A stock that jumps almost 11% on a day when its company announced plans to sell up to $350 million in new shares and missed revenue estimates is truly peculiar. This is the conundrum that Redwire investors faced this week. Observing the chart move in pre-market trading and then change direction during the session, it’s difficult to avoid the impression that the market is still attempting to determine the true nature of this company.
If you only read the first paragraph of the press release, the headline numbers were a mixed bag that leaned toward disappointment. The company reported a GAAP loss of $0.40 per share, much worse than the $0.15 loss analysts had predicted, and revenue came in at $97 million, well below the $105.9 million FactSet estimate. Non-recurring expenses accounted for a significant portion of that loss, primarily $42.5 million in equity-based compensation related to the Edge Autonomy acquisition, which makes the bottom line appear worse than the underlying business most likely is. Nevertheless, it is not insignificant to miss on the top line during a quarter when investors were keeping a close eye on the company.
However, if you delve a little further, the image shifts. Year over year, revenue increased by 57.9%. Gross margins increased to 26.6%, a significant improvement over the same quarter last year as well as sequentially. With a book-to-bill ratio of 1.92, the backlog reached a record $498.1 million, up 71% from a year ago. This indicates that Redwire is signing contracts nearly twice as quickly as it is burning through them. Defense-focused fund managers are drawn to metrics like that, and it’s possible that this is precisely what transpired during the trading session.
Five years ago, the flavor of the wins themselves would have seemed unbelievable. a portion of the $1.8 billion Andromeda IDIQ contract for cutting-edge spacecraft. Moog will purchase the company’s low-mass solar array, ELSA, for the first time. a contract for a quantum-secure satellite with the European Space Agency, collaborating with Honeywell on a multinational alliance. NASA’s first crewed lunar mission, Artemis II, launched Redwire’s imaging and navigation equipment aboard the Orion spacecraft. While everyone was preoccupied with SpaceX, the company seems to have subtly integrated itself into the Western space and defense infrastructure.
The defense pivot is likely the most important factor in determining RDW’s future course. The platform is being incorporated into the U.S. Army’s Next Generation Command and Control network during drills like Ivy Sting, and the Marine Corps placed over $20 million in follow-on orders for the Stalker drone program during the quarter. In April, a new office in the UK opened to support Ministry of Defence operations. Nothing about this is as glamorous as the launch of a satellite. However, once won, Pentagon contracts often compound.
Investors should be genuinely concerned about the $350 million at-the-market equity offering. It’s never a good idea to dilute shareholders, and doing so at $8.62 per share when the stock was trading above $22 only a few months ago is a sign of either quiet pressure on the balance sheet or confidence in growth prospects. Which is still unknown. The company’s liquidity stands at $175.2 million, which seems good until you consider that this quarter alone, adjusted EBITDA was negative by $9.2 million.
As this develops, it seems like Redwire is turning into what Palantir was in 2021: too small to be safe, too ingrained in defense to be written off, and too volatile for anyone without a strong stomach.
