Greetings, and welcome to Redwire’s Third Quarter 2022 Earnings Conference Call. My name is Zico, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. We will take questions at the end of this presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today’s call, Nicole Taylor, Vice President, Financial Operations and Investor Relations. Ms. Taylor, you may begin your conference call.

Thank you, and good morning, everyone. Welcome to Redwire’s third quarter 2022 earnings call. We hope that you have seen our earnings release, which we issued yesterday afternoon after market close, and it is posted in the Investor Relations section of our website at redwirespace.com. Let me remind everyone that during the call, Redwire management may make forward-looking statements that reflect our beliefs, expectations, intentions or predictions of the future. Our forward-looking statements are subject to risks and uncertainties that are described in more detail on slide 2. Additionally, to the extent we discuss non-GAAP measures during the call, please see slide 3, our earnings release or the investor presentation on our website for the calculation of these measures and GAAP reconciliations. As previously mentioned, I am Nicole Taylor, Redwire's Vice President of Financial Operations and Investor Relations. Joining me on today's call are Peter Cannito, Chairman and Chief Executive Officer; Andrew Rush, President and Chief Operating Officer; and Jonathan Baliff, Chief Financial Officer. With that, I would like to turn the call over to Pete. Pete?

Great. Thank you, Nicole. During today's call, we'll start with a quarterly update for me, followed by Andrew, who will present operational highlights for the quarter, and then he will be followed by Jonathan, who will present the financial highlights for the third quarter. After we finish our presentation, we will then open the floor for Q&A. Before I begin, please note, all figures in this presentation do not include our recent acquisition of Space NV unless otherwise noted as that acquisition closed in Q4. Next slide, please. Before we begin, as it is traditional with all quarterly presentations, I'd like to point out that the imagery used in this slide deck are of actual missions that use Redwire solutions. On this slide, we have the NASA Surface Water and Ocean Topography or SWOT satellite mission developed by JPL. SWOT is the first satellite mission that will observe nearly all waters on Earth's surface, measuring the height of water in the planet lakes, rivers, reservoirs and the oceans. Redwire is providing critical navigation components called Sun Sensors to enable this mission and will be scheduled to launch next month on December 5. Please turn to slide 7. As we talked about in previous calls, we are at the early stages of a multi-decade new global space race with space agencies in Europe, the US and around the world increasingly focused on space as a competitive domain. This broader geopolitical landscape has driven increased US governmental budgets on national defense with notably larger increases for space. However, despite this strong demand, we have experienced some delays in contracts award here at Redwire. These delays, combined with a tight labor market for space talent and subcontractor supply chain disruptions have slowed our ability to ramp-up and quickly realize revenue after contract selection…

Thank you, Pete. Before we get into the details of our last quarter, I'd like to point out this image. What you see here is the LOFTID technology demonstrator being inspected in preparation for launch alongside the JPSS-2 satellite later this month. LOFTID is set to demonstrate an inflatable heat shield technology useful for both landing on Mars as well as economically recovering rockets. Redwire is proud to have provided both cameras and a deployable data recorder for this demonstration. Please turn to Slide 12. We Redwire continues to be a trailblazer in space infrastructure for the next-generation space economy. As Pete mentioned, driven by continued progress in operational execution and subcontractor performance, we delivered more from both a revenue perspective and the gross margin perspective in Q3 compared to Q2 2022, as well as compared to Q2 of 2021. Redwire continues to demonstrate operational excellence through our on-time and early delivery of products and solutions despite supply chain pressures and macroeconomic headwinds. As many of you may have seen on the news recently, Redwire was a participant in NASA's successful execution of the Planetary Defense, Double Asteroid Redirection Test, which most people know is DART. We supplied mission-critical navigation components and rollout full arrays for that successful demonstration. NG-18 launched a few days ago and docked this morning with the International Space Station, delivering a Redwire built update 3D bioprinter, BioFabrication Facility or BFF, the Advanced Space Experiment Processor, which we call the ADSEP facility, and a few other facilities, which will investigate new treatments to aid military service members, expand crop production research and expand materials testing on orbit. Redwire also delivered some sensor components in advanced optical imaging technologies to NASA, which we anticipated for launch on NASA's historic Artemis 1 mission to the moon. And SpaceX…

Thank you, Andrew. Similar to last quarter, I will help quantify and expound on a number of the themes that Pete and Andrew just talked about. But before I do, on slide 15 here, let me just highlight, our outstanding team members prepping the Solar Arrays for the DART impactor spacecraft in 2021 for the recently successful mission that Andrew just talked about, in which the spacecraft impacted Dimorphos on September 26th, 2022, exciting, but a bit bittersweet for Redwire to see two of our 28-foot Solar Arrays or ROSA Arrays, taking one for the team for Planet Earth. All right. Let's turn to slide 16 for some key financial takeaways. And just to be direct on these key points. One, Redwire continues to execute on exciting and proven critical infrastructure for our customers, DART, ARTEMIS, NG-18 Bioprinting just a few of these, these are creating the revenue growth year-over-year in our proved financial performance sequentially. Two, Redwar continues to grow our total backlog. Demand for our infrastructure is leading to growth in our total backlog and this quarter is at historical high-levels. Three, Redwar is back with a financially accretive M&A transaction, this fourth quarter with Space NV that will add even more to our total backlog, revenue growth, sequential financial performance, as we continue to streamline the business, get more operating leverage into the business for the rest of fiscal year 2022 and 2023. Four, and finally, Redwire is strengthening its balance sheet and liquidity position with the addition of approximately $80 million in capital, accretive financing for Space NV with additional capital expected to provide for future growth and stability. I will go over some of the revenue specifics very quickly, but just to reiterate, our third quarter fiscal year 2022, saw higher revenues year-over-year and sequentially,…

All right. Thank you, Jonathan. So to wrap-up, a very busy and exciting third quarter with some very notable subsequent events recently occurring in early Q4. Here are the high points we want you to take away. Most importantly, Redwire continues to deliver for our customers, not in the future, but in the present, we're generating revenue and backlog today. Andrew talked about a number of these different programs, the recent successful launch of NG-18, which was carrying our next-generation bio printer, our cameras that weather permitting are going to be launching on Artemis here in the next quarter. The set of iROSA Solar Arrays that are on SpaceX CRS-26, that are headed to the international space station. These and others created this third quarter 2022 revenue growth year-over-year and improved our financial performance sequential even with the delays in the contract ramp up which have impacted financial performance in 2022 guidance. Next, Redwire continues to grow total backlog. You’ve heard it a couple of times from myself, Jonathan and Andrew that we head a historic high in our total backlog. Demand for our infrastructure is leading to this historic growth. Thirdly, Redwire continues our successful track record of financially accretive acquisitions to scale our platform. We are notable in the industry for our ability to grow inorganically. And this quarter with Space NV, this will add to our total backlog. This will increase our revenue growth and will improve our sequential financial performance as we streamline and get more operating leverage into the business for the rest of fiscal year 2022 and 2023. We're very excited about this unique acquisition. And finally, as Jonathan just covered in great detail, Redwire is strengthening its balance sheet and liquidity position, with the addition of approximately $80 million in capital from highly respected industry investors, Bain Capital and AEI. This is resulting -- this has resulted in an accretive financing for Space NV with additional capital for future growth and stability. And with that, I now turn it over to the operator for Q&A.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from the line of Greg Konrad with Jefferies. Please state your question.

Good morning. Maybe just to begin, just on guidance, you mentioned improved Q4 performance, but at the low end of guidance, it seems like revenues could be down sequentially. Can you maybe talk about with less than two months ago, what are the biggest variables? You mentioned labor, supply chain awards and driving that wide range for the year? And then tied to that, you mentioned nothing has been updated for Space NV. Is there a reason that, that wouldn't contribute to the final two months of the year?

Yes. Hey Greg, how are you. That's a great question. Yes. So the -- I appreciate the question. So the biggest factor is really, as you saw, we're hitting historic highs in backlog is our ability to ramp up on those contracts. You hit the top two that we mentioned, the demand for space talent in the industry and the ability to hire to get those individuals up and running on our most recent contracts award, as well as getting our subcontractors to fulfill our orders as we're running out of time in the fourth quarter. So that's what's really driving the variability. It's not for lack of demand of our products and services. It's really about the ability to predict how quickly we're going to be ramped up -- be able to ramp up with the remaining time in the year. And considering the Space NV, we deliberately, because Space NV happened early in the -- the closing early, in Q4 have not included any of their numbers in our forecasting for the remainder of the year, but most certainly under our ownership for the fourth quarter, we will quantify the additional revenue and backlog that Space NV will bring probably during our next earnings call. But, notably, we will have a solid two months of run time plus with Space NV as part of us. So these projections do not -- and the forecast for the remaining year do not include any of that. That's all upside for us.

That's helpful. And then on labor, can you maybe quantify some of the stress. I mean, the labor issues, obviously, aren't unique to you, and we've been hearing it across suppliers. But is there any way to think about what the requirements are and how that's been trending? And then how does maybe inflation and wages impact those numbers?

Yeah. Also a very good question. So we don't have any quantitative data that we've prepared to share. But again, there's -- space industry is growing fast. There's a limited talent pool right now. So getting out there and competitively hiring people is taking longer than we had previously projected. We are growing. It just has to do with comparing it to what our previous plans were that ability to hire is pushing revenue into subsequent quarters. So we're ramping up slower. So -- but yeah, it's more qualitatively at this point that we have -- we put our recs out there, take a little longer to fulfill. I think we'll be probably concentrating on inflation more in our next call and looking at that, we are watching the macro environment very closely, but we don't have any numbers to share right now, but just like everybody in the industry, we're going to have to look at it from both sides of the coin, not only an increasing cost in our inputs, but also the ability to increase our prices and pass that along to our customers. So we'll take a note to talk a little bit more on that in Q1 of next year. I don't know, Jonathan, if you have anything you want to add to that?

I mean internally, let's just say, we know the numbers and we know what we want to do. There are some competitive aspects to what you're asking, Greg, from the standpoint of contract bids and other things that we just are not prepared to talk about. But rest assured, internally, we have a very good sense of what we can do. And many of our newer contracts you're starting to see higher gross margins are taking it into account. So it's happening. It's happening internally, we're just not prepared on this call to disclose it for a number of reasons.

And then, is there any way to maybe characterize the other stress you talked about, which was delays in contract awards because I mean, you have both the government and commercial side. Just wondering if this is a government issue or on the commercial side, it seems like maybe there's some funding issues. I mean, when you think about those awards, how do you kind of break that out between government and commercial?

Yeah. I mean I think it's -- we're seeing the same trends in both. Sometimes, they're actually combined commercial contracts that are depending on some level of government funding. But I just believe that there's a lot of new opportunities and innovative capabilities in space that different companies are starting to get their arms around. And as they put their programs and their planning in place, it increases the variability of the time lines. So they're dealing with the same things we are. They're dealing with the ability to ramp up on staffing. They're dealing with their own subcontractor supply chain issues and the like. So it's across the board in both government and contracts. I don't know, Andrew, do you have anything you want to add to that?

Yeah. I think that's well said. As we've talked about on previous calls, we have seen in the commercial side of things, we've seen folks have their projections kind of come back down to earth as it were. But most of that is flushed through our pipeline and our anticipated awards. So really what Pete was hitting on in terms of our commercial customers being thoughtful about getting their teams ramped up, getting their programs ramped up to execute is more what's driving slip to the right and contract awards rather than funding availability.

And then maybe just one last one for me. I mean, I know it's a little bit early, but just looking at total backlog today, some of the headwinds this year I mean, how are you thinking about growth next year and just kind of puts and takes given that backlog, but also some contribution from M&A?

Yeah, absolutely. So we're excited about the momentum going into 2023. We believe it's really strong. I'll point you to four numbers that we're specifically looking at is a really great indicator of where we're headed. We've mentioned multiple times, the $304 million and hitting historically high backlogs, we expect that trend to continue. Andrew mentioned on one of his slides that we have, I believe, $343 million in bids submitted. These are already under evaluation by our customers that we expect an award decision within the next six months. So $304 million backlog already on the books, we can work against that and another $343 million that we expect to hear from in the next six months. So that's great momentum. I'll add to that, our year-to-date 1.18 times book-to-bill. So our book-to-bill for the year continues to grow. We're growing faster than we're executing our revenue. So that's another really great indicator for the momentum to going into 2023. And then as you mentioned this well, as of March in 2022, which is the most recent audited information we have, Space NV had €113 million in backlog. There -- we have indications that that number is very solid or better for the year. So we know they're also experiencing great growth. So we're optimistic about their ability to finish 2022 strong and then increased momentum, specifically as part of Redwire and the different synergies that we can bring to the table there with that acquisition to increase and enhance our growth in 2023 significantly as well. So the numbers are indicating that, again, we'll have more to talk about in our next call. But all the numbers are indicating really strong momentum going into 2023. And with the significant improvement of liquidity on our balance sheet, we're really well positioned.

Thank you

Thank you. Our next question is from Austin Moeller with Canaccord. Please go ahead.

Hi. Good morning, Pete and Jonathan.

Hey, Austin. And Andrew is here, too. So thank you, Austin.

Hi, Andrew.

Hi.

So my first question here, has the government enabled you to include inflation impacts in your existing contracts, or will that mostly be included in future contracts in the backlog? And what's the average length of a contract for Redwire programs

Thanks for that question, Austin. So we have a variety of contract types with the government. We have cost-plus fixed fee contracts, firm fixed price contracts and the T&M. On the cost-plus fixed fee contracts, those are -- those allow us to very seamlessly collect any impacts due to inflation. On our FFP contracts and our -- and the T&M are also very similar to the CPFF, as I just mentioned. On the FFP contracts in contrast, we are more responsible because of the firm fixed price contract for any changes in cost versus a bid. However, we try to insulate ourselves as much as possible on that front by getting on contract with our subcontractors early and so many of our FFP contracts have already locked in subcontractor contracts at prices from previously established, insulating us against inflationary impacts. We also -- going forward in our bids, we are taking into account the impacts of inflation as well as being thoughtful about where we think things are going in our bids. And we are also introducing a level of -- introducing and continuing to follow level of rigor on our FFB contracts in terms of the cash milestone payments following industry best practices to stay ahead on cash and get our cash upfront where appropriate.

Okay. Great. And that just that sort of touches on my next question was -- which was, are you planning to factor in more upfront cash collections on future contracts with customers, just given where we're at?

Yes. Absolutely.

Contracts type.

Okay. Great. Yes. Thank you for the color.

We didn't answer -- Austin, you did ask a question considering our contract length. It's generally 1.5 years to three years. So there is an ability to reprice on certain contracts even getting more inflation in. And you're seeing that bake into and how we think about the revenue momentum in 2023 and 2024, just by the way.

Okay. Great. That's very helpful, Jonathan. Thanks.

Thank you. [Operator Instructions] Our next question is from [indiscernible] with B. Riley. Please proceed with your question.

Hi, there. So just a quick question here for me. So how much do you guys -- how much are you currently relying on subcontractors to fulfill orders versus your own employees? And then what's the difference in wages there, if you could?

Yes. Hi, Kat. How are you? This is Pete. So we don't disclose that information for competitive reasons. But obviously, we have I believe, over 600 employees now. So we're doing a fair amount of fulfillment rest assured as Redwire.

I mean, Kat, you've not spoken in past. It's Jonathan. Let me just add to that because I don't – Pete answering it the way we want to Kat. We have spoken to you and other analysts in the future, we are going to be able to provide you guys in 2023 a unit economics, right? We want to be able to do that for you guys so you can model out the nature of the unique economics to create a little bit more granularity. We are not prepared to do that right now. We're balancing, obviously, the disclosure obligations with the competitive information. This is a particularly critical and exciting time for us because you're seeing that momentum in our backlog build. Many of those have contracts that we're trying to frankly do more as part of those to get the margins up and be able to satisfy them and have more control over that. So just bear with us, but we're on it internally for sure. We just got to be able to disclose those unit economics to you in 2023.

All right. Great. Thank you. And then just -- sorry if I missed it or sorry, I wasn't understanding correctly, but -- so were you not awarded contracts for limited proposals or have those contracts kind of been delayed and not awarded yet. Can you give any color there? That would be helpful.

We have had delays in contracts, and we also have had contract ramp up. The change in guidance is associated primarily with the inability to ramp up with the remaining time on this increase to $304 million in backlog. It's really just about -- we came into the third quarter due to some delays we've talked about on previously calls, orders and contracts were that we were expecting in quarter two were delayed into quarter three. You've seen that bump now in our backlog. And now we have the remaining time to try to ramp up and execute. And we are putting in our revised based on looking at our analytics to determine how quickly we're going to be able to ramp up to execute on that.

Okay. Great. And then…

We're being fairly prudent, Kat. We're being fairly prudent it. Okay, Kat.

Great. And then just a final one from me. So from a total pipeline perspective, so that like $3.5 billion number, are you seeing any new areas of growth, I guess, kind of what's going on directionally there, if there's anything new that you can share?

Yes. I mean we're seeing growth across the board, both near-term and actually a lot of really great opportunities entering in our pipeline for the long-term. We've often talked about what we call our blue-chip foundation with venture optionality. And that blue-chip foundation we're referring to is our – what we also refer to as our picks and shovels offering. These are the things that every space program is going to need like power, avionics, antennas, capabilities like that digital engineering, so we have great demand currently in the present for the near-term for these picks and shovels. And then we're also seeing really good step-up in demand as we move towards a future, where there's going to be an incredible economy in LEO, not only on currently in the near-term on the International Space Station, but the planned commercial space stations that organizations like Blue Origin and their orbital reef are planning. We're seeing a lot of demand now that is coming because, these things are going to be built over the next decade, and that building has already started. So the demand signals are really strong, really across the entire board, the blue-chip foundation of our picks and shovels is seeing strong demand as the demand for space in general grows. And then, of course, there's venture optionality associated with one-of-the-kind technologies we have, like our in-space manufacturing, our bio capabilities. These are the payloads that are going to populate future commercial space stations. We know that because they are the capabilities that are populating the ISS today. You're going to see a significant uptick in that area as well.

Great. Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Peter Cannito, for closing comments.

Yes, I'd just like to thank everybody for joining the call today. We're very excited about our third quarter results, but we have work to do, and we're looking forward to sharing more information about our acquisition of Space NV's, the future – in the future. But thank you, everybody, for joining today.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.