Intuitive Machines, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The February 13, 2023 business combination was accounted for as a reverse recapitalization; the financial statements continue those of Intuitive Machines, LLC. Per-share results are presented only for periods after the combination, so comparisons require care.
Financial performance and liquidity
| Metric | Q2 2023 | Six months 2023 | Prior comparable period |
|---|---|---|---|
| Revenue | $18.0 million | $36.2 million | Q2 2022: $19.2 million; H1 2022: $37.7 million |
| Operating loss | $13.2 million | $27.1 million | Q2 2022: $2.2 million; H1 2022: $6.7 million |
| Net income (loss), consolidated | $18.8 million | $(4.7) million | Q2 2022: $(2.6) million; H1 2022: $(6.9) million |
| Adjusted EBITDA (non-GAAP) | $(11.9) million | $(25.3) million | Q2 2022: $(1.8) million; H1 2022: $(6.0) million |
| Operating cash flow | Not separately presented here | $(15.8) million | H1 2022: $(11.1) million |
| Capital expenditures | Not separately presented here | $20.2 million | H1 2022: $5.4 million |
| Free cash flow (non-GAAP) | Not separately presented here | $(36.0) million | H1 2022: $(16.5) million |
Q2 revenue fell 6% year over year; H1 revenue fell 4%. Cost of revenue exceeded revenue in both periods: approximate gross loss was $4.8 million in Q2 and $10.0 million in H1, before general and administrative expense. These imply approximate gross margins of negative 26.7% and negative 27.6%, respectively. The filing reports no separate gross-margin line.
Q2 consolidated net income included a $28.8 million favorable noncash change in the fair value of earn-out liabilities. H1 included a $25.0 million favorable fair-value change, partly offset by a $2.4 million unfavorable change in SAFE agreement fair value before conversion. Excluding the earn-out gain and other specified adjustments, adjusted EBITDA remained negative. The company reported $28.9 million of Q2 net income attributable to Class A shareholders; this reflects the consolidated result, noncontrolling-interest allocation, and preferred dividends, and should not be confused with operating profitability.
At June 30, cash and cash equivalents were $39.1 million, restricted cash was $0.1 million, and the working-capital deficit was $58.1 million. Current liabilities were $108.6 million versus current assets of $50.5 million. Debt was $20.0 million, all classified as current; the weighted-average rate was 9.87%. The company also reported a $24.0 million current financing obligation related to construction of its lunar operations center. Management said available cash and the equity facility were expected to cover short-term liquidity needs and the business plan for at least 12 months from issuance of the statements.
Material changes and business developments
- Operating loss widened substantially year over year, as revenue declined while cost of revenue and general and administrative expense increased. H1 cost of revenue rose 22% and G&A rose 164% versus H1 2022.
- All three lunar missions were in loss positions at June 30. The company recorded $7.0 million of contract losses in Q2 and $13.6 million in H1. Management attributed added estimated costs to schedule extensions, additional labor and subcontractor costs, and technical issues identified in IM-1 testing, including electronics and tank valves.
- Backlog was $137.3 million, down from $201.9 million at December 31, 2022. The filing attributes the decline mainly to work performed and contract-value adjustments; new awards partly offset it. Backlog includes amounts not included in remaining performance obligations, including constrained variable consideration.
- Remaining fixed-price performance obligations were $73.4 million. The company expected to recognize approximately 50–55% over the next six months, 45–50% in 2024, and the remainder thereafter.
- Property and equipment, net, increased to $40.8 million from $21.2 million, with construction in progress including lunar operations center costs and commercial communications satellite fabrication. H1 investing cash use increased to $20.2 million.
- The February business combination and related financing brought approximately $34.1 million of gross proceeds, including Series A preferred stock proceeds. Other H1 financing cash inflows included $12.7 million from termination of a forward purchase agreement and $16.1 million from warrant exercises. No shares had been sold under the $50 million equity facility as of June 30.
Outlook, risks, and unusual items
- Management said the first mission was on track for 2023 when discussing its plans, but the latest disclosed IM-1 launch target had been extended to no later than February 2024. IM-2 and IM-3 schedules are also subject to execution and customer-contract milestones. The filing cites a goal of multiple missions per year by late 2025.
- The company disclosed $137.3 million of backlog and three launch agreements as of June 30, but notes that contracts may be terminated for convenience and some government work depends on appropriations. Backlog is not a guarantee of future revenue.
- Launch delays or failures, mission performance, technical challenges, supplier availability, rising costs, customer concentration, and dependence on government funding are significant risks. One customer represented 67% of Q2 revenue and 70% of H1 revenue.
- Two non-cancelable vendor purchase commitments totaled $37.3 million, of which $34.2 million was due within 12 months. The $12 million portion of the Live Oak facility required $8 million repayment on August 15, 2023 and $4 million on November 14, 2023. The company reported covenant compliance at June 30.
- Disclosure controls were not effective at the reasonable-assurance level. Three previously identified material weaknesses—concerning revenue controls, unusual transactions, and segregation of duties over journal entries—were still being remediated.
- The company disclosed an uncertain tax position concerning its accounting method for certain launch costs and said it had not received written IRS consent for its requested accounting-method change. It also has a tax receivable agreement requiring payment of 85% of specified realized tax savings; no TRA liability existed at June 30 because qualifying unit exchanges had not occurred.
- The Series A preferred stock carries a 10% cumulative dividend and redemption/conversion rights. The Up-C structure leaves prior investors with 81.5% of the LLC at June 30, with exchange rights that may be settled in shares or, subject to conditions, cash. Earn-out liabilities are fair-value sensitive and produced a material noncash gain during the period.
- Management said inflation and other macroeconomic pressures had not materially affected the business to date, but were being monitored. The filing states ordinary-course legal matters were not expected to have a material adverse effect.
Key facts for investors to verify
- Whether IM-1’s revised launch schedule and technical issues affect mission completion, contract costs, or additional loss provisions.
- How the company will meet near-term debt repayments and fund operations and capital spending, including the conditions and practical availability of the equity facility.
- Whether revenue, margins, and cash conversion improve as missions progress, given ongoing contract losses and negative operating cash flow.
- The quality and conversion of backlog into revenue, including the impact of constrained variable consideration, contract modifications, and termination rights.
- Progress remediating material weaknesses and the resolution of the pending IRS accounting-method request.
- Potential dilution and cash implications of warrant exercises, Series A preferred stock, earn-out awards, LLC unit exchanges, and the tax receivable agreement.