Good morning, everyone. My name is Greg Conrad, SVP on the Aerospace and Defense Equity Research team at Jefferies. Welcome to our annual Jefferies Industrial Conference in New York City. Today, we are lucky enough to have Peter Cannito, Chairman and CEO, and Jonathan Baliff, CFO of Redwire, with us today. They'll do a quick presentation, and then I will have some Q&A. Thanks.
Yeah, Greg, great, great to be here. Thanks for having us. Quick intro to Redwire. So, Redwire is a pure play space public space platform focused on space infrastructure. We got our 101 slide here we'll go through very briefly, but I know you got some questions that you wanna ask as well. So, quick couple of slides. Next slide, please. A few disclaimers for you all to look over on your own time. Of course, we are a public company. Next slide. Next slide. All right, so here are the highlights. Like I said, we're a proven, pure play space innovator with growth and profitability. Oh, I have a clicker. Is that what you-- Is that what he's indicating?
Not bad.
Oh! Oh, there you go. You want me to try to learn... You gonna do it?
I are.
All right. We'll figure out the slides. I'm sure Greg doesn't mind steering for me here. So.
Oh.
Perfect. All right, so here's our mission statement. Redwire is accelerating humanity's expansion into space by delivering reliable, economical, and sustainable infrastructure for future generations. These are just not words to us. They were carefully selected. Specifically, I'd like to highlight the three words: reliable, economical, and sustainable. One of the interesting things about Redwire is that, although we're a fairly new company, having been formed in the last four years, we were formed through a number, up to now, 10 acquisitions that have been put together. We're new in terms of being Redwire, but the legacy of our different acquisitions go back over 50 years in space.
This is really critical to our entire strategy because we have what's called a heritage plus innovation strategy, meaning we've been out there, and our products have been out there operating in space for over fifty years. So we have proven technologies. We're not a start-up, as you might think of as a new space company, although we do have the innovation side of our heritage plus innovation strategy, where because we brought these companies together, we are now able to invest in next-generation technology. So it's a little bit of best of both worlds. I think we're unique in the fact that we have a start-up like new space culture, but have decades of proven history in both the people who are performing at Redwire, as well as our products.
And for those of you who have been around the space industry, many of you know that heritage is the coin of the realm in space, because people tend not to want to purchase products due to the harsh environmentals of space unless they've already had flight heritage. So that's a key advantage, for us. Our overall focus is, we like to think of ourselves as providing the fundamental building blocks of space. And what we mean by this is we have a fairly diversified, portfolio, which gives us a lot of resilience.
But these are the products that any space operation, whether it's for a civil mission like NASA or the European Space Agency, ESA, or a national security mission for the Space Force or the Space Development Agency, or our intel community, or a commercial application, we focus on those technologies that have applicability across all three space domains. These are the things that you would think of, like power, structures, propulsion, sensors, fundamental building blocks that are necessary for every space operation. So, what that translates to, and I think I'll finish on this slide, is we have a really large TAM. So, the launch guys get a lot of the press because everybody loves to see rockets, a controlled explosion as rockets launch into space.
But in terms of market size, space infrastructure is huge, and we love the launch guys because there's actually a direct economic correlation between the lowering cost of launch over time and the increase in space infrastructure. Obviously, as launches become cheaper, and one of the key trends and tailwinds in our industry right now, as launch becomes less expensive, and you look at even larger launch coming online, with some of the aspirations of SpaceX, as that price goes down, the opportunities for space infrastructure grows extraordinarily.
So, we see our addressable market because we provide these fundamental building blocks as all of the different space domains that we have depicted here, everywhere from a presence on the lunar surface, Moon to Mars, deep space exploration, down to closer to Earth, like in low Earth orbit, or specifically, which I think we'll probably hit on today, very low Earth orbit, a new orbital domain, that's really exciting in space. So, to summarize, we've both been around for fifty years plus, through our legacy history, but we have a new innovative space culture. So we're a bit of a best-of-both-worlds hybrid. We focus on the fundamental building blocks of space. We have a diverse portfolio, so we can operate on a number of missions.
I believe this gives us a unique resiliency, and our total addressable market is growing due to an expansion in space infrastructure as a result of a number of trends that we can get into. And it's large because we cover so many domains in terms of civil, commercial, and national security space, as well as all the Earth orbital domains, as well as cislunar, lunar, Mars, and beyond.
Thank you. Maybe just to start, if we can focus on the twenty twenty-four growth strategy. You kind of did a good job laying that out, protecting the core, scaling production, moving up value chain, and venture optionality. I mean, you raised guidance recently a bit, you know, 20% plus growth this year. How do you think about the sustainability of expansion? And, you know, how do you think about the biggest drivers going forward, whether product areas, capacity, or award tempo?
Yeah, so I mean, we're very fortunate in two regards. Number one is space is growing, right? Space is a growth market. There's a number of trends that are going on. I believe my slide is still up. We have a few listed. One of the biggest is space is considered a war-fighting domain. So we're really at the beginning from a national security perspective of as if like many years ago, when the Air Force was first getting started. Now we have a Space Force. So the military and national security community in general is making huge multibillion-dollar investments in space infrastructure right now because of the fact that we have near-peer adversaries in space. So that's one example of a growing trend in space.
Another would be just this insatiable appetite for broadband communications anywhere in the world. That's feeding a lot of commercial constellations as well. And I could go into equivalence in terms of civil space. During its last budgetary round, the European Space Agency increased their space budgets by 17%, so double-digit growth in European government investment in space. So there's lots of great just basic trends in space that are growing. So it's always good to start out in an industry where all boats will rise with the tide. But Redwire is also uniquely positioned. I talked about our heritage plus innovation strategy, where people tend to come on to us because we're a mid-sized company.
We're large enough, you know, we're not a small startup, so we're dependable. We have fifty years of flight heritage, but we're not also one of the traditional large primes, so we can think differently. We can act faster than they traditionally can. So that's an additional growth tailwind for us. Our diversification has proved to be really important. You're starting to see in the industry some organizations that may have invested in one specific technology, and if that technology doesn't totally come into fruition on the timelines that they expected, they fall into trouble. For us, we have a balanced portfolio effect in our overall product mix, and that's been. We don't necessarily have to pick the exact winner. We have a nice portfolio, and each comes in its own time.
And then on top of that, the growth strategies that you mentioned, that I articulate pretty in depth in our last couple of earnings calls, this idea of expanding our production. Because we've gotten so much heritage on our products, we'll often get our products baselined into the very beginning of a high-growth constellation, for instance. As example, we're the first company to get our Link 16 antennas operating on the Space Development Agency's Proliferated Warfighter Space Architecture. So, as that continues to grow, we expand our production with it. You're starting to see the same thing happens with our roll-out solar arrays. We got our roll-out solar arrays baselined initially on Thales's new commercial-inspired GEO platform. As they continue to sell more of those, we grow with them.
So, scaling our production is an important part as we get baselined on a lot of these product sets and expand as the customers and the investments in space infrastructure advance. And then also, we're been really focused on a second growth principle of moving up the value chain. Our history has traditionally been around components and subsystems, star trackers, cameras, a solar array. In the last two years, we've put a lot of focus into moving up the value chain, whether that means moving from a component to a subsystems, maybe moving from selling antennas to selling an entire RF payload, the full communication suite, for example, or moving up the value chain all the way to full spacecraft.
This year, we had a really significant milestone in the sense that we came out at the beginning of the year with a new design for a very low Earth orbit, full spacecraft platform, and introduced that to the market, and very quickly thereafter, had a big win with a premier customer in the Defense Advanced Research Agency, DARPA, where they validated that our platform is worth investing in from a national security perspective. We won a great contract. So that's an example of us moving up the value chain. We expect that that'll lead to additional full spacecraft orders. Those orders tend to be larger because it's a much bigger procurement. So those are a couple of the growth strategies that are starting to really, you know, play out for Redwire this year.
... And then you mentioned large TAMs, and, you know, I think last time you talked about a $5.7 billion pipeline, but we're actually seeing things move forward. You've submitted $1.9 billion of bids year to date. Any shifts in terms of the areas of opportunity? I mean, you talked about moving upmarket, but what's really enabling that acceleration and kind of the awards that you're going after?
Yeah, well, I think it's a couple of things. Number one is customer trust. So we've been working with the who's who of space for, like I said, decades through our legacy company. So we have really good insight and really strong relationships. If you look at where our executive team comes from, these are a lot of people who have spent multiple decades working at NASA, Space Force in the aerospace community. So we have really strong customer intimacy. So we feel like we can see where the puck is going, and that's essentially where our VLEO SabreSat platform play came from. We were engaged with the customer on a number of programs. We're already working on a lot of programs with these customers.
They start to talk to us about new requirements that are emerging, so we are able to act on that. And that's where this agility of being kinda, as I like to say, in the Goldilocks position of being, small enough to be agile, but large enough to be dependable, is really starting to play for us. Because we tend to be more agile in terms of going after a trend, than some of the larger, diversified aerospace companies, where space may be, just a small portion of their portfolio.
We tend to be more agile than them, but we also have the trust of the customers and the ability, quite frankly, to invest capital in new areas like our VLEO design, because we're not a really small, you know, emerging mom-and-pop space company either. So, so that's been a big part of our story so far.
And then, I mean, you mentioned ROSA before and the Thales award. I mean, what type of runway are you seeing there? I mean, is the next move for that program scaling up with Thales? Should we think about other similar-sized awards from other OEs? How do you think about actually implementing that scale?
Yeah, no, it's an interesting use case. So if you look at the history of the roll-out solar array, which we refer to ROSA, it actually started out as a Small Business Innovation Research, or SBIR, program for the Air Force Research Laboratory many years ago, as part of one of the legacy companies that Redwire acquired. And as it came out of that R&D phase, the owners of that company recognized that they had a really great technology, but they didn't have the wherewithal due to a number of reasons, including capital to scale. They needed more infrastructure. And that's really been Redwire's acquisition playbook, so far as we...
Really, another aspect of the growth trends we were talking about earlier is we identify those companies that have the tiger by the tail, if you will, on some key technology but need to be part of a larger platform in order to scale. In this case, the organization was coming out of R&D. They had gotten some flight heritage on the ROSA. They had actually won the contract to put the roll-out solar arrays on the International Space Station but they needed more capital in order to fully execute that. We acquired them. We successfully, as Redwire, took that technology and deployed it on the International Space Station under a contract with Boeing. That established that critical flight heritage that I started out this conversation talking about.
Like I said, flight heritage is the coin of the realm. Now, you have an entire industry who looks and says: "Hey, this technology is being deployed on one of the premier, if not the premier, space infrastructure in the world," and in this case, beyond the world, in space, on the ISS. And they're saying: "This is really intriguing. How can this infrastructure technology benefit our organization?" And so we looked at the same thing. Well, let's expand this. Let's look out to not just space stations, but spacecraft. So we went out there, and we executed on the DART program. That DART program was a JPL NASA program to send to basically crash a spacecraft into an asteroid to see if they could redirect it as part of Earth defense.
So now you had flight heritage on a spacecraft. We deployed it on Ovzon, and more and more there was this chain of events that people said, "Well, this is a new emerging technology that's really well proven. How can I apply this to my use case?" And this is what I mean by a fundamental building block of space, and certainly Thales witnessed all of this, particularly our success on Ovzon. And said, yeah, that they wanted to talk to us, and that led to orders.
And now we're baselined on one of their satellites, and, this is a forward-looking statement, but I presume, or certainly hope, that, there are other, organizations out there witnessing the success we're gonna have with, Thales and say, "Hey, this Roll-Out Solar Array capability has some really significant strategic advantages. Maybe I should look into this as part of my space infrastructure for my, deployments as well.
And then you mentioned M&A playbook, and you recently, I guess maybe Friday, closed on a deal, Hera. I mean, we talked about kind of the growth strategy organically. Like, how do you classify that and kind of your intentions of what you think you can do with that asset and kind of what it brings to the Redwire portfolio?
Yeah, it's a great question. It's a classic Redwire acquisition, and it's part of our classic playbook. Hera, as we highlighted in the announcement, has a really unique capability, full spacecraft. It actually hits, scratches two itches for Redwire, which I really like. One is moving up the value chain. It has an entire spacecraft that it's building for AFRL as part of what's called the Tetra-5 program, and what I really like about it is it's a GEO mission, and this is really important because it's one of the critical trends that you have to understand about where the national security architecture is going, and this is where being close to the customer helps.
Not only that, but as I've said before, Redwire's ability to kind of hit outside its weight class in terms of our ability to work on classified programs but the big trend in the past couple of years in national security has been what's called proliferated LEO, going from really large satellites in GEO orbit down to small, but many more satellites in LEO orbit. Within the last couple of years, there's been a number of threats, most notably the announcement of the Biden administration, that the Russians either have or have the potential to put a nuke in LEO. That now puts a proliferated warfighter architecture under threat in terms of that capability from a military perspective, so the national security apparatus recognizes they need to continue to diversify.
So they went from really large GEO to proliferated LEO, to next they're gonna be moving to a hybrid architecture, all of the above, which includes two areas that there is no major leader in yet. We call it white space in the development of full spacecraft. Those are VLEO, which would be below any sort of radiation effects of a nuclear explosion, you know, in LEO. And GEO, going back to GEO, but instead of going back to GEO, this time with really large GEO satellites, you would have a proliferated GEO-type capability. Now, proliferated GEO, because of the expense and the requirements of the technology, doesn't mean the same numbers as proliferated LEO, but each GEO spacecraft is going to be a much bigger buy.
And Hera, through their Tetra-5 contract, has achieved some really exciting early-stage milestones with the customer as part of their design of proving out the rad hard capability to their GEO spacecraft. So the acquisition of Hera is a logical extension as part of our growth principle of moving up the value chain, where you see us expanding in VLEO with DARPA. Now we have the ability to expand into proliferated GEO with the Hera acquisition. So we're trying that. You know, Redwire wants to be a leader. We're an innovator, right? So being a me too, with a direct assault against the Lockheed Martin or the York Space Systems of the world in trying to go after a proliferated LEO architecture, that's not our game. We've already established ourselves as a reliable merchant supplier in that orbit.
But that doesn't prevent us from going to where the puck is and filling the white space on critical capabilities like full VLEO spacecraft and proliferated GEO spacecraft, which is part of that moving up the value chain idea.
A question I probably ask every time I talk to you, but venture optionality, PIL-BOX-
Are you ever gonna give Jonathan a question here?
I know.
He's feeling really lonely up here.
What are Q3 EBITDA margins? He doesn't like the questions I ask.
Yeah. Yeah.
Q3 or Q2?
Yeah. Yeah.
And we'll get to that next, but so venture optionality, PillBox, I mean, been impressed with the positive markers you've seen on that program. Where are you in kind of that evolution? When do you expect to see that next step?
You know, the venture optionality. This has been a critical year for our venture optionality. As I've talked about previously on our earnings calls, if I haven't foot-stomped it enough, we've moved. The traditional microgravity research and development market, it's a good market, quite frankly. It's small and niche. We make money on these deals. We work with NASA and ESA, and universities, and they fund a number of experimentations on the International Space Station. It's been going on for decades. You'll build a capability that like, almost like an experiment to go up and research, either developing some sort of biotechnology or some new material science, or all sorts of things. We were the first company to actually ever 3D print on orbit. That was funded by NASA.
And we make money on these, and quite frankly, the margins aren't bad. We don't give out specific margins, but I can tell you, you know, there's a business there. But it's always been kind of like a research and development niche business. In the last couple of years, we're starting to see a change, where some of the early experiments are starting to show signs of... This is why we call it venture optionality, we don't wanna get ahead of our skis, but showing signs of true commercial viability, and one of those especially is the PillBox. PillBox has been going on, the investment in that technology has been going on for many years.
It's another example of that classic Redwire playbook of acquiring a company that has a really promising early technology and then bringing it into the mainstream. That technology is starting to show a real commercial viability, and you don't have to take my word for it. We have partners that we've announced, like Eli Lilly, who did a flight with us to grow crystals via our PillBox on the International Space Station, and they have done a subsequent flight. So we take that as a really positive sign that they're getting good results. So that's starting to emerge. We're seeing more demand for that technology, and that's really exciting because one of the key factors-...
In the past year, that was critical for the commercial viability of this is having a commercial op tempo, we say, or operational tempo, meaning, a rhythm of getting it up there. We were able to turn these things now in a quarter instead of, you know, putting it up there and analyzing it over a year time, and that means we can get more and more shots on goal in terms of looking at these different, pharmaceutical crystals, and how they can affect drug development. So it's very exciting again, I know you, Greg, so you wanna know what the TAM is, and you wanna know how many PillBoxes per year for the next five years or whatever. It's not that kind of thing.
That's why we refer to it as venture optionality, but there's, you know, if you look at in the venture world, you think and you say, "Well, I'm an investor. I wanna invest in space, and space infrastructure seems like a pretty solid place. But hey, look, there's this little venture option sitting within Redwire. How do I value that?" Well, go look at some of the what the venture capital people are doing out in Silicon Valley and the valuations that they're attributing to organizations who are solely focused on this idea of taking advantage of microgravity as a unique environment for manufacturing. And you can see that although I can't put an exact value on the TAM for you, there's value there, so.
And then maybe for Jonathan. Touching on profitability, I mean, how do you think about the runway puts and takes, balancing program investments with some of the leverage you've enjoyed in SG&A? I mean, is there a structural margin, and how do you think about the drivers going forward, whether it's program maturity, mix, or just broader volumes?
Yeah, I mean, first, I mean, just for people who are not fully familiar, we are a positive revenue, positive growth. Our organic growth over the last three years has been, you know, over 25%. Some years it's been over 30%, so our organic growth has been quite good. You know, less than three years ago, we had about $140 million of revenue, and forecast is $310 million. So this is a growing company with organic revenue, even not counting, obviously, the significant growth due to M&A. The other thing I would say is we are profitable to EBITDA, and that EBITDA, you know, represents cash, right? So we have been positive operating cash flow three of the last five quarters. From an LTM standpoint, we are positive operating cash flow. We have, this year especially, had a lot of investments.
So from a free cash flow standpoint, last quarter we were very free cash flow positive. This quarter, not so much, but also because we're investing a lot in growing the business, similar to what Pete said. As far as profitability margins are concerned, you know, we focus on EBITDA margins. Although gross margins matter to us, we have told people that last year we saw an almost 10% increase in gross margins from mid-teens to mid-twenties. This year, we're actually looking at high teens gross margins, but we're actually getting still very good benefit into EBITDA margins 'cause our SG&A has stayed fairly flat for the last two years. So we've been able to get operating leverage into the business. I told Greg a long time ago that if we can move past 250-300, we would become a positive EBITDA company.
We've been a positive EBITDA company. As we move closer to scale, which is more like $400 million or $500 million, we then get to more consistent, if not very consistent, free cash flow. This is a company that should be able to deliver growth and free cash flow on top of being able to keep investing in the future in these innovative technologies, because some quarters we won't be free cash flow positive 'cause we, you know, we see an investment where we want to. And again, these are investments in working capital and CapEx, but we're gonna grow this company and follow our clients and where that puck is. So watch us keep growing. We've got credibility. Last year, we had revenue guidance at $220 million-$250 million.
We came in at $243 million, so at the upper quartile. This year, we're moved guidance from $300 million to $310 million. That's the first time we've actually adjusted our revenue guidance inter year in two years. You know, we have a confidence and visibility in the business, but we're gonna be getting more prof-- we're on a path to profitability. This is not a business that Pete and I and the rest of the management team just thinks about, you know, growth at any cost. We actually look at returns on invested capital, how is our cash flow running, and you've seen the results in the performance of the company.
I'm not gonna ask you what year you're gonna get to the 400 to 500 million of revenue, but with the minute we have left-
You just did, but keep going. It's okay.
Maybe with the minute we have left, just-
Sure
... balance sheet, you know, fairly well capitalized, $56 million of liquidity. You recently did the deal. I mean, how do you think about the balance sheet evolving over time, and how does maybe M&A play into this?
Yeah, I mean, we're comfortable. What we told people is we don't have to raise equity to achieve our growth targets that we've given the street. So we, we feel comfortable with where the balance sheet is right now. We've got liquidity to be able to continue to grow, and as we stated, we did this acquisition on balance sheet. We did not disclose, the purchase price, but we're comfortable with where the balance sheet is. That being said, you know, we are a company that's gonna continue to look at, being efficient with our free cash flow generation, so we can generate this type of growth free cash flow-wise. But again, we'll look if we have to do M&A, you know, a year and a half ago, two years ago, I usually answer your question what we've done in the past.
We have issued equity, but we also got a real boost in return on invested capital. Even though the cost of capital was high, we easily beat that over the last two years.
Well, Peter, Jonathan, thank you.
Great. Thanks.
Thank you.