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spk04: Good day, ladies and gentlemen, and welcome to Redwire's year-end 2021 earnings conference call. My name is Hector, and I'll be your operator for today. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Michael Shannon, Treasurer and Head of Investor Relations. Mr. Shannon, you may begin your conference.
spk05: Thank you. Good evening, everyone, and welcome to Redwire's fourth quarter 2021 and full-year earnings conference call. I'm here today with Peter Canedo, Redwire's Chairman and CEO, Andrew Rush, Redwire's President and COO, and Bill Reed, Redwire's CFO. I will begin by referring you to the Safe Harbor disclaimer in our earnings press release, which is posted to the investor relations section of the website. During today's call, we may make certain forward-looking statements. These statements are based on current expectations and assumptions, and as a result, are subject to risks and uncertainties. Many factors could cause actual events to differ materially from the forward-looking statements made on this call. For more information about these risks and uncertainties, please refer to the press release issued today. Readers are cautioned not to put undue reliance on forward-looking statements, and Redwire specifically disclaims any obligation to update or revise any forward-looking statements that may be discussed during this call. During this call, we may also refer to both GAAP and non-GAAP financial measures. you could find definitions and reconciliations of our gap to non-gap measures included in our press release. With that, I'd like to turn the call over to Peter Canino.
spk00: Thanks, Mike, and good evening, everyone, and thank you for joining the call today. We're pleased to be here today to discuss our financial results for 2021. This is an important milestone, and I'm appreciative of the hard work of our entire team to get us to this point, and I'm grateful to lead such a talented group. 2021 was a transformative year for Redwire as we assembled an incredible set of differentiated capabilities and demonstrated numerous technical successes in space. At Redwire, we are a positive conduit for accelerating humanity's expansion into space by delivering reliable, economical, and sustainable space infrastructure. And we are eager to realize the significant opportunities before us as a key part of the next generation space economy. For those of you who are new to the Redwire story, we have combined over 50 years of space heritage from our legacy brands with some of the fastest growing new space innovators in the industry to form our differentiated heritage plus innovation strategy. Our goal is to become the leading designer, developer, and supplier of highly engineered components, systems, subsystems, and software critical to the future of space. As a key mission enabler, we believe our products and services can enhance nearly every space mission. And as a result, we work with a wide variety of customers in the civil, national security, and rapidly growing commercial space sectors. Much like infrastructure on Earth is the basis for our terrestrial economy, the development of the space economy requires the deployment of core space infrastructure as its foundation. Redwire provides the key building blocks for this foundational infrastructure, including power, avionics, advanced sensors, deployable structures, communication components, digital engineering, and innovative payloads that we believe will enable the future of secure and sustainable space commerce. What differentiates Redwire from our competitors is this unique combination of proven flight heritage of a traditional space company combined with our innovative capabilities and culture. Our legacy has earned the trust of our customers, and our cutting-edge technology provides them the infrastructure to enable their programs to accelerate their future space solutions. Through our legacy companies, Redwire has deployed mission-critical space capabilities throughout our solar system for over 50 years. We have supported missions that operate in low and medium Earth orbits missions that deployed solar probes to the sun, and deep space missions to Pluto and beyond. With 186 missions flown to date, we have proven our ability to operate and deploy innovative technologies in commercial, civil, and national security applications. Redwire's broad portfolio of intellectual property in the areas of on-orbit 3D printing and manufacturing, space biotechnology, rollout solar arrays, enterprise digital engineering software, and many more give us a superior competitive edge. Now, turning to our 2021 results. Despite the numerous challenges of the global COVID-19 pandemic and delays in government budgets, 2021 proved to be a successful year. Redwire posted robust triple-digit revenue growth compared with 2020. and demonstrated agility in navigating the current economic environment. Additionally, Redwire generated over 260% growth in gross profit and 103% growth in pro forma adjusted EBITDA through both organic and inorganic growth. In 2021, as a leading platform for industry consolidation, we continued our successful track record of mergers and acquisitions. In the first quarter of 2021, we added critical capabilities in solar arrays, deployable structures, and digital engineering enterprise software through the acquisitions of deployable space systems and Oakman Aerospace. In the fourth quarter of 2021, we acquired TechShot, Inc., a leader in space biotechnology and advanced payloads with cutting-edge 3D in-space bioprinting capabilities. TechShot is a natural fit with our 3D printing capabilities, and the combination fits perfectly with our heritage plus innovation strategy, bringing together leading innovations in the field of in-space manufacturing and decades of experience successfully operating in space. The acquisition is value accretive, and we see significant scale opportunities and expect the TechShot biotech and in-space biotechnology to be foundational to the future of space commercialization. It's also worth noting that our total year-end backlog of $272 million far exceeds our total 2022 revenue guidance, which Bill will share with you shortly. The growing backlog was driven by our ability to continue working on and winning several new opportunities last year across commercial, civil, and national security customers. We believe this robust backlog demonstrates the strength and breadth of our suite of breakout space infrastructure solutions and gives us considerable visibility in the future year revenue and long-term revenue growth. The opportunity before us is substantial with many growth catalysts. The public's renewed interest in human space exploration is driving tremendous growth in the civil sector. Current geopolitical competition in space and the formation of the Space Force is driving double-digit growth in space national security budgets. Growth is also coming from commercial sector players that need increased data communications and remote sensing applications for large commercial satellite constellations. In fact, despite the pandemic, last year saw the biggest private investment in space to date. By 2025, experts predict a 230% increase in satellite launches per year with 24,000 satellite launches currently being planned. Experts are predicting the number of satellites in space will increase from roughly 6,000 in April 2020 to approximately 50,000 by 2030. With launch costs continually declining and the onset of smaller and more efficient satellite technology, we believe we are at the beginning of a new golden age of space, with significant commercial opportunities ahead. Space is the next frontier poised for rapid and expansive growth, with the industry now estimated to reach $2 trillion by 2040. And as we like to say here at Redwire, when space wins, Redwire wins. As a critical partner and key enabler in space, providing foundational technologies with demonstrated performance, Redwire is poised to take advantage of this rapidly expanding market. With that, I will now turn the call over to Andrew to outline some of our specific technical achievements and key programs.
spk02: Thanks, Pete. I want to start by reiterating how excited we are to be here and proud of all of the team's efforts in achieving the successes of 2021 and making such significant progress. I'd like to walk through some of our many business highlights and project achievements from the past year. We believe that we are an invaluable mission partner. We are passionate about what we do And with a growing array of innovative offerings, we are strategically positioned in the market. Redwire's broad suite of capabilities include advanced sensors and components, such as critical avionics and navigation systems, as well as on-orbit servicing, assembly, and manufacturing systems that are enabling space exploration and utilization among our many public and private sector clients. We are already beginning to see development in the market, resulting in new opportunities for Redwire. For example, our Redwire regular printing manufacturing technology won the Popular Science 2021 Best of What's New Award in the Aerospace category. RRP launched to the International Space Station on a commercial resupply mission on August 10, 2021. This marks the first time a lunar regular stimulant was used for 3D printing in space. 2021 was a banner year for Redwire's power generation product line. we provided the first of three pairs of ROSA arrays for the International Space Station, which will ultimately generate 100 kilowatts of additional power, a 30-plus percent power increase. Our printed roll-out solar arrays were also successfully deployed and are currently powering NASA's Double Asteroid Redirect Test planetary defense missions. We're also developing and delivering both ROSA arrays and rigid panel solar arrays for NASA's Lunar Gateway, commercial telecommunications and observation satellites, and multiple Department of Defense satellite missions. In order to support this growing portion of our business, we have more than doubled our factory space in Goleta, California. Power generation is a key element in every space mission. Our teams are developing systems, supporting missions of every size, class, and type, from small commercial satellites in low Earth orbit, larger communication satellites in geostationary orbit, to arrays for the largest current and future platforms orbiting the Earth and the Moon. I'm also excited to highlight the progress our teams have made with respect to our on-orbit servicing, assembly, and manufacturing strategic focus area. Specifically, significant progress was made toward the launch of the first satellite to manufacture and assemble itself on orbit. Arcanaut 1. In 2021, our team successfully completed a large-scale 3D printing test and carried out that mission's critical design review and major gate prior to building and launching the mission. Arcanaut is expected to launch in 2023 and will combine cutting-edge, large-scale 3D printing specifically designed for microgravity environments with state-of-the-art robotics. We expect this technology will enable more capable, more cost-effective missions for our civil, commercial, and national security customers. We are proud to be a part of the Orbital Reef Project, which is working to field a commercially owned and operated space station. Led by Blue Origin and receiving support from NASA, Redwire and other Orbital Reef teammates are bringing to bear our unique expertise in space station design, construction, and operations to make the Orbital Reef Project a success bring about a future where NASA is one of many customers of low-Earth orbit space stations. We delivered a wide variety of structural hardware and navigation components to customers and saw that hardware deployed in support of GPS missions, Mars exploration missions, and many others. 2021 also saw the integration of our first set of navigational and inspection cameras for the Orion spacecraft, which is poised to launch as part of the Artemis I mission Ultimately, these cameras are expected to support the mission to land the first woman and the next man on the moon and return humanity to sustained exploration of the lunar surface. As you can see, it has been a great year for us. With that, I will hand it over to Bill to walk through our financial highlights.
spk01: Thank you, Andrew. I want to start by echoing Pete and Andrew's sentiments. We've accomplished much over the past year, and I'm excited to be here with this team to provide the first of many quarterly and annual updates. Before I review our full year results, I would like to confirm that the previously announced independent investigation into potential accounting issues at a business subunit is resolved. Following a thorough and comprehensive review, the company's independent audit committee of the Board of Directors, along with independent external legal and accounting firms, completed the investigation and did not identify any material misstatements or the need for any restatements of Redwire's previously filed financial statements. We are pleased to have completed the internal investigation and look forward to continuing to execute our strategic objectives. Today, we filed a form NT10-K indicating that the company and our auditors need additional time to complete the year-end audit work. We expect to file the previously delayed third quarter form 10-Q shortly and the 2021 form 10-K on or before April 15th. Now let's get to the details and walk through the full year results. On September 2nd, we completed our merger with Genesis Park Acquisition Corp. This transaction has helped to accelerate our growth plan, which combines both organic growth, strategic investments, and accretive M&A. Our total backlog, including both contracted and uncontracted backlog, grew to $272 million at the end of 2021. Contracted backlog at the end of the year was $135 million. And our selected backlog, along with add-ons to existing contracts, stands at $137 million. Contracted backlog represents firm contract commitments we have received. And the remaining backlog includes contracts in the process of award, as well as contract extensions that have been verbally awarded, priced, fully scoped, and are expected to be executed shortly. This robust backlog position provides clear visibility into forward-looking revenue and provides us a strong baseline foundation to fuel our growth in the coming years. It is worth noting that the U.S. federal government's continuing resolutions negatively impacted both the timing of contract awards and the length of time required to get programs under contract. Additionally, the continuing impact of COVID and the Omicron wave in the fourth quarter had an impact on timing of contract awards, negatively impacted supply chains, and caused some subcontractor performance delays. Moving on to the results, GAAP revenue for 2021 increased to $137.6 million, an increase of $96.8 million, or 237% from the prior year, driven by the full-year impact of 2020 acquisitions, continued execution of projects in our backlog, new 2021 acquisitions, and the new business initiatives that both Pete and Andrew mentioned. Proforma revenue for 2021, presented as if all acquisitions had been completed at the beginning of 2020, was $149.3 million versus $127 million for the prior year. a comparable increase of 17.6%. Cost of sales for 2021 increased 75.5 million to 108.2 million. This increase is consistent with the growth of RedWire's revenues. Cost of sales as a percentage of net revenues for 2021 was 79% compared with 80% for the prior year. Gross margin increased 21.3 million to 29.4 million in 2021. This increase is primarily due to the full year impacts of newly acquired businesses consolidated into Redwire Corporation. SG&A expenses for the year increased 65.6 million to 78.7 million. These increases compared to results in 2020 were primarily due to the inclusion of new acquisitions, increased costs associated with being a public company, costs incurred related to our merger with Genesis Park, and increased spending on business development and R&D to drive future business growth. It is important to note that our 2021 SG&A expense includes $25 million in stock-based compensation costs related to the merger. Interest expense in 2021 increased $5.4 million to $6.5 million. Interest expense as a percentage of revenues was 5% as compared to 3% for the same period last year. The increase in net interest expense is related to the new credit facilities entered into with Adams Street Capital to support several of our acquisitions. For 2021, gap net loss was $61.5 million. When taking into consideration unusual costs associated with transaction expenses, stock-based compensation, capital market fees, and other costs related to becoming public, adjusted EBITDA was $1.3 million, and pro forma adjusted EBITDA was $3.2 million. We ended the year with $25.5 million in available liquidity comprised of $20.5 million in available cash and cash equivalents and $5 million in available borrowings on existing credit facilities. Recently, Redwire secured an increase to our revolving credit facility with Adams Street Partners from $5 million to $25 million. With this increase in revolver capacity and our strong backlog of business, We believe our existing sources of liquidity are sufficient to meet our operational and working capital needs for the foreseeable future. However, our existing liquidity does not supply sufficient resources for the company to capitalize on transformative and immediately accretive M&A and longer-term strategic initiatives. We will continue to work with our capital markets partners to evaluate market conditions and utilize the appropriate balance of debt and equity to fuel future growth. Now, turning to outlook. We expect full-year 2022 revenue of between $165 million and $195 million, and full-year pro forma adjusted EBITDA to be between $8 million and $15 million. We expect to see continued strong demand for our products and services as we move further into 2022. We remain confident that we have significant opportunities to drive long-term growth and the right platform to support it. In closing, our strong backlog and substantial market opportunities gives us great confidence in our prospects, and we're excited to continue executing on our strategy. And now I'd like to hand it back over to Pete for his closing comments before our Q&A session.
spk00: As you can see, Redwire finished 2021 with strong momentum, and we expect to continue our strong momentum throughout 2022. In 2021, we were a contributor to 12 launches of unique mission capability, and we are already scheduled to be part of at least eight more launches in 2022 to include the historic first launch in NASA's Artemis program, where Redwire has provided the navigational and inspection cameras for the Orion capsule. Additionally, last year, we installed two new ROSA solar panels we provided for the International Space Station in June. This year, we are scheduled to install the third and fourth wing to the ISS. These are just a few of our critical contributions to space coming up this year, and we look forward to providing additional updates as the year goes on. Redwire is uniquely positioned in the space market as a key mission enabler and pure play space company with scale. We're looking forward to another fantastic year. Thank you all for your time today. I will now turn the call back over to our operator to open it up for questions. Thank you.
spk04: At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Greg Conrad with Jefferies. Please proceed with your question.
spk06: Good evening. Maybe just to start given this is, you know, first time as a public company giving guidance, Yeah, a couple part question on revenue. I mean, first, just the 165 to 195 versus pro forma 149 in 2021. What are the biggest drivers? And as it relates to that, the guidance is maybe a little bit below what you provided in the slide deck previously. Maybe some color on what's changed, whether programs, timing, some of the headwinds that you called out before around COVID supply chain, or just any other observations there.
spk00: Yeah, thanks, Greg. I appreciate the question. So as you stated, our pro forma revenue for 2021 was $149 million. If you look at our growth rate, apples to apples pro forma, we grew by 17.6% last year organically. And so if you multiply, obviously, 149 by 17.6, you get about $175 million in revenue projected. So our baseline of just continuing to grow at our current rate is about $175 million for the year. However, we feel like there were a lot of headwinds in 2021 associated with the continuing resolution, as we stated, as well as the COVID-19 pandemic. So we actually believe that we can do better than the 17.6% organic growth rate that we did in 2021. And what's driving a lot of that, quite frankly, at the simplest level is just accelerating growth in the space market in general. And then on top of that, a lot of the momentum that Redwire is now getting as our brand and the awareness in the marketplace of us as a mission enabler is starting to grow as well. So we have a very robust multi-billion dollar pipeline of very large opportunities and $200 million roughly in submitted bids. So a lot of that is driving our growth going into 2022. In terms of comparing that to the original projections associated with the SPAC, one of the setbacks in 2021 was I think the entire industry was surprised by NASA's single award on the human landing system, to SpaceX. That was not one of the teams, although we were associated with multiple teams on that bid, that we were associated with, and that represented some additional growth in our pipeline for 2021 that would have led to additional follow-on growth in 2022. One of the things we're very excited about is NASA just recently publicly announced that they are, in fact, in 2023 going to award to a second team on the HLS program. So that gives Redwire, with the teammates that we had participated in with previously, another opportunity to regain some of that revenue that was associated with that setback. So we're really looking forward to that. And then that, of course, only adds to our momentum as well.
spk06: And then kind of tied to that, the $272 million total backlog, including uncontracted, how do you think about revenue conversion from that? And then just thinking about the pursuits that you kind of called out for 2022, I mean, how are you thinking about bookings for this year? I mean, are they going to be above revenue most likely, or just what's kind of the outlook for bookings?
spk00: So the outlook for bookings is really strong. Again, we have a multibillion-dollar pipeline, and the growth in the market seems to be accelerating. There's a lot of opportunity. If you're tracking the government budgets out there, for instance, particularly on the national security side, you're seeing double-digit growth in the budget. So these are really great tailwinds for us that we see adding to our backlog and to our bookings over time. So in terms of converting the backlog, we have a really strong performance record of converting backlog into actual revenue. So that momentum will continue to grow from 2021, especially as we've moved from a phase of integration with our previously acquired companies and really starting to see some of the synergies that are coming together and going to market as a single integrated red wire, which that translates for us into being able to bid much larger programs that any single one of these larger programs in the pipeline could have a material impact on our overall revenue profile in a very short period of time.
spk06: That's helpful. And then just two quick ones on financials. Just on profitability, if I look at the pro forma numbers, it seems like maybe incremental EBITDA margins are in the 25% range for 2022. Is that the right way to think about it and anything around adjustments or add-backs just that we should be aware of in the guidance?
spk01: Thanks, Greg. That's a great question. I would say 25 is probably on the top end of incremental but in the right ballpark. You know, we're a fully burdened operating cost company at this point. So pretty much incremental gross margin is dropping through largely for us as we transition for 21 to 22. So I think you're reading the tea leaves correctly there. And we are not anticipating any kind of unusual activity on on EBITDA ad backs going forward. So really it's just a continuation of normal ad backs.
spk06: So just one last one and a follow-up to that. The comment about the $25 million of stock comp tied to the close, that comes out of SG&A in 2022, right? So SG&A goes down by that amount plus any growth.
spk01: The majority of it does. A large portion of that came from the previous plan, but there is a go-forward stock comp plan for the new company that will continue, but at a much smaller rate than what we saw in 21.
spk06: And then just last one for me. I mean, you called out some of the investments and manufacturing capacity. Any color on just kind of what we should expect for free cash flow, whether it's 2021 or going forward, either on kind of CapEx or operating cash flow?
spk01: We have not defined free cash flow, and it's not a metric that we typically put out there. But the way I think about it is really kind of the normal view. It's operating cash flows less CapEx. Because of the transaction in 21, there's a lot of noise in our operating cash flows on our cash flow statement that's kind of one time in nature. So looking forward, what I would guide you to think about is consider EBITDA and then consider a CapEx range of around $5 to $6 million for the business. So our EBITDA range, less a CapEx around 5 or 6, should give you a good view of what free cash flow going forward would look like.
spk06: Thank you, and good year.
spk01: Thank you.
spk04: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for more questions. Our next question comes from David Mack with Jay Goldman and Company. Please proceed with your question.
spk03: Hi, can you guys hear me? Yeah. Hey, David. Okay, good. Sorry, I'm just outside. Congrats on finally getting through the audit and reporting numbers. I just had a few things I wanted to go through. I want to start with your longer-term aspirations of 1.4 bill on the revenue side. Can you give us some color on whether or not you're still comfortable with that? It's hard to see how we're getting there from here given some of the commentary here.
spk00: Yeah, thank you for your question. So the commentary that we have isn't really changing the total outlook for the industry. We're in a really high growth industry. I think I mentioned in my comments some of the projections for 2040 being a trillion dollar business. The delta and the way to think about that is our ability to convert on really large Arconaut sized programs, as you may recall, we have some programs that are in the $75 to $100 million size range. Within our multibillion-dollar pipeline, if we have the ability to convert on more of those size and scale of programs between now and 2025, you know, within the next four years, then we have sight lines for a tremendous amount of growth.
spk03: Okay. Thank you. I guess just going back to the prior question on the equity comp going through SG&A, I just need a better explanation on why you're not seeing more flow through to the EBITDA line if the vast majority of that 25 is going away. Okay. My question is if you have $25 million in equity comp in your SG&A line that won't carry forward, even if you have another plan, which, by the way, I assume that the plan would assume some metrics that were a decent amount above where you currently are, whether that's stock price or growth or profitability, I would think what is going on with the added cost that and it wouldn't have a more dramatically positive impact on your EBITDA.
spk01: Well, we are treating stock comp as an EBITDA adjustment in both periods. So your EBITDA doesn't get affected because of the change in stock comp.
spk03: Okay.
spk01: All right. Well, then that's helpful. Any time will change, but EBITDA will not change.
spk03: Okay. And I guess my last one, I was – I was looking for a little clarity on your comment regarding funding, uh, for acquisition and your comment that you would potentially issue stock. Um, I, I'm just hoping for some parameters of that, you know, where the stock is currently valued and trading that that's, that, that would be at a level that you probably wouldn't find advantageous to use equity for funding. If you could help me on that, that would be great.
spk01: We're constantly in contact with our partners in the capital markets, and we're constantly looking at the debt and equity markets and determining what's going to be our best solutions going forward. We do want to execute on an inorganic growth strategy. And as that strategy matures and comes about, we will look to the markets to determine the right option for us. Your point's valid, and we will definitely be taking that into consideration in making the determination when and if we pursue additional equity or use our stock as currency for M&A activities. Okay, thank you.
spk04: Ladies and gentlemen, there are no further questions at this time, and I would like to turn the call back over to Mr. Peter Conito for closing remarks.
spk00: Thank you. Just for clarification, in my last comment, I believe that I said that The space industry is supposed to be a trillion-dollar market by 2040. I believe I used the word business, but I was talking about the industry at large. But anyways, I want to thank everybody for joining us today. As I said in the call earlier, we're really excited about 2022. We're in a very exciting, fast-growing industry. I want to thank the team for all the work that has gone in. to reporting our earnings today. I'd like to thank all of our employees for the work that they do and the customers and our shareholders for their confidence in us. And thank you and have a good evening.
spk04: This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.
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