Redwire (RDW) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Q2 2025 unaudited financials show total assets surged to $1.51 billion due to the Edge Autonomy acquisition, alongside increased net losses and significant cash used in operations Condensed Consolidated Balance Sheets The balance sheet reflects a substantial increase in total assets and a shift to positive shareholders' equity, primarily driven by the Edge Autonomy acquisition - Total assets increased dramatically to $1.51 billion as of June 30, 2025, from $292.6 million at December 31, 2024, primarily driven by the Edge Autonomy acquisition, which resulted in a significant increase in Goodwill (to $789.3 million) and Intangible Assets (to $396.1 million)[12] Condensed Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $244,522 | $125,925 | | Goodwill | $789,254 | $71,161 | | Intangible assets, net | $396,130 | $61,788 | | Total Assets | $1,508,186 | $292,617 | | Total Current Liabilities | $167,429 | $149,343 | | Long-term debt, net | $185,464 | $124,464 | | Warrant liabilities | $23,014 | $55,285 | | Total Liabilities | $448,701 | $344,526 | | Total Shareholders' Equity (Deficit) | $907,592 | ($188,714) | - Total shareholders' equity shifted from a deficit of $188.7 million to a positive equity of $907.6 million, mainly due to a large increase in Additional Paid-in Capital from stock issued for the Edge acquisition and a common stock offering[12] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The statements of operations show a significant decline in revenues and a swing to gross loss, leading to substantially increased net losses for Q2 and YTD 2025 Key Operating Results (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $61,760 | $78,111 | $123,155 | $165,903 | | Gross Profit (Loss) | ($19,064) | $12,984 | ($10,023) | $27,809 | | Operating Income (Loss) | ($91,891) | ($7,130) | ($106,208) | ($10,707) | | Net Income (Loss) | ($96,979) | ($18,087) | ($99,927) | ($26,183) | | Basic and Diluted EPS | ($1.41) | ($0.42) | ($1.66) | ($0.59) | - Revenues decreased 21% in Q2 2025 compared to Q2 2024, with the company swinging from a gross profit of $13.0 million in Q2 2024 to a gross loss of $19.1 million in Q2 2025[15] - Operating expenses increased significantly, driven by a sharp rise in Selling, General and Administrative (SG&A) expenses to $54.5 million and Transaction Expenses to $16.6 million in Q2 2025, largely due to the Edge Autonomy acquisition[15] Condensed Consolidated Statements of Cash Flows Cash flow statements indicate a substantial increase in cash used in operations and investing activities, offset by significant cash provided by financing activities Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($132,744) | ($6,742) | | Net cash provided by (used in) investing activities | ($161,729) | $544 | | Net cash provided by (used in) financing activities | $323,489 | $6,929 | | Net increase (decrease) in cash | $29,488 | $554 | - Cash used in operating activities increased significantly to $132.7 million for the first six months of 2025, compared to $6.7 million in the prior year period, driven by a larger net loss and unfavorable changes in working capital[23] - Investing activities used $161.7 million, primarily for the acquisition of businesses ($151.8 million)[23] - Financing activities provided a substantial $323.5 million in cash, mainly from proceeds from issuance of common stock ($328.7 million) and new debt ($190.3 million), used for acquisition, debt repayments, and preferred stock repurchase[23] Notes to Condensed Consolidated Financial Statements Detailed notes provide further context on significant financial events, including business combinations, debt, equity transactions, income taxes, and commitments Note C – Business Combinations This note details the acquisition of Edge Autonomy, including consideration, goodwill, intangible assets recognized, and its initial financial contribution - On June 13, 2025, the Company completed the acquisition of Edge Autonomy, a provider of uncrewed airborne system (UAS) technology[44] Edge Autonomy Acquisition Consideration (June 13, 2025, in thousands) | Consideration Type | Value | | :--- | :--- | | Cash consideration | $160,000 | | Fair value of common stock issued | $862,561 | | Payable to the seller | $7,171 | | Total Purchase Consideration | $1,029,732 | - The acquisition resulted in the recognition of $709.5 million in goodwill and $332.4 million in intangible assets, which are preliminary and subject to adjustment[45][47] - For the period from the acquisition date (June 13) to June 30, 2025, Edge Autonomy contributed $5.9 million in revenue and a net loss of $34.9 million[50] Note I – Debt This note outlines the increase in total debt, including a new term loan and a repaid seller note, primarily for the Edge Autonomy acquisition - Total debt, net of issuance costs, increased to $190.7 million as of June 30, 2025, from $125.7 million at year-end 2024[66] - In June 2025, the company's subsidiary entered into a new $90.0 million term loan with JPMorgan Chase Bank to help finance the Edge Autonomy acquisition[74] - The company also entered into a $100.0 million Seller Note with an affiliate of AE Industrial Partners to finance the acquisition, which was fully repaid in June 2025 using proceeds from an equity offering, resulting in $20.0 million of interest expense[75][76] Note K – Warrants and Capital Stock Transactions This note details warrant redemptions and exercises, alongside a significant equity offering that generated substantial net proceeds - In February 2025, the company redeemed all outstanding public warrants, and during the first six months of 2025, 6.7 million public warrants were exercised for proceeds of $77.5 million[83] - During the first six months of 2025, 5.1 million private warrants were exercised (4.6 million on a cashless basis), leaving 2.6 million outstanding as of June 30, 2025[86][87] - In June 2025, the company completed an equity offering, issuing 15.5 million shares of common stock for net proceeds of $245.0 million[88] Note L – Income Taxes This note explains the income tax benefit recognized in Q2 2025, primarily due to the realization of deferred tax assets following the Edge Autonomy acquisition - The company recorded an income tax benefit of $32.6 million for Q2 2025 and $32.8 million for the six months ended June 30, 2025, resulting in a negative effective tax rate of (25.2)% for the quarter[89][92] - The tax benefit is primarily due to the recognition of deferred tax assets and a corresponding reduction of the valuation allowance, as the company determined it is now more-likely-than-not that a portion of these assets will be realized following the acquisition of Edge Autonomy[92] Note M – Commitments and Contingencies This note details the settlement of a class action lawsuit and the ongoing status of a derivative lawsuit, with expected recovery through D&O insurance - The Lemen v. Redwire Corp. class action lawsuit was settled for $8.0 million, with the company paying this amount into escrow during the first six months of 2025[96] - A derivative lawsuit, Yingling v. Cannito, et al., remains pending, with the company believing allegations are without merit and expecting recovery through D&O insurance[98] Note N – Convertible Preferred Stock This note covers the issuance of PIK dividends, the repurchase of preferred stock, and the outstanding shares' convertibility and liquidation preference - In May 2025, the company issued 8,068.27 shares of Series A Convertible Preferred Stock as a paid-in-kind (PIK) dividend, valued at $33.3 million[104] - In June 2025, the company used proceeds from its common stock issuance to repurchase 11,195.81 shares of its Convertible Preferred Stock from Bain Capital for $61.5 million[105] - As of June 30, 2025, 103,855.14 outstanding shares of Convertible Preferred Stock were convertible into approximately 34.8 million shares of common stock and had a liquidation preference of $567.3 million[110][112] Note O – Revenues This note details revenue by customer group, significant unfavorable EAC adjustments impacting gross profit, and remaining performance obligations Revenue by Customer Group (in thousands) | Customer Group | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Civil space | $15,600 | $25,052 | $33,735 | $47,978 | | National security | $14,821 | $16,247 | $34,289 | $30,169 | | Commercial and other | $31,339 | $36,812 | $55,131 | $87,756 | | Total revenues | $61,760 | $78,111 | $123,155 | $165,903 | - The company recorded significant net unfavorable estimate at completion (EAC) adjustments, which reduced gross profit by $25.2 million in Q2 2025 and $28.3 million in the first six months of 2025[118] - The 2025 unfavorable EAC adjustments were primarily due to a $14.7 million adjustment on a program in the RF systems offerings, stemming from increased technical complexity and costs needed to meet customer specifications[118] - As of June 30, 2025, the company had $242.8 million in remaining performance obligations, with approximately 78% expected to be recognized as revenue within the next 12 months[119] Note P – Equity-Based Compensation This note explains the substantial increase in equity-based compensation expense, primarily driven by the Edge Incentive Units related to the Edge Autonomy acquisition - Total equity-based compensation expense was $32.7 million for Q2 2025, a significant increase from $1.9 million in Q2 2024[136] - The increase was primarily driven by $29.6 million in expense related to the Edge Incentive Units, which were amended and partially vested in connection with the Edge Autonomy acquisition[122][136] - As of June 30, 2025, approximately $57.3 million of unrecognized compensation cost related to unvested Tranche II and III Edge Incentive Units remains, expected to be recognized over a weighted-average period of 1.97 years[122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 21% Q2 2025 revenue decrease, negative gross margin, and surging operating expenses, attributing them to EAC adjustments and the Edge acquisition, while highlighting a 1.47 book-to-bill ratio and sufficient liquidity Results of Operations This section details the 21% Q2 revenue decline, the swing to a gross loss, and the significant increase in SG&A and interest expenses, largely due to acquisition-related costs Comparison of Three Months Ended June 30, 2025 and 2024 (in thousands) | Metric | Q2 2025 | Q2 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $61,760 | $78,111 | ($16,351) | (21)% | | Gross Profit (Loss) | ($19,064) | $12,984 | ($32,048) | (247)% | | SG&A Expenses | $54,464 | $18,088 | $36,376 | 201% | | Operating Loss | ($91,891) | ($7,130) | ($84,761) | 1,189% | | Net Loss | ($96,979) | ($18,092) | ($78,887) | 436% | - The decrease in Q2 revenue was primarily due to $17.7 million of net unfavorable EAC adjustments in 2025 versus $3.1 million in 2024, and timing of production on large contracts, partially offset by $13.0 million in revenue from the Edge Autonomy and Hera acquisitions[170] - The increase in SG&A expenses was primarily due to a $30.7 million increase in equity-based compensation, including $29.6 million related to the Edge Incentive Units[173] - Interest expense increased by $20.7 million, mainly due to $20.0 million of interest expense recognized on the repayment of the Seller Note used for the Edge acquisition[177] Key Performance Indicators This section presents the book-to-bill ratio and contracted backlog, noting the impact of the Edge Autonomy acquisition on both metrics Book-to-Bill Ratio | Period | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Three Months Ended | 1.47 | 1.47 | | Last Twelve Months | 0.87 | 1.28 | - For Q2 2025, contracts awarded included $73.7 million of acquired contract value from the Edge Autonomy acquisition[202] Contracted Backlog (in thousands) | Date | Backlog | | :--- | :--- | | June 30, 2025 | $329,483 | | December 31, 2024 | $296,652 | - The increase in backlog is primarily due to the addition of $73.7 million in contract value acquired with Edge Autonomy[205] Liquidity and Capital Resources The company reports $76.5 million in cash and $35.0 million in available borrowings, with management confident in sufficient liquidity for the next twelve months - As of June 30, 2025, the company had $76.5 million in cash and cash equivalents and $35.0 million in available borrowings from its credit facilities[210] - Management believes existing sources of liquidity will be sufficient to meet working capital needs and comply with debt covenants for at least the next twelve months[213] Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk As a smaller reporting company, Redwire is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Redwire is not required to provide quantitative and qualitative disclosures about market risk[226] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective as of June 30, 2025, due to material weaknesses in internal control over financial reporting, with remediation planned by December 31, 2025 - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to material weaknesses in internal control over financial reporting[227] - Identified material weaknesses include insufficient segregation of duties, lack of formal controls over financial reporting, and ineffective IT general controls[228][229] - The company is implementing a remediation plan, targeting full remediation for U.S. operations (excluding Edge Autonomy) by December 31, 2025, with European operations extending beyond this date[233] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, with details on the Lemen v. Redwire settlement and the ongoing Yingling v. Cannito derivative lawsuit provided in Note M - The company is subject to litigation from time to time in the ordinary course of business, with details on specific pending matters found in Note M – Commitments and Contingencies[236][237] Item 1A. Risk Factors New risks from the Edge Autonomy acquisition include integration challenges, shareholder dilution, dependence on UAS market adoption, increased competition, regulatory complexities, and geopolitical risks from Ukraine sales - The company may be unable to successfully integrate Edge Autonomy's operations and realize anticipated synergies due to challenges in combining business practices, cultures, and systems[239] - Following the acquisition and a related stock offering, AE Industrial Partners beneficially owns approximately 55.6% of the company's common and convertible preferred stock (on an as-converted basis), giving it majority voting power[242] - The company's future growth now depends on the demand for and adoption of uncrewed aircraft systems (UAS) technology, an emerging market[254] - A significant portion of Edge Autonomy's historical sales were to customers in Ukraine, which have been declining and may continue to decline, posing a risk to future revenue[255][262] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - There were no unregistered sales of equity securities during the period[265] Item 5. Other Information No directors or officers reported adopting, modifying, or terminating Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025 - No directors or officers informed the company of any adoption, modification, or termination of a Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[268]