Intuitive Machines, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited. Intuitive Machines designs, manufactures and operates space products and services, with a near-term focus on lunar access, data services and space infrastructure. The February 13, 2023 business combination created a public-company Up-C structure and was accounted for as a reverse recapitalization; prior-period results reflect Intuitive Machines, LLC.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $18.2 million | $18.5 million; down 1% |
| Cost of revenue, excluding depreciation | $23.1 million | $19.7 million; up 17% |
| Gross loss, including depreciation | $5.2 million; approximately -28% margin | $1.5 million; approximately -8% margin |
| Operating loss | $14.0 million; approximately -77% margin | $4.5 million; approximately -24% margin |
| Net loss | $23.4 million | $4.3 million |
| Adjusted EBITDA (non-GAAP) | -$13.5 million | -$4.1 million |
| Operating cash flow / capital expenditures | -$18.7 million / $8.6 million | -$24.0 million / $0.4 million |
| Free cash flow (non-GAAP) | -$27.2 million | -$24.4 million |
Q1 2023 net loss includes $3.7 million of expense from remeasuring earn-out liabilities and $2.4 million of expense from remeasuring SAFE agreements; the latter converted to Class A shares at the business-combination closing. Class A basic and diluted loss per share was $0.64, but that calculation covers only February 13 through March 31, not the full quarter.
At March 31, cash and cash equivalents were $46.8 million, compared with $25.8 million at December 31, 2022. Working capital was negative $42.5 million. Debt was $20.0 million, including $16.1 million classified as current; scheduled principal payments on the $12 million facility include $8 million in August 2023 and $4 million in November 2023. The reported weighted-average rate on short-term borrowings was 9.56%. Total liabilities were $220.9 million, including a $103.4 million earn-out liability. Property and equipment was $29.4 million, including significant construction in progress.
Financing activities provided $48.3 million in the quarter, including business-combination and Series A proceeds, proceeds from termination of a forward purchase agreement, and warrant exercises. The company issued $26.0 million of 10% cumulative convertible preferred stock. The preferred dividends and redemption/conversion terms may affect future cash needs and dilution.
Changes, contracts and operating developments
- Revenue was nearly flat year over year, but operating costs increased materially. General and administrative expense rose 195% to $8.8 million, reflecting higher headcount, public-company and professional-service costs, transaction-related and other expenses.
- All three lunar missions were in loss positions at quarter-end. Net contract losses recorded in Q1 were $6.7 million versus $2.4 million a year earlier. Management cited IM-1 launch delay fees and technical challenges involving electronics and tank valves, as well as higher estimated IM-2 fuel-system and avionics costs.
- IM-1 and IM-2 were approximately 97% and 78% complete, respectively, at March 31; IM-3 was approximately 40% complete. In April, NASA modified IM-1’s landing-site plan and extended the target launch date to no later than September 30, 2023.
- Backlog was $156.1 million, down from $201.9 million at year-end, primarily due to performance on existing work and adjustments to certain time-and-materials contracts. The company expects to recognize about 69% of backlog over the remainder of 2023 and about 27% during 2024. Remaining fixed-price performance obligations were $87.0 million; this differs from backlog partly because backlog includes constrained variable consideration and certain time-and-materials work.
- Capital expenditures included construction of a lunar operations center and equipment for future missions. Non-cancelable purchase commitments with two vendors totaled $31.8 million, of which $29.1 million was due within twelve months.
Outlook, risks and unusual items
Management stated that cash available from the business combination and related transactions should fund short-term liquidity needs and execution of the business plan for at least twelve months from issuance of the financial statements. The company also has a discretionary equity facility of up to the lesser of $50 million and the agreement’s exchange cap, subject to conditions; no shares had been sold under it by March 31. No formal quantified revenue or earnings guidance is provided in the filing.
Management said it was on track to complete its first two missions in 2023 and aims to build toward multiple missions per year by 2025. Execution depends on mission readiness, successful launches and landings, regulatory approvals, cost control, supplier availability and customer demand. Revenue is concentrated: one customer accounted for 74% of Q1 revenue. The company also identified inflation, supply-chain and labor pressures, dependence on government funding, contract-estimate uncertainty and risks associated with spaceflight.
In April 2023, NASA awarded the OMES III contract to a company-led joint venture; the award was under protest. The award triggered vesting of 2.5 million earn-out units. Also in April, public-warrant exercises generated approximately $13.6 million in cash proceeds. These are subsequent events, not Q1 operating results.
Disclosure controls were concluded to be ineffective because previously identified material weaknesses in revenue-recognition controls, controls over unusual or complex transactions, and segregation of duties for manual journal entries remained under remediation at March 31. Management stated it believed ordinary-course legal matters would not materially adversely affect the financial statements. The filing reports no material changes to the previously disclosed risk factors.
Important facts for investors to verify
- Whether the IM-1 launch schedule, technical issues and mission cost estimates remain achievable, and how any further delay affects contract losses and cash needs.
- The status and outcome of the OMES III contract protest and the related earn-out vesting and accounting.
- Cash burn, the timing of customer receipts, upcoming debt repayments, covenant compliance and the availability and terms of any equity-facility use.
- Whether backlog converts into revenue as expected; backlog includes amounts subject to cancellation, funding and contract terms, and is not equivalent to remaining performance obligations.
- Progress remediating internal-control material weaknesses and the effects of the Up-C structure, redeemable noncontrolling interests, preferred stock, warrants and potential unit exchanges on public shareholders’ ownership and dilution.