Redwire: Capitalizing On The Space Economy

Redwire (NYSE:RDW) is a space infrastructure provider that stands to benefit from expansion of the space economy. The company offers a range of products and services across areas like manufacturing, sensors and satellite platforms. Redwire’s growth is currently strong, benefitting from the proliferation of satellites and the emergence of areas like defense, in-space manufacturing and lunar exploration. The company has also been an active acquirer and plans on further consolidating the space products and services market. Redwire is progressing towards breakeven, helping to reduce uncertainty about its viability, and the risk of dilution. The company has a fairly small cash balance though, meaning capital raises to support growth remain a possibility.

Market

Redwire offers a broad portfolio of products and services related to the space economy. As a result, the company is positioned to benefit from:

• The emergence of space as a warfighting domain
• Growth in lunar infrastructure
• The proliferation of satellites
• Increased deep space exploration

Much of this is being enabled by launch costs, which have declined over 95% in the last decade. Approximately 6,000 satellites were in orbit in April 2020, with an additional 50,000 plus planned launches by 2030.

Lower costs and improved technology are also driving progress in areas like lunar and deep space exploration. While lunar activity is currently only modest, the Artemis program is illustrative of the direction of this market. This program will send astronauts to the Moon's south pole, an area of interest due to the potential presence of ice.

The Lunar Gateway space station will serve as a staging point, communication hub, science laboratory, and habitation module for the Artemis program. It will also provide a staging point for NASA's Deep Space Transport concept for transport to Mars. The Gateway will be assembled in an orbit near the Moon, with construction of the habitation and propulsion modules already underway. The first crewed mission to the station is planned for 2026.

Redwire could also benefit from the rise of in-space manufacturing, with critical capabilities including 3D printing and robotic assembly. In-space manufacturing can be used to produce:

• Tools and spare parts
• Pharmaceuticals
• ZBLAN fiber optics
• Artificial retinas
• Spacecraft and large structures
• Sustainable human space habitats

Pharmaceutical research and manufacturing are areas where the unique environment in space provides a significant advantage. This is primarily due to how microgravity effects the crystallization of complex molecules. The lack of gravity stops convection, enabling larger crystals to form with fewer defects. Crystallization is important in pharmaceuticals, as it allows the structure of proteins to be analyzed using x-ray diffraction. It can also aid in the production of drugs with superior properties for delivery, as the distribution of crystal shape and size impacts fluid properties.

Optical fibers produced in microgravity can also be superior to those made in normal gravity. In particular, microgravity enables ZBLAN to be efficiently produced. ZBLAN is a glass alloy consisting of zirconium, barium, lanthanum, sodium, and aluminum fluorides, each of which has a different density and crystallization temperature. ZBLAN's unique properties enable more than ten times the capacity of traditional silica-based fibers. Manufacturing is difficult though due to the different properties of each of ZBLAN's components. Manufacturing in-space helps to alleviate some issues, resulting in longer fibers with superior optical properties.

Asteroid mining and energy generation could also become important economic activities in space over the next few decades. Asteroids often contain metals like iron, nickel, gold, platinum and cobalt in high concentrations. They may also contain ice, which can be used as a propellant. The market is still embryonic, with organizations initially focusing on identifying asteroids with significant potential for mining.

Space mining could be extremely lucrative, with just the 10 most cost-effective asteroids worth around 1.5 trillion USD. The 16 Psyche asteroid alone is estimated to contain 600 quintillion USD worth of gold, and some individual asteroids possess upwards of 50 billion USD of platinum. Mining these types of quantities would obviously flood the market and crash the price of these commodities though. There is also a question of economic feasibility. For example, NASA’s OSIRIS-REx mission aims to return less than 1 kg of material from a near-earth asteroid at a projected cost of over 1 billion USD. While costs will decline with experience and scale, space mining will remain a risky and high-cost endeavor.

The generation of energy is another area under investigation at the moment, although I don't find this to be a particularly compelling opportunity. Constructing solar arrays in space would provide more energy as the Earth's atmosphere is not blocking radiation from the sun. An array in a geostationary orbit would also be able to provide a constant supply of energy. This basically involves collecting solar radiation with a large satellite and wirelessly transmitting energy to Earth with either a microwave or laser beam.

The global space economy was worth an estimated 420 billion USD in 2019 and should realize solid growth in coming decades, driven by applications like those discussed above. While Redwire only serves a relatively small portion of the total market, it still has an opportunity that could be in the tens of billions of dollars.

Redwire

Redwire is an infrastructure supplier across all major space industry segments, including:

• In-space assembly and manufacturing
• LEO commercialization – commercial use and habitation of space
• Remote sensing
• Communications
• Space transportation and logistics
• Rocket body / structures
• VLEO platform
• Space domain awareness

Redwire is focused on 6 core offerings:

• Avionics and sensors
• Power generation
• Structures and mechanisms
• Radio frequency systems
• Platforms, payloads and mission
• Microgravity payloads

Much of this product portfolio has come through acquisitions, and has been shaped by a belief that:

• The majority of satellites will be manufactured and assembled on orbit
• Humans will return to the lunar surface permanently
• Commercial products will be made in space for use on Earth

Manufacturing in space is a particular focus area for Redwire, with the company having exposure to both manufacturing for in-space applications and manufacturing of products for Earth. The current approach to manufacturing limits the size of space structures and requires complex origami folding. Structures are also subject to significant forces during launch, meaning fragile structures must be protected, which increases payload weight and launch cost. On-orbit manufacturing lowers deployment costs and enables high-power capabilities. Redwire is trying to capitalize on this with its additive manufacturing and robotic assembly capabilities.

Archinaut-1 would have been a good opportunity for Redwire to demonstrate its in-space manufacturing capabilities. The project was aimed at using additive manufacturing and robotic technologies to build large structures in space. In 2023, NASA decided to conclude the project without proceeding to a flight demonstration. Redwire was the prime on Archinaut-1 though, demonstrating its leadership position in this segment.

In-space manufacturing of products for Earth is focused on the manufacturing of advanced materials with properties only achievable in microgravity. Redwire has a growing pharmaceutical manufacturing and R&D business. Redwire’s PIL-BOX platform has already been used to develop crystals in space on board the ISS. It offers pharmaceutical companies and researchers the ability to study small batch crystal growth of proteins. Redwire’s second PIL-BOX mission (in partnership with Eli Lily) recently returned, and the company has another 16 missions planned for this year.

Redwire's manufacturing capabilities and portfolio of advanced sensors also position it to benefit from defense and intelligence applications. The need for space domain awareness is increasing, driven in part by the rising importance of space assets (GPS, communications, earth observation). Adversaries are also investing heavily in offensive and defense capabilities. Tracking and protecting space-based assets is a difficult problem though, and there is a need to monitor and protect against physical and cyber threats. Redwire’s SDA solutions provide a wider range of monitoring using space-based optical interferometry.

Redwire has also manufactured antennas for over 50 spacecraft for a national security constellation. Redwire is also building 18 sets of antennas and radio frequency hardware for the SDA Transport Layer Tranche 2 Beta variant satellites. This contract is with Rocket Lab and is part of the Proliferated Warfighter Space Architecture.

This part of the business is also supported by Redwire's SabreSat Very Low Earth Orbit spacecraft, as VLEO is expected to be important in space-based defense strategies. VLEO remains a relatively unimpaired environment and debris in VLEO deorbits in hours or days rather than years or decades. The SabreSat VLEO spacecraft will be used in DARPA’s Otter program. It is an air-breathing satellite that utilizes an electric propulsion system. Redwire will be the prime mission integrator on the Otter program, responsible for building the satellite bus, advancing critical technologies and integrating the project.

Redwire is also developing Phantom, an alternative VLEO platform for the European Space Agency Skimsat program. Skimsat aims to reduce the cost and improve the performance of satellites by operating at lower altitudes. SabreSat and Phantom do not share a common technological baseline. They are two different platforms with differing underlying technologies and performance parameters.

Redwire also has a growing portfolio of lunar infrastructure projects. The company provided multiple SpectraCAM cameras for Intuitive Machine’s IM-1 mission, which occurred during the first quarter. The cameras will enable navigation and hazard avoidance. Intuitive Machine's lunar lander is travelling to the south pole region of the moon, with Redwire's cameras enabling navigation and hazard avoidance.

Redwire is developing a robotic arm prototype for the European Space Agency's Argonaut Lunar Lander. The lander is designed to establish the ability to land 1,500-1,800 kg of cargo on the lunar surface. The Manipulator for Argonaut Payload Needs and Unloading Support (MANUS) system will support operations (unloading cargo, positioning objects, etc.) on the lunar surface.

In December, Redwire was awarded a DARPA study contract to investigate future commercial lunar infrastructure. Redwire is also prototyping technology to build infrastructure like roads and landing pads and is providing Roll-Out Solar Array (ROSA) technology to delivery power on the lunar surface.

Acquisitions have been an important part of Redwire's strategy so far and are likely to remain so going forward. Redwire was formed by the merger of Deep Space Systems and Adcole Space in March 2020. The company then went on to acquire Made in Space in June 2020. Made in Space is a leader in on-orbit space manufacturing technologies and was the first company to perform additive manufacturing in space.

Redwire acquired Roccor in October 2020. Roccor is a supplier of hardware to the small satellite market and a manufacturer of deployable booms, structures, antennas, thermal products, and solar arrays.

Redwire acquired LoadPath in December 2020. LoadPath is a leading developer of payload adapters, deployable structures, and thermal products for the space industry.

Redwire acquired Oakman Aerospace in January 2021. Oakman Aerospace is a provider of digital engineering, spacecraft and satellite design and development, mission payload development, and data distribution services.

Redwire acquired Deployable Space Systems in February 2021. Deployable Space Systems is a supplier of deployable solar arrays, structures and mechanisms for space applications.

Redwire acquired Space NV in November 2022. Space NV’s offerings include advanced payloads, small satellite technology, berthing and docking equipment and space instruments.

Many space start-ups lack the scale and funding for success and provide Redwire with a consolidation opportunity. This is supported by the fact that Redwire is already a key partner for the primes on major programs. While Redwire currently has limited cash, a transition to consistent profitability in the near future should enable more transactions.

Financial Analysis

Redwire generated 87.8 million USD revenue in Q1, an increase of 52% YoY. The first quarter benefited from the timing of long-lead items associated with large contract wins in 2023 though.

Redwire was awarded 35.1 million USD worth of contracts in the first quarter and over the last 12 months the company's book-to-bill ratio was 1.11. At the end of 2023, Redwire had a 373 million USD backlog and a 4.8 billion USD pipeline. This suggests that demand is strong and that Redwire's growth will remain robust in coming quarters.

Around 90% of Redwire’s revenue comes from government and marquee customers. While this is a positive, as it shows that Redwire has established relationships with important customers, it is also a risk if these customers pull back on spending.

Redwire expects 300 million USD revenue in 2024, representing 23% growth. This growth is solid but falls well short of Redwire's guidance from several years earlier. At the time of its SPAC, Redwire was targeting 1.4 billion USD revenue and an 18% adjusted EBITDA margin in 2025.

Redwire's gross margins are modest, which is unsurprising given the nature of its business. Operating expenses are also fairly low though, leading the business to close in on profitability as it scales. Redwire's adjusted EBITDA was 4.3 million USD in the first quarter, while its net loss was 8.1 million USD. Cash from operations was 2.8 million USD and free cash flow was 0.4 million USD.

At the end of the first quarter, Redwire had 32.6 million USD of cash and cash equivalents and 47.6 million USD in total available liquidity. This probably sufficient for the company's near-term needs, dependent on the size and timing of any acquisitions that are pursued.

Conclusion

While Redwire's share price has moved higher in recent months, the company's valuation is still reasonable. It is worth noting that customer concentration is a problem and that Redwire is dependent on government spending. Redwire's revenue is also lumpy, and the company's margins are likely to be fairly modest at scale. As a result, Redwire probably isn't deserving of a high revenue multiple.

I would not necessarily count on further multiple expansion, but Redwire's share price should continue to rise in coming years on the back of solid revenue growth. Growth will be driven by expansion of the space economy, with lower launch costs a key enabler.

Redwire's business, and the space economy in general, are still fairly nascent, creating uncertainty about long-term margins and competitive positioning. The demanding nature of space operations and the high cost of failure should limit competition and make customers less price sensitive though. Redwire is also in a strong position to consolidate the market by acquiring sub-scale players, although it may need to raise capital to do so.