# Redwire Corp (RDW) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Redwire Corp's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1819810/000181981024000025/rdw-20231231.htm
Accession: 0001819810-24-000025
Filing date: 2024-03-20
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/RDW/
All MD&A years: /company/RDW/mda/
Previous year: /company/RDW/mda/fy2022/ (FY 2022)
Next year: /company/RDW/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis 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. 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

During the year ended December 31, 2023, the Company continued to deliver improved operations and financial performance year-over-year.

•Revenues increased 52% for the year ended December 31, 2023 compared to the same period in 2022.

•Selling, general and administrative expenses as a percentage of revenues decreased to 28% for the year ended December 31, 2023 from 44% during the same period in 2022.

•Net loss decreased 79% for the year ended December 31, 2023 compared to the same period in 2022.

•Net cash provided by operating activities was $1.2 million during the year ended December 31, 2023, as compared to net cash used in operating activities of $31.7 million during the same period in 2022.

•Contracted backlog increased year-over-year to $372.8 million as of December 31, 2023, as compared to $313.1 million as of December 31, 2022.

Macroeconomic Environment

We continue to evaluate the ongoing impact of adverse macroeconomic conditions including, among others, heightened inflation, rising interest rates, volatility in capital markets, supply chain disruptions, and regulatory challenges that have affected the Company’s cost of capital, financial condition and results of operations. During 2022, inflation and supply chain pressures adversely impacted the Company’s schedule of various programs and increased production costs, which impacted our revenues and gross margins. While the direct impact of the macroeconomic factors described above was limited during the year ended December 31, 2023, its long-term impacts on the business remain uncertain.

Results of Operations

For purposes of the following discussion and analysis, any financial impact related to the acquisition of Redwire Space NV (f/k/a QinetiQ Space NV) (“Space NV”) is referred to as the “Space NV Acquisition.”

Page 41

Table of Contents

Results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022

The following table presents our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022:

[[GREPCENT_TABLE]]
[["","","","","","","","","","Year Ended","","$ Change from prior year period","% Change from prior year period"],["(in thousands, except percentages)","","","","","","","","","December 31, 2023","% of revenues","","December 31, 2022","% of revenues"],["Revenues","","","","","","","","","$","243,800","","100","%","","$","160,549","","100","%","","$","83,251","","52","%"],["Cost of sales","","","","","","","","","185,831","","76","","","131,854","","82","","","53,977","","41"],["Gross margin","","","","","","","","","57,969","","24","","","28,695","","18","","","29,274","","102"],["Operating expenses:"],["Selling, general and administrative expenses","","","","","","","","","68,525","","28","","","70,342","","44","","","(1,817)","","(3)"],["Transaction expenses","","","","","","","","","13","","\u2014","","","3,237","","2","","","(3,224)","","(100)"],["Impairment expense","","","","","","","","","\u2014","","\u2014","","","96,623","","60","","","(96,623)","","(100)"],["Research and development","","","","","","","","","4,979","","2","","","4,941","","3","","","38","","1"],["Operating income (loss)","","","","","","","","","(15,548)","","(6)","","","(146,448)","","(91)","","","130,900","","(89)"],["Interest expense, net","","","","","","","","","10,699","","4","","","8,219","","5","","","2,480","","30"],["Other (income) expense, net","","","","","","","","","1,503","","1","","","(16,075)","","(10)","","","17,578","","(109)"],["Income (loss) before income taxes","","","","","","","","","(27,750)","","(11)","","","(138,592)","","(86)","","","110,842","","(80)"],["Income tax expense (benefit)","","","","","","","","","(486)","","\u2014","","","(7,972)","","(5)","","","7,486","","(94)"],["Net income (loss)","","","","","","","","","(27,264)","","(11)","","","(130,620)","","(81)","","","103,356","","(79)"],["Net income (loss) attributable to noncontrolling interests","","","","","","","","","(1)","","\u2014","","","(3)","","\u2014","","","2","","(67)"],["Net income (loss) attributable to Redwire Corporation","","","","","","","","","$","(27,263)","","(11)","%","","$","(130,617)","","(81)","%","","$","103,354","","(79)","%"]]
[[/GREPCENT_TABLE]]

Revenues

Revenues increased by $83.3 million, or 52%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The year-over-year increase in revenues was driven by an increase of $43.3 million in contributed revenue from the Space NV Acquisition. Additionally, the increase was partially due to changes in contract mix, increase in average contract size and increased volume of production in the power generation and microgravity payloads.

Cost of Sales

Cost of sales increased $54.0 million, or 41%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The year-over-year increase in cost of sales was primarily driven by increased costs associated with revenue growth for the period and $36.7 million of contributed cost of sales from the Space NV Acquisition.

Gross Margin

Gross margin increased $29.3 million, or 102%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. As a percentage of revenues, gross margin was 24% and 18% for the year ended December 31, 2023 and 2022, respectively. The year-over-year increase in gross margin was primarily driven by an increase in large fixed-price contract awards as a percentage of revenues, completion of low gross margin contracts to improve the overall contract portfolio gross margin and gross margin contributions from the Space NV Acquisition.

Selling, General and Administrative (“SG&A”) Expenses

SG&A expenses decreased $1.8 million, or 3%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. As a percentage of revenues, SG&A expenses were 28% and 44% for the year ended December 31, 2023 and 2022, respectively. The year-over-year decrease in SG&A expenses as a percentage of revenue was primarily driven by a decrease in share-based compensation and legal expenses of $2.2 million and $1.6 million, respectively. This decrease also reflects the Company’s continued focus on cost discipline and streamlining corporate overhead costs to enhance operating leverage. These cost savings were partially offset by $12.8 million of contributed SG&A expenses from the Space NV Acquisition.

Transaction Expenses

Transaction expenses decreased $3.2 million or 100% for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The transaction expenses incurred during the year ended December 31, 2022 were primarily related to the

Page 42

Table of Contents

Redwire Space Technologies, Inc. (f/k/a Techshot, Inc.) and Space NV acquisitions while there were nominal expenses incurred during the year ended December 31, 2023.

Impairment Expense

Impairment expense decreased $96.6 million or 100% for the year ended December 31, 2023, as compared to the year ended December 31, 2022. There was no impairment charge recognized during the year ended December 31, 2023. In comparison, during the year ended December 31, 2022, the Company performed an interim and annual quantitative impairment assessment, which resulted in a non-cash, pre- and post-tax impairment charge of $96.6 million. Of this amount, $13.1 million related to property and equipment, $2.7 million related to right-of-use assets, $30.9 million related to intangible assets and $49.9 million related to goodwill. Please refer to Note T – Impairment Expense of the accompanying notes to the consolidated financial statements for additional information.

Research and Development

Research and development expenses for the year ended December 31, 2023 remained materially consistent as compared with the same period in 2022.

Interest Expense, net

Interest expense, net increased $2.5 million, or 30%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This increase was primarily related to an increase in our cost of capital due to unfavorable changes in variable interest rates on the Company’s debt obligations and increased borrowings on the revolving credit facility compared to the same period in 2022. 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 decreased from net other income to net other expense by $17.6 million, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This year-over-year decrease was primarily due to a $2.0 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, 2023 as compared to $17.8 million gain for the comparable period in 2022. This was partially offset due to a reduction in other expense of $1.1 million in costs related to the committed equity facility, primarily due to non-recurring costs incurred to enter into the facility during 2022. 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 private warrants and committed equity facility.

Income Tax Expense (Benefit)

The table below provides information regarding our income tax expense (benefit) for the following periods:

[[GREPCENT_TABLE]]
[["","","","","","Year Ended"],["(in thousands, except percentages)","","","","","December 31, 2023","","December 31, 2022"],["Income tax expense (benefit)","","","","","$","(486)","","","$","(7,972)"],["Effective tax rate","","","","","1.8","%","","5.8","%"]]
[[/GREPCENT_TABLE]]

The decrease in our effective tax rate for the year ended December 31, 2023, as compared to the year ended December 31, 2022 is primarily due to the change in the fair market valuation of warrants, change in the valuation allowance, and the non-recurring impact of the non-deductible impairment of goodwill. 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, 2023 remained materially consistent as compared with the same period in 2022.

Supplemental Non-GAAP Information

We use Adjusted EBITDA and Pro Forma 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,

Page 43

Table of Contents

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, acquisition deal costs, 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, and warrant liability change in fair value adjustments. Pro Forma Adjusted EBITDA is defined as Adjusted EBITDA further adjusted for the incremental Adjusted EBITDA that acquired businesses would have contributed for the periods presented if such acquisitions had occurred on January 1 of the year in which they occurred. Accordingly, historical financial information for the businesses acquired includes pro forma adjustments calculated in a manner consistent with the concepts of Article 8 of Regulation S-X, which are ultimately added back in the calculation of Adjusted EBITDA. From March 2020 through December 31, 2023, the Company has completed nine acquisitions, and as such, we believe Pro Forma Adjusted EBITDA provides meaningful insights into the impact of strategic acquisitions as well as an indicative run rate of the Company’s future operating performance.

The table below presents a reconciliation of Adjusted EBITDA and Pro Forma Adjusted EBITDA to net income (loss), computed in accordance with U.S. GAAP for the following periods:

[[GREPCENT_TABLE]]
[["","","","Year Ended"],["(in thousands)","","","","","December 31, 2023","","December 31, 2022"],["Net income (loss)","","","","","$","(27,264)","","","$","(130,620)"],["Interest expense, net","","","","","10,699","","","8,220"],["Income tax expense (benefit)","","","","","(486)","","","(7,972)"],["Depreciation and amortization","","","","","10,724","","","11,288"],["Impairment expense","","","","","\u2014","","","96,623"],["Acquisition deal costs (i)","","","","","13","","","3,237"],["Acquisition integration costs (i)","","","","","546","","","3,915"],["Purchase accounting fair value adjustment related to deferred revenue (ii)","","","","","15","","","139"],["Severance costs (iii)","","","","","313","","","1,311"],["Capital market and advisory fees (iv)","","","","","8,607","","","5,547"],["Litigation-related expenses (v)","","","","","1,235","","","2,877"],["Equity-based compensation (vi)","","","","","8,658","","","10,786"],["Committed equity facility transaction costs (vii)","","","","","259","","","1,364"],["Debt financing costs (viii)","","","","","17","","","102"],["Warrant liability change in fair value adjustment (ix)","","","","","2,011","","","(17,784)"],["Adjusted EBITDA","","","","","15,347","","","(10,967)"],["Pro forma impact on Adjusted EBITDA (x)","","","","","\u2014","","","3,932"],["Pro Forma Adjusted EBITDA","","","","","$","15,347","","","$","(7,035)"]]
[[/GREPCENT_TABLE]]

i.Redwire incurred acquisition costs including due diligence, integration costs and additional expenses related to pre-acquisition activity.

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 the 2021 Audit Committee investigation and resulting securities litigation as further described in Note N of the accompanying notes to the consolidated financial statements.

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.

Page 44

Table of Contents

ix.Redwire adjusted the private warrant liability to reflect changes in fair value recognized as a gain or loss during the respective periods.

x.Pro forma impact is computed in a manner consistent with the concepts of Article 8 of Regulation S-X and represents the incremental results of a full period of operations assuming the entities acquired during the periods presented were acquired from January 1 of the year in which they occurred. For the periods presented, the pro forma impact included the results of Space NV.

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.

During the first quarter of 2023, we made the following changes with respect to our KPIs:

•Changed the book-to-bill calculation to present this metric on an Last Twelve Months (“LTM”) basis, whereas prior period disclosures were presented on a year-to-date basis. Book-to-bill LTM is calculated by aggregation of quarterly revenues and contracts awarded for the last four quarters.

•Changed the backlog calculation to present only contracted backlog, whereas prior period disclosures also presented uncontracted backlog. There was no change in the calculation of contracted backlog.

Management believes these presentation changes will provide meaningful insights into contract award trends and increase comparability of the Company’s performance metrics with industry peers.

Book-to-Bill

Our book-to-bill ratio was as follows for the periods presented:

[[GREPCENT_TABLE]]
[["","","","Last Twelve Months"],["(in thousands, except ratio)","","","","","December 31, 2023","","December 31, 2022"],["Contracts awarded","","","","","$","300,042","","","$","327,035"],["Revenues","","","","","243,800","","","160,549"],["Book-to-bill ratio","","","","","1.23","","2.04"]]
[[/GREPCENT_TABLE]]

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 1.23 for the LTM ended December 31, 2023, as compared to 2.04 for the LTM ended December 31, 2022. For the LTM ended December 31, 2023, none of the contracts awarded balance relates to acquired contract value. For the LTM ended December 31, 2022, contracts awarded includes $109.8 million of acquired contract value from the Space NV acquisition, which was completed in the fourth quarter of 2022.

Page 45

Table of Contents

Backlog

The following table presents our contracted backlog as of December 31, 2023 and December 31, 2022, and related activity for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

[[GREPCENT_TABLE]]
[["(in thousands)","December 31, 2023","","December 31, 2022"],["Organic backlog, beginning balance","$","313,057","","","$","139,742"],["Organic additions during the period","300,042","","","327,035"],["Organic revenue recognized during the period","(243,800)","","","(160,549)"],["Foreign currency translation","3,491","","","6,829"],["Organic backlog, ending balance","372,790","","","313,057"],["Acquisition-related contract value, beginning balance","\u2014","","","\u2014"],["Acquisition-related backlog, ending balance","\u2014","","","\u2014"],["Contracted backlog, ending balance","$","372,790","","","$","313,057"]]
[[/GREPCENT_TABLE]]

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 $19.3 million and $37.4 million in remaining contract value from T&M contracts as of December 31, 2023 and as of December 31, 2022, 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. There is no acquisition-related backlog activity presented in the table above as all acquired entities have completed four fiscal quarters post-acquisition.

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 fully expects all amounts reflected in contracted backlog to ultimately be fully funded. Contracted backlog from foreign operations in Luxembourg and Belgium was $106.0 million and $129.9 million as of December 31, 2023 and December 31, 2022, 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, access to existing credit facilities, proceeds from the issuance of common stock under the B. Riley (as defined below) committed equity facility and proceeds from the 2022 sale of Series A Convertible Preferred Stock. As of December 31, 2023, we had $30.3 million in cash and cash equivalents and $18.0 million in available borrowings from our existing credit facilities.

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.

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 the issuance of additional equity or debt securities, refinance or otherwise restructure our existing credit facilities, or enter into new financing arrangements. There can be no assurance that any of

Page 46

Table of Contents

these actions will be sufficient to allow us to 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 raise 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.

Committed Equity Facility

On April 14, 2022, the Company entered into an $80.0 million common stock Purchase Agreement (the “Purchase Agreement”) with B. Riley Principal Capital, LLC (“B. Riley”). The Purchase Agreement governs a committed equity facility that provides the Company with the right, without obligation, to sell and issue up to $80.0 million of its common stock over a period of 24 months to B. Riley at the Company’s sole discretion, subject to certain limitations and conditions. Please refer to Note D – Fair Value of Financial Instruments of the accompanying notes to the consolidated financial statements for additional information.

Net proceeds under the Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its common stock to B. Riley. The Company intends to use the net proceeds from this Purchase Agreement to further support its growth strategy through initiatives such as accretive acquisitions and internal investments, to bolster working capital and/or for general corporate purposes.

During the year ended December 31, 2023, the Company sold a total of 497,392 shares of the Company’s common stock for net proceeds of $1.2 million pursuant to the Purchase Agreement. As of December 31, 2023, the Company had 7,592,939 registered shares available for purchase under the committed equity facility.

Contractual Obligations

The following table presents our contractual obligations as of December 31, 2023:

[[GREPCENT_TABLE]]
[["","2024","","2025","","2026","","2027","","2028","","Thereafter","","Total"],["Adams Street Term Loan","$","310","","","$","310","","","$","29,902","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","30,522"],["Adams Street Delayed Draw Term Loan","150","","","150","","","14,469","","","\u2014","","","\u2014","","","\u2014","","","14,769"],["Adams Street Incremental Term Loan","320","","","320","","","30,948","","","\u2014","","","\u2014","","","\u2014","","","31,588"],["Adams Street Revolving Credit Facility","\u2014","","","\u2014","","","12,000","","","\u2014","","","\u2014","","","\u2014","","","12,000"],["2022 D&O Financing Loan","598","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","598"],["Total long-term debt maturities","1,378","","","780","","","87,319","","","\u2014","","","\u2014","","","\u2014","","","89,477"],["Future minimum operating lease payments","4,582","","","4,098","","","3,509","","","3,371","","","1,852","","","1,572","","","18,984"],["Future minimum finance lease payments","564","","","479","","","363","","","289","","","136","","","\u2014","","","1,831"],["Total contractual obligations","$","6,524","","","$","5,357","","","$","91,191","","","$","3,660","","","$","1,988","","","$","1,572","","","$","110,292"]]
[[/GREPCENT_TABLE]]

As of 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. In accordance with the agreement, the Company has committed to enter into a lease for a 30,000 square foot property upon completion of construction. Construction is not anticipated to be complete until fiscal year 2025, at which time the Company will enter into the associated lease agreement.

Page 47

Table of Contents

Cash Flows

The table below summarizes certain information from the consolidated statements of cash flows for the following periods:

[[GREPCENT_TABLE]]
[["","Year Ended"],["(in thousands)","December 31, 2023","","December 31, 2022"],["Cash and cash equivalents at beginning of year","$","28,316","","","$","20,523"],["Operating activities:"],["Net income (loss)","(27,264)","","","(130,620)"],["Non-cash adjustments","21,700","","","94,900"],["Changes in working capital","6,795","","","4,063"],["Net cash provided by (used in) operating activities","1,231","","","(31,657)"],["Net cash provided by (used in) investing activities","(8,327)","","","(37,382)"],["Net cash provided by (used in) financing activities","9,060","","","76,560"],["Effect of foreign currency rate changes on cash and cash equivalents","(2)","","","272"],["Net increase (decrease) in cash and cash equivalents","1,962","","","7,793"],["Cash and cash equivalents at end of period","$","30,278","","","$","28,316"]]
[[/GREPCENT_TABLE]]

Operating activities

Net cash provided by operating activities was $1.2 million during the year ended December 31, 2023, as compared to net cash used in operating activities of $31.7 million during the same period in 2022, resulting in a $32.9 million decrease in the use of cash year-over-year. The change was primarily due to a decrease of $30.2 million in cash used related to the Company’s net loss and non-cash adjustments for the year ended December 31, 2023 in comparison to the same period in 2022 and an increase in cash provided by working capital related to increases in deferred revenue of $22.7 million partially offset by an increase in contract assets and accounts receivable of $5.4 million and $5.6 million, respectively, and a decrease in accounts payable and accrued expenses of $3.3 million. The changes in contract assets, accounts receivable and deferred revenue were primarily driven by the timing of billable milestones during the year ended December 31, 2023 compared to the same period in 2022. The decrease in accounts payable and accrued expenses is primarily a result of timing of payments and invoice receipt.

Investing activities

Net cash used in investing activities decreased $29.1 million for the year ended December 31, 2023 as compared to the same period in 2022. The decrease is primarily due to $33.2 million of cash used for the acquisition of Space NV in 2022, for which there is no comparable activity for the year ended December 31, 2023. This was partially offset by an increase in capital expenditures related to licensed software for internal-use.

Financing activities

Net cash provided by financing activities for the year ended December 31, 2023 decreased $67.5 million compared to the same period in 2022. The decrease was primarily due to proceeds received of $81.3 million from the issuance of convertible preferred stock during 2022, for which there is no comparable activity for the year ended December 31, 2023. This was partially offset by an increase in net proceeds received from debt $10.0 million during the year ended December 31, 2023 compared to net repayments of $1.0 million in the same period in 2022. 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, 2023 compared to the same period in 2022.

Foreign Currency Exposures

Our operations in Belgium and Luxembourg 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.

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

Page 48

Table of Contents

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 four reporting units, Mission Solutions, Space Components, Engineering Services, 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.

During 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 2023. During 2022, the Company performed interim and annual impairment tests on its intangible assets, including goodwill, which resulted in impairment recognized during 2022. Please refer to Note T – Impairment Expense of the accompanying notes to the consolidated financial statements for additional information.

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

Page 49

Table of Contents

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 2023, the Company identified no triggering events and therefore, no impairment assessment was performed on its intangible and long-lived assets. During 2022, the Company identified triggering events and performed impairment tests on its long-lived assets, including right-of-use assets. Please refer to Note T – Impairment Expense of the accompanying notes to the consolidated financial statements for additional information.

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.

Post-retirement Benefit Plans

Through the Space NV acquisition, the Company sponsors various post-retirement benefit plans for certain non-U.S. employees including three cash balance plans: (i) a defined benefit pension plan with risk-based coverage for death and disability benefits (collectively, the “Base Plan”) and (ii) two supplementary pension bonus plans that provide variable remuneration linked to employees’ performance (the “Performance Plans”). These cash balance plans are defined benefit plans which provide for post-retirement benefits based on employee and employer contributions and prescribed rates of return in accordance with Belgium Regulation. Accordingly, all Space NV employees are eligible to participate in the supplementary pensions immediately upon entry into service and until the legal age of retirement. The Company is also required to maintain dormant accounts for former employees who have elected not to transfer plan contributions to their new employer. In addition, Belgium Regulation currently provides for statutory minimum guaranteed returns on employee and employer contributions up to a specified annual rate.

It is the Company’s policy to cover 100% of all benefit obligations associated with supplementary pensions, bonus pensions, and other post-retirement benefits (i.e., death and disability) through group insurance policies. Pursuant to the group insurance policies, the insurance entities unconditionally undertakes a legal obligation to provide specified benefits to specific individuals in return for a fixed consideration or premium. This transfer of the benefit obligation is irrevocable and involves the transfer of substantially all risk from the Company to the insurance entity. Under the Company’s group insurance policies, the insurance company guarantees minimum statutory reserves, employee and employer contributions, and specified annual rates of return. Combined employee and employer premiums are invested by the insurance company in Branch 21 investment funds in accordance with Belgium Regulation, which are mainly comprised of fixed income assets, which are commingled with the plan assets of other group insurances for the purpose of

Page 50

Table of Contents

providing guaranteed returns. The insurance company has fiduciary responsibility for making investment decisions related to Branch 21 and there is no contractual requirement to legally separate the plan assets by individual account or group policy.

As a result of the foregoing, the Company has determined that the unit of account is the insurance contract and therefore, on a plan-by-plan basis, recognizes the net funded status as either a net asset recorded within other non-current assets or a net liability recorded within other non-current liabilities within the consolidated financial statements. The funded status is measured as the difference between the fair value of each plan’s assets and the benefit obligation. The fair value of each plan’s assets and benefit obligation is measured annually, or more frequently, upon the occurrence of certain events such as a significant plan amendment, settlement, or curtailment.

Actuarial Assumptions

The benefit obligations and assets of the Company’s defined benefit pension plans are measured using actuarial valuations, which are derived based on the terms of the insurance contract and other key assumptions provided for under Belgium Regulation. The assumptions made in this analysis affect both the calculation of the benefit obligations as of the measurement date and the calculation of net periodic pension costs in subsequent periods. When reassessing these assumptions, the Company considers past and current market conditions and makes judgments about future market trends. The Company also considers factors such as the timing and amounts of expected contributions to the plans and expected benefit payments to plan participants. The following disclosures include information related to key assumptions used to determine the projected benefit obligation and plan assets, which drive the net funded status recognized on the Company’s consolidated financial statements.

For the calculation of the projected benefit obligation, all statutory minimum reserves are based on premiums paid by the employee and employer, plus guaranteed returns provided for under Belgium Regulation. Under the terms of the insurance contracts, all minimum reserves are provided 100% coverage while the return on plan assets is guaranteed for an additional amount plus opportunities for profit sharing as determined by the insurance entity. The difference between historical guaranteed rates of return and the guarantee provided by the insurance entity plus any profit sharing allocated to the participant accounts results in an unfunded or funded status that represents the Company’s projected benefit obligation for the respective plans.

The amount of plan assets includes amounts contributed by the employee and employer and amounts earned from investing the contributions, less benefits paid. In accordance with the Company’s group insurance policies, contributions are invested in commingled investment funds, consisting of underlying equity and fixed income securities, respectively. In accordance with Belgium Regulation, a member of a supplementary pension plan whose employment contract comes to an end has the right to transfer their vested reserves to the pension institution of their new employer, contingent upon certain conditions. Accordingly, for Accounting Standards Codification (“ASC”) 715 purposes, the best evidence of fair value for plan assets is the cash surrender value.

Differences between the actual return and expected return on plan assets during the year and changes in the benefit obligation for the Company’s defined benefit pension plans due to changes in the annual valuation assumptions generate actuarial gains or losses. Additionally, the benefit obligation for the Company’s defined benefit pension plans may increase or decrease as a result of plan amendments that affect the benefits to plan participants related to service for periods prior to the effective date of the amendment, which generates prior service costs or credits. The Company has elected to immediately recognize actuarial gains and losses as a component of net periodic pension cost for both plan assets and obligations.

Net Periodic Benefit Cost

Net periodic benefit cost is estimated at the beginning of the year, based on beginning-of-the-year (or end-of-prior-year) plan balances and assumptions. These costs are presented in the consolidated statements of operations and comprehensive income (loss) as follows:

•Service cost are included with other employee compensation costs within cost of sales and selling, general and administrative expenses.

•The other components of net benefit cost are presented within other (income) expense, net, outside of operating expenses.

Income Taxes

Significant judgments are required in order to determine the realizability of tax assets. In assessing the need for a valuation allowance, we evaluate all significant available positive and negative evidence, including historical operating results, estimates of future sources of taxable income, carry-forward periods available, the existence of prudent and feasible tax planning strategies and other relevant factors. The Company recognizes a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.

Page 51

Table of Contents

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).