Q3 2022 Redwire Corp Earnings Call
[music].
Greetings and welcome to the Red Violet third quarter 2022 earnings conference call.
My name is equal and I'll be the operator today.
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We will take questions at the end of this presentation.
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Please press star zero on your telephone keypad.
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It is now my pleasure to introduce your host for today's call Nicole Taylor.
Widespread didn't financial operations and Investor Relations.
Mr. Taylor you May begin your conference calls.
Thank you and good morning, everyone welcome to Red wires third quarter 2022 earnings call. We hope that you have seen our earnings release, which we issued yesterday afternoon. After market close and it is posted in the Investor Relations section of our website at Red wire space Dot.
Tom let.
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.
On slide three our earnings release or the Investor presentation on our website for the calculation of these measures and GAAP reconciliations as previously mentioned I am Nicole Taylor Red wires, Vice President of financial operations and Investor Relations. Joining me on today's call are Peter can eat.
<unk>, Chairman and Chief Executive Officer, Andrew Rush, President and Chief operating Officer, and Jonathan Dallas, Chief Financial Officer, with that I would like to turn the call over to Pete Pete.
Great. Thank you Nicole.
During today's call, we'll start with the quarterly update for me followed by Andrew who will present operational highlights for the quarter and then he will be followed by Jonathan who will present the financial highlights for the third quarter. After we finish our presentation. We will then open the floor for Q&A.
But before I begin. Please note all figures in this presentation do not include our recent acquisition of space and be unless otherwise noted as that acquisition closed in Q4.
Exactly.
Before we begin as it is traditional with all quarterly presentation I'd like to point out that the imagery used in this slide deck, our actual missions. They use red wire solutions on this slide we have the naphtha surface water and ocean to Buck topography or swap satellite mission developed by J P O.
So what is the first satellite mission that will observe nearly all waters on earth surface measuring the height of water in the planet's lakes rivers reservoirs in the oceans Red wire is providing critical navigation components called some sensors to enable this mission and will be scheduled to launch next month on December 5th.
Please turn to slide seven.
As we talked about it in previous calls we're at the early stages of a multi decade, new global space race with space agencies in Europe , the U S and around the world increasingly focused on space as a competitive domain.
This broader geopolitical landscape has driven increased U S governmental budgets on national defense with notably larger increases for space.
However, despite the strong demand we have experienced some delays in contracts award here at Red wire. These delays combined with a tight labor market for space talent and subcontractor supply chain disruptions have slowed our ability to ramp up and quickly realized revenue after contract selection and award.
Yeah.
But regardless I am proud to report that Red wire was recently selected for multiple land and expand opportunities that are expected to increase growth momentum for power systems and structures, Leo commercialization and human space flight as well as navigation avionics and digital engineering. These.
New opportunities resulted in a.
Sequential increase in our total backlog to 304 million as of Q3, 2022, which is up from $251 7 million as of Q2 2022.
This is a historic backlog level for the company.
Red wire continues to deliver on the promise of space in the present today with multiple launches planned in Q4 2022, including the recently successful launch of N. G 18, and upcoming planned launches that include Artemis, one Spacex Crs twenty-six J P.
S S two and swap which I previously.
Previously mentioned on earlier slot.
Most recently at the beginning of the fourth quarter Red wire completed the acquisition of space N V, which is expected to immediately provide increased scale broader access to addressable markets and significant backlog to bolster our growth platform.
So what's the bottom line upfront was you will see in our update today. It was a successful third quarter as we saw sequential improvements across the board in revenues gross margin adjusted EBITDA and total backlog.
Please turn to slide eight.
Specifically, we saw continued revenue momentum in the third quarter, which was up 14% in comparison to <unk> 2021 and one 4% sequentially. We anticipate the question sequential improvement to continue in Q4 2022.
Efforts to streamline operations operations resulted in gross margin, increasing 34, 9% on a quarter to date basis in comparison to the prior year and sequentially as a percentage of revenue by two 3% over Q2 2022.
Okay.
Focus on overhead and SG&A cost efficiencies resulted in a pro forma adjusted EBITDA in Q3, 2022 of negative $1 5 million compared to.
Point $3 million in Q3, 2021, and negative $4 1 million in Q2 2022. This is another sequential improvement over the Q2 2022.
Red while we'll continue to focus on streamlining operations and reducing reducing costs to achieve positive free cash flow in 2023.
Additionally, early in the fourth quarter, we strengthened our balance sheet with an investment by Bain capital and AE Industrial partners, who together made an investment of $80 million in the form of a series a convertible preferred stock which was used to finance the kinetics space N V acquisition as well as to support Red wire.
Future growth.
The company is building momentum and red wire expects to achieve improved bookings during the fourth quarter of 2022, continuing to increase total backlog.
However, the delays I mentioned in contracts award in a tight labor market for space have pushed revenue execution into subsequent quarters. Therefore red wire is updating its previously provided 2022 full year guidance to be in a range of approximately 140 million to $150 million.
In revenue and pro forma adjusted EBITDA to be in the range of negative $13 million and negative $6 million. This guidance does not include contributions anticipated from the acquisition of space N V.
Please turn to slide nine.
Now a snapshot at this very exciting acquisition, we just completed a space NV from kinetic. This acquisition is important to red wire from both an industry and financial standpoint, and it is expected to provide red wire with broad access to addressable markets significant contracted backlog to support our growth and increased public.
Platform scale and profitability.
Space N V is a leading pioneer of end to end space solutions with a multi decade position supporting the European space agency. Their core product offering includes small satellite technology, berthing and docking equipment and space instruments, all critical infrastructure for space, which complements <unk> current offering both.
In the U S and Europe .
There are technological and programmatic focus widens red wires apertures and provides access to multiple significant global opportunities at a time when space budgets are growing in Europe .
Space NV adds significant flight heritage much like red wire as well as innovation and profitable top line growth.
Please turn to slide 10.
Joining space in these business with Red wire enhances our company scale and innovation and innovative capabilities across numerous high growth space area and provides us expanded total addressable market and increase suppose your to the European customer, including the European Space Agency and the Belgian.
And the Belgian Science policy office, the demand for space infrastructure in Europe is growing the European space Agency submit the budget request every fee three years and then there are upcoming ministerial meeting they anticipate to submit a three year budget with an increase of more than 25%.
From funding secured in 2019.
Since the acquisition, we have renamed kinetic space N V to Red wire space N V and we will be combining the company with our Luxembourg business to create Red wire Europe . This new international platform positions us to be a global provider of critical space infrastructure with deep customer relationships with the worlds.
Premier space agencies.
Also it gives us decades of proven flight heritage expands product offering and a very strong backlog to build on in 2023.
And with that I will turn it over to Andrew for an update on our third quarter operational highlights.
Thank you Peter before we get into the details of our last quarter I would like to point out. This image. What you see here is the laughter technology demonstrator being inspected and preparation for launch alongside the J P. S. Two satellite later this month locked it is set to demonstrate an inflatable heat.
Fuel technology useful for both landing on Mars as well as economically recovering rockets Red bar is proud to have provided both cameras and a deployable data recorder for this demonstration.
Please turn to slide 12.
Red Bar continues to be a trailblazer in space infrastructure for the next generation space economy, as Pete mentioned driven by continued progress in operational execution and subcontractor performance, we delivered more from both their revenues perspective, and a gross margin perspective in Q3 compared to <unk>.
Q2, 2022, as well as compared to Q2.
Of 2021.
<unk> continues to demonstrate operational excellence through our on time and early delivery of products and solutions, despite the supply chain pressures and macroeconomic headwinds.
As many of you may have seen on the news recently Red water was a participant in that the successful execution of the planetary defense double Aspirator Redirection test, which most people know is dark.
We supplied mission critical navigation components and rollout forays were that successful demonstration.
N G E team launched a few days ago and Dr. This morning, with the international space station delivering a red wire built updated three printer Colby biofabrication facility or BFS.
The advanced space experiment processor, which we call the <unk> facility and a few other facilities, which will investigate new treatments to aid military service members.
Expand crop production research and expand materials testing on orbit.
<unk> also delivered some sensor components and advanced optical imaging technologies.
Two NASA, which we anticipated for launch on Naphtha Historic Artemis, one mission to the Moon.
And Spacex Crs 2006 is set to launch later this quarter with a second pair of Rosa wings to augment the power generation capabilities of the international space station carrying that facility into the latter half of this decade.
Please turn to slide 13.
Our team's operational success and business development efforts have resulted in red wire being selected for many strategic orders since our last earnings call I'd like to highlight a few of them on today's call.
Let's turn to spacecraft power systems and structures.
We continue to develop and deliver not only traditional rigid panel for arrays, but also our patented technologically differentiated rollout for <unk> for both small satellites and larger skills based scrapped applications.
Because the international space station.
And Nasa's lunar gateway.
We are also seeing more customers turn to Rosa as a solution for power generation on the lunar surface in support of future human and robotic exploration missions to the moon.
Solar rays are a significant portion of nearly every spacecraft operating today, but they are not the only part of a space across power system.
Building on our expertise in satellite power systems and space compatible robotics, we have begun offering.
Solar array drive assemblies, or sito's, sito or used to Orient the solar array, making the key piece of any satellite or space crafts power system.
This product and work, we perform and power distribution systems on satellite enables us to expand work here in space scrap power systems across our organization.
With respect to lower corporate commercialization and human space flight. We have recently been successful in securing multiple multi phase programs, which are set to expand capability and commercial opportunities on the international space station and other human rated platforms in the future.
Our heritage and innovative technology is enabling design development and opening of future commercial space stations.
We have also had success in our navigation avionics and engineering solutions wins here are providing increased momentum for large multiyear multi ship, some sensor and star trek or programs.
We are also testing and developing avionics software for peripheral constellations with healthy demand for critical thermal analysis static load testing and initial design and engineering services support.
Please turn to slide 14.
<unk> strong backlog provides confidence in our long term growth outlook and is further supported by consistent pipeline momentum.
Contracted backlog stood at $158 $9 million as of the end of Q3, 2022, which is relatively consistent with our contracted backlog as in Q2 2022.
There was a sequential increase in our total backlog to $304 million as of Q3 2022 that is up from $251 7 million as of the end of quarter two 2022.
This represents a 28% growth and it is a historic high for US also note that this does not take into account anticipated additions to contracted and total backlog from the acquisition of space and be.
Our 2022 year to date book to Bill of 118 provides us with a strong tailwind for execution in quarter four of this year and beyond.
The pace of the growth market with a tremendous amount of opportunity available as shown in our pipeline of more than $3 5 billion and opportunities.
Year to date, we have submitted approximately $950 million in bids we have approximately $342 6 million and bids that are submitted and expect it to be selected in the next six months.
I will now turn it over to Jonathan for a summary of our third quarter financial results Jonathan.
Thank you Andrew similar to last quarter, I will help quantifying expound on a number of the themes that Peter and Andrew just talked about but before I do on slide 15 here, Let me just highlight.
Outstanding team members prepping, the solar arrays for the Dart impact spacecraft in 2021 for the recently successful mission that Andrew just talked about and which the space craft impacted Dimorphous on September 26, 2022, exciting, but a bit bitter sweet for red wire to see two of our 28 foot solar arrays are rosol.
Taking one for the team for planet Earth.
Alright, let's turn to slide 16 for some key financial takeaways and just to be direct on these key points.
One red wire continues to execute on exciting and proven critical infrastructure for our customers Dart Artemis <unk> bio printing just a few of these these are creating the revenue growth year over year and our proved financial performance sequentially.
Two red bar continues to grow our total backlog demand for our infrastructure is leading to growth in our total backlog and this quarter is at historical high levels.
Three red bar is back with a financially accretive M&A transaction. This fourth quarter with space N V will add even more to our total backlog revenue growth sequential financial performance as we continue to streamline the business get more operating leverage into the business for the rest of fiscal year 2022, and 2023 four.
And finally Red bar is strengthening its balance sheet and liquidity position with the addition of approximately $80 million in capital accretive financing for space NV with additional capital expected to provide for future growth and stability.
I will go over some of the revenue specifics very quickly, but just to reiterate our third quarter fiscal year 2022 saw higher revenues year over year and sequentially $37 2 million and that is after the previously discussed delay in contract awards and supply chain ramp ups due to the factors Pete you spoke about revenues.
Increased 14% year over year, when you look at it from a third quarter 2021 standpoint.
We also continued the trend last quarter, where we delivered better financial performance in this third quarter sequentially.
With revenue, increasing one 4% gross profit as a percentage of revenues, increasing two 3% and better operating leverage leading to an adjusted EBITDA sequentially, improving 63, 7%.
Our total backlog grew 28% as Andrew just spoke about.
And we saw increased demand for our in our critical infrastructure, especially in avionics and navigation components as well as power generation and deployable structure solutions.
As we ramped up to serve this total backlog we employed more working capital we saw more cash utilized in the third quarter compared to the second quarter of 2022.
The addition of space N V. A transaction, we announced on October 3rd and closed on October 30, <unk> changed our operating scope and scale and will add meaningfully to our improved sequential quarterly performance and total backlog, but also importantly, the acquisition was financed by proven investors in our space pardon the pun.
Bain capital of $160 billion leader in multi asset alternative investment management is joining with us and joining with our existing shareholder AE industrial partners a leader in aerospace investing to provide $80 million in capital to fund the acquisition and provide working capital for the growth demonstrated by our record third.
Quarter total backlog.
Finally, our third quarter operating performance has shown improved commercial momentum as Pete talked about and better operating leverage and this is expected for the remainder of 2022.
But as we already spoke about even with demand for space infrastructure remaining strong we've experienced delay in contract award ramp up these move to the right contracts start delays combined with a tight labor market for space talent and subcontractor supply chain disruptions had slowed our ability to ramp up and quickly realized revenue after <unk>.
Contract selection, but we will recognize this revenue is tied to large contract awards within that $304 million total backlog and there could be large swings in the revenue recognition in this fourth quarter. Consequently management believes it is prudent to widen revise the revenue guidance range for the full fiscal year.
2000, $22 million to $140 million to $155 million consistent.
Consistent with this change and also taking into account that we are delivering better gross margins and operating leverage. We are also revising the pro forma adjusted EBITDA ranges to be between a negative $13 million and negative $6 million.
Note. This range does not include the meaningful financial contribution anticipated from our space and the acquisition management will update you on the positive those positive impacts for the year on our fiscal year end 2022 earnings call.
Please turn to slide 17.
As part of our third quarter call, we don't provide a bit more detail into red bars revenue growth by using our year to date GAAP comparison to show on the left.
And then also on the right the quarter sequentially. This is similar to what we showed in the second quarter when looking at the chart on the left and as Youll see our year to date third quarter 2022 revenues of $96 5 million improved 10, 7% to $106 8 million for year to date third quarter 2022.
These increases are attributable to deployable in engineering solutions space gains with meaningful wins with our national security and commercial customer base.
These revenue increases on a year over year basis were partially offset by a small decline in the civil space customer base attributed to our in space manufacturing programs and are based mostly in the first half of fiscal year 2022.
Customer diversity allows red bar to absorb these small declines in one customer base and due to improved performance and another customer base.
On a sequential quarterly basis, our third quarter 2022 revenues increased one 4% from the second quarter 2022, with modest increases attributable across our business lines and customers and this is taken into account the move to the right contract start delays in September combined with the tight labor market that I already spoke about.
We anticipate we will see that delayed revenue in the fourth quarter 2022, We'll then move revenue into that latter half of 2022 and the first half of 2023.
Please turn to slide 18.
Similar to last quarter, we want to provide a bit more detail concerning redbird adjusted EBITDA profile using a year to date third quarter bridge shown on the left and a sequential quarterly basis as shown on the right.
On the left chart for the year over year Bridge comparison, adjusted EBITDA decreased from a positive $1 8 million in year to date third quarter of 2021 to an adjusted EBITDA loss of $10 2 million in the year to date third quarter 2022.
Adjusted EBITDA was positively impacted by the additional revenue growth we've been talking about we continue to see revenue momentum with a positive 1.9.
$9 million contribution on a gross margin neutral basis.
And this is attributable to the higher book to bills that were seeing in the second and third quarter of 2022, compared with the second and third quarter of 2021.
Our year to date gross margin, which is shown on the next bar led to a negative $3 $9 million.
But this is driven by declines in the first half gross margin and masked the fact that the quarterly gross margin improved 34, 9% as Pete talk about on a quarterly basis and sequentially. It was up 13, 8% over the second quarter of 2022. This excellent result was attributable to margin improvements in our deployable and critical critical.
Components and engineering solutions programs.
Similar to what we showed in the second quarter as you can see on the next bar the negative $10 million operating expenses demonstrates the impact we spoke about last quarter Red bar made investments in business development R&D and public company costs in 2022 that have helped expand the size of our contract opportunities and backlog, but it is.
Also impacted our year to date EBITDA.
Most of this $10 million in operating expenses occurred in the first quarter of the year and we begin a more deliberate focus on streamlining the business in the second and third quarters as Pete addressed earlier and we will continue to do so we are focused on these costs as an example in the third quarter of 2022 reduced absolute G. S. G.
Eight to $15 $3 million the lowest in five quarters from 34, $34 3 million in the third quarter of 2021, and $17 6 million in the second quarter of 2022, that's a significant decrease on an absolute basis and note. This is before bringing on space envy.
On the right chart, the almost 64% sequential quarterly adjusted EBITDA improvement from our second quarter to the third quarter of 2022 demonstrates this operating leverage coming back into the company due to the factors on that.
I've, just spoken about and a focus on cost.
You can see the new contract wins better contract mix higher gross margins that we spoke about much of it in our deployable and engineering solutions space programs increased gross margin.
Streamlining the corporate overhead will continue following the investments of the past 15 months to continue to drive down SG&A on an absolute basis and even on a percentage basis, our third quarter SG&A margin now is at 41, 1%, but that's down from 105, 1% a year ago, and where can it continue to work on that.
Please turn to slide 19.
Now, let's discuss free cash flow and the liquidity for the third quarter, and finishing up with our liquidity and balance sheet improvement update before I turn it over to Pete.
As we did on the second quarter call on the left hand chart, we show free cash flow and we've updated the management disclosures concerning free cash flow as we told about as we told you we would do in the second quarter call free cash flow is now provided from the perspective of our operating cash flow minus capex on an unadjusted basis, so cash.
Cash is cash and as you can see the third quarter 2022 free cash flow improved 16, 6% to a use of cash of $12 6 million compared to last year's third quarter 2021, $15 1 million use of cash it was a higher use of cash in the second quarter of 2022, and this sequential use of <unk>.
Cash was due to two to a number of factors one free cash did benefit from improved revenue and sequential gross margins.
But two it was impacted by continued operational and capital investments and the Red wire platform and finally, three it was impacted by working capital build for contract awards, where the cash is expected to be received in the fourth quarter and beyond we're reinforcing in many ways our supply chain.
Reservoir management is very focused on accelerating the general improvement that we see here, we want to see better improvement in 2023 as Pete said, we will continue to streamline the business as we continue our revenue momentum.
On the right hand chart, we show our available liquidity as of June 32022, which totaled $17 million comprising.
Comprising of $7 million in cash and $10 million and available borrowings under our credit facilities, but this is significantly changed this quarter, which I'll talk about on the next slide please turn to slide 20.
On October three we announced the acquisition of the kinetics space Envy now renamed Red White space NV on October 28, the company entered into an investment agreement with AI and Bain capital for a combined investment of $80 million on October 30, <unk> on October 31, we completed the <unk>.
Acquisition of space NV here are the three takeaways for this.
One after giving effect to this financing and with zero synergies assumed in the calculation of the transaction is expected to be financially accretive immediately to red wire as adjusted EBITDA and free cash flow upon closing.
Space <unk> has and has experienced very profitable top line growth and features a strong financial profile as Pete said before for the year ended March 31, 2020 to space <unk> recorded a $49 million euro of revenue and 3 million euros of profit after taxes.
Three as of the third quarter 2022, Red Water's total backlog as we talked about rose to $304 million. This is a historic high for the company, but since the transaction closed red wire expected to directly benefit from space and these contracted backlog, which stood at 113 million euros as of March 30.
<unk> 2022.
The combined investment from Bain capital and AE industrial partners puts red wire in a much stronger financial position look at arc for liquidity on the right hand chart.
This update shows that after the space envy purchase and related costs and working capital funding, we have more than tripled liquidity in the early part of this current fourth quarter.
Concerning leverage this financing at $80 million of equity to our balance sheet, improving the credit worthiness of red wire in a number of important aspects on November one 2022 red wire into a fifth agreement with Adam Street Capital Partners. This fifth amendment to the credit agreement among other things extended the suspension of the.
Our requirement concerning the Companys maximum consolidated total net leverage ratio by an additional quarter and favorably amended the ratio that will apply during the first year. Following the resumption of this requirement. So Adam Street continues to provide support and the critical liquidity as you can see we need to grow.
This investment in Red why represented by two proven leaders in the aerospace and space industries are a strong vote of confidence in red wires position, both as a leader in the commercialization of space as well as our strategy of providing critical infrastructure to our clients to provide growth and profitability. They bring a strong track record to the tape.
And have a reputation of building great companies and we were proud to partner with them.
Red wire strong total backlog and proven track record of success enable it to have access to capital during the period when many of these financial avenues or close to others.
The quantity of capital raise above the purchase price of space <unk> allows <unk> to strengthen its balance sheet and fund future growth projects.
Please turn to slide 21, and I'll turn it over to Pete for final comments Pete.
Alright, Thank you Jonathan so to wrap up a very busy and exciting third quarter with some very notable subsequent events recently occurring in early Q4 here are the high points, we want you to takeaway.
Most importantly, red wire continues to deliver for our customers not in the future, but in the present, we're generating revenue and backlog today, Andrew talked about a number of these different programs. The recent successful launch of <unk>, which was carrying.
Our next generation bio printer, our cameras that weather permitting are going to be launching on Artemis here in the next quarter.
The set of Iris and solar arrays that are on Spacex Crs 26 that are headed to the international space station. These and others created this third quarter 2022 revenue growth year over year and improved our financial performance sequentially, even with the delays in contract ramp up which have impacted financial performance.
In 2022 guidance.
Next <unk> continues to grow total backlog you've heard it a couple of times from myself, Jonathan and Andrew that we've hit a historic high and our total backlog demand for our infrastructure is leading to this historic growth.
Thirdly, Red wire continues our successful track record of financially accretive acquisitions to scale our platform.
Notable in the industry for our ability to grow Inorganically and this quarter with space <unk>. This will add to our total backlog. This will increase our revenue growth and will improve our sequential financial performance as we streamline and get more operating leverage into the business for the rest of fiscal year <unk>.
2022, and 2023, we're very excited about this unique acquisition and.
Finally, as Jonathan just covered in great detail Red wire is strengthening its balance sheet and liquidity position with the addition of approximately $80 million in capital from highly respected industry investors Bain capital and AI. This is resulting this has resulted in an accretive financing for space envy.
With the digital capital for future growth and stability.
And with that I'll now turn it over to the operator for Q&A.
Thank you.
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Okay.
Thank you. Our first question is from the line of Greg Gordon Brad.
With Jefferies.
Please state your question.
Good morning.
But maybe just to begin just on guidance you mentioned improved Q4 performance, but at the low end of guidance. It seems like revenues could be down sequentially can you maybe talk about with less than two months ago. What are the biggest variables you mentioned labor supply chain Awards.
And give driving that wide range for the year and then tied to that you mentioned nothing has been updated for space N. V is there a reason that that would contribute to the final two months of the year.
Yeah, Hey, Greg how are you.
Okay. So that's a great question yeah. So the.
I appreciate the question. So the NIM. The biggest factor is really as you saw we're hitting historic highs in backlog is our ability to ramp up on those contracts.
You hit the top two that we mentioned.
The demand for space talent in the industry and the ability to hire to get those individuals' up and running on.
Our most recent contracts award as well as getting our subcontractors.
Two.
Fulfill our orders as we're running out of time in the fourth quarter. So that's what's really driving the variability it's not for lack of demand of our products and services.
It's really about the ability to predict how quickly we're going to be ramped up be able to ramp up with the remaining time in the air.
Okay and concerning the space envy.
Deliberately because <unk> happened early in the closing early in the Q in Q4 have not included any of their numbers in our.
<unk> forecasting for the remainder of the year, but most certainly under our ownership.
For the fourth quarter.
We will quantify the additional revenue and backlog that space <unk> will bring probably during our next earnings call, but but notably we will have a solid two months of run time.
With space <unk> as part of us so.
These projections do not.
And the forecast for the rainy year do not include any of that that's all upside for us.
Okay.
That's helpful and then.
Yes.
On labor.
Can you.
Maybe quantify some of the stress I mean, the labor issues, obviously arent unique to you and we've been hearing it across suppliers, but is there any way to think about what the requirements are and how that's been trending and then how does maybe inflation in wages kind of impact those numbers.
Yes, that's a very good question. So we don't have any quantitative data that we've prepared to share.
But again there is space industry is growing fast and there's a limited talent pool right now so getting out there and.
Competitively hiring people is taking longer than we had previously projected we are we are growing.
Has to do with comparing it to what our previous fleet previous plans where that is.
The ability to hire is pushing revenue into subsequent quarters. So we're ramping up.
Power so.
But yes, it's more qualitatively at this point that we have we put our reps out there take a little longer to fulfill I think will be probably concentrating on inflation more.
And our next call and looking at that we are watching the macro environment very closely but we don't have any numbers to share right now, but just like everybody in the industry, we're going to have to look at it from both sides of the coin is not only an increasing cost in our input, but also the ability to increase our prices.
And pass it along to our customers so.
We will take a note to talk a little bit more on that in Q1 of next year I don't know Jonathan if you have anything you want to add to that I mean internally, let's just say we know the numbers and we know what we want to do there is some competitive aspects what youre asking Greg from the standpoint of contract bids and other things that we just are not prepared to talk about but rest assured.
Internally.
We have a very good sense of what what we can do it in many of our newer contracts are starting to see higher gross margins are taking it into account. So it's happening it's happening internally. We're just not prepared on this call to disclose it for a number of reasons.
Okay, and then is there any way to maybe characterize that.
The other strategy you talked about which was delays in contract awards because I mean, you have both the government and commercial side. Just wondering if this is a government issue or on the commercial side. It seems like maybe there's some funding issues I mean, when you think about those awards, how do you kind of break that out between government and commercial.
Yes, I mean, I think it's we're seeing the same trends in both sometimes.
Sure.
Theyre actually combined commercial contracts that are depending on.
Some level of government funding.
I just believe that there is a lot of new.
Opportunities in innovative capabilities in space that.
Different companies are starting to get their arms around and as they put their programs in their planning in place.
It increases the variability of the timelines.
So they are dealing with the same things we are they are dealing with the ability to ramp up on staffing.
They're dealing with their own subcontractor supply chain issues.
And the like so so it's across the board in both government and contracts I don't know Andrew do you have do you have anything you want to add to that.
Yes.
Well said.
As we've talked about on previous calls we have seen in the commercial side of things we've seen folks.
Have their projections kind of come back down to Earth as it were.
But most of that is flushed through our our pipeline and our anticipated awards. So really what Pete was hitting on and in terms of our commercial customers being thoughtful about getting their teams ramped up getting their programs ramped up to execute is more what's what's driving slips to the right and contract work.
Rather than <unk>.
Finding availability.
And then maybe just one last one for me I mean, I know, it's a little bit early but just looking at total backlog today.
The headwinds this year.
I mean, how are you thinking about growth next year, and just kind of puts and takes given that backlog, but also some contribution from M&A.
Yeah, absolutely. So we're excited about the momentum going into 2023, we believe it's really strong I'll point you to for numbers that were specifically looking at is a really great indicator of where we're headed we've mentioned multiple times the $304 million in hitting.
Historically high backlogs, we expect that trend to continue.
Andrew mentioned on one of his slides that we have.
I believe $343 million in bids submitted these are already under evaluation by our customers that we expect an award decision within the next six months so.
$304 million backlog already on the books, we can work against that and another $343 million that we expect to hear from us.
In the next six months, so thats, great momentum I'll add to that our year to date 118.
Times book to Bill.
So our book to Bill for the year continues to grow we're growing faster than we're executing our revenue. So thats another really great indicator for the momentum going into 2023, and then as you mentioned as well.
As of March 2022, which is the most recent audited information we have.
<unk> had 113 million euros in.
In backlog.
We have indications that that.
<unk>.
That number is very solid or better for the year. So we know there are also experiencing great growth.
So we are optimistic about their ability to finish 2022 strong and then increased momentum.
Specifically as part of bread wire.
And the different synergies that we can bring to the table there with that acquisition to increase and enhance our growth in 2023 significantly as well. So the numbers are indicating that again, we'll have more.
To talk about in our next call, but but but all the numbers are indicating really strong momentum going into 2023 and with the significant improvement of liquidity.
On our balance sheet, we're really well positioned.
Thank you.
Okay.
Okay.
Thank you.
Our next question is from Austin Moeller.
With Canaccord. Please go ahead.
Hi, good morning, Pete and Jonathan.
Hey, Austin and Andrew is here too so thank you Austin.
Hi, Andrew.
My first question here.
Has the government enabled you to include inflation impacts in your existing contracts or will that mostly be included in future contracts in the backlog and what's the average length of a contract for red wire programs.
Thanks, Thanks for that question Austin, So we have a variety of contract types with the government.
We have cost plus fixed fee contracts.
A firm fixed price contracts in PNM.
The cost plus fixed fee contracts those are.
Those allow us to very seamlessly collect any any.
Impacts due to inflation.
On our FSP contracts in our in our.
PNM are also very similar to the <unk> as I just mentioned on the <unk> contracts in contrast.
We are more responsible because it's a firm fixed price contract.
Sure.
For any changes in costs versus as bid. However, we are.
We try to insulate ourselves as much as possible on that front by giving on contract with our subcontractors early.
And so many of RFP contracts have already locked in subcontractor contracts.
At prices from from.
Previously established insulating us against inflationary impacts.
<unk>.
We we also.
Going forward in our bids we are taking into account.
The impacts of inflation as well as our as well as being thoughtful about where we think things are going and in our in our bids and we are also introducing a level of introducing and continuing to follow a level of rigor on our FSP contracts in terms of the cash milestone payments.
Following industry best practices to stay ahead on cash and get get cash upfront.
Where appropriate.
Okay great.
That's sort of touches on my next question was which was.
Are you planning to factor in more upfront cash collections on future contracts with customers just given where we're at.
Yes.
Absolutely.
Contracts type okay, great yeah. Thank you for the color.
We didn't answer just Alex you did ask a question concerning our contract length, it's generally a year and a half to three years. So there is an ability to reprice on certain contracts, even getting more inflation in and youre seeing that bake into and how we think about the revenue momentum in 'twenty three and 'twenty.
Four just by the way.
Okay, Great that's very helpful. Jonathan Thanks.
Thank you.
Ladies and gentlemen, if you would like to ask a question. Please press star one on the telephone keypad.
Our next question is from Chad No Covid.
B Riley.
Please proceed with your question.
Hi, there.
Just a quick question here for me how much do you guys.
Currently rely on subcontractors to fulfill.
First is your own employees and then what's the difference in wages there.
Thank you clay.
Yeah, Hey, Ken how are you this is Pete.
So we don't.
<unk> disclosed that information for competitive reasons.
But obviously, we have I believe over 600 employees now so we're doing a fair amount of fulfillment.
Rest assured this is red wire.
Okay Cat Youre not spoken in the past, it's Jonathan let me just add to that because I don't.
Pizza answering it.
We want to cat, we have spoken to you and other analysts in the future. We are going to be able to provide you guys. In 2023, our unit economics right, we want to be able to do that for you guys. So you can model out the nature of the unit economics to create a little bit more granularity.
We're not prepared to do that right now we're balancing obviously the disclosure obligations with the competitive information this is a particularly.
<unk>.
Critical and exciting time for us because youre seeing that momentum in our backlog build many of those have contracts that.
So we're trying to frankly do more as part of those to get the margins up and be able to satisfy them and have more control over that so just bear with us, but we're on it internally for sure.
You just got to be able to disclose those unit economics to you in 2023.
Alright, great. Thank you.
Then just sorry, if I missed it or I'm, sorry, it was I understand it correctly, but.
So we were awarded contracts with many proposals.
Or have those contracts kind of been delayed and not awarded yet.
Can you give any color there.
Yeah got it that'd be helpful.
The.
We have had delays in contracts.
And we also have had contract ramp up.
The change.
Change in guidance is associated primarily with the inability to ramp up with the remaining time.
This increase to $304 million in backlog, it's really just about.
We came into the third quarter.
Due to some delays we had talked about on previously calls.
Orders and contracts were that we were expecting in quarter two were delayed into quarter three you've seen that bump now in our backlog and now we have the remaining time to try to ramp up and execute and we are putting in our revised based on looking at our analytics to determine how quickly were going.
Be able to ramp up to execute on that.
Okay, Great and then we're doing fine and we're being fairly prudent cat, we're being fairly prudent about it okay.
Okay.
Okay.
Great and then just final one from me.
So from a total pipeline perspective, so that like $3 5 billion number are you seeing any new areas of growth I guess kind of whats going on directionally, there if theres anything.
It means that you can share.
Yeah, I mean, we're seeing growth across the board, both near term and actually a lot of really great opportunities entering in our pipeline for the long term.
We've often talked about and what we call our Blue Chip Foundation with venture Optionality and that Blue Chip Foundation, we're referring to as art will be also referred to as our picks and shovels offering. These are the things that every space programs can need like power avionics.
Antenna capabilities.
Capabilities like that digital engineering, so we have great demand currently in the present for the near term for these.
Picks and shovels and then we're also seeing really good step up in demand as well.
We move towards.
A future, where there's going to be an incredible economy in Leo not only on currently in the near term on the international space station, but.
The planned commercial space stations that organizations like Blue origin, and their orbital reef. Our planning we're seeing a lot of demand now that is coming because these things are going to be built over the next decade and that that building is already started so the demand signals are really strong.
Really across the entire board.
The Blue Chip Foundation of our picks and shovels is seeing strong demand as the demand for space in general grows and of course this venture and the Optionality associated with one of the kind of technologies. We have like are in space manufacturing our buyer capabilities. These are the payloads that are going to populate future.
<unk> space stations, we know that because of the capabilities that are populating. The ISS today youre going to see a significant uptick in that area as well.
Great. Thank you.
Thank you there are no further questions at this time.
I would like to turn the floor back over to Peter <unk> for closing comments.
Yes, I'd just like to thank everybody for joining the call today, we're very excited about our third quarter results, but we have work to do.
And we're looking forward to sharing more information about our acquisition of space and these are the future.
In the future, but thank you everybody for joining today.
Okay.
This concludes today's teleconference. You may disconnect your lines at this time.
Thank you for your participation.
Okay.
Yes.
Sure.
Okay.
Okay.
Okay.
Yes.