Peter Cannito: So I’ll take the last part first. Yes, we are bidding more as a prime than we had in the past. The other part, the number of bids, our goal is to continue to keep it at the level that it’s at right now. We have to take into account however, the RFPs come out at on the timeline that they do, right? So many of these are government, large government procurements, but the commercial customers have their own tempo as well. So what I say that — so the answer to your question, like I said, as we’re bidding more prime and we want to keep our bid rate up. And it’s really the bids under review that are really critical that we have that number up. But it will also fluctuate like anything else from a quarter-to-quarter basis based on if you turn something in, some things due the week before the end of the quarter and it’s a really large procurement, that’s going to affect the numbers.
Or likewise if something’s — the RFP gets turned in and the bid gets submitted in the first week of the following quarter, that’s going to — you can get some of these quarter-by-quarter deviations that look lumpy, but it has more to do with the timing of the submission than anything else. Does that answer your question?
Brian Kinstlinger: It does. Thanks. And my follow-up in regards to the EAC adjustments. What are the lessons learned for Redwire? And what can they glean from these as it prices future contracts and or accounts for flexibility in changes to program requirements in its contracting?
Peter Cannito: Yeah, no, it’s a great question. Well, first of all, it just underscores the fact that capability and the ability to deliver with operational excellence is key. And you have to also be able to be disciplined in the way that you bid. But it’s a bit of a cliché now, but many clichés start because it’s true is that space is hard. So you’re going to — we bid a lot of firm fixed price contracts and sometimes you’re going to have an EAC. And although these things do have an impact on financial performance on a near-term quarter-by-quarter basis, if you’re running a really good operation, you’re going to see that, that levels out over time. So we focus on our long-term profitability, not the perturbations that happen on a project-by-project basis, which in some cases can be high relative to a small base in the near term.
However, these things also indicate that in this particular case, we found something in test, and we had to move out and fix it. So what may seem as large EAC in the near term, also understands that it underscores the quality of our processes to know that we are testing these things and we’re finding deviations and we’re moving out. As we get better and better at executing firm fixed prices and some of these are just the result of growing pains in addition to space being really hard. As we get better and better to that, we hope that you see balances from fixed price — the contracts also offer the opportunity to over-perform where you may have a reserve, or you find that you can execute well with more efficiency where the overall impact can move in the other direction.
And we’ve seen that in previous quarters where we’ve had a tailwind in terms of realizing a profit on particular programs greater than what we had expected. So the critical thing is, that I’ll just continue to emphasize, is that we look at our performance on a annual basis. We not and we recognize that sometimes these metrics are going to move up and down on a quarter-by-quarter basis, depending on what’s going on in that quarter.
Operator: Our next question comes from the line of Suji Desilva from ROTH MKM.
Suji DeSilva: Good morning, Peter, Jonathan. Congrats on the revenue in the quarter. I just want to ask about — sure thing. I want to ask about the non-recurring, recurring seasonality of your — the bookings and the fact that it seems to come in at the end of the year. I’m just wondering if that’s a trend you’re observing, if there’s any kind of explanation for that or whether it’s just happens then and it wouldn’t necessarily recur?
Peter Cannito: It’s strange, right? So I would say it’s not a trend. It’s a two data point trend. So it just happened to kind of fall out that way. If there is something associated with our underlying, maybe the flow of our RFPs or how quickly we respond from Christmas break and all of a sudden start ramping up for the rest of the year. We haven’t been able to figure that out yet. So, I don’t want to say that at 2 times has us looking at it, but I’m not ready to declare it some sort of seasonality or anything like that because I don’t think we understand —
Jonathan Baliff: Definitely not due to the weather, Suji. It’s or anything like that. I mean we make light of it because we really do believe that the nature of this is to look at our company on an annual basis or set of annual. And if you look at the LTM, we’re banging away. We’re doing what we’re saying, what we’re doing on the bidding strategy and the amount of contracts we’re winning. I think what’s most notable is that for this quarter to see the number of bids move up almost 200% and also for us to then disclose that we’re seeing more of that in the future is I think, notable. How that then translates into quarterly contract wins, is just look at us on more an annual basis. And that’s why we’re starting to talk a little bit about LTM, last 12 months, as part of that, to give more education to you and the rest of the investor community.
Suji DeSilva: Got it. Sorry, I might have cut out there briefly. And then also my other question is following up on microgravity. With the 16 missions and manifest, are those new customers or existing more Eli Lily type business? Or is it 100% commercial? Or is there some government mixed in there? And most importantly, can the customers move — customer readiness move at the cadence that you’re trying to do in terms of production? Can they pull off being ready for those cadence you’re trying to achieve? Thanks.
Peter Cannito: Yes. Well, so we obviously don’t disclose who our customers are in every mission until we do. And there are a mix of customers that are interested in all of these. And in certain instances, if we don’t and we’re looking harder at this, have a customer, there are compounds out there that are open that are not protected that Redwire can fly on its own behalf to generate its own intellectual property, and that’s really exciting as well. So we will make, I guess, the takeaway is we will make each one of those 16 missions useful.
Jonathan Baliff: Yeah. And it’s important to note, these are partner customers, right? And the nature of how we do this, we don’t lose money on this, right? The research and development has been put in place. We are now in the development phase. As part of that, the economics start to change and adjust and become more like a contract developer, a manufacturing office or organization, which in the biotech world is a very know — Suji, you know this world. It has economics that could create multiples of value for the invested capital that we put in already. And again, we are decades further ahead than many of our competitors. We’ve been doing this for a very, very long time, and it’s starting to come to fruition with the intellectual property being Redwire intellectual property.
Operator: Our next question comes from the line of Andres Sheppard with Cantor Fitzgerald.
Andres Sheppard: Hey, Pete, hey, Jonathan, good morning. Congratulations on the quarter and thanks for taking our questions. Yeah, I think a lot of our questions have been asked by now, but maybe just to follow-up on an earlier question on margins. How should we think about gross margins throughout the rest of the year? And I guess how should we think about those EACs as well for 2024? Thank you.
Peter Cannito: So I’ll start us off and then I’ll let Jonathan jump in. I think we’ve talked about all the different dynamics that play into gross margins and the strategic decision making that we have to make on a, really a bit by bit basis as to whether say, the absolute value of margin contribution from a particular bid or maybe the strategic value of a large win, whether in that particular case, we’re willing to sacrifice maybe an operating margin run rate, if you will. As a result, so that’s going to vary over time as those opportunities present themselves. We very deliberately give revenue forecasts for the year and shy away from giving an EBITDA although our — we are driving, as Jonathan has said, multiple times towards profitability.
And that’s because that leaves us the opportunity to make good strategic decisions around our operating margins. So I think our philosophy has exposed itself in terms of our 2023 performance, but we maintain the flexibility to not have that inhibit us from doing something really smart throughout the year. And that’s at the strategic level. I think Jonathan can maybe perhaps reaffirm this idea that product mix and many other dynamics such as EACs and such, go into that. The only other thing that I’ll add before I hand it over is, we look at — our goal is towards overall margins, although operating margins are important. Controlling our SG&A, making sure we’re efficient there, plays into our overall profitability dynamics as well. Jonathan?
Jonathan Baliff: Well I want to answer your question directly and use a historic basis because again, number one, we do not give operating margin or gross profit forecast for 2024. That being said, what have we said before? In FY22, we had almost 18% gross margins. In FY23, we had almost 24% gross margins. We have said that we will not increase those gross margins as much in 2024 because of the significant revenue growth that we’re seeing, 23% organic revenue growth is something that we believe is conservative, but also very achievable. And as we go through the year with our bids and our win rates, we’ll be able to talk about that. As far as the gross margins are concerned. On the EACs, we are driving towards low volatility, right?
We don’t want to see this level of EAC on an absolute basis, but it’s really looked at on an LTM basis, not on a quarterly basis. You could see a movement up, but we are really trying to drive towards what great program management looks like, which is zero EACs. And what like Pete said, we can actually achieve higher through better performance, and some of our contracts allow for that. So going from 18% to 24%, which we did last year, we’re not going to see that this year. But that doesn’t mean, again, getting to the third point, which is really important is that we are driving towards a much higher profitability margins, whether it be EBITDA margins because SG&A now is going below 20% or importantly, because we haven’t gotten this question, but we’re very focused on it at Redwire, which is cash flow, right?
We continue to be able to produce higher returns on invested capital which then yields better cash flow then funds that growth that Pete’s talking about, right. Which creates that virtuous cycle. So look more at the bottom line. Obviously, for us it’s cash flow. We are focused on EPS too guys. So just for all the analysts out there, we do want to talk to you guys later. Our EPS is eventually — we’re on a path to profitability, which includes improving that too as we go forward. But again, look at the revenue, being conservative. Margins not going to increase as much in ’24, but that doesn’t mean that we can’t achieve better bottom-line profitability margins, especially on the cash flow side.
Andres Sheppard: Got it. Thank you. That’s a super helpful. Appreciate all of that context. Maybe just to end, can you remind us and maybe investors, what are some of the most important near-term catalyst that we should be highlighting or that we should be monitoring for this year? Thank you.
Peter Cannito: So I would point everybody — if I understand correctly, catalysts in terms of executing our plan, the near-term catalysts are executing on our four principles of growth. So what we’re going to try to do on a quarter-by-quarter basis is highlight our progress against that, hence the structure of the presentation today. We want to continue to reassure everyone that we have a really strong foundation in our core business offerings. And that’s going to continue. There’s strong demand for what we call protecting the core. And we need to continue to execute there, and it’s actually — we’ve achieved really good growth just on our foundational technologies, but we also have a number of initiatives focused on the near term to continue to show that we can scale production.
And that will lead to higher revenues over the long term that we can move up the value chain that will also lead to a nice pace of revenue growth. As well as to execute on this venture optionality and unlock what I think is some of the more hidden potential value in the enterprise as well. So those are the things that I would track is essentially our progress. In terms of near-term in the market, just for the space industry, write large, I think we just have to keep watching the budgets and the continued growth and excitement around our real capabilities out there like participating in SDA programs, being selected as one of just a half a dozen of what I think are some of the best of the best in the industry for Mars exploration, for being looking at who’s being selected for future lunar infrastructure programs and whether Redwire’s portfolio of programs aligns really well with the strong trends in the industry.
I think if you were to line those up quite frankly, we look pretty good. But I would point investors to those dynamics as well, because we’re focused on the growth trends in the industry, and that’s where we’re moving to is where the puck is going.
Operator: Thank you. And we have reached the end of the question-and-answer session. I’ll now turn the call back over to Peter Cannito for closing remarks.
Peter Cannito: Yes, some excellent questions. Thank you very much. I appreciate everybody participating in today’s call and thank you for taking the time to listen. Go Redwire!
Operator: And this concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.
