Redwire Corporation (NYSE:RDW) Q2 2022 Earnings Conference Call August 10, 2022 9:00 AM ET
Company Participants
Nicole Taylor – Vice President, Financial Operations & Investor Relations
Peter Cannito – Chairman & Chief Executive Officer
Andrew Rush – President & Chief Operating Officer
Jonathan Baliff – Chief Financial Officer & Director
Conference Call Participants
Operator
Greetings, and welcome to Redwire’s Second Quarter 2022 Earnings Conference Call. My name is Kevin, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. We will take questions at the end of this presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It’s now my pleasure to introduce for today’s call, Nicole Taylor, Vice President, Financial Operations and Investor Relations. Ms. Taylor, you may begin your conference call.
Nicole Taylor
Thank you, Kevin and good morning everyone. Welcome to Redwire’s second quarter 2022 earnings call. I’m Nicole Taylor, Vice President, Financial Operations and Investor Relations and with me on the call are Peter Cannito, Chairman and Chief Executive Officer; Andrew Rush, President and Chief Operating Officer; Jonathan Baliff, Chief Financial Officer; and Chris Edmunds, Senior Vice President and Corporate Controller.
We hope that you have seen our earnings release, which we issued this morning, and it is posted in the Investor Relations section of our website at redwirespace.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 slide two.
Additionally, to the extent we discuss non-GAAP measures during the call, please see slide three, our earnings release, or the investor presentation on our website for the calculation of these measures and GAAP reconciliations.
With that, I would like to turn the call over to Pete. Pete?
Peter Cannito
Thank you, Nicole. Starting with our agenda, you can see we will start with a quarterly update from myself, then I will turn it over to Andrew, who will give some operational highlights for the quarter, and then he will be followed by Jonathan Baliff, our new CFO, who will be giving the financial highlights. After we end our presentation, we will open the floor for Q&A.
I also like every opportunity, going back to slide six, to point out Redwire hardware. So, as you can see, this beautiful picture of the International Space Station. On the right-hand side, you will see our rollout solar arrays that were deployed last summer, a remarkable technical achievement with our customer at NASA and our partners at Boeing, and we’re very proud of that.
Starting with the market overview. So, market demand remains strong despite the broader macroeconomic environment and this is primarily due to geopolitical competition for dominance across all segments of the space industry.
There is a space station that is currently being deployed by China. We continue to have geopolitical space races with Russia, and this is driving a lot of demand in the industry. And it can’t be underscored enough that this is a decade-long trend. This is not just a trend that is going on this year and will go away overnight, this is a decade-long race for competition in space and that is driving a lot of demand across our industry, across all of the different segments, and we’re going to talk about that further on in the brief.
On the commercial side, commercial space adoption has proven a little bit slower than expected, but the capability development outlook is still very strong. There are a lot of plans on the drawing board for extraordinary space capability. We are partnering with a number of commercial entities.
And although, it is proving to take a little bit longer for some adoption rates and for some of these organizations to get their capabilities out, which does have an impact on near-term revenue, the plans are still there and the capability is still in high demand. So this will attract future growth.
But in the meantime, our long-term government contracts across the civil and national security segment that are primarily with government entities, give us the financial strength required to remain patient while we wait for commercial space to reach its whole potential.
And of course, there are some interesting developments that occurred in the last quarter, most notably the Russian threat to lead the ISS. That has increase the momentum behind commercial space stations such as Orbital Reef, of which Redwire is partnered on with our partners, Blue Origin and Sierra Space.
Again, this is creating many new high-value opportunities for Redwire. Anecdotally, it just so happened that the Russians made this announcement that they retracted later during the International Space Station R&D conference in Washington.
And the buzz that it created on the floor was extraordinary, and it really just underscores the imperative for a commercial space station. And so we’re going to see a — in the next decade, the development of these commercial space stations, and that’s a huge demand driver for some of Redwire’s unique capabilities.
Moving to Slide 8. A couple of key takeaways that are going to be discussed in greater depth throughout the brief. One is that our demonstrated heritage on early-stage programs is creating much larger opportunity. We are establishing numerous cohorts on very large programs, and this is because of the heritage that we’ve been able to demonstrate in the past.
I started out the presentation by pointing out our rollout solar arrays on the International Space Station. That is one example of how that deployment and the proven heritage that we established it with that capability, has garnered increasing demand for other organizations, who need the same capability.
The result is that revenue momentum in the second quarter is up 14.2%, compared to the year prior and is up 11.7% sequentially. This is a result of this virtuous cycle that is being created as a result of our performance, leading to more contracts in higher-growth product lines.
We have many high probability bids in the pipeline, some that are actually equal to or greater than our total revenue for 2021 in terms of total contract value. So, that just underscores the tremendous amount of opportunity there.
So, we’re executing a classic land and expand strategy. We have deep customer relationships. We have a long history of working with the marquee customers in the industry. We now have proven heritage on a number of really critical IP protected product lines, and this is leading to more and larger opportunities for our products.
As you can see, our pro forma adjusted EBITDA, in Q2 2022, was negative $4 million compared to $2.1 million in Q2 2021 and compared to negative $4.7 million in the first quarter. So our EBITDA is improving, but we are making a significant number of investments and this is having an impact on EBITDA. Andrew and Jonathan will get into greater detail.
But as an example, one contributing factor is an increase in our R&D spend. In order to support our revenue growth, we are making a number of investments in research and development. And as a result, our research and development has grown from roughly 3% of revenue in 2021 to almost 5% of revenue year-to-date.
But as a result of these dynamics in the first and second quarter, we are revising our guidance for the remainder of the year, and we now expect revenue to be in the range of $165 million to $175 million for the year. This is compared to our previous estimate of $165 million to $195 million. So we are guiding towards the lower part of the range.
That does still reflect anywhere from 20% to 27% revenue growth for the year, which we believe is healthy. And we are estimating pro forma adjusted EBITDA to be in the range between negative $2 million and $3 million, as we continue to make investments, and we work towards achieving operating leverage associated with additional scale.
The investments, however, are starting to demonstrate signs of paying off; our investments in business development, innovation scale, drove Q2 2022 book-to-bill performance to $1.68 billion. And Redwire expects to achieve positive adjusted EBITDA in the second half of 2022, driven by this increase in revenue as well as a change in a contract mix with higher gross margins.
Moving to slide nine. This slide gives you a high-level overview of some of the market trends by industry segment. We continue to see strong growth opportunities in the national securities segment, in particular, to include 40% growth in the Space Force, which is growing faster than the DoD budget top line.
So in national security, which is a growing area, Space, in particular, is an even faster-growing area. So that, of course, gives us additional confidence in the demand for our sector. This is driven somewhat by that geopolitical competition. And that geopolitical competition goes well beyond just the US market. It also is stimulating additional demand in Europe, and we have seen many European nations are also planning to invest heavily in space in the future.
On the Civil side, we see a trend towards increasing commercial dependency. I already mentioned that there is an imperative in the — on the civil space side for a commercial state station, but there are also the successes of things such as commercial crew that are continuing to drive new public partner — a private partnerships that is increasing demand for commercial services in the civil space segment.
And of course, on the commercial side, although there is high volatility, we do see accelerated growth potential as many of the new commercial business models prove themselves out. Although, it is the segment with the most volatility, comparing to the government segment of national security and civil space, it is probably the segment with the greatest and fastest growth potential over time.
Moving to the next slide and diving a little bit deeper into some ties specifically to Redwire wire. One of the very exciting dynamics that has been occurring over the last two quarters is that Redwire is providing critical components to some of the fastest-growing programs in the national security markets, to include working with the Space Development Agency on their tranche strategy. We have built a history on working on many of classified programs and we continue to make investments in security infrastructure to include investments in personnel, facilities, contracts and our robust security processes and policies.
The important thing to note here is this is a significant barrier to entry for competitors, who are also trying to work with these customers. No organization can just come off the street and immediately start working in the classified domain of the national security sector of space.
So by Redwire, having the history and the capability and the supporting infrastructure, this gives us a competitive advantage, and we continue to invest in this area to expand our ability to execute against a very robust national security pipeline.
In the National Security sector, we are positioned to capture a number of high-end bespoke portions of the market to include in the power and radio frequency systems and our digital engineering sensors and cameras, as well as large deployable structures are all high-growth, high-demand areas in fast-moving swim lanes for the national security customers. So we feel that our product line, in particular, is well positioned for what the national security sector is buying. And as an example of that, we talked about last quarter, our recent success in procuring the Link-16 antennas for the FDA architecture.
The net result is large multiyear contract awards in 2022 that have high probabilities of follow-on work. For those of you who follow the DoD sector, you know that the key is to be baseline and established at the beginning of a program, and once you’re established in the baseline as the program grows and leads further into the production phases, this is a very strong result for multiyear reliable revenue. So the DoD will continue to spend in space and our technologies are being based on many of these high priority programs.
Moving to the next slide. On the Civil side, I’ve already mentioned that plans for commercial stations in LEO are accelerating due to competition from the Chinese and the uncertainty with the Russian partnership on the ISS. Redwire in particular, with our on-orbiting manufacturing and leading space biotechnology solutions is positioned as one of the few companies with actually proven capability to outfit these future commercial LEO destinations.
So as I mentioned, this is going to be a decade-long development cycle between now and 2030, where organizations are going to be investing in key Redwire capabilities to outfit these future commercial LEO destinations. But we can be patient, because as we are developing the next-generation technologies, we continue to provide our heritage technology on the ISS which will continue on to 2030. This gives us visible revenue streams in the near term, as we await many of the future revenue streams on the commercial side to gain steam.
In addition, on the Civil side of the business, we’re really excited about the Artemis I launch that is scheduled to occur on August 29. Of course, Redwire provides the eyes of Orion. We provide the camera systems for the Orion capsule as part of the Artemis program. So we’re very excited to see that launch successful. And we’re very proud of our participation in that program.
Additionally, NASA is preparing to award a second human landing system award and Redwire is positioned to play a major role on multiple teams as a key supplier. So, there is now a race to the moon to establish a permanent presence and ultimately to Mars and this is creating additional demand for our capabilities, where Redwire is an industry leader in such IP critical-driven technologies like 3D printing in space.
Moving to Slide 12. Of course, in commercial space, we’re offering platform-agnostic technologies as a diversified portfolio and this is allowing us to get a diversified to hold with a number of key commercial entities across the industry. This diversification hedges the volatility associated with the commercial space segment. And in a very interesting dynamic, Redwire is establishing itself as a key player in the supply chain of many of these key commercial space capability providers.
And in fact, we are turning our customer struggles with supply chain into a positive opportunity for Redwire because they are looking to strengthen their supply base on a number of key technology. As a matter of fact a number of companies have reached out to us to co-invest in developing products that are critical to their future plans, where they feel that the supplier base is weak which will ultimately lead to additional highly sought after subsystems and critical components that we will be adding to the Redwire portfolio based on proven customer demand.
So we continue to – but in addition to being a key supplier, we continue to demonstrate new potential markets. We announced the first sale of our space manufactured optical crystals. So in some cases, we are a critical supplier and in other cases we are actually market makers and certainly in the area of space-based manufacturing and biotechnology, we’re a market maker and we were very excited on the commercial front with our announcement of our biotech — space biotech partnership with our partners at Eli Lilly, a clear demonstration that the future potential for space biotech is being looked at by many stalwart companies in the pharmaceutical industry.
So, we talked about the imperative for a commercial space station like orbital Reef, and that is gaining significant momentum and we have a number of IP-driven products that are absolutely critical to the success of those platforms.
Moving to Slide 13. Covering down our strategic positioning. So where does this leave us? Well, we’re increasing our near-term investment in order to achieve higher revenue and profitability as we seek to gain operating leverage, Jonathan is going to cover that a lot in his segment as well. We are focused on operational efficiencies and financial resiliency to endure, uncertain economic conditions, our heritage, deep customer relations, long government contracts and our ability to work in the classified domain allows us to be patient as we see the commercial markets develop overtime.
We are gaining many toeholds and improving our penetration in large multiyear programs with high production potential. This should lead to more rapid scaling in later phases of those programs. And of course, customer satisfaction and execution success is a key catalyst for follow-on opportunities, this is part of our land and expand strategy and is leading to significant momentum in our pipeline, which Andrew will talk about in greater detail.
So at the end of the day, what’s very exciting about Redwire is we have many modes. We have our existing flight heritage that just cannot be created overnight. We have deep customer relationships that are leading to co-investment to improve the supply chain. We have diversified products across all the different segments, but in — particular in the commercial segment, this is giving us some resiliency against the volatility.
We have long-term government contracts, which allows us to be patient, unique facilities to include an exciting new facility that Andrew is going to talk about in Goleta, where we’re going to build the largest solar ray ever to be deployed, strong IP, particularly in the area of biotechnology and in space manufacturing and of course, that classified security infrastructure. These all together provide us a unique sustainable competitive advantage as part of our positioning as the market grows. So as you can see, Redwire’s products and services of offering our flight-proven, wide-reaching strategically diversified products position us well for the future.
To further expand on that, I’m now going to turn it over to Andrew, who will cover the operational highlights for the second quarter.
Andrew Rush
Thanks, Pete. We are always proud to highlight missions that we’re a partner and an enabler of. So here on Slide 14, we see the NASA and Johns Hopkins Applied Physics Lab laboratory mission, the double asteroid redirect test, spacecraft. This was launched this year and is powered by our rollout solar arrays and also uses our navigation components and is on its way to demonstrate the ability to kinetically impacted asteroid and change its trajectory, really, really awesome mission that we’re proud to be a part of.
So turning to Slide 15. I’d like to walk through some of our many operational highlights and project achievements. These will carry over to the next few slides in more detail. First, in quarter two, we continued deliveries of products and services for multiple national security, civil and commercial space customers including for multiyear, multi-ship set missions and satellite constellations. Our operational successes have led to additional projects and expanded workscope via cross-selling of products and services. Our teams increased on-time delivery, including for large solar programs and navigation component projects. These operational successes have led to increased backlog realization and have driven revenue growth and improved gross margins.
Sales in the quarters have improved and we will spend more time on this in a moment, but as a preview, as Pete mentioned, our book-to-bill ratio in quarter two was 1.68, which was up from 0.45 this time last year. In order to fulfill our customer needs now and in the future, we are also continuing to make infrastructure investments to expand production capacity and increase execution efficiency.
Finally, let me point out the image on this slide. Those are members of the Archinaut One extended structure additive manufacturing team who are presenting a one-third length test print. Light software and flight like avionics made this team a major assembly integration and test milestone as this first of its kind mission moves closer to launch. We are very proud of the progress that they are making.
Now moving to Slide 16. As I mentioned, our teams have continued to deliver for our customers throughout this year, enabling a wide variety of NASA, national security and commercial missions to proceed. We delivered deployable structures on antenna to support national security missions. We delivered Roll-Out Solar Array for integration by a commercial customer as well as an important NASA mission, and turned over multiple satellites worth of navigation components to a new commercial customer for utilization on several missions.
We delivered camera systems and wiring harnesses for human-rated and robotic spacecraft. We also readied our BioFabrication facility for launch to the International Space Station later this year to continue pathfinding commercial 3D bioprinting in space.
In addition to the previously mentioned progress that we’re making on Archinaut One, our teams have continued to provide digital, modeling and simulation services to satellite constellation operators. Of particular note, on-time deliveries improved in quarter two, giving us both more consistency and revenue generation as well as a tailwind for follow-on work.
Quarter one of this year faced challenges in vendor performance delays as well as delays in subcontracting. I’m pleased to report that many of those challenges have been overcome, driving increases in quarter two revenue compared to quarter one as well as setting up a stronger second half of this year. Now supply chain pressures do remain, but we continue to explore ways to strengthen our supply chain by expanding our vendor base and building strategic partnerships. Redwire is poised to continue delivering on this momentum in the second half of 2022.
Moving to Slide 17. These operational successes have driven improvement in our performance in quarter two compared to quarter one. Specifically, as Jonathan will detail in a few minutes, our revenues were $3.9 million higher in quarter two of this year compared to quarter one, and our gross margins increased 3.3% over the same period.
In addition to driving those improvements in financial performance, operational successes are leading to expanded opportunities for new orders and programs. New and existing customers are expanding their orders with us. Many existing customers are also increasing Redwire’s workshare by not only buying products that they have traditionally pursued from us, but also engaging Redwire to provide other products and services previously procured elsewhere. For some, Redwire is truly becoming a one-stop space shop.
In quarter two, we have also been successful in expanding multi-shipset, multi-year programs and establishing beachheads with new constellations. These are clear signals that our business development and operational success is driving performance in future growth.
Moving to Slide 18. Building on that, I’d like to next discuss in detail our backlog and sales pipeline. Our total backlog is a key business measure consisting three elements: contracted backlog, awards in negotiation and additional scope to complete existing contracts. Our total backlog consists of a diverse set of products and services, protecting against downside exposure from any single product or service. Between quarter one of 2022 and quarter two of 2022, our contracted backlog grew from $137.3 million to $162.1 million, an 18.1% increase. This growth in contracted backlog was driven by our team’s doubling bookings made in quarter two relative to quarter one.
Specifically in quarter two, we contracted $61.6 million in new work compared to $30.4 million in new work in quarter one of this year. This strong bookings performance led to a reduction in the awards and negotiation elements of total backlog, as well as an overall reduction of total backlog from $273.9 million to $251.7 million, over the same period.
As I will discuss in a moment, our robust sales pipeline provides confidence that our total backlog will grow in the future. Importantly, the percentage of our total backlog that is now fully contracted went up from 50.1% to 64.6%, increasing our confidence in performance in the second half of this year and into 2023.
As I mentioned, our book-to-bill ratio also improved to 1.68 for quarter two, compared to 0.5 this time last year. For comparison, our book-to-bill ratio for quarter one of 2022 was 0.93. This improvement in book-to-bill ratio and increase in contract backlog provides a tailwind for execution in the second half of 2022.
Moving on to slide 19. Year-to-date, we have booked over $90 million in new work.
Turning to our sales pipeline. We believe its robustness will drive increased sales momentum and increased total backlog. Our total pipeline is approximately $3.5 billion across approximately 500 opportunities. Of that total pipeline, $556 million is currently submitted to customers as proposals and awaiting their decision. This is up from $249 million in submitted bids at the end of quarter one of this year.
Now, of these $556 million in submitted bids, $264 million of that, or approximately 47% has estimated selection date in 2022. In addition to that significant amount of outstanding bids, at the end of quarter two, our team was working on an additional 83.1 million in proposals, which have selection dates in 2022. The time between selection and contracting or authorization to proceed varies from customer-to-customer, between an average of one month to three months.
Our pipeline is a healthy mix of national security, civil and commercial space opportunities, which increases its resilience to macroeconomic forces, while providing many opportunities for accelerating growth. Our high visibility into our near-term pipeline provides us with confidence in seeing growth on our bookings and total backlog in the second half of 2022 and into 2023.
Moving on to slide 20. I’d like to turn to detailing how we are ensuring we have the capacity to continue to deliver for our customers as we scale. As a high-growth space company, we have made and are continuing to make investments in physical and operational infrastructure to increase our operating leverage and profitably deliver quality products and services on time.
In quarter two, we commissioned approximately 30,000 square feet of new design and production space. These facilities provide us with expanded capacity for RF antenna production and deployable structured production in Colorado, and robotics and mechatronics production in Europe.
Looking forward to quarter three, we are on track to complete a new 40,000 square foot facility to provide expanded solar production for both our Rigid Panel Solar Array lines and our Roll-Out Solar Array products. This facility [Technical Difficulty]
Operator
Please standby, we seem to have lost the speaker’s audio, please standby while we reconnect. Please proceed.
Andrew Rush
Looking forward to quarter three, we are on track to complete a new 40,000 square foot facility to provide expanded solar array production capacity for both our Rigid Panel Solar Array lines and our Roll-Out Solar Array products. This we lead California-based facility will give us both increased throughput capacity for all signs and types of arrays as well as enabling the construction and test of even larger solar array.
In addition to these physical plant infrastructure investments, we are continuing to improve and unify our processes and workflows to enhance our operational efficiencies.
Importantly, these investments support proven technologies and product lines and are informed by customer demand signals, giving us high confidence and strong returns on these investments. They are not build it and they will come type of investments.
Our physical and operational infrastructure investments are currently bearing fruit as seen in our increased revenue and gross profit. They will enable us to meet increased demand from our sales momentum in the second half of 2022 and beyond.
With that, I’ll hand it over to Jonathan to walk through our financial highlights.
Jonathan Baliff
Thank you, Andrew. So, let’s review the financial specifics of the second quarter and the first half of 2022. I will help quantify and expand on a number of the themes that Pete and Andrew spoke about.
Please turn to slide — well, turn to slide 22 in a second. 21, I’m going to do the same thing that Andrew repeated. These are our excellent team members here with the aforementioned ROSA, the Roll-Out Solar Arrays. So, I just want to mention that.
All right. Let’s turn to 22 for some key financial takeaways. As Pete spoke about, our second quarter fiscal year 2022 revenues increased 14.2% year-over-year to $36.7 million. Our second quarter net loss was $77 million compared to a net loss of $15.9 million in the second quarter of fiscal year 2021. This net loss included mark-to-market on our warrants, but also an $80.5 million non-cash impairment expense.
Let’s briefly talk about this non-cash impairment. During the second quarter, there was a decline in the company’s market capitalization driven by general economic conditions, including heightened inflation, rising interest rates, and volatility in the capital markets, which triggered a test of our goodwill, tangible and intangible assets.
Based on this test, we incurred a pre-tax impairment charge of $80.5 million. These impairments during the second quarter of fiscal year 2022 did not have any impact on Redwire’s revenue or supply chain contracts, or liquidity or the company’s compliance with our credit agreement with Adams Street Partners.
Our adjusted EBITDA loss of $4.1 million in the second quarter of 2022, which adds back this non-cash impairment expense among a number of other non-cash and one-time add-backs are detailed on page 33 of this presentation.
One of the themes of the second quarter is improvement over the first quarter in 2022 and a number of important commercial and operational areas already discussed. And Redwire has also demonstrated this financially with revenues that were 11.7% higher sequentially, gross margins that were 3.3% higher sequentially. The second quarter adjusted EBITDA loss of $4.1 million is 13.2% better than the $4.7 million adjusted EBITDA loss in the first quarter.
Finally, second quarter free cash flow, which we care about a lot, it was a use of $500,000 is markedly better than the free cash flow use of $6.4 million in the first quarter of 2022. And with a book-to-bill of 1.68, which is detailed on Page 32 of this presentation, we anticipate this trend to continue as we expect to achieve positive adjusted EBITDA in the second half of fiscal year 2022.
However, a number of factors we will speak about in the next few pages, including the investments in business development, R&D and public company costs that have helped expand our opportunities that Andrew and Pete talked about in 2022, have also impacted our adjusted EBITDA for the first half.
Correspondingly, management is tightening our previously provided revenue guidance and now expects revenues to be in the range of $165 million to $175 million. And we are also revising the pro forma adjusted EBITDA to be in a range between a negative $2.0 million and positive $3 million.
Please turn to Slide 23. As part of our second quarter call, we want to provide a bit more detail into Redwire’s revenue growth but using a year-to-date GAAP comparison shown on the left and also the GAAP sequential quarter shown on the right. For the year-to-date second quarter comparison of 2022 to 2021, revenues increased by $5.8 million or 9.1% in for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.
As you can see from the buildup of customers, the revenue increases are distributed among them with no one class predominant, similar to what was previously discussed by Pete and Andrew. These revenue increases are principally attributed to our deployable and component lines of business.
The revenue increases were partially offset by certain other lines of businesses year-over-year. But this is important to note, as in previous years, these other lines of businesses created much of Redwire’s previous revenue growth, and they will do so in 2023 and beyond as their TAM is significant. This shows the benefit of Redwire’s diversified infrastructure platform.
When looking at the chart on the right, the sequential 2022 quarters show a rebound in our second quarter by 11.7% and again, this is driven by the deployable lines of business. The reason this is significant is the fourth quarter of 2021 saw a similar impact from this business line and also our components line.
Two, we faced headwinds in certain lines of businesses in the first half of this year of 2022, and the revenue would have been higher. But much of that revenue in certain contract awards was delayed into the second half. And we’ll see that revenue in second half 2022 and 2023.
Redwire is not an inherently seasonal company when it comes to revenue recognition. However, our organic acquisition of our contracts can be uneven, as the sequential quarterly numbers show and its best predicted by our book-to-bill, which is currently, as we’ve talked about, 1.68. But a year ago, it was 1.28% in the second quarter of 2021.
Please turn to Slide 24. Similar to revenue, we want to provide a bit more detail concerning Redwire’s adjusted EBITDA profile using a first half year to bridge on showings the left and also a sequential quarter shown on the right.
On the left chart, for the year-over-year comparison of 2022 to 2021, adjusted EBITDA decreased from $2.6 million in the first half of 2021 to an adjusted EBITDA loss of $8.7 million in the first half of 2022, even though revenue increased during that same period. As you can see from the bridge, our first half 2022 adjusted EBITDA was positively impacted by additional revenue growth. We continue to grow revenue. This was a $1 million positive contribution on a gross margin neutral basis, which is contributed by Redwire’s continued strategic positioning. But our year-to-date gross margins, which is shown on the next bar, contributed to a negative $4.9 million at this year-to-year decrease was driven by a contract mix that had lower gross margins and the upward development of estimated cost to complete certain programs.
As you can see on the next bar, the negative $7.5 million contribution demonstrate what Andrew was speaking about and Pete, Redwire continues to make investments in business development, R&D and public company costs that helped expand the size of the contract opportunities and – but it impacted our first half of 2022 EBITDA, especially the first quarter of 2022. And this adjusted EBITDA included cost efficiencies that the management actually implemented.
However, we have been deliberate about balancing those efficiencies with the investments. as one, we expect revenue to come in, in the first quarter that was delayed and now will come in, in the second half of 2022, and two, we are purposely investing in Redwire to achieve scale, operating leverage and profitable growth, with much of the incremental SG&A costs foundational in this unique and growing space company.
On the right chart, this sequential quarterly adjusted EBITDA improvement from our Q1 to Q2 in 2022 demonstrates operating leverage coming back into the company due to a number of factors. If you compare the 2022 Q1 bar to Q2, you would see the opposite of what you saw on the left-hand chart. New contract wins, better contract mix and higher gross margins, much of it in our deployable components businesses increase that gross margin, contracts inherited in past acquisitions, which were priced with lower gross margins and did not have the one Redwire effect, they’re rolling off, meaning that the second quarter of 2022 is an early indication and a better reflection of Redwire’s profitable potential.
Redwire’s recent win of contracts were priced to reflect that one Redwire differentiated solutions and have higher gross margins. These contracts will displace the contracts that are rolling off.
Finally, the investments that we made in operating expenses are leveling off, and we’re going to be more efficient in the future to bring more operating leverage to Redwire. As an example, SG&A went down sequentially by 14.5% and actually went down from 63.7% as a percentage of revenue to 47.8% as a percentage of revenue in the second quarter of 2022. That is a 25% decline.
Please turn to Slide 25. So to summarize the previous two slides and bring it together for our 2022 guidance, please see these two charts that we introduced on our earnings call on March 31. Concerning revenue, we assess our 2022 guidance based on our, one, actual revenue recognition as the year progresses. We’re now in the first half; two, our total backlog and backlog quality that Andrew spoke about, and three, the expanded size of contract pipeline opportunities in 2022 with the book-to-bill trends that we also spoke about. These all helped quantify our revenue guidance range in a systematic way.
Some thoughts, continuing Pete’s revenue momentum fee and the actual second quarter sequential revenue improvement, our 1.68 book-to-bill, our second half revenue outlook is markedly better than the first half. However, a number of factors that we already spoke about impacted the first half actual revenue. So management now is tightening our previously provided 2022 guidance range to $165 million to $175 million.
Turning to adjusted EBITDA. We assess our 2022 adjusted EBITDA guidance on: one, the analysis concerning revenue guidance already spoke about; and two, our contract mix especially any accretion dilution to actual and forecast gross margins; and three, finally, the investments we made in operating expenses and those trends quarter-over-quarter and what we believe we can achieve in the second half.
Again, continuing Pete’s revenue momentum theme, the actual second quarter sequential revenue improvement the 1.68 book-to-bill and the contract accretion we expect our second half adjusted EBITDA outlook is significantly and markedly improved than first half. However, a number of factors that we already spoke about for the first half actual adjusted EBITDA, notwithstanding the second half improvement, management is updating our previous 2022 guidance for pro forma adjusted EBITDA to a range of a loss of $2 million to a positive $3 million.
Please turn to Slide 26. Let’s discuss free cash flow for the second quarter and finish it up with liquidity before I turn it over to Pete. So free cash flow is computed as we’ve been doing for the last year as adjusted EBITDA less capital expenditures and changes in net working capital, and it provides a perspective on our unlevered free cash flow generating capabilities before noncash items and certain one-off expenses.
This measure was used in last year’s S-4, and we want to be consistent with what we’ve shown, because we do care about this, and we are improving upon it, and we’re working to do even better in the future. Much of the improvement sequentially this quarter is due to the improvement in the sequential revenue and EBITDA that I already spoke about, and we expect the second half of the year to show improvement from the first year for similar factors.
On the right-hand chart, we show our available liquidity as of June 30, 2022, which totaled $25.9 million, comprising $10.9 million in cash and $15 million in available borrowings under our credit facilities. And the chart shows that we stayed fairly steady from the previous quarter.
Some points on liquidity are important to note. One, we are seeing excellent support from our shareholders and Adam Street Partners during the quarter. Our August 8, 2022 Redwire Fourth Amendment, which is detailed in our earnings release with Adam Street shows that, Fourth Amendment, among other things, suspends the requirement to concerning certain leverage ratios as we move into the future and also shows that there was a support guarantee limited one from our shareholder of $7.5 million. So we continue to provide support and obviously have the critical liquidity we need to grow. So let’s finish this up.
I’m going to turn it over to Pete for any concluding remarks on slide 27.
Peter Cannito
Thank you, Jonathan. So in summary, we’re building a foundation for near-term improvement and long-term growth. The first quarter and second quarter of the year were lower than expected, but Redwire is the kind of company that you measure in years, if not multi-years, due to the lumpy nature of our revenue and the extraordinary pipeline that we have developed as we continue to make investments.
Demand for our products and services is strong, driven primarily by a decades long geopolitical competition for dominance in space. And our proven technology is not dependent on a build it and they will come scenario. We are generating value-added products today. We continue our pace of launches in 2022, and we are supporting slightly hardware now in the present.
Redwire, as we mentioned, is continuing to make investments in business development and R&D and that has helped to expand the size of our programs, but this is having an impact on our adjusted EBITDA for the first half of 2022. However, the investments are paying off and our second half revenue growth underpinned by significantly higher 1.68 book-to-bill, and combined with a change in contract mix and higher growth margin provides for an improved outlook for the second half of 2022.
As revenue and operating leverage improved sequentially, Redwire expects our financial outlook to improve, we see positive EBITDA for the second half of the year, and great momentum going into 2023.
And with that, we will turn it over to the moderator for questions.
Question-and-Answer Session
Operator
Peter Cannito
Thank you very much, and have a good day.
Operator
Thank you. That does conclude today’s teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
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