Business context and reporting period
Intuitive Machines, Inc. designs, manufactures and operates space products and services, with a near-term focus on lunar access and infrastructure. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2023. The February 2023 business combination was accounted for as a reverse recapitalization; the reported business is a continuation of Intuitive Machines, LLC, and the company’s capital structure changed. Accordingly, some comparisons and per-share figures are not directly comparable with 2022.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $12.7m | $10.3m | $49.0m | $48.0m |
| Operating loss | $(23.2)m | $(11.8)m | $(50.4)m | $(18.5)m |
| Consolidated net income (loss) | $15.1m | $(11.9)m | $10.4m | $(18.8)m |
| Adjusted EBITDA, non-GAAP | $(20.3)m | $(11.4)m | $(46.7)m | $(17.3)m |
Revenue rose 24% in Q3 and 2% year to date. Operating expenses increased faster than revenue: cost of revenue (excluding depreciation) rose 49% in Q3 and 31% year to date, while general and administrative expense increased $5.3m and $16.0m, respectively. Based on reported revenue less cost of revenue and depreciation, gross loss was approximately $13.4m in Q3 2023 versus $7.3m in Q3 2022, and $23.4m year to date versus $7.5m. All three lunar missions were in loss positions at quarter-end.
Reported net income was substantially affected by noncash fair-value movements: the company recorded $36.0m of Q3 and $61.1m of year-to-date income from remeasurement of earn-out liabilities, plus $10.3m of year-to-date warrant-liability gains. Q3 also included a $6.7m loss on issuance of securities. These items should be distinguished from operating performance and cash generation. Q3 basic and diluted Class A earnings per share were $1.89 and $1.29; the filing presents 2023 per-share results only for periods after the February business-combination closing.
For the first nine months, operating cash outflow was $22.9m, investing cash outflow was $27.7m, and financing cash inflow was $65.5m. Free cash flow, as defined by the company, was negative $50.6m, compared with negative $40.5m in 2022. Cash and cash equivalents were $40.7m at September 30. The company reported a $52.0m working-capital deficit. Debt was $20.0m, all classified as current, at quarter-end; the weighted-average rate on short-term borrowings was 10.10%. Total assets were $103.0m and total liabilities $162.9m. Operating lease liabilities were approximately $32.0m.
Material changes versus the prior comparable period
- Operating losses widened despite higher revenue, reflecting rising mission costs, contract-loss accruals, and increased public-company and personnel expenses.
- Year-to-date capital spending increased to $27.7m from $12.2m, primarily for mission equipment and the lunar operations center.
- Backlog declined to $135.2m from $201.9m at December 31, 2022, mainly due to work performed and contract-value adjustments, partly offset by new awards. The company expected to recognize about 15% of backlog in the remainder of 2023, 64% in 2024, and 21% thereafter.
- Contract liabilities fell to $50.2m from $58.8m at year-end. Remaining fixed-price performance obligations were $69.1m; the filing explains that backlog is higher partly because it includes constrained variable consideration and certain time-and-materials contract amounts.
- The lunar operations center lease commenced during Q3, increasing recognized operating lease right-of-use assets and liabilities. The company expected another $10.1m of construction costs, partly reimbursable by the lessor.
Outlook, commentary and risks
Management said September 30 cash and the available equity facility were expected to cover short-term liquidity needs and execution of the business plan for at least twelve months from issuance of the financial statements. This assessment depends partly on access to the equity facility, which permits sales of up to the lesser of $50m and the agreement’s exchange cap, subject to conditions; no shares had been sold under it as of September 30.
Management said IM-1 was on track for launch in early 2024, with two additional funded missions to follow, and targeted a regular cadence of multiple missions per year by late 2025. The IM-1 target had been extended to no later than February 2024. Management noted schedule, technical, launch-provider, cost, funding, and customer-adoption uncertainties. Contract estimates reflect significant judgment, and changes in estimated costs or consideration may cause further losses or revenue adjustments.
Contract-loss provisions were $15.6m for Q3 and $29.2m year to date. Management cited schedule extensions and additional labor, subcontractor, fuel-system and avionics costs; IM-1 testing also identified technical challenges involving electronics and tank valves. The company had $37.3m of non-cancelable purchase commitments with two vendors, including $29.1m due within twelve months. One customer represented 52% of Q3 and 65% of year-to-date revenue, creating customer-concentration exposure.
After quarter-end, management abandoned a proposed loan modification and paid the deferred $8.0m principal installment on October 31, 2023. Live Oak issued a November 3 letter confirming the company was current and in compliance with the credit facilities. The company also disclosed continuing material weaknesses in internal controls related to revenue recognition and reconciliation, complex transactions, and segregation of duties; disclosure controls were assessed as ineffective. Management said ordinary-course legal matters were not expected to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors.
The September private placement raised $20.0m gross through 4.7m Class A shares and two warrants each covering up to 4.7m shares at $4.75 per share. The warrants were classified as liabilities and were subject to fair-value remeasurement. The preferred-stock conversion price was reduced from $12.00 to $5.10 per share under the placement-related terms. These securities create potential dilution and valuation effects.
Important facts for investors to verify
- Whether IM-1 launched on the updated timetable and whether mission testing, integration and launch costs remain within estimates.
- Progress and revised cost-to-complete estimates for all three loss-making lunar missions, including changes to contract-loss provisions and constrained variable consideration.
- Actual cash burn, working-capital needs, debt repayments and covenant compliance, and whether the available equity facility can be accessed on acceptable terms.
- Backlog conversion, customer concentration, new awards and the timing of revenue recognition compared with the $69.1m of remaining fixed-price performance obligations.
- The dilution and accounting impact of outstanding warrants, preferred stock, exchangeable LLC units and any further equity financing.
- Remediation of the disclosed material weaknesses and whether internal-control effectiveness improves in subsequent filings.