Redwire Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Redwire develops and manufactures space infrastructure, components and related engineering services. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions where appropriate.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $57.6 million | $32.9 million |
| Gross profit / margin | $14.2 million / 24.7% | $5.2 million / 15.7% |
| Operating loss | $2.2 million | $17.6 million |
| Net loss | $7.3 million | $17.3 million |
| Loss per common share, basic and diluted | $0.18 | $0.28 |
| Adjusted EBITDA, non-GAAP | $4.3 million | $(4.7) million |
| Operating cash flow | $(14.0) million | $(11.4) million |
Revenue grew 75%, including $12.3 million from the 2022 Space NV acquisition and growth in deployables and engineering services. Gross margin increased to 25% from 16%, which management attributed to cost reductions, a larger share of fixed-price awards and completion of lower-margin contracts. SG&A fell 23% to $16.0 million, partly due to lower share-based compensation and legal expenses, offset by acquired Space NV costs. Interest expense rose 82% to $2.6 million, primarily reflecting higher variable rates and accrued payment-in-kind interest. Other expense included a $2.8 million increase in the fair value of private warrant liabilities.
Cash and cash equivalents were $11.3 million at quarter-end, down from $28.3 million at December 31, 2022. Operating cash use increased year over year, mainly due to a $9.4 million increase in contract assets and a $4.8 million decrease in deferred revenue. Investing cash use was $0.8 million and financing cash use was $2.2 million. Debt was $78.2 million gross and $76.7 million net of unamortized discounts and issuance costs; the Adams Street term loans carried effective interest rates of approximately 11.5%. The company had $25.0 million available under its revolver and $24.5 million of unused capacity under its committed equity facility, subject to restrictions. Management said existing liquidity was expected to cover working capital needs and covenant compliance for at least 12 months from issuance of the statements. The company reported compliance with amended debt covenants.
Current assets were $84.8 million and current liabilities were $84.2 million. Contract assets rose to $40.7 million from $31.0 million; deferred revenue declined to $25.0 million from $29.8 million. Shareholders’ equity was a deficit of $11.6 million, excluding $76.4 million of convertible preferred stock presented in temporary equity.
Changes, outlook and material matters
- Contracted backlog was $286.8 million at March 31, 2023, versus $313.1 million at December 31, 2022; it was $137.3 million at March 31, 2022. The last-twelve-month book-to-bill ratio was 1.76, compared with 0.85 a year earlier. Remaining performance obligations were $266.7 million, with about 70% expected to be recognized as revenue within 12 months. Backlog may be reduced by cancellations or amendments, and some contracts depend on annual funding.
- Management cited inflation, supply-chain disruption, labor constraints and rising interest rates as pressures on costs, schedules, margins and capital access. Net unfavorable estimate-at-completion adjustments were $1.6 million, primarily associated with production costs and labor constraints.
- No specific annual revenue or earnings guidance is provided in the filing text. Management described improved year-over-year operating performance and continuing cost discipline; it also noted that interim results may not indicate full-year results.
- Series A preferred stock has a $162.5 million liquidation preference, a 13% cash dividend rate or 15% payment-in-kind rate, and conversion rights subject to a 19.99% limitation pending filing of an information statement. Accrued but unpaid dividends were $4.4 million at quarter-end. On May 1, 2023, the company issued additional preferred shares as payment-in-kind dividends.
- Disclosure controls and procedures were not effective at quarter-end due to material weaknesses in financial reporting controls, including control environment, accounting resources, risk assessment, transaction review and IT general controls. Remediation was ongoing, and management expected it could extend beyond December 31, 2023.
- Legal matters include a securities class action whose motion to dismiss was denied in March 2023, a related derivative action that is stayed, and a DOJ Civil Investigative Demand received in January 2023 concerning potential antitrust violations. The company said it intended to defend or cooperate as applicable; it could not reasonably estimate possible losses.
- Other risks include acquisition integration and purchase-accounting uncertainty, dependence on government customers and funding, evolving in-space markets and technologies, foreign-exchange exposure, and potential further financing needs. The QinetiQ Space acquisition’s purchase-price allocation remained preliminary.
Important facts for investors to verify
- Whether working-capital demands, particularly contract assets and milestone billing timing, continue to pressure operating cash flow.
- Progress in converting backlog and remaining performance obligations into revenue, and the funding status and cancellation terms of those contracts.
- Debt costs, covenant compliance after the leverage-ratio testing suspension ends, and the terms and availability of additional financing.
- Remediation of material weaknesses and any developments in the securities litigation or DOJ inquiry.
- The potential effect of preferred-stock dividends, conversion and liquidation rights on common shareholders.
- Whether gross-margin improvements persist despite inflation, labor and supply-chain pressures.