Q2 2022 Redwire Corp Earnings Call
Greetings and welcome to the Red wire second quarter 2022 earnings conference call. My name is Kevin and I'll be your operator today at this time all participants are in a listen only mode. We will take questions at the end of this presentation. If they didn't want you require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder.
This conference is being recorded its now my pleasure to introduce for today's call Nicole Taylor, Vice President financial operations and Investor Relations. MS. Taylor you May begin your conference call.
Thank you Kevin and good morning, everyone. Welcome to read why our second quarter 2022 earnings call I Am Nicole Taylor, Vice President financial operations, and Investor Relations and with me on the call are Pea Nieto, Chairman and Chief Executive Officer, Andrew Rush, President and Chief operating Officer John .
This imbalance Chief financial Officer, and director and Chris Edmonds, Senior Vice President and corporate controller, We hope that you have seen our earnings release, which we issued this morning and is posted in the Investor Relations section of our website at Red wire space Dot com.
Let me remind everyone that during the call Red wire management may make forward looking statements that reflect our beliefs expectations intentions or predictions of the future. Our forward looking statements are subject to risks and uncertainties that are described in more detail on slide two.
Additionally to the extent, we discuss non-GAAP measures during the call. Please Li please see slide three our earnings release or the Investor presentation on our website for the calculation of these measures and GAAP reconciliation with that I would like to turn the call over to Pete Pete.
Okay.
Thank you Nicole.
Starting with our agenda you can see we will start with the quarterly update from myself and then I'll turn it over to Andrew who will give some operational highlights for the quarter and then he will be followed by Jonathan Bayliss, our new CFO , who will be giving the financial highlights. After we end our presentation, we will open the floor for Q&A.
Okay.
I also like every opportunity going back to slide six the point out red wire hardware. So as you can see this.
Beautiful picture of the international space station on the right hand side, you will see our rollout solar rays that were deployed last summer a remarkable technical achievement with our customer at NASA and our partners at Boeing and we're very proud of that.
Right.
Starting with a market overview, so market demand remains strong despite the broader Marco Mark macroeconomic environment and this is primarily due to geopolitical competition predominates across all segments of the space industry.
There is a space station that is currently being deployed by China. We continue to have the geopolitical space race with Russia and this is driving a lot of demand in the industry and <unk>.
It can't be underscored enough that this is a decades long trend. This is not just a trend.
That is going on this year and will go away overnight. This is a decades long race for.
For competition in space and that is driving a lot of demand across our industry.
Industry across all of the different segments, and we're going to talk about that further on in the brief on the commercial side commercial space adoption has proven a little bit slower than expected, but the capability development outlook is still very strong there are a lot of plans on the drawing board for extraordinary.
Space capability, we are partnering with a number of commercial entities and although it is proving to take a little bit longer for some adoption rates and for some of these organizations to get their capabilities out of which does have an impact on near term revenue and the plans are still there and the capability.
Is still in high demand. So this will attract.
Attractive future growth, but in the meantime, our long term government contracts across the civil and National security segments that are primarily with government entities give us the financial strength required to remain patient, while we wait for commercial space to reach its full potential.
And of course, there are some interesting developments that occurred in the last quarter, most notably the Russian threat to leave the ISS that has increased the momentum behind commercial space stations, such as orbital REIT of which Red wire is partnered on with our partners a little origin.
See our space again, this is creating many new high value opportunities for Red wire anecdotally. It just so happened that the Russians made this announcement.
That they retracted later during the international Space station R&D Conference in Washington, and the Buzz that it created on the floor was extraordinary and it really just underscores the imperative for our commercial space station and so we're going to see a in the next decade. The development of these commercial space station.
And that's a huge demand driver for some of red wires unique capabilities.
Moving to slide eight.
A couple of the key takeaways that are going to be discussed in greater depth throughout the breeze.
One is that our demonstrated heritage on early stage programs is creating much larger opportunity. We are establishing numerous toehold on very large programs and this is because of the heritage that we've been able to demonstrate in the past I started off the presentation by pointing.
Our rollout solar arrays on the international space station that is one example of how that deploy that deployment and the proven heritage that we established with that capability has garnered increasing demand for other organizations, who need the same capability. The result is that revenue momentum in.
Second quarter is up 14, 2% compared to the year prior and is up 11, 7% sequentially. This is a result of this virtuous cycle that is being created as a result of our performance leading to more contracts in higher growth product lines.
We have many high probability bids in the pipeline some that are actually equal to or greater than our total revenue for 2021 in terms of total contract value. So that's just underscore underscores the tremendous amount of opportunity there. So we're executing.
A classic land and expand strategy, we have deep customer relationships, we have a long history of working with the marquee customers in the industry. We now have proven heritage on a number of really critical IP protected product lines and this is leading to more and larger op.
<unk> for our products.
As you can see our pro forma adjusted EBITDA in Q2, 2022 was negative $4 8 million compared to 2.1 million in Q2, 2021, and compared to negative $4 7 million in the first quarter. So our EBITDA is improving but we are making a significant.
Number of investments and this is having an impact on EBITDA, Andrew and Jonathan will get into greater detail, but as an example, one contributing factor is an increase in our R&D spend in order to support our revenue growth, we are making a number of investments in research and development and as a result, our re.
Research and development has grown from roughly 3% of revenue in 2021 to almost 5% of our revenue year to date.
But as a result of these dynamics in the first and second quarter, we are revising our guidance for the remainder of the year and we now expect revenue to be in the range of 165 million to $175 million.
For the year. This is compared to our previous estimate of 165 to 195 million. So we are guiding towards the lower part of the range that does still reflect.
Anywhere from 20% to 27% revenue growth for the year of which we believe is healthy and we are estimating pro forma adjusted EBITDA to be in the range between negative $2 million and $3 million as we continue to make investments and we work towards.
Cheating operating leverage associated with additional scale.
The investments however are starting to demonstrate signs of paying off our investments in business development innovation and scale drove Q2 2022 book to Bill performance to 168, and Red wire expects to achieve positive adjusted EBITDA in the second half of 2022.
Two are driven by this increase in revenue as well as a change in a contract mix with higher gross margins.
Moving to slide nine.
This slide gives you a high level overview of some of the market trends by industry segment, we continue to see strong growth opportunities in the National Security strategy segment in particular to include 40% growth in the space Force budget.
Requested for 2023, which is growing faster than the Dod's budget topline. So in national security, which is a growing area space. In particular is an even faster growing area. So that of course gives us additional confidence in the demand for our sector.
This is driven somewhat by that geopolitical competition and.
And that geopolitical competition goes well beyond just the U S market. It also is stimulating additional demand in Europe , and we have seen many European nations are also planning to invest heavily in space in the future.
On the civil side, where there we see a trend towards increasing commercial dependency I already mentioned that there is.
An imperative in the on the civil space side for our commercial space station, but there are also the successes of things such as commercial crew that are continuing to drive new public partner private partnerships that is increasing the demand for commercial several services in the civil space.
Segment and of course on the commercial side, although there is high volatility we do see accelerated growth potential as many of the new commercial business models prove themselves out although it is the segment with the most volatility.
Paired to the government segments of National Security and civil space. It is probably the segment with the greatest and fastest growth potential over time.
Moving to the next slide and adding a little bit of deeper into some ties specifically to red wire one of the very exciting dynamics that has been occurring over the last two quarters is that red wire is providing critical components to some of the fastest.
Growing pregnancy programs in these national security markets to include working with the space Development agency on their tranche strategy. We have built a history on working on many of classified programs and we continue to make investments in security infrastructure to include investments in personnel.
<unk> facilities contracts and a robust security processes and policies. The important thing to note. Here is this is a significant barrier to entry for competitors, who are also trying to work with these customers and no organization can just come off the street and immediately start working in the classified.
Domains of the National security sector of space, So by Red wire, having the history and the capability and the supporting infrastructure. This gives us a competitive advantage and we continue to invest in this area to expand our ability to execute against a very robust national security.
Pipeline.
In the National security sector, we are positioned to capture a number of high end bespoke portions of the market to include in the power and radio frequency systems, and our digital engineering sensors and cameras as well as well as large deployable structures are all high growth high demand areas in fast moving swimmer.
<unk> for the National security customers. So we feel that our product line in particular, it is well positioned for what the national security sector is by and as an example of that we talked about last quarter. Our recent success in our procurement.
During the link 16.
Antennas for the SDA architecture. The net result is large multi year contract awards in 2022 that have high probabilities of follow on work for those of you who follow the D O D sector.
Note that the key is to be baseline and established at the beginning of our program and once your established in the baseline.
As the program grows and lead further into the production phases. This.
This is a very strong result for multi year reliable revenue.
The D O D will continue to spend in space and our technologies are being based on on many of these high priority programs.
Moving to the next slide.
On the civil side Ive already mentioned that plans for commercial stations and Leo are accelerating due to competition from the Chinese and the uncertainty with the Russian partnership on the ISS Red wire in particular with our on orbiting manufacturing and leading space Biotechnology solutions is positioned as one of the few companies with actually <unk>.
Proven capability to outfit these FERC future commercial Leo destinations. So as I mentioned this is going to be a developed a decade long development cycle between now and 'twenty 30, where organizations are going to be investing in key red wire capabilities to outfit these future commercial Leo.
Destinations, but we can be patient because as we are developing the next generation technologies. We continue to provide our heritage technologies Omni ISS.
Which will continue on to 2030. This gives us visible revenue streams in the near term as we await many of the future revenue revenue revenue streams on the commercial side to gain steam.
In addition on the civil side of the business. We're really excited about the Artemis one launch that is scheduled to occur on August 29th of course Red wire provides the eyes of Orion. We provide the camera systems are firstly Orion capsule as part of the Artemis program.
So we're very excited to see that launch successful and we're very proud of our participation in that program. Additionally, naphtha is preparing to award a second human landing system Award and Red wire is positioned to play a major role on multiple teams as a key supplier.
So there is now a race to the moon to establish a permanent presence and ultimately tomorrow and this is creating additional demand for our capabilities, where red wire as an industry leader in such IP critical driven technologies like three D printing in space.
Yes.
Moving to slide 12.
Of course in commercial space, we're offering platform agnostic type technologies and has a diversified portfolio and this is allowing us to get a diversified toe hold with a number of key commercial entities across the industry. This diversification hedges the volatility associated with the commercial.
Space segment.
And in a very interesting dynamic red wire is establishing itself as a key player in the supply chain of many of these key commercial.
Base capability providers and in fact, we are turning.
Our customers struggles with supply chain and to a positive opportunity for red wire because they are looking to strengthen their supply base on a number of key technologies as a matter of fact, the number of companies have reached out to us.
To co invest in developing products that are critical to their future plans, where they feel that the supplier base is weak, which will ultimately lead to additional highly sought after subsystems and critical components that we will be adding to the red wire portfolio based on proven customer.
Dan.
We continue to but in addition to being a key supplier we continue to demonstrate new potential markets, we announced the first sale of our space manufactured optical crystals. So in case in some cases, we are a critical supplier and in other cases, we are actually market makers and certainly in the area of space.
This manufacturing and biotechnology, where a market maker and we were very excited on the commercial front.
With our announcement of our biotech space biotech partnership with our partners at E. Eli Lilly a clear demonstration that the future potential for space biotech is being looked at by many.
Stalwart companies in the pharmaceutical industry. So we've talked about the imperative for our commercial space station like orbital reef and that is gaining significant momentum and we have a number of IP driven products that are absolutely critical to the success of those platforms.
Moving to slide 13.
[noise] covering down our strategic positioning so where does this leave us well, we're increasing our near term investment in order to achieve higher revenue and profitability as we seek to gain operating leverage Jonathan is going to cover that a lot in his segment as well we are focused on operational efficiencies and financial.
Resilient resiliency to endure uncertain economic conditions, our heritage deep customer relations long government contract.
And our ability to work in the classified domain allows us to be patient as we see the commercial.
<unk> develop over time, we are gaining many toe holes and improving our penetration in large multiyear programs with high production potential. This should lead to more rapid scaling in later phases of those programs and of course customer satisfaction and execution success is a key catalyst for follow on opportunity.
<unk>. This is part of our land and expand strategy and is leading to significant momentum in our pipeline, which Andrew will talk about in greater detail.
So at the end of the day, what's very exciting about Red wire is we have many modes, we have our existing flight heritage that just cannot be created overnight. We have deep deep customer relationships that are leading to co investment to improve the supply chain, we have diversified products across all the different segments.
In particular in the commercial segment this is giving us some resiliency.
Against the volatility we have long term government contracts, which allows us to be patient unique facilities to include an exciting new facility that Andrew is going to talk about out in Galena, where we're gonna be it build the largest.
Solar array ever to be deployed.
Strong IP, particularly in the area of biotechnology and space manufacturing and of course that classified security infrastructure. These all together provide us a unique sustainable competitive advantage.
As part of our positioning as the market grows so as you can see red wireless products and services of offering our flight proven wide, reaching strategically diversified products position us well for the future.
To further expand on that I'm now going to turn it over to Andrew who will cover the operational highlights for the second quarter.
Thanks, Pete you know, we're always proud to highlight missions that we are a partner and an enabler of so here on slide 14, we see the NASA and Johns Hopkins Applied Physics Lab Laboratory, Michigan, the double asteroid redirect test spacecraft. This was launched this year.
It is powered by our rollout for rave and also uses our navigation components and is on its way to demonstrate the ability to genetically impacted asteroid and dreams.
Trajectory really really awesome mission that we're proud to be a part of it.
Turning to slide 15.
I'd like to walk through some of our many operational highlights and project achievements. These will carry over to the next few slides in more detail.
First in quarter, two we continued deliveries of products and services for multiple national security civil and commercial space customers, including for multiyear multi chipset missions and satellite constellations.
Our operational successes have led to a different projects and expanded work scope, we are cross selling our products and services.
Our teams increased on time delivery, including for large solar programs and navigation component projects.
These operational successes have led to increased backlog realization.
And have driven revenue growth improved gross margins.
Sales in the quarter. Some improved we will spend more time on this in a moment, but as a preview as Pete mentioned, our book to Bill ratio in quarter, two was one six <unk>, which.
Which was up from 0.45 this time last year.
In order to fulfill our customer needs now and in the future. We are also continuing to make infrastructure investments to expand production capacity and increase execution efficiency.
Finally, let me point of view image on this slide those are members of the Arkansas, one extended structure additive manufacturing team, we're presenting a one third links tester print.
Flight software and flight like avionics made this being a major assembly integration and test milestone as this first of its kind mission moves closer to work, we're very proud of the progress that they're making.
Now moving to slide 16.
As I mentioned, our teams have continued to deliver for our customers throughout this year, enabling a wide variety of NASA national security and commercial missions to proceed.
We delivered deployable structures and the tenant to support National security missions, we delivered rollout solar arrays for integration by a commercial customer as well as for NASA mission and turn it over multiple satellites worth like navigation components to a new commercial customer utilization on several missions, we delivered camera system.
Wiring harnesses for human rated and robotic spacecraft. We also readied our bio fabrication facility for launch to the international Space station. Later this year to continue pathfinding commercial <unk> bio printing and space.
In addition to the previously mentioned progress that we're making on aircraft. One our teams have continued to provide digital modeling and simulation services to satellite constellation operators.
A particular note on time delivery has improved in quarter, two giving us both more consistency in revenue generation as well as a tailwind for follow on work.
Quarter, one of this year faced challenges and vendor performance delays as well as delays in subcontractor.
I'm pleased to report that many of those challenges have been overcome driving increases in quarter, two revenue compared to quarter, one as well as setting up a stronger second half of this year.
Now supply chain pressures do remain but we continue to explore ways to strengthen our supply chain by expanding our vendor base and building strategic partnerships.
<unk> is poised to.
To continue delivering on this momentum in the second half of 2022.
Moving to slide 17.
These operational successes have driven improvement in our performance in quarter, two compared to quarter, one specifically as Jonathan will detail in a few minutes our revenues.
$3 $9 million higher in quarter, two of this year compared to quarter, one and our gross margins increased three 3% over the same period.
In addition to driving those improvements in financial performance operational successes are leading to expanded opportunities for new orders and programs.
New and existing customers are expanding their orders with us many existing customers are also increasing <unk> by not only find products that they have traditionally purchased from us, but also engaging require to provide other products and services previously procured from elsewhere.
For some red wire is truly becoming.
One stop shop.
In quarter. Two we have also been successful in expanding multi ship set multiyear programs and establish a beachhead with new constellations.
These are clear signals that our business development and operational success is driving performance and future growth.
Moving to slide 18.
Building on that I'd like to next discuss in detail, our backlog and sales pipeline.
Our total backlog is a key business measure consisting three elements contracted backlog awards in negotiation and then additional scope to complete existing contracts.
Our total backlog consists of a diverse set of products and services protecting against downside exposure from a single product or service between quarter, one of 2022 and quarter two of 2022, our contracted backlog grew from 137 3 billion.
Two $162 1 million.
An 18, 1% increase.
This growth in contracted backlog was driven by our teams doubling bookings made in quarter two relative to quarter one.
Specifically in quarter, two we contracted $61 6 million in new work compared to $34 million in new work in quarter one of this year.
The strong bookings performance led to a reduction in the awards and negotiation element of total backlog as well as an overall reduction of total backlog for $273 9 million to $251 7 million for the same period.
As I will discuss in a moment our robust sales pipeline provides confidence that our total backlog will grow in the future.
Importantly, the percentage of our total backlog that is now fully contracted went up from 51% to 64, 6% increasing our confidence in performance in the second half of this year and into 2023.
As I mentioned, our book to Bill ratio also improved to 168 for quarter two compared to 0.5. This time last year for comparison, our book to Bill ratio for quarter one of 2022.
$0 93.
This improvement in book to Bill ratio, an increase in contract backlog provides a tailwind for execution in the second half of 2022.
Moving on to slide 19.
Year to date, we have booked over $90 million in new work.
Turning to our sales pipeline, we believe its robustness will drive increased sales momentum and increased total backlog. Our total pipeline is approximately $3 5 billion.
Across approximately 500 opportunities of.
Of that total pipeline $556 million is currently submitted to customers as proposals awaiting their decision.
This is up from $249 million.
<unk> and <unk>.
Quarter, one of this year.
Now of these $556 million in submitted bids.
$264 million of that or approximately 47% have estimated selection dates in 2022.
In addition to that significant amount of outstanding bids at the end of quarter. Two our team was working on an additional $83 $1 million in proposals, which have selection days in 2022.
The time between selection and contracting or authorization to proceed varies from customer to customer.
Between an average of one month to three months.
Our pipeline is a healthy mix of national security civil and commercial space opportunities, which increases its resilience to macroeconomic forces, while providing many opportunities for accelerated growth our high visibility into our near term pipeline provides us with confidence in seeing growth on our bookings and total backlog.
In the second half of 2022.
In 2023.
Moving on to slide 20.
I'd like to turn to detailing how we are ensuring we have the capacity to continue to deliver for our customers as we scale.
As a high growth space company, we have made and are continuing to make investments in physical and operational infrastructure to increase our operating leverage and profitably deliver quality products and services on time.
In quarter, two we commissioned approximately 30000 square feet of new designs and production space.
These facilities provide us with expanded capacity for RF antenna production and deployable structure production in Colorado, and robotics and mechatronics production in Europe .
Looking forward to quarter three we are on track to complete a new 40000 square foot facility to provide expanded solar production for both our rigid panel for airlines and our rollouts or rate products.
This facility.
Please standby we seem to have lost the speakers audio please standby while we reconnect.
Please proceed.
Looking forward to quarter three we are on track to complete a new 40000 square foot facility to provide expanded full rate production capacity for both our rigid <unk> line and our rollout solar array products. This will lead a California based facility will give us both increased throughput capacity.
For all sizes and types of arrays as well as enabling the construction and test of even larger solar arrays.
In addition to these physical plant infrastructure investments, we're continuing to improve and unify our processes and workflows to enhance our operational efficiencies.
Importantly, these investments support proven technologies and product lines and are informed by customer demand signals, giving us high confidence and strong returns on these investments they are not build it and they will come types of investments.
Our physical and operational infrastructure investments are currently bearing fruit as seen in our increased revenue and gross profit.
It will enable us to meet increased demand for our from our sales momentum in the second half of 2022 and beyond with that I'll hand, it over to Jonathan to walk through our financial highlights.
Thank you Andrew So let's review the financial specifics of the second quarter and the first half of 2022.
I will help quantify and expand a number of the themes that Pete and Andrew spoke about.
Please turn to slide well turn to slide 22 in a second 21 I'm going to do the same thing that Andrew repeated these are our excellent team members here with the aforementioned.
Rosa the rollout solar arrays.
In Korea, So I just want to mention that alright lets turn to 'twenty two for some key financial takeaways.
As speak as Pete spoke about our second quarter fiscal year 2022 revenues increased 14, 2% year over year to $36 $7 million, our second quarter net loss was $77 million compared to a net loss of $15 $9 million in the second quarter of <unk>.
Full year 2021.
This net loss included <unk>.
Mark to Mark.
On our warrants, but also an $85 million noncash impairment expense, let's briefly talk about this noncash impairment during the second quarter. There was a decline in the company's market capitalization, driven by general economic conditions, including heightened inflation rising interest rates and volatility in the capital markets.
Which triggered a test of our goodwill tangible and intangible assets based on this test we incurred a pre tax impairment charge of $85 million.
These impairments during the second quarter of fiscal year 2022 did not have any impact on red wires revenue or supply chain contracts or liquidity or the company's compliance with our credit agreement with Adam Street partners.
Our adjusted EBITDA loss of $4 $1 million in the second quarter of 2022, which adds back. This noncash impairment spent among a number of other noncash and onetime add backs are detailed on page 33 of this presentation.
One of the themes of second quarter. This improvement over the first quarter in 2022, and a number of important commercial and operational areas already discussed and.
And Red wire has also demonstrated this financially with revenues that were 11, 7% higher sequentially gross margins that were three 3% higher sequentially. The.
Second quarter, adjusted EBITDA loss of $4 $1 million is 13, 2% better than the $44 $7 million adjusted EBITDA loss in the first quarter.
Finally, second quarter free cash flow, which we care about a lot. It was a use of $500000 is markedly better than the free cash flow use of $6 $4 million in the first quarter of 2022.
And with a book to Bill of 168, which is detailed on page 32 of this presentation. We anticipate this trend to continue as we expect to achieve positive adjusted EBITDA in the second half of fiscal year 2022.
However, a number of factors we will speak about in the next few pages, including the investments in business development R&D and public company costs that have helped expand our opportunities at Android P talked about in 'twenty two to have also impacted our adjusted EBITDA for the first half.
Correspondingly management is tightening our previously provided revenue guidance and now expect revenues to be in a range of $165 million.
To $175 million and we are also revising the pro forma adjusted EBITDA to be in a range between a negative $2 1 million and positive $3 million.
Please turn to slide 23.
As part of our second quarter call, we want to provide a bit more detail into red wires revenue growth, but using a year to date GAAP comparison shown on the left and also the GAAP sequential quarters shown on the right.
For the year to date second quarter comparison of 2022 to 2021 revenues increased by $5 8 million or nine 1% for the six months ended June 32022, compared to the six months ended June 32021, as you can see from the buildup of customers the revenue.
Our distributed among them with no one class predominant similar to what was previously discussed by Pete and Andrew.
These revenue increases are principally attributed to our deployable and component lines of business. The revenue increases were partially offset by certain other lines of businesses year over year, but this is important to note as in previous years. These other lines of business has created much of red wireless previous revenue growth and they will do so in 2023 and beyond as their Tam.
Is significant.
This shows the benefit of Red wires diversified infrastructure platform.
When looking at the chart on the right. The sequential 2022 quarters show a rebound in our second quarter by 11, 7% and again. This is driven by the deployable lines of business. The recent this is significant as the fourth quarter of 2021 saw a similar impact from this business line and also our components line.
Two we faced headwinds in certain lines of businesses in the first half of this year of 2022 and their revenue would have been higher but much of that revenue in certain contract awards was delayed into the second half.
And we will see that revenue in second half 2022 and 2023.
Red Bar is not an inherently seasonal company when it comes to revenue recognition, however, our contracts or our organic acquisition of our contracts can be uneven as the sequential quarterly.
Numbers show and his best predicted by our book to Bill.
Which is currently as we've talked about 168, but a year ago. It was 128 in the second quarter of 2021.
Please turn to slide 24.
Similar to revenue, we want to provide a bit more detail concerning <unk> adjusted EBITDA profile using our first half year to bridge on shown to the left and also a sequential quarter shown on the right.
On the left chart for the year over year comparison of 2022 to 2021 adjusted EBITDA decreased from $2 6 million in the first half of 2021 to an adjusted EBITDA loss of $8 7 million in the first half of 2022, even though revenue increased during that same period.
As you can see from the bridge our first half 2022, adjusted EBITDA was positively impacted by additional revenue growth. We continue to grow revenue. This was a 1 million positive contribution on a gross margin neutral basis, which has contributed by red wires continued strategic positioning.
But our year to date gross margins, which is shown on the next bar contributed to a negative $4 9 million at this year to year decrease was driven by our contract mix that had lower gross margins and the upward development of estimated cost to complete certain programs.
As you can see on the next part the negative seven $5 million contribution demonstrate what Andrew which speaking about Tempe Red bar continues to make investments in business development R&D and public company costs that help expand the size of the contract opportunities in a week, but it's impacted our first half of 2022 EBITDA, especially.
The first quarter of 2022.
And this adjusted EBITDA included cost efficiencies that the management actually implemented however, we've been deliberate about balancing those efficiencies with the investments as one we expect revenue to come in in the first quarter that was delayed and now will come in in the second half of 2022 and two we are purposely investing in red wire to achieve scale off.
Rating leverage and profitable growth, which with much of the incremental SG&A cost foundational in this unique and growing space company.
On the right chart.
<unk> quarterly adjusted EBITDA improvement from our Q1 to Q2 in 2020 to demonstrate operating leverage coming back into the company due to a number of factors. If you compared the 2022 Q1 bar to Q2, you would see the opposite of what you saw on the left hand chart, new contract with better contract mix.
And higher gross margins much of it in our deployable and components businesses increase that gross margin contracts inherited in past acquisitions, which were priced with lower gross margin and did not have the one red wire effect theyre rolling off meaning the second quarter of 2022 is an early indication and a better reflection of red wires profitable.
Potential.
<unk> recent win a contract where price will reflect that one red wire differentiated solutions and have higher gross margins. These contracts will displace the contracts that are rolling off.
Finally, the investments that we've made in the operating expenses are leveling off and we're going to be more efficient in the future to bring more operating leverage to read work. As an example, SG&A went down sequentially by 14, 5% and actually went down from 63, 7% as a percentage of revenue to 47 eight.
<unk> as a percentage of revenue in the second quarter of 2022 that is a 25% decline.
Yes.
Please turn to slide 25.
So to summarize the previous two slides and bring it together for our 2022 guidance. Please see these two charts that we introduced on our earnings call on March 31 concerning revenue, we assess our 2022 guidance based on our one actual revenue recognition as the year progresses. We're now in the first half to our total backlog and backlog quality of that.
Andrew spoke about and.
And three the expanded size of contract pipeline opportunities in 2022 with the book to Bill trends that we also spoke about these all help quantify our revenue guidance range in a systematic way some thoughts continuing pizza revenue momentum.
And the actual second quarter sequential revenue improvement are 168 book to Bill our second half revenue outlook is markedly better than the first half however.
However, a number of factors that we already spoke about impacted the first half actual revenue.
So management now is tightening our previously provided 2022 guidance range to $165 million to $175 million.
Turning to adjusted EBITA, we assess our 2022 adjusted EBITDA guidance on one the analysis credit concerning revenue guidance already spoke about and to our contract mix, especially any accretion dilution to actual and forecast gross margins and three finally, the investments we made in operating expenses and those trends quarter over quarter.
And what we believe we can achieve in the second half.
Again, continuing piece revenue momentum theme the actual second quarter sequential revenue improvement 168 book to Bill in the contract accretion we expect our second half adjusted EBITDA outlook is significantly and markedly improved than first half.
However, a number of factors that we already spoke about for the first half actual adjusted EBITDA notwithstanding the second half improvement management is updating our previous 2022 guidance for pro forma adjusted EBITDA to a range of a loss of $2 million to a positive $3 million.
Please turn to slide.
2006.
Let's discuss free cash flow for the second quarter and finish it up with liquidity before I turn it over to Pete So free cash flow is computed as we've been doing for the last year.
Adjusted EBITDA less capital expenditures expenditures and changes in net working capital and it provides a perspective on our unlevered free cash flow generating capabilities before noncash items and certain one off expenses. This measure was used in last year's asked for and we want to be consistent with what we've shown because we do care about this and we are improving upon.
On it.
And we're working to do even better in the future.
Much of the improvement sequentially. This quarter is due to the improvement in our sequential revenue and EBITDA that I already spoke about and we expect the second half of the year to show improvement from the first share for similar factors.
On the right hand chart show our available liquidity as of June 32022, which totaled $25 9 million comprising $10 9 million in cash and $15 million available borrowings under our credit facilities.
And the chart shows that we stayed fairly steady from the previous quarter.
Some point in time liquidity are important to note.
We are seeing excellent support from our shareholders and Adam Street partners during the quarter. Our August eight 2022, Red wire fourth amendment, which is detailed in our earnings release with Adam St shows that fourth amendment among other things suspense the requirement to a concerning certain leverage ratios as we move into the.
Future and also shows that there was a support guaranty limited one from our shareholder of $7 $5 million.
So we continue to provide support and obviously have the critical liquidity, we need to grow.
So let's finish this up I'm going to turn it over to Pete for any concluding remarks on slide 27.
Thank you Jonathan So in summary, we're building a foundation for near term improvement and long term growth for the first quarter and second quarter of the year were lower than expected, but red wire as the kind of company that you measure in years, if not multi years due to the lumpiness.
<unk> of our revenue and the extraordinary pipeline that we have developed as we continue to make investments demand for our products and services is strong driven primarily by a decades long geopolitical commented competition for dominance in space and our proven technology is not dependent on.
On a build it and they will come scenario, we are generating value added products. Today, we continue our pace of launches in 2022, and we are supporting slight Howard we're now in the present, a red wire as we mentioned is continuing to make investments in business development and R&D.
And that has helped to expand the size of our programs, but this is having an impact on our adjusted EBITDA for the first half of 2020 do however, the investments are paying off and our second half revenue growth underpinned by significantly higher 168 book to Bill and combined with a change in contract mix and higher.
Gross margin provides for an improved outlook for the second half of 2022 as revenue and operating leverage improved sequentially read why are we expect our financial outlook to improve we see positive EBITDA for the second half of the year and great momentum going in.
<unk> 2023 and with that.
Now, we will turn it over to <unk>.
The moderator.
For questions.
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