Redwire Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter ended September 30, 2021. Redwire develops space infrastructure, components, and engineering services. It completed its merger with Genesis Park Acquisition Corp. on September 2, 2021; the transaction was accounted for as a reverse recapitalization. The filing was signed April 1, 2022, after a delay related to an Audit Committee investigation.
Financial performance and position
Amounts below are in U.S. dollars; financial statement figures have been converted from thousands to millions where shown.
| Metric | Q3 2021 | Comparable period |
|---|---|---|
| Revenue | $32.7 million | $12.5 million in Q3 2020; up 162% |
| Gross profit / margin | $5.9 million / 18% | $1.9 million / 16% |
| Operating loss | $31.1 million | $2.9 million |
| Net loss | $24.3 million; $0.55 per diluted share | $2.3 million; $0.06 per diluted share |
| Operating cash flow | Nine months: cash used of $34.3 million | |
| Cash and cash equivalents | $27.3 million at September 30, 2021 | |
| Debt | $80.5 million gross; $78.8 million net of unamortized discounts and issuance costs | |
| Available liquidity | $32.3 million, including $5.0 million of available credit |
Q3 revenue growth reflected $16.9 million from acquisitions and $3.3 million of organic growth. The quarter’s $34.3 million of SG&A included $21.1 million of Class P unit compensation expense. For the nine months, Redwire reported revenue of $96.5 million and net loss of $47.8 million; comparisons with 2020 are not directly like-for-like because of acquisitions and differing Successor and Predecessor reporting periods. Nine-month operating cash use was driven by operating losses and a $15.8 million unfavorable working-capital change.
At September 30, contracted backlog was $121.4 million; total backlog, including uncontracted amounts, was $284.6 million. Remaining performance obligations were $106.8 million, of which the company expected to recognize approximately 73% as revenue within 12 months. These measures are not equivalent: total backlog includes uncontracted amounts.
Changes, outlook, and material matters
- Q3 gross margin improved to 18% from 16%, while operating and net losses widened substantially, primarily reflecting higher SG&A, including merger-related public-company costs and equity compensation.
- Management expected cost of sales as a percentage of revenue to decline for the remainder of 2021, citing anticipated product mix, and said it did not expect material incremental investment after early-year spending on personnel and systems. The filing provides no formal revenue or earnings guidance.
- Management said it believed existing liquidity would cover working capital needs and covenant compliance for at least 12 months from issuance of the statements, but cautioned that continued operating cash outflows could challenge longer-term needs. The Adams Street covenant limit was a 6.50:1.00 consolidated total net leverage ratio; the company reported compliance at September 30, 2021.
- COVID-related program delays, supply-chain constraints, labor shortages, and inflation affected customers and execution. Management highlighted delayed work associated with NASA’s Human Landing System and uncertainty in government funding and contract timing.
- Private warrants were carried as a fair-value liability. Their $2.9 million decline in fair value generated other income in the nine-month period. Nine-month results also included $11.2 million of contingent earnout expense and $22.9 million of equity-based compensation.
- Disclosure controls were ineffective, and the company reported material weaknesses involving control environment, accounting resources and processes, complex transactions, risk assessment, and IT controls. The Audit Committee investigation, prompted by potential accounting issues raised in November 2021, found no need to restate or adjust previously issued statements, but confirmed existing and additional control deficiencies. Remediation was underway and expected to extend beyond December 31, 2022.
- Subsequent events included the November 2021 Techshot acquisition and a securities class action filed in December 2021; the company said it could not estimate any potential loss. The filing also disclosed a March 2022 amendment that increased the revolving-credit commitment from $5 million to $25 million and increased rates on certain borrowings.
Investor verification priorities
- Track remediation and independent validation of the disclosed material weaknesses, and assess the implications of the delayed filing and SEC self-report.
- Reconcile revenue growth and backlog conversion with organic performance, acquisition contributions, and the $85.3 million of uncontracted backlog described as extensions under negotiation.
- Monitor operating cash flow, working capital, liquidity, debt maturities, covenant compliance, and the terms and actual use of the amended revolving facility.
- Assess whether gross-margin improvement and planned cost actions materialize despite program delays, supply constraints, inflation, and contract estimate uncertainty.
- Follow the securities litigation and any regulatory developments; the filing provides no clear estimate of possible litigation losses.