Redwire Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Figures are in U.S. dollars; financial statement amounts below are rounded to millions unless noted.
Business context
Redwire develops and supplies space infrastructure, components, engineering services, and mission solutions for civil, national security, and commercial customers. Its growth strategy includes organic investment and acquisitions. The company operates as one reportable segment.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $36.7 million | $32.1 million | $69.6 million | $63.8 million |
| Gross margin | $7.0 million; 19% | $8.6 million; 27% | $12.2 million; 17% | $16.1 million; 25% |
| Operating loss | $92.8 million | $15.6 million | $110.3 million | $22.8 million |
| Net loss | $77.0 million | $15.9 million | $94.3 million | $23.6 million |
| Adjusted EBITDA, non-GAAP | $(4.1) million | $1.7 million | $(8.7) million | $2.6 million |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $(15.6) million | $(20.1) million |
Q2 net loss included an $80.5 million non-cash impairment charge: $39.3 million goodwill, $28.2 million intangible assets, and $12.9 million property and equipment. A $15.5 million six-month gain from the reduced fair value of private warrants partly offset losses; the warrant valuation is non-cash and can fluctuate.
At June 30, cash and cash equivalents were $10.9 million, down from $20.5 million at December 31, 2021. Total debt was $86.9 million gross ($85.4 million net of unamortized discounts and issuance costs), including $10.0 million drawn on the revolving facility. Total available liquidity was reported as $25.9 million: cash plus $15.0 million of available credit-facility borrowings. The balance sheet showed $45.5 million current assets and $55.3 million current liabilities.
Backlog was $251.7 million, including $162.1 million contracted and $89.5 million uncontracted; $25.5 million of uncontracted backlog comprised extensions under negotiation that were priced, scoped, verbally awarded, and expected to be executed. Remaining performance obligations were $129.2 million, with approximately 82% expected to be recognized as revenue within 12 months. Book-to-bill was 1.68 for Q2 and 1.32 for the first half.
Changes versus comparable periods
- Revenue grew 14% in Q2 and 9% for the first half. Management attributed growth largely to acquisition contributions and delivery timing; first-half acquired revenue was $9.2 million.
- Gross margin fell to 19% in Q2 from 27%, and to 17% for the first half from 25%. Management cited contract mix, inflation and supply-chain cost pressure, and equity compensation.
- SG&A rose 45% in Q2 and 65% for the first half, reflecting higher equity compensation, litigation and public-company costs, workforce and lease costs, and acquisition contributions.
- First-half operating cash outflow improved from $20.1 million to $15.6 million, while cash declined by $9.6 million during the period. Financing included $10.0 million of revolver proceeds and $1.2 million from shares sold under the B. Riley facility.
Outlook, risks, and notable items
- No quantified revenue or earnings guidance is provided. Management said it expects continued investment in technology, facilities, production capacity, and operating leverage through the remainder of 2022; it also expects SG&A to increase as the business and corporate functions develop.
- Management cited inflation, supply-chain disruption, labor shortages, subcontractor delays, and COVID-19 as pressures on costs, schedules, and contract estimates. The company recorded $3.2 million of unfavorable first-half estimate-at-completion adjustments.
- Management stated that existing liquidity was expected to cover working capital and covenant needs for at least 12 months from issuance, while also warning that continued operating cash outflows and other requirements could strain longer-term liquidity. Cost reductions and potential additional financing were under consideration.
- After quarter-end, an August 8 credit amendment suspended the leverage covenant through June 30, 2023, established a $5.0 million minimum-liquidity covenant beginning September 2022, and added 2 percentage points of interest, payable in kind until leverage compliance resumes. The filing reports covenant compliance as of June 30 under the amended terms.
- The B. Riley facility allows discretionary stock sales over 24 months, subject to conditions and share limits. Redwire had sold 310,815 shares for $1.2 million by June 30; stated unused capacity was $26.4 million at the June 30 share price and registered-share limit, not the full $80 million commitment.
- Disclosure controls were deemed ineffective as of June 30, with material weaknesses involving management tone, finance staffing and segregation of duties, accounting and risk-assessment controls, complex transactions, and IT general controls. Remediation was underway and expected to extend beyond 2022.
- The company disclosed a securities class action and a related derivative lawsuit; it said loss estimates could not be made at this early stage. It also reported an ongoing SEC cooperation matter following an Audit Committee investigation, which found no need to restate prior financial statements.
- The CFO changed on June 1, 2022. The filing also identifies further goodwill-impairment risk if business conditions or forecasts deteriorate.
Important facts for investors to verify
- Whether the margin decline and unfavorable contract-cost estimates persist, and whether delayed programs and subcontractor issues affect revenue conversion.
- Cash burn, access to the revolver and equity facility, dilution from potential share sales, and compliance with the amended minimum-liquidity covenant and increased interest terms.
- Whether contracted and uncontracted backlog converts to funded orders and revenue on the expected schedule; uncontracted amounts and negotiated extensions are not assured.
- Progress and independent validation of internal-control remediation, and developments in the disclosed litigation and SEC matter.
- Whether additional impairment charges are required, given the Q2 write-downs and remaining goodwill and intangible asset balances.