Redwire Corp (RDW)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is provided as a supplement to, and should be read in conjunction with, the condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q. Certain information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to Item 1A. “Risk Factors” and the “Cautionary Note Regarding Forward-Looking Statements” sections of this Quarterly Report on Form 10-Q. Unless the context otherwise requires, all references in this section to the “Company,” “Redwire,” “we,” “us” or “our” refer to Redwire Corporation and its consolidated subsidiaries.

Business Overview

Redwire is an integrated space and defense company focused on advanced technologies including next-generation spacecraft, space infrastructure, autonomous systems and multi-domain operations leveraging digital engineering and artificial intelligence automation. Redwire’s proven and reliable airborne and space-based capabilities include our space and defense technology and platform offerings of avionics, sensors, and payloads; power generation; structures and mechanisms; radio frequency (“RF”) systems; airborne and spacecraft platforms and missions; and microgravity payloads. Redwire combines decades of flight heritage and proven experience with an agile and innovative culture.

Redwire’s primary business model is providing proven, mission critical solutions based on core airborne and space infrastructure offerings through both short- and long-duration projects for U.S. and international government and commercial customers. Redwire operates in two business segments: Space and Defense Tech. We organize our business segments based on the nature of the products and services offered.

Redwire’s Space segment focuses on delivering next-generation spacecraft, large space infrastructure, and microgravity capabilities to serve civil, national security, and commercial space customers globally. Our core space offerings are flight-proven and have supported hundreds of spacecraft, missions, and operations, including, but not limited to, the International Space Station, the European Space Agency’s (“ESA”) Project for On-Board Autonomy (“PROBA”), the National Aeronautics and Space Administration’s (“NASA”) Double Asteroid Redirection Test and the Orion space capsule, and the Space Force’s GPS. We are also a provider of innovative technologies with the potential to help transform the economics of space and create new markets for its exploration and commercialization.

Redwire’s Defense Tech segment focuses on delivering combat-proven autonomous systems, optical sensors, advanced optics, resilient energy solutions and radio frequency payloads that provide intelligence, surveillance, and reconnaissance capabilities for customers including the U.S. Department of War (“DoW”, formerly known as the Department of Defense), U.S. Federal Civilian Agencies and allied governments across multiple domains. Our defense technology offerings include field-proven airborne products and services that have decades of innovation and more than 400,000 flight hours. Key operations include developing and manufacturing Uncrewed Aerial Systems (“UAS”) for commercial, government, and military applications in areas such as surveillance, logistics, reconnaissance, border security, and emergency response. Redwire is committed to delivering innovative space and airborne platforms to help transform the future of multi-domain operations.

The following discussion should be read along with the financial statements included in this Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Liquidity and Capital Resources,” and “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on February 27, 2026 (the “Company’s Annual Report”), which provides additional information on our business, the environment in which we operate and our operating results.

Recent Developments

During the second quarter of 2026:

•Revenues increased 90% for the three months ended June 30, 2026 compared to the same period in 2025.

•Gross margin increased to 28% for the three months ended June 30, 2026 from (31)% during the same period in 2025.

•Net loss decreased $56.0 million to $(41.0) million for the three months ended June 30, 2026 compared to the same period in 2025.

•Book-to-bill ratio decreased to 1.42 for the three months ended June 30, 2026 from 1.47 for the same period in 2025.

•Backlog increased to $542.1 million as of June 30, 2026 from $411.2 million as of December 31, 2025.

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•Completed on-orbit operations for pharmaceutical drug development investigations in partnership with researchers at Aspera Biomedicines, Bristol Myers Squibb, Rowan University, and Purdue University, marking more than 50 PIL-BOXes flown inception-to-date.

•Awarded follow-on orders for Stalker Block 30 from both the Marine Corps Portfolio Acquisition Executive Robotic Autonomous Systems and the 1st Aviation Brigade, U.S. Army Aviation Center of Excellence.

•Awarded contracts to deliver Penguin uncrewed aerial systems across the globe, including a multi-year contract from an undisclosed NATO ally country and a Tranche 1 contract from Taiwan Color Optics, Inc. for the Taiwan Coast Guard.

•Delivered nearly 200 Octopus ISR payloads year-to-date, a more than 15% increase year-over-year, and announced two new Octopus products, the Octopus E140 MWIR and E180 HD MWIR.

Industry and Regulatory Updates

U.S. Budget Environment

On February 3, 2026, Congress passed, and the President signed into law, the Consolidated Appropriations Act of 2026, that includes full FY 2026 appropriations for most of the federal government, exclusive of the Department of Homeland Security, which remains under a short-term continuing resolution. The bill provided $839.2 billion in total discretionary defense funding, including research and development funding. The bill includes $13.4 billion in funding for missile defense and space programs to augment and integrate in support of the “Golden Dome for America” initiative.

In March 2026, NASA announced a strategic shift in its lunar exploration program, pausing further development of the Lunar Gateway space station to focus resources on establishing a sustained human presence at the Moon’s South Pole. Under the revised plan, approximately $20 billion in projected funding over the next seven years is being redirected from orbital infrastructure toward surface‑based systems and habitation capabilities. This realignment is expected to accelerate timelines associated with developing a permanent lunar surface base and related mission support activities. The full impact of this policy shift is still being evaluated across the industry.

The U.S. Government FY (“GFY”) 2027 budget process has commenced with both administration and congressional activity proceeding in the ordinary course. We are not yet able to assess any impact that the GFY 2027 budget will have on Redwire's business. We will continue to monitor developments as the appropriations process continues.

International Developments

In March 2025, the European Commission introduced the Readiness 2030 package (previously dubbed “ReArm Europe”), to deploy nearly €800 billion over four years for collective defense, including drone systems, missile defense, cyber and autonomous platforms. The package includes a suspension of fiscal constraints allowing up to 1.5% of Gross Domestic Product (“GDP”) to be put toward additional defense spending and launched the €150 billion Safe Action for Europe (“SAFE”) loan facility. During 2026, implementation of the Readiness 2030 initiative continues to advance, including adoption of implementing decisions for multiple member states under the SAFE financing mechanism and expected initial loan disbursements beginning in the second quarter of 2026.

The European Commission formally introduced the EU Space Act in June 2025 as a proposed regulation to harmonize legal frameworks across the EU for space activities. It establishes a single market for space service providers and applies to EU and non-EU operators whose activities impact the EU internal market. The regulatory structure will be focused on three areas: safety (including orbital debris mitigation and space situational awareness), resilience (including space-based cybersecurity), and sustainability (including in-orbit servicing). If enacted by the European Parliament and Council, the regulation is designed to apply from January 1, 2030, with a two‑year transition period for existing missions not yet launched by that date. Discussions and commentary on the EU Space Act continues to progress, but no comprehensive language has yet been agreed by relevant stakeholders.

U.S. and international government spending levels and timely funding thereof may adversely affect our financial condition and operating performance over the short and long term. Please refer to Item 1A. “Risk Factors” included in this Quarterly Report on Form 10-Q, for additional information related to government funding risks.

Geopolitical Environment

We operate in a complex and evolving global space and defense environment and our business is affected by geopolitical issues. Russia’s invasion of Ukraine significantly elevated global geopolitical tensions and security concerns, and following the acquisition of Edge Autonomy, a portion of the combined company’s sales are to customers in Ukraine. Those sales have been declining and may continue to decline in the event that the war and hostilities in Ukraine end, decline or change, or as a result of changes in international support for military assistance to Ukraine. Additionally, U.S. involvement in the conflict with Iran may have an impact on U.S. and allied defense spending, but the current impact remains unclear.

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Results of Operations

Substantially all of our contracts within the Space segment and some of our contracts within the Defense Tech segment are accounted for under the percentage-of-completion cost-to-cost method. As a result, revenues on contracts are recorded over time based on progress towards completion for a particular contract, including the estimate of the profit to be earned at completion. The following discussion of material changes in consolidated revenues should be read in tandem with the subsequent discussion of changes in consolidated cost of sales because changes in revenues are typically accompanied by a corresponding change in cost of sales due to the nature of the percentage-of-completion cost-to-cost method.

Net EAC Adjustments

We record changes in costs estimated at completion (net EAC adjustments) using the cumulative catch-up method of accounting. Net EAC adjustments can have a significant effect on reported revenues and gross profit and the table below presents the aggregate amounts for the following periods:

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Results of Operations

We manage and assess our business based on performance on short- and long-term duration contracts, which involves the design, development and manufacturing of our offerings and related activities with varying delivery schedules. Therefore, the results of operations for a particular year, or year-over-year comparison may not be indicative of future operating results. Substantially all of our contracts in the Space segment and a portion of our contracts in the Defense Tech segment are accounted for under the percentage-of-completion cost-to-cost method. As a result, revenues on contracts are recorded over time based on progress towards completion for a particular contract, including the estimate of the profit to be earned at completion. The following discussion of material changes in consolidated revenues should be read in tandem with the subsequent discussion of changes in consolidated cost of sales because changes in revenues are typically accompanied by a corresponding change in cost of sales due to the nature of the percentage-of-completion cost-to-cost method.

Net EAC Adjustments

We record changes in costs estimated at completion (net EAC adjustments) using the cumulative catch-up method of accounting. Net EAC adjustments can have a significant effect on reported revenues and gross profit and the table below presents the aggregate amounts for the following periods:

The Company evaluates the contract value and cost estimates at completion for performance obligations no less frequently than quarterly, and more frequently when circumstances significantly change. Changes in contract estimates occur for a variety of reasons including, but not limited to, changes in contract scope, labor productivity, the nature and technical complexity of the work to be performed, availability and cost volatility of materials, subcontractor and vendor performance, volume assumptions, inflationary trends, and schedule and performance delays. We utilize information available to us at the time when revising our estimates and apply consistent judgment across the full portfolio of programs. The net unfavorable EAC adjustments in 2025 were primarily due to a $25.2 million unfavorable adjustment, including a $12.9 million loss reserve related to a program in the Company’s Defense Tech segment and $14.1 million unfavorable adjustments related to programs in the Space Europe reporting unit as a result of an increase in estimates made for the programmatic and technical assumptions based on the nature and technical complexity of the work to be performed to meet customer specifications. Refer to Note P – Revenues of the accompanying notes to the consolidated financial statements for additional information.

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Results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024:

Revenues

Revenues increased by $31.3 million, or 10%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The year-over-year increase in revenues was primarily related to $107.1 million of revenue related to the Edge Autonomy acquisition. This increase was partially offset by $41.1 million of net unfavorable EAC adjustments for the year ended December 31, 2025 as compared to $17.7 million of net unfavorable EAC adjustments for the same period in 2024. Please refer to Note P – Revenues of the accompanying notes to the consolidated financial statements for additional information related to the Company’s net EAC adjustments. The increase is also partially offset due to timing in the stage of production cycles year-over-year for certain larger contracts for power generation offerings in the Space segment. The foregoing resulted in decreased volume of production and therefore decreased revenue compared to the same period in 2024.

Cost of Sales

Cost of sales increased $58.5 million, or 23%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The year-over-year increase in cost of sales was primarily driven by $70.1 million of costs related to the Edge Autonomy acquisition, including non-cash expense of $13.6 million related to the purchase accounting fair value adjustment to inventory for the inventory on-hand at the Edge Autonomy acquisition date that was subsequently sold, which is non-recurring. The increase is also due to $13.4 million of increases in contract loss reserves recognized during the year ended December 31, 2025 for which there were nominal comparable amounts in 2024. These increases were partially offset by reduced costs due to a shift in the production cycle associated with certain larger contracts in power generation offerings described above.

Gross Profit and Margin

Gross profit decreased $27.2 million, or 61%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. As a percentage of revenues, gross margin was 5% and 15% for the years ended December 31, 2025 and 2024, respectively. The year-over-year decrease in gross margin as a percentage of revenues was driven by a $54.5 million negative impact of net EAC adjustments for the year ended December 31, 2025, as compared to $17.7 million of net unfavorable EAC adjustments for the same period in 2024. Gross profit and gross margin were also adversely impacted by the non-cash expense of $13.6 million related to the purchase accounting fair value adjustment associated with the Edge Autonomy acquisition as described above. Please refer to Note P – Revenues of the accompanying notes to the consolidated financial statements for additional information related to the Company’s net EAC adjustments.

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Selling, General and Administrative (“SG&A”) Expenses

SG&A expenses increased $99.9 million for the year ended December 31, 2025, as compared with the same period in 2024. SG&A expenses as a percentage of revenues also increased to 51% for the year ended December 31, 2025 from 23% during the same period in 2024. The year-over-year increase in SG&A expenses was primarily driven by an increase in share-based compensation of $47.1 million, including $44.4 million related to the Edge Incentive Units, for which there was no comparable cost in 2024. The increase is also due to $48.5 million in SG&A expenses, other than equity-based compensation, related to Edge Autonomy for which there is no comparable cost in 2024. The increase is also partially due to an increase in labor related costs, including severance, intangible amortization and professional fees.

Transaction Expenses

Transaction expenses increased $12.1 million primarily due to costs incurred related to the Edge Autonomy acquisition for the year ended December 31, 2025, as compared with the same period in 2024. Please refer to Note C – Business Combinations of the accompanying notes to the consolidated financial statements for additional information related to acquisitions.

Impairment Expense

The Company recognized impairment expense of $34.7 million for the year ended December 31, 2025, for which there was no comparable expense in the same period of 2024. During the fourth quarter of 2025, the Company performed its annual quantitative goodwill and long-lived asset impairment tests and recorded a non-cash, pre-tax and post-tax impairment charge of $34.7 million. $2.6 million of this amount related to property, plant and equipment, $10.9 million related to intangible assets, and $20.9 million related to goodwill. Please refer to Note F, Note G, and Note H of the accompanying notes to the consolidated financial statements for additional information related to impairment.

Research and Development

Research and development expenses increased $13.6 million for the year ended December 31, 2025 as compared with the same period in 2024 primarily due to $14.9 million of costs related to the Edge Autonomy acquisition.

Interest Expense, net

Interest expense, net increased $26.2 million for the year ended December 31, 2025, as compared to the year ended December 31, 2024. This increase was primarily related to $20.0 million of interest expense recognized related to the repayment of the Seller Note (as defined below). The increase is also partially due to interest on the new JPMorgan Credit Agreement entered into during the year ended December 31, 2025, as well as an increase in borrowings on the Adams Street revolving credit facility compared to 2024. Please refer to Note I – Debt of the accompanying notes to the consolidated financial statements for additional information related to the Company’s debt obligations.

Loss on Extinguishment of Debt

The Company recognized $1.0 million as a loss on extinguishment of debt related to the write-off of unamortized discount and deferred financing costs associated with the term loans and revolving credit facility under the Adams Street Credit Agreement as a result of the early re-payment on the related loans. Please refer to Note I – Debt of the accompanying notes to the consolidated financial statements for additional information related to the Company’s debt obligations.

Other (Income) Expense, net

Other (income) expense, net decreased by $79.5 mi

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