Intuitive Machines, Inc. (NASDAQ:LUNR) Q3 2023 Earnings Call Transcript

Intuitive Machines, Inc. (NASDAQ:LUNR) Q3 2023 Earnings Call Transcript November 16, 2023

Operator: Welcome to Intuitive Machines Third Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Stephen Zhang. Please go ahead, sir.

Stephen Zhang: Good morning. Welcome to the Intuitive Machines Third Quarter 2023 Earnings Call. Chief Executive Officer, Steve Altemus; and Chief Financial Officer, Erik Sallee, are leading the call today. 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 the future of our business, the economy and other events. 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 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 the 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 posted an earnings call presentation on our website which provides additional context on our financial performance. You can find this presentation on our Investor Relations page at www.intuitivemachine.com/investors. Now I’ll turn the call over to Steve Altemus.

Stephen Altemus: Thanks, Stephen. Welcome, everyone, and thank you for joining us. In today’s presentation, I will provide updates and accomplishments across the company’s 4 business units. After, I will hand the call to our Chief Financial Officer, Erik Sallee, to review our financial results for the third quarter of 2023. Let’s begin with our Lunar Access Services accomplishments. During our second quarter call, we mentioned that we believe launchpad congestion was going to determine the priority of launches through the rest of the year. In coordination with NASA and SpaceX, lift off of the IM-1 Lunar Mission is now targeted for a multi-day launch window, which opens on January 12, 2024. In case of unfavorable launch conditions, such as poor weather, backup opportunities are available and will be determined based on the Lunar blackout window and other factors.

I’d like to take a moment to expand on this change to add context and perspective. Intuitive machines completed its Lunar Lander actually in September, and we were looking forward to launching it in November. We also know better than most that there are inherent challenges of space flight. Schedule changes and mission adjustments are a natural consequence of pioneering lunar exploration. Preparing to return the United States to the surface of a moon has been an incredible journey. Our Lunar lander is performing beautifully in all its testing, and we are authorized to deliver it to Florida later this month. We have a launch date and the necessary approvals ready to go. This is a great achievement for the company and a lesson in patience. This delay is a small price for making history.

Meanwhile, we are smartly using this extended interval before the planned launch date to continue offline confidence testing. Specifically, we’ve pulled in work planned for pad processing, which included a fit check to our separation ring and spacecraft adapter. We tested the fitment and the separation of the vehicle to the spacecraft adapter. In addition, we still plan to run another mission sequence test to provide additional training for the operations team in preparation for the mission and to do additional testing on the flight and ground software. Finally, we continue confidence testing with our propulsion system in our offline vertical test facility, continually refining propulsion system parameters. Our second plan mission is benefiting from all the testing we have done for mission one and is quickly taking shape.

Intuitive Machines’ engineers completed helicopter testing of the LiDAR navigation system for IM-2 at the Kennedy Space Center. The use of LiDAR to land our second mission allows us to land in shaded regions of the moon targeted by NASA’s Artemis program. IM-2’s propulsion and structural components are in-house undergoing assembly, and we’re working on the integration of NASA’s ice mining drill and commercial payloads. Our Micro-Nova Hopper, which is designed to search for water ice and permanently shadowed regions of the moon is assembled and undergoing thermal vacuum and vibration testing. Nokia’s Lunar 4G/LTE network is taking shape, including integration with the Lunar Surface Rover, which we’ll deploy from the lander to test and validate the robustness and performance of Nokia’s cellular network communication between the Rover and the lander in the harsh lunar environment.

At the end of the quarter, we submitted a proposal for another contracted mission with NASA. This is the CP-22 task order contract under the agency’s commercial lunar payload services initiative. We believe this is still on target for award notification later this month. And looking ahead, we’re excited to share that this past week, we were selected by a leading international space agency for a $16.8 million contract to deliver 2 payloads through our Lunar Rover services. These services include the deployment of the Rover and payloads with our Nova Sea lander, along with data relay and communication services back to Earth. This award is our largest international payload contract to date and demonstrates our continued focus on diversifying our customer base as we expand into international markets.

For Lunar Data Services, as we look forward to providing communication capabilities between assets using Nokia’s 4G/LTE on the Lunar surface, we’re continuing to expand our LUNAR data services business line to support the evolving needs of the future Cislunar market communications and data between the earth and moon. In preparation for our Lunar mission, the operations team and Mission Control has completed all required ground station interface checks. These checks give assurance that our commercial lunar telemetry and tracking network is operational and prepared to provide near 24/7 coverage of our mission and any future tracking missions, whether that’s from the civil, defense or commercial sectors. In addition, the Mission Control team is continuing to complete payload data transmission and mission sequence testing.

These functional practice sessions will continue all the way through the scheduled launch in January to fully appreciate and understand all the nuances in the software and the ground network. As mentioned last quarter, NASA’s award for the near space network services contract award is expected in early 2024. In Orbital services, we began customer transition for NASA’s 5-year $719 million Omnibus multi-engineering services contract or OMS 3, and expect revenue to start December 1. To date, we’ve secured more than 87% of the total workforce for the contract and will be ready to support NASA in the next month. For Space products and infrastructure, we believe the energy sector will continue to develop across our space products and infrastructure business line.

In the days leading up to this call, Intuitive Machines announced a $9.5 million award from the Air Force Research Laboratory to develop satellite positioning and maneuverability solutions using radioisotope power systems. The award feeds into our growing space products and infrastructure business line and is an exciting opportunity for Intuitive Machines to evolve as a dynamic, adaptable and forward-looking company diversifying into defense and energy. During the third quarter, we started our 1-year program to develop a radioisotope power system to enable in-space assets like our Lunar Landers to survive the Lunar night, potentially extending lunar missions from roughly 2 weeks to several years. As we mentioned in our second quarter call, Intuitive Machines completed Phase 1 of its Fission Surface Power Reactor contract for the Department of Energy at NASA.

Now the company is proposing Phase 1a, which would extend the contract by 8 months for early risk reduction on hardware and design maturation. We expect the work completed during Phase 1 and 1a will give the company valuable insights to our Department of Energy and NASA’s $4.5 million second phase of the contract. Looking ahead, we submitted our bid as the prime contractor for NASA’s Lunar terrain vehicle services contract earlier this year 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 our prime contractor debut in human space flight. We’re expecting multiple down selected prime contract awards and the expected award timing is now at the end of quarter one 2024.

Finally, Intuitive Machines has expanded its ability to support each of the business units in our fully operational Lunar production and operations center at the Houston Space Port. We opened the facility with a ribbon cutting with over 400 people in attendance, including federal and state representatives, Houston Mayor and city council members. By moving into our new operations center, the company now has the ability to simultaneously manufacture multiple spacecraft, including up to 4 Lunar landers. Moving into our new home designed to support NASA’s $93 billion Artemis program marks a new beginning on our journey for growth and expansion. With that, I’ll turn the call over to Intuitive Machines’ Chief Financial Officer, Erik Sallee.

Erik Sallee: Thank you, Steve. And thanks to everyone joining us today. We ended the third quarter with a contracted backlog of $135.2 million. This backlog does not include the $719 million NASA OMS 3 contract, which will be booked as task orders are received. As Steve mentioned earlier, the OMS transition is nearly complete, and we expect revenue to begin in December. Revenue for the quarter was driven primarily by NASA’s commercial Lunar payload services initiative, or CLPS as the company concluded third quarter ‘23 with $12.7 million in revenue compared to $10.3 million for the third quarter of 2022. Revenue run rate was down from the first half due to updated launch timing and an increase in cost estimates required to successfully deliver our 3 Lunar landings with NASA.

Operating loss was a negative $23.2 million versus negative $11.8 million in the year prior period. This was primarily due to the updated cost estimates as well as public company costs. G&A also included $1.4 million of onetime transaction costs related to the equity raise we secured in the quarter. On the cash side, we ended the third quarter with a cash balance of $40.7 million. Free cash flow in the quarter was an outflow of $14.6 million, of which $7.2 million was operating cash use and $7.5 million was CapEx. The primary use of CapEx was related to the new Lunar production and operations center. Within financing cash flows, we received a $20 million equity investment from an institutional investor in the quarter. This was partially offset by a onetime member distribution of $3.7 million relating to taxes.

As we discussed last quarter, the OMS protest along with the timing of major awards, have impacted our results this year. However, none of the significant awards were lost. We won OMS and are still looking forward to successful outcomes on NSNS, LTV and additional CLPS missions in the first half of 2024. In the interim, we are taking steps to retire risk and manage costs. For example, our SG&A of approximately $9 million per quarter is best-in-class as we remain capital and cost efficient. On the portfolio side, we continue to diversify across not only various government entities in civil, energy and national security but also across budgetary line items within each entity. The JETSON contract moves us into the Department of Defense, and Steve mentioned earlier our success with the international market.

Additionally, should we be successful with the Lunar Terrain Vehicle award next year, we will secure a spot on a key piece of infrastructure within the Artemis program and budget, capitalizing on the growing Lunar and space economy. We remain optimistic on the over $3 billion in outstanding proposals and look forward to the prime contract award decisions on CP-22, NSNS and LTV, while we focus on execution and manage cost efficiently in the interim. With that, operator, we are now ready for questions.

Operator: Thank you. [Operator Instructions] Our first question is from Josh Sullivan with The Benchmark Company. Please proceed.

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Q&A Session

Joshua Sullivan: Hey, good morning.

Stephen Altemus: Good morning, Josh.

Erik Sallee: Good morning, Josh.

Joshua Sullivan: Just want to get your thoughts on NASA’s commitment to the commercial service model. This international Lunar services contract appears to be following that model. I’m just curious on your current thoughts there.

Stephen Altemus: Yes. Thanks for the question, Josh. It’s really interesting. Last week, I was up on Capitol Hill and talking to the staffers associated with the authorization appropriations for Artemis, and we see quite a bit of support for NASA’s programs and in particular, CLPS as a precursor to Artemis as ability to set a regular cadence of missions as and if Artemis launches move around on the schedule, as you know, that those missions are highly complex, and they have a tendency to move to the right. And CLPS offers an opportunity for NASA to have the case submission and activities towards the moon. And by doing so, we see the international partners coming up and suggesting to fly their payloads earlier using the CLPS benders and the CLPS program as opposed to waiting for manifesting on the Artemis missions.

So we’re very encouraged about the House and the Senate commitment to CLPS and the Artemis program. And the way it’s structured now, CLPS has – is in a position to serve any and covering any gaps that might occur in delays in the Artemis program.

Joshua Sullivan: And then as far as the near space network contract, does your January mission help provide any past performance metrics, which might be helpful in the scoring for NSN?

Stephen Altemus: Well, I believe that the relevant experience of past performance would have already been considered in the competition and the evaluation of the proposals by January already. So what we have done is included all of the validation work that we’ve done with our ground sites against the Lunar reconnaissance orbiter in space around the moon and validate that the whole system works and is tied together and able to bring the communications back down to the ground. So even prior to flying our first mission in January, we’ve done the groundwork or the leg work to test our ground against the Lunar distance communication, and that will go into contributing to our experience when the NSN is selected.

Joshua Sullivan: Got it. And then just one last one. On OMS, can you just help us with the cadence through ‘24, how we should think about that?

Erik Sallee: Yes, Josh, this is Erik. As you know, it’s – the top line dollar value of the contract is $719 million. That’s over 5 years. There’ll be an initial ramp-up period of a matter of months. But then after that, we think it will be pretty steady state month-over-month equally divided over that time period, help contributing to our top line.

Joshua Sullivan: Okay. Thank you for the time.

Stephen Altemus: Thank you, Josh.

Operator: Our next question is from Edison Yu with Deutsche Bank. Please proceed.

Edison Yu: Hey, thanks for taking our question. Just one on the, I guess, the government funding situation. Are we concerned at all about the continuing resolution? Anything about the government shutdown that could be impacting the money side?

Stephen Altemus: Good morning, Edison. Glad to have you with us, and yes, great question. Like I said to Josh, that I was up on Capitol Hill talking to the staffers. And generally, I would say there’s quite a bit of optimism and hard work going on to get us through at least a partial CR or a CR for a short term to keep the government open. And so nobody is wanting to shut down. It seems like generally, everyone was optimistic that a CR or at least interim would be approved to get us time into January before the full CR or budget could be passed. So that was encouraging, and I’m optimistic there. We’re well into our transition for the OMS contract with 87% of the workforce on board or at least captured. That will continue on.

And we think the commitment to Artemis program, the outlook is good for Intuitive Machines. These CRs and shutdown associated with it tend to be short-term outlook. So in the long term, it doesn’t look like it’s going to have any effect on the company this year.

Edison Yu: Got it. A longer-term question. I know you had some advancements on the nuclear side. Do you have any sense of time line on when we could see some actual applications of that? I know typically, it’s – when we hear about it, it’s quite long term, but curious if you have any sort of views on that.

Stephen Altemus: Yes. So you see in what we outlined, there’s been some movement there in 3 different areas of nuclear space that we’ve captured and that’s a follow-on to – well, we’re negotiating a follow-on to the fission surface power. That’s Phase 1a which is a continuation of Phase 1 for another eight months and lining up for Phase 2. We think that, that will eventually in the long term, like you say, turn into a development activity for fission reactor. You see the JETSON satellite procurement, that’s a new AFRL contract. And what’s great about that one is we’re – is that one can actually grow faster into a real satellite. So we’ll do this first execution on the low-power JETSON satellite, and then we’ll see if they pick that up at the end of the year.