Redwire Corporation (RDW) Earnings Call Transcript & Summary

Greetings, and welcome to the Redwire Corporation Q2 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Alex Curatolo, Senior Director of Investor Relations. Thank you. You may begin.

Good morning, and thank you, Diego. Welcome to Redwire's Second Quarter 2026 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 rbw.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 Slides two and three. Additionally, to the extent we discuss non-GAAP measures during the call, please see Slide three and the appendix, our earnings release or the investor presentation on our website for the calculation of these measures and their reconciliation to U.S. GAAP measures. I am Alex Curatolo, Redwire's Senior Director of Investor Relations. Joining me on today's call are Peter Cannito, Redwire's Chairman and Chief Executive Officer; and Chris Edmunds, Redwire's Chief Financial Officer. With that, I would like to turn the call over to Pete. Pete?

Thank you, Alex. During today's call, I will outline our key accomplishments during the second quarter of 2026, after which Chris will present the financial highlights for the same period and discuss our outlook for the remainder of 2026. We will then open the call for Q&A. Please turn to Slide 6. I'm pleased to report that Redwire delivered significant value in the second quarter of 2026 with new highs in revenue, gross margin and backlog. During the quarter, Redwire achieved record quarterly revenues of $117.1 million, a 20.7% sequential increase over the previous quarter and an 89.6% increase compared to Q2 2025. Our disciplined execution drove basis. Also, Redwire achieved a strong book-to-bill ratio of 1.42 and as a result, ended the quarter with record contracted backlog of $542.1 million, providing further confidence in our forecast as we move into the second half of 2026. And finally, we strengthened our balance sheet, resulting in a strong financial foundation with a record level of $557.8 million in cash to fuel our continued growth. In summary, Redwire's second quarter was defined by successful execution to meet the growing demand for our mission-critical offerings. Please turn to Slide 7. Access to capital, combined with increasing demand for our products has created a landscape of opportunities for Redwire to continue to invest in growth. To guide our capital allocation, we are implementing an investment framework focused on three pillars: The first pillar is balance sheet strength. Over the last few quarters, we have been aggressively refinancing and delevering while building liquidity to create a strong foundation for future opportunities. This has significantly reduced our interest expense while simultaneously giving us dry powder to invest in new innovations and strategic M&A. The second pillar that logically follows is internal capacity, capability and innovation. With strong demand in both critical space and defense tech capabilities worldwide, Redwire has many attractive internal investment opportunities that can compound growth through new product advancement, expanded capacity and innovation across all our key value drivers. Lastly, the third pillar is accretive M&A. We have a proven track record of acquisitions followed by successful integration as an additional path to accelerate growth. Redwire has a strong history with 11 acquisitions completed to date. With the successful integration of Edge Autonomy over the past year and the required capital to invest, we continue to scan the M&A market for accretive opportunities at good values. We like how we are currently postured, and this framework will guide Redwire into the future as we continue to invest with discipline across all three pillars to drive value for our shareholders. Please turn to Slide 8. As example, I'd like to briefly highlight two major milestones from July that bolster our production momentum. To further strengthen Redwire's position as a worldwide leader in microgravity development, we recently opened a brand-new microgravity center of excellence in Georgetown, Indiana, with expanded lab space and a payload operations center with a direct link to the International Space Station and room for expansion to commercial space stations and other on-orbit microgravity platforms. More on that in a moment. This new 30,000 square foot state-of-the-art facility will focus on accelerating space-enabled research, development and manufacturing for pharmaceutical and biotech innovation. In Huntsville, Alabama, we recently announced a major 164,000 square foot expansion supported by approximately $8.5 million in eligible state and local economic development incentives. This facility, which is expected to be completed in the fourth quarter of 2027, will accelerate production of our combat-proven Stalker aircraft, Octopus ISR payloads, advanced power solutions and space capabilities. Huntsville is a very attractive community for advanced manufacturing with ready access to many strategically important customers. We are very excited to expand our presence in the Huntsville ecosystem. Please turn to Slide 9. Next, I would like to briefly highlight key second quarter achievements and recent developments across our five value drivers. We will start with our Space segment, which encompasses next-generation spacecraft, large space infrastructure and microgravity development and then turn to our Defense Test segment, which encompasses combat-proven UAS and sensors and payloads. Please turn to Slide 10. Starting with next-generation spacecraft. In July, Redwire was selected as 1 of 15 vendors on the Space Systems Command $981 million National Space Test and Training Complex, NITE-STAR Capability Development, Indefinite Delivery, Indefinite Quantity or IDIQ contract. The NITE-STAR IDIQ contract provides for support to space and ground-based engineering activities to enhance test, evaluation and training operations. The contract provides a pathway for Redwire to apply its capabilities such as next-gen spacecraft, digital engineering and space domain awareness, among others, to support the rapid development, testing and training of joint war fighting solutions. Much like with the Andromeda IDIQ discussed last quarter, we see this as another proof point for the success of our moving up the value chain strategy. We are well positioned to deliver critical spacecraft and digital capabilities for national security testing and training, a key growth area for our customer. Please turn to Slide 11. Turning to large space infrastructure. Redwire's Roll-Out Solar Array Technology will be supporting NASA's pioneering Space Reactor-1 Freedom mission to Mars. The two ROSA wings can generate an unprecedented 60 kilowatts of power, making them the most powerful ROSA wings ever built. They were originally developed through a contract with Intuitive Machines to support the power and propulsion element of the NASA-led Lunar Gateway. Launching in 2028, SR-1 Freedom will conduct trailblazing solar, electric, and nuclear propulsion demonstrations while delivering innovative scientific payloads to Mars. We continue to provide high-power solutions of choice targeted at space stations like the International Space Station and Axiom Station, large spacecraft like SR-1 Freedom and potential lunar infrastructure and orbital data centers. The outlook for this capability is strong. Please turn to Slide 12. Turning to our microgravity development value driver. Today, I am extremely excited to announce that in July, SpaceMD, Redwire's venture company, has signed a historic agreement to purchase an entire Starfall spacecraft, a new SpaceX vehicle that enables affordable, routine access to the microgravity environment. The unprecedented capabilities that SpaceX's Starfall offers will dramatically accelerate our ability to deliver pharmaceutical, biotech and other in-space microgravity manufacturing capabilities. SpaceMD's first Starfall mission is slated for launch in 2028 and is expected to have the capacity to carry up to an impressive 32 PIL-BOXes, each with the ability to crystallize up to four compounds or other payloads, making it the largest dedicated commercial microgravity research mission flown in history. Since Redwire launched Pil-Box on its inaugural mission in November of 2023, 54 PIL-BOXes have flown to the International Space Station, successfully crystallizing 45 unique compounds, including insulin and other critical molecules to treat diseases such as cancer, cardiovascular disease, obesity and diabetes. And with the capacity of up to 32 PIL-BOXes on a single mission, SpaceMD's Starfall mission provides a major leap forward in scaling our microgravity capabilities. It's a game changer. With a platform partner like SpaceX's Starfall, we are creating a new path to accelerate commercial microgravity manufacturing at scale. Please turn to Slide 13. Turning next to our combat-proven UAS value driver. During the quarter, Redwire was awarded a high eight-figure multiyear contract to deliver Penguin Mk3 aircraft to an undisclosed NATO customer. This contract is part of a multiyear modernization program for the country's UAS capabilities and building on years of operational combat experience, Redwire's Penguin Mk3 was chosen as it delivers a scalable, adaptable solution for the demands of modern defense environments. This is just one example from a quarter with strong defense tech bookings. During the quarter, Redwire was also awarded a Tranche 1 contract for the Taiwan Coast Guard as well as announced key follow-on awards for Stalker Block 30 from both the United States Marine Corps and U.S. Army. At the same time, we continue to invest in our next-generation platforms, Stalker Block 40 in the United States and Penguin Mk3 in Europe to increase capabilities for the warfighter around the globe. With hundreds of UAS already operational in the field, we are bringing a battle-proven approach to tactical UAS modernization. Please turn to Slide 14. Lastly, moving to our sensors and payloads value driver. Redwire has delivered nearly 200 Octopus ISR payloads year-to-date, a more than 15% increase on a year-over-year basis. During the quarter, we also announced two new Octopus products, the E140 MWIR and E180 HD MWIR. I am pleased to say that we have already made the first sale and customer delivery of both products. These new payloads, which can be used on Stalker and Penguin as well as third-party platforms, strengthen Redwire's position in the ISR market by delivering long-range detection performance, reduced size, weight and power and improved flexibility across a broad range of UAS missions. This growth demonstrates that we are accelerating deliveries of our proven solutions in support of the war fighter. Please turn to Slide 15. With that, I'd now like to turn the call over to Chris Edmunds, Redwire's Chief Financial Officer, to discuss the financial results for the second quarter of 2026.

Thank you, Pete. Before turning to Slide 16, I want to highlight the image of our International Berthing and Docking Mechanism or IBDM manufactured by our team in Belgium. This core infrastructure capability was undergoing a docking test campaign at NASA's Johnson Space Center. Redwire's IBDM capability supports both berthing and autonomous docking operations. With this critical technology, Redwire has the ability to bring the world together in space. Now let's turn to the financial results. Please turn to Slide 16. During the second quarter, in line with our expectations, we reported total revenue of $117.1 million, an 89.6% increase on a quarterly year-over-year basis and a 20.7% increase on a sequential basis. Our Space segment recorded revenue of $55.2 million, and our Defense Tech segment recorded revenue of $61.9 million. I would note that the contributions from the acquisition of Edge Autonomy were the primary driver behind the significant increase for Defense Tech on a quarterly year-over-year basis. With more than $350 million in bookings during the last two quarters, we continue to expect our revenue to build in the second half of the year. Please turn to Slide 17. As we previously mentioned, gross margin improvement is a significant focus area for Redwire, and I'm pleased to report that in line with our expectations, we achieved record gross margins of 27.8% during the quarter, representing a significant improvement on a year-over-year basis. This quarter's gross margin results were driven by factors, including a stronger contribution from Defense Tech, which has historically provided higher gross margins, a shift from development to production across our business and a net neutral impact from EAC changes. Net loss improved by $56 million on a year-over-year basis to a net loss of $41 million. Our second quarter adjusted EBITDA was negative $3.2 million, a significant increase on both a year-over-year and sequential basis. Notably, EAC changes had a net neutral impact on our results, including adjusted EBITDA during the second quarter, a marked improvement on a year-over-year basis. Although we are proud of the progress we've made, we continue to strive for improvement. Cost control and program execution remain a key focus area of our business. Finally, echoing Pete, with our strengthened balance sheet, we remain sharply focused on capital allocation. Elevated investment in internal research and development continued during the second quarter, increasing from $1.7 million to $12.5 million on a year-over-year basis. At a moment of inflection in our industry, we see this investment as accelerating the maturation of our products and solutions to meet customer demand. Please turn to Slide 18. Next, turning to a discussion of liquidity and capital structure. We ended the second quarter of 2026 with record total liquidity of $607.8 million, comprised of $557.8 million of cash, cash equivalents and restricted cash and $50 million in undrawn revolver capacity, a significant sequential and year-over-year improvement, primarily driven by the net ATM proceeds of $487.9 million raised during the quarter. To put a finer point on the balance sheet improvement, I'd like to touch on a few highlights on a year-over-year basis. Our cash has increased by over 6x to $557.8 million. We have reduced our total debt by 75% to $48.9 million and significantly reduced our net interest expense to less than $1 million in the quarter versus $23.8 million in Q2 2025. We've seen a 100% reduction in our Series A preferred shares, which have now fully converted into common shares and a 92% reduction in our warrants outstanding to 202,000, which are set to expire in September of this year. We ended the quarter with a strengthened balance sheet and simplified capital structure that is ready to support the company's future growth. Please turn to Slide 19. During the second quarter, we saw continued strength in contracts awarded with bookings of $165.8 million, a significant increase on a year-over-year basis, resulting in a book-to-bill ratio for the quarter of 1.42 and a book-to-bill ratio of 1.52 on a last 12 months basis. Turning to backlog. We once again saw growth in this metric as backlog increased by 8.8% on a sequential basis and 64.5% on a year-over-year basis to a record $542.1 million. As of June 30, 2026, space backlog was $322 million, and Defense Tech backlog was $220.2 million. As a result, the majority of Defense Tech revenue is recognized at a point in time, whereas in our Space segment, the majority of revenue is recognized over time, driving a different backlog profile. As we enter the second half of 2026, we are very proud of our fifth consecutive quarter of growth in backlog and believe demand for our mission-critical space and Defense Tech products and solutions around the globe remains strong, bolstering our confidence in continued growth during the second half of the year. Please turn to Slide 20 for a brief discussion of the outlook for the remainder of 2026. Having achieved year-to-date revenue of $214 million, in line with our expectations, plus another strong quarter of contracts awarded, confidence provided by our record backlog of $542.1 million and a supportive macro environment, we are reaffirming our full year 2026 revenue forecast in the range of $450 million to $500 million, which represents a 41.6% year-over-year growth at the midpoint. With more than $350 million in bookings during the last two quarters, we continue to expect our revenue to build in the second half of the year. With that, please turn to Slide 21, and I'll now turn the call back over to Pete.

Thank you, Chris. To summarize, Redwire's second quarter was defined by delivering growth and successful execution. With record backlog and a strengthened balance sheet, Redwire is scaling to meet the strong demand we see for our mission-critical offerings. With that, I'd like to thank the entire Redwire team for their achievements during the second quarter of 2026. We will now open the floor for questions.

[Operator Instructions] And your first question comes from Brian Kinstlinger with Alliance Global Partners.

Congrats all around on a great quarter. I guess my question will be around the gross margin. During the first half of the year, I believe this is one of your biggest accomplishments, what you achieved versus the trailing two years. Can you talk about the sustainability of the gross margin and how you think about the near-term and the medium-term opportunity to expand gross margin? And then separately, on a numbers question, where is the share count today with all the restructuring that happened on the balance sheet?

Brian, thank you. So gross margin, clearly, very proud of where the team was able to deliver this quarter and quite frankly, the first half of this year. Earlier this year, we talked about guiding around the low to mid-20s is where we thought we would be in the first half of the year, appreciating some of the EAC adjustments we had last year that we are still working through. Obviously, the bookings profile has been very helpful as we replenish that backlog. But as we go forward, I think that initial guidance that we said, Brian, in the kind of that low to mid-20s is the place to think about in the near term. But as we continue to replenish our space backlog and we're seeing solid growth in our Defense Tech, there's the opportunity that we continue to grow the gross margin over time. But again, we had a very mild EAC adjustment quarter this quarter. Very proud of what the team was able to do, a lot of initiatives that we put in place, but we're doing a lot of really forward-leaning technology here that could have the EAC adjustments in the future. Again, we put measures in place to mitigate and monitor those. But very proud of where we ended up here at 27%, but I'll stay with the guide in the kind of that low to mid-20s as we move forward.

And then on your share count question. Sorry, Brian, interrupted one more time.

Yes. No, just the 10-Q didn't come out. Normally, the first page shows the share count where it's at. So I'm just curious where it's at today.

Yes. So we're 249.9 million common shares.

Your next question comes from Suji Desilva with ROTH Capital Partners.

I'll echo my congrats on the strong progress here. As we approach the second half of '26, and we're anniversarying the full company from the prior second half, any thoughts on the year-over-year growth opportunity relative across space versus defense? Just trying to get some understanding of how we should think about growth for the two segments.

Yes, I mean, we see great opportunities in both segments, right? So we continue to see double-digit growth for both segments going forward. Defense Tech is growing faster than space, but there's a lot of space opportunities that are still working their way through the system that we think we're really well positioned on. So we're bullish on both. and are excited about the fact that we continue to get really strong signals from the market with these follow-on awards, whether they be IDIQs or straight-up aircraft orders. So bullish on both. Defense Tech seems to be growing a little bit faster at this point, but that's not to say that space doesn't have the opportunity to catch up.

Your next question comes from Alexandra Mandery with Truist.

Great results. We've seen backlog and orders continue to hit record levels. How would you describe the award tempo during the quarter? And what are your expectations for the back half of 2026?

So one of the measures that we focus on a lot is the LTM book-to-bill. And so we've seen over the history that our order flow can be lumpy. And obviously, we would endeavor to have as smooth an order flow as possible. But market forces, again, we've got reach across the globe and different vertical stacks between our national security, our commercial and our civil customers. The timing of awards are always tough to predict. We're coming off of really a couple of great quarters in a row for both segments. Obviously, space pulled back just a touch this quarter, but appreciate that they were over 2x book-to-bill in both Q1 and Q4. As we look in the back half of the year, as we kind of said in our prepared remarks, we do consider it to be a very supportive macro environment. But at a book-to-bill ratio of an LTM basis at 1.5, that is a growth signal book-to-bill. And we're a couple of points in front of where we thought we'd be this time. But again, the market has been very supportive thus far this year.

Your next question comes from Adam Samuelson with Jefferies.

So I guess the question is just on the outlook. You kept the revenue range of $50 million for the year. Half the year is complete. Second half, that implies a pretty wide range of growth, like 11% to 35% year-on-year, actually also pretty similar half-on-half. Can you just help us frame kind of what's occurring to get you to the high end versus the low end of the year at this point?

Yes. I mean, fundamentally, which we tried to articulate in our comments is we're scaling, right? So the way the year has been set up is to show that growth over time. We have a number of indicators to include our growing backlog that we believe support and demonstrate the fact that we're on a scaling curve right now. So I think that's what makes us feel comfortable about the second half. Chris, anything you want to add there?