In context
Redwire had a complicated but successful year in 2021, they managed an impressive YoY revenue growth of 237% to $137M this was achieve through acquisitions, they had around 17% pro forma revenue growth (organic), they also launched on 12 different missions, many of them being high-profile like the roll-out of ROSA solar panels on the ISS.
After seeing a former employee cast significant doubts about the financials health of their new acquisitions, followed by months long audits that delayed the release of financials, $5m wasted in audit fees and numerous social media posts from shareholders complaining about the outcome of their investment. We finally had the opportunity to peek into the company's audited numbers. While showing interesting growth, the cash situation of the company came as a surprise to many, with only $25m in available liquidity as of December 31, 2021. Only a few months after raising funds through the SPAC process.
To be fair with management, they aimed for a reasonable and honest pro-forma valuation if you compare it to peers and were a bit late in the cycle, as the SPAC hype was starting to fade. They were initially targeting $170m from the proceeds, but after redemptions lost around $68m of that sum.
As of December 31, 2021, total available liquidity was $25.5 million, comprised of $20.5 million in cash and cash equivalents and $5.0 million in available borrowings from our existing credit facilities.
This news came with the harsh realization that the almost inevitable dilution that comes with investing in companies in that stage was probably going to happen way earlier than most had anticipated. Arguably, the worse got avoided and Redwire management financed themselves through an $80 million at-the-market stock purchase agreement. With an extended closing date, more control over price and timing flexibility, it is a safer, less frightening alternative than public offerings or private placements using convertible assets that are then exercising selling pressure around their strike price (to note, we currently have outstanding warrants that can be exercised at 11.50$). This might hopefully not affect price discovery as much, but still represent a fair risk of dilution that could add up to a 20% oustanding shares increase if they were to raise the totality of that sum at the current price (around $6).
The up-to $80m purchase agreement could open the door to predatory firms that play a double agenda, as it's often the case with small caps searching for public financing. But this shouldn't be a factor here, since:
B. Riley Principal Capital has agreed that none of B. Riley Principal Capital, its officers, its sole member or any entity managed or controlled by B. Riley Principal Capital or its sole member will engage in or effect, directly or indirectly, for its own account or for the account of any other of such persons or entities, any short sales of the Common Stock or hedging transaction that establishes a net short position in the Common Stock during the term of the Purchase Agreement.
Sidenote : As we talk about investment firms, AE Partners, the organization that funded and formed Redwire in 2020 now owns 39,2M shares as of last 13f, which means unless dilution the freefloat is at most 35% of the total float (without warrants), to add that Peter Cannito the current CEO was an operating partner with AE Industrial since August 2019.
These observations were a quick financial update to my last Redwire's article, as we keep going forward I will now concentrate on recent developments that could support Redwire success. As you may know, in my opinion, the biggest growth catalyst for the industry is the oncoming Starship program from SpaceX that will disrupt the launch market by drastically dropping costs for sending mass to orbit. This time, however, the focus will be on the ISAM program.
ISAM stands for IN-SPACE SERVICING, ASSEMBLY, AND MANUFACTURING NATIONAL STRATEGY, it consist of a joint effort between the National Science and Technology Council (NSTC), the Office of Science and Technology Policy (OSTP) and the U.S. Government (USG), to support the industry, in particular, the private sector. The six strategic goals are:
Advancing ISAM research and development.
Prioritizing the expansion of scalable infrastructure.
Accelerating the emerging ISAM commercial industry.
Promoting international collaboration and cooperation to achieve ISAM goals.
Prioritizing environmental sustainability as we move forward with ISAM capabilities.
Inspiring a diverse future workforce as a potential outcome of ISAM innovation. These six goals aim to guide the United States as it continues to develop ISAM capabilities.
Practically this means ISAM will focus on:
A better coordination between stakeholders
Create a robust domestic ISAM ecosystem and provide worldwide leadership in this international environment by improving and facilitating coordination both within the USG, and between public and private institution
Setting strong demand signals to the Private sector
Answers the need for the private sector to receive consistent and reliable government demand signals that stimulate investment, mitigate risk, and create investor confidence.
Setting industry standards
The development and adoption of ISAM standards regarding spacecraft modularity, standard interfaces, materials and manufacturing processes, and operational safety will facilitate the emergence of a market for ISAM services
source: https://www.whitehouse.gov/wp-content/uploads/2022/04/04-2022-ISAM-National-Strategy-Final.pdf
Concretely, ISAM plans to stimulate the industry to develop a sustainable ecosystem for companies to invest in space technologies, from satellite refueling, to recycling of orbital debris, to increasing capability delivered on order through robotic manufacturing and assembly in space.
In recent news, we had insights on how Redwire might capitalize on ISAM strategies to stimulate the sector.
Redwire Corporation (NYSE:RDW), a leader in space infrastructure for the next generation space economy, announced today that NASA Administrator Bill Nelson will be visiting Redwire headquarters in Jacksonville, Florida, on Tuesday, May 10. He will tour the facility, meet with Redwire senior leadership and take questions from the media. Administrator Nelson will tour the Archinaut testing and robotics lab where Redwire is building the world's first self-assembling spacecraft. He will also be briefed on cutting-edge in-space manufacturing, assembly and manufacturing (ISAM) capabilities, which support national priorities announced by the White House Office of Science and Technology Policy and the National Space Council that will transform space architectures and maintain U.S. leadership in space.
Having NASA administrator Nelson tour Redwire's facilities is a feat by itself that should fuel speculations about possible new contracts or improved support to ongoing efforts. As of now, I'm unable to determine how much funding was allocated to ISAM, but it certainly indicates that some companies will get prolonged support to programs that were previously considered unviable to pursue.
So how does ISAM affect Redwire?
Well, few companies fit as perfectly the description of IN-SPACE SERVICING, ASSEMBLY, AND MANUFACTURING. These are the principals products, by segment, that Redwire offers:
Servicing:
Deorbit Devices In 2018, we introduced a deployable atmospheric drag deorbit device called ROC™ FALL to the marketplace, facilitating the reliable and predictable passive deorbit of spacecraft at End of Life.
STAARK ROBOTIC ARMS The Staark® line of space-optimized robotic arms are built from a suite of modular elements, enabling variable reach, torque applications, configuration, and grappling capabilities
Data Acquisition Recovery System (DARS) A DARS unit includes GPS, Iridium, and Lo-Ra communications, on-board data storage, IMU, and other sensors, such as temperature and pressure. It records 128 GB of 4K UHD video or any other high-speed data (160 Mbps) over USB in a miniature recoverable capsule.
Assembly:
Archinaut Archinaut is a customizable suite of manufacturing and assembly technology that can be integrated into free-flying satellites. Archinaut utilizes customizable extended structure 3D printing technologies paired with precise, autonomous robotic systems, to fabricate complex space-optimized structures of indefinite lengths using space-rated thermoplastics.
Open Lattice Mast Boom (OLM) Redwire’s Open Lattice Mast Boom (OLM) is a self-deploying low mass, thermally and structurally stable, space flight boom engineered for positioning, instrument antennas, integrated antenna systems, and other sensors.
Deployable Membranes & Sun Shades Redwire provides other deployable products including deployable sunshades, deployable membranes, deployable occulters, and deployable reflectors.
Optimast™ The Optimast™ satellite employs extended structure manufacturing technology, validated in the Archinaut Development Program, to enable the deployment of an 10-50 meter optical boom interferometer from a smallsat bus. Optimast™ relies on autonomous, robotic in-space manufacturing and assembly to create a beam interferometer with high field resolution on an affordable smallsat platform.
Roll Out Solar Array (ROSA) Redwire’s Innovative Roll Out Solar Array (ROSA) is a strong, lightweight, compact, modular, high performance solar array solution. Featuring a simple, modular, highly scalable design composed of: Innovative Composite Booms, utilize strain energy to produce significant deployment force; no motors or complex mechanisms are required. An Integrated Modular Photovoltaic Blanket Assembly (IMBA) manufactured with highly manufacturable Solar Power Modules (SPM).
High-Power Rigid Array Solution for SmallSats (HiPASS) The HiPASS solar array uses metallic tape spring hinges to fabricate a robust solution that is extremely forgiving to system level tolerance stack-up risks. The SADA-compatible HiPASS is engineered with low-cost graphite panels that are designed to minimize manufacturing risk and complexity.
Manufacturing:
Fiber Optics manufacturing The Redwire Fiber Optics miniature fiber-pulling machine harnesses the unique properties of the microgravity environment to produce an optical fiber orders of magnitude better than what can be produced on Earth. In January 2018, the first ZBLAN optical fiber was manufactured on the International Space Station.
Ceramics Manufacturing Module (CMM) CMM demonstrates the viability of manufacturing with pre-ceramic resins in an additive stereolithography (SLA) environment, which is a new manufacturing technique for the International Space Station ecosystem.
Additive Manufacturing Facility (AMF) AMF is designed as a modular device that is easily upgraded to increase functionality, and is compatible with over 30 polymers, including space-rated, high-performance thermoplastics.
3D BioFabrication Facility (BFF) Utilizing adult human cells (such as pluripotent or stem cells), the system can create viable tissue in space through technology that enables it to precisely place and build ultra-fine layers of bioink.
Industrial Crystal Facility (ICF) The ICF is designed to explore the growth and formulation of inorganic large single crystals and other exotic materials microgravity with size and quality relevant to terrestrial use
Plastic Recycler The Plastic Recycler is a robust, semi-autonomous manufacturing facility capable of processing polyethylene (PE) raw materials into usable 3D printing filament for the Additive Manufacturing Facility (AMF) aboard ISS
Turbine Superalloy Casting Module (Turbine SCM) Turbine Superalloy Casting Module (Turbine SCM) tests a commercial in-space manufacturing device that thermally processes superalloy parts in microgravity for future use in items like turbine engines on Earth. Researchers expect superalloy parts processed in microgravity to have more homogeneous microstructure, and improved mechanical properties, such as microhardness.
Vulcan Advanced Hybrid Manufacturing (VULCAN) The Vulcan Advanced Hybrid Manufacturing (VULCAN) System combines several manufacturing technologies into one seamless system to produce precision metallic, polymer and hybrid parts. Utilizing additive and subtractive manufacturing.
Redwire Regolith Print (RRP) The Redwire Regolith Print (RRP) project seeks to prove the manufacturing capability (3D printing of a regolith-laden simulant material) in a continuous microgravity environment.
In conclusion
Redwire is certainly well positioned to benefit from ISAM strategic initiatives. While in-space assembly and servicing might be the most reliable segment for the company's short-term income, in-space manufacturing is certainly offering the most intriguing growth opportunities. As private spacestations like Orbital Reef are getting closer to becoming reality, coupled with drastically cheaper access to orbit through SpaceX's new Starship rockets, the company subsidiaries Made in Space and Techshot might be able to benefit from a completely new paradigm that could turn these pilot projects into viable opportunities with a strong business case to reach profitability. Exponentials returns always come with great risks, hopefully seeing political and strategic support from a national security standpoint from the ISAM initiative will help investor determine the risk and reward that comes with being a $RDW shareholder.
For more about the space stocks, I suggest visiting Unearthly Invest channel on YouTube.
Disclaimer: We are long $RDW, not investment advice, not a registered professional. You could lose everything, buy at your own risks.
2022-05-07 Burlap's Gambles
Author: Burlap
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