Yahoo Finance Redwire Corporation (NYSE:RDW) Q1 2024 Earnings Call Transcript
Redwire Corporation (NYSE:RDW) Q1 2024 Earnings Call Transcript May 9, 2024
Redwire Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings and welcome to the Redwire Space Corporation First Quarter 2024. [Operator Instructions]. I will now turn the conference over to your host, Jeff Zeunik, you may begin.
Jeff Zeunik: Thank you, Samali, and good morning, everyone. Welcome to Redwire's first-quarter 2024 earnings call. We hope that you've 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, Redwire management may make forward-looking statements that reflect our beliefs, expectations, intentions, or predictions for the future. Our forward-looking statements are subject to risks and uncertainties that are described in more detail on slide 2. Additionally, to the extent that we discuss non-GAAP measures during the call, please see slide 3 of our earnings release or the investor presentation on our website for the calculation of these measures and their GAAP reconciliations.
I am Jeff Zeunik, Redwire, Senior Vice President of Financial Planning and Analysis and Investor Relations. Joining me on today's call are Peter Cannito, Chairman and Chief Executive Officer, and Jonathan Baliff, Chief Financial Officer. With that, I would like to turn the call over to Pete. Pete?
Peter Cannito: Thank you, Jeff. During today's call, I will take you through a discussion of our key accomplishments in the first quarter of 2024. Jonathan will then present the financial highlights for the same first quarter 2024 period, after which we will open the floor for Q&A. Please turn to slide 6. the first quarter of this year was another excellent quarter for Redwire, during which we continued our positive momentum from 2023. We have now delivered five consecutive quarters of positive adjusted EBITDA and revenue growth and two consecutive quarters of positive cash from operations. During the first quarter, we achieved $87.8 million in Q1 revenue, a 52.4% improvement over Q1 2023. It was a very strong quarter for revenue.
Positive adjusted EBITDA of $4.3 million and net loss of $8.1 million. Free cash flow of positive $0.4 million, a year-over-year improvement of $15.2 million. Cash from operations of positive $2.8 million, a year-over-year improvement of $16.8 million. And finally, we achieved a last 12 months or LTM book-to-bill ratio of one 1.11 times during the quarter. It's important to note that we achieved these positive financial results by developing and delivering reliable critical innovations for our valued customers throughout the first quarter. These results are directly attributable to the commitment and expertise of our workforce. Please turn to slide 7. During our previous earnings call, I introduced Redwire's growth strategy for 2024 that is centered around four 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 by scaling our production to meet growing demand. Moving up the value chain, which means leveraging our proven capabilities in developing and deploying space subsystems and components into 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. On the next few slides, I will discuss examples of successes in each of these key growth areas for the first quarter of 2024.
Please turn to slide 8. Starting with our protecting the core growth area. During the first quarter, Redwire's cameras were on board Intuitive Machines' IM-1 lunar landing mission. These cameras come from our avionics and sensors core offering, which includes spacecraft subsystems and components that are used for navigation, control, and imagery collection. Also during the first quarter, NASA's Solar Sail, for which Redwire developed deployment mechanisms and 100-foot booms, cleared a key technology milestone with the successful deployment of one quadrant. Solar Sail falls into our structures & mechanisms core offering, which includes a variety of space infrastructure that provide critical mechanical functionality for on-orbit operations from launch release mechanisms and deployable booms to berthing and docking systems.
Please turn to slide 9. Looking at our scaling production growth principle, we are excited to announce that we are under contract with Rocket Lab for 18 ship sets of antennas and radio frequency hardware for the SDA Transport Layer Tranche 2 Beta variant satellites, the third in a series of spacecraft that will make up the Proliferated Warfighter Space Architecture. Our radio frequency systems core offerings includes the systems and payloads that enables space-to-space and space to earth communications. Also in Q1 two ROSA wings were successfully deployed on Ovzon 3, which represents the first integration of ROSA technology with a commercial satellite. In addition, Redwire began executing on our $142 million contract award for power solutions to an undisclosed satellite manufacturer.
These operations fall within our power generation offering, which includes solar arrays and power distribution systems that generate the necessary power for space systems to operate regardless of size or location. Please turn to Slide 10. Turning to our moving up the value chain growth principle, I'd like to highlight Redwire's, US and European operations in very low earth orbit or VLEO. During the first quarter of 2024, Redwire was awarded a study related to our new US VLEO platform, SabreSat. This is a very exciting indicator that the market recognizes SabreSat's potential as a critical capability. We are very encouraged with the reception SabreSat has received since our announcement and continue to pursue meaningful opportunities for this potentially groundbreaking VLEO spacecraft.
To continue to aggressively assert ourselves as a technology leader in VLEO, today, we are announcing Phantom, our VLEO platform for Europe and the international market. Phantom is currently being developed in our Belgian office for the European Space Agency Skimsat program and we will be marketing this platform to other potential customers as well. Thales Alenia Space is the prime contractor for Skimsat and Redwire EU is responsible for providing the VLEO's spacecraft, which we are now calling Phantom. Skimsat is the mission, Phantom is our platform. The Skimsat mission is a VLEO satellite mission that aims at reducing the cost of earth observation and telecommunication satellites while increasing performance by operating at substantially lower altitudes.
The potential for this transformational program is extraordinary. Notably, SabreSat and Phantom do not share a common technological baseline. They are two different platforms with differing underlying technologies and performance parameters. This is important as missions in VLEO are as dynamic as all of the other earth orbits such as LEO and GEO. And different approaches, reduce risk and enable us to cover a broader set of customer requirements. As Redwire moves up the value chain, we are very excited that SabreSat and Phantom expand Redwire's offering of full satellite system development and operations, that includes the Redwire international PROBA satellite, as well as our proprietary platform agnostic digital engineering and modeling and simulation solutions that enable rapid spacecraft development and deployment.
Please turn to slide 11. Lastly, I would like to spend some time providing a deeper look into our fourth principle, venture optionality, by focusing on Redwire's in-space pharmaceutical development to benefit human health on earth. Pharmaceutical companies are constantly looking to deliver new optimized treatments for patients, and many of those treatments rely on crystals as their active ingredient. The form of the crystals will dictate a drug's properties and as a result, precision matters. Historically, a significant proportion of drugs have not made it to the market as a result of crystal formation challenges. Growing crystals in microgravity could be transformative, potentially yielding a more uniform product with fewer imperfections and improving the drug discovery and development process.
As pharmaceutical companies look to deliver new optimized treatments to help patients on earth, microgravity could be a major differentiator. With the drug discovery market size having been estimated at approximately $80 billion in 2023, growing to approximately $180 billion by 2032, this represents a significant growth opportunity for Redwire. Redwire has already demonstrated the ability to develop crystals in space using our PIL-BOX facility on the International Space Station. Redwire's proprietary PIL-BOX is a proven cutting edge in-space pharmaceutical manufacturing platform that builds on Redwire's extensive heritage in microgravity and offers pharmaceutical companies and biomedical researchers novel and flexible services to study small batch crystal growth of proteins Redwire is at the forefront with our microgravity technology built on decades of in-space manufacturing success.
Our successful inaugural PIL-1 mission demonstrated that insulin crystals grown on the ISS using PIL-BOX were larger and more highly ordered than terrestrial crystals. Our next step is to execute a production level cadence of crystal manufacturing using a variety of compounds. Our second PIL-BOX mission has already returned, and the results are promising. We have currently manifested for 16 additional PIL-BOX missions this year. The economic potential for this technology is high and gaining momentum. Recent venture funding for related industry players has revealed a significant valuation premium for pharmaceutical microgravity development, validating that the venture optionality associated with this subset of Redwire's business has real value.
Turning to slide 12. The inaugural PIL-BOX-01 mission launched in November 2023 and returned to earth in late December 2023 for delivery to Eli Lilly, our research partner. Following closely on the heels of the successful PIL-01 mission, PIL-02 again in partnership with Eli Lilly, and PIL-03 in partnership with Butler University launched to the International Space Station this past March, just three months later. The second PIL-BOX mission is focused on researching widespread chronic diseases, which have massive global demand for treatment. PIL-03 has now returned to earth in April 2024 and PIL-02 is anticipated to return in the coming months, demonstrating the rapid cadence Redwire can execute with this capability. This tempo is critical to demonstrate the industry model is viable for sustained development in orbit.
For the remainder of the year, we have 16 additional PIL-BOX submissions manifested and a robust pipeline of interest from commercial entities. As launch costs decrease and commercial space station availability increases, the opportunity for on-orbit development and manufacturing at scale will expand. And Redwire is delivering tangible and useful results, not someday, but now. Please turn to slide 13. Now turning to our contract awards and backlog. Our contract awards during the first quarter of 2024 were $35.1 million. Our last 12 months book-to-bill ratio was 1.11 times for the first quarter of 2024. 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 side of this slide, our contracted backlog has increased 10.9% year-over-year to a total of $318 million. 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 $6.3 billion of identified opportunities, including approximately $610 million in proposals submitted year-to-date as of March 31. As you can see on the upper right-hand side of this slide, this represents a 177.3% increase over the corresponding year-to-date period ended March 31, 2023. The momentum continues. 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?
Jonathan Baliff: Thank you, Pete. Before I turn to the financial results I'd like to highlight the photo on this slide to the PROBA-3 satellite from Redwire's Belgium facility, slated to launch later this year. The European Space Agency's PROBA-3 mission is composed of two spacecraft acting as one element and is the world's first precision formation flying mission in space. Turning to slide 15. Our first quarter 2024 was an excellent start to the year as Pete spoke about, as we saw continued positive momentum driven by customer demand. Quarterly revenue was a record $87.8 million. So we did see a slight decline in net loss for the same period year over year. Our adjusted EBITDA remained flat year-over-year at a positive $4.3 million.
We will discuss the drivers of our adjusted EBITDA on a subsequent slide. The first quarter of 2024 also saw positive cash from operations of $2.8 million and free cash flow of $0.4 million, a year-over-year improvement of $16.8 million and $15.2 million respectively. And this is after making significant investments in growth capital expenditures and internal research and development to advance our path to profitability. These impressive results were attributable to the capability and commitment of our global team members, satisfying our customers 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 record, $87.8 million represented a 52.4% increase on a year-over-year basis and an increase of 38.3% on a sequential basis.
During the quarter, more than 90% of our revenue derived from funded government programs or from global marquee customers for delivering in the areas of national security, satellite proliferation, and the exploration of space to name just a few. Finally, we'd like to note that after the completion of the full fiscal year post the Space NV acquisition, our fiscal year 2024 will no longer present year-over-year comparable revenues which excluded the results of Space NV. Please turn to slide 17. For quarterly adjusted EBITDA, Q1 2024 remained flat at positive $4.3 million compared to the first quarter of 2023, while increasing 151.2% on a sequential basis from the fourth quarter of 2023. Gross profit increased 4.3% from $14.2 million to $14.8 million.
Quarterly gross margins over the same period declined to 16.9%. These results were primarily impacted by EAC adjustments during the first quarter, exacerbated by our record revenues. The $3.9 million in EAC adjustments largely resulted from unplanned design and test cycles required to meet customer requirements as we neared completion on discrete projects during the quarter. Offsetting these gross margin declines, our sequential quarter adjusted EBITDA improvements was also supported by excellent cost control and the continued operating leverage being driven by scale as Redwire's SG&A expenses are now below 20% of revenue, a notable drop from the 27.8% in the first quarter of 2023. We continue to drive tens of millions of dollars in revenue increases with single digit growth in yearly SG&A.
That's the benefit of operating leverage and scale kicking in. Please turn to slide 18. As we have mentioned several times today, throughout the first quarter, we continue to make prudent investments to support growing customer demand also, industry leading innovation. We're risk-reducing and we're also achieving global business scale. During the first quarter of 2024, we made $2.4 million in capital expenditures, our highest first quarter capital investments since going public plus, we made $1.0 million in investments in internal research and development and $1.0 million in a variety of other corporate investments that mostly flow through the SG&A line. We continue to demonstrate our ability to financially perform now while also making investments for future growth, risk reduction, and profitability.
Please turn to slide 19. Similar to last quarter, on the left-hand chart, we show free cash flow. As a reminder, free cash flow provides a metric based on our US GAAP cash from operations minus capital expenditures. On a year-over-year basis, quarterly free cash flow improved by $15.2 million to a positive $0.4 million for the first quarter, due to a $16.8 million improvement in cash from operations. Credit goes to the revenue growth already discussed. But in addition, we had more efficient and effective working capital management over the first quarter while continuing to invest at record rates as our cash generation now funds our growth. This is due to improving returns on our invested capital as compared to our cost of capital, creating a virtuous cycle that differentiates us in a very capital-intensive industry.
On a last 12-month basis, we recorded both positive cash from operations of $18 million and for the last 12 months, positive free cash flow of $8.1 million, a significant first for Redwire. As you can see on the right-hand chart, this yields higher available cash and cash equivalents of $32.6 million as of March 31, 2024, with $47.6 million in total available liquidity. Please turn to slide 20 for a brief discussion on the outlook for the remainder of 2024. Our first quarter was a strong start to the year and as a result, for 2024, we affirm full year revenue at $300 million, which represents a 23% year-over-year growth rate. This quarter's revenue achieved 29% of our $300 million annual revenue guidance forecast, and much of this outside quarterly revenue was due to the timing of long-lead items associated with large contract wins in 2023.
We are not currently forecasting similar large long-lead purchases during the remainder of 2024. Finally, through our excellence in execution initiatives, we continue to focus on improving our program management to reduce EAC volatility while we also create more operating leverage and cost efficiency to continue on our path to profitability. I will now turn the presentation back over to Pete, to provide brief final remarks. Pete?
Peter Cannito: Thank you, Jonathan, please turn to slide 21. I want to thank all of Redwire's team for this quarter's excellent results. A total global effort that we will work to continue in the second quarter of 2024 and beyond. We will now open the floor for questions.
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