RDW 2024Q2

Greetings, and welcome to the Redwire Space Second Quarter 2024 Earnings Call. At this time all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Zeunik, Senior Vice President, Financial Planning and Analysis and Investor Relations. Please proceed.

Thank you, Latanya, and good morning, everyone. Welcome to Redwire's second quarter 2024 earnings call. We hope that you've seen our earnings release, which we issued yesterday afternoon. It has also been posted in the Investor Relations section of our website at redwirespace.com. Let me remind everyone that during the call, Redwire management may make forward-looking statements that reflect our beliefs, expectations, intentions, or predictions of the future. Our forward-looking statements are subject to risks and uncertainties that are described in more detail on Slide 2. Additionally, to the extent we discuss non-GAAP measures during the call, please see Slide 3, our earnings release, or the investor presentation on our website for the calculation of these measures and their GAAP reconciliations. I am Jeff Zeunik, Redwire's Senior Vice President of Financial Planning and Analysis and Investor Relations. Joining me on today's call are Peter Cannito, Chairman and Chief Executive Officer; and Jonathan Baliff, Chief Financial Officer. With that, I would like to turn the call over to Pete. Pete?

Thank you, Jeff. During today's call, I will take you through a discussion of our key accomplishments in the second quarter of 2024. Jonathan will then present the financial highlights for the same period, after which we will open the floor for Q&A. Please turn to Slide 6. The second quarter of this year was another excellent quarter for Redwire, during which we continued our positive momentum from the first quarter. We once again delivered year-over-year revenue growth and positive adjusted EBITDA while delivering a strong performance in bids submitted and contracts awarded. During the second quarter, we achieved $78.1 million in revenue, a 30% improvement over Q2 2023. It was another strong quarter for revenue. We had positive adjusted EBITDA of $1.6 million. We improved ending liquidity of $55.8 million as of June 30, 2024. We had $114.4 million in contracts awarded during the quarter with a last 12 months or LTM book-to-bill of 1.28 times. We had a net loss of $18.1 million for the quarter, which includes a $900 million negative impact due to an increase in the private warrant fair value. And finally, we had positive LTM net cash provided by operations of $5.7 million as of the second quarter of 2024. It's important to note that we were able to achieve these strong financial results while simultaneously investing in new technologies, expanding production capacity, and maturing corporate infrastructure throughout the first half of the year. We continue to balance near-term results with long-term growth. Please turn to Slide 7. Each quarter, we outline Redwire's growth strategy as a framework for our performance. Our 2024 plan is centered around four key principles: protecting the core, scaling production, moving up the value chain, and venture optionality. Over the next few slides, I'll discuss examples of successes in each of these key growth areas from the second quarter of 2024. Starting with our protecting the core growth area. During the second quarter, Redwire is proud to have supplied fine and coarse sun sensors for the National Oceanic and Atmospheric Administration's GOES-U satellite, which launched on June 25 and is intended to provide sophisticated weather and solar activity monitoring. This is the fourth satellite in the GOES-R family for which Redwire has supplied these critical guidance, navigation, and control components. Sun sensors come from our avionics sensors core offering, which includes spacecraft subsystems and components used for navigation, control, and imagery collection. Also, during the second quarter, Redwire was awarded a contract by the European Space Agency to develop a robotic arm prototype for ESA's Argonaut Lunar Lander called MANUS. The MANUS system will be developed at Redwire's Luxembourg facility and will enable crucial logistics operations on the lunar surface, such as offloading, precise pointing, retrieval of objects, and positioning of the lander. Robotic arms are part of our structures and mechanisms core offering, which includes various space infrastructure that provides critical mechanical functionality for our on-orbit operations. Looking at our scaling production growth principle, this quarter, we announced another order for our rollout solar array or ROSA wings for Thales Alenia Space's Space Inspire satellites, the company's newest product line of geo-telecommunication satellites. Our participation on the project was initiated last year and additional orders underscore that this is a growing area of the business with recurring revenue potential. Throughout the second quarter of 2024, Redwire continued to execute on antenna production, delivering over 50 flight antennas with more than 180 additional antennas in development for multiple government missions. Turning to our venture optionality growth principle. In the second quarter, we continued our amazing breakthroughs in microgravity, starting with the successful bioprinting of live human heart tissue using our 3D bio-fabrication facility or BFF, on the International Space Station. 3D printed live human heart tissue could eventually be used to create heart patches as a treatment for damaged heart tissue and open the door to more effective personalized medicine in the future. On the next BFF mission, Redwire plans to 3D print human blood vessels in space. Additionally, our PIL-BOX 3 experiment that examined various crystal molecules designed for pharmaceutical use in partnership with Butler University successfully returned from the International Space Station for analysis on Earth. We have now launched four additional drug manufacturing investigations in our PIL-BOX system, which will contribute significantly to our operational focus. Next, on the following few slides, I would like to provide a more in-depth look into our third principle, moving up the value chain by focusing on Redwire's leadership in developing and providing VLEO capabilities to enhance defense and intelligence operations. In Q2, we achieved a major milestone in our VLEO SabreSat strategy with the award of a prime flight contract from DARPA on the Otter program. This prime contract for SabreSat provides Redwire with a funded program and critical customer to advance our design to flight in this new and exciting domain. With two platforms to bring this untapped orbit from concept to full-scale operations in the United States and abroad, Redwire's operations in VLEO are a testament to the power of our heritage plus innovation strategy. We have received very positive market reception, including the award of the Prime Flight Program from DARPA, which has further validated our movement of the value chain through our VLEO offerings. Turning to our contract awards and backlog. Our contract awards during the second quarter of 2024 were $114.4 million. It was an excellent quarter for bookings at Redwire, marking a 226% sequential increase compared to last quarter. Our last 12 months book-to-bill ratio was 1.28 times for the second quarter of 2024. The growth in contracted backlog, which increased 29.9% year-over-year to a total of $354.3 million, is one of many factors that gives us confidence in our future growth.

Thank you, Pete. Before I turn to the financial results, I'd like to highlight this photo on the slide, which is of the groundbreaking ceremony for Redwire's 30,000 square foot microgravity payload development and space operations facility. This facility located within the Nova Park Innovation and Technology Campus in Floyd County, Indiana, is an investment in state-of-the-art locations and supports our cutting-edge space biotechnology programs that Pete spoke about last quarter. Turning to our second quarter and first half of 2024 results, quarterly revenue was a record for a second quarter of $78.1 million. We also achieved positive adjusted EBITDA in the quarter of $1.6 million. Our second quarter LTM cash from operations was a positive $5.7 million, which allowed for the increased level of investment to fund growth. On a quarterly basis, Redwire achieved positive adjusted EBITDA of $1.6 million in Q2 2024. Adjusted EBITDA was previously impacted by results in gross profit and gross margin. Gross profit was $13 million in the second quarter of 2024. These results were primarily impacted by EAC adjustments during the second quarter. Our quarterly adjusted EBITDA performance was supported by excellent cost control and the continued operating leverage driven by scale as Redwire's SG&A expenses were 23.2% of revenue.

Thanks, Jonathan. Please turn to Slide 21. With that, I want to thank all of Redwire's team for their contributions to this quarter's results. We will now open the floor for questions.

Hi. Good morning, Pete, Jonathan. Thanks for taking my questions. So first for me, I just want to start off where you guys left off on the reaffirmed guidance. With the big 2Q beat on the top line, the guide is implying a much softer second half versus first half. I mean, and I know, obviously, results get lumpy in the first quarter had outsized benefit from long lead items. But just given the strong bookings, I guess I'm surprised to see a muted outlook for the back half of the year. Can you just elaborate on your perspective there?

So I wouldn't call it muted. I mean we've set a plan for the year at $300 million. And in the first quarter, we talked about how we had some lumpiness associated with material buys on the Thales ROSA contract. So that added some revenue to the first quarter that won't be regular run time associated with the remainder of the year. But we like where we are for the year, and we're executing against our plan as a result.

Griffin, it's 23% growth year-over-year, but keep going, Griffin.

And then Jonathan, obviously, it's going to come as no surprise; I'm going to dig into the EAC adjustments again. You mentioned it a little bit, but can you just give a little bit more color on the mix there in the second quarter? And where those adjustments are primarily coming from, whether it was primarily one program or several that would be helpful?

Yes. This quarter was the small adjustments spread over a larger number of contracts. There's not one contract. We continue to work on it, and we don't believe it has a big impact on cash flow.

Yes. And again, I'll go back to this idea of strategic balance. So we had 30% year-over-year revenue growth. You got to execute on that and expand accordingly. So we're comfortable with where it is as a percentage of total revenue. But in a highly technical complex industry like space, you're going to run into small bumps along the way when you're growing at 30% year-over-year.

Sure. Got it. Thanks for that. And then last one for me, and I'll jump back in the queue. Maybe more broadly, obviously, the U.S. presidential election has been a particular topic of interest and conversations that we've been having. I think generally speaking, it's probably safe to say there's bipartisan support for space funding, but would love to hear directly your thoughts on how you're handicapping the implications of a Republican or Democrat administration for Redwire and maybe the industry in general.

Yes. No, it's an interesting question. We're not really handicapping it. Like you said, we believe space is a bipartisan imperative. Our focus is staying in the swim lanes that are must-dos, like national security. These are things regardless of administration that the country is going to have to invest in.

Great. Excellent. Yes, that's perfect. I’ll hop back in the queue. Thanks for taking my questions. Appreciate it.

Good morning. Maybe just to start with the submitted bids, I mean you called out more $100 million-plus programs within that $1.9 billion number. I mean, any more color in areas where you're seeing this opportunity and just thinking about noticeable trends between maybe commercial versus more government work as you step up your submits?

Yes. I mean in terms of where it's coming from, it's a mix. So scalable opportunities across all the different targeted market segments. So yes, it's a mix of those different things. I think the two predominant flavors of these directly tied to two of our core growth principles for 2024 scaling production and moving up the value chain.

And then maybe just touching on a third of the four items, the venture and optionality portfolio. It seems like there continues to be a step-up of kind of positive data points around that portfolio. I mean how do you think about the timing of that business being really meaningful and kind of the path to increased monetization just given some of these early items that you're seeing in the market?

Well, so we're optimistic. I mean we're trailblazing here. So there isn't a lot of context to make and a lot of data to make predictions on timing. But as hopefully we've been able to articulate quarter-by-quarter, there's a lot of momentum in this area, and it's moving from what could be characterized as one-off experiments more towards an emerging regular cadence of production-like activity, particularly in PIL-BOX.

Hey. Thanks so much. You submitted an impressive $1.3 billion proposal in the second quarter. Can you talk about capacity? I assume you're going to continue to submit bids at an accelerated pace? And then maybe talk about the average win rate over the last two years and whether that's different between large proposals versus smaller proposals.

So on the last part first, we don't report our win rates and we don't break it down. I think the key is in the results that you see in terms of 29.9% growth in contracted backlog year-over-year. As we continue to move up the value chain and increase production, it's less a function of the percentage of individual wins that you have; it's the right wins that matter. When we go into a bid, we do a very detailed level of planning into what happens if we win here to make sure that we have the capacity at the ready should we be awarded the program. So we feel pretty comfortable by the time we get to the actual bid submission portion that if we're selected, we will have the capacity or the plan to execute on attaining the capacity associated with the timeline that we submit as part of our bid.

We've talked about in the past, our CapEx is quite low compared to our revenue, and it has stayed low because our clients pay for a lot of these costs to be able to get to the capacity to deliver.

Hi, good morning everyone. Thanks for taking our questions and congratulations on the quarter. A lot of our key questions have been asked. But maybe to take a step back, ROSA continues to make great progress. Some feedback that we are getting is that the solar industry continues to experience some supply chain disruptions. So just wondering if you could share maybe what you're seeing there, maybe the latest pricing for your solar business.

So we're executing. Supply chain is always something that has to be managed. I don't think it's particular where we're not experiencing it being specific disorder rate only. Our solar arrays aren't typical residential solar arrays. So we have a strategic supply chain, and those supply chain partners are pleased with the growth of ROSA and the growth that Redwire is experiencing. We just launched four additional drug manufacturing investigations in our PIL-BOX system, which will keep us busy for a while. This is becoming a bigger focus as we achieve more successes. We're not losing millions in putting these up. These are customers, and we get revenue associated with these, and they have their own profitability target.

There would be 16 additional PIL-BOX missions in 2024. We've disclosed the four that just went up. So we're continuing that accelerated cadence. We're very proud of the operations teams. This is a multiyear exercise of path to profitability. We have a tendency to disclose LTM basis to be able to generate cash from operations. We intend to invest, and that investment includes a number of things that are in our growth strategy.

Hi, Pete. Hi, Jonathan. Congrats on the progress here. I wanted to drill down into the VLEO capability you have. Just to understand how it's going to evolve from the current programmatic sort of feel where you're designing and building a spacecraft for two or three customers. Is it going to return to a situation where it's a per spacecraft revenue model, or is it program-based on a continued basis?

I think you're going to initially see governments take the lead in this segment, and you'll see investment in developing this next-generation spacecraft capability. From our perspective, as Phantom and SabreSat move out of the development phase and become stable proven spacecraft platforms, you will see larger and larger quantity orders increase over time. I'm not spending my nights worrying about this idea that we’re going to run into a production bottleneck. We will open the floor for questions.