Hadrian

Many believe that the US was able to help win World War II largely because it was able to turn a massive industrial manufacturing base towards the war effort, producing more than half of the world's wartime industrial output. That industrial base enabled the US to become responsible for 40% of global manufacturing by the 1950s. While the US share of global manufacturing had dropped to 16% by 2021, industries like defense, space, and aviation globally represent a $1 trillion market as of 2024. The space industry alone is estimated to exceed $1 trillion in annual revenues by 2040, up from $427.6 billion in 2022. Each of these industries is dependent on high-precision manufacturing, a market expected to reach $71 billion by 2026.

As critical as precision manufacturing is to aerospace and defense, the market has a number of weaknesses. The US defense industrial base is dependent on thousands of “mom and pop” machine shops, with no single player owning more than 1% market share. Roughly 90% of machine shops have less than 20 employees and, on average, $7 million in revenue. In addition, the age of the average machine shop operator is 63 years old. Some estimates indicate that over the next five to seven years the progressive retirement of these operators could result in a collapse of America’s industrial base.

The collective capacity of these machine shops represents more than $60 billion of spend, most of which is built on fairly manual processes developed in the 1960s. Across rockets, satellites, or drones, the average part takes 8-12 weeks to be delivered, with 40% of orders late or having quality issues. As an emerging generation of defense and aerospace companies has begun to grow, this exacerbates the capacity problems for the industrial base. Funding for space startups in 2023 was $17.9 billion, with the total value of space companies exceeding $4 trillion. There were over 5K space companies in the US as of 2021, representing 50%+ of all space companies globally. With companies like SpaceX spending billions on manufacturing, there is a need for a modernized supply chain to support American manufacturing.

That’s where Hadrian comes in. Hadrian is a manufacturing company that has built vertically integrated technology for high-precision manufacturing, with modules including quoting, programming, machining, and inspection. Hadrian’s goal is to build factories to accelerate the pace of American manufacturing by delivering parts in ”less time, on time.” Hadrian manufactures precision components for aerospace and defense technology companies using semi-autonomous, software-powered precision factories that, according to the company, can help its customers make their products 10x faster and “>40% more efficiently.”

Hadrian was founded by Chris Power in November 2020. Power’s early career included a number of experiences that led him to new-age manufacturing.

Early Career

One of his first roles was as a general manager for an Australian ecommerce business called Retail Splash. While there, Power helped the business grow from $3 million to $10 million in revenue over the course of two years across three business units. Since this happened from 2011 to 2013, and Amazon didn’t launch in Australia until 2017, Power’s company had to operate its own warehouses.

After this logistically complex role, Power spent several years at a workforce planning software company called Ento that helped organizations schedule blue-collar labor. While engaging with these clients, Power learned a valuable lesson about getting software to work with industrial customers. He explained his experience this way:

Machine Shop Roll Ups

In September 2018, Power relocated to the US and set out to build better technology for industrial companies. He spent 4-5 weeks living at a hostel in Dallas cold-calling hundreds of plant managers and visiting their facilities. That’s when he came across the dynamics in the aerospace industry: a highly technical industry with a fragmented customer experience run by operators who are, on average, 60+ years old.

He also saw that, to succeed, these manufacturing operations typically started in precision manufacturing because it has higher margins. However, building a precision manufacturing operation takes time. Rather than spending the typical eight years building a manufacturing operation to get meaningful contracts, Power decided the best course was to acquire these businesses.

After literally googling “what is a private equity fund,” Power launched a private equity firm called ADSC in September 2019 with the intention of rolling up precision manufacturing facilities in aerospace and defense. Ideally, this would provide the level of scale required to both reap the benefits of automation and garner larger customer contracts. But as Power spent more time engaging with these manufacturing operations, he became less convinced he could build a better solution on existing machine shops. He described his experience this way:

New Age Factory

Instead of buying machine shops and retrofitting technology on top, Power saw the need to build a more fully integrated solution. He had already seen the weakness of selling software to industrial customers, having grown “really frustrated at Ento selling $500K a year SaaS contracts, when optimizing these companies that would save $20 million a year.”

Power considered his background to be “really important for getting very good at going into real-world companies that are operationally complex and figuring out where to build software and where not to build software.” Power also realized that the structural issues with the incumbent supply chain would be challenging, if not impossible, to fix through scale or vertical software alone. This informed his decision to build new factories from the ground up. As Power said in May 2022:

In particular, Power was motivated to build Hadrian because he wanted to help enable the US to rebuild its industrial manufacturing base. He originally outlined the thesis as needing to focus on a large market, explaining how the decision felt like it was between China and the US, but he opted for the latter because he saw the Chinese Communist Party (CCP) as “pure evil.” As Power put it, “the literal choice I made was based on ‘what do I have to believe to believe that America can maintain Pax Americana?’”

In one interview he pointed to a World War II poster by Ralph Iligan as his favorite poster. The message of the poster? “Defense of our liberty begins in the factory.”

Source: artnet

As Power explained:

Since its founding, Hadrian has added a number of employees from companies such as Tesla, Anduril, Raytheon, Palantir, Stripe, and Meta, as well as nearly a dozen former SpaceX employees as of August 2024 such as Chris Baker who led the production of SpaceX’s passenger-capable spacecraft, Dragon. In March 2023, Ben Braverman, the former CRO of Flexport, announced he was joining the company as Chief Business Officer. In June 2023, Braverman shared he had closed a partnership with Anduril. Sometime after July 2023, Braverman left the company without public explanation.

Vertical Integration

Source: Twitter

For Hadrian, the factory is the product. Hadrian is building vertically integrated factories for the advanced and precision manufacturing industries. The company has built a manufacturing facility where it leverages software to extract efficiencies throughout the production value chain. This allows its machinists to produce high-quality precision parts with low lead times and high tolerance levels.

Some software for the manufacturing industry will try and automate “the process of taking a computer-aided design (CAD) file from a customer and generating G-code, which tells the machines how to cut the metal.” But, as Power explains:

In response to this challenge, Hadrian set out to “build five software companies and a robotics company internally.” In describing the process for doing this, Power explains that Hadrian couldn’t just build one full piece of software after another. Instead, Hadrian built full stack automation at “roughly the same automation rate” in order to identify what to build. That process required a close-knit relationship between the engineering and manufacturing teams. As Matt McLaughlin, a principal software engineer at Hadrian, put it:

Chris Power further explained how universally critical this closeness is, not just for vertically integrated manufacturing operations like Hadrian, but across technology more broadly:

This principle is reminiscent of a standard set by Kelly Johnson, the original founder of Lockheed’s famous R&D lab, Skunk Works. In building airplanes made famous for their contributions during the Cold War, Johnson maintained this standard for his engineers:

By keeping software engineers as close as possible to manufacturing operators it enables Hadrian to, ideally, build a more iterative process. Being vertically integrated gives the company a “closed loop system of data.” Most systems are built in silos with an army of software engineers being separated from the operations by product managers. Often, this will result in months of product building only to find out that the software team has built the wrong product for the operations team. Meanwhile, Power believes one of Hadrian’s strengths is this iterative ability to prioritize “change management, because [the company is] continually upgrading operations and changing processes to get better and better.”

Human-in-the-Loop Automation

Source: CNBC

In the process of building a vertically integrated factory, Hadrian has made the decision not to automate every aspect of its operations. One guiding principle is seeing “what [processes] can be a spreadsheet the longest.” Instead of full automation, the company works to get between 70% and 80% of the factory automated and “leave the last 20%.” Those unautomated processes get software built around them to “make it simple, [but] it’s a workflow tool” for people to use instead. As Chris Power explains, “to go 100% on every single part of the factory would take a decade.”

One key piece of building this automation is working with expert machinists and providing context to the team's software engineers to incrementally take aspects of the process out of an expert's head and put it into processes. In an August 2024 interview with Contrary Research, Chris Power explained it this way:

Leaving a portion of the factory’s operations unautomated means that there will still be a human element required. Labor shortages in manufacturing are particularly pronounced. In 2023, there were 615K manufacturing jobs unfilled; the equivalent of 45% of all jobs. Contributing to this shortage is a high rate of churn; each year roughly 10% of machinists leave the industry. Hadrian’s factories require a multifaceted selection of skillsets, from machining to welding, casting, and forging. Hadrian addresses this labor shortage through software that is much more accessible to a typical worker. The goal of Hadrian’s software is to not only “take a 20 hour task down to two hours,” but to also make “that two hours way simpler.”

According to Hadrian, the company can take “former baristas and copywriters” as well as “former bus drivers, nurses, UPS drivers, or Home Depot workers,” and enable them to learn how to operate manufacturing machinery within 30 days; a capability that would typically require “years of training.” In fact, the company claims that “less than 10% of [its] manufacturing team actually stepped foot in a machine shop before their Hadrian interview.” In an August 2024 interview with Contrary Research, Chris Power describes the company’s workforce development approach to ensure quality from this newly established labor force:

While that iterative process of removing experts from the workflow enables more scale for Hadrian’s automation, it also requires a lot of technology literacy and comfort from Hadrian’s operations team. In that same interview with Contrary Research, Chris Power explained why this approach is critical:

As of February 2024, Hadrian also claimed to be capable of operating at a 1:5 or 1:6 human-to-machine ratio. While that is already much higher than the industry standard human-to-machine ratio of 2:1, Hadrian’s goal is to “double the efficiency even from where it is [as of February 2024].” Hadrian also claims its equipment up time is “close to automative levels”, which can be 80-90%, compared to “usual aerospace manufacturing at 30% equipment uptime.” In an August 2024 interview with Contrary Research, Power confirmed that Hadrian consistently sees equipment uptime of 75-80% or so.

In addition, Hadrian’s primary machining fleet is, reportedly, able to operate largely autonomously for several hours. As Chris Power explains:

Full Stack Factory

The result of Hadrian’s vertically integrated factory and human-in-the-loop automation is what Chris Power refers to as “full stack automation.” The focus of Hadrian's factories is to leverage software to extract efficiencies throughout the production value chain. This allows Hadrian’s machinists to produce high-quality precision parts with reportedly lower lead times and higher tolerance levels.

Hadrian’s first factory was a 20K square foot R&D facility that could also service customers and was located in Hawthorne, CA. According to Hadrian, it could produce space and defense parts 10x faster and more efficiently than alternatives. The company’s second factory is 5x the size of its first and is located in Torrance, CA.

Source: Boring Business Nerd

Hadrian's vision is to modernize America's industrial supply base by creating a manufacturing platform that removes any prototyping or production bottlenecks from slowing or deterring innovation across the aerospace and defense industries. Katherine Boyle, a general partner at Andreessen Horowitz and investor in Hadrian, described the company’s approach this way:

Hadrian is building manufacturing facilities integrated with software in an attempt to improve the way its customers manufacture components that go into products like rockets, satellites, jets, and hypersonics. The company has built software workflows that complement the workflows of machinists operating precision manufacturing equipment, which allows the company to extract efficiencies both externally and internally. Hadrian wants to cut lead times from 20 weeks to three weeks by using software to streamline communications with customers and by automating manual tasks in the manufacturing process without compromising product quality.

Hadrian had to build “five software companies and a robotics company internally.” The combination of a vertically integrated operation with engineers close to the problems and human-in-the-loop automation resulted in a number of different software and hardware modules being built. Hadrian’s software includes products like Designed for Manufacturing (DFM), CAM automation, Hadrian’s own ERP; Flow, and quality control modules. On the hardware side, Hadrian utilizes machines such as computer numerical control (CNC) machines and an inventory loading system some Hadrian employees refer to as “the big parking lot.”

Designed For Manufacturing (DFM)

One of the first modules in Hadrian’s value chain is referred to as Designed For Manufacturing (DFM.) The DFM module is software that can review customer requests. As of February 2024, Hadrian had four deployed manufacturing engineers leveraging the software to review “drawings and CAD files” from customers. After this review the software provides a price, quote, scheduled lead time, and a proposal for whether or not the order should be filled. In other words, the software answers the question of “can Hadrian make the part?”, “should Hadrian make the part?”, and “how much is it going to cost?” As Chris Power explains:

CAM Automation

The inputs going through the DFM system are typically 3D or CAD files, or even just PDFs with product sketches and instructions. Hadrian’s computer-aided manufacturing (CAM) automation software can take those inputs once a job has been approved and use them to create G-code, which is effectively “assembly instructions for [Hadrian’s] machines.” From there, a customer order is placed into Hadrian’s production line-up.

The G-code tells Hadrian’s CNC machines how to cut a particular part. The way this is typically done in production requires skilled machine operators to program a machine for each customer order, often multiple times throughout the production process. With Hadrian, programming the machine takes a couple of hours, and the machine can then typically run autonomously overnight.

Flow

Hadrian’s manufacturing operating system (OS) is called Flow, an internal enterprise resource planning (ERP) software that serves multiple functions. Internally, Flow streamlines the operational aspects of Hadrian’s production process from order entry through to fulfillment. This saves the company time by automating manual tasks, accelerating production times, and optimizing resource allocation. In addition, Flow directs operations on the factory floor to synthesize workflows into step-by-step instructions for on-floor machinists.

Externally, Flow also serves as an end-to-end management tool that streamlines processes and communication between customers and Hadrian from bid to ship. This provides visibility into the production process so that, ideally, customers can understand what stage of production a product is in. Flow therefore drives greater human resource efficiency, limits downtime, and reduces errors during the process, all of which produce shorter lead times for Hadrian and its customers. This is in contrast to the incumbent supplier base which still relies on workflow processes from the 1960s with many orders being placed over the phone, fax, or email.

According to the company, Hadrian's software cuts manual work by 80% for customers. The company streamlines the entire post-production process: everything from engraving serial numbers, purchase order paperwork, print revisions, keeping records of depth and load balancing details, and more. The way this is currently done in small machine shops is through PDFs, which causes major delays, increases cycle times, and makes it more difficult to prototype new parts.

Quality Control

Once customer orders have been reviewed, processed, and machined there is still the need to review the product outputs for quality. While CNC machines are used to cut raw materials into finished products, Hadrian is able to use coordinate measuring machines (CMM) to judge product quality at micron-level accuracy. As Chris Power explains:

Quality control and finishing processes on an end product can often represent up to 90% of the lead time. As a result, any operational improvements to the process for quality control can have significant improvements in preventing issues further down the road on a customer order.

Computer Numerical Control (CNC)

Source: Hermle

Hadrian utilizes CNC machines which operate using pre-programmed software and codes that tell each machine the exact movements and tasks to complete. Rather than creating these machines from scratch, Hadrian uses machines produced by Hermle. These machines are used for cutting raw materials into specific outputs based on the code provided.

Other Robotics

In addition to CNC machines for cutting, Hadrian leverages a variety of robotic arms to hold materials during some cutting processes, as well as moving raw materials from one place to another. In particular, when production is being automated these arms are necessary to transport materials around the machine floor.

“The Big Parking Lot”

Source: Common Cents

Hadrian’s machines are capable of “running themselves overnight.” In order to do this without running out of raw materials, Hadrian has built what Chris Baker, Hadrian’s VP of Operations, refers to as “the big parking lot.” As he explains:

The AWS of Machining

One key aspiration for Hadrian’s full stack factory is to enable a faster feedback loop in manufacturing that hasn’t really existed historically due to longer lead times and less transparent supply chains. Faster feedback loops not only enable faster delivery times but also the potential for more product iterations. Most businesses with manufacturing operations don’t have the luxury of “rapid iteration” like a software company would. If a company invests heavily in a manufacturing operation it may have spent 18 months and $15 million; that’s a difficult ship to turn on a dime. As Chris Power explains, software founders often “think in iterations, not in first principles.”

While capital intensity can force operators to focus more on first principles it doesn’t change the fact that those investments require slower and less iterative operations. Hadrian’s intention is to lower the burden of speed and iteration for manufacturing operations. Chris Power draws a parallel to AWS this way:

In particular, as newer entrants to the manufacturing world, like SpaceX, become larger and larger they’re bringing with them more agile operations. As a result, Chris Power explains that “we need to have a supply chain as agile as the customer.” Even beyond newer entrants, large primes who have become reliant on legacy machine shops have very limited excess capacity. Most of these shops are operating at or near their manufacturing capacity. If the US were to try to increase, for example, the number of F-16s even by 30% it would be nearly impossible given the incredibly inelastic manufacturing capacity.

The goal of Hadrian is to increase that capacity and make it much more flexible as demands for particular parts fluctuate up and down.

Customer

Hadrian’s stated mission is to “automate American manufacturing starting with high precision machining.” As of March 2022, Hadrian was serving three of the largest space companies and expected to add a number of companies in commercial aerospace and new defense as well. According to Chris Power, Hadrian started meaningfully going to market in early 2023. As he explains it:

When asked in an August 2024 interview with Contrary Research what might be motivating that eagerness from established primes to work with Hadrian, Power responded this way:

Despite the surge in interest, Hadrian has been very deliberate about which customers it brought on to ensure the relationships were onboarded properly because, according to Power, “you really get one shot to prove yourself.” As of March 2024, Power said that Hadrian’s customers include “new primes, startups, and then mega primes, which are massive companies.” Hadrian has more difficulty working with smaller startups given how rapidly they iterate. To address that limitation, in August 2024 Hadrian acquired Datum Source, a company that “uses AI to help hardware companies find manufacturing partners.” This allows Hadrian to support smaller customers until they’re ready to scale, and shift over to using Hadrian’s facilities.

Hadrian is protective of specific customer names, though some partnerships have been announced, such as a strategic partnership between Anduril and Hadrian announced in June 2023. According to Chris Baker, Hadrian’s VP of Operations, some of the use cases these customers come from include putting astronauts on the ISS, getting a satellite into orbit, building satellites, or commercial aircraft. One common characteristic of many of Hadrian’s customers include products that “are flying in some manner, whether manned or unmanned, in this world, or out of this world.”

Customers use the Hadrian platform because, according to the company, it is more capital-efficient than building products in-house and more reliable than using third-party machine shops. The company's approach is rooted in automation built on top of existing machinery, cutting 80% of the manual work required while being 40% more efficient than existing suppliers for equivalent parts. For context, in a typical machine shop lead times to turnaround a part for a customer can take 4-16 weeks, whereas Hadrian claims to deliver in 1-3 weeks.

Market Size

The US officially entered the space race in 1958 with the formation of NASA. In July 1969, Neil Armstrong and Buzz Aldrin became the first humans to set foot on the moon, which established the US as an early victor in the pursuit of space supremacy. This movement saw a rapidly increasing NASA budget which grew to a peak of ~$50 billion in 1966 (adjusted for inflation), representing 4.4% of the Federal budget.

Source: CSIS

The US space industry supply chain traces its origins to the emergence of the aviation industry during World War II, where “prime contractors” like Boeing, Lockheed, and others were established to build aircraft for military use. The US space supply chain emerged immediately after World War II built on this same network of primes where NASA had established intentional processes for contracting from the private sector.

There were two significant waves of consolidation among prime contractors initially in the 1940s and '50s as military contracts declined following World War II, and then again in the 1990s as Bill Perry, the US Deputy Secretary of Defense, informed the major defense firms that “substantial cuts to the defense budget were coming and that many of their companies would not be able to survive.”

Source: Anduril

Beginning around 1980, large aerospace companies started to outsource the manufacturing of less critical components which led to a growing network of companies providing a broader range of products including subsystems, assemblies, parts, hardware, and materials. This demand-side pull from NASA and the US government, coupled with the supply-side outsourcing of manufacturing by the primes, is what led to the creation of the US space industrial base as it stands in 2024.

The Department of Commerce conducted a significant review of the space industry in 2012. That report found that the industrial base of US suppliers servicing the global space industry generated more than $60 billion in 2012, of which $56 billion (93%) was generated by US customers. The US Government collectively is the dominant customer in the industry accounting for ~75% of total spend in 2012, split between defense ($25 billion, ~42% of total spend) and non-defense ($20 billion, ~33% of total spend) with commercial space rounding out the remainder.

Source: US Department of Commerce

US aerospace and defense suppliers and manufacturers are often categorized by tiers describing the relative complexity of products, rather than describing manufacturers. While suppliers are often identified by a particular tier, it is common for suppliers to operate across multiple tiers of the supply chain.

Source: NASA

Over time, NASA's projects were outsourced to the primes, who in turn outsourced manufacturing responsibilities to this fragmented network of suppliers around the country. This resulted in thousands of suppliers working on any particular project, introducing uncertainties around costs, schedules, and quality throughout the manufacturing process. The number of suppliers involved was also difficult to manage, since projects can only move as fast as their slowest supplier resulting in frequent production delays and project overruns.

Source: US Department of Commerce

The complexity of this model was already causing issues by the 1980s and has continued to cause problems. Some of the key obstacles inherent in this model include:

1. Low competition with a small number of large primes, leading to inflated costs

2. Fragmentation, adding to the already complex processes and increased lead times

3. Outdated workflows built in the 1960s

4. An aging workforce in individual machine shops

These issues were also present in the Space Shuttle program, with the program’s costs totaling ~$209 billion in 2011, adjusting for inflation. In addition, the program missed half of its planned annual flights. NASA's budget declined as a percent of the federal budget from the 1990s onwards, and ultimately led to a policy in 2004 that concluded: "NASA's role must be limited to only those areas where there is irrefutable demonstration that only government can perform the proposed activity." This ultimately led to the termination of the Shuttle program in 2011.

Source: Conor McLaughlin

With the government directly engaging less and less, the already fragmented supplier base in defense and aerospace was further privatized. As a result, the global space market has become one of the largest industries globally, with over $400 billion in revenue in 2023. The satellite industry represents the significant majority of these revenues, at 71% as of 2023.

Source: Satellite Industry Association

Between 1970 and 2000, the cost to launch a kilogram into space remained fairly steady, with an average cost being $18.5K per kilogram. With the Falcon 9 and Falcon Heavy, SpaceX has been able to lower the cost of sending payloads into orbit by ~90%. With the recent introduction of SpaceX’s Starship, launch costs are expected to decline by a further ~90% to $200 per kg. Elon Musk further believes that, depending on the volume of reusability for SpaceX’s rockets, the cost could get down to $10 per kh.

Source: Visual Capitalist

These declining launch costs are unlocking a wave of innovation from the private sector. Lower costs of launching products into orbit (and returning them back to Earth) have changed the financial return profile of a range of new space initiatives beyond rockets and satellites including in-space manufacturing, mining, and defense. Funding for space startups in 2023 was $17.9 billion, a massive increase from $300 million in 2012.

This growth is only expected to accelerate as industry forecasts predict the space industry to exceed $1 trillion in annual revenues by 2040, up from $427.6 billion as of 2022. That continued investment has opened the floodgates in demand for space-capable products. Companies like Hadrian are positioned to take advantage of that trend by providing a more seamlessly integrated manufacturing process.

The competitive landscape for Hadrian is fragmented and complex. One individual Boeing 747 consists of 6 million individual parts provided by 20K different suppliers and partners. Each part represents a complex web of regulatory and performance requirements, geographic specifications, and raw material requirements.

Within precision manufacturing, there are also subsets of relevant products in aluminum, steel, titanium, and Inconel that require different machining capabilities and further segment the addressable market for each player. As a result, it’s difficult to identify specific relevant competitors to Hadrian. Instead, below is a landscape of relevant vendors that can address various aspects of the precision manufacturing market.

Traditional Machine Shops

In the US, there are an estimated 21K machine shops that generate over $60 billion in annual revenue. Machine shops can broadly address a wide variety of product types, including airplane fuel pumps, oil & gas components, energy storage, hydraulics, launch platforms, and much more. These machine shops can have hundreds of employees and generate hundreds of millions in revenue or have less than 20 employees and single-digit millions in revenue. According to the North American Industry Classification System (NAICS), there are ~1K operations that constitute a precision-turned product manufacturing operation.

While estimates vary in terms of how many machine shops offer “precision manufacturing,” Hadrian estimates the number is ~3K precision machine shops. Here are just a few examples of precision machine shops that Hadrian could ultimately compete with for aerospace and defense contracts:

Kaman Aerospace: Founded in 1945, and based in Bloomfield, CT, Kaman is a manufacturing operation with subsidiaries like EXTEX Engineered Products and Kaman Aerospace. The company generated $775 million in 2023 revenue with major customers including the US military, Lockheed Martin, Raytheon, and Boeing, who accounted for 10% of the company’s revenue. In April 2024 it was announced that Kaman would be acquired by private equity firm Arcline Investment Management for $1.8 billion, representing a 2.3x multiple on the company’s 2023 revenue.

Melling Tool Company: Founded in 1956, and based in Jackson, MI, Melling is a manufacturing operation with subsidiaries like Melling Products North and MellingMedical. The company generated $231 million in 2023 revenue and, while most of Melling’s customers are in the automotive industry, the business does have contracts with the Department of Defense, and can address assemblies for Tier 1 and Tier 2 suppliers.

Sorenson Engineering: Founded in 1956, and based in Yucaipa, CA, Sorenson Engineering is a manufacturing operation with ~170 employees and $45 million in 2023 revenue. The company provides a variety of machining services and operates in industries such as aerospace, military defense, space, and satellites.

These types of machine shops present a fundamental risk to the industrial supply base in the US. The majority of these firms are owned and operated by people who are, on average, in their 60s. In February 2023, Chris Power predicted that within five to seven years there could be a total collapse of the defense industrial supply base due to the massive wave of retiring owners in these types of firms.

Manufacturing Conglomerates

Larger multi-faceted manufacturing operations can operate across two different segments of the market: (1) original equipment manufacturing (OEM), and (2) aftermarket parts. OEM parts are originally produced for an end product (e.g. the fasteners that go into a plane as it’s being built) whereas aftermarket parts are produced for an end product after the fact (e.g. a plane that needs a replacement valve.)

TransDigm: Based in Cleveland, OH, TransDigm was created as the result of a leveraged buyout in 1993 that combined four companies; Adel Fasteners, Aero Products Component Services, Controlex Corporation, and Wiggins Connectors. Initially, the company focused on manufacturing aircraft components like batteries and fuel pumps. As of 2017, TransDigm had acquired 88 additional companies to expand its manufacturing coverage.

TransDigm went public in 2006, and as of August 2024 had a market cap of $69.8 billion with $6.6 billion in 2023 revenue. About 25% of TransDigm’s revenue comes from defense contracts, with the rest coming from commercial aerospace customers. In addition, as of 2016, about 50% of the company’s revenue came from OEM parts, while the rest came from aftermarket parts. In 2019, the company was criticized for generating a 9,400% profit margin on products like metal pins by price gouging the Defense Department.

Teledyne Technologies: Founded in 1960, and based in Thousand Oaks, CA, Teledyne is an industrial conglomerate that operates ~100 companies, with at least 32 that were acquired. Teledyne’s operations spread across industries like aerospace and defense, factory automation, electronics engineering, and more. As of August 2024, the company had a market cap of $19.2 billion and generated $5.6 billion in 2023 revenue.

HEICO: Founded in 1975, and based in Hollywood, FL, HEICO is a manufacturing conglomerate with two primary divisions: (1) the Flight Support group, and (2) the Electronic Technologies group. In aviation, according to the company, HEICO is “the world’s largest independent provider of FAA-approved aircraft replacement parts.” As of August 2024, HEICO had a market cap of $28.2 billion and generated $2.9 billion in 2023 revenue.

AMETEK: Founded in 1930, and based in Berwyn, PA, AMETEK is a manufacturing conglomerate with two primary segments: (1) Electronic Instruments (EIG) and (2) Electromechanical (EMG). Across these two segments, the company represents over 100 brands of products. As of August 2024, AMETEK had a market cap of $37.3 billion and generated $6.5 billion in 2023 revenue.

Alternative Manufacturing Operations

A common alternative approach to satisfying demand for precision manufacturing is to build a network of suppliers. The fragmented landscape of 21K machine shops creates what many companies see as an opportunity to aggregate that manufacturing capacity and offer it as a collective production capability to end customers. One difficulty with this type of network is a lack of control over on-time delivery and product quality, given that the manufacturing operations are standalone companies with limited oversight by the network provider.

Xometry: Founded in 2013, and based in North Bethesda, MD, Xometry is an on-demand marketplace for industrial parts. The company claims to have a network of 10K manufacturers that can address a variety of precision manufacturing needs across aerospace, defense, automotive, medical equipment, and more. In December 2021, Xometry announced the acquisition of Thomas, a product-sourcing platform that expanded Xometry’s reach to a total of 500K suppliers. At the end of Q3 2021, Xometry claimed to have 26.1K active buyers (including 30% of the Fortune 500), while Thomas’ platform has 1.3 million registered users (including 93% of Fortune 1000 companies). As of August 2024, Xometry had a market cap of $890 million and generated $463 million in 2023 revenue.

Fictiv: Founded in 2013, and based in San Francisco, CA, Fictiv is an operating software for a network of manufacturing operations. That network consists of 250+ vetted partners that together make up 150K monthly machining hours. Customers that Fictiv has worked with include Honeywell, Facebook EdMod, and Gecko Robotics. The company has raised a total of $192 million in funding from investors like Accel and Bill Gates. Unverified sources indicate the company generated $63 million in 2022 revenue.

Proto Labs: Founded in 1999, and based in Maple Plain, MN, Proto Labs is a manufacturing operation focused on prototyping and low-volume production runs which are meant to be either test batches or non-recurring rush jobs. The company manages a network of 200+ suppliers that produce 4.6 million manufactured parts per month. As of August 2024, Proto Labs had a market cap of $730 million and generated $504 million in 2023 revenue.

Aerospace & Defense Companies

Instead of being competitors, large aerospace companies and defense primes are the primary customers for Hadrian and competitive machining operations. However, in some cases, these large companies will attempt to manage some of their manufacturing operations in-house. For example, Northrop Grumman’s Advanced Manufacturing Technology & Innovation group is attempting to build additional research and development capabilities similar to Hadrian.

Hadrian doesn’t provide any information on how its products are priced or sold. Instead, there are some general principles of precision manufacturing that can be learned from comparable businesses, like TransDigm or Teledyne, that may be instructive. One important distinction is that precision manufacturing can operate in other (1) original equipment manufacturing (OEM), or (2) aftermarket parts. Hadrian is likely primarily focused on OEM for specific components used in a broader operation (e.g. creating one valve for a rocket, etc.) but that focus isn’t something the company has discussed publicly.

Speaking of precision manufacturing operations in general, these organizations often focus on developing and supplying highly engineered components with long product life cycles. These operations typically generate a significant portion of their revenue from aftermarket sales, providing replacement parts for maintenance, repair, and overhaul (MRO) activities. Aftermarket sales generally offer higher profit margins compared to OEM sales. Additionally, these businesses may employ value-based pricing strategies, setting prices based on the value their products offer to customers rather than solely on production costs, thus achieving higher margins.

Such companies frequently pursue an aggressive customer acquisition strategy, targeting businesses that possess proprietary products with significant aftermarket potential. This approach allows them to expand their product portfolios and market presence. Emphasizing operational efficiency, these companies may implement lean manufacturing practices and strategic sourcing to maximize profitability. Maintaining strong relationships with major OEMs and end-users ensures a steady demand for their products, while a global presence helps mitigate risks associated with regional economic fluctuations. By integrating these elements, precision manufacturing operations can create a robust business model that has the potential to generate stable, recurring revenue with high profit margins.

Efficiency

In February 2024, Hadrian claimed to already be “three to four times more efficient than industry standard.” For one, the company claims to be capable of operating at a 1:5 or 1:6 human-to-machine ratio. That is already much higher than the industry standard human-to-machine ratio of 2:1. Hadrian also claims its equipment up time is “close to automative levels”, which can be 80-90%, compared to “usual aerospace manufacturing at 30% equipment uptime.” In an August 2024 interview with Contrary Research, Chris Power confirmed that Hadrian “consistently” sees uptime at around 75-80%. Despite those efficiency gains, Hadrian believes it can “get to 10 times more efficient.”

In specific aspects of the manufacturing lifecycle, like increasing the speed from bid to ship, Hadrian’s process has led to 10x faster lead times and 40% efficiency gains, with a clear path to 70% efficiency gains over the next 1-2 years of R&D. In June 2023, Hadrian announced a strategic partnership with defense startup Anduril. The goal of the partnership is to reduce manufacturing lead time on national security solutions by up to 50%.

Revenue

Hadrian considers its first year of selling to customers to be 2023 when it reached $3 million in revenue. In a February 2024 interview, Chris Power claimed the company had scaled revenue in its first year of operations “faster than most software companies.” As of August 2024, Hadrian estimated it would reach $30 million in revenue by the end of the year. In a March 2024 interview, Chris Power laid out his plans for scaling going forward:

Factory Footprint

When Hadrian first got started with Factory 1, the company had a 20K square foot facility with “cracked floors and linoleum everywhere” to get started making parts. Hadrian quickly attracted more demand than it could service, which led the company to to start building Factory 2 in November 2021 after its Series A. In a February 2024 interview, Chris Power said that “if we keep going at the pace we're going, Factory 2 will be full at the end of 2024 or early 2025, which means that we need to start construction on Factory 3.”

In a March 2024 interview Chris Power said the company had a “nine month window to pick a state” for Factory 3. At the time, Hadrian had it narrowed down to several states and was engaging in conversations with various state officials to select a location. Power said the goal was to “break ground at the end of Q4 [2024] and be in the building by Q1 or Q2 [2025].”

As of an August 2024 interview with Contrary Research, Power shared an update on the Factory 3 timeline and process:

Copy & Pasting a Factory

In a June 2024 interview, Chris Power laid out his hope that “in five years time [Hadrian has] 10-15 factories across the country in each of these large manufacturing hubs that are serving space, defense, semiconductors, [and] energy.” While Factory 1 was a proof-of-concept, Factory 2 was Hadrian’s first testing ground for a vertically integrated factory. Over time, Power believes each factory could be entirely filled with manufacturing machines and inspection machines that are “fully robotized and just ripping out parts 24/7 for customers.” But in February 2024, Chris Power explained how different the process for Factory 3 would be from building Factory 2:

The ability to copy-paste a factory is intended to enable Hadrian to “scale up like AWS scales up data centers or Amazon Logistics scales up logistics facilities.” In August 2024, Power explained Hadrian’s long term vision this way:

Funding

Hadrian has raised a total of $216.5 million in funding as of August 2024. In December 2023, Hadrian raised a $117 million Series B at an estimated valuation of $500 million. The round was led by existing investor Construct Capital and included new investors such as Caffeinated Capital, RTX Ventures, the venture arm of the defense prime RTX, formerly known as Raytheon, and WCM Investment Management. Hadrian’s Series B also included existing investors such as Lux Capital and Andreessen Horowitz, who co-led a $90 million Series A in March 2022, and Founders Fund who co-led Hadrian’s seed round in April 2021 with Lux Capital.

In addition to equity funding, the company had previously raised $25 million in “debt financing for equipment and expansion.” In addition, the December 2023 Series B included a “mix of equity and debt.” In March 2024, Chris Power reinforced the idea that the company prefers to utilize debt for capital expenditures, such as factory equipment. In particular, Power sees debt as a key pillar the company will have to continue to build out over time. In an August 2024 interview with Contrary Research, Power expounded on the need for Hadrian to continue to build a robust capability around leveraging debt:

Trading Comps

There are a number of public companies operating in the precision manufacturing space that can shed light on how a company like Hadrian may trade in the future.

Source: Koyfin

Companies like TransDigm, Teledyne, and Xometry can trade at a wide range of multiples, anywhere between 1.5-12x LTM revenue. Growth is one aspect of this discrepancy. Companies with high revenue multiples, like TransDigm or HEICO, are growing ~20-23% year-over-year. Alternatively, companies with low revenue multiples, like Proto Labs, are growing revenue at ~3% year-over-year. Some companies, like Xometry, are growing revenue more quickly at 22% year-over-year, but with comparable revenue multiples to slower growers, which means its valuation is more a function of profitability. One additional data point is Kaman; in April 2024 it was announced that Kaman would be acquired by private equity firm Arcline Investment Management for $1.8 billion, representing a 2.3x multiple on the company’s 2023 revenue.

Source: Koyfin

Looking at these companies on a profit multiple basis provides an additional perspective. The range of multiples extends from 10.6x LTM EBITDA to 32.6x LTM EBITDA. One big driver in how these types of companies are valued is based on the level of profitability they can achieve. Companies with high multiples of EBITDA, like HEICO, TransDigm, and AMETEK generate EBITDA margins of 24-46%. Meanwhile, companies with low multiples of EBITDA, like Proto Labs, generate 4-12% EBITDA margins. Returning to the example of Xometry, while its revenue growth is 22%, its EBITDA margin is around -6%.

In conclusion, as Hadrian continues to grow, the company will likely be valued on a combination of revenue growth and overall profitability. The average machine shop reports profit margins of ~8-12%, which would generate an EBITDA margin on the lower end of the public set of comparable companies above. Hadrian will not only have to deliver a higher quality experience for customers but also do it at a much higher margin than a typical machine shop.

Based on those comparable data points, to justify a $5 billion valuation, for example, would likely require revenue of between $500 million and $1 billion with a profitability margin of 10% or more.

Eventual IPO

In terms of eventual outcomes, Chris Power doesn’t see a lot of middle ground. In a March 2024 interview, he explained the fairly binary outcomes for businesses like Hadrian:

In other words, Power sees the eventual outcome for Hadrian as fairly all or nothing. As a result, an IPO is likely on the horizon for the company as the team seeks to build towards a large enough outcome.

American Urgency

One of the most significant tailwinds for Hadrian is the fact that people in the US have started to wake up to the threat of having a hollowed out industrial base. For example, in January 2024, Anduril pointed out a clear issue that “America’s defense industrial base has served the nation well for decades, but [is] unable to meet the demands of 21st century warfare. Chris Power echoes that sentiment. In his keynote speech to the Reindustrialize Conference in June 2024, Power laid out where his sense of urgency comes from:

In another June 2024 interview, Power explained further the urgency over the next few decades in winning a global industrial race. Given the rapid advances in issues like AI, rising climate change, and increasing global conflict, Power believes the world is coming to a tipping point. In terms of the new space race, for example, “the moon is the tipping point for everything else. If we lose this one, the time window is such that you probably lose the solar system and then the Communists win space.”

As more companies, government agencies, and concerned citizens grow more vocal about the need to reclaim manufacturing dominance and rebuild the industrial base of the US, the more demand there is for Hadrian’s capabilities in precision manufacturing.

Product Expansion

Hadrian has historically focused on aluminum-based products with plans to then move to harder alloys, such as steel and titanium, that come with even greater production complexities and stricter tolerance levels. In a February 2024 interview, Chris Power indicated that Hadrian hoped to roll out steel options to customers by the end of Q1 2024. In addition, during that same February 2024 interview, Power reinforced Hadrian’s intentions to eventually offer other components materials, “like titanium or plastics.”

In an August 2024 interview with Contrary Research, Power confirmed that Hadrian had expanded into two additional metals beyond aluminum; titanium and steel. The company’s ability to execute on that expansion will open it up to a broader addressable universe of products to sell. When asked about other potential areas of expansion, Power indicated that the company was “so over-constrained” that it would be unlikely to see any additional expansions in the near term.

In addition to expanding the types of materials Hadrian offers, there are also alternative business models the company could pursue. In a February 2024 interview, Power indicated some of those alternatives:

Later, in an August 2024 interview with Contrary Research, Chris Power elaborated on this approach to building dedicated facilities with specific customers:

Industry Expansion

While aerospace and defense are clearly Hadrian’s primary focus markets as of August 2024, there is a significant amount of overlap in other industries that require precision manufacturing machine shops. For example, Melling is a manufacturing operation with $189 million in 2022 revenue. While the company does have defense contracts, a large portion of its revenue is in the automotive industry with customers like GM and partnerships with Advance Auto Parts. In addition, Chris Power has pointed to other industries like semiconductors and energy as potential areas for future expansion. As Hadrian matures its manufacturing operations, there is an opportunity to address these adjacent markets that also have meaningful demand for precision manufacturing.

Self-Funded Expansion

Hadrian claims it can provide a higher quality service and, through enhanced automation and software, produce a higher margin on its products. As Factory 2 comes up to full capacity, there is a possibility that each machine will produce sufficient cash flow to effectively fund the next machine. As one factory becomes profitable the excess cash flow from that factory could also fund the expansion into additional factories. In order to achieve this outcome, Hadrian would have to successfully and consistently operate at a fairly high profit margin, similar to highly profitable competitors like TransDigm operating at 30-40% margins.

Full Autonomy

Hadrian’s approach to human-in-the-loop automation has been to get between 70% and 80% of the factory automated and “leave the last 20%.” While this creates opportunities to avoid unnecessary effort to automate steps that are easily done manually, there are always incremental ways to automate aspects of the factory operations. In a February 2024 interview, Chris Power mentioned that Hadrian “could get much higher throughput rates, and much lower costs of production, if we ended up building our own autonomous machining cell.” Later in February 2024, Power indicated that Hadrian was in “fully autonomous production with the new version of [its] production cell.”

Examples of this are already occurring in other corners of manufacturing. For example, in July 2024 Xiaomi announced a new 800K square foot factory in China that it claims is “100% autonomous” and can run 24/7 as a “dark factory” making over 10 million phones per year. Hadrian’s ability to automate more and more of the manufacturing process will only lift the operational leverage of its factories as long as quality is maintained.

In regards to the difference between automating larger batches of a small number of SKUs between precision manufacturing of a wide variety of parts, Chris Power described his perspective in an August 2024 interview with Contrary Research:

A Mismatch of Narrative & Reality

In a June 2024 interview, Chris Power explained how large ambitious projects are often at risk of being stuck as small businesses, or ending up like Theranos:

This ebb and flow between painting a compelling narrative and then delivering that narrative into reality is something every ambitious, technical endeavor requires. To Power’s point, the biggest risk to these types of operations is either failing to push the boundaries of reality and grow, or pushing the boundaries of narrative too far and being unable to deliver on them.

For Hadrian, the ambition is obviously quite large. The biggest risk to the business is that it is unable to execute against the sizable narrative picture that has been painted. Constantly ensuring that the company’s progress keeps up with the narrative it draws is critical in maintaining trust that the team is capable of executing its vision.

Vertically Integrated Primes

SpaceX was so frustrated by the poor experience offered by the space supply chain that it felt compelled to take up to 80% of its production in-house. Similarly, Northrop Grumman’s Advanced Manufacturing Technology & Innovation group is attempting to build additional research and development capabilities in order to reduce its dependence on a lower-quality supply chain. Over time, other large primes could see value in vertically integrating certain aspects of their supply chains.

In addition, in August 2024 Anduril announced plans to open Arsenal-1, a “software-defined manufacturing platform that is optimized for the mass production of autonomous systems and weapons.” In the announcement, Anduril also explained that “nearly 90 percent of Anduril’s products can be developed and manufactured at hyperscale using commercially available components and materials.”

While this could limit Hadrian’s addressable market, it’s unlikely to ever take up a majority of the precision manufacturing market given the high cost of capital for each of these initiatives. There’s a reason these large companies have leveraged a fragmented supply chain for 70+ years, and building a complex and multi-faceted internal manufacturing operation is not something most companies do overnight.

In particular, regarding things like Anduril’s Arsenal-1 factory, Power described how that factory is less of a threat to Hadrian and more of a potential destination for inputs coming out of Hadrian’s factories in an August 2024 interview with Contrary Research:

High Cost of Capital

A typical machine shop will produce profit margins of ~8-12%. In addition to operating a complex and expensive machining operation, Hadrian is also spending significant capital to build several technology products to augment that operation. Even though Hadrian only has one operational factory, the company employs ~150 people as of August 2024. If the cost of that technology fails to enable Hadrian to achieve a higher profit margin on its machining operation, then scaling that operation could grow increasingly complex and costly.

High Switching Costs

In an October 2023 interview with Contrary Research, one Lockheed Martin executive shared that the supply chain of an F-35 was established 15 years ago and, for the most part, hasn’t changed since. While it’s true some suppliers are aging out of the market and being replaced, there are still significant costs each time a prime has to switch to a new supplier for any particular component. In addition, there are very few new products launched each year. Even though Raytheon, for example, generated $68.9 billion in 2023 revenue, the company only secured an additional 12 defense contracts. And several of those were for orders of products Raytheon had already established the supply chain for.

In an August 2024 interview with Contrary Research, Power confirmed the difficulty in replacing revenue from long-established vendors:

Cybersecurity & Espionage

In 2012, US Cyber Command estimated that the US was already losing a quarter of a trillion dollars each year to cyber-related industrial espionage, often by China. The Commander of US Cyber Command called it “the greatest transfer of wealth in history.” Because Hadrian works primarily in defense and aerospace, that means its primary customers are critical to national security. That makes it a target of potential cyber-attacks and corporate espionage. In a June 2024 interview, Chris Power explained the risk Hadrian faces in this regard:

To maintain a status as a trusted government contractor, Hadrian will have to continue to demonstrate its ability to protect the information its customers provide. Any data breach would cause significant damage to the company’s reputation.

Industries such as defense, space, and aviation collectively represent a $1 trillion market, supporting over 3.5 million jobs in the US. The space industry alone is projected to exceed $1 trillion in annual revenues by 2040, underscoring the ongoing importance of high-precision manufacturing. Despite its critical role, the US defense industrial base faces significant challenges like fragmentation and outdated technology. As funding for defense and space startups increases, that only increases the need for precision manufacturing.

Hadrian has positioned itself as a vertically integrated factory with a focus on human-in-the-loop automation to improve the quality and speed of product delivery. As the company demonstrates whether it can offer a superior experience, it could position itself as the new standard for precision manufacturing in the US. One key hurdle for the company going forward is whether it can effectively replicate its automated operations in additional facilities beyond its current operation.

If Hadrian’s approach proves replicable across multiple facilities it could position the company to take a meaningful portion of the $60 billion currently spent with the fragmented population of mom-and-pop machine shops. Some of the obstacles Hadrian will have to contend with include competing with potential in-house manufacturing operations at large primes and avoiding becoming the victim of cyber attacks or corporate espionage. In doing so, Hadrian could set itself up to expand beyond aluminum-based products into a much broader product portfolio.