Redwire Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Redwire Space Second Quarter 2024 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Zunig, Senior Vice President, Financial Planning and Analysis and Investor Relations.

Operator

Please proceed.

Speaker 1

Thank you, Latanya, and good morning, everyone. Welcome to Redwire's Q2 2024 Earnings Call. We hope that you have seen our earnings release, which we issued yesterday afternoon. It has also been posted in the Investor Relations section of our website at redwirespace.com. Let me remind everyone that during the call, Redmiar Management may make forward looking statements that reflect our beliefs, expectations, intentions or predictions of the future.

Speaker 1

Our forward looking statements are subject to risks and uncertainties that are described in more detail on Slide 2. Additionally, to the extent we discuss non GAAP measures during the call, please see Slide 3, our earnings release or the investor presentation on our site for the calculation of these measures and their GAAP reconciliations. I am Jeff Zunik, Redwire Senior Vice President of Financial Planning and Analysis and Investor Relations. Joining me on today's call are Peter Canito, Chairman and Chief Executive Officer and Johnson Bayless, Chief Financial Officer. With that, I would like to turn the call over to Pete.

Speaker 1

Pete?

Speaker 2

Thank you, Jeff. During today's call, I will take through a discussion of our key accomplishments in the Q2 of 2024. Jonathan will then present the financial highlights for the same period, after which we will open the floor for Q and A. Please turn to Slide 6. The Q2 of this year was another excellent quarter for Redwire, during which we continued our positive momentum from the Q1.

Speaker 2

We once again delivered year over year revenue growth positive adjusted EBITDA while delivering a strong performance in bids submitted and contracts awarded. During the Q2, we achieved $78,100,000 in revenue, a 30% improvement over Q2 2023. It was another strong quarter for revenue. We had positive adjusted EBITDA of $1,600,000 We improved ending liquidity of $55,800,000 as of June 30, 2024. We had 100 and $400,000 in contracts awarded during the quarter with a last 12 months or LTM book to bill of 1 point 2 eight times.

Speaker 2

We had a net loss of $18,100,000 for the quarter, which includes a $9,000,000 negative impact due to an increase in the private warrant fair value. And finally, we had positive LTM net cash provided by operations of $5,700,000 as of the Q2 of 2024. It's important to note that we were able to achieve these strong financial results while simultaneously investing in new technologies, expanding production capacity and maturing corporate infrastructure throughout the first half of the year. We continue to balance near term results with long term growth. Please turn to Slide 7.

Speaker 2

Each quarter, we outlined Redwire's growth strategy as a framework for our performance. Our 2024 plan is centered around 4 key principles. Protecting the core, which means continuing to deliver on our strong foundation of existing products with proven reliability and demonstrated flight heritage. It is about continuing the growth momentum of our successes in 2023. Scaling production, which means winning and delivering on increasingly larger orders to meet growing demand.

Speaker 2

Moving up the value chain, this means leveraging our proven capabilities in developing and deploying space subsystems and components in the next generation spacecraft and integrated mission payloads. And finally, venture optionality, which means continuing to pursue breakthrough developments on advanced technologies that could create new markets with game changing potential. Over the next few slides, I'll discuss examples of successes in each of these key growth areas from the Q2 of 2024, including an in-depth look at our moving up the value chain growth area. Please turn to Slide 8. Starting with our protecting the core growth area, during the Q2, Redwire is proud to have supplied fine and coarse sun sensors for the National Oceanic and Atmospheric Administration's GOES U satellite, which launched on June 25 and is intended to provide sophisticated weather and solar activity monitoring.

Speaker 2

This is the 4th satellite in the GOES R family for which Redwire has supplied these spacecraft subsystems and components that are used for navigation, control, spacecraft subsystems and components that are used for navigation, control and imagery collection. Also during the Q2, Redwire was awarded a contract by the European Space Agency to develop a robotic arm prototype for ESA's Argonaut Lunar Lander called Manus. The Manus system will be developed at Redwire's Luxembourg facility and will enable crucial logistics operations on the lunar surface such as offloading, precise pointing and retrieval of objects and positioning of the lander. Robotic arms are part of our structures and mechanisms core offering, which includes a variety of space infrastructure that provides critical mechanical functionality for our on orbit operations from launch release mechanisms and deployable booms to berthing and docking systems. Please turn to Slide 9.

Speaker 2

Looking at our scaling production growth principle, this quarter we announced another order for our rollout solar array or ROSA wings for Taluscellaneous Space, Space Inspire satellites, the company's newest product line of geotelecommunication satellites. Our participation on the project was initiated last year and additional orders underscore that this is a growing area of the business with recurring revenue potential. Rollout solar arrays fall within our power generation core offering, which includes solar arrays and power distribution systems that generate the necessary power for space systems to operate regardless of size or location. Throughout the Q2 of 2024, Redwire continued to execute on antenna production. Redwire has delivered over 50 flight antennas and has more than 180 additional antennas in development for multiple government missions.

Speaker 2

Antennas are part of our radio frequency systems core offering which includes the systems and payloads that enable space to space and space to earth communications. Please turn to Slide 10. Turning to our venture optionality growth principle. In the Q2, we continued our amazing breakthroughs in microgravity, starting with the successful bioprinting of live human heart tissue using our 3 d Biofabrication Facility or BFF on the International Space Station. 3 d printed live human heart tissue could eventually be used to create heart patches as a treatment for damaged heart tissue and opens the door to more effective personalized medicine in the future.

Speaker 2

On the next BFF mission, Redwire plans to 3 d print human blood vessels in space. Also in the Q2, our Pillbox 3 experiment that examined various crystal molecules designed for pharmaceutical use in partnership with Butler University successfully returned from the International Space Station for analysis on earth. In addition, we have now launched 4 additional drug manufacturing investigations in our pillbox system. These new investigations flew to the International Space Station onboard the NG21 commercial resupply mission on August 4. Finally, we are also excited to announce Excelibro Pharma, a company focused on developing new small molecule drugs to treat bone disease as one of our commercial partners for an upcoming pillbox mission expected to launch later this year.

Speaker 2

Please turn to Slide 11. Next on the following few slides, I would like to provide a more in-depth look into our 3rd principle, moving up the value chain by focusing on Redwire's leadership in developing and providing VITLEO capabilities to enhance defense and intelligence operations. In Q2, we achieved a major milestone in our VIVLEO Sabersat strategy with the award of a prime flight contract from the Defense Advanced Research Projects Agency or DARPA on the OTTR program. As the prime mission integrator for DARPA's OTTR program, Redwire is responsible for the development of a revolutionary air breathing satellite that will demonstrate the use of novel electric propulsion systems in V LEO. This is a major validation from the market.

Speaker 2

Very Low Earth Orbit or VLEO bridges the gap between air and space and provides opportunities for better performance in earth observation and communications. Redwire has 2 platforms to bring this untapped orbit from concept to full scale operations, Sabersat in the United States and Phantom in Europe. These platforms are both designed to overcome the challenges of operating in VLEO such as atmospheric drag, while providing strategic advantages including the following. Resiliency. As satellites in VLEO operate in an unimpaired environment above airborne anti access and area denial defenses and below the threats in LEO, spacecraft in VLEO complement unmanned aerial systems and LEO satellites by providing operating environment that gives greater resiliency to overhead defense and intelligence operations.

Speaker 2

Proximity. By operating at a lower altitude, VITELIO spacecraft are twice as close to the action on the ground and therefore better able to provide the potential the potential for higher fidelity resolution for earth observation and strong signals for communications while better optimizing performance and cost. Mobility, the increased Dragon V LEO enables spacecraft to rapidly maneuver within their orbit to provide a more dynamic operational environment that can rapidly move that satellite into a variety of positions to optimize mission requirements. In sustainability, by operating closer to Earth's atmosphere, VLEO operations significantly reduced the orbital debris issue. When a VLEO spacecraft ceases to operate, atmospheric drag will rapidly de orbit the spacecraft and the material will burn up in earth's lower atmosphere.

Speaker 2

VLEO is a self cleaning orbit and therefore considerably more sustainable over time. We have received very positive market reception, including the award of the Prime Flight program from DARPA and this has further validated our movement up the value chain through our VLEO offerings. This prime contract for Sabersat provides Redwire with a funded program and critical customer to advance our design to flight in this new and exciting domain. Turning to Slide 12. With 2 platforms to bring this untapped orbit from concept to full scale operations both in the United States and abroad, Redwire's operations in Vileo are a testament to the power of our heritage plus innovation strategy.

Speaker 2

Showcasing our heritage, our first study contract for the European Space Agency's SCIMSAT program was announced in June 2022. The SKIMSAT program is a V LEO satellite mission that aims at reducing the cost of earth observation and telecommunications, while increasing performance by operating at substantially lower altitudes. This award, we have been working to mature with this award, we have been working to mature our spacecraft design. And in May of 2024, we unveiled our Phantom platform for the first time. Phantom is being developed for SkinSAT out of our Belgian office and as we have said before, the potential for this transformative program is extraordinary.

Speaker 2

We announced our SabreSat platform in March of 2024 and announced our first BLEO study award in May. Later during the Q2, we then announced that Redwire was selected for the Otter program. As the prime contractor, Redwire will be responsible for building the Sabersat Bus, advancing the critical technologies necessary for the mission and integrating, coordinating and leading the team for the project. As Redwire moves up the value chain, we are very excited that Sabersat and Phantom expand Redwire's offering of full satellite system development and operations that include the Redwire International Provost satellite. With now 3 spacecraft platforms, we are well positioned for future growth.

Speaker 2

Please turn to Slide 13. Now turning to our contract awards and backlog. Our contract awards during the Q2 of 2024 were $114,400,000 It was an excellent quarter for bookings at Redwire. This is a 2 26 percent sequential increase in bookings compared to last quarter. Our last 12 months book to bill ratio was 1 point 2 eight times for the Q2 of 2024.

Speaker 2

As we continuously reinforce, we often see lumpy contract awards growth from quarter to quarter, but we are continuing to maintain a positive growth rate on an annual basis. As you can see on the lower right hand slide, our contracted backlog has increased 29.9% year over year to a total of $354,300,000 The growth in contracted backlog is one of many factors that gives us confidence in our future growth. Finally, we continue to have a healthy pipeline with an estimated $5,700,000,000 of identified opportunities including approximately $1,900,000,000 in proposals submitted year to date as of June 30, 2024. As you can see on the upper right hand side of this slide, this represents a significant increase of 288.5 percent over the corresponding year to date period ended in June 30, 2023. This growth is a result of our efforts to increase the average size of the individual opportunities we are pursuing.

Speaker 2

For example, we are now bidding on individual programs in the $100,000,000 plus award value on a more regular cadence. Although there is no guarantee we will win these opportunities, we now have a pipeline of bids that can result

Speaker 3

a

Speaker 2

Please turn to Slide 14. With that, I'd now like to turn the call over to Jonathan Baliff, Redwire's Chief Financial Officer. Jonathan?

Speaker 3

Thank you, Pete. Before I turn to the financial results, I'd like to highlight this photo on the slide, which is of the groundbreaking ceremony for Roadwire's 30,000 square foot microgravity payload development and space operations facility. This facility located within the Nova Park Innovation and Technology Campus in Floyd County, Indiana is an investment in state of the art locations and supports our cutting edge space biotechnology programs that Pete spoke about last quarter, making it possible for the biopharma industry to achieve game changing outcomes in space. Turn to Slide 15. Our second quarter and its first half of twenty twenty four results demonstrated momentum with which we entered this year.

Speaker 3

Quarterly revenue was a record for a second quarter of $78,100,000 We also achieved positive adjusted EBITDA in the quarter of $1,600,000 We will discuss the drivers of this quarter's adjusted EBITDA on subsequent slides, but note that it was negatively affected by EAC adjustments of $3,100,000 This also impacted our Q2 net loss, which was also impacted by other one off items such as a $9,000,000 or $0.14 per share basis loss associated with change in fair value of warrants on a non cash basis. On this page, as you can see in the lower left hand box, we experienced significant growth in backlog and bids, submitting $1,000,000,000 more in the Q2 year over year for a total of $1,300,000,000 of submitted bids in the Q2 of 2024. Finally, although we had a use of cash from operations of 9 point $5,000,000 during the Q2 2024 and as we said on previous calls, our quarterly cash results can be lumpy. So when you look at the last 12 months or on an LTM basis, we achieved an increase of $33,000,000 in cash from operations on a year over year basis. As a result, 2nd quarter LTM cash from operations was a positive $5,700,000 and this allowed for the increased level of investment to fund growth as we're going to talk about in 2024.

Speaker 3

These 2nd quarter results are attributable to the capability and commitment of our global team members and our clients' confidence in Redwire as we satisfy their growing demand for space infrastructure. Please turn to Slide 16. Specifically for quarterly revenue, as you can see from the chart on the right, this quarter's revenue of $78,100,000 is a 30% increase on a year over year basis and represents both a record 2nd quarter revenue for Redwire as well as the 2nd highest revenue quarter in the company's history. On a year to date basis, 2024 was $165,900,000 as of June 30, 2024, and this represents a 41.0 increase over the first half of twenty twenty three. Finally, during the quarter and similar to past years, the revenue and backlog has a solid backing with more than 91% of our revenue derived from funding government programs or from global marquee customers who are delivering in the areas of national security, satellite proliferation and the exploration of space to just name a few.

Speaker 3

Please turn to Slide 17. On a quarterly basis, Redwire achieved positive adjusted EBITDA of $1,600,000 in Q2 twenty twenty four. And on the last 12 months basis or LTM basis, Redware achieved a 94.6% increase in LTM adjusted EBITDA from $6,500,000 in Q2 2023 to $12,600,000 in Q2 2024. Adjusted EBITDA was previously impacted by results in gross profit and gross margin. Gross profit was $13,000,000 in Q2 of 2024 with quarterly gross margins at 16.6%.

Speaker 3

These results were primarily impacted by $3,100,000 in EAC adjustments during the 2nd quarter. These adjustments are largely resulted from unplanned design and tech cycles required to meet customer requirements on many contracts. Offsetting these gross margin declines, our quarterly adjusted EBITDA performance was supported by excellent cost control and the continued operating leverage driven by scale as Redwire's SG and A expenses were 23.2 percent of revenue, a meaningful drop from 29.4% in last year 2023 Q2. We continue to drive tens of 1,000,000 of dollars in revenue increases with much lower growth in SG and A on a year over year basis. And that's the benefit of operating leverage and scale kicking in.

Speaker 3

Please turn to Slide 18. Throughout the Q2, we continue to make large investments to support the revenue growth we spoke about and create industry leading innovation and global business scale. During the year to date period through June 30, 2024, we made $4,100,000 in capital expenditures plus $2,800,000 in investments in internal research and development and $1,800,000 in a variety of other corporate investments that mostly flow through the SG and A line. We continue to demonstrate our ability to financially perform now, while also making investments for future growth, risk reduction and profitability, all while maintaining high levels of liquidity. Please turn to Slide 19.

Speaker 3

Similar to last quarter and on the left hand chart, we show operating and free cash flow. As a reminder, free cash flow provides a metric based on our U. S. GAAP cash from operations minus capital expenditures. For the Q2 2024, net cash used in operating activities was a use of $9,500,000 and free cash flow was also a use of $11,200,000 However, on a last 12 month basis, we have achieved significant improvement from net cash used in operating activities of $27,300,000 on an LTM basis to a cash provided by operating activities this quarter of $5,700,000 on an LTM basis.

Speaker 3

As you can see on the right hand chart, this yields available cash and cash equivalents of $30,800,000 as of June 30, 2024, with 50 $5,800,000 in total available liquidity, a 54.1% increase over June 30, 2023. Please turn to Slide 20 for a brief discussion on the outlook for the remainder of 2024. We delivered another quarter of strong performance. And as a result, for 2024, we reaffirm full year revenue at $300,000,000 which represents a 23% year over year growth rate. On a year to date basis, we have achieved 55% of our $300,000,000 annual revenue guidance forecast.

Speaker 3

Finally, through our excellence and execution initiatives, we continue to focus on improving our program management and reduce the EAC volatility, while also creating more operating leverage and cost efficiency to continue on our path to profitability.

Speaker 2

I will now turn the presentation back over to Pete to provide brief final remarks. Pete? Thanks, Jonathan. Please turn to Slide 21. With that, I want to thank all of Redwire's team for their contributions to this quarter's results.

Speaker 2

We will now open the floor for questions.

Operator

Our first question comes from Griffin Baugh with B. Riley. Please proceed.

Speaker 4

Hi, good morning, Pete, Jonathan. Thanks for taking my questions. So first for me, just want to start off where you guys left off on the reaffirmed guidance. With the big 2Q beat on the top line, the guide is implying a much softer second half versus first half. I mean, I know obviously, results get lumpy and the Q1 had outsized benefit from long lead items.

Speaker 4

But just given the strong bookings, I guess I'm surprised to see a muted outlook for the back

Speaker 2

half of the year.

Speaker 5

Can you just elaborate on

Speaker 4

your perspective there? And then perhaps with that outlook in mind, how you view margin expectations in the back half of the year relative to the first half?

Speaker 2

Yes. Hey, Griffin, thanks for your question. So I wouldn't call it muted. I mean, we've set a plan for the year at $300,000,000 And in the Q1, we talked about how we had some lumpiness associated with material buys on the Dallas Rossa contract. So that added some revenue to the Q1 that won't be regular run time associated with the remainder of the year.

Speaker 2

But we like where we are for the year and we're executing against our plan as a result. And so with that, we're constantly doing what I call strategic balance in the company. When you think about emerging market like space, our team is constantly and what I think is doing effectively a really good job of strategic balance, finding that Goldilocks position between revenue growth, profitability and investing for the future, while maintaining, what I think is a prudent level of liquidity. So we have our plan for $300,000,000 a year and we're on Beacon to do that, while at the same time we got to make sure that we're balancing that growth trajectory with our ability to deliver on our programs as well as continue our investments as well.

Speaker 3

And Griffin, it is 23%. It's 23% growth, Griffin, year over year. Muted is not that. But keep going, Griffin. That's a good question.

Speaker 4

I just meant relative to the first half, but I understand what you're saying and I appreciate the color. And then Jonathan, obviously, it's going to come as no surprise I'm going to dig into the EAC adjustments again. You mentioned it a little bit, but can you just give a little bit more color on the mix there in the Q2 and where those adjustments are primarily coming from, whether it was primarily one program or several, that'd be helpful.

Speaker 3

Yes. This quarter was the small adjustments spread over a larger number of contracts. There's not one contract. And again, I'll let Pete talk a little bit more about it. But when we look at the balance that Pete's talking about in doing a number of things, We're continuing to deliver for clients and we're doing really what I consider is yeoman's work in being able to put some of these large contracts in place and on a percentage basis, so you'd have to look at it from last year to this year, we're still looking at on a percentage basis, the EACs being smaller on a percentage basis of revenue this year than it was on an LTM basis last year.

Speaker 3

So we continue to work on it. We don't believe it has a big impact on cash flow and other things like that. We're continuing to move forward on improving our Yes. And

Speaker 2

Yes. And again, I'll go back to this idea of strategic balance, right? So we had 30% year over year revenue growth. You got to execute on that and expand accordingly. So we're comfortable with where it is as a percentage of total revenue.

Speaker 2

But in a highly technical complex, some might say hard industry like space, you're going to run into small bumps around along the way when you're growing at a 30% year over year. So we got to balance out that revenue growth with our operational execution. And that's exactly the kind of levers, Jonathan, myself and the team are working on every day.

Speaker 4

Sure. Got it. Thanks for that. And then last one for me and I'll jump back in the queue. Maybe more broadly, obviously the U.

Speaker 4

S. Presidential election has been a particular topic of interest in conversations that we've been having. I think generally speaking, it's probably safe to say there's bipartisan support for space funding, but would love to hear directly your thoughts on how you're handicapping the implications of a Republican or Democrat administration for Redwire and maybe the industry in general?

Speaker 2

An interesting question. We're not really handicapping it. Like you said, we believe space is a bipartisan imperative. Our focus is staying in the swim lanes that are must do's like national security. I think we've talked about on previous calls, but for those who are tracking space as an emerging warfighter domain.

Speaker 2

These are things regardless of administration that the country is going to have to invest in. I'd also remind everybody that roughly a third or 29% or in that order, it fluctuates quarter by quarter, but a fair amount of our revenue comes from overseas. So our diversification, as we've talked about numerous times, is one of Redwire's biggest strengths in terms of resiliency regardless of who's ultimately sitting in the Oval Office.

Speaker 4

Great. Excellent. Yes, that's perfect. I'll hop back in the queue. Thanks for taking my questions.

Speaker 4

Appreciate it.

Operator

The next question comes from Greg Konrad with Jefferies. Please proceed.

Speaker 6

Good morning.

Speaker 5

Hey, Greg. Maybe just

Speaker 6

to start with the submitted bids. I mean, you called out more $100,000,000 plus programs within that $1,900,000,000 number. I mean, any more color in areas where you're seeing this opportunity and just thinking about noticeable trends between maybe commercial more government work as you submit you step up your submits?

Speaker 2

Yes. I mean, in terms of where it's coming from, it's a mix. So there's scalable opportunities across all of the different targeted market segments. So yes, it's a mix of those different things. I think the 2 predominant flavors of these directly tied to 2 of our core growth principles for 2024, scaling production and moving up the value chain, right?

Speaker 2

So as part of our scaling production, we're going after larger quantities larger quantity orders of our existing projects, right? So they're as these things start to take root in the marketplace as the constellations that I know you're aware of continue to scale. We mentioned, for instance, the antenna work we do for the government. As those scale, our order quantities grow and that results in bigger bid submissions. And then of course moving up the value chain when you start doing full spacecraft prime contracts and bidding programs of that ilk, they tend to be larger in size because you're getting the full scope of the program as opposed to just a single subsystem.

Speaker 6

And then maybe just touching on a third of the 4 items, the venture optionality portfolio. It seems like there continues to be a step up of kind of positive data points around that portfolio. I mean, how do you think about the timing of that business being really meaningful and kind of the path to increased monetization just given some of these early items that you're seeing in the market?

Speaker 2

Well, so we're optimistic. I mean, we're trailblazing here. So there isn't a lot of context to make and a lot of data to make predictions on timing. So we don't as a result. But as hopefully we've been able to articulate quarter by quarter, there's a lot of momentum in this area and it's moving from what could be characterized as one off experiments, more towards an emerging regular cadence of production like activity, particularly in pillbox.

Speaker 2

So as the data is analyzed and as momentum builds, we continue to see have an optimistic outlook for what we're doing. And we're really encouraged by both repeat orders from existing partners to do more investigations as well as an increase in the diversity and the number of different partners that are interested in working with us. So again, difficult to predict due to the first of a kind trailblazing nature of the technology. And that's why we refer to it as venture optionality. But qualitatively, we have a lot of really encouraging results.

Speaker 3

I'll leave it at 2. Thank you.

Speaker 2

Thanks.

Operator

Our next question comes from Brian Kinstlinger with Alliance Global. Please proceed.

Speaker 7

Great. Thanks so much. You said Brian is impressive. How are you? Good.

Speaker 7

You submitted an And then maybe talk about the average win rate over the last 2 years and whether that's different between large proposals versus smaller proposals?

Speaker 2

So on the last part first, we don't report our win rates and we don't, as a result, break it down. Of course, being part of an emerging and highly dynamic market, I'm not sure past historic data would be relevant over time during this early period of our growth. I think the key is in the results that you see in terms of 29.9% growth in contracted backlog. Year over year, as we continue to move up the value chain and increase production, it's less a function anyways of the percentage of individual wins that you have, it's the right wins that matter and it's bidding the right way that is important to us and that's what we've been focused on. And like we highlighted, from a big capacity perspective, we're increasing the average size of our individual bids.

Speaker 2

So the number of bids varies from quarter to quarter, but that what's in the pipeline goes up and we see that as encouraging towards future potential bookings.

Speaker 7

Sorry, I meant from capacity from your ability to deliver. I know you have a new facility, but if you keep increasing bids and winning, how do you think about capacity to deliver, I meant, sorry?

Speaker 2

Yes, yes, yes. No, that's a fair question. So again, going back to that idea of strategic balance, when we go into a bid, we do a really detailed level of planning into what happens if we win here to make sure that we have the capacity at the ready, should we be awarded the program. So we feel pretty comfortable by the time we get to the actual bid submission portion that if we're selected, we will have the capacity or the plan to execute on attaining the capacity associated with the timeline that we submit as part of our bid. So for instance, some really large awards may start with a design period initially that would then allow for simultaneously ramping up of the physical production site as well.

Speaker 2

So it's a detailed process that we do when we go to submit a bid. And one of the gates that we have to pass for our internal review is, do we ultimately have the ability to execute and that's part of this strategic balance that we work on every day.

Speaker 3

But I mean, Brian, I do want to get to the financial element of the question you're talking about. When we submit these bids, we take into account most of, if not a vast majority of the contract costs are obviously included in these bids. We've talked about in the past. Our CapEx is quite low compared to our revenue and it stayed fairly low because our clients pay for a lot of these costs to be able to get to the capacity to deliver. And we've seen this and delivered on that credibility over the past number of years.

Speaker 3

And as we've said, to achieve the $300,000,000 of revenue guidance, we do not believe we need to issue any securities or anything like that. That is, again, part of the strategic bidding that we do to make sure that we're covering our costs.

Speaker 7

Great. And then my other question related to the EACs, it's been a bit high for the last three quarters. And Jonathan, you mentioned it's a variety of contracts. So I'm curious how this impacts your pricing strategy going forward. Can you price fixed contracts a little higher to ensure you capture the appropriate margin?

Speaker 2

Yes. So the we look at every bid in the context of what our financial and strategic goals are, right? So there are some things that we bid aggressively because it can have a strategic implication that's really important to us, as example, maybe breaking into a new product line or a new customer. And we balance that out with some of our more mature products where we're more in that increasing gross where the focus is more on increasing gross margins. And what we like about where we're positioned is it's a portfolio effect, right?

Speaker 2

So measuring it on a quarter by quarter basis can if you look at it as just a snapshot or moment in time, you see this strategic balance that I'm talking about moving around and that's why we talk about, for instance, cash from operations over an LTM perspective because as you move as you really grow revenue rapidly, that's going to introduce some level of challenges in the operational execution. As you focus on that operational execution, then you got to balance that with your strategic growth. So I think what you're seeing is basically a snapshot in time and some of these are just a reflection of how we're bidding to balance financial performance as well as strategic positioning in the market.

Speaker 7

Okay. Thank you.

Speaker 3

Thanks, Brian.

Operator

The next question comes from Andres Sheppard with Cantor Fitzgerald. Please proceed.

Speaker 5

Hi, good morning, everyone. Thanks for taking our questions and congratulations on the quarter. Thanks, Anders. A lot of our key questions have been asked, but maybe to take a step back. Rosa continues to make great progress.

Speaker 5

Some feedback that we are getting is that the solar industry kind of continues to experience some supply chain disruptions. So just wondering if you could share maybe what you're seeing there, maybe the latest pricing for your solar business? Thank you.

Speaker 2

So we're executing. Supply chain is always something that has to be managed. I don't think it's particular or we're not experiencing it being specific to solar arrays only. Of course, our solar arrays aren't run of the mill, put on top of your house type solar arrays. So we have a strategic supply chain and those supply chain partners from my perception of where I'm sitting are very pleased with the growth of ROSA and the growth that Redwire is experiencing.

Speaker 2

And so when we look at these bids, we're in there in the mix with critical suppliers ensuring that they have the capacity to grow along with us and the results are showing up in the numbers. Yes.

Speaker 3

I mean, when you start seeing expansion yes, Andres, when you start seeing expansion of an existing product or project, you're seeing that there's real demand for the amount of energy that's needed for specific satellites or spacecraft that obviously we view that as an opportunity, right, because of our strong relationships, our unique technologies. And so when you start seeing that expansion, you should assume that we obviously have those relationships in our supply chain to be able to again get to that capacity and then beyond.

Speaker 5

Got it. Thanks guys. That's super helpful. Maybe just switching gears to venture optionality. Can you just remind us the timeline for the next pillbox missions throughout this year?

Speaker 5

How big of an emphasis are you placing on this over the long term? It seems it's becoming more and more as one of your maybe core focus. So just curious on the timeline and your thoughts there.

Speaker 2

Yes, it's a good question. So we just launched another 4. So that's going to keep us busy for a while. And of course, there's been a lot of headlines around trips to the ISS. So yes, so I think we're on target to continue the same operational tempo that we've been able to exhibit so far this year.

Speaker 2

And I agree with you that it's becoming a bigger focus as we achieve more and more successes. So I'd like to emphasize, this isn't venture domain, even though we call it venture optionality, we're not losing 1,000,000 and 1,000,000 of dollars in putting these up. These are customers and we get revenue associated with these and they have their own profitability targets. But the real potential is going to come from our ability to hit on a crystal or and working with a partner to ultimately license that IP. And it's still early days.

Speaker 2

So I think hopefully what you in the market are seeing is that we have a really great momentum this year in turning this idea of pharmaceutical production crystals on orbit and it's not just for pharmaceuticals, it's for other applications as well is really at that nexus point from turning to just being in space experimentation to the ability to have a regular cadence, almost a production level cadence to build that out. And Redwire is at lead in terms of the number of these things that we're putting up on a regular, what I would say business level tempo. And that's what we're really excited about. But in terms of being able to start pointing at revenue contribution in out years, we're just not at that level yet in the product life cycle to start making those predictions.

Speaker 3

I mean, the prediction we gave you is that there would be 16 additional pillbox missions in 2024. We obviously now have disclosed 4 that just went up. So we're continuing that accelerated cadence because again this time last year we started talking about this development, not experimentation, it's development investigations of the drugs themselves. The pillbox is working, right? We're getting our clients that were really our partners great results.

Speaker 3

But again, it's the development of these proteins, which we explained last quarter. So we're on track with those 16. And the only thing other thing I would say Andres is, there's been a lot of investment the last decade in this pillbox and other parts of the biopharma and personalized medicine, over $70,000,000 of investments for this. So we're benefiting from that where others in the venture part of space dealing with pharma and personalized medicine are just now starting their investment cycle. We've already got that investment in place and now we're starting to reap the benefits.

Speaker 3

But like Pete said, we've been very conservative both in how we talk about our revenue forecast for this year, dollars 300,000,000 but also how we talk to you about the venture optionality. We believe in it. Obviously, we wouldn't have invested $70,000,000 if we didn't. But that being said, it's going to come with these new business models in space that frankly mimicking a contract development and manufacturer of pharma and biopharma terrestrially. So there is a business model that's known and knowable that will apply to space, but frankly, the same clients like Lilly or a Butler University.

Speaker 2

Yes. I think what Jonathan highlights is really important. If you really want to understand this aspect of the business, you got to have to you have to look at it the way the venture investors are looking at competitive, opportunity or competitive organizations that are just getting started, right? We've been if you look at the tempo, we're moving from experimentation into production. We're not at the major loss.

Speaker 2

What typically comes in a venture life cycle of major losses around a product that is not where we are with it aligned by any stretch of the imagination. It's generating revenue. I think we have a lot of excitement and are starting to prove out the market. So if you look at the analysis associated with how the valuations are being applied to those who are just getting into this area and you look at that and try to value the option that is embedded in Redwire associated with this segment considering we're further down the stream in terms of turning this into a real business, you start to see the full potential.

Speaker 5

Got it. That's super helpful. I really appreciate all that color. Maybe if I could squeeze one last one really quick. Jonathan, how should we think about free cash flow for the rest of this year and maybe into next year?

Speaker 5

I realize obviously you don't guide it, but any color there that you might be able to provide us with? Thank you.

Speaker 3

First of all, appreciate you answering your own question because we don't give free cash flow or operating cash flow. I'll just give 2, let's just say, aspects to at least give you some color in this in context. 1, we're very proud of the operations teams. Obviously, this is a multiyear exercise of path to profitability. So we don't ever look at just any 1 quarter.

Speaker 3

We have a tendency and we're kind of disclosing LTM basis to be able to generate cash from operations. We don't make any adjustments, it's cash from operations to be able to invest. And that investment includes a number of things that are in our growth strategy such as moving up the value chain or that's this quarter's focus or last quarter's venture optionality. Although again, like I said, we've already invested in that a lot. So when I talk when we talk about our LTM improvement of $33,000,000 in cash from operations, that gives us the confidence that we can invest a bit more on a full year basis, which you see what we're doing.

Speaker 3

We have a page on those types of investments that are primarily in the technology and basically commercializing the technology, but also it's in associated with creating global scale, which is why our SG and A has been coming down on an LTM basis percentage of revenue. So the two things simply put are, we are generating operating cash flow to make higher levels of investment and we're seeing that credibility and that we're seeing the revenue growth. Like if we so then we make those investments, they impact cash flow from operations, on a quarterly basis, maybe 1 quarter, but it can be lumpy. And then when you look at it on an LTM basis, the trends are our friend. And the other piece, the second piece, which is really important is we continue to have high levels of liquidity, right?

Speaker 3

And that high level liquidity allows us to also make sure that we're having a prudent capital structure and a prudent way to continue to invest.

Speaker 5

Excellent. Thanks very much again. Congrats on the quarter. I'll pass it on.

Speaker 3

Thanks. Thank you.

Operator

The next question comes from Suji Desilva with ROTH Capital. Please proceed.

Speaker 5

Hi, Peter. Hi, Jonathan. Congrats on the progress here. I'll keep it to one question to keep it consider your time. So I'm going to ask about capacity earlier.

Speaker 5

I wanted to drill down into the VLEO capability you have. Just to understand how it's going to evolve from the current programmatic sort of feel where you're designing and building a spacecraft for 2 or 3 customers, I believe. Is it going to turn to a situation where it's a per spacecraft revenue model? Or is it if it's program based on a continued basis, what kind of capacity and how many programs can you simultaneously handle? Any thoughts there would be helpful.

Speaker 2

So if I understand your question correctly, you're asking where whether it will be a handful of programs or whether it's scaling? Maybe if you could clarify a little bit, I didn't totally agree.

Speaker 5

Sure. Either it's more programs layering on this one or each program has multiple spacecraft expected to be delivered? Like which way? Yes. Yes.

Speaker 2

Okay. Both. I think you're going to initially see governments take the lead in this segment and you're going to see investment in developing this next generation spacecraft capability and it'll predominantly be development at first and then much like you saw the evolution that happened in from small sats to proliferated LEO constellations as the spacecraft come online for so from our perspective, as Phantom and SabreSat move out of the development phase and become a very stable, proven spacecraft platform, you're going to see larger and larger quantity orders increase over time. Did that answer your question?

Speaker 7

It did, yes. And just

Speaker 5

how many programs you simultaneously have capacity for, do you think right now or if that if you can think of that?

Speaker 2

Does RentLire have capacity for?

Speaker 5

Yes, sure.

Speaker 2

Yes.

Speaker 5

So No, I'm sorry for Velio specifically, I'm sorry, Velio specifically, Peter.

Speaker 2

Oh, in terms of an estimate that says the number of VLEO opportunities in the market?

Speaker 5

That you could handle simultaneously, I guess, yes.

Speaker 2

That we could handle simultaneously. So as Jonathan articulated, I understand, I apologize. The nice thing about when we enter into a new space like this, particularly when it's imperative for the government and these are predominantly in government is we're growing our capacity along with the development associated with the government programs, right? So these tend to be multi year development programs where we move through key milestones like preliminary design reviews and then critical design reviews and then develop out new technologies until we get to a stable baseline. So during others early stages of development, we have the ability to scale our capacity along with each new program as they come in and we did these things with a nice cash milestone profile associated with these bids.

Speaker 2

So the bids come along with the necessary resources and time we need to scale. So I'm not going to hazard a guess at a number, but I'm not spending my nights worrying about this idea that as the government continues to invest in more and more of these programs and as we go out and bid on more and more of programs that we're going to run into a production bottleneck.

Speaker 5

Okay. Very helpful Peter. Thank you.

Operator

Thank you. At this time, I would like to turn the call back over to management for closing comments.

Speaker 2

Great. Well, I'd like to thank everybody for their questions, some really excellent questions today. And again, I want to thank all the Redwire employees across the globe for just a tremendous effort in delivering these results. None of this happens without our employees or partners or customers or teammates. So thank you to all of them and thank you to all of you and go Redwire.

Operator

Thank you. This does conclude today's teleconference.

Powered by Quartr
Earnings Conference Call
Redwire Q2 2024
00:00 / 00:00