Redwire Corp (RDW) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. 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 consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K. 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 Annual Report on Form 10-K. 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 a global leader in mission critical space solutions and high-reliability space infrastructure for the next generation space economy. Our “Heritage plus Innovation” strategy enables us to combine decades of flight heritage with an agile and innovative culture creating new, innovative technologies which are the building blocks of space infrastructure for government and commercial customers.
Redwire’s primary business model is providing mission critical solutions based on core space infrastructure offerings for government and commercial customers through long-duration projects. We are developing critical space infrastructure that is impacting our
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terrestrial economy in areas, such as national security, global defense, telecommunications, navigation and timing, and Earth observation. Our core space infrastructure offerings include a broad array of modern products and services, which have been enabling space missions since the 1960s and have been flight-proven on over 200 spaceflight missions, including missions such as the National Aeronautics and Space Administration’s (“NASA”) Artemis program, New Horizons and Perseverance, the Space Forces’ GPS, and the European Space Agency’s (“ESA”) Project for On-Board Autonomy (“PROBA”) programs. 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.
Recent Developments
Selected year-over-year financial performance metrics and operational developments for the year ended December 31, 2024, are described below.
•Revenues increased 25% for the year ended December 31, 2024 compared to the same period in 2023.
•Selling, general and administrative expenses as a percentage of revenues decreased to 23% for the year ended December 31, 2024 from 28% during the same period in 2023.
•Net loss increased by $87.0 million for the year ended December 31, 2024 compared to the same period in 2023, impacted by $17.7 million of net unfavorable EAC changes and $52.0 million of non-cash loss related to change in fair value of private warrants.
•Net cash used by operating activities was $17.3 million during the year ended December 31, 2024, as compared to net cash provided by operating activities of $1.2 million during the same period in 2023.
•Contracted backlog decreased year-over-year to $296.7 million as of December 31, 2024, as compared to $372.8 million as of December 31, 2023.
•The Company completed its tenth acquisition in August 2024 of Hera Systems, Inc. (“Hera”), a spacecraft development company supporting the evolving requirements for national security missions operating in contested space.
•The Company expanded its global footprint and opened new facilities in California and Poland (Redwire Poland sp z.o.o.), respectively.
•The Company was awarded the Air Force Research Laboratory (“AFRL”) contract to advance enhanced space-based capabilities for the warfighter.
•The Company provided the onboard computer for ESA’s PROBA-3 mission and completed the spacecraft integration and testing, which launched in December 2024.
•The Company successfully 3D-bioprinted the first live human heart tissue through our 3D BioFabrication Facility onboard the ISS.
•The Company secured a follow-on order for Roll-Out Solar Arrays (“ROSA”) for Thales Alenia Space’s telecommunications satellites.
•The Company expanded its spacecraft portfolio to 5 platforms for missions across every orbit: SabreSate; Thresher; Mako; Phantom and Hammerhead.
Subsequent to December 31, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which the Company agreed to acquire Edge Autonomy Intermediate Holdings, LLC, a Delaware limited liability company (together with its subsidiaries, “Edge Autonomy”) through a series of mergers set forth in the Merger Agreement, for an aggregate purchase price of $925 million, subject to customary working capital, cash and debt adjustments. Edge Autonomy is a leading provider of field-proven uncrewed airborne system technology. Please refer to Note X – Subsequent Events of the accompanying notes to the consolidated financial statements for additional information related to the subsequent acquisition.
Results of Operations
We manage and assess our business based on performance on contracts, which are typically long-term and involves the design, development and manufacturing of our core 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 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.
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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:
| Year Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | December 31, 2024 | December 31, 2023 | ||||||||
| Gross favorable | $ | 12,062 | $ | 11,805 | ||||||
| Gross unfavorable | (29,758) | (15,327) | ||||||||
| Total net EAC adjustments | $ | (17,696) | $ | (3,522) |
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 judgement across the full portfolio of programs. Refer to Note Q – Revenues of the accompanying notes to the consolidated financial statements for additional information.
Results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023:
| Year Ended | $ Change from prior year period | % Change from prior year period | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands, except percentages) | December 31, 2024 | % of revenues | December 31, 2023 | % of revenues | |||||||||||||||||||||
| Revenues | $ | 304,101 | 100 | % | $ | 243,800 | 100 | % | $ | 60,301 | 25 | % | |||||||||||||
| Cost of sales | 259,646 | 85 | 185,831 | 76 | 73,815 | 40 | |||||||||||||||||||
| Gross profit | 44,455 | 15 | 57,969 | 24 | (13,514) | (23) | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||
| Selling, general and administrative expenses | 71,398 | 23 | 68,525 | 28 | 2,873 | 4 | |||||||||||||||||||
| Transaction expenses | 9,129 | 3 | 13 | — | 9,116 | 70,123 | |||||||||||||||||||
| Research and development | 6,128 | 2 | 4,979 | 2 | 1,149 | 23 | |||||||||||||||||||
| Operating income (loss) | (42,200) | (14) | (15,548) | (6) | (26,652) | 171 | |||||||||||||||||||
| Interest expense, net | 13,483 | 4 | 10,699 | 4 | 2,784 | 26 | |||||||||||||||||||
| Other (income) expense, net | 60,648 | 20 | 1,503 | 1 | 59,145 | 3,935 | |||||||||||||||||||
| Income (loss) before income taxes | (116,331) | (38) | (27,750) | (11) | (88,581) | 319 | |||||||||||||||||||
| Income tax expense (benefit) | (2,020) | (1) | (486) | — | (1,534) | 316 | |||||||||||||||||||
| Net income (loss) | (114,311) | (38) | (27,264) | (11) | (87,047) | 319 | |||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | 4 | — | (1) | — | 5 | (500) | |||||||||||||||||||
| Net income (loss) attributable to Redwire Corporation | $ | (114,315) | (38) | % | $ | (27,263) | (11) | % | $ | (87,052) | 319 | % |
Revenues
Revenues increased by $60.3 million, or 25%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The year-over-year increase in revenues was primarily related to increases in average contract size and increased volume of production in the power generation and structures and mechanisms space infrastructure offerings. These increases were partially offset by $17.7 million of net unfavorable EAC adjustments for the year ended December 31, 2024 as compared to $3.5 million of net unfavorable EAC adjustments for the same period in 2023. Please refer to Note Q – Revenues of the accompanying notes to the consolidated financial statements for additional information related to the Company’s net EAC adjustments.
Cost of Sales
Cost of sales increased $73.8 million, or 40%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The year-over-year increase in cost of sales was primarily driven by increased labor and subcontractor costs associated with larger contracts in power generation offerings for which there were no related costs during the same period in 2023.
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Gross Profit and Margin
Gross profit decreased $13.5 million, or 23%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. As a percentage of revenues, gross margin was 15% and 24% for the year ended December 31, 2024 and 2023, respectively. The year-over-year decrease in gross margin as a percentage of revenues was driven by changes in contract mix, including larger contracts with lower margins and completion of certain higher margin contracts, impacting the overall contract portfolio gross margin. The decrease is also partially due to a $17.7 million negative impact of net EAC adjustments for the year ended December 31, 2024 as compared to $3.5 million of net unfavorable EAC adjustments for the same period in 2023. Please refer to Note Q – Revenues of the accompanying notes to the consolidated financial statements for additional information related to the Company’s net EAC adjustments.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses increased $2.9 million, or 4%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The year-over-year increase in SG&A expenses was primarily driven by an increase in legal expenses, share-based compensation and marketing expenses of $2.8 million, $2.7 million and $0.8 million, respectively. These increases were partially offset by a decrease in professional fees and insurance expense of $3.4 million. SG&A expenses as a percentage of revenues decreased to 23% for the year ended December 31, 2024 from 28% during the same period in 2023. This decrease reflects the Company’s continued focus on cost discipline and streamlining corporate overhead costs to enhance operating leverage.
Transaction Expenses
Transaction expenses increased $9.1 million for the year ended December 31, 2024, as compared with the same period in 2023. The increase is primarily due to costs incurred related to the Hera acquisition as well as pre-acquisition costs incurred consisting of due diligence and additional expenses related to prospective acquisitions, including the subsequent acquisition of Edge Autonomy. Please refer to Note X – Subsequent Events of the accompanying notes to the consolidated financial statements for additional information related to the subsequent acquisition.
Research and Development
Research and development expenses increased $1.1 million, or 23%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023. The increase was primarily due to strategic decisions to invest in future developments related to avionics, sensors and platforms, structures and mechanisms, power generation technologies and microgravity payloads.
Interest Expense, net
Interest expense, net increased $2.8 million, or 26%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. This increase was primarily related to an increase in borrowings on the revolving credit facility compared to 2023. Please refer to Note J – 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 increased by $59.1 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023. This year-over-year increase was primarily due to a $52.0 million loss as a result of an increase in the fair value of the Company’s private warrant liability for the year ended December 31, 2024 as compared to a $2.0 million loss during the same period in 2023, driven by a larger increase in the Company’s common stock price during the year ended December 31, 2024 as compared to the increase during 2023. The increase was also due to an $8.0 million loss contingency recognized for a litigation matter, for which there was no comparable cost in 2023. Please refer to Note N – Commitments and Contingencies and Note D – Fair Value of Financial Instruments of the accompanying notes to the consolidated financial statements for additional information related to litigation matters and private warrants, respectively.
Income Tax Expense (Benefit)
The table below provides information regarding our income tax expense (benefit) for the following periods:
| Year Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands, except percentages) | December 31, 2024 | December 31, 2023 | ||||||||
| Income tax expense (benefit) | $ | (2,020) | $ | (486) | ||||||
| Effective tax rate | 1.7 | % | 1.8 | % |
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The effective tax rate for the year ended December 31, 2024 remained materially consistent as compared to the year ended December 31, 2023. Please refer to Note M – Income Taxes of the accompanying notes to the consolidated financial statements for additional information.
Net Income (Loss) Attributable to Noncontrolling Interests
The net income (loss) attributable to noncontrolling interests for the year ended December 31, 2024 and 2023 was de minimis. Please refer to Note U – Joint Venture of the accompanying notes to the consolidated financial statements for additional information.
Supplemental Non-GAAP Information
During the third quarter of 2024, we changed the Supplemental Non-GAAP Information to present only Adjusted EBITDA, whereas prior period disclosures also presented Pro Forma Adjusted EBITDA. Management believes the presentation of Pro Forma Adjusted EBITDA no longer provides the same meaningful insights into the Company’s performance as it did during the initial years of the Company’s formation. Prior period disclosures were recast to conform to current presentation. There was no change in the calculation of Adjusted EBITDA.
We use Adjusted EBITDA to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources which are not calculated in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and are considered to be Non-GAAP financial performance measures. These Non-GAAP financial performance measures are used to supplement the financial information presented on a U.S. GAAP basis and should not be considered in isolation or as a substitute for the relevant U.S. GAAP measures and should be read in conjunction with information presented on a U.S. GAAP basis. Because not all companies use identical calculations, our presentation of Non-GAAP measures may not be comparable to other similarly titled measures of other companies.
Adjusted EBITDA is defined as net income (loss) adjusted for interest expense, net, income tax expense (benefit), depreciation and amortization, impairment expense, transaction expenses, acquisition integration costs, acquisition earnout costs, purchase accounting fair value adjustment related to deferred revenue, severance costs, capital market and advisory fees, litigation-related expenses, write-off of long-lived assets, equity-based compensation, committed equity facility transaction costs, debt financing costs, gains on sale of joint ventures, and warrant liability change in fair value adjustments.
The table below presents a reconciliation of Adjusted EBITDA to net income (loss), computed in accordance with U.S. GAAP for the following periods:
| Year Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | December 31, 2024 | December 31, 2023 | ||||||||
| Net income (loss) | $ | (114,311) | $ | (27,264) | ||||||
| Interest expense, net | 13,483 | 10,699 | ||||||||
| Income tax expense (benefit) | (2,020) | (486) | ||||||||
| Depreciation and amortization | 11,692 | 10,724 | ||||||||
| Transaction expenses (i) | 9,129 | 13 | ||||||||
| Acquisition integration costs (i) | 609 | 546 | ||||||||
| Purchase accounting fair value adjustment related to deferred revenue (ii) | — | 15 | ||||||||
| Severance costs (iii) | 867 | 313 | ||||||||
| Capital market and advisory fees (iv) | 6,703 | 8,607 | ||||||||
| Litigation-related expenses (v) | 11,011 | 1,235 | ||||||||
| Equity-based compensation (vi) | 11,326 | 8,658 | ||||||||
| Committed equity facility transaction costs (vii) | — | 259 | ||||||||
| Debt financing costs (viii) | — | 17 | ||||||||
| Gain on sale of joint ventures, net of costs incurred (ix) | (1,255) | — | ||||||||
| Warrant liability change in fair value adjustment (x) | 51,960 | 2,011 | ||||||||
| Adjusted EBITDA | $ | (806) | $ | 15,347 |
i.Redwire incurred acquisition costs including due diligence, integration costs and additional expenses related to pre-acquisition activity. Acquisition deal costs was reclassified as Transaction expenses to conform with current period presentation.
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ii.Redwire recorded adjustments related to the impact of recognizing deferred revenue at fair value as part of the purchase accounting for previous acquisitions.
iii.Redwire incurred severance costs related to separation agreements entered into with former employees.
iv.Redwire incurred capital market and advisory fees related to advisors assisting with transitional activities associated with becoming a public company, such as implementation of internal controls over financial reporting, and the internalization of corporate services, including, but not limited to, implementing enhanced enterprise resource planning systems.
v.Redwire incurred expenses related to securities litigation, including a loss contingency, presented net of an anticipated insurance recovery, in the amount of $7.0 million recognized in 2024. Refer to Note N – Commitments and Contingencies of the accompanying notes to the consolidated financial statements for additional information.
vi.Redwire incurred expenses related to equity-based compensation under Redwire’s equity-based compensation plan.
vii.Redwire incurred expenses related to the committed equity facility with B. Riley, which includes consideration paid to enter into the Purchase Agreement as well as changes in fair value recognized as a gain or loss during the respective periods.
viii.Redwire incurred expenses related to debt financing agreements, including amendment related fees paid to third parties that are expensed in accordance with U.S. GAAP.
ix.Redwire recognized a gain related to the sale of all its ownership in two joint ventures, presented net of transaction costs incurred, as further described in Note U – Joint Venture of the accompanying notes to the consolidated financial statements.
x.Redwire adjusted the private warrant liability to reflect changes in fair value recognized as a gain or loss during the respective periods.
Key Performance Indicators
The following Key Performance Indicators (“KPIs”) are used by Management to assess the financial performance of the Company, monitor relevant trends and support financial, operational and strategic decision-making. Management frequently monitors and evaluates KPIs against internal targets, core business objectives as well as industry peers and may, on occasion, change the mix or calculation of KPIs to better align with the business, its operating environment, standard industry metrics, or other considerations. If the Company changes the method by which it calculates or presents a KPI, prior period disclosures are recast to conform to current presentation.
Book-to-Bill
Our book-to-bill ratio was as follows for the periods presented:
| Last Twelve Months | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands, except ratio) | December 31, 2024 | December 31, 2023 | ||||||||
| Contracts awarded | $ | 229,789 | $ | 300,042 | ||||||
| Revenues | 304,101 | 243,800 | ||||||||
| Book-to-bill ratio | 0.76 | 1.23 |
Book-to-bill is the ratio of total contracts awarded to revenues recorded in the same period. The contracts awarded balance includes firm contract orders, including time-and-material (“T&M”) contracts, awarded during the period and does not include unexercised contract options or potential orders under indefinite delivery/indefinite quantity contracts. Although the contracts awarded balance reflects firm contract orders, terminations, amendments, or contract cancellations may occur which could result in a reduction to the contracts awarded balance.
We view book-to-bill as an indicator of future revenue growth potential. To drive future revenue growth, our goal is for the level of contracts awarded in a given period to exceed the revenue recorded, thus yielding a book-to-bill ratio greater than 1.0.
Our book-to-bill ratio was 0.76 for the LTM (“Last Twelve Months”) ended December 31, 2024, as compared to 1.23 for the LTM ended December 31, 2023. For the LTM ended December 31, 2024, contracts awarded includes $21.9 million of acquired contract value from the Hera Systems acquisition, which was completed in the third quarter of 2024. For the LTM ended December 31, 2023, none of the contracts awarded balance relates to acquired contract value.
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Backlog
The following table presents our contracted backlog as of December 31, 2024 and December 31, 2023, and related activity for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
| (in thousands) | December 31, 2024 | December 31, 2023 | ||||
|---|---|---|---|---|---|---|
| Organic backlog, beginning balance | $ | 372,790 | $ | 313,057 | ||
| Organic additions during the period | 207,704 | 300,042 | ||||
| Organic revenue recognized during the period | (297,699) | (243,800) | ||||
| Foreign currency translation | (1,826) | 3,491 | ||||
| Organic backlog, ending balance | 280,969 | 372,790 | ||||
| Acquisition-related contract value, beginning balance | — | — | ||||
| Acquisition-related contract value acquired during the period | 21,940 | — | ||||
| Acquisition-related additions during the period | 145 | — | ||||
| Acquisition-related revenue recognized during the period | (6,402) | — | ||||
| Acquisition-related backlog, ending balance | 15,683 | — | ||||
| Contracted backlog, ending balance | $ | 296,652 | $ | 372,790 |
We view growth in backlog as a key measure of our business growth. Contracted backlog represents the estimated dollar value of firm funded executed contracts for which work has not been performed (also known as the remaining performance obligations on a contract). Our contracted backlog includes $16.7 million and $19.3 million in remaining contract value from T&M contracts as of December 31, 2024 and as of December 31, 2023, respectively.
Organic backlog change excludes backlog activity from acquisitions for the first four full quarters since the entities’ acquisition date. Contracted backlog activity for the first four full quarters since the entities’ acquisition date is included in acquisition-related contracted backlog change. After the completion of four fiscal quarters, acquired entities are treated as organic for current and comparable historical periods.
Organic contract value includes the remaining contract value as of January 1 not yet recognized as revenue and additional orders awarded during the period for those entities treated as organic. Acquisition-related contract value includes remaining contract value as of the acquisition date not yet recognized as revenue and additional orders awarded during the period for entities not treated as organic. Organic revenue includes revenue earned during the period presented for those entities treated as organic, while acquisition-related revenue includes the same for all other entities, excluding any pre-acquisition revenue earned during the period. The acquisition-related backlog activity presented in the table above is related to the Hera Systems acquisition completed during third quarter of 2024.
Although contracted backlog reflects business associated with contracts that are considered to be firm, terminations, amendments or contract cancellations may occur, which could result in a reduction in our total backlog. In addition, some of our multi-year contracts are subject to annual funding. Management expects all amounts reflected in contracted backlog to ultimately be fully funded. Contracted backlog from foreign operations in Luxembourg and Belgium was $70.5 million and $106.0 million as of December 31, 2024 and December 31, 2023, respectively. These amounts are subject to foreign exchange rate translations from euros to U.S. dollars that could cause the remaining backlog balance to fluctuate with the foreign exchange rate at the time of measurement.
Liquidity and Capital Resources
Our operations are primarily funded with cash flows provided by operating activities and access to existing credit facilities. As of December 31, 2024, we had $33.7 million in cash and cash equivalents and $15.0 million in available borrowings from our existing credit facilities. Additionally, we had $15.4 million in restricted cash which consists of a cash-collateralized standby letter of credit for a submitted proposal. Included in the restricted cash balance is $7.8 million of proceeds received from third-parties that is refundable except in certain limited circumstances.
Our primary requirements for liquidity and capital are for the Company’s material cash requirements, including working capital needs, satisfaction of our indebtedness and contractual commitments, investment in expanding our breadth and footprint through acquisitions as well as investment in facilities, equipment, technologies, and research and development for our growth initiatives and general corporate needs.
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Our ability to fund our cash needs is dependent upon the successful execution of our business strategy and future operating results. Our future operating results are subject to, among others, general economic conditions, including as a result of heightened inflation, rising interest rates and supply chain pressures, competitive dynamics in our target markets as well as legislative and regulatory factors that may be outside of our control. As part of our business and debt management strategy, we continuously evaluate opportunities to further strengthen our financial and liquidity position, including issuing additional equity or debt securities, refinancing or otherwise restructuring our existing credit facilities, or entering into new financing arrangements. There can be no assurance that any of these actions will be sufficient to allow us to adequately service our debt obligations, meet our debt covenants, or that such actions will not result in an adverse impact on our business. In the event that we require additional financing, we may not be able to secure such financing on terms acceptable to us or at all.
We believe our existing sources of liquidity will be sufficient to meet our working capital needs and comply with our debt covenants for at least the next twelve months from the date on which our consolidated financial statements were issued.
Indebtedness
Please refer to Note J – Debt of the accompanying notes to the consolidated financial statements for additional information related to the Company’s debt obligations.
Off-Balance Sheet Arrangements
From time to time, we are a party to certain off-balance sheet arrangements, such as standby letters of credit. Liabilities related to these arrangements are generally not reflected in our consolidated balance sheets. We do not expect any material impact on our cashflows, results of operations or financial condition to result from these off-balance sheet arrangements.
As of December 31, 2024, we had $15.4 million of standby letters of credit outstanding for a submitted proposal, which were secured by our restricted cash. Refer to Note B of the accompanying notes to the consolidated financial statements for additional information related to the Company’s restricted cash.
Contractual Obligations
The following table presents our contractual obligations as of December 31, 2024:
| 2025 | 2026 | 2027 | 2028 | 2029 | Thereafter | Total | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Adams Street Term Loan | $ | 310 | $ | 29,902 | $ | — | $ | — | $ | — | $ | — | $ | 30,212 | ||||||||||||
| Adams Street Delayed Draw Term Loan | 150 | 14,469 | — | — | — | — | 14,619 | |||||||||||||||||||
| Adams Street Incremental Term Loan | 320 | 30,948 | — | — | — | — | 31,268 | |||||||||||||||||||
| Adams Street Revolving Credit Facility | — | 50,000 | — | — | — | — | 50,000 | |||||||||||||||||||
| D&O Financing Loan | 486 | — | — | — | — | — | 486 | |||||||||||||||||||
| Total long-term debt maturities | 1,266 | 125,319 | — | — | — | — | 126,585 | |||||||||||||||||||
| Future minimum operating lease payments | 5,485 | 4,545 | 4,366 | 2,861 | 1,836 | 2,858 | 21,951 | |||||||||||||||||||
| Future minimum finance lease payments | 571 | 462 | 382 | 218 | 42 | — | 1,675 | |||||||||||||||||||
| Total contractual obligations | $ | 7,322 | $ | 130,326 | $ | 4,748 | $ | 3,079 | $ | 1,878 | $ | 2,858 | $ | 150,211 |
During the year ended December 31, 2023, the Company entered into an economic development agreement to serve as the anchor tenant at the Novaparke Innovation & Technology Campus in Floyd County, Indiana, the construction of which is anticipated to be completed during fiscal year 2025. In accordance with the agreement, the Company has entered into a lease for a 30,000 square foot property. As of December 31, 2024, the Company had entered into two facility leases, including Novaparke, which had not yet commenced but created significant future lease obligations in the amount of $3.8 million. The contracts were determined to be operating leases, whereby the Company is not required to make rent payments prior to the lease commencement dates while construction is completed on the underlying assets. Due to the nature of the work and the amount of the Company’s contribution to the construction period costs for the leases, the Company was determined not to be the owner of the assets under construction as the landlords have substantially all of the construction period risks.
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Cash Flows
The table below summarizes certain information from the consolidated statements of cash flows for the following periods:
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (in thousands) | December 31, 2024 | December 31, 2023 | ||||
| Cash, cash equivalents and restricted cash at beginning of year | $ | 30,278 | $ | 28,316 | ||
| Operating activities: | ||||||
| Net income (loss) | (114,311) | (27,264) | ||||
| Reconciling adjustments to net income (loss) | 75,006 | 21,700 | ||||
| Changes in working capital | 21,957 | 6,795 | ||||
| Net cash provided by (used in) operating activities | (17,348) | 1,231 | ||||
| Net cash provided by (used in) investing activities | (7,199) | (8,327) | ||||
| Net cash provided by (used in) financing activities | 43,716 | 9,060 | ||||
| Effect of foreign currency rate changes on cash, cash equivalents and restricted cash | (376) | (2) | ||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 18,793 | 1,962 | ||||
| Cash, cash equivalents and restricted cash at end of period | $ | 49,071 | $ | 30,278 |
Operating activities
Net cash used in operating activities was $17.3 million during the year ended December 31, 2024 compared to net cash provided by operating activities of $1.2 million, resulting in a $18.6 million increase in the use of cash year-over-year. The change was primarily due to an increase of $87.0 million in cash used related to the Company’s net loss for the year ended December 31, 2024 in comparison to 2023, partially offset by an increase in cash provided by working capital of $15.2 million and increase of $53.3 million in the effects of non-cash adjustments. The increase in cash provided by working capital is primarily related to an increase of $9.7 million and $4.4 million in other liabilities and accounts payable and accrued expenses, respectively, compared to a decrease of $1.0 million and $3.3 million in the same accounts for 2023, respectively. These working capital increases were partially offset by a decrease in contract assets of $7.1 million compared to a decrease of $5.4 million in contract assets for 2023. The increases in accounts payable and accrued expenses is primarily a result of timing of payments and invoice receipt and the increase in other liabilities is primarily related to the loss contingency recognized related to a litigation matter. Please refer to Note N – Commitments and Contingencies of the accompanying notes to the consolidated financial statements for additional information related to litigation matters. The changes in contract assets were primarily driven by the timing of billable milestones during the year ended December 31, 2024 compared to 2023. The increase in non-cash adjustments is primarily related to an increase in the fair value of the outstanding private warrants of $52.0 million during the year ended December 31, 2024 compared to 2023. Please refer to Note D – Fair Value of Financial Instruments of the accompanying notes to the consolidated financial statements for additional information related to the fair value of warrants.
Investing activities
Net cash used in investing activities decreased by $1.1 million for the year ended December 31, 2024, as compared to the same period in 2023. The change was due to net proceeds of $4.6 million received from the sale of the Company’s joint ventures, partially offset by an increase of $2.6 million in capital expenditures primarily related to licensed software for internal-use and $0.9 million cash used, net of cash acquired related to the Hera Systems acquisition.
Financing activities
Net cash provided by financing activities increased by $34.7 million during the year ended December 31, 2024, as compared to 2023. The change was primarily due to an increase in net proceeds received from debt of $37.1 million during the year ended December 31, 2024, compared to $10.0 million in 2023 and advances from third-parties of $7.8 million. The increase in proceeds received from debt was driven primarily by increased draws from the Adams Street Revolving Credit Facility during the year ended December 31, 2024, compared to 2023.
Foreign Currency Exposures
Our operations in Europe conduct transactions that are primarily denominated in euros, which limits our foreign currency exposure. However, changes in exchange rates will affect the Company’s consolidated financial statements as expressed in U.S. dollars.
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Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in conformity with U.S. GAAP, which requires us to make estimates, assumptions and judgments that affect the amounts reported in our consolidated financial statements and accompanying notes to the consolidated financial statements. For the critical accounting estimates used in preparing our consolidated financial statements, we make assumptions and judgments that can have a significant impact on net revenues, cost and expenses, and other (income) expense, net, in our consolidated statements of operations and comprehensive income (loss), as well as, on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions.
We believe the following accounting policies are the most critical to the understanding of our consolidated financial statements and require the use of significant management judgment. For a summary of our significant accounting policies, please refer to Note B – Summary of Significant Accounting Policies of the accompanying notes to the consolidated financial statements.
Goodwill, Intangible and Long-lived Assets
Overview
The Company allocates the purchase price of an acquired business to the underlying tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at acquisition date, with the excess recorded as goodwill. Identifiable finite-lived intangible assets from acquired businesses primarily consist of technology, trademarks, and customer relationships. The accounting for business combinations requires us to make significant estimates and assumptions, especially with respect to goodwill, intangible assets, and contingent consideration, which can be affected by contract performance and other factors over time. This may cause final amounts to differ materially from original estimates. Adjustments to the fair value of purchased assets and liabilities after the initial measurement period are recognized in net earnings.
Impairment Testing
The Company assesses goodwill and indefinite-lived intangible assets for impairment annually for impairment as of October 1st, or more frequently if events or circumstances indicate the carrying value may be impaired. Such events or circumstances may include, but are not limited to:
•deterioration in overall economic conditions;
•failure to reach our internal forecasts could impact our ability to achieve our forecasted levels of cash flows;
•adverse technological events that could impact our performance;
•volatility in equity and debt markets resulting in higher discount rates; and
•significant adverse changes in the regulatory environment or markets in which we operate.
Our goodwill and indefinite-lived intangible assets are allocated to and tested for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. The Company has five reporting units, Mission Solutions, Space Components, Engineering Services, Hera Systems and Redwire Europe, which were determined based on similar economic characteristics, financial metrics and product and servicing offerings. We may use both qualitative and quantitative approaches when testing goodwill and indefinite-lived intangible assets for impairment. In circumstances where a qualitative analysis indicates that the fair value of a reporting unit does not exceed its carrying value, a quantitative analysis is performed using an income approach.
When performing a quantitative analysis, the fair value of the Company’s reporting units are generally determined using a combination of an income approach based on a discounted cash flow (“DCF”) model as well as a market approach based on guideline public company revenues and earnings before interest, tax, depreciation and amortization multiples. Determining the fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analysis are based on the Company best estimate of future revenues, gross margins, operating expenses, and cash flows with consideration for other factors, such as general market conditions, U.S. and foreign government budgets, existing contracted and uncontracted backlog, subcontractor agreements, changes in working capital, long-term business plans and historical operating performance. These estimates and judgments are based upon information available at the time and have been deemed reasonable by management as of the measurement date. The discount rates utilized in the DCF model are based on the respective reporting unit’s weighted average cost of capital (“WACC”), which takes into account the relative weights of debt and equity components within the Company’s existing capital structure and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the respective reporting unit. Actual results could differ from these assumptions.
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During 2024 and 2023, the Company performed its annual impairment tests for each of our reporting units and concluded there were no indicators that the fair value was more likely than not below carrying value. Therefore, no quantitative assessment was performed and no goodwill impairment was recognized during 2024 and 2023, respectively.
Finite-lived intangible assets and long-lived assets are amortized to expense over their estimated useful life on a straight-line basis or over the period the economic benefits of the intangible asset are consumed. The Company evaluates its intangible and long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of an asset or asset group may be impaired. If events or changes in circumstances indicate that the carrying value of an asset or asset group may be impaired, the sum of the undiscounted expected future cash flows of the asset or asset group are compared to the asset or asset group’s carrying value. If the asset or asset group’s carrying value exceed the sum of undiscounted cash flows, the Company records an impairment loss equal to the excess of carrying amount over the estimated fair value of the asset or asset group.
During 2024 and 2023, the Company identified no triggering events and therefore, no impairment assessment was performed on its intangible and long-lived assets.
Revenue Recognition
The Company engages in long-term contracts, including firm fixed-price (“FFP”), cost-plus fixed fee (“CPFF”) and T&M for production and service activities. The Company recognizes revenue for performance obligations over time using the cost-to-cost method for FFP and CPFF contracts. Revenue from T&M contracts is recognized based on the number of direct labor hours expended in the performance of a contract multiplied by the contract billing rate, as well as reimbursement of other direct billable costs. Revenue is recognized over time for FFP and CPFF contracts (versus point in time recognition) due to the fact that the Company’s performance creates an asset with no alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. The portion of the payments retained by the customer or advance payment is not considered a significant financing component because it is used to facilitate inventory demands at the onset of a contract and to safeguard the Company from the failure of the other party to abide by some or all of their obligations under the contract.
Under the cost-to-cost method, revenue is recognized based on the proportion of total costs incurred to total estimated costs-at-completion (“EAC”). An EAC includes all direct costs and indirect costs directly attributable to a program or allocable based on our program cost pooling arrangements. Estimates regarding the Company’s cost associated with the design, manufacture and delivery of products and services are used in determining the EAC.
We prepare EACs for our FFP and CPFF contracts and calculate estimated revenues and costs over the life of our contracts. Accounting for long-term contracts requires significant judgment relative to estimating total contract revenues and costs, in particular, assumptions relative to the amount of time to complete the contract, including the assessment of the nature and complexity of the work to be performed. The Company’s estimates are based upon the professional knowledge and experience of its engineers, program managers and other personnel, who review each long-term contract monthly to assess the contract’s schedule, performance, technical matters and EAC. Factors considered in these estimates include our historical performance, the availability, productivity and cost of labor, the nature and complexity of work to be performed, availability and cost of materials, components and subcontracts, the risk and impact of delayed performance and the level of indirect cost allocations. Changes in estimates are retrospectively applied and when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods. When total EACs on a contract exceed the total revenue, a provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is evident.
Private Warrants
Classification of the Company’s private warrants is based on management’s analysis of the guidance in ASC 815, Derivatives and Hedging, and in a statement issued by the Staff of the Securities and Exchange Commission regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies.” The Company determined that the private warrants meet the definition of a derivative and, therefore, are classified as a liability measured at fair value, subject to remeasurement at each reporting period. The Company measures the private warrant liability at fair value each reporting period with the change in fair value recorded as other (income) expense, net in the consolidated statements of operations and comprehensive income (loss).