in July and had moved out now to post-protest to the November time frame.

We also saw the Near Space Network Services, the communications program that we bid on between the first and second quarter. We're in a really good position for that one, partnering with and teaming with Raytheon.

That moved from late 3rd quarter, early 4th quarter to the 1st quarter of 2024. We saw the CLPS award or the CLPS proposal for CP-22, which is the next mission up in the sequence of missions coming from the NASA CLPS program out of the Science Mission Directorate. That moved from the 3rd quarter into well into the 4th quarter before they make that award. Smaller ones, like the Tipping Point, which we did receive an award.

We expected that award in May, and it wasn't until July we saw that award, and that'll affect implementation and when we on ramp for that, that contract. All good news. They're all commitments that still stay with us. It's just they're gently sliding to the right, and that has an effect on things.

I think what you can look at in terms of what's left to go this year, we have, you know, some significant milestones, as, as I've been talking about, in terms of our Mission One launch in November, the, the, the next CLPS award, to occur late November, the LTV award to occur possibly here in the fourth quarter. The OMES transition to execution will occur in the fourth quarter.

Both the, the follow-on for the Fission Surface Power Reactor next phase, and the JETSON AFRL proposal, we expect both of those to start in this late third-quarter time frame. That's kind of where we stand, and that's kind of an assessment of, of where, where we're going with the external environment and its pressures on us.

Suji Desilva (Managing Director and Senior Research Analyst)

Okay, I appreciate that color and understand, understand these programs can move around, obviously. maybe specifically on OMES, now that you are starting to line that up for revenue, just a sense of how that progresses linearity-wise. Is it front-end loaded, back-end load, or does it kind of progress relatively steadily through the quarters? Once, I guess, let's just say first quarter 2024 is the first full quarter.

Steve Altemus (CEO)

Well, right now, we will start with the negotiation portion of the contract to kind of set the transition time period. There's several dates ahead of us that NASA's considering on when we actually move from transition to execution, and then there'll be a ramp-up. From a time, depending on what the initial task orders will be, we don't expect it to be, you know, the total value divided by the number of months that are on that contract. We actually think that there'll be a ramp-up period, and we're kind of thinking about how that'll unfold here in the November, December timeframe.

Laura Li (Equity Research Associate)

Got it. Lastly on, and I'll move on here. The LTV contract sounds interesting to me in the sense that it'd be your first win as a prime. What's, what's your likelihood of, you think, winning that versus competition? Just to kind of handicap that, because I think that would be an important milestone for you guys. Thanks.

Steve Altemus (CEO)

Yeah, what we've done, as you know, we try to show a great deal of transparency to our pipeline and what we, pipeline of opportunities, and we give a P-go and a P-win for each one. We assess the competition, understand, the strength of the teaming, and then come out with that P-win associated. We think that'll be multiple awards, and we know there's a limited, field of entrants, and our team is an exceptionally strong team, with Intuitive Machines as a prime, and Boeing and Northrop Grumman and AVL as our subcontractors.

Suji Desilva (Managing Director and Senior Research Analyst)

Okay. Thanks, Steve. Thanks, everybody.

Operator (participant)

Thank you. Our next question comes from the line of Austin Moeller with Canaccord Genuity. Please go ahead.

Austin Moeller (Senior Aerospace and Defense Technology Analyst)

Hi, good afternoon, Steve and Mack.

Erik Sallee (CFO)

Afternoon, Austin.

Austin Moeller (Senior Aerospace and Defense Technology Analyst)

Just my first question here, just to clarify, so the timing of the NASA contract award for essentially what would be the IM-4 mission, that's that's still expected in the fourth quarter, right? That would be with fiscal 2023 already appropriated $, correct?

Steve Altemus (CEO)

Austin, it was initially, trying to get out by the end of September, but NASA delayed that to, towards the end of November. We saw, you know, essentially a two-month slip in that next CLPS mission.

Austin Moeller (Senior Aerospace and Defense Technology Analyst)

Okay. That's, that's helpful. Do you expect your $39 million cash balance to be sufficient to execute on the, on the contracts under your plate, or do you expect more cash receipts from the, the current NASA contracts like, like OMES and the other IM missions to satisfy your needs there?

Erik Sallee (CFO)

We expect our current cash balance and the cash receipts from the, you know, our existing contracts to be sufficient to take care of our cash needs. I mean, I think you saw that our operating cash flow in second quarter was actually positive, which is a great sign. Obviously, you've, you've seen, I think, as you're following us, Austin, our cash is lumpy.

Our inflows and outflows are both milestone-based, and so from quarter to quarter, you've got some lumpiness in there, and you've really got to look at this on a full year basis. We've always tried to be resilient, as we've talked about, to be able to withstand these types of program delays like this. The cash on our balance sheet, plus the milestones we have on the books, you know, should take us through. We also obviously have the, $50 million committed equity facility, which, we can use opportunistically, to provide further cushion if needed.

Austin Moeller (Senior Aerospace and Defense Technology Analyst)

Okay, just one more, if I may. Can you expand on what you're seeing in the congressional versions of the fiscal year 2024 NASA budget in regards to CLPS and other important programs to you? I mean, as you mentioned on the call earlier, Russia sending Luna-25 to the lunar South Pole doesn't seem indicative to me that there's going to be any slowdown there in terms of the program of record.

Steve Altemus (CEO)

Yes, Austin, we do see a commitment in the Artemis program in human space flight. Where that'll affect it is, you know, the overall pressure across the US federal budget will affect and force NASA to have to make some trades within their budget to lower priority items.

So you'll see a fencing, I believe, in terms of technology dollars that are flowing out from the Space Technology Mission Directorate and competing with science dollars that will flow out of the Science Mission Directorate across the science portfolio, and who will receive those dollars, those limited dollars, that will come out of a, what appears to be a reduced NASA budget, at least in the negotiations that are occurring between the House and the Senate today.

That's where we really see that that sorting out will occur, but we still see that the highest priority item, items from, from the human space flight Artemis program, namely the human lander, namely the space suits and the lunar terrain vehicle, as the top items that, that should receive funding.

Austin Moeller (Senior Aerospace and Defense Technology Analyst)

Okay, great. Thanks for all the details there.

Operator (participant)

Thank you. Our next question comes from the line of Laura Li with Deutsche Bank. Please go ahead.

Laura Li (Equity Research Associate)

Hi, team. Congratulations on good execution last quarter, and it's nice to see your IM-1 launch scheduled. My question would be: Could you, like, elaborate, elaborate more on the next steps prior to the launch?

Steve Altemus (CEO)

Yes, thanks, Laura. Appreciate the question. Like I said, we've made some incredible execution progress over the past quarter and, and subsequent to date. Completing a full burn of our flight engine, and, and the hot fire test, which is a test where the engine is integrated with the lunar lander, and then we fill that with propellants and fire that, and that was a wild success.

Going forward with the lander assembly complete, we'll run about two weeks of, of flight software functional testing to make sure that every pin out connection and every wire harness works in conjunction with our flight software. That series of testing will then go into an electromagnetic interference test to make sure that there's no adverse effect on our payloads, with when the lander is all powered up.

Then we'll do, kind of center of gravity measurements, mass measurements, and get the vehicle all ready to be buttoned up in its shipping container and prepared to ship to the Cape. We expect that to be all completed by 15 September 2023. Then from there, just making sure that there's no congestion on the pad before we actually ship out to the launch site. We'll need about 35 days at the launch site to do the processing, and to make sure that all the gases are filled and the propellants are ready to go. Then we'll, we'll get encapsulated in the fairing, and then from that point, it's just a wet dress rehearsal and a launch.

Laura Li (Equity Research Associate)

Well, fantastic. Well, thank you for the color.

Steve Altemus (CEO)

All right. Very good.

Operator (participant)

Thank you. Our next question comes from the line of Andres Sheppard with Cantor Fitzgerald. Please go ahead.

Andres Sheppard (Senior Equity Research Analyst)

Hey, Steve. Hey, Erik. Good afternoon, congrats on the quarter, thanks for taking our questions. Wanted to just maybe clarify on the guidance withdrawn. To be clear, does that apply to the revenue guidance, the gross margin, and the cash, or is it exclusively the revenue guidance? Thank you.

Erik Sallee (CFO)

Yeah, we're withdrawing. Thanks, thanks for the question, Andres. We're withdrawing guidance across the board. I mean, obviously, revenue, gross margin, those all are interrelated. Really, it's just associated, as Steve said earlier, with the uncertainty around the timing of awards and significant milestones that are falling right in fourth quarter at year end. There's just, you know, there's three or four or five of them that are really material. You know, some of them might happen in November, December, or January.

Really, from- in terms of the health of the company and how we're doing, any of those, any of those timings would be great, but, you know, trying to pinpoint a week or two here and there around year-end, we felt, you know, was not really helping, helping you guys focus on what's important to make our business successful, and that we're executing on our vision and strategy.

We just didn't feel comfortable making guesses on those, which ultimately, you know, when you're down to a couple of weeks here and there, it, it's a little more than that, particularly when you're dealing with space launch in some of these cases. Obviously, we've seen that government acquisition timelines can, can move. We're not the first company to experience that.

That's really what's driving it. As we said earlier, we haven't lost anything that we previously had in our forecast, that's material to us. It's all shifted out to the right. Because of all that, and all the, all the metrics you mentioned are related, it does apply across the board.

We tried to, you know, at least orient you on the milestones that are relevant, kinda the best we know on OMES right now, the best we know on launch date, some of the big award timings, and obviously, those are gonna drive profitability and cash and top line as well, depending on, you know, how they break our way or not. Because we kinda talked about the, the, you know, value of the landing success payment and things like that previously. Hopefully that, that sheds some light, on, or a little more color on, on our statement.

Andres Sheppard (Senior Equity Research Analyst)

Yeah, thanks, Erik. That, that's super helpful. I appreciate, I, I appreciate that, that insight. I guess, I mean, at this time, is there any additional visibility you might be able to give us in terms of either revenue or, or margins? You know, should, should we be expecting positive margins, you know, by, by year-end? I know in the past you had mentioned the positive EBITDA was a target by, by later this year. Any thoughts around that as to where that might stand? Thanks.

Erik Sallee (CFO)

Yeah, I can't comment on everything. I mean, one thing, you know, we think, we feel good about is if we land successfully, this year, gross margin should be positive in the second half, which I think is, is, is a good sign, obviously, pointing towards the future. You know, we will be mitigating our CapEx. I say mitigating, that's the wrong word. CapEx are gonna naturally come down over the second half of the year relative to the first half.

Some of our non-COGS OpEx, so SG&A, that'll mitigate as well over the second half as we're through some of the public company costs and other things that kind of created an increased run rate on that over the first half. Those are some of the maybe, high-level, thoughts in terms of directionally, where we're headed in the second half.

Andres Sheppard (Senior Equity Research Analyst)

Got it. Okay, thank you. Maybe one last one, if I may. With the upcoming lockup period ending, right, for the, the rollover and, and for the sponsor, how, how do you think the market should be thinking about this increase in float or these now shares being unlocked? Any color there, any visibility as to what, what, you know? How should we be thinking about that? Thank you.

Erik Sallee (CFO)

You bet, Andres. Honestly, you know, it's difficult for the company to have an opinion on that. We'll just let you, you obviously correctly stated what the timing is on that. That's public information. We'll let the market decide.

Andres Sheppard (Senior Equity Research Analyst)

Okay, thank you very much. I'll pass it on. Congrats again.

Erik Sallee (CFO)

Thank you.

Steve Altemus (CEO)

Thank you.

Operator (participant)

Thank you. As there are no further questions, I would now hand the conference over to Steve Altemus, co-founder, president, and Chief Executive Officer, for his closing comments.

Steve Altemus (CEO)

Well, thank you for joining us today, and I appreciate your time you spent with us. We look forward to continue with our execution intensity and making history together in just a few short months. Thank you very much.

Operator (participant)

The conference of Intuitive Machines has now concluded. Thank you for your participation. You may now disconnect your line.