ispace,inc. Q1 FY2026 earnings call

Mission 2 Post-Failure Summary and Actions

• Mission 2 successfully completed 8 of 10 milestones, reaching lunar orbit, but lost telemetry at 192m altitude during final landing approach and hard landed, failing to complete the landing mission.
• The root failure cause was traced to delayed valid altitude data from the laser range finder (LRF) sensor, unlike the software algorithm issue that caused Mission 1 failure which has been fully resolved.
• Potential contributing LRF factors include lower-than-expected lunar surface reflectivity, worse-than-expected long-range measurement performance during high-speed descent, and low-probability radiation-induced performance degradation during flight; the company is continuing to investigate the root cause, which may be compound.
• The company launched an independent Improvement Task Force co-chaired by two prominent systems engineering experts: Professor Olivier L. de Weck from MIT (US) and Professor Naohiko KJinbu from Keio University (Japan), with 4-5 additional external domain experts from JAXA, NASA, and ESA to review the company's internal analysis and recommend improvements.
• The company is overhauling landing sensor selection, verification, and operations, including selecting a new LRF supplier and adding image-based altitude measurement to increase landing robustness for Mission 3 and 4, with increased technical support from JAXA.

Subsequent Missions Development Status

• Mission 3 (targeting 2027 launch): APEX 1.0 Lander subsystem testing is proceeding on schedule with no major issues; thermal vacuum testing for the Alpne and Lupine relay communication satellites has been completed successfully.
• Mission 4 (Japanese mission): Preliminary design and preparation for thermal vacuum testing of the Series 3 Lander is proceeding on schedule, and drop testing of landing legs to verify impact resistance has been completed.

Business Development by Region

• Japan: The company is actively bidding on multiple JAXA Space Strategy Fund Phase 2 programs, including a 200 billion yen program for high-precision polar lunar landing and an 8 billion yen program for lunar infrastructure enabling technologies. The company also executed a basic agreement with Bridgestone to develop practical tires for small lunar rovers, targeting commercialization as early as 2029.
• United States: Despite policy uncertainty under the new Trump administration, continued implementation of the Artemis program via private sector partnerships has been confirmed, with NASA's CLPS program budget maintained at 250 million USD, consistent with prior year levels. The US remains a core focus market for ispace.
• Europe: The company's European subsidiary expanded its contract for the MAGPIE lunar rover exploration mission with the European Space Agency (ESA) to a total value of 400 million yen, advancing to Phase 1 of the project.

Financial Position

• As of the end of June 2025, the company holds 26.4 billion yen in cash and cash equivalents, after securing 15 billion yen in new loans from two major Japanese banks, ensuring near-term financial stability. Total assets increased to 38.9 billion yen, with interest-bearing debt of 31.5 billion yen and net assets of 3.7 billion yen.
• The company reported an operating loss of 2.2 billion yen and a net loss of 2.8 billion yen for the quarter, which is in line with plan; the larger-than-proportional net loss reflects the planned lump-sum recognition of SBIR grant revenue for Mission 4 in Q4.

Total company first quarter revenue was 1.1 billion yen, an 83.5% increase year-over-year, representing 18.8% progress against the full-year forecast, in line with plan.

• Mission 3 payload sales: Recognized under the cost recovery method, with revenue matched to equivalent costs, resulting in zero gross profit from this segment. It remains the key revenue driver for the full fiscal year, with a finalized total contract value of 6,400 million USD, revised downward 100 million USD from prior guidance due to uncollected balances from a customer.
• Mission 2: The company recorded its first ever data service sales revenue of 23 million yen. Total expected Mission 2 revenue is 1,450 million USD, as 150 million USD (9% of total Mission 2 contract value) was not recognized due to landing failure.
• Partnerships and other: Includes consulting revenue, which contributed to overall gross profit of 200 million yen for the quarter.

• The company maintained its prior full-year forecast of 8.3 billion yen in net loss for the fiscal year, with the first quarter net loss outcome considered in line with plan due to the timing of grant revenue recognition.
• Total planned development spending for subsequent missions remains unchanged at a maximum of 1.5 billion yen, consistent with prior guidance after Mission 2 failure.
• No schedule delays to Mission 3 (2027 launch target) and Mission 4 are expected at this time, with development proceeding per the existing timeline.
• The company targets roughly doubling project-based revenue (including SBIR grants counted as revenue for comparison) from the prior fiscal year.

• Technical risk: Landing on the moon remains highly technically challenging, and the root cause of the Mission 2 LRF failure has not been definitively identified, leaving open the risk of unresolved technical issues impacting future missions.
• Customer and revenue risk: A Mission 3 customer has defaulted on remaining contract payments, requiring a downward revision to total contract value, creating precedent for potential future customer payment issues.
• Financial risk: Net assets declined to 3.7 billion yen after the quarterly loss, and strengthening net assets remains a key priority; near-term profitability remains out of reach, requiring ongoing consideration of capital strengthening options.
• Reputational risk: Two sequential lunar landing failures could impact customer and stakeholder confidence, though the company has reported that most key stakeholders have maintained their commitment to continued partnership.

Q: What is the rationale behind the co-chair structure of the Mission 2 Improvement Task Force, and what is the planned composition?

A: The company prioritized bringing in independent third-party perspectives to identify blind spots in internal analysis, and wanted systems engineering experts to facilitate a holistic review of the entire mission system rather than only focusing on the LRF specifically. The bi-national US-Japan co-chair structure was chosen to align with the company's split of Mission 3 (US) and Mission 4 (Japan), to incorporate both regional perspectives. In addition to the two co-chairs, the company plans to add 4-5 external guidance, navigation, and control experts from Japan, the US, and Europe, with final selections currently being finalized.

Q: What impact has the Mission 2 landing failure had on customer and stakeholder confidence, and what is the financial impact?

A: There are no refunds or damage liabilities to customers resulting from the landing failure, per the terms of existing payload contracts. Executive leadership visited all major customers and space agencies immediately after the failure to provide transparent updates on the known technical causes. Management reported that most stakeholders already understand the inherent high risk of lunar landing, and have reaffirmed their commitment to continuing partnership and payload discussions for future missions. Transparent communication actually strengthened trust, with no major customers terminating discussions.

Q: If JAXA's Space Strategy Fund selects ispace's polar landing proposal, how will this impact technical development for earlier missions?

A: The core technical work to enable polar high-precision landing, specifically building out robust image-based navigation technology to improve landing accuracy, will first be implemented and tested on Mission 3 and Mission 4, which creates a foundational technology base for a later Mission 6 polar landing. Polar landing has unique technical challenges, including longer terrain shadows from low sun angles that complicate terrain recognition and altitude estimation, which will require specific algorithm improvements developed under the program if selected.