Redwire Corporation (NYSE:RDW) Q4 2023 Earnings Call Transcript
Redwire Corporation (NYSE:RDW) Q4 2023 Earnings Call Transcript March 15, 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 Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Zeunik, Senior Vice President, Financial Planning and Analysis and Investor Relations. Thank you. You may begin.
Jeff Zeunik: Thank you, Jesse, and good morning, everyone. Welcome to Redwire's fourth quarter and full year 2023 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 of 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 we discuss non-GAAP measures during the call, please see Slide 3, our earnings release or the investor presentation on our website for the calculation of these measures and GAAP reconciliations.
As previously mentioned, 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 fourth quarter and full year 2023, followed by a discussion of our outlook for 2024, and Jonathan will present the financial highlights for the same fourth quarter and full year 2023 period, after which we will open the floor for Q&A. Please turn to Slide 6. The fourth quarter of last year was another excellent quarter for Redwire, during which we continued our positive momentum, we have now delivered four consecutive quarters of positive adjusted EBITDA and revenue growth. During the fourth quarter, we achieved $63.5 million in Q4 revenue, an 18.2% improvement over Q4 2022. We achieved positive adjusted EBITDA of $1.7 million in Q4, a $2.5 million increase on a year-over-year basis from the fourth quarter of 2022 to the fourth quarter of 2023.
We narrowed our net loss to $8.2 million, a $17.7 million year-over-year improvement from the fourth quarter of 2022. We achieved free cash flow of positive $12.6 million, a year-over-year improvement of $18.1 million. We also achieved cash from operations of positive $15.7 million, a year-over-year improvement of $20.5 million. And finally, we achieved a book-to-bill ratio of 2.81 times during the quarter. It was a fantastic quarter for bookings. Please move to Slide 7. In addition to a strong fourth quarter, I am very pleased to report that 2023 was a record year for financial performance at Redwire. Our ability to deliver differentiated, high-quality solutions and products to our customers resulted in tangible financial results for our shareholders.
During 2023, we achieved record revenues of $243.8 million, which was at the top of our annual guidance range of between $220 million to $250 million. We achieved positive adjusted EBITDA of $15.3 million and positive cash from operations of $1.2 million for the full year. We also received $300 million in contracts awarded during the year and had a full year book-to-bill ratio of 1.23 times. Our heritage plus innovation strategy is working. Please turn to Slide 8. By focusing on the fundamental building block of space, we are meeting the expanding demand of our customers for Redwire's differentiated core offerings. For the full year of 2023, we grew revenue 51.9% from 2022 to 2023. We narrowed our net loss to $27.3 million, a $103.4 million improvement from 2022 to 2023.
We improved adjusted EBITDA by $26.3 million from 2022 to 2023. And with disciplined cash management, we improved cash from operations year-over-year by $32.9 million and improved free cash flow year-over-year by $28.7 million in 2022 to 2023. It is important to note that we achieved these positive financial results by developing and delivering critical innovations for our customers throughout the year. We are not a maybe someday space company. In 2023, 24 Redwire solutions were deployed on 14 launches, whether deploying antennas for natural security, rolling out solar arrays for the International Space Station or meeting our milestones on full satellite solutions for the European Space Agency, our reliable technical performance for our customers throughout 2023 was the foundation of our positive financial results.
These results are directly attributable to the commitment and expertise of our workforce. Thank you, though [ph] all the employees of Redwire for a great year. Next, we would like to focus forward and discuss our outlook for 2024. Please turn to Slide 10. With the continuing trend in the decreasing cost of launch, deploying space infrastructure is more affordable than ever. As a result, we continue to see signs of a massive expansion in demand for space infrastructure. The image depicted on this slide underscores the breadth of the opportunity. Space infrastructure expansion not only includes small satellite constellations in lower Earth [ph] orbit, but also includes expanding investment in infrastructure for medium Earth orbit, geostationary Earth orbit, cislunar, lunar, deep space and even very low Earth orbit or VLEO to name a few.
As a provider of the fundamental building blocks of space infrastructure across all these areas, Redwire is participating in the growth of the entire space ecosystem from VLEO to Lunar and beyond. From our perspective, the strong demand for space infrastructure is driven by three key developments. First, as we hear and read about routinely in the news, space is increasingly a warfighter domain with peer and near-peer threats continuing to target U.S.-based superiority, major investment is occurring across the entire space domain. Second is the growth in demand for lunar infrastructure. The U.S. is heading back to the moon and this time we plan to stay, whether participating in groundbreaking programs like Argument or the recent intuitive machines commercial Lunar Landing where we provided critical components, Red wire will play a significant role.
Third is the rapid expansion of proliferated LEO satellite constellations. Both government and commercial customers see tremendous value in a new proliferated architecture of small satellite constellations for a wide variety of applications such as communications and earth observation. This is resulting in increased spending for satellite systems, subsystems and components. These factors and others are positive indicators of continuing demand for Redwire space infrastructure products and solutions for the foreseeable future. With that, please turn to Slide 11. In an effort to focus and optimize our go-to-market strategy for 2024 and clearly emphasize where we are delivering value, Redwire has grouped our products and solutions into six core offerings that we consider the fundamental building blocks of space infrastructure.
First is Avionics and Sensors. These are the spacecraft subsystems and components that are used for navigation, control and imagery collection. Then Power Generation. This includes solar arrays and power distribution systems that generate the necessary power for space systems that operate regardless of size or location. Next is Structures and Mechanisms. These include a variety of space infrastructure that provide critical mechanical functionality for on off orbit operations from launch [ph] release mechanisms and deployable booms to berthing and docking systems. Red wires radio frequency systems are the systems and payloads that enable space to space and space to earth communications. Next, Platforms, Payloads and Missions. This includes full satellite systems such as the Redwire PROBA satellite, as well as our proprietary digital engineering and modeling and simulation solutions that enable spacecraft development and operations.
And finally, Microgravity Payloads, which includes next-generation biotech and material and space manufacturing payloads that utilize the microgravity environment to manufacture innovative new products that are difficult to manufacture on earth. These offerings can be thought of as the picks and shovels of space with broad utility to nearly all space markets and many space assets that are being developed by national security space customers, civil space agencies and commercial companies globally. Please turn to Slide 12. With a clear focus on our six core offerings, we are executing an optimized growth strategy for 2024 that is centered around four key principles, protecting the core, scaling production, moving up the value chain and venture optionality.
On the next few slides, I'll describe these principles and provide an example of a recent success that best represents these principles in action. Turning to Slide 13. Our first growth principles protecting the core means continuing to deliver on our strong foundation of existing products with proven reliability and demonstrated by heritage. It is about continuing the growth momentum of our success in 2023. An example, in December 2023, Redwire announced that our L-band Link-16 Antenna successfully demonstrated the transmission of Link-16 signal from space. This is a major milestone for the development of warfighter communications. Redwire has delivered antennas supporting more than 50 spacecraft for a national security constellation being developed.
With the opening of our new manufacturing and testing facility in Longmont, Colorado announced in January, Redwire anticipates being able to triple the amount of hardware throughput in the next few years, building on the successful heritage of our RF systems. Please turn to Slide 14. Our second growth principle, scaling production means winning and delivering on increasingly larger orders by scaling our production to meet growing demand. As an example, I am proud to announce that during the fourth quarter of 2023, Redwire won a $142 million contract award for ROSA Power Solutions from an undisclosed satellite manufacturer. This award is a testament to the differentiation, innovation and on-orbit success of our rollout solar array technology and demonstrates that our heritage is leading to increasingly larger orders.
This announcement comes on the heels of another announcement that we were selected as a strategic supplier for Blue Origin's Trailblazing Blue Ring Space Mobility Platform, where we were awarded a contract to develop and deliver for ROSA wings as well as multiple ARGUS cameras and low-voltage distribution units. With these two awards, we have begun to scale our production capabilities, while continuing to add to the heritage of our power generation offerings, which demonstrates how we are being baselined on to growing systems. As the systems we are baseline into such as Blue Ring and a new set of satellites using ROSA continue to sell and scale, Redwire will grow with our customers. Please turn to Slide 15. Our third growth principle, moving up the value chain, means leveraging our proven capabilities in developing and deploying space subsystems and components into future success developing and deploying next-generation spacecraft and integrated mission payloads.
As an example, I am also excited to announce that Redwire has invested in the design of a Very Low Earth Orbit for VLEO spacecraft known as SabreSat. VLEO is a crucial domain for the future of defense and intelligence operations for the U.S. and its allies. With the SabreSat design, we are offering customers an innovative approach to explore a leap-ahead orbital platform that could meet future mission needs for a new breed of vehicles with the performance potential between that of an unmanned aerial system and a standard LEO satellite. This is just one example of how we are exploring opportunities to move up the value chain by designing and developing differentiated next-generation spacecraft that will fill identified gaps in the market for future space infrastructure.
Please turn to Slide 16. Lastly, our fourth principle is to maintain venture optionality by continuing to pursue breakthrough development on high potential technologies that could create new markets with game-changing potential. Earlier this year, Redwire was pleased to announce the second mission of our in-space pharmaceutical development platform, PIL-BOX, again, in partnership with Eli Lilly, the second PIL-BOX mission is focused on researching widespread chronic diseases, which have massive global demand for treatment. PILL BOX 2 follows closely on the heels of the successful inaugural PILL BOX 1 mission, which launched in November 2023 and returned to Earth in late December 2023 for delivery to the customer. Please turn to Slide 17. Now turning to our bookings and backlog.
Our bookings during the fourth quarter of 2023 were $178.2 million. Our book-to-bill ratio was 2.81 times for the fourth quarter of 2023. We continue to see lumpy bookings growth from quarter-to-quarter, but a consistently positive growth rate on an annual basis. Finally, as you can see on the right-hand side of this slide, our contracted backlog has increased 19.1% since the end of 2022 to a contracted backlog of $372.8 million. The growth in contracted backlog is one of many factors that gives us confidence in our future growth and stability. We continue to have a healthy pipeline with an estimated $4.8 billion of identified opportunities, including approximately $944 million in proposals submitted during the full year of 2023. Please turn to Slide 18 for a brief discussion of the outlook for 2024 and why Redwire management believes the performance momentum from 2023 will continue into this year and beyond.
Our fourth quarter was a strong finish to 2023, with record revenues and positive adjusted EBITDA, positive cash from operations and positive free cash flow, plus sequential improvement in the liquidity and contracted backlog. As a result, for 2024, we are forecasting full year revenue to be $300 million, which represents a 23% year-over-year growth rate. Through our excellence in execution initiatives, we continue to focus on improving operating leverage and cost efficiency, and we expect to continue on our path to profitability in 2024. Please turn to Slide 19. 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 would like to highlight the photo on this Slide 19, which is of the RF testing chamber that Pete spoke about at our newly expanded Longmont, Colorado facility. This chamber is just one of the many investments we made during the year in support of future growth to serve the customer demand for Redwire's space infrastructure. Please turn to Slide 20. Our fourth quarter 2023 saw continued positive momentum driven by this customer demand and Redwire's excellence in execution focus. We achieved record revenue of $63.5 million, while also achieving our fourth consecutive positive adjusted EBITDA quarter since becoming a public company and our second positive free cash flow quarter as a public company.
As you can see on this chart, all of our critical financial metrics saw significant year-over-year improvement on a dollar amount and on a percentage basis. Record revenue also led to a $17.7 million year-over-year narrowing in our net loss to $8.2 million and a $2.5 million improvement in adjusted EBITDA to $1.7 million. This result is also attributable to the disciplined project program management and continued cost controls. The fourth quarter 2023 also saw record positive free cash flow of $12.6 million, a year-over-year improvement of $18.1 million, and this is after investing over $4 million in growth CapEx and research and development during the quarter. Please turn to Slide 21. As you can see on this page, and similar to Page 16, all of our critical financial metrics saw significant year-over-year improvement in the full year 2023 on a dollar amount and a percentage basis.
Redwire's excellence in execution yielded revenues of $243.8 million, 51.9% growth while also achieving four consecutive quarters of positive adjusted EBITDA and our first full year of positive cash from operations. Record revenue also led to $103.4 million year-over-year narrowing in our net loss to $27.3 million and a $26.3 million improvement in adjusted EBITDA to $15.3 million. But importantly, Redwire improved cash from operations year-over-year by $32.9 million, leading to our fiscal year 2023 cash from operations of a positive $1.2 million. Operating cash flow led to year-over-year improvement in full year free cash flow of $28.7 million to a use of cash of only $7.1 million. These impressive results are attributable to the capability and commitment of our global team members, and were achieved by investing over $13 million in growth CapEx and research and development for our future businesses.
Please turn to Slide 22. Specifically for quarterly revenue, as you can see from the chart on the right, this quarter's record $63.5 million represented an 18.2% increase on a year-over-year basis, an increase of 1.4% on a sequential basis. During the quarter, more than 85% of our revenue derived from funded government programs or from global marquee customers were delivering in the areas of national security, satellite proliferation and the expiration of space to name just a few. Excluding the revenue contributed by Space NV, our fourth quarter revenues were $48.6 million, an excellent organic growth of 15.5% on a quarterly year-over-year basis through work on existing contracts and incremental revenues from bookings - bookings increase that Pete spoke about that resulted in a strong fourth quarter book-to-bill ratio of 2.81 times.
Please turn to Slide 23. For the full year 2023, not only did we grow revenues by 51.9% on a U.S. GAAP basis, and this is excluding revenue by Space NV, but revenue grew organically at 26.9% compared to 2022. Additionally, during 2023, 71% of our revenue by location of the customers were attributable to the U.S. and 29% were attributable to Europe and other geographic locations. Finally, let's step back and look at Redwire's growth since 2021, a period of significant change for the space sector, significant interest rate increases and a slowing of the global economy and a very challenging capital market for small cap companies. During the period from 2021 to 2023, the compounded annual growth rate of Redwire revenue on a U.S. GAAP basis has been 33.1%, while also achieving positive cash from operations in 2023.
Please turn to Slide 24. We drove an improvement in adjusted EBITDA of $2.5 million year-over-year from the fourth quarter of 2022 to a positive $1.7 million in the fourth quarter of 2023. Once again, our year-over-year adjusted EBITDA improvement was primarily driven by an improvement in gross profit with fourth quarter gross profit growing 1.2 times higher from $8.6 million to $10.7 million on a year-over-year basis. This gross profit improvement was primarily driven by better contract mix and the maturing of our program management. The sequential decline in adjusted EBITDA was primarily driven by discrete EAC adjustments on select projects, partially offset by higher revenues during the fourth quarter. And just to note, on a year-over-year basis, Redwire saw a significant reduction in our net EAC adjustments compared to FY '22, while also growing revenue by over 50%.
Our adjusted EBITDA improvement was also supported by excellent cost control from Redwire's fourth quarter SG&A revenues that were 26% of revenue, a notable drop from the 30.8% in the fourth quarter of 2022. On a year-over-year basis, we saw an improvement in adjusted EBITDA of $26.3 million. This was primarily driven by excellent increase in operating leverage year-over-year on both a percentage and an absolute basis. For the full year, SG&A margin decreased from 43.8% in 2022 to 28.1% in 2023, with a reduction in total absolute spend of almost $2 million from $70.3 million to $68.5 million. Please turn to Slide 25. As we have mentioned several times today, throughout last year, we made significant prudent strategic investments. During 2023, we made $8.3 million in capital expenditures, which is double 2022's CapEx of $4.2 million, plus $5 million in investments in research and development and $3.6 million in a variety of corporate investments in systems and infrastructure that flow through SG&A.
Clearly [ph] we continue to demonstrate our ability to perform and deliver now while also making investments in future growth and profitability, which we're beginning to self fund. Please turn to Slide 26. 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 U.S. GAAP cash from operations minus capital expenditures or CapEx. On a year-over-year basis, quarterly free cash flow improved by $18.1 million to a record positive $12.6 million for the fourth quarter due to a $20.5 million improvement in cash from operations. Credit goes to the revenue growth and profitability improvements already discussed. In addition, we had more efficient and effective working capital management over the fourth quarter, and this is helped by a diversity of core offerings, customers, new contracts, which cascades down to our cash flow from operations.
Again, we continue to invest a significant amount of CapEx and research - in CapEx and research and development. We saw improvement in year-over-year quarterly cash from operating activities while continuing to invest in the business and actually make other expenditures associated with the resiliency of Redwire. These expenditures are intended to grow, diversify our revenue, scale the operations and accelerate our path to profitability. On the right-hand chart, we show our available liquidity as of December 31, 2023, which totaled $48.3 million, including $30.3 million in cash and cash equivalents. This quarter's liquidity is a significant sequential improvement as we continue on our path to profitability. 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 2024 and beyond.
Please turn to Slide 27. I will now turn over the presentation to Pete to provide brief final remarks. Pete?
Peter Cannito: Thank you, Jonathan. For perfect clarity, I would like to go back and reemphasize from Slide 23 that the 51.9% growth on U.S. GAAP was including Space NV, and Redwire grew organically at 26.9% compared to 2022, excluding Space NV. I too would also like to thank all the Redwire professionals around the world for their hard work and excellent fourth quarter and full year 2023 and all our customers for trusting Redwire. We will now open the floor for questions.
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