Inflection Point (NASDAQ:IPAX) has entered into a definitive agreement to combine with space services company Intuitive Machines at an enterprise value of $815 million, or 2.8x its 2023E revenue.

Houston, Texas-based Intuitive Machines has designed a moon lander for future NASA missions as well as other aerospace products.

The combined company is expected to trade on the Nasdaq once the deal is completed in the first quarter of 2023.

Transaction Overview

Inflection Point brings $301 million into the deal from its current trust and has a $26 million PIPE. The PIPE has taken the form of Series A preferred stock which will pay 10% dividends.

The parties also inked a common stock purchase agreement with Cantor Fitzgerald, under which the post-combination company may direct Cantor to purchase up to $50 million in company stock on the open market. In exchange, Cantor is to receive $1 million in company stock at close. Inflection Point has also secured a non-redemption agreement from Kingstown 1740 Fund, ensuring that 2,900,000 shares will not be redeemed at close.

Intuitive Machines expects to add $358 million to its balance sheet after paying out $25 million in transaction expenses as a part of the deal. Inflection Point must maintain enough capital for listing requirements and ensure Kingstown 1740 fulfills its backstop pledge in order for the deal to close.

Existing Intuitive Machines shareholders are expected to own 62% of the combined company with 29% going to public Inflection point shareholders and 29% going to public Inflection Point shareholders, assuming no redemptions. The SPAC’s sponsor and IPO anchor investors are expected to take a 7% stake and the PIPE investors are set to end up with 2%.

Both the company and sponsor have agreed to a six-month lock-up. Company shareholders stand to earn up to 10,000,000 earnout units. One quarter of these will vest if the company is awarded the OMES III contract by NASA. If this trigger is not met, but the stock trades at or above $15, then 7,500,000 of these shares will be released and the remainder at $17.50.

Quick Takes: Intuitive Machines makes a strong case for the demand for its services with a notable lack of detail in its materials on what its services entail.

Intuitive Machines sights its future as connected to “lunar access” connected to its proprietary moon lander developed in concert with Northrop Grumman (NYSE:NOC) as well as data and orbital services connected to monitoring projects involving the Moon. But, the company stops short of claiming that its solution has been selected as a part of any major agencies’ plans.

It appears to have a piece of the equipment puzzle in NASA’s new push to conduct additional trips to the Moon but it is also following in a line of de-SPACs that did not match their launch trajectory in the open market. Overall, the 12 space-focused de-SPACs are trading at an average price of $3.93, with the high point held by New Providence’s target AST SpaceMobile (NASDAQ:ASTS), which last closed at $9.

This has also proven to be an unforgiving sector to prove new technologies as many of these companies have seen stock drops following test launch failures or other stumbling blocks that would be considered a part of the normal development process with a private company (like SpaceX).

Intuitive Machines describes its technology capabilities as wide-ranging, touching upon propulsion, navigation, communications, and more, but it does not make entirely clear what it specifically provides within that wide range. Nonetheless, it claims to have signed $233 million in NASA commercial payload contracts, with three missions on SpaceX missions.

This has led to at least some revenue, having gathered $73 million in revenue in 2021 and $102 million in 2022, with $291 million projected for 2023E. But, at a time when de-SPACs have been heavily scrutinized for “squishy” revenue projections, Intuitive Machines could help itself by more specifically laying out how concrete these deals are.

It describes itself as an awarded subcontractor on a multi-billion-dollar deal involving the Johnson Space Center but describes this in the footnotes as “to be awarded in late 2022”. As in, “not yet.” Its earnout language also heavily implies the real promise in its relationship with NASA is yet to be solidified.

Ultimately, Intuitive Machines is a company that has built a lunar lander, that, if fully adopted, will provide it consistent revenue moving forward. But as with all things space related, this is going to depend on individual missions and state budgets, not a waiting consumer market demanding its services.

Intuitive Machines does present an upside play compared to some other listed space ventures, however, priced at 2.8x its 2023E revenue. Fellow de-SPACs Planet (NYSE:PL) and RocketLab (NASDAQ:RKLB), meanwhile, trade at 7.3x and 7.6x respectively. But, these are also companies with assets in orbit that have already gone through some of the highs and lows of being a listed space company.

Another de-SPAC, Astra (NASDAQ:ASTR) has had some struggles with its rocket design and is now working on a new one. It now trades at 2.4x revenue at a share price of $0.77 as of yesterday’s close. As such, there is a wide range of variance here and investors may continue to see space as too risky of a play in a risk-off environment.

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ADVISORS

• J.P. Morgan Securities LLC is serving as the exclusive financial advisor to Intuitive Machines.
• Cantor Fitzgerald & Co. is serving as exclusive financial advisor and capital markets advisor to Inflection Point.
• Cantor Fitzgerald & Co. is also serving as exclusive placement agent for the PIPE financing.
• Latham & Watkins LLP is serving as legal advisor to Intuitive Machines
• White & Case LLP is serving as legal advisor to Inflection Point.
• DLA Piper LLP (US) is serving as legal counsel to Cantor Fitzgerald & Co.