Redwire Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Redwire provides space infrastructure and mission-critical solutions to government and commercial customers. Figures below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $87.8 million | $57.6 million; up 52% |
| Gross profit / margin | $14.8 million / 17% | $14.2 million / 25% |
| Operating loss | $3.6 million | $2.2 million loss |
| Net loss | $8.1 million | $7.3 million loss |
| Net loss available to common shareholders; loss per share | $11.1 million; $0.17 | $11.6 million; $0.18 |
| Adjusted EBITDA (non-GAAP) | $4.3 million | $4.3 million |
| Operating cash flow | $2.8 million provided | $14.0 million used |
Revenue growth reflected larger average contracts and higher production volumes in power generation and structures and mechanisms. Gross margin declined primarily due to contract mix and unfavorable estimate-at-completion (EAC) adjustments. SG&A increased 8% to $17.4 million, but fell to 20% of revenue from 28%. R&D rose to $1.0 million as Redwire invested in microgravity payloads, RF and power-generation technologies.
Unfavorable net EAC adjustments were $3.9 million before tax, mainly due to additional unplanned design and test cycles in structures and mechanisms and power generation. Interest expense was $2.9 million, up 10%, reflecting higher variable rates and increased revolver borrowings. Other expense included a $1.1 million increase in the fair value of private warrant liabilities.
Cash and cash equivalents were $32.6 million at March 31, versus $30.3 million at year-end. Net cash used in investing was $2.4 million; financing provided $2.0 million. Operating cash flow improved largely because of working-capital timing, including lower receivables and higher payables/accruals, partly offset by a $15.4 million decrease in deferred revenue and higher contract assets.
Total debt was $91.7 million gross and $90.5 million net of discounts and issuance costs, compared with $89.5 million gross at year-end. The Adams Street revolving facility had $15.0 million outstanding and $15.0 million of remaining capacity. Debt carried effective rates of approximately 12%–15%; the company reported compliance with its debt covenants. Current assets were $99.9 million and current liabilities $103.4 million.
Material changes and operating indicators
- Revenue mix shifted materially: commercial and other revenue rose to $50.9 million from $21.0 million; civil space was $22.9 million versus $26.1 million, and national security was $13.9 million versus $10.6 million. Europe generated $55.2 million of revenue versus $13.8 million; U.S. revenue was $32.5 million versus $43.8 million.
- One customer represented $43.7 million, nearly half of Q1 revenue; no customer represented 10% or more in Q1 2023.
- Quarterly book-to-bill was 0.40, down from 0.51. Last-twelve-month book-to-bill was 1.11 versus 1.76.
- Contracted backlog was $318.0 million at March 31, down from $372.8 million at December 31. Remaining performance obligations were $299.8 million, of which about 67% was expected to be recognized within 12 months.
- Deferred revenue fell to $37.2 million from $52.6 million; $35.9 million of Q1 revenue had been included in the year-end contract-liability balance.
Outlook, risks and unusual items
No specific revenue, earnings or cash-flow guidance was provided. Management said existing liquidity sources were expected to meet working-capital needs and covenant requirements for at least 12 months from issuance of the statements. Management also noted that additional financing might be needed and could be unavailable or costly. The $80 million B. Riley committed equity facility expired April 14, 2024, without extension; Redwire had made no facility sales in Q1.
Series A preferred stock had a $187.8 million liquidation preference and was convertible into about 30.8 million common shares at March 31. Dividends may be paid at 13% in cash or 15% in kind; accumulated unpaid dividends were $5.1 million. On May 1, 2024, Redwire issued additional preferred shares as a PIK dividend, increasing the convertible amount to about 33.1 million common shares.
Disclosure controls were deemed ineffective because of material weaknesses involving the control environment, finance-function responsibilities and segregation of duties, accounting and revenue-estimation controls, and IT general controls. The company said these weaknesses had not caused a material misstatement or restatement. Remediation is underway and is expected to extend beyond December 31, 2024, with additional costs not yet estimated.
Redwire disclosed securities class and derivative litigation; it said a possible loss or range could not be reasonably estimated. Other key risks include customer concentration, government-contract funding and termination provisions, contract cost and schedule estimates, acquisition integration, debt and financing needs, and reliance on backlog conversion. The company cited a full valuation allowance against substantially all deferred tax assets.
Important facts for investors to verify
- Whether revenue growth converts into improved gross margin, given the drop to 17% and the unfavorable EAC adjustments.
- Backlog replenishment and conversion: quarterly book-to-bill was below 1.0, and reported backlog declined during the quarter.
- The durability of positive operating cash flow, particularly the effects of milestone timing, deferred revenue, receivables and payables.
- Liquidity, covenant compliance and financing options following expiration of the B. Riley facility, including the cost of high-rate debt.
- Customer concentration and the timing or funding conditions for major contracts, including the largest customer’s contribution.
- Progress in remediating material weaknesses, and developments in the pending litigation and preferred-stock dilution and dividend burden.