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- [00:05]
Peter Cannito
In the last five or so years since Red Wire has formed, we believe we have entered into a second golden age of space that's primarily driven by commercial companies, quite frankly, as opposed to just governments. And that was the core thesis behind Red Wire, and that's why we exist today.
- [00:30]
Matt Grier
That was Redwire chairman and CEO CEO Peter Canito. I'm Motley fool producer Matt Grier. Redwire is a space technology company building infrastructure for the space economy. Motley fool contributor Lou Whiteman recently talked to Kineto about that space economy and about the growing business of Redwire.
- [00:50]
Lou Whiteman
Greetings, fools. I'm Lou Whiteman, senior analyst here at the Motley Fool. My guest today is Peter Canito, chairman and CEO of space and defense infrastructure company Redwire. Now, Redwire has been in business since, I think, 2020, formed by a couple acqu. Acquisitions, and public since 2021. Peter, welcome to the Motley Fool. Thanks for being here.
- [01:09]
Peter Cannito
Yeah, thank you for having me.
- [01:10]
Lou Whiteman
All right, let's start out. I kind of like getting at it over what you do, but what is Red Wire? Let's talk about kind of, what does Red Wire do? And kind of let's make this fun. You know, the moment you needed to exist. Like, why does the world need Red Wire? That's. That's how I want you to explain the company.
- [01:25]
Peter Cannito
Yeah, no, that's a great way to put it. So I think if we can hit on that, then the rest of the messaging is clear. So Redwire was formed initially by a private equity company who realized that we were entering into a second golden age of space, that the first golden age of space was around the Apollo program back in the 60s and early 70s. And since then, there had been just incremental progress and some might even say concerning the Moon program, some level of regression. But in the last five or so years since Red Wire has formed, we believe we have entered into a second golden age of space that's primarily driven by commercial companies, quite frankly, as opposed to just governments. And that was the core thesis behind Red Wire. And that's why we exist today.
- [02:11]
Lou Whiteman
Yeah. And to put numbers on it. And I always cringe when I hear numbers like this, but it's. I mean, the Morgan Stanley report. $1 trillion global space industry by 2040. You know what? I'm enough of a cynic. I'll take the under there. But I think it is getting much bigger. And. Yeah. So when I've pitched this internally, the two things I fall back on with Red Wire is. And I know this. I'm curious if you like this or you're going to cringe with this, but sort of the transdime for space. TransDigm of course, is an aerospace company that makes all of the essential parts that make all of this possible. And it feels like that red Wire that that was the opportunity that you were you kind of seeing that like, you know, a lot of things have to go into these massive missions. It's great to be the prime too, and we can get into that. There's opportunities there, but kind of just the nuts and bolts that makes it all possible. If we are going to get to that $1 trillion number or whatever it is, is that fair or am I missing it?
- [03:05]
Peter Cannito
Yeah, yeah, no. So that in the initial thesis of Red Wire for going public and where we've been really up until the last year and a half, the trans diamond space was a very accurate approach. We like to say that we provide the fundamental building blocks of space, those core subsystems and components that every space mission needs, whether it commercial, civil or national security. But in the last about year and a half, we've been executing on a strategy called moving up the value chain, where we've started to become not only a critical provider of subsystems and components, but a platform provider. And through a combination of organic investment and acquisition, we now have seven platforms, five spacecraft and two uncrewed air systems and aircraft systems, or drones as people like to call them. So we've been moving up the value chain. So I like to say we're a little bit more. We started out Transdigm, we're a little more L3 now, where L3 made a pivot a number of years ago to become that sixth prime as they've talked about. We're kind of that non traditional equivalent of that as part of this kind of new second golden age of space. And now drones.
- [04:19]
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- [05:16]
Lou Whiteman
Let's take a deep dive into one of those acquisitions, a big one from this year, Edge Autonomy, which I think, I'm curious here for you, but it really expanded what you're capable of doing. And also I think it's a pretty good cash engine as far as just, you know, they're good going from here. But talk a little bit about that deal, how it came together and how that changes Redwire. I think that's a big part of this evolution you've talked about. Fair.
- [05:39]
Peter Cannito
Yeah, that's right. So you know, because in many ways we're rooted in private equity, we understand the portfolio effect for long term value creation. Right. And one of the challenges that I think the space industry has gone through over the last five years is not if there is going to be this tremendous growth in space as you articulated. Many experts out there like Morgan Stanley and others have put out really big numbers. We don't have to reach those numbers for Red Wire to be extraordinarily successful. So whether it's a trillion or hundreds of millions, we're fine either way. But yeah, I think everybody agrees on the opportunity. The timing is a little bit more of an issue. So what we wanted to do with Edge Autonomy is we looked at the complementary nature of drones. Our tagline is build above drones in the airborne domain as being more mature, both from the perspective of products and from an industry wide. And therefore you're able to achieve better gross margins because you're really in the production phase. The demand for drones, the technology is much further along than in space. So you know, you get that complementary financial profile that you articulated. While we're still spending a lot of investment in internal research and development and capex to reach the full potential of space. And that's where we're headed. It was transformational in terms of providing scale and that portfolio effect of a broader technology readiness or maturation of our products. But it's also very complimentary on the strategic side because on the national security side in particular, our customers are moving towards a multi domain approach to modern warfare. And to have space and drones in the same portfolio is complementary and positions us for larger opportunities as well. So there was a lot that went into it and it also doubled the size of Red Wire so we can get operating leverage associated with scale. And so we're really excited about where we're headed.
- [07:49]
Lou Whiteman
Correct me if I'm wrong, but kind of the simpleton picture in my head is you were already in, I guess what they call Velo or very low space. Like if you think of fools, if you think of space as sort of like different, there's a big difference between going to Mars and going to the edge of the atmosphere. And so this is literally complementary, as in like edge autonomy is doing high altitude drones kind of at the edge of space. You're at the other side of that edge of space. So it really is kind of building, you know, and all these things will blend and the technologies cross over. So it really is kind of both an extension of what you're already doing and a new business at the same time. Is that overstating or is that.
- [08:26]
Peter Cannito
No, 100%. You're right on. One of the kind of triggers was as we started to become a leader in very low Earth orbit, where you're operating kind of below the iss, you're starting to enter into the ionosphere, there is actually atmosphere in lower, in very low Earth orbit. So that's one of the challenges. We have a prime contract that we won with DARPA based on a platform that we invested in that we call Sabersat. And as we started introducing this new concept, people referred to it as an orbital drone. So the light bulb kind of went off that the separation between airborne and space based platforms is largely arbitrary. As you move down into very low Earth orbit, you're really connecting space and airborne capabilities and platforms and they're very complimentary. You obviously get a wider field of view out in space. But if you're connected to drones in the air domain, you can do tipping and queuing, you can combine data that you collect for a higher fidelity, broader look. So there's a lot of complementary aspects to it. And therefore it was a good, strong strategic fit for us.
- [09:44]
Lou Whiteman
All right, let's talk just a few big picture things to kind of end with. And maybe we've hit on this, but maybe it will take you in a different direction. But what is the most important thing about Red Wire that nobody outside of, of your walls, outside of headquarters kind of understands what are we missing?
- [09:57]
Peter Cannito
Yeah, I don't think people are missing this, but I would say it's mixed and it's for good reason. Because in a developing market like space, things take time to evolve. Right. And I think one of the most important things that is sometimes missed is the number of early stage breakout technologies. That we're at just the very beginning of. Right. So and this is why I like the complimentary portfolio effect of Edge, because Edge got in on the drone technology very early, but it wasn't an overnight success. Right. They got in early, they established themselves in the baseline as an early mover and now drones in the product life cycle are in that production phase. On the space side, I don't think when people realize that Red wire providing solar arrays to commercial space stations, to technologies like Blue Ring created by Blue Origin, we're part of those supply chains like the Talus supply chains for their space Inspire commercial Geo satellites being embedded, we provided antenna technologies for the SDA tranches being embedded in those pipelines early enable us to scale when those product lines scale as well. Right. So our development programs are often unpredictable and they're done firm fixed price and that can lead to near term perturbations. But it's all oriented towards getting past that technology development phase to a lever of maturation where you're in the supply chain for breakout technologies. Like our partnership with Honeywell on qkdsat. Honeywell is very aggressively pursuing having a proliferated quantum secure constellation. And as the platform provider for that, we will grow with them as they succeed. And there's lots of those in Redwire where we're a critical part of the supply chain of these high growth potential areas with some of the most premier partners in the world like Honeywell, Blue Origin, U.S. national Security customers and others. So I'm really excited about where that leads and of course it's going to take time for that to scale, but it's a high potential path.
- [12:21]
Lou Whiteman
I love that answer, Kasu. I mean I don't have to tell you space, there's so much excitement right now. And we had Sir Peter Beck from Rocket Lab on not too long ago and he described the raging cauldron, I think he said inside of him between the engineer and the entrepreneur. And we have to push forward, but it has to go at the timetable it has to go at. And I think it's a great thing for even the most excited investor to understand, yes, the potential is real, yes, this is real. But it's literally rocket science, guys. And we all knew from, from high school that these things do take time and patience. It doesn't get there overnight.
- [12:57]
Peter Cannito
Yeah. And I think from our perspective, adding Edge autonomy, that mature product line that's very complimentary gets us the time to see some of the more advanced technologies like Space MD play out. So we like the way we're we're balanced in that regard.
- [13:12]
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- [14:23]
Lou Whiteman
Didn'T really talk about competition because in a way competition is everywhere. And that's like the nice thing about a diversified portfolio is you compete with everyone, right? But you also partner with them. If a trillion dollar competitor or if one of the big primes tried to copy Redwire tomorrow, if they said we should do this, why would they fail? Or where would they fail first? Or that's a setup. But I'm really curious to hear the answer.
- [14:44]
Peter Cannito
No, no, it's a great point. Right. The fact of the matter is the way we came together by bringing these best of breed companies that had already proven success. There's two primary things that we have as emotes in addition to those more obvious ones like our ability to work on highly classified programs. But the one of the big moats is the fact that we have a lot of intellectual proper and that's really difficult to recreate. Right. There's been a lot of talk about vertical integration. Vertical integration is a great strategy at the early onset of an industry where there isn't a lot of people investing in sub support technologies. So I like to say like oh okay, people can try to vertically integrate and do their rollout solar arrays, but the US government has invested millions of dollars in in developing our rollout solar array ip and I think that's one of the things that people don't fully understand is and leads Me to the second part of the moat is there's the investment that Redwire has made since we brought these companies together. But they were all companies that were receiving government funding, whether it was through small business innovation, research or whatever that put millions of dollars into solving these problems like building a rollout array, building an international birthing and docking mechanism that meets the high quality standards you need when you have human based space platforms, things like that. The millions of dollars that went into decades of developing our drone technology. So that's really difficult to catch up to overnight because these are hard problems. And so I think we have a pretty strong moat. And I think although there are some very successful companies who have executed on vertical integration because they were really the first to go out and do certain things, I believe that more mature industries, you start to see a level of specialization and there's just unless you're Elon Musk and you have access to unlimited capital, you're not going to be able to recreate every critical technology. When companies like Red Wire are investing millions of dollars just into solar arrays, you're just not going to be able to spread your limited capital. So we think that'll be position us really well in these core technologies where we're in the lead.
- [17:14]
Lou Whiteman
Yeah, I like that answer. I think to me, from what I look at the defense side, they don't necessarily want to invest in that and I think the commercial side will figure that out in time. Which is a poorer way of saying what you said, let's close out. We don't have to play the game where SpaceX with what they're talking about IPO, just apply that valuation to Red Wire. We won't do that here. There's no need. But I would like to hit the forward looking question that as a CEO you have to cringe at and if everything breaks right, what does Red Wire look like? And I don't know, you pick three years out, five years out, even a decade out. When you're planning, what do you see Red Wire being down the road?
- [17:53]
Peter Cannito
Well, I think as we look down the road, we're a high growth, non traditional company that has the ability, ability to scale in a controlled manner and that's what I see. The market will dictate the timeline. There's a lot of investment that goes into scaling but we've demonstrated, we've been able to do it. Starting with a very humble first acquisition as a private company and now having completed 11 acquisitions unified under a single brand, I think we've demonstrated the ability to keep up. And so as the industry scales, we're going to scale with it. And I'm often humbled by two things. One is the scale of the opportunity. It can be pretty extraordinary when you look at these commercial space stations, human presence on the moon, space as a war fighting domain, all these incredible trends. What we're going to do with potentially data centers and manufacturing sites in space, both in the United States and in Europe and other parts of the world as well, that's really exciting. But also looking at the innovation that our workforce is able to come up with to solve these problems. You know, we have printed a meniscus in space and we've printed heart cells in space. So there's areas as part of this future journey that are going to create tremendous value here on Earth that we're just starting to conceive of. And I'm super happy and privileged to play even a small role in enabling our innovators to make those incredible breakthroughs.
- [19:31]
Lou Whiteman
Really exciting stuff around here. One of our taglines is invest in the future you want to see. And I think that's why space is so exciting to you. I mean, what you're talking about here. Yeah, I mean, warfare drones, maybe not, but no, there's so much going on here, which is just. Yeah. So exciting to see. I wish you the best of luck, both as a shareholder and as just a human. This is fun stuff and very, very fun conversation. Thank you for joining.
- [19:54]
Peter Cannito
Yeah, I appreciate it. It was a great conversation. Thank you for having me.
- [19:58]
Lou Whiteman
He's Peter Cannido, CEO of Redwire rdw. Thanks for your time.
- [20:02]
Peter Cannito
Yeah, thanks, Lou.
- [20:07]
Matt Grier
As always. People on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool as well editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes for the Motley Fool Money Teen. I'm Matt Creer. Thanks for listening and we will see you tomorrow.