Welcome to the Intuitive Machines' First Quarter 2024 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. Now, I would like to hand the conference over to your host, Stephen Zhang, Head of Investor Relations. Please go ahead, sir.

Good morning. Welcome to the Intuitive Machines' first quarter 2024 earnings call. Chief Executive Officer, Steve Altemus; and Interim Chief Financial Officer and Controller, Steve Vontur 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 earnings release and the company's most recent 10-K and 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 operational and financial performance. You can find this presentation on our Investor Relations page at www.intuitivemachines.com/investors. Now, I'll turn the call over to Steve Altemus.

Thanks, Stephen. We had an excellent start to the year anchored by our successful IM-1 mission and a full quarter of OMES III operations. Revenue was $73.1 million in the quarter, an increase of over 300% versus quarter 1 of last year. This was yet another historic feat for the company and showcased our continued growth trajectory. The standout accomplishment in the first quarter was Intuitive Machines' first successful lunar mission, which fundamentally disrupted the economics of landing on the moon and broke economic and technological barriers to enable this new burgeoning lunar economy. Thank you to the Intuitive Machines team for their execution during this quarter and willingness to challenge traditional paradigms of exploration. Intuitive Machines' efforts and successes do not stand alone. On May 3, China launched Chang'e 6 to the far side of the moon on their way to potentially being the first nation to return samples from the far side. The steady drumbeat of China's success demonstrates the strategic importance of the moon and we hope is a call to action for the US government and the public of what Intuitive Machines is building and the importance of stable funding and commercial utilization. We are at the forefront of this new space race and committed to our position as a national asset supporting the global endeavors in space. In this rapidly evolving landscape, technological advancement is paramount. We believe Intuitive Machines is standing at the forefront of this imperative. The success of our complete lunar program in the first quarter showcased the commercial viability and agility required to put the industry firmly in the space race with the company standing as a first mover in this effort. In the weeks following our lunar landing, we assessed how our four-year investment and technology development performed. Our team…

Thank you, Steve, and thanks to everyone joining us today. I'll begin by going through our first quarter 2024 results, followed by a few comments on our liquidity, backlog and 2024 revenue guidance. Revenue accelerated in the quarter and was $73.1 million compared to $18.2 million in the first quarter of 2023, driven primarily by our first full quarter of OMES III revenues of just over $40 million and rounded out with revenue from our three NASA CLPS and related mission payloads. We had a couple of one-time revenue impacts in the quarter. First, we had about $12 million related to the IM-1 mission success milestones. We also recorded an additional $5.6 million of revenue combined on the IM-2 and IM-3 CLPS task orders relating to contract modifications as we work with NASA to finalize updates to mission timing, payloads, and landing sites for the remaining two missions. As mentioned earlier by Steve, we expect the IM-2 mission to launch in late 2024 and IM-3 sometimes in 2025. Gross margin continued to improve versus prior quarters and was a positive $12.2 million this quarter, driven primarily by the IM-1 mission success milestones and modifications on the other two missions, as well as the OMES III activity. Operating loss for this quarter was $5.4 million versus $14 million in the first quarter of 2023. The lower operating loss in the quarter was again driven primarily by the items noted above and were partially offset by higher G&A. SG&A ran higher in Q1 2024 and was primarily driven by incentive comp and overall headcount increases, including higher non-cash equity awards that did not exist in the first quarter of the last year. In addition, we saw increases in other expenses such as accounting and legal professional fees, bids and proposal expenses, and…

Thank you, sir. [Operator Instructions]. The first question comes from the line of Suji Desilva with ROTH MKM.

And talking about the guidance for '24, the backlog, I'm curious what the period covered there and how much of that covers your '24 new guidance of $240 million?

For the backlog component, we have about 80% of our backlog sitting right now at about $222 million. We believe about 80% of that backlog will be burned through the remainder of the year.

And then additionally with that guidance for '24, are you assuming new contract wins in that guidance or is it supported by existing wins and would any additional wins be upside to the '24 guidance?

Yeah. Hey there, Suji. The way we look at that is we probability weigh the awards that we have in pending. So what that includes in the lower end of the guidance is the mode for mission two that we're negotiating with NASA. But there's upside that takes us to the higher end of the range and maybe beyond with a mode to IM-3 on the negotiated landing time, the NSNS award, the next CLPS award, and then an IM-2 success payment. So all of those are probability weighted and that's what gives us the range that Steve described.

And then lastly, first time you guys mentioned potentially all commercial mission inserted between, I guess, IM-3, IM-4. Im wondering if that would, Steve, in concept to have an anchored customer with some ancillaries or whether it would be equally kind of portioned out in the payloads across sort of a series of customers, what the general direction of that would be?

Yeah. Right now we're aggregating a set of payloads waiting to get to essentially critical manifest where we can go forward with the purchase of a booster. And so those payloads come in fairly evenly sized and occasionally we'll get one that's a little bit larger. And in this case, that's what we're negotiating. That gets us to the point where we can actually declare we have this commercial mission. So it'll be kind of a mix to not answer your question directly, but it's kind of a mix as we go forward from smaller to medium to maybe a large payload and that'll round out the complement.

Next question comes from the line of Josh Sullivan with The Benchmark Company.

As far as the cash burn here, down substantially year-over-year. But what are the big draws into year-end?

I missed the last part, Josh, the big draws.

I'm just trying to understand, cash burns down here. You're stating that you think you have a good cash balance here to get you through the end of the year. I'm just curious, what are the large tent poles for cash burn as we work into the end of the year?

Yeah. We run the indirect support at about $3.3 million a month is our indirect burn. And as part of cost of goods sold, the biggest payments or drawdown would be the booster payments for each of our missions. We have booster payments for IM-2 and IM-3 on the books for this year. And so I'd say those are the biggest ones that we have as accounts payable.

Got it. And then in your comments there, you mentioned the Chinese lunar mission. You have the Indians looking at their own sample return here. What's your view of that strategic tempo or that conversation in the US as other nations ramp-up their lunar ambitions? Is it picking up these missions viewed as competition or is NASA really moving at their own pace?

Well, I think we're fortunate, as I said, as the US economy where we have NASA has or the US government has kind of sparked the US commercial economy to break the price barrier of what it takes to go to the moon. And if we can install an annual cadence of missions to the moon, we will. While it feels like we might be behind in that we aren't flying as frequently or as complex missions as China may be at this point, we'll catch-up quickly as we have many more shots on goal. So I think the CLPS program in particular lends itself to building a bigger supply chain and base for us to commercialize the moon while the heavy lift activity is occurring, which is of strategic interest. And heavy lift SLS and might be moving to the right, CLPS can fill in with cargo missions to put the critical elements on the surface ahead of the humans. And I think that's where the NASA is going and where the government's going, and we're happy to provide that service for them.

Next question comes from the line of Andres Sheppard with Cantor Fitzgerald.

I wanted to maybe ask how should we be thinking about margins for the IM Mission 2 and also maybe for the OMES contract? Just curious if you can maybe point out or give some color there as to kind of, what kind of margins might you expect?

So as we've reported historically, IM-2 and IM-3 missions are lost projects or close to breakeven. So as we work the rest of that, those operations off of those contracts, we won't have any margin on that. OMES margin is running in the 5% range on a consolidated basis. So again, don't expect any future losses on the IM-2 or IM-3 contracts, but we may have some bumps to that with the final successful milestone fees, like we had in IM-1 once we land.

And maybe just a quick follow-up. As it pertains to the lunar terrain vehicle contract, can you just remind us what are maybe the next catalyst there? And I guess is that program is the expectation that it's going to get narrowed from the three companies that have bid to either one or two? Just trying to understand how you might see that one playing out.

Yeah, we have a period of about a year, 12-month period -- 10 to 12 months period to do the preliminary design of the delivery system and the LTV as I stated. There's 3 companies that are doing that over the next year, roughly on the order of a $30 million task order we expect later this month issued by NASA to kick that off. But then what will happen is there'll be a demonstration portion to actually take and fully develop the design, build it, and deliver it to the moon as a demonstration. NASA has indicated that that could be multiple awards. Right now, they're thinking possibly 1, maybe 2 out of the 3 companies would go forward with that demonstration. However, let me point out that that's a $4.6 billion contract over 15 years, and it's written so broadly that there are a number of services that can be purchased under that multi-award IDIQ contract. And those services could include things like data sales or communications that go with and complement the LTV itself and the demonstration. So the bigger task order though is that one that's issued mid-2025 next year and we compete for the demonstration.

Next question comes from the line of Griffin Boss with B. Riley Securities.

I'll start on LTV. Can you talk more broadly about what NASA potentially will require from the LTV in terms of capacity or how much time NASA expects to utilize these LTVs, and then, in turn, the possible leftover availability to leverage for commercial use cases? And then related to that, if you've received any initial interest already from potential commercial customers looking to use any excess capacity for the LTV?

Well, yeah, NASA plans to use the mission for both autonomous science and discovery, where they fly science payloads to use the LTV mobility capability to gather necessary science, as well as use it for astronauts when they're there, present on the surface, moving around cargo and logistics and collecting geological samples and things like that. So there is a plan. I think the overarching plan ranges from about 6 to 7 months, a year of NASA use, and 5 to 6 months of commercial use, which is quite exciting, that in this case, Intuitive Machines would own the infrastructure and be able to operate the infrastructure while NASA is not there. That's quite unique in terms of the contract and the service that we provide. We have had interest for individuals or companies that want to do excavating and mining and harvesting of materials on the surface, and caching those materials for later return to earth. So that's quite interesting. And there was a number of -- in our commercialization plan that we submitted to NASA, there were a number of letters of interest from companies. I think we had on the order of 10 companies interested in using the LTV should be awarded the contract. So quite a bit of interest. And I think as we move forward and it gets more attention, that interest will only grow.

And then more broadly, there's a lot of talk about SpaceX's Starship, for various reasons, obviously, but I'd be curious to hear your thoughts on what a successful operational Starship could mean for the future of lunar transport in general, and maybe for Intuitive specifically?

Yeah. As I mentioned in a previous question, I think what's of strategic importance to the United States is a heavy lift capability. And whether that heavy lift comes in the version of the space launch system or the Starship, it will be a critical component to sustained human presence on the moon. What's nice though is that Intuitive Machines is complementary to Starship. And Starship, while it has a very heavy cargo and a way to aggregate multiple mission elements on a single mission to the moon, we'll have regular cargo deliveries of smaller sizes to the moon and in various locations around the moon that will keep the cadence of missions up and will be enough to really feed a community of smaller delivery service companies that will be put in cargo and critical systems and satellites around the moon and on the moon.

And then just if I could sneak 1 more in there. Without putting words in your mouth, Steve, you talked about the first potential fully commercial mission after IM-3. You said you were aggregating payloads. Would it be right to assume then that you are seeing enough demand today to fulfill a fully commercial mission or are you expecting to get whatever incremental demand that would warrant a fully commercial mission within the next two years?

We have signed contracts with multiple payloads that we've been aggregating and holding for this commercial mission. And as those come in and as we negotiate those contracts, we get to a point where we have enough to declare a mission. And those negotiations are signed contracts and negotiations underway that give us the opportunity to declare a commercial mission today. We expect more coming in over the next two years. And this gap between the last competed CLPS mission and CP-22, which is the next one is that 2-year gap that we want to fill so that we maintain this cadence of missions going to the moon. So we see a lot of commercial interest and international interest in terms of signed contracts to fly to the moon, and we see that are growing continually over the next couple of years.

Next question comes from the line of Austin Moeller with Canaccord Genuity.

Just my first question here. Are all the aspiring slots on IM-2 and IM-3 currently occupied? And if not, are you still seeking payloads to put on there before integration?

All of the slots on IM-2 are filled and were at max capacity and sold out. We still have some availability on an aspiring slot on IM-3 that were talking with potential payload customers to fill that slot prior to that mission.

And just a follow-up, what's currently the status of the first [indiscernible] satellite that was supposed to be riding aboard IM-2? How should we be thinking about that?

So what we've done is, we've combined -- we went back and looked at that in anticipation of an NSNS award, which I mentioned should be coming out in the second quarter, where hopefully were awarded that mission. We've built out a much better capability on com two or our second communications satellite and found that the first satellite wasn't compliant with the requirements that NASA -- we anticipate coming out of NASA. So we built a better, or are building a better bus and comp relay on com two, our second satellite, and we'll fly that on IM-3.

Next question comes from the line of Edison Yu with Deutsche Bank.

What are on the geopolitical angle, how do you think this aspect is sort of playing out, especially with the DoD's view on the system and our economy at the moment?

I missed the last part, Edison, you faded-off there. The DoD's interest in this space race, is that your comment?

The cislunar economy?

Okay, yeah. Well, I think there's some -- as stated by a number of the DoD leadership that there's a lot of interest in what's going on in Geo and ex-Geo, and that maintains their focus and priority at this point. And I think as the traffic model increases in and around the moon, that will then gain some priority. But they're going to need to see more than 1 or 2 missions to the moon a year before they'll be able to reallocate budgets towards cislunar economy. So we're seeing the space force appetite for cislunar capabilities slowly growing over the next couple of years. And then, like I said, as the traffic model increases, that appetite for additional information and space traffic management and space domain awareness will increase.

And just kind of more longer term and broader question on LTV. How do we think this sort of fits into the company's overall vision strategy when we couple that with the upcoming NSNS and CP-22 awards?

So I think with respect to LTV, it's part of the strategy to, if I think about it, delivery to be able to take things to the surface, to be able to communicate essentially command and control communications around the moon is of critical interest, including navigation. And then the ability to do extreme mobility and LTV gives you that. And because we can then move around the surface, we can begin to build infrastructure that supports sustained human presence on the moon. And so our company builds an ecosystem of capability in and around the moon in terms of delivery, command and control, communications, and extreme mobility. And that's how that all fits together. And we're anxiously awaiting, like I said, that last chess piece in the NSNS contract, to be able to deploy our data relay satellites and provide that service back to the government for communications around the moon.

Thank you. There are no further questions. I would like to hand the floor back to Intuitive Machines' CEO, Steve Altemus for closing remarks.

Well, thank you, everybody, for attending and joining us today on the call. As you heard, we've had a historic first quarter, both operationally and financially, and we expect to build on that momentum throughout the year. I look forward to talking to you in the future. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.