Redwire Corp quarterly report, Q1 FY2022

Redwire Corporation (RDW): Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022. Amounts below are in U.S. dollars; financial statement amounts are presented in millions unless noted. Redwire develops and manufactures space infrastructure, components, and engineering services for civil, national-security, and commercial customers.

Financial performance and liquidity

Metric	Q1 2022	Q1 2021
Revenue	$32.9 million	$31.7 million
Gross profit / margin	$5.2 million / 16%	$7.5 million / 24%
Operating loss	$(17.6) million	$(7.2) million
Net loss	$(17.3) million	$(7.7) million
Diluted loss per share	$(0.28)	$(0.21)
Operating cash flow	$(11.4) million	$(12.5) million

• Revenue increased 4%, including $3.7 million from the 2021 acquisitions; management also cited delivery timing. Cost of sales rose 14%, and gross margin fell from 24% to 16%, reflecting contract mix, higher production costs, and equity compensation.
• SG&A increased 86% to $21.0 million. Cited contributors included $3.6 million of equity compensation, $2.3 million of litigation-related expense, $1.5 million of additional payroll, and $2.0 million of acquired-company SG&A. Research and development rose 73% to $1.7 million.
• Adjusted EBITDA, a company-defined non-GAAP measure, was a loss of $4.7 million versus income of $1.0 million. The filing cautions that this measure is supplemental, not a substitute for GAAP results.
• Cash declined to $5.9 million from $20.5 million at year-end. Q1 investing cash use was $1.0 million and financing cash use was $2.1 million. Management attributed operating cash use partly to contract-asset growth and milestone-billing timing.
• At March 31, total debt was $77.9 million gross and $76.3 million net of discounts and issuance costs; long-term debt, net, was $74.7 million. The Adams Street term loans mature in 2026, with $74.2 million of scheduled principal in that year. The company reported covenant compliance.
• Reported available liquidity was $30.9 million: $5.9 million cash plus $25.0 million of undrawn credit availability. Current liabilities exceeded current assets by approximately $10.4 million.

Material changes and operating indicators

• Book-to-bill was 0.93, down from 2.12; Q1 contract awards were $30.4 million versus $67.2 million. The prior-year award figure included $38.6 million of acquired contract value.
• Contracted backlog was $137.3 million, down from $139.7 million at December 31, 2021. Total backlog, including uncontracted amounts, was $273.9 million. The $136.6 million uncontracted component included $74.6 million of priced contract extensions under negotiation, described as verbally awarded and expected to be executed shortly; it is not firm contracted backlog.
• Remaining performance obligations were $107.7 million; Redwire expected to recognize approximately 78% within 12 months. NASA represented $8.4 million of Q1 revenue, down from $10.9 million; Boeing revenue rose to $5.5 million from $4.0 million.
• Net estimate-at-completion adjustments reduced pretax results by $1.8 million, compared with $0.1 million in Q1 2021. Management said contract estimates are sensitive to labor productivity, material costs, subcontractor performance, inflation, and schedule delays.

Outlook, risks, contingencies, and unusual items

• The filing gives no specific full-year revenue or earnings guidance. Management expected continued investment in technology during 2022 and said SG&A would likely rise as the business and corporate functions develop. It also identified potential cost reductions, including workforce rationalization, real-estate synergies, and business-unit optimization; execution and savings are not assured.
• Management stated available liquidity should cover working-capital needs and covenant compliance for at least 12 months from issuance of the financial statements, while warning liquidity may not meet longer-term needs if cash use continues. On April 14, 2022, Redwire entered an optional, 24-month equity facility permitting up to $80 million of common-stock sales, subject to conditions; proceeds depend on whether shares are sold and at what prices, and sales could dilute shareholders.
• Risks cited include continuing operating losses and negative operating cash flow, supply-chain constraints, labor shortages, inflation, COVID-related delays, dependence on government contracts and funding, acquisition integration, and the developing market for in-space infrastructure. Management said cost increases and additional R&D investment in in-space manufacturing affected Q1 performance.
• Disclosure controls were deemed ineffective at March 31, 2022. The company reported material weaknesses involving tone at the top, accounting resources and segregation of duties, risk assessment, accounting and review controls, complex transactions, and IT general controls. Remediation was underway and expected to extend beyond December 31, 2022; management could not estimate its cost.
• A securities class action naming the company, CEO, and CFO was pending; the company disputed the allegations, and it could not reasonably estimate a possible loss. An Audit Committee investigation into previously reported accounting concerns found no need to restate or adjust prior statements, but confirmed control deficiencies; Redwire had self-reported the matter to the SEC and said it would cooperate.
• Other notable items: the private-warrant liability increased by $1.2 million, recorded as expense; the company recognized a $2.9 million income-tax benefit, while increasing its valuation allowance; and the Roccor acquisition earnout was expected to be paid in the second half of 2022.

Important facts for investors to verify

• Whether revenue growth, contract awards, and backlog conversion improve, and whether the uncontracted extensions become executed, funded contracts.
• Whether gross margins recover and operating cash use declines despite cost, schedule, and contract-estimate pressures.
• Cash runway, revolver availability, covenant headroom, debt service requirements, and any use of the equity facility, including resulting dilution.
• Progress and cost of remediating material weaknesses, and any subsequent accounting, regulatory, or litigation developments.
• Whether management’s planned cost reductions and investment in growth technologies deliver expected results without impairing execution.