The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-
Q. Certaininformation contained in this discussion and analysis includes forward looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward looking statements as a result of many factors. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward looking statements, please refer to "Item 1A. Risk Factors" and the "Cautionary Note Regarding Forward-Looking Statements" sections of this Quarterly Report on Form 10-Q. Unless the context otherwise requires, all references in this section to the "Company," " Redwire," "we," "us" or "our" refer to Redwire Corporationand its consolidated subsidiaries. Business Overview We are a leader in mission critical space solutions and high reliability components for the next generation space economy, with valuable intellectual property for solar power generation and in-space 3D printing and manufacturing. With decades of flight heritage combined with the agile and innovative culture of a commercial space platform, we are uniquely positioned to assist our customers in solving the complex challenges of future space missions. We manufacture and deliver space infrastructure to our customers. We offer a broad array of products and services, many of which have been enabling space missions since the 1960s and have been flight-proven on over 200 spaceflight missions, including missions such as the GPS constellation, New Horizons and Perseverance. We are also a provider of innovative technologies with the potential to help transform the economics of space and create new markets for its exploration and commercialization. One example of this is our patented suite of in-space manufacturing and robotic assembly technologies (referred to herein as on-orbit servicing, assembly, and manufacturing, or "OSAM"). Other examples of our proprietary technologies include deployable structures, human-rated camera systems and digital engineering. We have grown organically while also continuing to integrate several acquisitions from a fragmented landscape of space-focused technology companies with innovative capabilities and deep flight heritage. Many of our technologies are flight-proven and have been adopted by a broad range of customers across national security, civil and commercial space. Combining heritage and innovation has enabled us to accelerate the delivery of disruptive technologies. We believe the space economy is at an inflection point. The reduction of launch costs over the last decade has eliminated the single largest economic barrier to entry for the expanded utilization of space, and the increasing cadence of launches provides more flexible, reliable access. This lower cost access has resulted in both the expansion and modernization of traditional national security and civil uses of space and has enticed new commercial entrants to invest substantial capital to develop new space-based business models. Our goal is to provide a full suite of infrastructure solutions, including mission-critical components, services and systems that will contribute to a dramatic expansion of the space-based economy. We believe that our products and services are essential to the growth of space as a strategic military and commercial domain, as well as a frontier for science and exploration.
During the first quarter of 2022, the Company continued to serve as a critical mission partner to commercial, civil, and national security customers.
Redwirehardware was utilized on four launches and Redwirepayloads operated on the International Space Station("ISS") and successfully returned to Earth. These deployments represent Redwire'scontinued enablement of the missions of today and demonstrate our dedication to accelerating humanity's expansion into space by delivering reliable, economical, and sustainable infrastructure for future generations. Our products and technologies are enabling multiple constellations and multi-shipset, multi-year programs for partners like the Space Development Agency("SDA"), the U.S.Space Force, National Aeronautics and Space Administration(" NASA"), and commercial customers. Of particular note among our first quarter accomplishments: in January, Redwiresuccessfully delivered multiple L-Band Link-16 Helical Antenna systems for the first generation of the SDA's National Defense Space Architecture constellation's Transport Layer. Redwirecontinues to provide solar array solutions for a variety of customers, including early delivery relative to its baseline schedule of the fourth ROSA solar array for augmentation of the ISS's power generation capabilities. Following up on the successful installation of wings 1 and 2 in 2021, wings 3 and 4 are currently scheduled for launch to the ISS this year, with wings 5 and 6 launching thereafter. Roll-Out Solar Array ("ROSA") is an innovative solar array technology proprietary to Redwireand is operating on a variety of missions such as NASA's Double Asteroid Redirection Test ("DART"). Redwire'ssolar array product lines have a robust production pipeline including the Power and Propulsion Element of the Lunar Gateway and a variety of small low Earth orbit ("LEO") satellites. In the fourth quarter of 2021, Redwirecompleted the critical design review for OSAM-2, a first-of-its-kind satellite which will manufacture and assembly portions of itself in space. Validating the importance and potential of this technology, The White Houseand the National Space Councilreleased a national in-space servicing, assembly and manufacturing ("ISAM") strategy 31 -------------------------------------------------------------------------------- Table of Contents calling for investment and adoption of in-space manufacturing and assembly for satellite missions. Redwireis a leader in this technology area which can enable more capability at a lower cost, larger apertures for spacecraft, and the ability to sustain and protect assets in orbit. Cost increases and additional research and development investment in this area impacted the Company's performance for the three months ended March 31, 2022. We expect to continue to invest in technologies through the remainder of 2022.
March 25, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"), by and among GPAC, Shepard Merger Sub Corporation, a Delawarecorporation and direct, wholly owned subsidiary of GPAC ("Merger Sub"), Cosmos Intermediate, LLC("Cosmos") and AE Red Holdings, LLCformerly known as Redwire, LLC("Holdings"). Pursuant to the Merger Agreement, the parties completed a business combination transaction by which, (i) GPAC domesticated as a Delawarecorporation in accordance with Section 388 of the Delaware General Corporation Law and the Companies Act of the Cayman Islands(the "Domestication"), (ii) Merger Sub merged with and into Cosmos, with Cosmos being the surviving entity in the merger (the "First Merger"), and (iii) immediately following the First Merger, Cosmos merged with and into GPAC, with GPAC being the surviving entity in the merger (the "Second Merger" and, together with the First Merger, the "Mergers" or the "Merger" and, together with the other transactions contemplated by the Merger Agreement, the "Transactions"). In this Quarterly Report on Form 10-Q, we refer to the Domestication and the Transactions, collectively, as the "Merger". On September 2, 2021, the Company consummated the Merger. Upon the closing of the Merger, GPAC was renamed to Redwire Corporation. The Merger was accounted for as a reverse recapitalization in which GPAC was treated as the acquired company. A reverse recapitalization does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of the Company in many respects. MIS was deemed the accounting predecessor and the combined entity is the successor SECregistrant, Redwire. The aggregate consideration paid to Holdings consisted of a combination of cash and stock. The cash consideration was comprised of $75.0 million(such amount, the "Closing Cash Consideration"). The remainder of the consideration was comprised of (i) 37,200,000 shares of common stock, par value $0.0001per share, of GPAC (the "Closing Share Consideration") and (ii) 2,000,000 warrants to purchase one share of common stock per warrant (the "Closing Warrant Consideration"), with such amount of warrants corresponding to the forfeiture of certain warrants acquired by GPAC's Sponsor, Genesis Park Holdings, a Cayman Islandslimited liability company and Jefferies LLCin connection with GPAC's initial public offering. At the effective time of the First Merger, the units of Cosmos were cancelled and automatically deemed for all purposes to represent the right to receive, in the aggregate, the Closing Cash Consideration, the Closing Share Consideration and the Closing Warrant Consideration.
COVID-19 Operational Posture and Impact
We continue to evaluate the ongoing impact of the pandemic. As aerospace manufacturing, communications and defense are federal critical infrastructure sectors, we continue to keep some of our workforce onsite to maintain critical operations. As such, our operations continue to expose our workforce to risks associated with the COVID-19 pandemic. In response to this exposure, our pandemic crisis response plan remains activated to protect the health and safety of our team members, families, customers, and communities, while continuing to meet our commitments to customers. Given the ongoing nature of the outbreak and consequences on the economy, at this time we cannot reasonably estimate the magnitude of the ultimate impact that COVID-19 will have on our business, financial performance, and operating results. The pandemic has caused program execution delays as a result of variant resurgences. Therefore, the near and long-term impacts of the pandemic on the cost and schedule of the numerous programs in our existing backlog and the timing of new awards remains uncertain. We are also observing stress in our supplier base inside and outside the
U.S., which is tied to global supply chain constraints, labor shortages and inflationary pressures globally. We will continue to monitor and assess the actual and potential COVID-19 impacts on employees, customers, suppliers and the productivity of the work being done, all of which, to some extent, has and will continue to impact revenues, estimated costs to complete projects, earnings and cash flow. 32
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The following table presents our results of operations for the three months
dollar and percent change compared to the prior period:
Three Months Ended
$ Change from % Change from
March 31, prior year prior year (in thousands, except percentages) March 31, 2022 % of revenues 2021 % of revenues period period Revenues
$ 32,867100 % $ 31,698100 % $ 1,1694 % Cost of sales 27,696 84 24,221 76 3,475 14 Gross margin 5,171 16 7,477 24 (2,306) (31) Operating expenses: Selling, general and administrative expenses 20,951 64 11,256 36 9,695 86 Transaction expenses 46 - 2,417 8 (2,371) (98) Research and development 1,724 5 996 3 728 73 Operating income (loss) (17,550) (53) (7,192) (23) (10,358) 144 Interest expense, net 1,452 4 1,421 4 31 2 Other (income) expense, net 1,180 4 87 - 1,093 1,256 Income (loss) before income taxes (20,182) (61) (8,700) (27) (11,482) 132 Income tax expense (benefit) (2,889) (9) (1,026) (3) (1,863) 182 Net income (loss) $ (17,293)(53) % $ (7,674)(24) % $ (9,619)125 %
For purposes of the following discussion and analysis, any financial impact
related to the acquisition of
Space Systems, Inc.
referred to as the “2021 Acquisitions.”
Revenues increased by
$1.2 million, or 4%, for the three months ended March 31, 2022compared to the three months ended March 31, 2021. The year-over-year increase in revenues was primarily driven by $3.7 millionof contributed revenue from 2021 Acquisitions and the timing of product deliveries in the deployables and engineering solutions space. This activity was partially offset by the timing of subcontracted work in addition to macroeconomic headwinds, including inflation and supply chain pressures that increased production costs.
Cost of Sales
Cost of sales increased
$3.5 million, or 14%, for the three months ended March 31, 2022compared to the three months ended March 31, 2021. The year-over-year increase in cost of sales was primarily driven by $3.7 millionof contributed cost of sales from 2021 Acquisitions, equity-based compensation of $0.8 million, increased costs associated with revenue growth for the period, and the macroeconomic factors discussed above. These activities were partially offset by changes in contract mix and the investment of operational resources in future technologies through research and development.
Gross margin decreased
$2.3 million, or 31%, for the three months ended March 31, 2022compared to the three months ended March 31, 2021. As a percentage of sales, gross margin was 16% and 24% for the three months ended March 31, 2022and March 31, 2021, respectively. The year-over-year decrease in gross margin was primarily driven by changes in contract mix and an increase in production costs and equity-based compensation. Selling, General and Administrative expenses ("SG&A") SG&A expenses increased $9.7 million, or 86%, for the three months ended March 31, 2022compared to the three months ended March 31, 2021. The year-over-year increase in SG&A was primarily driven by equity-based compensation expense of $3.6 million, litigation-related expenses of $2.3 millionand increased payroll costs of $1.5 millionrelated to our expanded workforce. The remaining increase was primarily related to increased professional fees and other costs associated with being a public company. Contributed SG&A from the 2021 Acquisitions was $2.0 millionfor the three months ended March 31, 2022. SG&A expenses are expected to increase as we continue to invest in the development of our business and centralized corporate functions.
Transaction expenses decreased
transaction expenses incurred in the three months ended
primarily related to the acquisition
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Research and Development
Research and development expenses increased
$0.7 million, or 73%, for the three months ended March 31, 2022compared to the three months ended March 31, 2021. The increase was primarily driven by the strategic decision to invest in future technologies despite macroeconomic factors that increased the cost of research and development activities. The remaining increase was due to varied spending on projects related to solar arrays, modeling and simulation environments, and technologies related to low-earth orbit commercialization, including biofabrication, polymer and metal manufacturing, and cold stowage services. Contributed expenses from the 2021 Acquisitions was $0.4 millionfor the three months ended March 31, 2022.
Interest Expense, net
Interest expense, net was relatively consistent for the three months ended
March 31, 2022as compared to the three months ended March 31, 2021. Please refer to Note G of the accompanying notes to the condensed consolidated financial statements for additional information related to the Company's debt obligations.
Other (Income) Expense, net
Other (income) expense, net increased
$1.1 million, or 1,256%, for the three months ended March 31, 2022compared to the three months ended March 31, 2021. The year-over-year increase was primarily due to a loss recognized as a result of an increase in the private warrant liability of $1.2 millionduring the three months ended March 31, 2022. Refer to Note D of the accompanying notes to the condensed consolidated financial statements for additional information related to the private warrants. Income Tax Expense (Benefit)
The table below provides information regarding our income tax expense (benefit)
for the following periods:
Three Months Ended (in thousands, except percent) March 31, 2022 March 31,
Income tax expense (benefit)
$ (2,889) $ (1,026)Effective tax rate 14.3 % 11.8 % The increase in our effective tax rate for the three months ended March 31, 2022compared to the three months ended March 31, 2021is primarily due to the impact of equity-based compensation, the valuation of warrants, and a partial valuation allowance on net operating loss carryforwards originating during the three months ended March 31, 2022. Refer to Note I of the accompanying notes to the condensed consolidated financial statements for further discussion.
Supplemental Non-GAAP Information
We use certain financial measures to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources which are not calculated in accordance with
U.S.Generally Accepted Accounting Principles (" U.S.GAAP") and are considered to be Non-GAAP financial performance measures. These Non-GAAP financial performance measures are used to supplement the financial information presented on a U.S.GAAP basis and should not be considered in isolation or as a substitute for the relevant U.S.GAAP measures and should be read in conjunction with information presented on a U.S.GAAP basis. Because not all companies use identical calculations, our presentation of Non-GAAP measures may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA and Pro Forma Adjusted EBITDA are two such Non-GAAP financial measures that we use. Adjusted EBITDA is defined as net income (loss) adjusted for interest expense (income), net, income tax (benefit) expense, depreciation and amortization, acquisition costs, acquisition integration costs, purchase accounting fair value adjustment related to deferred revenue, capital market and advisory fees, write-off of long-lived assets, and equity-based compensation. Pro Forma Adjusted EBITDA is computed to give effect to the business combinations as if they occurred on January 1of the year in which they were acquired. 34 -------------------------------------------------------------------------------- Table of Contents The table below presents a reconciliation of Adjusted EBITDA and Pro Forma Adjusted EBITDA to net income (loss), computed in accordance with U.S.GAAP for the following periods: Three Months Ended (in thousands) March 31, 2022 March 31, 2021 Net income (loss) $ (17,293) $ (7,674)Interest expense 1,452 1,422 Income tax expense (benefit) (2,889) (1,026) Depreciation and amortization 3,658 2,271 Acquisition deal cost (i) 46 2,417 Acquisition integration cost (i) 458 314
Purchase accounting fair value adjustment related to deferred revenue
26 73 Capital market and advisory fees (iii) 1,958 3,180 Litigation-related expenses (iv) 2,266 - Equity-based compensation (v) 4,411 - Warrant liability change in fair value adjustment (vi) 1,238 - Adjusted EBITDA (4,669) 977 Pro forma impact on EBITDA (vii) - 699 Pro forma adjusted EBITDA
$ (4,669)$ 1,676
i.Redwire incurred acquisition costs including due diligence and integration
ii.Redwire incurred purchase accounting fair value adjustments to unwind
deferred revenue for MIS and DPSS.
iii.Redwire incurred capital market and advisory fees related to advisors
assisting with preparation for the Merger and transitional costs associated with
becoming a public company.
iv.Redwire incurred expenses related to the Audit Committee investigation and securities litigation as further described in Note J of the accompanying notes to the condensed consolidated financial statements.
v.Redwire incurred expenses related to equity-based compensation under
equity-based compensation plan.
vi.Redwire adjusted the fair value of the private warrants between the initial valuation as of
September 2, 2021, the date the warrants were assumed, and March 31, 2022. vii.Pro forma impact represents the incremental results of a full period of operations assuming the entities acquired during the periods presented were acquired from January 1of the year in which they occurred. For the three months ended March 31, 2021, the pro forma impact included the results of Oakman, DPSS and the incremental results of Techshot, which was acquired in November 2021.
Key Performance Indicators
Book-to-bill is the ratio of total contract awarded to revenues recorded in the same period. The contracts awarded balance includes firm contract orders including time and material contracts which were awarded during the period and does not include unexercised contract options or potential orders under indefinite delivery/indefinite quantity contracts. Although the contracts awarded balance reflects firm contract orders, terminations, amendments, or contract cancellations may occur which could result in a reduction to the contracts awarded balance. We view book-to-bill as an indicator of future revenue growth potential. To drive future revenue growth, our goal is for the level of contract awarded in a given period to exceed the revenue recorded, thus yielding a book-to-bill ratio greater than 1.0.
Our book-to-bill ratio was as follows for the periods presented:
Three Months Ended (in thousands, except ratio) March 31, 2022 March 31, 2021 Contracts awarded
$ 30,426 $ 67,234Revenues 32,867 31,698 Book-to-bill ratio 0.93 2.12 Our book-to-bill ratio was 0.93 for three months ended March 31, 2022, as compared to 2.12 for three months ended March 31, 2021. For the three months ended March 31, 2022, none of the contracts awarded balance relates to acquired contract value. For the three 35
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relates to acquired contract value from the Oakman and DPSS acquisitions.
We view growth in backlog as a key measure of our business growth. Contracted backlog represents the estimated dollar value of firm funded executed contracts for which work has not been performed (also known as the remaining performance obligations on a contract). Our contracted backlog includes
$29.6 millionand $10.7 millionin remaining contract value from time and materials contracts as of March 31, 2022and as of December 31, 2021, respectively. Organic contracted backlog change excludes backlog activity from acquisitions for the first four full quarters since the entities' acquisition date. Contracted backlog activity for the first four full quarters since the entities' acquisition date is included in acquisition-related contracted backlog change. After the completion of four fiscal quarters, acquired entities are treated as organic for current and comparable historical periods. Organic contract value includes the remaining contract value as of January 1not yet recognized as revenue and additional orders awarded during the period for those entities treated as organic. Acquisition-related contract value includes remaining contract value as of the acquisition date not yet recognized as revenue and additional orders awarded during the period for entities not treated as organic. Similarly, organic revenue includes revenue earned during the period presented for those entities treated as organic, while acquisition-related revenue includes the same for all other entities, excluding any pre-acquisition revenue earned during the period. December 31, (in thousands) March 31, 2022 2021 Organic backlog as of January 1 $ 133,115 $ 122,273Organic additions during the period 27,674 146,880 Organic revenue recognized during the period (31,714) (136,038) Organic backlog at end of period 129,075 133,115 Acquisition-related contract value beginning of period 6,627 - Acquisition-related additions during the period 2,752 8,190 Acquisition-related revenue recognized during the period (1,153) (1,563) Acquisition-related backlog at end of period 8,226 6,627 Contracted backlog at end of period
The acquisition-related contracted backlog activity includes contracted backlog activity of
Techshot. The organic contracted backlog activity includes contracted backlog activity of Adcole, DSS, MIS, Roccor, LoadPath, Oakman, and DPSS. Although contracted backlog reflects business associated with contracts that are considered to be firm, terminations, amendments or contract cancellations may occur, which could result in a reduction in our total backlog. In addition, some of our multi-year contracts are subject to annual funding. Management fully expects all amounts reflected in contracted backlog to ultimately be fully funded. Contracted backlog related to contracts from MIS operations in Luxembourg of $4.1 millionas of March 31, 2022and $5.3 millionas of December 31, 2021is subject to foreign exchange rate conversions from euros to U.S.dollars that could cause the remaining backlog balance to fluctuate with the foreign exchange rate at the time of measurement. Our total backlog as of March 31, 2022, which includes both contracted and uncontracted backlog, was $273.9 million. Uncontracted backlog represents the anticipated contract value, or portion thereof, of goods and services to be delivered under existing contracts which have not been appropriated or otherwise authorized. Our uncontracted backlog as of March 31, 2022was $136.6 million. Uncontracted backlog includes $74.6 millionof contract extensions under negotiation that are priced, fully scoped, verbally awarded, and expected to be executed shortly.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows provided by our operations, access to existing credit facilities and proceeds from the Merger. Since its inception, the Company has incurred net losses and negative operating cash flow, and has used its cash to fund capital expenditures, costs associated with the Company's acquisitions, and costs associated with the Merger, among other uses. While some of these cash outflows have been non-recurring in nature, the Company has continued to experience net cash outflows from operating activities. While the Company believes its continued growth and cash flow management will result in improvements in cash from operating activities going forward, there can be no assurance these improvements will be achieved. 36
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Our primary short-term cash requirements are to fund working capital, operating lease obligations, and short-term debt, including current maturities of long-term debt. Working capital requirements can vary significantly from period to period, particularly as a result of the timing of receipts and disbursements related to long-term contracts. Significant fluctuations in working capital could adversely impact the Company's cash position and short-term liquidity needs. Our medium-term to long-term cash requirements are to service and repay debt, expand our breadth and footprint through acquisitions as well as invest in facilities, equipment, technologies, and research and development for our growth initiatives. To support these initiatives, we expect to continue to make significant investments in our business, including hiring additional staff, implementing processes and procedures to address public company requirements and other customary practices as well as evaluating strategic acquisitions. As a result, we will likely incur additional operating expenses and capital expenditures. Our ability to fund our cash needs is dependent upon the successful execution of our business strategy and future operating results. Our future operating results are subject to, among others, general economic conditions, including as a result of the COVID-19 pandemic, inflation and supply chain pressures, competitive dynamics in our target markets as well as legislative and regulatory factors that may be outside of our control. As part of our business and debt management strategy, we continuously evaluate opportunities to further strengthen our financial and liquidity position including the issuance of additional equity or debt securities, refinance or otherwise restructure our existing credit facilities, or enter into new financing arrangements. On
April 14, 2022, the Company entered into a committed equity facility. See below for more information. In addition, the Company has identified a plan to execute certain cost reduction actions including, among others, integration-related workforce rationalizations, real estate synergies, business unit optimization initiatives, and cost savings associated with certain Corporate level employment costs. There can be no assurances that any of these actions will be sufficient to allow us to service our debt obligations, meet our debt covenants, or that such actions will not result in an adverse impact on our business. As of March 31, 2022, our available liquidity totaled $30.9 million, which was comprised of $5.9 millionin cash and cash equivalents, and $25.0 millionin available borrowings from our existing credit facilities. We believe that our existing sources of liquidity will be sufficient to meet our working capital needs and comply with our debt covenants for at least the next twelve months from the date on which our consolidated financial statements were issued. However, the Company's current liquidity may not be sufficient to meet the required long-term liquidity needs associated with continued use of cash from operating activities at historical levels, in addition to its other liquidity needs associated with its capital expenditures, debt payments, and other investing and financing requirements. The table below summarizes our outstanding debt as of the following periods: March 31, December 31, (in thousands) 2022 2021 Adams Street Term Loan $ 30,613 $ 30,690Adams Street Revolving Credit Facility - - Adams Street Delayed Draw Term Loan 14,813 14,850 Adams Street Incremental Term Loan 31,680 31,760 D&O Financing Loan 761 1,904 Total debt 77,867 79,204 Less: unamortized discounts and issuance costs 1,580 1,653 Total debt, net 76,287 77,551 Less: Short-term debt, including current portion of long-term debt 1,542 2,684 Total long-term debt, net $ 74,745 $ 74,867Adams Street Credit Agreement
included the following:
$31.0 millionterm loan (the "Adams Street Term Loan"). Proceeds from the Adams Street Term Loan were used to finance the acquisition of Roccor, pay acquisition-related costs, fund working capital needs (including the payment of any working capital adjustment pursuant to the Roccor acquisition agreement) and other general corporate purposes;
finance the Oakman acquisition. On
Street Credit Agreement to increase the principal amount of the Adams Street
Term Loan by an additional
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$32.0 millionto finance the DPSS acquisition. On July 30, 2021, we drew $3.0 millionon the revolving credit facility and repaid the $3.0 milliondraw down on September 23, 2021. On September 2, 2021, the Adams Street Credit Agreement was amended to provide that the consolidated total net leverage ratio not exceed 6.50:1.00 on the last day of any quarter ("the Financial Covenant"), to remove the cap on the amount of unrestricted cash which may be netted for purposes of the Financial Covenant, to redefine "Consolidated EBITDA", and to reset the call protection terms. The Adams Street Credit Agreement has a maturity date of October 28, 2026. The Adams Street Credit Agreement is secured by a first lien security interest in all right, title or interest in or to certain assets and properties owned by us and the guarantors included in the Adams Street Credit Agreement. The Adams Street Credit Agreement requires us to meet customary affirmative and negative covenants, default provisions, representations and warranties and other terms and conditions. We are required to make mandatory prepayments of the outstanding principal and accrued interest under the Adams Street Credit Agreement (i) upon the occurrence of certain events and (ii) to the extent a specified net leverage ratio is exceeded as evaluated on any test period ending date. The test period ending dates are March 31, June 30, September 30and December 31each year, starting on March 31, 2021, through the maturity of the agreement. On March 25, 2022, the Company entered into a Third Amendment (the "Amendment") to the Adams Street Capital Credit Agreement to, among other things, increase commitments under the revolving credit facility from $5.0 millionto $25.0 million. The Amendment also modified certain negative covenants and increased the per annum interest rate (i) with respect to revolving loans in an aggregate principal amount of $5.0 millionor less, to 6.00% for Eurocurrency rate loans and 5.00% for Base Rate Loans, and (ii) with respect to revolving loans in an aggregate principal amount in excess of $5.0 million, to 7.50% for Eurocurrency rate loans and 6.50% for Base Rate Loans. The Adams Street Capital Credit Agreement, as amended, contains certain customary representations and warranties, affirmative and other covenants and events of default, including among other things, payment defaults, breach of representations and warranties, and covenant defaults. As of March 31, 2022, we were in compliance with our debt covenants under the Adams Street Credit Agreement. In connection with the entry into the Amendment, AEI and certain of its affiliates (the "AEI Guarantors"), provided a limited guarantee for the payment of outstanding revolving loans in excess of $10.0 million, with a $15.0 millioncap in the aggregate. In the event that the AEI Guarantors are required to make payments to the lenders under the Adams Street Capital Credit Agreement pursuant to the terms of the limited guarantee, each AEI Guarantor would be subrogated to the rights of the lenders. In connection with the limited guarantee, the Lead Borrower agreed to pay to the AEI Guarantors, a fee equal to 2% of any amount actually paid by such guarantors under the limited guarantee. The fee is waivable by the AEI Guarantors in their discretion.
SVB Loan Agreement
August 31, 2020, we entered into a $45.4 millionloan agreement with Silicon Valley Bank(the "Original SVB Loan Agreement") maturing on August 31, 2021, which was subsequently modified on October 28, 2020to (i) increase the available commitment by $5.7 millionand (ii) pay $0.6 milliontoward the outstanding principal under the Original SVB Loan Agreement. This resulted in a modified loan (the "SVB Loan Agreement") for $50.5 million. On October 30, 2020, we made a $4.0 millionprincipal payment. On April 2, 2021, we extended the maturity date to September 30, 2022.
Paycheck Protection Program Loan
May 1, 2020, prior to its acquisition by the Company, Deep Space Systems, Inc.("DSS") received a Paycheck Protection Program ("PPP") loan for $1.1 million(the "DSS PPP Loan"), with a maturity date of May 1, 2022. Under the terms of the DSS PPP Loan, DSS could apply for forgiveness under the PPP regulations if DSS used the proceeds of the loan for its payroll costs and other expenses in accordance with the requirements of the PPP. As the funds were disbursed to DSS prior to the acquisition, the Company intended to repay any unforgiven balance with funds held in a DSS savings account as of the date of the DSS acquisition. On June 18, 2021, $0.6 millionof the DSS PPP Loan was forgiven and as a result reclassified as a note payable to the seller of DSS. During the Successor 2021 Period, we repaid the $0.6 millionnote payable to the seller of DSS and the remaining outstanding principal and interest of $0.5 millionon the DSS PPP loan.
D&O Financing Loan
insurance premium. The D&O Financing Loan has an interest rate of 1.74% per
annum, an effective interest rate of 1.75%, and a maturity date of
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Committed Equity Facility
April 14, 2022, the Company entered into an $80 millioncommon stock purchase agreement with B. Riley Principal Capital, LLC("B. Riley") to further support its growth strategy through initiatives such as accretive acquisitions and internal investments, to bolster working capital, and/or for general corporate purposes. The agreement governs a committed equity facility that provides the Company with the right, without obligation, to sell and issue up to $80 millionof its common stock over a period of 24 months to B. Rileyat the Company's sole discretion, subject to certain limitations and conditions.
The following table presents our contractual obligations as of
March 31, 2022: Remainder of (in thousands) 2022 2023 2024 2025 2026 Thereafter Total Adams Street Term Loan $ 233 $ 310 $ 310 $ 310 $ 29,450$ - $ 30,613Adams Street Delayed Draw Term Loan 113 150 150 150 14,250 -
Adams Street Incremental Term Loan 240 320 320 320 30,480 - 31,680 D&O Financing Loan 761 - - - - - 761 Total long-term debt maturities 1,347 780 780 780 74,180 -
Future minimum lease payments 2,183 3,068 2,850 2,266 1,631 3,183
Total contractual obligations
The Company is obligated under certain operating leases for its facilities and office equipment. Certain facility leases contain predetermined fixed escalation of minimum rents at rates ranging from 1.96% to 4.00% per annum and renewal options that could extend certain leases up to an additional nine years; the office equipment lease contains a renewal option that could extend the lease to consecutive 60-day terms and a purchase option. As of
March 31, 2022, the future annual minimum lease payments for operating leases for the year 2022 was estimated at $2.2 millionwith estimated aggregate minimum lease payments of $15.2 millionthrough expiration of current leases. Refer to Note H of the accompanying notes to the condensed consolidated financial statements for further information. As of March 31, 2022, the Company had one facility lease that had not yet commenced but created significant future lease obligations in the amount of $3.9 million. The contract was determined to be an operating lease, whereby the Company is required to make rent payments prior to the lease commencement date while construction is completed on the underlying asset. Due to the nature of the work and the amount of the Company's contribution to construction period costs, the Company was determined not to be the accounting owner of the asset under construction as the landlord had substantially all of the construction period risks. Cash Flows
The table below summarizes certain information from the condensed consolidated
statements of cash flows for the following periods:
Three Months Ended (in thousands) March 31, 2022 March 31, 2021 Net cash provided by (used in) operating activities
$ (11,446) $ (12,525)Net cash provided by (used in) investing activities (1,014) (34,087) Net cash provided by (used in) financing activities (2,107) 40,919
Effect of foreign currency rate changes on cash and cash
(18) (158) Net increase (decrease) in cash and cash equivalents (14,585) (5,851) Cash and cash equivalents at end of period $ 5,938
$ 16,225Operating activities For the three months ended March 31, 2022net cash used in operating activities was $11.4 million. Net loss before deducting depreciation, amortization and other non-cash items generated a cash outflow of $10.7 millionand was further impacted by an unfavorable change in net working capital of $0.8 millionduring this period. The unfavorable change in net working capital was largely driven by increase in contract assets of $5.7 millionand prepaid expenses and other assets of $1.3 million, and decrease in deferred revenue of $1.8 million, offset by the increase in accounts payable and accrued expenses of $3.1 millionand decrease in accounts receivable of $4.3 millionand prepaid insurance of $1.1 million. The changes in accounts receivable, contract assets and deferred revenue relates to the timing of billable milestones occurring during the three months ended March 31, 2022. The change in accounts payable and accrued expenses is related to timing in payments. 39 -------------------------------------------------------------------------------- Table of Contents For the three months ended March 31, 2021, net cash used in operating activities was $12.5 million. Net income before deducting depreciation, amortization and other non-cash items generated a cash outflow of $6.4 millionand was further impacted by an unfavorable change in net working capital of $6.2 millionduring this period. The unfavorable change in net working capital was largely driven by the increase in accounts receivable of $5.1 million, contract assets of $2.7 millionand prepaid expenses and other assets of $2.1 million, offset by the increase in accounts payable and accrued expenses of $5.1 million. The changes in accounts receivable and deferred revenue relates to the timing of billable milestones occurring during the three months ended March 31, 2021.
For the three months ended
March 31, 2022net cash used in investing activities was $1.0 million, consisting of $0.9 millionused for the purchase of property, plant and equipment and $0.1 millionused for the purchase of intangible assets. For the three months ended March 31, 2021, net cash used in investing activities was $34.1 million, consisting of $38.4 millionused for the acquisition of Oakman and DPSS as well as $0.6 millionused for the purchase of property, plant and equipment. This was offset by the settlement of related party receivables resulting in cash received of $4.9 million.
For the three months ended
March 31, 2022net cash used in financing activities was $2.1 million, consisting of $1.3 millionused for the repayment of debt as well as $0.8 millionof loan fees paid to third parties in the execution of the Amendment to the ASP Agreement.
For the three months ended
offset by the repayment of debt of
Foreign Currency Exposures
There were no material changes to our foreign currency exposures that occurred
in the periods covered by this report.
Critical Accounting Estimates
For the critical accounting estimates used in preparing our condensed consolidated financial statements, we make assumptions and judgments that can have a significant impact on net revenues, cost and expenses, and other expense (income), net, in our condensed consolidated statements of operations and comprehensive income (loss), as well as, on the value of certain assets and liabilities on our condensed consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. In accordance with the Company's policies, we regularly evaluate estimates, assumptions, and judgments; our estimates, assumptions, and judgments are based on historical experience and on factors we believe are reasonable under the circumstances. The results involve judgments about the carrying values of assets and liabilities not readily apparent from other sources. If our assumptions or conditions change, the actual results the Company reports may differ from these estimates.
There were no material changes to our critical accounting policies, estimates or
judgments, that occurred in the periods covered by this report from those
disclosed in the Annual Report on Form 10-K filed with the
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