Redwire Corporation

Good day, ladies and gentlemen, and welcome to Redwire's first quarter 2022 earnings conference call. My name is Kyle, 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.

Thank you, and welcome to Redwire's first quarter 2022 earnings conference call. I'm here today with Peter Conito, 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 will 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 will also refer to both GAAP and non-GAAP financial measures. You could find definitions and reconciliations of our GAAP to non-GAAP measures included in our press release. And lastly, this call is also being webcast with a supporting presentation, and a replay and copy of the presentation will be available on our website for two weeks. With that, I'd like to turn the call over to Peter Conito.

Thanks, Mike, and thank you, everyone, for joining the call today. Today we will be discussing our key business accomplishments for the first quarter of 2022. Before moving to the slides, I wanted to highlight that our goal here at Redwire is to deliver the foundational technologies for the present and future of space infrastructure. To do this, we're focused on continuously improving and scaling our products and solutions for our customers. Redwire's solutions range from innovative payloads to digital engineering, solar arrays, key navigation and communications components, and in-space servicing, assembly, and manufacturing. Our technology is enabling new space missions that support partners like NASA, the US Space Force, the intelligence community, and commercial customers. I would also like to flag for everyone on the call that we posted our glossy annual report wrap with many projects we are proud to have accomplished in the last year. Many of the images you will see in the annual report and throughout this presentation are actual images of real red wire capability deployed today. Please take some time to read the letter and look through the report. We have a bold vision, but this is not science fiction. Many of these programs are being executed in the present day. As I highlight our results, please follow along starting on slide seven of the presentation that we have posted with our earnings release today. In the first quarter, we continued to execute on our long-term strategy with some critical business and technical milestones. There are strong demand signals coming from customers in key areas where Redwire is an industry leader, such as in-space servicing, assembly, and manufacturing, also known as ISAM. More on that in a few moments. We are also seeing strong continuing demand for our patented rollout solar arrays, or ROSAs, which as we've already highlighted, the first pair was installed on the ISS last June. This is an example of how a critical win and proven performance with a breakthrough technology like ROSA can lead to much larger opportunities. As such, we recently delivered ROSA Wing 3 and 4 to the customer and anticipate growing orders for ROSA from current and new customers in the future. Another example of how proven performance on a key opportunity can lead to larger orders is our Link-16 antenna developed for national security missions. Building on our recent success demonstrating our Link-16 antennas, Redwire has been contracted to deliver multiple high-gain antenna systems for a national security space LEO satellite constellation. Proven performance on orbit is leading to larger opportunities as new constellations and other large programs move into full-rate production. This is how we will scale. To meet the anticipated demand, we are leaning forward and have increased investment in business development, R&D, and corporate infrastructure to build a strong foundation for near-term growth and profitability. Of course, this has a cost impact as well. but it is critical to growing revenue and market share, and that is where we are focused. The first quarter performance was slightly below our expectations due to delays in contract awards and supply chain issues impacting subcontractor order fulfillment, and we have experienced some volatility associated with orders from emerging commercial space contracts. However, our revenue profile is such that a shift of a key milestone Large new order or sizable subcontract delivery can materially change the timing of our revenue throughout the year. Despite near-term shifts and delays that impacted the size of this year's first quarter revenue, we have confidence in our 2022 forecast range and expect sales to be more heavily weighted toward the back half of the year. We saw this same pattern in last year's revenue profile as well. Moving on to slide eight. As I previously mentioned, the demand signals for the space market remain strong. The national security sector is seeing strong demand driven by 26% growth in the Space Force budget. The tragic Russian invasion of Ukraine has highlighted the criticality of space assets during conflict and underscores the need for a resilient space architecture. Many red wire capabilities are critical for tactical communications, remote sensing, tactically responsive space, modeling, simulation, and training and other national security priorities. We are continuing to invest in growing our national security capabilities and have unique security infrastructure and contracts that will enable us to effectively support this customer. Moving to civil space. Despite delays caused by the continuing resolution, this segment is very stable and growing. The approved NASA budget has grown 8%, and we are now seeing increased investment in the Artemis program, including the recent announcement of a second human landing system. Civil space is an important component of Redwire's revenue. Our legacy of delivering for NASA provides us a stable foundation and the staying power to deliver for exciting new space missions, regardless of economic conditions. For example, We recently delivered the camera controller, wireless antennas, and cable harnesses for the Artemis III Orion camera system and an array of inspection and navigation cameras developed for NASA's Orion spacecraft. This is a segment which is foundational to our pipeline throughout FY 2022 and FY 2023, and this past Tuesday we were pleased to host a visit from NASA Administrator Bill Nelson at our headquarters in Jacksonville, Florida. Lastly, the emerging commercial space segment has tremendous growth potential over the next five to ten years that could far outpace the other segments in annual growth rates. However, recent development in the macro environment has created near-term volatility and some companies are having difficulty raising the capital required to support their growth objectives. Since Redwire provides foundational technologies to many of these commercial providers, Changes in their forecast or deliveries can have a direct impact on our forecast as well. Regardless, we still see incredible potential from this segment over the long term, and as the other two segments rely heavily on a vibrant commercial space sector. The long-term growth trajectory for this segment is easier to predict than the timing. Slide nine. I'd like to take a moment to focus on a specific demand signal in the government segment that is very positive for Redwire. The White House has recently released an interagency in-space servicing, assembly, and manufacturing national strategy. This ISAM national strategy is very exciting news for Redwire. As you all know, Redwire is uniquely positioned as a first mover and technical leader in the area of in-space servicing, assembly, and manufacturing, and this provides additional validation and momentum to our business plans. One key change is that this area used to be referred to by our customers in the industry as OSAM, or on-orbit servicing assembly and manufacturing. But this strategy broadens the focus from on-orbit to in space to underscore that the opportunity is much greater than just in Earth orbit, but rather extends into all areas of space, such as cislunar, lunar, and interplanetary space. The White House ISAM strategy provides strategic goals for the agencies under the executive branch to advance ISAM capability development discussed in the United States Space Priorities Framework. It underscores the nation's commitment to the critical ISAM technologies that Redwire has been developing, like 3D printing in space and our ISAM program, Arcanon, which will demonstrate the first satellite to use ISAM to manufacture and assemble key components once on orbit. as well as our Lunar Regulus 3D printer that won a 2021 Popular Science Award for Innovation and is critical to developing a sustained human presence on the moon. This is a very positive development for Redwire, as this strategy should increase the number of acquisitions for ISAM capability. Moving to slide 10. As I mentioned in the intro, a critical win and proven performance with a breakthrough technology can lead to much larger opportunities. This is how Redwire will scale. We saw numerous examples of this starting to bear fruit in the first quarter. I already mentioned how the success of our ROSA wings on the ISS has led to more orders and the success of our LINK-16 antenna led to a procurement for many more on a national security constellation, but there are other examples across the company as well to include large orders of our navigation components and digital engineering software that could lead to longer term large-scale procurement. As a critical supplier to the space industry across all three segments, we are planting the seeds of future growth by having our solutions baselined on programs with significant growth potential and large production tails. This ties right into slide 11. In order to capitalize on these growth opportunities, we are leaning forward on our investments in business development, R&D, and capital expenditures. We have increased our spending over 70% in each category to ensure we have the business development resources to capture new opportunities and the facilities and production capabilities needed to scale with our customers. Although these numbers have a cost impact in the near term, they will normalize with scale when the subsequent growth from these investments will result in better operating leverage. And as you can see on slide 12, Business development and R&D activity is essential in order for Redwire to compete effectively and support the number of bids in our pipeline. Our backlog was $274 million as of March 31, 2022, consistent with the previous quarter, but we are now seeing several high-probability bids that should lead to contract wins, which will be highlighted in future quarters. There are over $546 million in bids that Redwire has submitted to our customers that are awaiting decisions. A few examples of the size and types of bids we have submitted are highlighted on this slide. Moving on to slide 13, the final slide in my section, I'd like to highlight Redwire's current positioning as we continue to execute on our plan for the remainder of 2022. As I just highlighted, Redwire has increased our investments to fuel growth and to achieve higher revenue and higher profitability as we gain operating leverage. The demand signals are strong in all three segments of the market, and we are leaning forward to prioritize revenue growth. As Bill will cover in more detail in his section, we currently have access to sufficient capital to execute on our growth plans. This is critical as we are starting to see some potential for rocky roads ahead for the larger economy. We believe that when you combine our access to sufficient capital with our already existing strong backlog of business and long-term history with stable government customers like NASA, the DoD, and intelligence customers, we have the staying power and financial resilience to endure uncertain macroeconomic conditions should they occur. In fact, this may lead to new opportunities as we anticipate an increase in potential accretive M&A as smaller companies see the benefit of joining a larger, more diversified platform. Regardless of the impact of the broader U.S. and global economy, however, we still see significant demand for the space industry. Expanding government investments from NASA and the defense and intelligence community are key elements in our growth strategy. Penetration on large multi-year programs with production potential should lead to more rapid scaling in later phases, and we look forward to providing our customers innovative solutions for these and other important missions. We continue to have confidence in our forecast for 2022 and expect sales to be more heavily weighted toward the back half of the year as key procurements work their way through the acquisition systems. With that, I will now turn the call over to Andrew to outline some of our specific technical achievements and key programs.