Redwire Corporation Stock

Greetings and welcome to Redwire Corporation's Q3 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Alex Curatolo, Senior Director of Investor Relations. Thank you, Alex. You may begin.

Good morning, and thank you, Alicia. Welcome to Redwire's Third Quarter 2026 Earnings Call. We hope that you have seen our earnings release, which we issued yesterday afternoon. It has also been posted in the Investor Relations section of our website at rdw.com. Let me remind everyone that during the call, Redwire 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 Slides 2 and 3.

Additionally, to the extent we discuss non-GAAP measures during the call, please see Slide 3 and the appendix, our earnings release, or the investor presentation on our website for the calculation of these measures and their reconciliation to U.S. GAAP measures. I am Alex Curatolo, Redwire's Senior Director of Investor Relations. Joining me on today's call are Peter Cannito, Redwire's Chairman and Chief Executive Officer, and Chris Edmunds, Redwire's Chief Financial Officer. With that, I would like to turn the call over to Pete. Pete?

Thank you, Alex. During today's call, I will outline our key accomplishments during the third quarter of 2026, after which Chris will present the financial highlights for the same period and discuss our outlook for the remainder of the year. We will then open the call for Q&A. Please turn to Slide 6. Redwire continued to see growing demand with substantial increases in bookings during the third quarter, underscoring the criticality of our solutions. Redwire's Q3 revenue was $109 million, a 5.4% increase compared to Q3 2025. However, revenue timing was a factor as a result of uneven milestones and deliveries that can shift revenue from quarter to quarter on a sequential basis.

As Chris will cover in more detail later, this timing resulted in concurrent increases in backlog, WIP, and finished goods. From a revenue quality perspective, I am pleased to report we had another quarter of record gross margins, expanding from 16.3% to 32.3% year-over-year. 5% growth in revenue year-over-year while doubling gross margins demonstrates our ability to not just grow, but to drive better quality growth. We believe this is a hallmark of an enduring and differentiated enterprise. Redwire continued to see durable demand across our portfolio, achieving a strong book-to-bill ratio of 1.73.

As a result, we ended the quarter with record contracted backlog of $619.7 million, our 6 consecutive quarters of growth in backlog, providing further confidence in our forecast as we move into the final quarter of 2026. Finally, our balance sheet continues to provide a strong financial foundation with $538.9 million in total liquidity to fuel our continued growth. In summary, Redwire's third quarter was defined by durable and increasing demand for our mission-critical products and solutions across multiple domains, adding quality revenue to our portfolio. Please turn to Slide 7. On our last earnings call, I introduced the 3-pillared investment framework Redwire uses to guide our capital allocation.

Today, I would like to provide a brief update on the current landscape. In terms of balance sheet strength, with $538.9 million in total liquidity and only $47.8 million in total debt, we are well positioned to withstand market perturbations while maintaining optionality to invest in new innovations and strategic M&A. Prudent balance sheet management mitigates risk from higher interest rates and weaker capital markets. With a diverse portfolio of products, customer types, and geographies, we continue to see attractive opportunities to invest in internal innovation that can compound growth through new product advancement, expanded capacity, and innovation across our portfolio.

Research and development expense increased $6.7 million or 87.1% year-over-year to $14.4 million during the third quarter of 2026, reflecting increased investment in our future growth. Finally, we continue to keep our eyes open for accretive M&A while remaining disciplined, selective, and patient to find value opportunities. In summary, we like how we are currently postured to foster resiliency and steady growth, while remaining opportunistic as we continue to invest with discipline across all 3 pillars to drive long-term value for our shareholders. Please turn to Slide 8. Next, I would like to briefly highlight third quarter achievements and developments across our 5 value drivers.

We will start with our space segment, which encompasses next-generation spacecraft, large space infrastructure, and microgravity development, and then turn to our defense tech segment, which encompasses combat-proven UAS and sensors and payloads. Please turn to Slide 9. Starting with next-generation spacecraft, today I am very pleased to announce that during the third quarter, Redwire was awarded a $20 million contract from DARPA to complete additional testing and experimentation on a scaled version of SabreSat for a precursor flight in Very Low Earth Orbit or VLEO, as part of the DARPA Otter Program. This separate award adds a 2nd VLEO flight mission to Redwire's work on Otter and marks a major step towards sustained operations in VLEO, one of space's most challenging and strategically important orbital regimes.

Redwire is creating the platforms, models, and digital infrastructure needed to make VLEO operational at scale, ultimately equipping national security space missions with distinctive operational advantages, from rapid orbital agility to enhanced tactical responsiveness. We continue to compound our early investment in this critical technology across a growing portfolio of VLEO opportunities in both the U.S. and Europe. Please turn to Slide 10. Turning to large space infrastructure, Redwire was awarded a $15 million contract to deliver ELSA wings to AscendArc, a GEO satellite customer. ELSA expands Redwire's power technology portfolio to support customers with low to medium power applications across all orbits, including volume production programs with faster delivery times.

And this award marks the second sale of ELSA we've announced since its introduction earlier this year for a total of $27.8 million of new contracts so far in its first year as a product. ELSA is a proof point for how investments in internal innovation can drive strong near-term return on investment. Power in space is fundamental. Nothing happens without power. Redwire is already a recognized leader with ROSA, and with the addition of ELSA to our portfolio, we continue to scale our power position as a reliable, proven, and differentiated source for effective space power solutions. Please turn to Slide 11. Speaking of ROSA, Redwire was recently awarded a contract to develop and deliver 2 rollout solar array or ROSA, wings for Axiom's second space station module.

This award is a follow-on to a previously awarded contract for Redwire to build ROSA wings for Axiom's first space station module. These awards are the direct result of our proven performance providing power to the International Space Station. And I'm excited to share that Redwire's 8th and final ROSA wing is scheduled to be installed on the International Space Station today by NASA astronaut Anil Menon and Canadian Space Agency astronaut Joshua Kutryk. Please join me in congratulating our team on completing this historic power modernization effort and thanking our customer Boeing and everyone at NASA who helped us transform ROSA from an innovative idea into reality, especially the astronauts performing today's spacewalk.

From satellites to space stations, Redwire is powering humanity's ambitions in space. Please turn to Slide 12. Turning to our microgravity development value driver, while SpaceMD, a wholly owned subsidiary of Redwire, continues to work on the architecture for its historic spacecraft mission, it simultaneously continues to send microgravity payloads to the ISS. In October, SpaceMD launched 4 microgravity investigations to the International Space Station on SpaceX-35, including the first vascular tissue bioprint in microgravity using SpaceMD's biofabrication facility, or BFF. Also, pharmaceutical investigations that increased the number of PIL-BOXes launched to 58, studying 46 unique compounds.

And finally, a plant growth experiment using our multi-use variable gravity platform, or MVP. These investigations will be managed from Redwire's new state-of-the-art payload operations control center and dedicated microgravity facility in Georgetown, Indiana. NASA's trust in Redwire to support operations directly with the ISS reflects the depth of our experience and proven track record in microgravity. As evidenced by the breadth of capabilities covered by these investigations, SpaceMD continues to move microgravity manufacturing from experimentation towards repeatable, scalable commercial operations, leveraging the microgravity environment of space to improve life here on Earth.

Please turn to Slide 13. Turning next to our combat-proven UAS value driver. During the quarter, Redwire was awarded a $13.8 million contract to deliver Stalker aircraft to the U.S. National Guard. We are proud that the National Guard chose Stalker as a highly reliable modular platform to train incoming soldiers on complex flight operations, field maintenance, and multi-mission payload deployment. We believe this underscores another example of how we are being baselined as a key autonomy platform for the U.S. military. Please turn to Slide 14. Lastly, moving to our sensors and payloads value driver.

Redwire has delivered more than 200 space sensors, including star trackers, sun sensors, and cameras year-to-date through September 30, 2026, a 100% increase on a year-over-year basis. During the quarter, we also announced the Seeker product line, a European variant of our proven navigation sensors and space cameras manufactured at Redwire's high-volume production facility in Riga, Latvia.

Built in Europe, for Europe, the Seeker product line is intended to strengthen Europe's satellite supply chain sovereignty and meet the growing demand across the European space sector. We are a critical part of the expanding European industrial base for space and defense. Please turn to Slide 15. With that, I'd now like to turn the call over to Chris Edmunds, Redwire's Chief Financial Officer, to discuss the financial results for the third quarter of 2026.

Thank you, Pete. Please turn to Slide 16. During the third quarter, we recorded total revenue of $109 million, a 5.4% increase on a quarterly year-over-year basis, but a decrease on a sequential basis. Our space segment recorded revenue of $61.3 million, a more than 30% organic increase on a year-over-year basis, while our defense tech segment recorded revenue of $47.8 million, a year-over-year decrease due to the timing of shipments for our UAS offerings as the team prepares to deliver the next generation of our autonomous platforms. From a year-to-date perspective, we have recorded total revenue of $323.1 million, a 42.6% increase year-over-year, with 60% of our total revenue from the U.S. market and 40% international.

Evidence of our global reach and manufacturing footprint. Please turn to Slide 17. Gross margin improvement is a significant focus area for Redwire, as we believe this is an important quality for a durable and differentiated enterprise capable of creating long-term shareholder value. And I am pleased to report that we achieved record gross margins of 32.3% during the third quarter, with year-over-year and sequential improvements from both our space and defense tech segments. The gross margin improvement was driven by a change in contract mix, with more than $700 million in new awards over the last 12 months and the near completion of a few lower margin programs within our space segment.

Net loss improved by $18 million on a year-over-year basis to a net loss of $23.2 million, and our third quarter adjusted EBITDA was negative $5.3 million. Our internal research and development investment continued during the third quarter, increasing from $7.7 million to $14.3 million on a year-over-year basis. We continue to see this investment as accelerating the maturation of our products and solutions to meet customer demand and timeline as evidenced by the nearly $30 million in ELSA bookings that Pete referenced, an internally developed product that was released earlier this year. As we continue to execute on the more than $700 million of bookings from the last 12 months, our gross margin is improving.

Please turn to Slide 18. Next, turning to a discussion of liquidity and capital structure. We ended the third quarter of 2026 with total liquidity of $538.9 million, comprised of $488.9 million of cash, cash equivalents and restricted cash, and $50 million in undrawn revolver capacity, a significant year-over-year improvement. With more than $400 million invested in money market funds, during the third quarter of 2026, we achieved net interest income of $2.7 million versus net interest expense of $6.3 million for the corresponding period in the prior year, a $9 million cash improvement on a year-over-year basis.

Finally, I would note that we did not issue any shares under our existing ATM program during the third quarter. In summary, our balance sheet and capital structure is ready to support future growth. Please turn to Slide 19. Turning to cash flows, net cash used in operating activities for the 9 months ended September 30, 2026, improved by $57.9 million year-over-year. This improvement is largely driven by the improved financial performance over the period, partially offset by an investment in inventory to support near-term customer deliveries. Please turn to Slide 20. During the third quarter, we saw continued strength in contracts awarded with bookings of $188.7 million, resulting in a book-to-bill ratio for the quarter of 1.73 and a book-to-bill ratio of 1.63 on a last 12 months basis.

Our space segment bookings were $119.9 million, resulting in a book-to-bill ratio for the quarter of 1.96, driven by power and spacecraft bookings. And our defense tech bookings were $68.8 million, resulting in a book-to-bill ratio of 1.44 for the quarter, driven by demand for our autonomous platforms, sensors, and payloads. Turning to backlog, we once again saw growth in this metric as backlog increased by 14.3% on a sequential basis and nearly 75% on a year-over-year basis to a record $619.7 million. As of September 30, 2026, space backlog was $379.6 million, and defense tech backlog was $240.1 million.

As a reminder, Redwire's contracted backlog represents the estimated dollar value of remaining work on executed contracts and does not include unexercised contract options or anticipated bookings under IDIQs. We remain proud of our 6 consecutive quarters of growth in backlog and the durable demand we see for our mission-critical space and defense tech products and solutions around the globe. Please turn to Slide 21 for a brief discussion of the outlook for the remainder of 2026. I'd like to start by setting context for our reaffirmation of our guidance range, acknowledging that the timing of our revenue has been uneven, as evidenced by the small sequential decrease between the second and third quarter of 2026.

However, there are 2 primary factors that provide us with confidence as we look to the remainder of the year. First, during Q3 2026, we achieved a record $619.7 million in backlog, providing a strong underpinning for our future growth and showcasing the durable demand for our mission-critical space and defense tech products and solutions. And second, for our defense tech segment, our work in process and finished goods inventory balance has increased by $10.6 million over the last quarter to $46.8 million as our team prepares to deliver customer orders that are nearing completion in the coming weeks.

Please turn to Slide 22. In summary, with $323.1 million of recorded revenue during the first 9 months of 2026, supported by our record $619.7 million in backlog and $46.8 million in work in process and finished goods inventory, we are reaffirming our full year 2026 revenue forecast in the range of $450 million to $500 million, which represents a 41.6% year-over-year growth at the midpoint. With that, please turn to Slide 23, and I'll now turn the call back over to Pete.

Thank you, Chris. To summarize, with record backlog, record gross margin, and a balance sheet that is ready to support future growth, Redwire's third quarter was defined by growing demand and quality revenue. With that, I'd like to thank the entire Redwire team for their achievements during the third quarter of 2026. We will now open the floor for questions.

[Operator Instructions] Our first question comes from the line of Rishi Khubchandani with Guggenheim.

One question on the gross margins. So the gross margins were up solidly last year in 3Q '25, and you reported an adjusted gross margin this quarter of 27%. Maybe you can provide more of an apples-to-apples comparison and what drove the 520 bps of expansion. That's on an as-reported basis.

Well, just a quick clarification. I think it was 27% with the adjusted gross margin in '25 versus the 32% for this quarter. There was a purchase accounting nuance that we added back last year to show that apples-to-apples comparison. It was talked about on the call. Gross margin improvement has been a key focus area this year. And we looked at the progress we've made. We started the year off in the first quarter at 24%, working it up to 28% in the second quarter, then off to come in where we are today. A lot of that strength is coming out of our space portfolio.

We've talked about increasing the portfolio gross margin as we have had a really strong booking profile in that segment this year. Excuse me. And so that is bringing that gross margin up for the space portfolio. So in Q3 of last year on an apples-to-apples basis, they were at 4%. They're at 18% for this quarter, whereas our defense tech business on an apples-to-apples basis was 45% last year and 50% this year. So we're seeing a significant increase in our gross margin on the space side, and that's a result of some of the new orders that we've had this year, and we're seeing the gross margins hold but also grow in the future on the defense tech side.

Yes, and as I mentioned, I'll add, we've seen in the past that the industry was really focused just on the top line. It's strategically important from Redwire's perspective that we focus on unit economics and strong gross margins as well. So we've been putting a lot of emphasis on being more discriminatory in how we bid and who we're willing to bid against in terms of making sure that long term we can sustain continuous improvements in the gross margins until we reach our final objective.

Our next question comes from the line of Suji DeSilva with Roth Capital Partners.

Congrats on the bookings growth. Can you please discuss the EBITDA loss here? Unpack a little what the bridge is here to breakeven, Chris, given the step-up in operating expenses.

Yes, so as we kind of play out the last question, gross profit has been a big area of focus for us. But we talked about earlier this year about really ramping up our internal investment. Pete talked on that earlier in the call as well. I mean, look at IRAD this year. We're up $30 million in investment on some really, really interesting capabilities. We talked about ELSA coming to market. It was a very fast-to-market investment that we've made with almost $30 million of bookings this year. That's a meaningful contributor to the space backlog.

And so as we think about those high-ROI type opportunities, we're going to keep leaning forward responsibly into our IRAD line. But if we look back and say, we've increased IRAD $30 million this year, Adjusted EBITDA acknowledging that year-to-date is negative 18, really where we are is we're focusing on tomorrow, we're focusing on the capabilities of where we see the market going. And so that really is the big explanation for the EBITDA walk as we see it right now.

And strategically, our goal is to keep EBITDA inside IRAD. IRAD is a discretionary lever that we can pull up and down on a relatively short-term basis based on what we see in the market. Right now we see a lot of really high-return, high-potential ROI returns on some internal innovations. Redwire is a fairly diversified company, so we've got a lot of really great technologies that we can deliver. ELSA is a perfect example of that, right? So from our perspective, it's not so much about a bridge to breakeven. It's about using that lever to ramp up and down IRAD based on the market circumstances and the number of quality internal opportunities that we have.

Our next question comes from the line of Brian Kinstlinger with Alliance Global Partners.

You mentioned milestones for revenue recognition, which I think suggests the space sector. I could be wrong. And then you also mentioned delays in deliveries given your next-generation UAVs platform. Maybe you can add some more details on each. And are either of these continuing to be challenges in the current quarter or the next few months?

Yes. Hey, Brian. So we included milestones and deliveries because that's just the context of our business. We were not trying to indicate one versus the other. As you can basically see from the numbers, defense tech is a little bit down. So in this particular case, as I think Chris mentioned, it was about deliveries, right? So the past year has been a major transition period as we move from the Stalker Block 30 to the Stalker Block 40 and to the Penguin Mk3. So we're going to run into issues as we're developing.

And when you run into things, simple things like an export control approval that doesn't come in or a supplier that delivers late, because our orders are so big, the good news is we get big, chunky orders like the National Guard order of $15 million. The bad news is if you get caught up around something like export control or a part of the supply chain that is behind, it can move the quarter across periods. So we tried to emphasize that, we tried to foot-stomp that, if you will, around the growth in WIP and finished goods. So that's basically what we mean by timing of deliveries. Chris, anything you want to add?

I think the only thing I'd say is the demand signals are still there, sitting at a 1.6 book-to-bill on both segments. So as we think about the demand signals, they remain solid. We're working on moving the product out the door, as Pete said.

Bookings have doubled year-over-year on defense tech. So you can see that it's in the bookings, it's in the finished goods and WIP. And that's doubling of the backlog, thank you.

Our next question comes from the line of Liam Baker with KeyBanc Capital Markets.

With the midterm elections now behind us, how are you thinking about the cadence of government awards from here? Were there anything meaningful in the space and defense tech opportunity bucket that got pushed to the right? And how do you expect to move forward over the next few quarters?

Yes, good question. Obviously, we're all watching the same thing happen in real time here, right? So there's a lot of predictions around what does this mean for passing the budget. It's early days. The transition is only a day old. I do believe both space and defense tech are bipartisan issues. So I don't think long-term it's going to have any effect, but there may be a little bit of a grind here in the near term as Washington flips over. Having said that, Redwire is already really well established on another program like Otter.

The vast majority of our programs are not new starts, right? So you can see that on the Otter Program, they're able to continue to grow that. They will be able to continue to grow that under a continuing resolution if that's where all of this ends up. I'd also like to point out that 40% of our revenue comes from Europe. So, although there may or may not be short-term perturbations in the defense budget or budgets writ large inside the U.S., again, that's only 60% of our portfolio.

So when you add up the fact that 40% of our revenues come from Europe, and the fact that we already have a really broad base of existing programs that are funded with really strong backlog, I think whatever happens, we'll be able to weather through it and come out the other end without losing any momentum.

Our next question comes from the line of Adam Samuelson with Jefferies.

I wanted to maybe dig in a little bit on defense. And some of this, I think, was addressed, but just to clarify, defense tech revenue is down 16% or so year-over-year. If we compare that to the growth, is the growth in inventory sequentially a rough proxy for the revenue pushout into the fourth quarter? If it's not, maybe you can give a little more color on the orders and revenues just by programs, geographies, and different parts of the business in there. I'm just trying to make sense of it as a discrete manufacturing kind of shipment issue, kind of where the business is tracking its constituent pieces.

Adam, I think you're right on. I mean, you look at the revenue earnings potential, if you want to think about it that way, from the inventory that we do have on hand. We did talk about in the second quarter call that we were purposely bringing inventory levels up as a strategic advantage, to be able to respond quickly to our customer orders. Autonomous platforms are moving quite quickly and we want to make sure that our capabilities are positioned really well to be responsive to our customer orders.

But as we think about the timing of orders into the fourth quarter, as I mentioned earlier in the call, inventory, both the WIP and the finished goods, are up about $10.5 million or so. That gives you an idea of the conversion opportunities as we look in the fourth quarter. Now, we've got to get the inventory moved, and revenue is recognized as we ship the product, which is different than the vast majority of the space business, which is the overtime revenue recognition model.

So we've got to get the products finalized, and as Pete mentioned, get all the licenses if we need those for our particular customer in hand to get the revenue recorded. But the $46.8 million of WIP and finished goods inventory as of September 30 gives us the line of sight as we round out the year here and looking to finish strong. The story is in the numbers, right? Just look at backlog.

Look at backlog with finished goods and where the revenue landed. It's not dollar-for-dollar, but it shows you, I think, that's the broader context that you need to think about in terms of seeing the trajectory of the defense tech growth.

But the demand is there at the 1.63 LTM book-to-bill.

Our next question comes from the line of Griffin Boss with B. Riley Securities.

I'll just start off. Pete, you mentioned space and defense tech being bipartisan issues. I think we would agree there, but I'd like to dig into that and get your take on whether you see certain areas of Golden Dome also as bipartisan. It'd be helpful to get some color as to how you look at that.

Yes, great question. And again, I read the same headlines you do. So I think certainly there's a question mark around Golden Dome. So if you're a business that's built 100% around the success or not of Golden Dome, I think that would be something to watch. Fortunately, Redwire is not that. I mentioned 40% coming out of Europe. We're highly diversified.

I think the way I think about that stuff is whether it's called Golden Dome or not, this idea of having additional protections in terms of missile defense, whether at home or abroad, is still a capability that is bipartisan. So will the name Golden Dome persist or not? I have no idea. That's a better question for the politicos. But do I think that if you're building capability that is relevant to missile defense, then you're probably leaning into a market that has durability going into the future.

Appreciate the thoughts there, Pete. And if I could just have a follow-up on the guide. I just want to dig into the puts and takes there for the low and the high end. Obviously, I know revenue can be lumpy quarter to quarter, but are there maybe 1 or 2 big space programs that are the driving force of that $50 million delta? I would suspect it's not on the defense tech side, but maybe if there's any color you can give as to what programs could cause that $50 million delta, that'd be helpful.

Yes, one of the nice things about where Redwire is, just based on the breadth of capabilities, we've got a pretty wide spread of programs that we're working on across the globe. So not necessarily 1 program that's binary kind of on or off. We've got a lot of programs that are in motion right now that we need to continue to execute on. But as we talked about earlier, defense tech, right, with the inventory being up, is a key area of focus that we're driving hard on to get the shipments out the door for the end of the year.

Our next question comes from the line of Colin Canfield with Cantor.

Can you talk a little bit about M&A and in terms of how you're looking at the market, where you're looking, where you're seeing kind of the best cash trades versus revenue growth, and really kind of how you think about M&A as a tool to drive free cash flow improvement? And then maybe just kind of juxtapose that versus the $500 million of cash and just how you think about that as a strategic asset, and then any flexibility of whether there's bigger or smaller stuff in the market that you think can help free cash flow.

So, there's a lot to unpack there, but we have our investment framework that includes retaining a strong balance sheet, internal innovation, and M&A. We look at everything from a return on investment when we do our capital allocation, right? So we look at what we have internally that could drive growth and good ROI, and we look at what is out there externally that can drive good ROI. Certainly we look at areas that are gaps that we could fill, both strategically from a product and market perspective, as well as financially in terms of, I think, as you're referencing, this idea of using M&A to get a cash generator. And yes, that's all part of the evaluation.

You know, the M&A market right now is going to be a little bit choppy in the near term. It kind of will follow some of what's going on with the changes in government, especially when you look at smaller M&A, because you can have organizations that have leaned forward into one area that might not be popular, that aren't as diversified as Redwire is and may have exposure as a result. But broadly, it's a simpler framework than you might expect in the sense that we evaluate our internal opportunities and our external opportunities against an ROI calculation, while being mindful of our intent to keep a strong balance sheet so we can remain opportunistic over a long period and not go out and expend a lot of our dry powder in one fell swoop. Chris, anything you want to add?

No, I think you hit everything. We focus on heritage, we focus on battle-proven capabilities, we talked about gross margin being a key focus area. So, I mean, there's a lot of interesting things there, but we're going to remain disciplined and focused and look for the right opportunities to continue to grow and scale Redwire in a real meaningful way.

Our next question comes from the line of Andrew DeGaspari with Berenberg Securities.

Hey, good morning. Following the latest DARPA award, what milestones and timeline would enable transition to an operational program? And also, how large could the VLEO opportunity be in 3 to 5 years? And how do you think about investing in that opportunity with what mix of organic investment and M&A needed to capture that?

Can you repeat the first part of your question? I didn't totally understand that.

Yes, I guess like what are the key milestones and maybe timeline that would enable DARPA to transition the program to an operational program?

So it's really a broad question about VLEO and the market opportunities in general. Yes, adding a second flight is huge, right? So that's a key milestone. And it's coming much earlier in the program than we had originally anticipated. So that's also a really good indicator. But success is ultimately the milestones you want to look for, right? Like getting flights, getting operational, and awards focused on VLEO. So to the degree that in concert with our customers we have the ability to talk about our awards, we try to do that to give the market indication that we're making progress in that area. In terms of the size of VLEO, I think the size of VLEO is equivalent to the size of LEO or the size of UAS - pick the market that you would like to use as your analogy.

All VLEO is a portion of the space above us that provides opportunities just the way airborne markets provide opportunities, and LEO and GEO and beyond that, Cislunar provides opportunities. People have in the past referred to our SabreSat capability as an orbital drone, and I think the opportunity for VLEO is as big as any of the other areas in the space above Earth that can deliver real benefit from a national security as well as commercial and scientific perspective as well. That's how we think about it.

Our next question comes from the line of Austin Moeller with Canaccord Genuity.

Just given the announcement around the Stalker sale to the National Guard, what does the sales pipeline and timing look like for some other well-funded federal customers like DHS that are not going to be impacted by a potential CR?

It's difficult sometimes to project at a large scale, or at a point scale, I should say, specific procurements, right? But we see drone procurements in the U.S. government, and quite frankly in international governments, moving up and to the right broadly over time, right? And that's how we think about it. So the timing of DHS or any individual procurement can be different. It's difficult to prognosticate. However, it's all moving in a direction that is beneficial for Redwire. One of the things that I really like about the National Guard award that I think is significant that I mentioned in my comments is that I think it underscores that we're being baselined as a capability in the U.S. military arsenal. Not as an experiment, not as a prototype, not as a come to our exercise and demonstrate your capability.

We are being baselined as a capability. And in this particular case, what I think is interesting is we're being baselined in the schoolhouse. So if you think about when a new UAS operator focused on Group 2 joins the National Guard and comes in, the first aircraft, UAS, that they're going to have their hands on is the Stalker. And I think that's a really good, beneficial place to be in terms of getting mindshare with the end user, which I think ultimately, when you peel back all the different noise in the market, is where the decision will get made and what will drive growth ultimately. So I like where we are positioned. I like our approach. I like our adoption and uptake, how it's occurring, but predicting the timing of any specific award is foolhardy.

Okay. And does the change in Congress prioritize commercial space more than defense tech as you review your M&A options, or is that not the right way to think about it?

Yes, I wouldn't think about it that way. First of all, the Democratic Congress hasn't come out with what their agenda and their priorities are. I thought 4 priorities that they did talk about weren't necessarily tech-related. So, I think there are certain mandatory capabilities that the U.S. has to invest in to stay ahead of our near-peer adversaries. And I think those will continue to garner funding, regardless of who's sitting in Congress. That's the way we think about it.

Our next question comes from the line of Ronald Epstein with Bank of America.

This is Andrew Steinhardt on for Ron. I just wanted to ask about defense tech margins, just given there's been sequential variability there. And I could appreciate the color you guys provided earlier, just around the lumpiness of that business as of late. I guess, Pete or Chris, can you guys just elaborate on the composition of the backlog and Q3 quarterly bookings, specifically within defense tech, between UAS, gimbals, sensors? I'm just trying to understand how we should think about the mix in defense tech going into Q4 and '27.

Yes, great question. So just to clarify, from a backlog standpoint, Space has got about $380 million and Defense Tech's got $240 million for the total $620 million. We haven't broken that backlog out by capabilities and something we'll continue to evaluate as we move forward. Obviously we provide a lot more visibility with our segmented financial statements this year than we ever have. When I think about gross margin, as I mentioned earlier, we're showing progress, not declaring victory, but showing progress. The defense tech business has historically kind of been around the mid-40s range.

Mostly this quarter, they're at 50%. And the space segment also showed some progress. So as we see it, the defense tech gross margin has shown some durability in that mid-40s range. When you look at the combination of the two segments, it is moving us into kind of the mid-20s, moving up into the upper 20s as we move forward and continue to drive more bookings into our portfolio. But defense tech margins, like I said, have remained relatively stable there in the mid-40s, obviously still in a great quarter this quarter at about 50% gross margin.

I do want to highlight, and I think this harkens back to a question I got earlier about using M&A to build cash flows, that in a way we have already done that in a very material way. People talk about top-line growth on the defense tech side, and I think it is something that we've addressed now and you want to look at in context in terms of doubling our backlog. But in terms of using M&A as a tool to materially change your unit economics and financials, the Edge Autonomy acquisition has been very successful, and you're seeing that show up now as that has a bigger part of our portfolio in the overall gross margins if you're looking at a 2- to 3-year timeline.

So I'm very pleased with the balance, and I think it is, thinking back to that question, a fantastic example of how you can use M&A to both fill a strategic capability hole, as well as to complement your existing portfolio. Space and UAS, for me, from an economic perspective, is very complementary. Space is a high-growth area with still a lot of risk in it as people are maturing the technology, but will move up in terms of gross margins as the technologies mature and move from development into full-rate production.

And you can see that in the UAS industry as well. So I thought it was a good question, but in terms of margins as well, I think what people have to think about is over the journey of the last 5 years, how that has evolved, particularly in the defense tech segment.

That concludes today's Q&A session. I'd like to turn the floor back over to Peter for closing remarks.

All right. Well, thank you for your questions and engagement this morning. We appreciate everyone taking the time to listen today, and go Redwire.

This concludes today's conference. Thank you for participating. You may now disconnect.

Greetings, and welcome to the Redwire Corporation Q2 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Alex Curatolo, Senior Director of Investor Relations. Thank you. You may begin.

Good morning, and thank you, Diego. Welcome to Redwire's Second Quarter 2026 Earnings Call. We hope that you have seen our earnings release, which we issued yesterday afternoon. It has also been posted in the Investor Relations section of our website at rbw.com.

Let me remind everyone that during the call, Redwire 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 Slides two and three.

Additionally, to the extent we discuss non-GAAP measures during the call, please see Slide three and the appendix, our earnings release or the investor presentation on our website for the calculation of these measures and their reconciliation to U.S. GAAP measures. I am Alex Curatolo, Redwire's Senior Director of Investor Relations.

Joining me on today's call are Peter Cannito, Redwire's Chairman and Chief Executive Officer; and Chris Edmunds, Redwire's Chief Financial Officer.

With that, I would like to turn the call over to Pete. Pete?

Thank you, Alex. During today's call, I will outline our key accomplishments during the second quarter of 2026, after which Chris will present the financial highlights for the same period and discuss our outlook for the remainder of 2026. We will then open the call for Q&A.

Please turn to Slide 6. I'm pleased to report that Redwire delivered significant value in the second quarter of 2026 with new highs in revenue, gross margin and backlog. During the quarter, Redwire achieved record quarterly revenues of $117.1 million, a 20.7% sequential increase over the previous quarter and an 89.6% increase compared to Q2 2025. Our disciplined execution drove basis.

Also, Redwire achieved a strong book-to-bill ratio of 1.42 and as a result, ended the quarter with record contracted backlog of $542.1 million, providing further confidence in our forecast as we move into the second half of 2026.

And finally, we strengthened our balance sheet, resulting in a strong financial foundation with a record level of $557.8 million in cash to fuel our continued growth.

In summary, Redwire's second quarter was defined by successful execution to meet the growing demand for our mission-critical offerings.

Please turn to Slide 7. Access to capital, combined with increasing demand for our products has created a landscape of opportunities for Redwire to continue to invest in growth.

To guide our capital allocation, we are implementing an investment framework focused on three pillars:

The first pillar is balance sheet strength. Over the last few quarters, we have been aggressively refinancing and delevering while building liquidity to create a strong foundation for future opportunities. This has significantly reduced our interest expense while simultaneously giving us dry powder to invest in new innovations and strategic M&A.

The second pillar that logically follows is internal capacity, capability and innovation. With strong demand in both critical space and defense tech capabilities worldwide, Redwire has many attractive internal investment opportunities that can compound growth through new product advancement, expanded capacity and innovation across all our key value drivers.

Lastly, the third pillar is accretive M&A. We have a proven track record of acquisitions followed by successful integration as an additional path to accelerate growth. Redwire has a strong history with 11 acquisitions completed to date.

With the successful integration of Edge Autonomy over the past year and the required capital to invest, we continue to scan the M&A market for accretive opportunities at good values.

We like how we are currently postured, and this framework will guide Redwire into the future as we continue to invest with discipline across all three pillars to drive value for our shareholders.

Please turn to Slide 8. As example, I'd like to briefly highlight two major milestones from July that bolster our production momentum. To further strengthen Redwire's position as a worldwide leader in microgravity development, we recently opened a brand-new microgravity center of excellence in Georgetown, Indiana, with expanded lab space and a payload operations center with a direct link to the International Space Station and room for expansion to commercial space stations and other on-orbit microgravity platforms.

More on that in a moment. This new 30,000 square foot state-of-the-art facility will focus on accelerating space-enabled research, development and manufacturing for pharmaceutical and biotech innovation.

In Huntsville, Alabama, we recently announced a major 164,000 square foot expansion supported by approximately $8.5 million in eligible state and local economic development incentives. This facility, which is expected to be completed in the fourth quarter of 2027, will accelerate production of our combat-proven Stalker aircraft, Octopus ISR payloads, advanced power solutions and space capabilities.

Huntsville is a very attractive community for advanced manufacturing with ready access to many strategically important customers. We are very excited to expand our presence in the Huntsville ecosystem.

Please turn to Slide 9. Next, I would like to briefly highlight key second quarter achievements and recent developments across our five value drivers. We will start with our Space segment, which encompasses next-generation spacecraft, large space infrastructure and microgravity development and then turn to our Defense Test segment, which encompasses combat-proven UAS and sensors and payloads.

Please turn to Slide 10.

Starting with next-generation spacecraft. In July, Redwire was selected as 1 of 15 vendors on the Space Systems Command $981 million National Space Test and Training Complex, NITE-STAR Capability Development, Indefinite Delivery, Indefinite Quantity or IDIQ contract.

The NITE-STAR IDIQ contract provides for support to space and ground-based engineering activities to enhance test, evaluation and training operations. The contract provides a pathway for Redwire to apply its capabilities such as next-gen spacecraft, digital engineering and space domain awareness, among others, to support the rapid development, testing and training of joint war fighting solutions.

Much like with the Andromeda IDIQ discussed last quarter, we see this as another proof point for the success of our moving up the value chain strategy. We are well positioned to deliver critical spacecraft and digital capabilities for national security testing and training, a key growth area for our customer.

Please turn to Slide 11.

Turning to large space infrastructure. Redwire's Roll-Out Solar Array Technology will be supporting NASA's pioneering Space Reactor-1 Freedom mission to Mars. The two ROSA wings can generate an unprecedented 60 kilowatts of power, making them the most powerful ROSA wings ever built. They were originally developed through a contract with Intuitive Machines to support the power and propulsion element of the NASA-led Lunar Gateway.

Launching in 2028, SR-1 Freedom will conduct trailblazing solar, electric, and nuclear propulsion demonstrations while delivering innovative scientific payloads to Mars. We continue to provide high-power solutions of choice targeted at space stations like the International Space Station and Axiom Station, large spacecraft like SR-1 Freedom and potential lunar infrastructure and orbital data centers.

The outlook for this capability is strong.

Please turn to Slide 12.

Turning to our microgravity development value driver. Today, I am extremely excited to announce that in July, SpaceMD, Redwire's venture company, has signed a historic agreement to purchase an entire Starfall spacecraft, a new SpaceX vehicle that enables affordable, routine access to the microgravity environment.

The unprecedented capabilities that SpaceX's Starfall offers will dramatically accelerate our ability to deliver pharmaceutical, biotech and other in-space microgravity manufacturing capabilities.

SpaceMD's first Starfall mission is slated for launch in 2028 and is expected to have the capacity to carry up to an impressive 32 PIL-BOXes, each with the ability to crystallize up to four compounds or other payloads, making it the largest dedicated commercial microgravity research mission flown in history.

Since Redwire launched Pil-Box on its inaugural mission in November of 2023, 54 PIL-BOXes have flown to the International Space Station, successfully crystallizing 45 unique compounds, including insulin and other critical molecules to treat diseases such as cancer, cardiovascular disease, obesity and diabetes. And with the capacity of up to 32 PIL-BOXes on a single mission, SpaceMD's Starfall mission provides a major leap forward in scaling our microgravity capabilities.

It's a game changer. With a platform partner like SpaceX's Starfall, we are creating a new path to accelerate commercial microgravity manufacturing at scale.

Please turn to Slide 13. Turning next to our combat-proven UAS value driver. During the quarter, Redwire was awarded a high eight-figure multiyear contract to deliver Penguin Mk3 aircraft to an undisclosed NATO customer.

This contract is part of a multiyear modernization program for the country's UAS capabilities and building on years of operational combat experience, Redwire's Penguin Mk3 was chosen as it delivers a scalable, adaptable solution for the demands of modern defense environments. This is just one example from a quarter with strong defense tech bookings.

During the quarter, Redwire was also awarded a Tranche 1 contract for the Taiwan Coast Guard as well as announced key follow-on awards for Stalker Block 30 from both the United States Marine Corps and U.S. Army.

At the same time, we continue to invest in our next-generation platforms, Stalker Block 40 in the United States and Penguin Mk3 in Europe to increase capabilities for the warfighter around the globe. With hundreds of UAS already operational in the field, we are bringing a battle-proven approach to tactical UAS modernization.

Please turn to Slide 14. Lastly, moving to our sensors and payloads value driver. Redwire has delivered nearly 200 Octopus ISR payloads year-to-date, a more than 15% increase on a year-over-year basis. During the quarter, we also announced two new Octopus products, the E140 MWIR and E180 HD MWIR.

I am pleased to say that we have already made the first sale and customer delivery of both products. These new payloads, which can be used on Stalker and Penguin as well as third-party platforms, strengthen Redwire's position in the ISR market by delivering long-range detection performance, reduced size, weight and power and improved flexibility across a broad range of UAS missions.

This growth demonstrates that we are accelerating deliveries of our proven solutions in support of the war fighter.

Please turn to Slide 15. With that, I'd now like to turn the call over to Chris Edmunds, Redwire's Chief Financial Officer, to discuss the financial results for the second quarter of 2026.

Thank you, Pete. Before turning to Slide 16, I want to highlight the image of our International Berthing and Docking Mechanism or IBDM manufactured by our team in Belgium. This core infrastructure capability was undergoing a docking test campaign at NASA's Johnson Space Center.

Redwire's IBDM capability supports both berthing and autonomous docking operations. With this critical technology, Redwire has the ability to bring the world together in space. Now let's turn to the financial results.

Please turn to Slide 16. During the second quarter, in line with our expectations, we reported total revenue of $117.1 million, an 89.6% increase on a quarterly year-over-year basis and a 20.7% increase on a sequential basis.

Our Space segment recorded revenue of $55.2 million, and our Defense Tech segment recorded revenue of $61.9 million. I would note that the contributions from the acquisition of Edge Autonomy were the primary driver behind the significant increase for Defense Tech on a quarterly year-over-year basis.

With more than $350 million in bookings during the last two quarters, we continue to expect our revenue to build in the second half of the year.

Please turn to Slide 17. As we previously mentioned, gross margin improvement is a significant focus area for Redwire, and I'm pleased to report that in line with our expectations, we achieved record gross margins of 27.8% during the quarter, representing a significant improvement on a year-over-year basis. This quarter's gross margin results were driven by factors, including a stronger contribution from Defense Tech, which has historically provided higher gross margins, a shift from development to production across our business and a net neutral impact from EAC changes.

Net loss improved by $56 million on a year-over-year basis to a net loss of $41 million. Our second quarter adjusted EBITDA was negative $3.2 million, a significant increase on both a year-over-year and sequential basis.

Notably, EAC changes had a net neutral impact on our results, including adjusted EBITDA during the second quarter, a marked improvement on a year-over-year basis. Although we are proud of the progress we've made, we continue to strive for improvement. Cost control and program execution remain a key focus area of our business.

Finally, echoing Pete, with our strengthened balance sheet, we remain sharply focused on capital allocation. Elevated investment in internal research and development continued during the second quarter, increasing from $1.7 million to $12.5 million on a year-over-year basis.

At a moment of inflection in our industry, we see this investment as accelerating the maturation of our products and solutions to meet customer demand.

Please turn to Slide 18. Next, turning to a discussion of liquidity and capital structure. We ended the second quarter of 2026 with record total liquidity of $607.8 million, comprised of $557.8 million of cash, cash equivalents and restricted cash and $50 million in undrawn revolver capacity, a significant sequential and year-over-year improvement, primarily driven by the net ATM proceeds of $487.9 million raised during the quarter.

To put a finer point on the balance sheet improvement, I'd like to touch on a few highlights on a year-over-year basis. Our cash has increased by over 6x to $557.8 million. We have reduced our total debt by 75% to $48.9 million and significantly reduced our net interest expense to less than $1 million in the quarter versus $23.8 million in Q2 2025.

We've seen a 100% reduction in our Series A preferred shares, which have now fully converted into common shares and a 92% reduction in our warrants outstanding to 202,000, which are set to expire in September of this year.

We ended the quarter with a strengthened balance sheet and simplified capital structure that is ready to support the company's future growth.

Please turn to Slide 19. During the second quarter, we saw continued strength in contracts awarded with bookings of $165.8 million, a significant increase on a year-over-year basis, resulting in a book-to-bill ratio for the quarter of 1.42 and a book-to-bill ratio of 1.52 on a last 12 months basis.

Turning to backlog. We once again saw growth in this metric as backlog increased by 8.8% on a sequential basis and 64.5% on a year-over-year basis to a record $542.1 million. As of June 30, 2026, space backlog was $322 million, and Defense Tech backlog was $220.2 million. As a result, the majority of Defense Tech revenue is recognized at a point in time, whereas in our Space segment, the majority of revenue is recognized over time, driving a different backlog profile. As we enter the second half of 2026, we are very proud of our fifth consecutive quarter of growth in backlog and believe demand for our mission-critical space and Defense Tech products and solutions around the globe remains strong, bolstering our confidence in continued growth during the second half of the year.

Please turn to Slide 20 for a brief discussion of the outlook for the remainder of 2026. Having achieved year-to-date revenue of $214 million, in line with our expectations, plus another strong quarter of contracts awarded, confidence provided by our record backlog of $542.1 million and a supportive macro environment, we are reaffirming our full year 2026 revenue forecast in the range of $450 million to $500 million, which represents a 41.6% year-over-year growth at the midpoint.

With more than $350 million in bookings during the last two quarters, we continue to expect our revenue to build in the second half of the year.

With that, please turn to Slide 21, and I'll now turn the call back over to Pete.

Thank you, Chris.

To summarize, Redwire's second quarter was defined by delivering growth and successful execution. With record backlog and a strengthened balance sheet, Redwire is scaling to meet the strong demand we see for our mission-critical offerings.

With that, I'd like to thank the entire Redwire team for their achievements during the second quarter of 2026. We will now open the floor for questions.

[Operator Instructions] And your first question comes from Brian Kinstlinger with Alliance Global Partners.

Congrats all around on a great quarter. I guess my question will be around the gross margin. During the first half of the year, I believe this is one of your biggest accomplishments, what you achieved versus the trailing two years. Can you talk about the sustainability of the gross margin and how you think about the near-term and the medium-term opportunity to expand gross margin? And then separately, on a numbers question, where is the share count today with all the restructuring that happened on the balance sheet?

Brian, thank you. So gross margin, clearly, very proud of where the team was able to deliver this quarter and quite frankly, the first half of this year. Earlier this year, we talked about guiding around the low to mid-20s is where we thought we would be in the first half of the year, appreciating some of the EAC adjustments we had last year that we are still working through.

Obviously, the bookings profile has been very helpful as we replenish that backlog. But as we go forward, I think that initial guidance that we said, Brian, in the kind of that low to mid-20s is the place to think about in the near term. But as we continue to replenish our space backlog and we're seeing solid growth in our Defense Tech, there's the opportunity that we continue to grow the gross margin over time.

But again, we had a very mild EAC adjustment quarter this quarter. Very proud of what the team was able to do, a lot of initiatives that we put in place, but we're doing a lot of really forward-leaning technology here that could have the EAC adjustments in the future. Again, we put measures in place to mitigate and monitor those. But very proud of where we ended up here at 27%, but I'll stay with the guide in the kind of that low to mid-20s as we move forward.

And then on your share count question. Sorry, Brian, interrupted one more time.

Yes. No, just the 10-Q didn't come out. Normally, the first page shows the share count where it's at. So I'm just curious where it's at today.

Yes. So we're 249.9 million common shares.

Your next question comes from Suji Desilva with ROTH Capital Partners.

I'll echo my congrats on the strong progress here. As we approach the second half of '26, and we're anniversarying the full company from the prior second half, any thoughts on the year-over-year growth opportunity relative across space versus defense? Just trying to get some understanding of how we should think about growth for the two segments.

Yes, I mean, we see great opportunities in both segments, right? So we continue to see double-digit growth for both segments going forward. Defense Tech is growing faster than space, but there's a lot of space opportunities that are still working their way through the system that we think we're really well positioned on.

So we're bullish on both. and are excited about the fact that we continue to get really strong signals from the market with these follow-on awards, whether they be IDIQs or straight-up aircraft orders. So bullish on both. Defense Tech seems to be growing a little bit faster at this point, but that's not to say that space doesn't have the opportunity to catch up.

Your next question comes from Alexandra Mandery with Truist.

Great results. We've seen backlog and orders continue to hit record levels. How would you describe the award tempo during the quarter? And what are your expectations for the back half of 2026?

So one of the measures that we focus on a lot is the LTM book-to-bill. And so we've seen over the history that our order flow can be lumpy. And obviously, we would endeavor to have as smooth an order flow as possible. But market forces, again, we've got reach across the globe and different vertical stacks between our national security, our commercial and our civil customers.

The timing of awards are always tough to predict. We're coming off of really a couple of great quarters in a row for both segments. Obviously, space pulled back just a touch this quarter, but appreciate that they were over 2x book-to-bill in both Q1 and Q4. As we look in the back half of the year, as we kind of said in our prepared remarks, we do consider it to be a very supportive macro environment. But at a book-to-bill ratio of an LTM basis at 1.5, that is a growth signal book-to-bill. And we're a couple of points in front of where we thought we'd be this time. But again, the market has been very supportive thus far this year.

Your next question comes from Adam Samuelson with Jefferies.

So I guess the question is just on the outlook. You kept the revenue range of $50 million for the year. Half the year is complete. Second half, that implies a pretty wide range of growth, like 11% to 35% year-on-year, actually also pretty similar half-on-half. Can you just help us frame kind of what's occurring to get you to the high end versus the low end of the year at this point?

Yes. I mean, fundamentally, which we tried to articulate in our comments is we're scaling, right? So the way the year has been set up is to show that growth over time. We have a number of indicators to include our growing backlog that we believe support and demonstrate the fact that we're on a scaling curve right now. So I think that's what makes us feel comfortable about the second half.

Chris, anything you want to add there?

I'd just say as we exited the first quarter, we had about 75% visibility into the guidance at the midpoint. That's come up with the bookings profile that we had in Q2. So we're up in the 90% range right now from a visibility standpoint, which is a good place to be halfway through the year.

Your next question comes from Colin Canfield with Cantor.

Maybe if the team could talk about their appetite for M&A and essentially kind of what are the key areas that you want to add over time? And how does the team think about autonomy scaling milestones relative to the team's capacity to do deals?

Yes. Thanks for that question. So we've been doing M&A for a long time. It's really fundamental to our DNA. You can see based on the way we've managed the balance sheet that we are postured to do M&A. So the critical point now is finding the right deal at the right accretive value. And that's what we're focused on.

So as I said on other calls, Redwire considers M&A to be a competitive advantage, our experience there and especially the fact that I think we've demonstrated numerous times our ability to walk and chew gum when it comes to integration and staying active in acquisition. I like where we are a lot with the Edge Autonomy integration. As you can see from the first half of the year, they have significant momentum.

So we haven't slowed down. And we've already hit on a number of critical milestones, not the least of which being brand integration and now have moved to the nitty-gritty of aligning our internal processes, so we're in a good position. It's been over a year. Edge autonomy is performing, and we're capitalized to go out there and do accretive M&A. So it's a big part of our investment framework, as I articulated at the beginning of the call.

Your next question comes from Michael Leshock with KeyBanc Capital Markets.

I wanted to ask on the inventory buildup 23% sequentially. Obviously, that was a drag on cash, but what was the biggest driver of that step-up? Is it a function of programs shifting into production? And is there any way to kind of bifurcate that between Space and Defense Tech as to what was the biggest contributor? And then if you could talk to the working capital impacts there and what that means for cash going forward?

Yes. So this is us being responsive to the market signals that we're seeing, specifically in our UAS space. We have brought inventory up. We are looking to cut down turnaround times. Obviously, the team has got a very lean manufacturing process, but we want to make sure we have the right materials on hand to be very responsive with our customer base. And so this was a very measured investment into our inventory.

I would expect that actually inventory levels will probably come up a little bit more as we move into Q3. And that just becomes a timing of working capital, but opens up the aperture with our customers to be able to deliver more quickly and put these world-class UAS systems in the hands of the war fighters around the globe.

The thing about working capital, just overall, our working capital has moved around a little bit just over the years, but I'm particularly focused right now that we have improved our cash use through operations on a net balance sheet basis. So we're going to keep focusing on that. as we go forward, making investments in inventory. This is a strategic investment so that we can continue to deliver more quickly for our customers.

And your next question comes from Austin Moeller with Canaccord Genuity.

Can we talk about how many NATO countries are in your discussion pipeline for Penguin and Stalker versus how many are currently in the sales channel for you today? And are there any U.S. allies that need to be approved by the State Department first before you can sell to them?

Sure. So we do not disclose the number of allies that we've sold to explicitly. Obviously, what NATO allies are interested in that Redwire is extremely well positioned for is twofold. One is a battlefield proven platform that is widely fielded. They tend not to go after science experiments or early-stage prototypes.

They tend to buy those spacecraft that already have momentum in the field. The other thing that I think is unique about Redwire is we have both a world-class offering from a U.S. manufactured platform as well as an organic European manufactured platform. And that is important to some NATO allies. So if you only have a single platform you're manufacturing in the United States, that may limit you as Europe seems to be trending more towards building their organic industrial base.

So having the Penguin being organically both conceived of designed and now manufactured at scale in Latvia is a huge opportunity for us. And we saw a big purchase from a NATO ally of that platform in the quarter. And these things tend to gain momentum over time as different ministries of defense look at what others are doing in their peer group. I also want to emphasize that, again, we have global interest, whether it be the Stalker platform or the Latvian-based Mk3 Penguin platform, we're selling to Taiwan.

So our capabilities are available to worldwide beyond just the U.S. and Europe, and we have proven demonstrated sales going on there. In terms of the state department, ITAR restrictions, of course, we adhere to all the regulations out there. Many of our technologies are ITAR controlled. Redwire has been a global operator for many years.

So unlike maybe a start-up or companies that are just starting to dip their toe into global operations, we have a really sophisticated capability around export control. So we monitor that closely and have the ability to continue to make sales while adhering to all those regulatory policies.

Your next question comes from Griffin Boss with B. Riley Securities.

I guess I just want to focus on where or what programs are most of your R&D dollars going towards? How are you thinking about that while you're also balancing kind of looking at M&A? And then sort of related on the investment side, regarding the new Huntsville expansion, are we going to see any associated step-up in CapEx in the back half of the year and into '27 to support that? Or how much does those $8.5 million state and local incentives cover?

Yes. Well, so great question. If you go back to our framework, focusing on the balance sheet, doing M&A, you're highlighting our internal investments, which is great because it's key. I would say that the vast majority of our investments are focused on our platforms, our high-value platforms, whether that be in space or maturing our UAS platforms.

But we're also investing a lot in payloads. And of course, nobody has asked about Starfall yet. I know inventory and working capital is super exciting to talk about, too. But Starfall and our microgravity capability is a real game-changing opportunity. So we're investing there as one would expect also. So whenever somebody asked me this question, I always point to the five key value drivers. I haven't hit orbital data centers or the lunar surface, but these are key growth areas as well.

So we evaluate each proposal that bubbles up from our segments based on the size of the market, the ability to capture great gross margins because of some sort of competitive advantage, whether it be intellectual property or proven performance and that's how we make those decisions. So we're spreading it around, but we got five key value drivers with lots of opportunities, and each one is evaluated based on the merits using the criteria I just articulated.

And your next question comes from Andrew Steinhart with Bank of America.

Chris, this is Andrew on for Ron. So it looks like you guys are starting to see some momentum on the Defense Tech side of the business, 40% sequential growth in Q2, backlog almost double what it was at the end of 2025. We're also seeing higher R&D already ahead of 2025 through the first half of the year. So with all that, I'm wondering, could you guys talk about any of the Defense Tech products currently in the pipeline, particularly within UAS?

Yes. So the two primary UAS products in the pipeline are the Block 40 for Stalker and the Mk3 for Penguin. So those are key defense tech capabilities, next-generation platforms. We've talked about in the past how our industry-leading ability to power a UAS across longer ranges and longer duration using our solid oxide fuel cell that we now believe our Group 2 UAS has the ability, particularly out of the Block 40 Stalker to start taking on more Group 3 missions at a better price point, right?

So we're investing heavily in that. We're investing in maritime capability for the Block 40 as well to expand its reach into naval forces as well as U.S. Army ground forces. Of course, the Mk3 continues to expand on its performance capabilities as it proliferates across Europe and other countries as well. I do want to draw attention to our growth in payloads as well, which is not insignificant, a 15% year-over-year growth in the Octopus EO/IR gimbled payload is really exciting for us. It shows that we're differentiated.

As I noted in my comments, it's not just about payloads for Stalker and Penguin. This is a capability that's being procured by third-party platforms as well. So bringing out the E140 and E180 MWIR capability certainly advances our payloads and the fact that, that has gotten early traction is super exciting for us as well. Now those of you who have been following Redwire for a while also know that we have a lot of capability in RF and that things like providing the Link 16 antenna for the York transport layer satellites that have gone up and demonstrated their capabilities on orbit.

Well, the beauty of expanding with the acquisition of Edge Autonomy from singularly focused on space to defense tech is now we have the ability to take our RF capabilities into Defense Tech as well. And so we're looking at a number of opportunities for RF payloads that would be differentiated on UAS platforms as well.

We already got the EO/IR phenomenology from a sensing perspective. We have the capability for RF. And I got a lot of questions about the synergies when we did the Edge Autonomy acquisition, and RF is one of those areas where we're seeing a lot of potential.

And ladies and gentlemen, that was our last question. I'll now hand the floor over to Peter Cannito for closing remarks.

All right. Well, thank you all for the questions and your engagement this morning. With that, we appreciate everyone taking the time to listen today and go Redwire.

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.

Greetings, and welcome to the Redwire Corporation Q1 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex Curatolo, Senior Director of Investor Relations. Thank you. You may begin.

Good morning, and thank you, Shamali. Welcome to Redwire's First Quarter 2026 Earnings Call. We hope that you have seen our earnings release, which we issued yesterday afternoon. It has also been posted in the Investor Relations section of our website at rdw.com. Let me remind everyone that during the call, Redwire 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 Slides 2 and 3.

Additionally, to the extent we discuss non-GAAP measures during the call, please see Slide 3 in the appendix, our earnings release or the investor presentation on our website for the calculation of these measures and their reconciliation to U.S. GAAP measures. I am Alex Curatolo, Redwire's Senior Director of Investor Relations. Joining me on today's call are Peter Cannito, Redwire's Chairman and Chief Executive Officer; and Chris Edmunds, Redwire's Chief Financial Officer. With that, I would like to turn the call over to Pete. Pete?

Thank you, Alex. During today's call, I will outline our key accomplishments during the first quarter of 2026, after which Chris will present the financial highlights for the same period and discuss our outlook for the remainder of 2026. We will then open the call for Q&A. Please turn to Slide 6. During the first quarter of 2026, Redwire saw strong demand across our differentiated products. During the quarter, Redwire achieved a strong book-to-bill ratio of 1.92 and as a result, ended the quarter with record contracted backlog of $498.1 million, providing confidence in our forecast as we move further into 2026.

We sharpened our operational performance and portfolio management, resulting in sequential and year-over-year improvement in gross margins, moving from 9.6% in Q4 2025 and 14.7% in Q1 2025, up to 26.6% in Q1 2026. And finally, we accelerated investing in large procurement opportunities across our portfolio, such as Andromeda, the Commercial Lunar Payload Services Program, or CLIPS, the Quantum Key Distribution satellite often referred to as QKDSat and the Army's long-range reconnaissance program for Group 2 Unmanned Aerial Systems or LRR.

Each of these programs have significant growth potential and are gaining momentum. To summarize the quarter, we returned to strong growth in areas with better gross margins, and therefore, we will continue to invest in our highest potential opportunities where we are well positioned with differentiated capabilities. Please turn to Slide 7. Next, I would like to briefly touch on a highlight or 2 from the first quarter for each of our 5 value drivers to underscore our continued value creation in each area. We will start with our Space segment, which encompasses next-generation spacecraft, large space infrastructure and microgravity development and then turn to our Defense Tech segment, which encompasses combat proven UAS and sensors and payloads.

Please turn to Slide 8. In Q1, Redwire achieved a significant milestone in our spacecraft strategy as we continue to move up the value chain in the space segment. In April, we were selected as 1 of 14 vendors out of a total of 32 bids on the Space Systems Command $1.8 billion 10-year Andromeda Indefinite Delivery Indefinite Quantity, or IDIQ contract. And earlier this week, Space Systems Command provided a notice of its intent to raise the total shared ceiling for the Andromeda IDIQ to more than $6 billion to meet increased demand.

The Andromeda contract vehicle is focused on rapidly fielding proliferated space domain awareness capabilities in geosynchronous orbit. We see this as a proof point for the success of our moving up the value chain strategy and further validation that we are strategically positioned as a trusted prime contractor on next-generation spacecraft. We now have 10 years in a limited competition pool to monetize this multibillion-dollar contract as we invest in our Mako next-generation maneuverable, refuelable autonomous spacecraft in GEO.

Please turn to Slide 9. During the first quarter, Redwire was awarded a contract to continue development on a quantum secure satellite under ESA's QKDSat program. For QKDSat, Redwire will manufacture and deliver its European-built Hammerhead spacecraft equipped with a quantum key distribution payload and Redwire's proprietary ADPMS-3 suite of avionics, leveraging our experience in spacecraft development and avionics in support of this critical program. This program has the potential to grow into a constellation-sized opportunity.

During the period, Redwire was also awarded a prime contract for the Belgian Ministry of Defense to build and deliver Belgium's first national security satellite to provide secure, resilient and independent access to critical space-based services in support of national defense priorities. We see this as an early entry point in European space-based defense capabilities as the trend towards increased organic European investment in both space and defense gained significant momentum, and Redwire is seen as a trusted partner.

Please turn to Slide 10. Turning to our space infrastructure. You may remember that on our last earnings call, I introduced ELSA, our new high-performance low mass solar array for high-quantity constellations of small sats. I am proud to say that during the first quarter, Redwire made its first sale of this new product with a $12.8 million contract to deliver ELSA solar arrays to Moog. These ELSA arrays will be integrated with Moog's meteor satellite buds in support of a low earth orbit mission for an undisclosed national security customer and have also been baselined as a standard component for the Meteor line of spacecraft. With the introduction of ELSA, our power product portfolio now spans the total addressable market from large constellations in LEO to the lunar surface and beyond.

Please turn to Slide 11. Turning to our microgravity development value driver. During the quarter, Redwire received an additional $4 million from NASA to support drug development investigations on the International Space Station using Redwire's proven pharmaceutical manufacturing solution, PIL-BOX. This additional funding expands an existing task order under a $25 million 5-year IDIQ through NASA's In-Space Production Applications or InSPA program.

During the quarter, Redwire's PIL-BOX also supported a cancer therapy investigation led by Aspera Biomedicines that launched aboard the Crew-12 mission. NASA sees the groundbreaking potential and continues to invest in PIL-BOX. And by supporting partners like Aspera, Redwire is helping to usher in a new era of biotechnology where microgravity is used to unlock insights that can improve treatments for some of the world's most challenging diseases.

Please turn to Slide 12. Turning next to our combat proven UAS value driver, which falls within our Defense Tech segment. During the quarter, Redwire was awarded more than $20 million in follow-on purchase orders to deliver standard and advanced navigation Stalker systems supporting the Navy Marine Corps Small UAS program management office. This award in support of the long-range tactical program of record encompasses the Marine Corps first acquisition of the advanced navigation version of Stalker Block 30. These new systems will join the approximately 250 existing Stalker aircrafts already fielded by the Marine Corps as our trusted, combat proven platform continues to scale for the most demanding customers. This is not a demonstration. This is not an experiment. This is scaling a field-proven capability.

Please turn to Slide 13. In addition, during the first quarter, Stalker continued integration efforts with the U.S. Army's next-generation Command and Control or NGC2 tactical network during the Ivy Sting exercises, further integrating the platform into the U.S. Army's future concepts of operations. Continued integration is expected at upcoming events to enhance situational awareness and decision-making across the battlefield. Stalker was the only fixed wing VTOL to support this exercise, underscoring the criticality of our stalker as a platform for the warfighter.

Please turn to Slide 14. Lastly, moving to our sensors and payloads value driver. Building on the extensive heritage of our avionics and sensor products, on April 1, Redwire's advanced imaging and navigation technology launched aboard NASA's Artemis 2 mission, the first crude mission for the Artemis program. Through these images, everyone here on Earth was able to take part in Artemis 2's historic journey of discovery. Once again, Redwire is proud to be a trusted partner on the most important missions on and off earth.

Please turn to Slide 15. As part of our transformation over the last 2 years, both moving up the value chain and expanding into multi-domain technologies, Redwire has become very well positioned at the ground floor of some emerging opportunities with asymmetric upside potential. As a result, we have begun to ramp investment with a more than $10 million increase in research and development expense during the first quarter on a year-over-year basis. We are in quality growth mode.

In Q1, we demonstrated the ability to grow while simultaneously increasing our gross margin. This is the focus. Therefore, as you can see from this slide, net of discretionary IRAD spending, we would have had positive adjusted EBITDA for the quarter. We are currently investing in quality growth. As to where we plan to invest, we are specifically increasing investment in 6 critical opportunities with outsized potential, most of which we have already spoken about today. These opportunities include VLEO in the United States and Europe with our SabreSat and Phantom spacecraft, QKDSat for a quantum secure constellation, maneuverable refuelable GEO spacecraft for programs like Andromeda, Lunar infrastructure, including such opportunities as a Lunar power grid and future Clips Lunar lander missions; SpaceMD, including PIL-BOX and bioprinting and finally, our next-generation Stalker Block 40 and Penguin Mark III aircraft. These are investments to strengthen our positioning, supported by identified opportunities with existing customers.

Please turn to Slide 16. With that, I'd now like to turn the call over to Chris Edmunds, Redwire's Chief Financial Officer, to discuss the financial results for the first quarter of 2026.

Thank you, Pete. Before turning to Slide 17, I want to highlight this incredible image of the Orion capsule with a Lunar Eclipse taken by a Redwire camera during the Artemis 2 mission. Now let's turn to the financial results. Please turn to Slide 17. During the first quarter, in line with our expectations, we reported total revenue of $97 million, a 57.9% increase on a quarterly year-over-year basis. Our Space segment recorded revenue of $52.7 million, and our Defense Tech segment recorded revenue of $44.3 million.

I would note that the contributions from the acquisition of Edge Autonomy were the primary driver behind the significant increase for Defense Tech on a quarterly year-over-year basis. With more than $350 million in bookings during the last 2 quarters, we expect our revenue to build as we move through 2026.

Please turn to Slide 18. As we mentioned on our year-end earnings call, gross margin improvement is a significant focus area for Redwire, and I'm pleased to report that in line with our expectations, we achieved gross margin of 26.6% during the quarter, representing an 11.9-point improvement on a year-over-year basis and a 17-point improvement on a sequential basis. Our first quarter 2026 net loss was $76.5 million, which was impacted by more than $44 million in nonrecurring activity, $42.5 million of which was the noncash, nondilutive impact from the accelerated vesting of the equity incentive units assumed through the Edge Autonomy acquisition.

Our first quarter adjusted EBITDA was negative $9.2 million, a decrease on a year-over-year basis, but a sequential increase. Notably, the unfavorable impact from net EA fees decreased to $1.1 million during the first quarter, a marked improvement. We are proud of the progress we've made. Cost control and program execution remain a key focus. Finally, Redwire remains highly focused on capital allocation. Based on the signals we are receiving from the market and our customers, we have significantly increased our internal research and development investment from under $1 million in Q1 2025 to $12.6 million in Q1 2026. We see this investment as accelerating the maturation of our products and solutions to meet current demand, like the recent $1.8 billion Andromeda IDIQ.

Please turn to Slide 19. Turning next to a discussion of liquidity and capital structure. We ended the first quarter of 2026 with record total liquidity of $175.2 million, comprised of $145.2 million of cash, cash equivalents and restricted cash and $30 million in undrawn revolver capacity, a significant year-over-year improvement. Redwire saw a meaningful reduction in net cash used in operating activity on both a sequential and a year-over-year basis to $6.7 million. This improvement is largely related to improvement in gross margin, disciplined cost control and positive working capital contribution. With improvement in quarterly free cash flow of more than $36 million on a year-over-year basis and $17 million on a sequential basis, we have reduced our cash burn.

As mentioned on our previous call, during the first quarter, the company amended its credit agreement, extending the maturity to May 2029 and lowering the interest spread from SOFR plus 700 to SOFR plus 375 resulting in an annualized interest savings of approximately $3 million, contributing to a total estimated annual interest savings of more than $17 million from delevering and refinancing activities completed in 2025 and the first quarter of 2026. Finally, we remain committed to a disciplined approach to responsibly fund growth initiatives like those Pete spoke about earlier. With scalable opportunities for investment, we've entered into another at-the-market or ATM program to allow us to opportunistically fund emerging technologies across our portfolio. We are investing in quality growth.

Please turn to Slide 20. During the first quarter, we saw a continuation of the positive trend in contracts awarded with bookings of $186.5 million, a significant increase on both a year-over-year and sequential basis, resulting in a book-to-bill ratio for the quarter of 1.92 with a book-to-bill ratio of 1.54 on a last 12 months basis. Turning to bookings by segment. Space bookings were $114.6 million, driven by strong demand for Power Solutions, including the first sale of ELSA and an approximate $50 million follow-on production order for ROSA Wings. Defense Tech bookings were $72 million, driven by demand for our Stalker and Penguin aircraft.

Turning to backlog. We once again saw strong growth in the metric as backlog increased by 21.1% on a sequential basis and 71.1% on a year-over-year basis to a record $498.1 million. As of March 31, 2026, space backlog was $359.7 million and Defense tech backlog was $138.4 million. As a reminder, the majority of Defense Tech revenue is recognized at a point in time, whereas in our Space segment, the majority of revenue is recognized over time, driving different backlog profiles. With further line of sight into 2026, we remain pleased with the continued positive change in our trend line of contracts awarded and believe our pipeline of new opportunities across Space and Defense Tech around the globe remains strong. bolstering our confidence in continued growth through the year. Please turn to Slide 21 for a brief discussion of the outlook for the remainder of 2026.

Having achieved first quarter revenue in line with our expectations, plus another quarter of acceleration in our contracts awarded, confidence provided by our record backlog of $498.1 million and a supportive macro environment, we are reaffirming our full year 2026 revenue forecast in the range of $450 million to $500 million, which represents 41.6% year-over-year growth at the midpoint. With more than $350 million in bookings during the last 2 quarters, we expect our revenue to build as we move through 2026. With that, please turn to Slide 22, and I'll now turn the call back over to Pete.

To summarize the quarter, we returned to strong growth in areas with better gross margins. And therefore, we will continue to invest in our highest potential opportunities where we are well positioned with differentiated capabilities. With that, I want to thank the entire Redwire team for their achievements during the first quarter of 2026. We will now open the floor for questions.

Our first question comes from the line of Suji Desilva with ROTH Capital Partners.

Pete, Chris, congratulations on the progress here. My question is about the Andromeda Space Force program, the IDIQ program. How is Redwire positioned in this program? And how are you planning to invest specifically for this program? I appreciate in the presentation, the 5 areas of investment you have, but how is this one going to be targeted with the investment?

Suji, great question. I mean this Andromeda opportunity, as I noted in my speaking portion of today, is a real significant milestone for us to have 32 bids go in and be selected as 1 of 14 vendors really just underscores the progress we've made on moving up the value chain, particularly in this unique white space that's emerging around highly maneuverable refuelable GEO spacecraft. And therefore, we got to invest. If you look at our 14 competitors, it's a limited competition pool, but many of them are doing raises, are going out there and investing heavily. So it's going to be -- so Redwire has to do the same. I think that's one of the keys to both increasing our overall IRAD investment run rate, as I believe Chris noted, going from only $1 million in IRAD Q1 last year to now ramping up to approximately $12 million in this year. And we're going out there and using the ATM, which we believe is a really efficient low cost of capital opportunity to much like our peers on that Andromeda opportunity, raise the money to make sure that we can deliver the best capability for the program. So super excited about this win. It's 10 years. So it's got a lot of period performance to it. And by then raising the ceiling from $1.8 billion to $6 billion, that really underscores that this is an area where the government is making significant investment.

Our next question comes from the line of Griffin Boss with B. Riley Securities.

I guess I would love to get an update on the -- your VLEO platforms. Obviously, that's one area where you're ramping quality growth investment. But just curious if you could kind of discuss what kind of traction you're seeing or any new developments on that front? I think that's a great area of growth for the company.

Griffin, yes, thanks for that question. So VLEO, as I mentioned, is one of the areas where we're continuing to ramp up investment. VLEO is probably, I would say, the #1 area where we're going to play strongly in golden dome, in my opinion. I think that particular orbital regime has something unique to bring to the fight in Golden Dome. And I think Redwire is really well positioned there. It can be difficult to talk about some specifics around our concepts of employment there. But again, much like highly maneuverable, refuelable GEO, our moving up the value chain spacecraft strategy is not a me-too strategy. We've specifically picked areas where Redwire can lead where there is no one who's in a dominant position.

And I think VLEO is, in particular, one of those areas where with the award of Otter and other programs over the last year, we have a nice jump start, and we think it has a lot of potential in Golden Dome. So we're investing in maturing the technology with our partners at DARPA, AFRL and others and super excited about that. And again, one of the things I want to underscore, so at the risk of repeating myself, there's a little bit of a pivot happening here. We're excel because we feel like we're so well positioned on these new opportunities and because we've been now able to execute with better cost control and more operational execution, we can go out and we can do a nice ATM raise and start applying that money to these high gross margin, high growth rate opportunities. And so that's our current strategy.

Our next question comes from the line of Austin Weller with Canaccord Genuity.

So just touching on that LEO opportunity, if you're to compete on Golden Dome as a satellite bus manufacturer of Prime, can you talk about the specific layers of the Golden Dome architecture that you're targeting to bid on? Is that like tracking of hypersonic vehicles in the atmosphere? And should we expect contract awards for that in the second half of this year or '27?

Austin, so it's an interesting question. The government has not put a lot of information out publicly about the Golden Dome architecture. I think to provide an answer without just saying we can't talk about certain things. At the high level, I believe that Golden Dome is going to be a multi-orbit all of the above type strategy. It's not one space-based interceptor or one killer tap technology, so to speak. So that's exciting for us because there's opportunities for us to participate, I mentioned already in VLEO. If it's going to be a multi-orbit all of the above resilient architecture, VLEO adds another orbital regime where the government can use to enhance the overall Golden Dome capability.

I also think that this maneuverable, highly maneuverable ,refuelable GEO also has interesting areas that can play in the golden dome architecture as well. And I think that I won't speak for the government, but things like increasing the total ceiling on that program to -- from $1.8 billion to $6 billion underscores how important that orbital regime is as well. And for the lay person, when I talk about these orbital regimes, I talk about there's going to be something relevant in VLEO, we believe there's going to be things that are relevant in LEO.

We believe there's going to be things relevant in GEO, right? So Redwire is positioning itself to be a leader in the LEO and GEO and are -- for those who are building large proliferated constellations in LEO, we're acting as a merchant supplier. So prime lead in VLEO, prime lead in highly maneuverable ,refuelable GEO, merchant supplier in LEO, and that's our Golden Dome high-level positioning, if that helps. I answer your question.

Our next question comes from the line of Greg Konrad with Jefferies.

This is Ceara on for Greg. So really strong gross margins in the quarter, but EBITDA was still negative. How do you think about leverage in the business and expectations around gross margins and OpEx going forward? Is it mostly about volume? And is there a certain level of sales where we would expect adjusted EBITDA to turn?

Yes. No, I appreciate the question, and I'm going to give Chris a chance here because we want to make sure he has some airtime. So I'll briefly just say our goal, as we achieved this quarter and our goal for the remainder going forward is to have positive EBITDA net of IRAD. We are in quality growth mode, but we have to invest -- but what we want to show is that we're not funding losses, but that we're actually funding investment. And therefore, if we're positioned that way, no matter what happens in the future macro environment, we can turn that dial on IRAD up or down based on opportunities. Chris, anything you want to add?

Yes. No, we're super excited about where we came in this quarter at 26% which is the impact of a lot of different things. We've had strong bookings the last several quarters that have replenished our order book with higher margin profiles. As we've moved capabilities from development into low rate and full rate production, as we talked about on our last call, that's a contributor. Also excited that we managed the ACs much tighter this quarter with a net $1 million impact, which is a marked improvement. Those 2 points are really helping bolster that gross margin.

And as we -- as Pete said, as we're managing growth, managing that investment without the IRAD, we would have had positive adjusted EBITDA. Now we do see that we will probably have a little bit of modest SG&A growth, but there should be expanded operating margins as we continue to grow the top line revenue this year. We are expecting revenue to scale throughout the year. And as we continue to hold the portfolio in a similar position, that additional gross profit will help cover and expand our profitability at the bottom line, again, managing the IRAD, which could then offset some of that additional gross profit.

Our next question comes from the line of Alexandra Mandery with Truist Securities.

What do the R&D investments include for the 6 opportunities mentioned? Is it labor, facilities, material, inventory? And what is the expected R&D cadence for the remainder of the year?

So the first answer to your question is yes. So it's all of those things. It's going to be deployment of the capital in a way that is outlined in detailed plans as part of our execution strategy, and it is a mix of all those things that you mentioned. In terms of the template for going forward, what I'm trying to underscore is that we have a lot of these opportunities that we're well positioned for. And whether it be driving towards the constellation of QKDSat delivering a strong capability for Golden Dome, monetizing the $6 billion roughly, whatever, Andromeda opportunity, all these things, we're going to be dialing IRAD up or down based on how those strategies are playing out.

So it's opportunistic, and it will be market dependent, but I think we're really positioned in these areas, but they're going to take some investment to fully realize the potential. But the potential for each one of these is strong and the demand signal out there is really strong. And we're really excited about how many paths the victory we have on these opportunities that have basically been born of the strategy we've been talking about for well over a year now of moving up the value chain and becoming a multi-domain company. So we're not providing any like future overall guidance for IRAD for the year. But as you can see this quarter, we are ramping. Chris, do you want to add anything there?

I think you got it.

Our next question comes from the line of Michael Leshock with KeyBanc Capital Markets.

I wanted to ask on NASA's accelerated lunar initiatives and the goal of building a lunar base and establishing a permanent presence on the moon. What would you say is the biggest opportunity for Redwire specifically as it relates to the moon base and the lunar economy? I know there's a lot of opportunities there, but curious if there's 1 or 2 things that you're most excited about for the lunar economy.

Yes, that's a great question. And thank you for that. It's really simple. There's two areas that I think we're really well positioned for. One is to be the prime to build the lunar grid. We are a power company. We have I believe, and I'm obviously biased, the best heritage there is out there in space power on the solar side with our ROSAs and now our ELSAs to include being the power provider with our ROSA on the International Space Station. So one of our primary objectives, and I mentioned it as one of the areas we're investing is in positioning to build a lunar grid for this infrastructure that's going to come there with ROSA as the underpinning -- the Roll-Out Solar Arrays as the underpinning technology. So that's super exciting. This pivot to the moon, I think, has incredible opportunities. The second is we don't spend a lot of time, and we haven't in the past talking about the fact that Redwire is in fact, Eclipse Prime and Eclipse, the commercial lunar payload services contract has been a key highlight for NASA administrator, Isaacman recently where he sees that as ramping up, I think he mentioned 1 a month.

So previously, Redwire wasn't really active on clips because we didn't have a baseline where we could achieve the economics that we wanted for the limited amount of launches that were occurring. But now that this is a really big focus for NASA, we're going to start leveraging that prime contract position and investing there because we think there's a bigger total addressable market than there has been in the past, which presents us with the right kind of investment profile we want to go after. So that's -- those are the 2, lunar grid and Eclipse. But we're also obviously a merchant supplier of key things like mating technologies and just space infrastructure in general. So, yes. So I think there'll be other opportunities as well. But those are the 2 big ones.

Our next question comes from the line of Alex Preston with Bank of America.

I wanted to turn things to Edge Autonomy, right? You're coming close to a year since the acquisition. I was wondering if you could sort of walk through maybe what's performing as planned or above expectations, things that might be behind schedule? Any synergies you realized that you can note on costs or contracts?

And then I guess, on margins as well, right, sort of Edge seemed like it was hovering around, call it, 30% EBITDA margins when you got it. Defense Tech is printing 12% this quarter. I get it's not 100% Edge anymore, but sort of what's driving the differential there? And how do you see the margins trending from here? Sort of any color there would be really helpful.

Yes. That was a rapid fire. I'll try to make -- correct me if I don't hit every part of that question. The -- so we're really excited about what we've been able to do with Edge, which we don't call Edge anymore. It's fully branded now as Redwire, which for those who have been involved in M&A is a key cultural milestone and culture in many ways drives success in M&A.

So we're excited about how rapidly they've been able to become part of Redwire. As you noted, on the margin side, Defense Tech is not representative of just the legacy Edge autonomy. It includes other defense aspects of our portfolio that were previously part of legacy Redwire space. So yes, we're pleased with the direction that it's headed. As we talked about in previous quarters, they, like everybody else, ran into a government shutdown in the second half of 2025. So -- but the 2026, you can see is starting to ramp again and the government has a budget now, and there's a lot of opportunities now that the Marine Corps, for instance, has a budget, they're adding to our existing 250 spacecraft -- or I'm sorry, aircraft with more.

So are those and others are really bullish signs that the Stalker is an important part of our platform. And in fact, I think in Europe, we're seeing a lot of defense budget scale as well. So Penguin has a really bright future in our eyes as well. And overall, based on the time line, we're really comfortable with the way it's gone so far. Chris, anything you want to add?

Yes. I mean just to echo that, they did have $72 million in bookings this quarter, which was an increase from where we have been, obviously impacted by some of the government budget matters this past year. So happy to see them return to a stronger book-to-bill for the quarter. We do continue to see that product line holding good gross margin, consistent where they have been historically. I think that's important to note that we are continuing to hold quality gross margin.

Similar to what we've talked about earlier today, we have increased the rate of investment into the 3 major product groups there that came along with that acquisition. And that has consumed some of the net EBITDA margin. But again, as we look at the pipeline and the future opportunity set, we are investing in good quality growth there. And the important point is that the gross margins are holding, so.

And we have reached the end of the question-and-answer session. I would like to turn the floor back to Peter Cannito for closing remarks.

All right. Well, thank you all for your questions and your active engagement. With that, we appreciate everyone taking the time to listen today and go Redwire.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.

Greetings, and welcome to the Redwire Corporation Full Year and Fourth Quarter 2025 Earnings Call.

[Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Alex Curatolo, Senior Director of Investor Relations. Thank you. You may begin.

Thank you, Diego. Welcome to Redwire's Full Year and Fourth Quarter 2025 Earnings Call. We hope that you have seen our earnings release, which we issued yesterday afternoon. It has also been posted in the Investor Relations section of our website at rdw.com.

Let me remind everyone that during the call, Redwire 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 Slides 2 and 3.

Additionally, to the extent we discuss non-GAAP measures during the call, please see Slide 3 in the appendix, our earnings release, or the investor presentation on our website for the calculation of these measures and their reconciliation to US GAAP measures. I am Alex Curatolo, Redwire's Senior Director of Investor Relations. Joining me on today's call are Peter Cannito, Redwire's Chairman and Chief Executive Officer, and Chris Edmunds, Redwire's Chief Financial Officer.

With that, I would like to turn the call over to Pete. Pete?

Thank you, Alex. During today's call, I will outline our key accomplishments during the full year and fourth quarter of 2025, after which Chris will present the financial highlights for the same period and discuss our 2026 outlook. We will then open the call for Q&A. Please turn to Slide 6.

In 2025, Redwire transformed from a pure-play Space provider to an agile, scaled multi-domain Space and Defense Tech company. We closed our transformational acquisition of Edge Autonomy in June 2025 and have been successfully executing on our integration plan to include the full assumption of Edge Autonomy into the Redwire brand.

During 2025, Redwire moved up the value chain with 5 spacecraft platforms and multiple prime contracts in the US and Europe, and 2 mature, combat-proven airborne platforms. We expanded our customer base to more than 170 civil, national security, and commercial Space and Defense Tech customers, emphasizing our breadth and diversity.

We added approximately 660 employees for an ending headcount of approximately 1,410 employees around the globe. We ended 2025 with a record contracted backlog of $411.2 million, supported by strong bookings and a 1.52 book-to-bill in the fourth quarter, providing confidence as we move into 2026.

And finally, as Chris will talk about in additional detail, we strengthened our balance sheet and simplified our capital structure, ending with record year-end total liquidity of $130.2 million.

Please turn to Slide 7. The result of this major transformation in 2025 is a more balanced portfolio of differentiated products that positions Redwire for considerable scaling in 2026 and beyond. At the core of this transformation is the maturation of our product portfolio from predominantly new development programs to a balanced portfolio that includes mature programs that are scaling into production.

As you can see on the chart on Slide 7, in 2021, when Redwire first went public, the vast majority of our products, almost 75% in fact, were in the development phase with just a few products moving to limited production in small quantities. During this early phase of our growth, we were primarily focused on penetrating the Space market with new development programs, which we often refer to as planting seeds or gaining toeholds. This was deliberate as we were establishing ourselves in a nascent Space market that required new solutions and capabilities that hadn't been invented yet.

At this point in our evolution, this new development often emphasized market share over gross margin and larger exposure to development risk. Moving forward in time to the present, however, through a number of organic and inorganic strategic investments, we have now matured our product mix to a balanced portfolio of development and production programs.

The impact of this transformation to our future growth is often underappreciated and cannot be overstated. At the end of 2025, we now estimate that over 2/3 of our revenue is moving into production, with a large portion of our UAS portfolio entering higher-margin full-rate production. This is a very different Redwire than 5 years ago.

As we look forward to 2026, our portfolio is evolving to a more balanced risk, balanced mix of risk with opportunities for gross margin improvement. Make no mistake, we still plan to invest heavily in advancing critical technologies with high-growth potential, such as VLEO, refuelable GEO, Quantum satellites, and our Stalker Block 40 UAS, but these growth investments are now supported by a broader portfolio and a proven framework for maturing our capabilities into production.

Please turn to Slide 8. As part of this ongoing transformation, in January, we announced that going forward, Redwire will be organized into 2 business segments: Space and Defense Tech. These segments map to the 5 primary value drivers I described on our last earnings call, representing the product areas where Redwire has differentiated intellectual property, first-mover advantage and recognized thought leadership in rapidly growing domains with sizable total addressable markets.

Our Space segment encompasses the next-generation spacecraft, large Space infrastructure and microgravity development value drivers and focuses on delivering for civil, national security and commercial Space customers.

Our Defense Tech segment encompasses the combat-proven UAS and Sensors & Payloads value drivers and focuses on systems, Sensors & Payloads that provide intelligence, surveillance and reconnaissance capabilities for US and allied warfighters across multiple domains.

Notably, this segment not only includes the operations from our acquisition of Edge Autonomy, but also Space -based Sensors & Payloads such as avionics, cameras and RF systems.

We believe this new structure will enable us to maintain strong positioning and continue our growth trajectory across both established and rapidly emerging domains as well as provide greater visibility into our unique positioning in Space and Defense. Next, I would like to briefly touch on a highlight or 2 from the fourth quarter for each of our 5 value drivers.

Please turn to slide 9. Starting with NextGen Spacecraft. During the fourth quarter, Redwire was awarded a $44 million Phase 2 award to advance DARPA's Otter Program. Otter leverages the design of Redwire's SabreSat platform, and this Phase 2 contract provides us funding to complete manufacturing and deliver the spacecraft to launch. Through our work with DARPA, we are strengthening our leadership in this critical domain and accelerating the development of cutting-edge capabilities that will define the future of VLEO.

Please turn to slide 10. During the fourth quarter, Redwire successfully completed integration of 10 payloads for the European Space Agency's ΣYNDEO-3 satellite mission, marking a major milestone as it readies for launch in Q4 2026. The spacecraft is built with our highly versatile Hammerhead LEO spacecraft platform, which has logged 50 years of on-orbit performance. This mission aims to accelerate the development of new technologies and stimulate the European Space ecosystem. As the prime contractor, Redwire is proud to lead these efforts.

Please turn to slide 11. Turning to Large Space Infrastructure, today, I am proud to introduce our Extensible Low-Profile Solar Array or ELSA. Building on the experience, technical expertise and success of our flight-proven ROSA product, ELSA is an innovative, high-performance, low mass power solution that leverages the flexible substrate technology of ROSA in a smaller form factor. Whereas ROSA is our leading flexible array solution for large spacecraft or space stations such as Blue Ring and the ISS, ELSA is our equivalent for high-quantity constellations of small satellites and provides 50% more power by volume than our traditional solar arrays of equivalent size.

ELSA is engineered for volume production and offers a step change improvement in modular, scalable design and rapid turnarounds to drive down costs and improve delivery times. We look forward to announcing key ELSA contract awards in the near future as the industry recognizes the benefits and performance of this new product line.

Please turn to slide 12. Also under our large Space infrastructure value driver, during the fourth quarter, Redwire was awarded an 8-figure contract by the Exploration Company to provide 2 International Berthing and Docking Mechanisms (IBDMs), developed in Belgium for their flagship spacecraft, Nyx. This agreement marks a significant step in supporting Europe's burgeoning commercial Space sector and follows an IBDM award from Thales Alenia Space we announced earlier in the year. This is an exciting example of how our investment in Berthing and Docking product development is now expanding into new opportunities for production.

Please turn to slide 13. Turning to our Microgravity Development value driver, during the quarter, Redwire was selected for a second contract supporting Aspera Biomedicines' research into a cancer "Kill Switch". Aspera is revolutionizing oncology and regenerative medicine, and Redwire was proud to have once again been selected as a trusted implementation partner. Under this follow-on contract, Aspera's second set of on-orbit experiments will use Redwire's PIL-BOX hardware to further understand the crystal structure of ADAR1-p150 with the goal of creating better cancer drugs that improve patient outcomes here on earth.

Please turn to slide 14. Let's turn now to our COMBAT-PROVEN UAS value driver, which falls within our Defense Tech segment. During the quarter, US Army soldiers began training with Redwire's Stalker UAS, representing the first time in years that a new Group 2 UAS was used in support of a US Army course at Fort Rucker in Alabama. As a mature combat-proven commercial technology that is built using a modular open systems approach, Stalker allows for easy integration with third-party technologies and this flexibility drew attention during the training demos. This further reinforces that Stalker is seen by the US Army as a critical part of their force design for long-range reconnaissance training and operations.

Please turn to slide 15. In addition, during the fourth quarter, we announced the grand opening of our new 85,000 square foot facility in Ann Arbor, Michigan to increase production of fuel cells. Our fuel cells are a key differentiator for our Stalker aircraft, allowing for extended range and endurance, silent operations and easily sourced fuel.

This is another great example of our shift from predominantly development to full production capacity in our portfolio. This new facility provides us the ability to scale production as the US Department of War executes on its drone dominance strategy.

Please turn to slide 16. Lastly, moving to our Sensors & Payloads value driver. During the fourth quarter, Redwire received an award for Penguin VTOL aircraft and Octopus Gimbals camera payloads for the Croatian Border Patrol. Funded under the European Border and Coast Guard Agency, or Frontex, this award builds on successful border deployments around the world, and Redwire is proud to have been chosen again to provide these key technologies that are especially effective for border security and European Defense initiatives.

Please turn to slide 17. With that, I'd now like to turn the call over to Chris Edmunds, Redwire's Chief Financial Officer, to discuss the financial results for the fourth quarter of 2025. Chris?

Thank you, Peter. Before turning to Slide 18, I want to highlight the image on this page, which is a photo taken by a Redwire camera during the Artemis 1 mission, the first in a series of increasingly complex missions to explore the moon and build towards the first crude mission to Mars. Artemis 2 is anticipated to launch in the coming months, and Redwire cameras will once again be on board to capture energy from the mission.

Please turn to slide 18. Now diving into our results. Despite delays in the US government budget process impacting both Space and Defense Tech, revenue for 2025 increased by 10.3% year-over-year to $335.4 million, coming in towards the top end of our provided range of $320 million to $340 million.

Please turn to slide 19. Next, I'd like to take a moment to provide some additional details around fourth quarter revenue and profitability. As included in our earnings release yesterday afternoon and in our Form 10-K to follow, we have, for the first time, provided financial details for our Space and Defense Tech segments.

As Peter discussed at the beginning of today's presentation, our Space segment includes next-generation spacecraft, large Space infrastructure, and microgravity development. And our Defense Tech segment includes combat-proven UAS platforms, Sensors & Payloads, both airborne and space-based.

Starting with revenue. As shown on the right-hand chart, during the fourth quarter, we reported total revenue of $108.8 million, representing a 56.4% increase on a quarterly year-over-year basis. During the quarter, our revenue was balanced between our 2 segments, with our Space segment recording revenue of $54.5 million and our Defense Tech segment recording revenue of $54.3 million. I would note that the contributions from the acquisition of Edge Autonomy were the primary driver behind the significant increase for Defense Tech on a quarterly year-over-year basis.

Turning to profitability. While our fourth quarter 2025 gross margin of 9.6% is an improvement on a quarterly year-over-year basis, gross margin improvement is a key focus area as we move into 2026 and drive more programs from development to production. Leaving aside the net unfavorable impacts from EACs of $17.8 million, our gross margin would have been in the mid-20% range, closer to what we believe is representative of the potential of our business going forward, given our mix across the maturation framework Peter spoke about earlier.

Our fourth quarter 2025 net loss was $85.5 million, which was impacted by more than $40 million in nonrecurring activity, including a $34.7 million goodwill impairment, $7.4 million impact from the equity incentive units assumed through the Edge Autonomy acquisition and $1 million related to the early debt extinguishment, which I will talk about a little more in a moment.

In addition, Redwire significantly increased in future technology during the quarter spent on Research & Development from $1.4 million in 2024 to $9.5 million in 2025. Because of our confidence in signals we see with our customers and market, we see this investment contributing to the acceleration of our programs along the maturation framework.

We ended 2025 with fourth quarter adjusted EBITDA of negative $18.1 million, a decrease on a year-over-year basis. Our negative fourth quarter 2025 adjusted EBITDA results was largely due to unfavorable impacts from EACs of $17.8 million.

Please turn to slide 20. Finally, turning to a discussion of liquidity and capital structure. We have significantly strengthened our balance sheet and simplified our capital structure. We ended 2025 with record year-end total liquidity of $130.2 million, comprised of $94.5 million in cash, $35 million in undrawn revolver capacity, and approximately $1 million in restricted cash, a significant year-over-year improvement in total liquidity.

During the year, we significantly de-levered, repaying a net $125.5 million of debt, including repayment of $105.5 million of outstanding principal during the fourth quarter through proceeds from an efficient At-The-Market or ATM program. Our repayment during 2025 will result in an estimated annual interest savings of more than $14 million.

During 2025, Redwire also saw a 57% reduction in Convertible Preferred Stock outstanding through share repurchase and voluntary conversion and an 83% reduction in outstanding warrants through exercise. We note that Redwire's remaining outstanding warrants will expire during the third quarter of 2026.

Finally, in February 2026, the company amended its remaining credit agreement, extending the maturity to May 2029 and lowered their interest spread from SOFR plus 700 to SOFR plus 3.75, resulting in an annualized interest savings of approximately $3 million. Taken together, we estimate total annualized interest savings to be more than $17 million from our de-levering and re-financing activities.

Please turn to Slide 21. Although the delays from the US government shutdown impacted award timing in 2025, we continue to see a positive trend in contracts awarded as we move through the fourth quarter when compared with the first half of 2025. Our bookings during the fourth quarter of 2025 increased substantially, both year-over-year and sequentially to $164.9 million with the fourth quarter of 2025 book-to-bill ratio of 1.52, bringing our 2025 full year book-to-bill ratio to 1.32 and improving backlog to a record $411.2 million.

Looking at key performance indicators by segment. During the fourth quarter of 2025, Space bookings were $110.9 million, driven by the Otter and Mix awards previously discussed. And Defense Tech bookings were $54 million, driven by demand for our Stalker and Penguin aircraft.

Turning to backlog by segment. As of December 31, 2025, Space backlog was $299.8 million and Defense Tech backlog was $111.4 million. As a reminder, the majority of Defense Tech revenue is recognized at a point in time, whereas our Space segment, the majority of revenue is recognized over time, driving different backlog profiles. Although the US government shutdown delayed the timing of awards that had been expected in 2025, with key wins during the fourth quarter and line of sight in 2026, we are pleased with the continued positive change in our trend line for contracts awarded and believe our pipeline of new opportunities remains strong, giving us confidence in continued growth through 2026.

Please turn to Slide 22 for a brief discussion of the outlook for 2026. With continued acceleration in our contracts awarded during the fourth quarter and confidence provided by our record backlog of $411.2 million, we are forecasting full year 2026 revenue to be in the range of $450 million to $500 million, which represents a 41.6% year-over-year growth rate at the midpoint. I would note that given lingering timing impacts of the government shutdown, we expect our revenue to build as we move through 2026.

With that, please turn to Slide 23, and I'll now turn the call back over to Pete.

Thank you, Chris. As discussed earlier in the brief, Redwire's transformation in 2025 positions us to enter 2026 with great momentum as an integrated multi-domain Space and we entered 2026 with confidence provided by our record $411.2 million backlog despite budget headwinds during 2025 and into early 2026.

In addition, we are bolstered by a strengthened balance sheet, simplified capital structure and record end of year liquidity of $130.2 million.

With that, I want to thank the Redwire team for their achievements during 2025. We will now open the floor for questions.

[Operator Instructions] Your first question comes from Brian Kinstlinger with Alliance Global Partners.

Congrats on the improving capital structure. My question is, how is management adjusting its pricing model in response to the abnormally low gross margin throughout 2025? Have you contemplated higher fixed price quoting in Space, a more safer contracting vehicles such as cost-plus or time and materials, especially for new products like ELSA.

Thanks, Brian. Appreciate your question. So, there's a couple of dynamic things there. So, I'll address two parts of this question. Starting with the easiest and the last part first. We basically have to, like all Defense contractors, we have to take our, meet our customer where they are in terms of the kind of contracting that they do. The Department of War has very openly discussed that they are moving away from cost-plus and time and materials and looking for contractors that are willing to take on firm fixed price development.

And it's for that reason that we really took the time and effort at the beginning of this call to understand the portfolio effect that if you want to get market share in this market, you have to be willing to do some investment, whether it be through IRAD, if you want to bear the full cost or through additional development risk if you're willing to take on risk. But take on payments from customers at the same time.

You have to be willing to do that in order to get through the development phase to get to production, which leads me to the first part of your question, where in terms of the pricing model, it's not so much trying to pad our pricing and ultimately losing when we're bidding against more aggressive competitors on the development phase of contract, but it's actually having that balanced portfolio I talked about where you may be taking on a more balanced set of development contracts with higher ADC risks, maybe lower margins as you buy yourself into the baseline in pursuit of a production tail.

But now Redwire is in this position where we're taking on less of that as a percentage of the total portfolio. Now less of it doesn't mean we're bidding less we're still aggressively going after those development programs in order to increase our market share and penetrate the, particularly on the Space side of the market where the winners haven't really been determined yet.

But with the transformational acquisition of Edge Autonomy, our portfolio, as you can see from that Slide 7, is now much more balanced. We have a production level of programs that are supporting that. And it's because of that production tail as the Defense Tech side of the business starts to scale as we anticipate it will in 2026, we expect to see the gross margin improvements that you're looking for.

Your next question comes from Griffin Boss with B. Riley Securities.

I will ask about Edge. So, the 100-plus aircraft to 7 countries post close, that's good to see. But do you have any insight on how many aircraft stand-alone Edge did in 2024? And then along these same lines, you mentioned that included in that 100-plus number or deliveries to the US Army via LRR. Does that mean you've received production orders at this stage? Or is that referring to the software deliveries for the training purposes?

Griffin, thanks for your question. Chris, do you want to take the count one?

Yes. So, 100 aircraft since we closed the acquisition, they delivered about 200 aircraft this year, which is relatively consistent to where they were in the past year. We really leaned forward even Edge prior to the acquisition to build capacity to be able to handle the demand curve as the demand curve comes online.

So, for the production here in the second half of the year at about 100 aircraft, that is right in the middle of their production curve. But with scaled capacity, as we see the growth continue to come in with the order book, as we talked about earlier, we'll have the ability to produce those aircraft as we go into '26 and beyond.

Good example of that is the investment we made in the 85,000 square foot for our fuel cell production in Ann Arbor that we'll be able to see increased aircraft full rate production in '26.

Got it. Okay. And then just the second part of that was regarding LRR and whether those are production orders or referring to the testing.

Yes. That was part of the testing. So, we're still anticipating the full production order here to come later this year.

Yes. One of the things that we're excited about in terms of our ability to accelerate growth in Q4 was, as a reminder, that was still without a fully passed budget. So, some of the things that we talked about in our last earnings call that we were expecting to come online, one of them being orders for the LRR program was not included in that 1.52 book-to-bill. So that's still upside we anticipate in 2026.

And your next question comes from Scott Buck with H.C. Wainwright.

Apologies if I missed this during the prepared remarks, but how much of the backlog is expected to be executed on over the next 12 months or should I say, calendar year 2026? And then are there any large concentrations within that backlog that would drive a materially outsized revenue results in any given quarter or potentially risks slipping into 2027?

Yes. I appreciate it, Scott. So, from a backlog standpoint, we've got about 50% or so of the guide in backlog. And as we look at the risk profile across that backlog, there are no single orders that are binary that would meaningfully move our view one way or the other, pretty balanced across the order book, both with geography diversification across the US and Europe as well as across our various value drivers. So about 50% or so of backlog for the guide.

Yes. One thing I'll add to that is the, although we don't have anything necessarily in our forecast that we're looking at as a big material size value driver in our pipeline, not necessarily backlog; we do have, especially on the Space ties, we do continue to have opportunities like constellation size orders that could materially change our profile. We're just discounting those things in order to make sure that we are focusing on achieving our growth through what's already on the books.

Your next question comes from Greg Konrad with Jefferies.

This is Sara on for Greg. So I guess sticking with backlog, what are you seeing in the broader order environment given some pickup in the 3 months, the 1.52 book-to-bill in Q4? How different are the order cycles between Space and Defense Tech? And what are the expectations for book-to-bill in 2026 supporting growth there?

Yes. So thank you for your question. And so in terms of in the backlog, in that $1.52 billion, what it shows is as we start to close, so last year, we talked about a lot about moving up the value chain. And as we start to close bigger orders like Otter, which was the $44 million opportunity that I mentioned, full VLEO spacecraft order, you can see that the size of our orders are growing over time as part of that moving up the value chain strategy that we executed.

In addition to that, you see another element with the 8-figure IBDM order that contributed to that $1.52 backlog that we closed in the fourth quarter, where we actually got 2 IBDM orders as we start to move into more of a production phase, low rate, but still a production phase for the IBDM. So that was really the characteristic of the fourth quarter backlog build. And those are long programs, year-long or more programs that will be, that gives us confidence in our revenue build over 2026.

In terms of the order cycles between Space and Defense Tech, that's a very interesting question. The order cycles, and this is why it's not really apples-to-apples when you look at backlog between Defense Tech and Space. Space will have a really stronger backlog because it will be a multiyear backlog in many cases, where the conversion cycle for Defense Tech is really fast, especially on orders where we have some level of inventory already on the balance sheet.

So an existing customer that already has a fleet of Stalker or Penguin aircraft can decide that they want to scale their fleet very quickly submit a purchase order. And if we have that available in inventory or even if we have aircraft coming off the production line, we can fill that order quickly. And so the conversion for Defense Tech is a lot faster than on Space. Chris, do you want to add anything to that?

Well, I was just going to point out, from a book-to-bill standpoint in the fourth quarter, we were just over 2x on the Space side, as Pete talked about, and just at a 1 on the Defense Tech, which just highlights that point.

Your next question comes from Suji Desilva with ROTH Capital Partners.

Pete, Chris, congratulations on the bookings improvement. So just quick questions on the mix of Space versus Defense. Just some clarification on Defense. Is there a material part of Defense that's not the Edge Autonomy acquisition? And what is the growth expectation in '26 roughly across Space versus Defense?

So let me address the first part. So yes, the Defense Tech not only includes the legacy Edge Autonomy capability, but it also includes our portfolio of Space optics other payloads and our Space RF systems. The reason for that is because when you go back and you look at part of our early discussion about the synergies that we expected by being multi-domain in Space, a lot of the things like optics or antennas or RF payloads are very similar across both UASs and satellites or spacecraft.

So by putting them in the Defense Tech segment, we're able to achieve those synergies and truly be a multi-domain in the way we go to market in those technologies. So yes, a material portion of Defense Tech is part of the, came from part of the legacy Redwire Space part. Chris, did you want to talk about the latter part of the question?

Yes. I mean, so Suji, we're pretty balanced across the segment in our fourth quarter. We do see the fintech probably driving a little more contribution as we go through '26. Just line of sight on where they are, the growth rate on the DT side probably outperforms the Space side, maybe closer to 20% for line of sight. But as Pete said, on the Space side, what's in the order book is what we're managing to. But there are some really big and interesting opportunities in the pipeline that could really accelerate the growth on the Space side. But again, what we're looking at right now, pretty balanced currently, and we do expect the DT side to start to take a little larger share as we get in the back part of '26.

And we have reached the end of the question-and-answer session. So I'll now hand the floor to Peter Cannito for closing remarks.

Great. Well, thank you all for the excellent questions. With that, we appreciate everyone taking the time to listen today and go Redwire.

Thank you. This concludes today's conference. All parties may disconnect.

Greetings, and welcome to the Redwire Corporation Third Quarter 2025 Earnings Call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the conference over to your host, Alex Curatolo, Senior Director of Investor Relations.

Good morning, and thank you, Diego. Welcome to Redwire's Third Quarter 2025 Earnings Call. We hope that you have seen our earnings release, which we issued yesterday afternoon. It has also been posted in the Investor Relations section of our website at rdw.com.

Let me remind everyone that during the call, Redwire 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 Slides 2 and 3.

Additionally, to the extent we discuss non-GAAP measures during the call, please see Slide 3, our earnings release or the investor presentation on our website for the calculation of these measures and their reconciliation to U.S. GAAP measures.

I am Alex Curatolo, Redwire's Senior Director of Investor Relations. Joining me on today's call are Peter Cannito, Redwire's Chairman and Chief Executive Officer; Jonathan Baliff, Redwire's Chief Financial Officer; and Chris Edmunds, Redwire's Chief Accounting Officer and incoming Chief Financial Officer, effective December 1, 2025.

With that, I would like to call -- turn the call over to Pete. Pete?

Thank you, Alex. During today's call, I will outline our key accomplishments during the third quarter of 2025. Chris, our incoming Chief Financial Officer, will then present the financial highlights for the same period and discuss our 2026 outlook, after which we will open the call for Q&A.

Please turn to Slide 5. Now that we have a full quarter of performance from the combination of Redwire Space and Edge Autonomy, I would like to continue to emphasize the major transformation underway at Redwire.

As you will see in our accomplishments and results, the technical, operational and financial positioning of our platform has been significantly enhanced. As part of this transformation, I'm excited to introduce our updated vision statement, reflecting Redwire as an integrated space and defense tech company.

At Redwire, our expanded vision is to pioneer next-generation space and defense technologies that empower scientific discovery, advance global industries and strengthen security, transforming how humanities explores, connects and protects from the skies above to the stars beyond.

Let's now turn to a discussion of highlights from the third quarter of 2025. Please turn to Slide 7. As you can see from the highlights on this slide, the impact of our transformation, including the acquisition of Edge Autonomy was accretive to our financial performance.

During third quarter of 2025, we increased our adjusted gross margin to 27.1% in the third quarter. We also saw sequential improvement of $24.8 million in our adjusted EBITDA.

Additionally, we recorded significant revenue growth of 67.5% sequentially and 57% year-over-year to revenues of $103.4 million during the third quarter. We continue to scale aggressively.

From a growth perspective, we closed a number of key strategic opportunities, adding to our backlog by achieving a book-to-bill ratio of 1.25, resulting in backlog of $355.6 million as of September 30, 2025.

We are greatly encouraged by our growth reflected in our strong book-to-bill in Q3 based on strong customer demand for our differentiated products. However, looking forward, we anticipate some issues with near-term timing of awards in Q4 resulting from the ongoing U.S. government shutdown.

In particular, we have seen delays in the U.S. Army's long-range reconnaissance and similar UAS programs as well as a slow start to Golden Dome. We've ramped production capability to meet these needs, but have not yet seen awards begin to flow.

Therefore, we anticipate the diminished government staff and resulting delay in contracting activity is likely to push a number of our anticipated awards out of the quarter. Notably, however, we do not see a decrease in demand, but rather a temporary near-term timing impact that supports a strong 2026 as the government returns to full strength.

Please turn to Slide 8. As Redwire nears completion of its transformation, expanding from exclusively space subsystems and components to becoming a highly scalable space and defense technology platform, I'd like to reorient investors to our 5 primary value-driving product areas.

These value drivers represent the product areas where Redwire has differentiated intellectual property, first-mover advantage and recognized thought leadership in rapidly growing domains with sizable total addressable markets.

They are differentiated next-gen spacecraft, particularly in VLEO and GEO like SabreSat, Phantom and Mako and others that support next-generation capabilities such as high-fidelity earth observation, quantum key distribution, in-space refueling, AI imaging and maneuverability.

Large space infrastructure, specifically our rollout solar arrays and international berthing and docking mechanisms where we provide building blocks for critical space infrastructure like space stations and Moon to Mars exploration. Microgravity development, where we are a global leader with decades of heritage and hundreds of experiments flown in the areas of biotechnology and advanced materials and manufacturing.

Combat proven UAS, namely the Stalker and Penguin series, where we supply combat-proven autonomous UAS built in the United States and Europe to war fighters in the most challenging battlefield environments.

And finally, sensors and payloads such as optics and radio frequency systems where we support multi-domain missions ranging from airborne ISR to Artemis and the historic commercial moon landings.

To underscore our strategic positioning in each area, I will share a brief description of the differentiators, a highlight or 2 from the third quarter as well as examples of future growth targets as we move towards 2026. Please turn to Slide 9.

Starting with next-gen spacecraft. Redwire's key differentiators are that we have existing funded customers, classified personnel and facilities and a first-mover advantage in VLEO, GEO and space refueling and quantum secure satellites.

During Q3, Redwire announced that we have reached an agreement with Thales Alenia Space to become the prime contractor for ESA's Skimsat mission, a technology demonstration mission for a spacecraft designed to operate in VLEO.

The Skimsat mission leverages Redwire's Phantom spacecraft, an advanced European VLEO platform out of our Belgian facility. With this prime ship, we further establish ourselves as a global leader in VLEO capabilities.

In addition, we signed an MoU with Honeywell during the quarter for QK-VSAT. Under this ESA public-private partnership, we aim to combine Redwire's quantum platform technology with Honeywell's quantum optical payload as we build towards a QKD constellation.

As we look for further growth opportunities, VLEO is a relatively untapped orbit with no dominant provider. Redwire is now executing on 2 prime contracts in VLEO, DARPA's Otter program in the U.S. and ESA's Skimsat mission in Europe. And these funded contracts position us as an early mover and market leader in this exciting orbit.

We are leveraging this funded development to position VLEO for Golden Dome and growing European defense spending. In the future, we are targeting opportunities with the intelligence community, Air Force Research Lab, or AFRL, most notably our current TETRA program, Space Force as well as additional phases for DeepSAT and expanding our Honeywell partnership for QKDSat as just a few examples.

Please turn to Slide 10. Another key value driver is our large space infrastructure, where we are differentiated as a key supplier for products like ROSA and IBDM on funded contracts from customers with significant heritage and protected IP such as our rollout design.

Our unmatched heritage with ROSA on the IFS continues to translate into follow-on orders from customers that need a proven solution. During the quarter, Redwire was awarded a contract to develop and deliver rollout solar arrays or ROSA wings for Axiom's Commercial Space Station.

Power is critical to a sustained presence in low earth orbit and another commercial station provider selecting ROSA further underscores our strong positioning in this key capability.

Building on Redwire's heritage from the ISS, DART, Blue Origin's Blue Ring, Thales Alenia Space GEO satellites, the power and propulsion element of Gateway and now Axiom's Commercial Space Station, Redwire is pursuing numerous follow-on opportunities to scale with our existing customers as their businesses grow.

Additionally, we are aggressively pursuing orders for large space infrastructure such as ROSA and IBDM for other commercial space stations as well as other power-intensive spacecraft programs and Moon to Mars infrastructure like Artemis.

Please turn to Slide 11. With hundreds of microgravity experiments conducted, proven IP like PIL-BOX and existing funded commercial, governmental and international customers, Redwire is at the forefront of microgravity development.

We are decades ahead of many of our competitors. During the third quarter, Redwire launched 14 PIL-BOXes, studying 18 molecules to the International Space Station with 3 different partners: Bristol-Myers Squibb, Butler University and Purdue University.

These PIL-BOXes are expected to return to earth in the coming months. With these, Redwire has now flown a total of 42 PIL-BOXes studying 35 unique molecules as of the end of the third quarter, adding to our extensive heritage in pharmaceutical development on orbit.

In terms of future growth, we see the potential impact is extraordinary. Pharma has less than a 10% success rate from Phase 1 trials to approval and a fast-approaching patent cliff that threatens approximately $350 billion in annual worldwide revenue from drugs losing exclusivity through 2030.

We see Redwire's pharmaceutical development on orbit as offering a potential solution to these challenges as we will take advantage of the unique microgravity environment in space to grow seed crystals using Redwire's flight-proven PIL-BOX technology.

Our subsidiary, SpaceMD, will then sell or license these seed crystals to companies that can use them to create reformulated versions of existing drugs or entirely new therapeutics. We have a template for these commercial agreements and many successes with key partners in the biotech community to build on.

Please turn to Slide 12. Next, let's turn to our combat-proven UAS. First, I'd like to take a moment to discuss a few key differentiators of the Stalker.

The Stalker is a combat-proven UAS that is built on nearly 20 years of heritage with more than 300,000 flight hours, including in highly contested and harsh environments. The Stalker is silent, enabling covert surveillance and reconnaissance and minimizing detectability in contested or civilian-sensitive environments.

The Stalker is also payload agnostic. More than 30 different third-party payloads have been integrated via our modular open systems approach, which enables plug-and-play integration. And finally, the Stalker Block 40 offers extended endurance of more than 18 hours, critical for long-range operations.

We also have significant heritage with our Penguin series built in Regal Latvia, having delivered more than 200 Penguin aircraft to the Ukraine armed forces. European defense spending is growing rapidly and we are one of the few European-based suppliers with proven performance on the battlefield.

During the quarter, we were awarded and delivered Stalkers for the prototype phase agreement of the U.S. Army's Long-range Reconnaissance or LRR program. The Stalker has previously been selected for 2 programs of record, the U.S. Marine Corps Long-Range Long Endurance and the U.K. Ministry of Defense's TIQUILA program.

In total, during the third quarter, we shipped Stalker aircraft to 8 different end customers in the United States and other allied countries, showing the global demand for the combat-proven Stalker platform.

Clearly, Stalker is broadly fielded for a variety of mission sets with multiple countries and U.S. military branches based on our differentiated capabilities.

From unleashing American drone dominance in the U.S. to the European Drone Defence Initiative, the demand signal is strong. With existing production facilities and a broad customer base, we are targeting future growth globally. Redwire is ready with production capacity and fielded aircraft to deliver on key programs like LRR as we move into 2026.

Please turn to Slide 13. Finally, moving to sensors and payloads. Redwire has decades of heritage having delivered thousands of space-based sensors and payloads, including antennas, sun sensors, star trackers and cameras for some of the most high-profile missions.

Redwire now also has significant heritage with UAS sensors and payloads, having delivered more than 400 Octopus gimbals to the Ukraine armed forces, for example. These gimbals are compatible with a wide variety of UAS platforms. These are not just for Stalker and Penguin. We are selling these systems to other platform providers.

During the quarter, Redwire announced a partnership with Red Cat to integrate their Black Widow Small UAS onto the Stalker to support UAS Army Echelon missions. The Black Widow, which was selected by the Army for its short-range reconnaissance Tranche 2 program can be mounted under the center wing of the Stalker as a deployable payload.

By integrating best-of-breed short- and long-range reconnaissance systems, this partnership will provide war fighters on the front lines with mission -- with great mission reach and reliable data for effective decision-making.

Stalker and gimbals are already integrated with controllers such as [ ATT&CK ] and CUDA technologies. And after Q3, we announced an MoU with UXV Technologies to enhance controller interoperability and align with the EU's ambitions to strengthen its defense industrial base through cross-border industrial cooperation. As we look forward, we see significant growth opportunities for airborne and space-based sensors and payloads.

The UAS EO/IR sensor market segment is forecasted to grow from approximately $1.6 billion in FY '23 to approximately $4.8 billion in FY '32, a 12.9% CAGR. Redwire targets future growth both with the U.S. government and other key OEMs around the world for these products.

In space, the proliferation of satellites is expected to continue with an estimated 70,000 satellites expected to be launched over the next 5 years. Further, as capabilities like space situational awareness and airborne ISR become increasingly important, Redwire is positioned for continued growth in this area.

Please turn to Slide 14. Although in the near term we've seen delays from the U.S. government shutdown, which is likely to push key awards into next year, our pipeline of opportunities remains very strong and we saw a positive trend in contracts awarded during the third quarter as compared with the first half of 2025.

Our contract awards during the third quarter of 2025 almost tripled year-over-year to $129.8 million with a book-to-bill ratio of 1.25x, improving backlog to $355.6 million, including contracted backlog from international operations of $128.7 million or 36% of total backlog.

As a reminder, we often see lumpy contract awards from quarter-to-quarter. However, we continue to see a strong pipeline with an estimated $10 billion of identified opportunities across our space and airborne solutions, including approximately $3 billion in proposals submitted year-to-date as of September 30, 2025, inclusive of the year-to-date bids submitted by Edge Autonomy.

Although the U.S. government shutdown is likely to delay timing of Q4 awards into 2026 with key wins during the third quarter and in the intervening weeks, we are pleased with the positive change in our trend line for contracts awarded and believe our pipeline of new opportunities is very strong, positioning us for continued growth for the next 12 months and beyond.

Please turn to Slide 15. With that, I'd now like to turn the call over to Chris Edmunds, Redwire's Chief Accounting Officer. As previously announced, Chris will succeed Jonathan Baliff to become our Chief Financial Officer effective December 1, 2025.

Chris brings deep knowledge of our business and significant finance and accounting expertise, and I look forward to working with him in his new role. Chris will now discuss the financial results for the third quarter of 2025. Chris?

Thank you, Pete. Before turning to Slide 16, I want to highlight the photo on this page of the ribbon cutting for our new 15,000 square foot facility in Albuquerque, New Mexico, adjacent to the Kirkland Air Force Base.

This facility will support a wide range of capabilities from space, missile defense and other emerging war fighter domains as well as support work under the $45 million contract with the AFRL that was previously disclosed.

Redwire is focused on optimizing our operational footprint and smartly investing in locations like Albuquerque, which are key to our nation's defense architecture.

Please turn to Slide 16. Let's turn to the financial results for the third quarter of 2025, starting with revenue. Revenues for the third quarter of 2025 increased by 50.7% year-over-year to a record $103.4 million, with Edge Autonomy contributing $49.5 million.

Turning to profitability. During the quarter, we saw a significant sequential improvement in our adjusted EBITDA from a negative $27.4 million in the second quarter of 2025 to a negative $2.6 million in the third quarter of 2025. This improvement is largely attributed to the 67.5% sequential increase in revenue and adjusted gross margin of 27.1%, offset by the unfavorable impact of VACs of $8.3 million.

Finally, turning to cash and total liquidity. We ended the quarter with total liquidity of $89.3 million, which was comprised of $52.3 million of cash, $35 million of undrawn revolver capacity and $2 million in restricted cash. Although lower sequentially, this does represent a 46.2% year-over-year improvement in total liquidity.

Please turn to Slide 17. I'd like to take a moment to provide some additional detail around third quarter adjusted gross profit and cash used in operating activities.

Starting with gross profit, as shown on the left-hand chart, during the quarter, we reported gross profit of $16.8 million and gross margin of 16.3%. Included within these results was an $11.2 million noncash purchase accounting adjustment related to the Edge Autonomy acquisition.

This represents the amount of the fair value step-up recorded through purchase accounting for the inventory sold this quarter, resulting in adjusted gross profit of $28 million with an adjusted gross margin of 27.1%.

We believe that this adjusted gross margin is more representative of the potential of the combined business going forward as we have now fully recognized the inventory fair value step-up in earnings and it will no longer impact future gross margins.

Second, as shown on the right-hand chart, we saw a significant and expected reduction in net cash used in operating activities during the third quarter of 2025 as compared with the first 2 quarters.

During the quarter, our use of cash from operations decreased significantly on a sequential basis from a use of $87.7 million during the second quarter of 2025 to a use of $20.3 million during the third quarter, an improvement of $67.3 million. Even excluding the impact of acquisition-related costs included in our Q2 2025 operating cash flows, this represents a sequential improvement of approximately $30 million.

Although this quarter represents a sequential improvement, we continue to focus on profitability, expanding revenue and gross margin and driving efficient SG&A as we sharpen execution and we achieve profitability, including positive cash from operations.

In regards to capital allocation, we remain committed to a disciplined approach to fund our growth initiatives and maintain a prudent balance sheet. In line with this long-term capital sourcing strategy, we expect to file a prospectus supplement for a $250 million at-the-market or ATM equity offering program in the coming days.

Please turn to Slide 18, for a brief discussion of the outlook for the remainder of 2025. Although we are benefiting from a diversification in geographical customer mix and despite the improved book-to-bill of 1.25 during the third quarter and the strong bookings we have seen thus far in October, the ongoing U.S. government shutdown has pushed a number of anticipated awards out of the fourth quarter and into 2026.

As a result, for the 12 months ending December 31, 2025, including Edge Autonomy from the date of close, we are adjusting to a narrower expected revenue range of $320 million to $340 million.

In closing, I'd like to reiterate that although impacts from the U.S. government shutdown have necessitated a prudent revision in revenue guidance, we believe that these anticipated orders have been pushed out of the quarter and into 2026. They have not been lost.

With that, please turn to Slide 19, and I'll now turn the call back over to Pete.

Thank you, Chris. The transformation of Redwire with addition of Edge Autonomy has already been accretive to our financial profile, reflected in our year-over-year revenue growth of 50.7%, 27.1% adjusted gross margin and strong book-to-bill of 1.25x.

Finally, before we move to our question-and-answer session, as we announced in early October, our CFO, Jonathan Baliff, will be retiring from Redwire effective November 30, 2025. I'd like to take a moment to thank Jonathan for his leadership and valuable contributions throughout his tenure as he guided Redwire through critical phases of our evolution, both in his role as CFO and as a member of our Board. Thank you, Jonathan.

With that, I want to thank the entire Redwire team for their contribution to our results during the third quarter of 2025. We will now open the floor for questions.

[Operator Instructions] And your first question comes from Sujeeva Desilva with ROTH Capital Partners.

And Jonathan, best of luck with the transition. And Chris, congrats and good luck in the new role here. So starting with the revised guidance, appreciating that you did revise it down. What does that mean for the business looking toward 2026, given what you've seen happening during the second half of '25?

Yes. So I think as Chris emphasized there in the paragraph on the guidance, these are not lost awards. These are just timing issues, particularly, as I mentioned, with the LRR program.

The Army announced publicly right after the award of our prototyping contract that they would be awarding a production capability towards the end of this year and that has not occurred. And we believe the reason that that hasn't occurred is because of the ongoing government shutdown.

So we do expect those awards once the government shutdown ends to start to flow. But unfortunately, we only have approximately 7 weeks or so of production time left in the quarter and that includes 2 holiday weeks with Thanksgiving and Christmas.

So once the government reopens, and we believe the Army will start placing orders for the production element of LRR, we'll start producing those. And that would lead you to believe that -- and we also believe that that is setting us up for a strong 2026. Chris, anything you want to add?

No, I think this is the first quarter we've got the combined results and I think that's a stepping off point as the baseline as we start to go forward, right? So as we think about stepping from today forward and as the government reopens with our diversification geography, we are looking at '26 to be obviously a marked improvement on where we are. And I think we can start to see those trend lines as we're moving out.

Great. And just to understand that, was the EAC in the quarter, was that related to the government shutdown pushouts primarily?

No. The EAC was, again, a market improvement quarter-over-quarter as we continue to sharpen our execution. We put a lot of effort into that, but there remain a few space programs that we're rightsizing in terms of our delivery.

Okay. Great. And my other question here is on the pipeline and bidding activity numbers you provided. And thanks, Pete, for the 5 areas and clarifying kind of the focuses going forward. Which of those 5 areas would you say maybe are the larger emphasis of the pipeline and bidding activity that you have in place today on a relative basis?

Yes. Well, it's a good question and we are trying to -- I appreciate you acknowledging that because we're really trying to point out where the value is being driven at Redwire, so people have more clarity on that.

The good news is all 5 of them are areas with extraordinary potential. Now as we just talked about, the UAS orders, this is something be -- is a major priority for the Army and quite frankly, the Department of Defense in general, our existing customers, the Marine Corps and U.S. SOCOM also have strong needs for UAS.

So in terms of -- ironically, even though this is where we saw a pushout in the fourth quarter into 2026, that seems -- that still remains to be an area that has a strong growth potential. But there's been a bit of a slow start to Golden Dome as well and we think the VLEO orbit, in particular, will have a role to play in that defense architecture.

So we're really excited about that as well. Those can be sizable orders when you order a large VLEO spacecraft. We believe with the now nomination of Jared Isaacman, who has shown in the past a strong disposition for commercial LEO destinations or commercial space stations that funding may ramp up for the commercial -- for the CLD program for those space stations.

And you can see that Axiom is leaning forward. We're obviously in talks with all the commercial space station providers because of our heritage on the ISS. So we think that's really exciting as well.

And over the longer term, we're just getting started. We continue to have a strong drumbeat in microgravity. It's not our largest revenue driver. But in terms of the potential for some of the pharmaceutical molecules that we've been working on, we see a lot of growth there.

And even in sensors and payloads, that's a tried and true element of both the space and airborne market. And because we sell our payloads and not only use them on our own platforms, but sell them to other OEMs, we see strong growth there as not only coming from us selling more Stalkers and Penguins for UASs, but other people selling UASs in different categories that leverage our Octopus EO/IR sensors.

So I guess it's kind of a long answer to your question, but the nice thing about it is we have many paths to victory here. It's just a matter of timing for us.

And your next question comes from Greg Konrad with Jefferies.

Maybe just sticking to one question. I think you had called out the gross margin improvement, which was noted, but you still had some level of VACs. I mean, how do you think about the right level of gross margins as the business comes back?

And then just to reiterate, the fair value purchase adjustment, so that's gone going forward. That is just a 1 quarter adjustment?

That's correct. So starting with the last part first, 27% to 30% gross margins should be our forward runway. The only reason it wasn't reflected to that and why we call it adjusted gross margin is because of that purchase accounting element.

30% is where we have in the past said is our stated goal for gross margins and where we think the business should be run rate forward, inclusive of any EAC adjustments. Now having said that, we are hyper focused on sharpening our execution.

So should we be able to continue to reduce the number of EACs we see on some of these development -- space development programs and as we move out of development and more of our revenue comes from production contracts on the space side, we could do better than 30%, but I think 30% is the right forecasting run rate for us. Chris, I don't know if there's anything you want to add there.

Yes, I think you hit it right. As we're looking at the balance of our product mix, we'll continue to make investments where we see expansion in this gross margin. But based on where we are, as Pete said, with the repeat orders like we've seen recently with the announcement of the rollout solar rays with Axiom, again, repeat product line, we'll continue to see that gross margin profile continue to land around that 30% margin, Greg.

Your next question comes from Scott Buck with H.C. Wainwright.

I just want to ask about the commentary around the cost-cutting. Have you completed that cost-cutting process? And if so, what is the annual cost savings target?

Well, I'll answer the first part, and then I'll turn it over to Chris here. So the short answer is no. We have not completed it. Whenever you do a major acquisition, it's an opportunity to completely review your overall structure.

One of the core principles of our acquisition is that we're able to scale to get operating leverage, particularly around SG&A on a much larger platform.

So we're going to continue to look at that. And quite frankly, we have a lean culture that we've been implementing and we've been moving a lot of our engineering and development operations towards lean principles. And so that will be a part of who we are going forward. In turning of size and scope, Chris, do you have any comments on that?

Yes, playing off of the lean culture. We've gone through -- continue to evaluate all of our processes across the company. And really, the cost control is kind of balanced across all the various elements of the P&L.

We are stepping off and making a commitment to a $10 million run rate savings here across the portfolio. We are seeing obviously investments where it makes sense, but being smart about where we can be more efficient in getting operating leverage as we continue to grow the top end of our P&L.

We will continue to run the lean program that we've invested in. We do see additional cost savings, again, from production efficiencies as we continue to grow the top end. But no, we're happy where we are.

We see margin expansions, as we said on the last comment and we'll continue to see operating leverage with our G&A as we go.

Yes, one other thing, Scott -- yes, Scott, I have to mention [indiscernible] as I retire from the company. This will have -- what Chris has said, will also benefit our cash and cash from operations as we look into the future too.

We saw obviously sequential improvement in cash from ops and free cash flow. But all of the things that Pete and Chris are talking about are really meant to obviously decrease the cash burn and eventually become free cash flow positive.

And we have reached the end of the question-and-answer session. I will now turn the call over to Chris Edmunds for closing remarks.

Well, thank you all for your questions. Before concluding today's Q&A, as we've done the last quarters, we'd like to ask a select question from our retail community.

Government contractors have been inconsistent as to whether they have been impacted by the government shutdown in 2025. Why do you expect to be impacted? Pete?

Thanks, Chris. As usual, a very poignant and observant question from our astute retail investor base. It's a good one. It's interesting. Like the question states, we've seen a lot of different feedback on the government shutdown.

Quite frankly, I'm a little bit surprised that it hasn't impacted everybody in the government contracting sector. But for us specifically, I think it really comes down to the impact on the LRR program.

As I stated earlier, the Army had put out an article that they expected production to occur in the latter part of this year for LRR and that hasn't occurred because the government hasn't passed the budget. So those were not 2025 funds that they were playing off of.

I also think that in many of our programs, we -- it just happened to line up that we were expecting contract awards to happen in the fourth quarter and those contracts didn't come for some key programs.

And for the large defense contractor, maybe I should say, for each defense and government contractor, it probably has to do with where you are in your contract cycle. So maybe some folks that are burning off backlog don't see quite the impact.

But we invested a lot in being ready for production for the fourth quarter to meet the operational demands for the drone initiatives that were out there and I'm confident they're coming. But that didn't materialize in the fourth quarter. And with only 7 weeks left for production, we think it's prudent at this time to revise down for ourselves.

So thank you for that question. And of course, all the engagement we get.