Sacra estimates that Anduril hit $420M in revenue in 2023, up 78% from $236M in 2022, off significant growth in new government contracts—Anduril recorded $670M in new contracts in 2023, up 50%. The company had previously told investors it was projecting $625M in new contracts for the year.

For 2024, Anduril is projecting revenues of $1B, and it expects gross margins to increase from 40% to about 45%. The company has roughly $750M in cash on its balance sheet as of Q1'24.

Anduril secured its first defense contract, a $12.5 million deal with the U.S. Marine Corps, about a year after the company was founded in 2017. By 2020, Anduril won a massive $1B System Integrator Partner (SIP) program contract—its first ACAT I, the biggest acquisition category—in a competitive showdown against defense primes.

Anduril's gross margin of 40-45% is significantly higher than traditional defense primes, who typically have margins in the 8-10% range, because Anduril sells its products as commercial items at a firm fixed price negotiated with the government, rather than the cost-plus model where margins are capped.

According to Scott Sanders, chief growth officer at Forterra and an early Anduril employee, this product-centric commercial model enables "SaaS-like margin profiles" even on hardware by having very low hardware costs.

While Anduril doesn't disclose customer acquisition costs, the sales cycles for defense are very long—18-24 months minimum to get into a major program, according to Sanders. Lots of investment in R&D, prototyping and field testing is required to win contracts. However, once secured, these contracts provide large, predictable multi-year revenue streams. Anduril's large fundraises have provided the capital needed to attack these long sales cycles.

Anduril is valued at $14 billion as of their 2024 Series F round, co-led by Founders Fund and Sands Capital. With projected revenue of $1B in 2024, Anduril would trade at a 14x revenue multiple. The company has raised $3.76B in total funding to date. The latest Series F round included participation from prominent investors Fidelity Management & Research Company and Baillie Gifford. Key strategic investors across previous rounds include Founders Fund, where Anduril co-founder Trae Stephens serves as a partner.

Anduril Industries was founded in 2017 in Irvine, California by Palmer Luckey, co-founder of Oculus VR, Brian Schimpf, and Trae Stephens, with the mission to build cutting-edge technology for defense and security.

The cornerstone of Anduril's suite of products is Lattice, an AI software platform designed to integrate data from a multitude of sensors and systems, enabling real-time situational awareness and data-driven decision-making.

Lattice is designed to ingest massive amounts of data from various sources, including cameras, radars, and other sensors, and apply advanced machine learning algorithms to detect, identify, and track multiple targets simultaneously.

This enables defense agencies and border control to effectively monitor vast areas with minimal human intervention, as Lattice can automatically alert operators to potential threats or anomalies.

Lattice can also perform complex tasks like object recognition, behavioral analysis, and predictive modeling. For example, Lattice can distinguish between different types of vehicles, identify suspicious patterns of movement, and even anticipate potential threats based on historical data and real-time intelligence.

To augment Lattice, Anduril has developed a series of other hardware products, including: 

By leveraging machine learning, Anduril's drones, towers, and sensors can operate with minimal human intervention, freeing up personnel for other critical tasks.

For example, Ghost UAS can autonomously navigate to designated waypoints, avoid obstacles, and even coordinate with other drones to perform complex missions. Similarly, Sentry Towers can automatically detect and track targets, alerting operators only when a potential threat is identified.

This autonomy is a force multiplier, enabling a small team of operators to effectively control and monitor a large fleet of drones and sensors. It also reduces the cognitive burden on personnel, allowing them to focus on higher-level decision-making rather than mundane tasks.

Lattice serves as the central nervous system for this suite of hardware products, processing and analyzing data from the various hardware platforms to provide a comprehensive, real-time picture of the battlefield.

This integrated approach allows for seamless coordination between different assets and enables rapid, data-driven decision-making. For instance, if a Sentry Tower detects a suspicious vehicle, it can automatically dispatch a Ghost UAS to investigate, while simultaneously alerting nearby ground units via Dust sensors. If the vehicle is confirmed as a threat, Anvil can be deployed to neutralize it.

Anduril's business model is a sophisticated fusion of a SaaS platform (Lattice) and a suite of AI-powered hardware products that function as cross-sells and upsells.

At the heart of this model is Lattice, an AI software platform that integrates and analyzes data from various sensors and systems in real-time. Lattice is sold to defense and security customers as a subscription-based service, akin to a SaaS model. Customers pay a recurring fee to access Lattice's capabilities, which include object detection, tracking, and data fusion.

When a customer gets started with Lattice, Anduril can then offer them their hardware products as add-ons to enhance the capabilities and value of the platform as cross- and upsells. For example, a customer using Lattice for border surveillance might be upsold Sentry Towers to provide automated monitoring, or Ghost UAS for aerial reconnaissance.

This model allows Anduril to capture a larger share of the value chain by providing both the software and hardware components of the solution, increasing revenue per customer but also creating a more integrated and sticky product ecosystem that drives retention.

Secondly, by controlling both the software and hardware, Anduril can ensure optimal performance and compatibility between the different components. This is particularly important in a defense context, where reliability and seamless integration are critical.

Anduril Industries flipped the traditional business model of defense contracting—instead of waiting for Requests for Proposals (RFPs) from governmental agencies, Anduril has gone after a strategy where they take on the R&D burden upfront, allowing them to offer pre-developed, cutting-edge solutions to the Department of Defense and other allied military forces worldwide.

This product-centric approach is a key differentiator for Anduril. By taking on the R&D risk, Anduril can get to market much faster than going through the traditional multi-year government acquisition process.

As Scott Sanders, an early Anduril employee, explains: "You need a ground autonomy solution? Great! We have this application kit you can integrate on the factory line today. We've invested hundreds of millions of dollars in building it. This is the price."

By eschewing cost-plus contracts and instead doing their R&D upfront and then selling their products for a fixed price, Anduril can target much higher margins than the industry-standard 8-10%.

By selling its products as commercial items at a fixed price, Anduril can earn "SaaS-like" 40-50% gross margins on its hardware-software systems, with low hardware costs and high software content.

Despite the one-off nature of hardware sales, continuous upgrades are a key part of Anduril's model. The company employs a "phrasing as a service" approach where its software-defined systems are constantly updated with new features and capabilities as part of an ongoing, fixed-price service contract.

This ensures that Anduril's products don't go obsolete and that customers benefit from the latest breakthroughs without having to buy a whole new system.

Anduril's primary competition comes from the large defense primes such as Lockheed Martin, Boeing, Raytheon, and Northrop Grumman.

As Ross Fubini, founder of XYZ Venture Capital and an early Anduril investor, explains: "Anduril's primary competition is the difficulty of displacing these primes, which also has to do with the attribute I said before, its biggest challenge is just changing the world of procurement so that we can get the best products out for the cheapest price."

The 10 largest defense contractors account 80%+ of all aerospace and defense revenues, reflecting the advanced and continuing consolidation in the sector. These incumbents benefit from massive scale, entrenched customer relationships, and deep political influence.

The primes are also not ignoring the rapid technological advancements in areas like unmanned systems, artificial intelligence, and software-defined hardware. Each of the major primes has established its own venture capital arm to invest in startups innovating in these fields.

They are also developing their own competing product lines in-house. For instance, Boeing is developing an autonomous fighter jet called the MQ-28 Ghost Bat.

The primes rely on the traditional cost-plus contracting model, where they have little incentive to innovate rapidly or drive down costs. Their offerings tend to be bespoke one-off products designed to detailed government specifications, rather than more flexible and iteratively developed commercial items.

Sustaining their large overhead requires continually winning large contracts, incentivizing political maneuvering over pure technological superiority.

Anduril's most direct startup competitor is arguably Shield AI, which is applying autonomy and AI to power unmanned defense systems.

Founded by a team that includes former Navy SEALs, Shield AI has won several high-profile contracts for its AI pilots and is now expanding into additional domains like space and underwater.

Other startups like Palantir (data analytics), SpaceX (launch and satellites), and Relativity Space (3D-printed rockets) are also challenging the primes in their respective domains.

While each of these companies may compete with Anduril for some contracts, they are also collectively validating the thesis that software-first startups can win against the primes by moving faster and leveraging best practices from the commercial world.

Finally, the market that these defense startups are going after isn't best understood as a single monolithic market, which means that there's plenty of room for many of them to win.

Early Anduril employee Scott Sanders frames the competitive landscape this way: "The DOD is not a unified market. It's not. You can have two program managers across the hall from each other, and they have completely different acquisition strategies about complete different things, using different colors of money. It's a conglomeration of micro markets, and they're all very different."

The combination of reverse-globalization and the ongoing decline of unquestioned U.S. technological superiority has created an increasing need for new national defense solutions. As the global power dynamics shift, with the rise of near-peer competitors like China and the resurgence of regional powers like Russia, the U.S. and its allies are facing a more complex and contested security environment.

This new reality is driving a reassessment of defense priorities and procurement practices. Existing policies that have disproportionately served big defense contractors are currently under review by the Pentagon, as there is a growing recognition that the traditional acquisition process is too slow and rigid to keep pace with the rapid technological advancements shaping modern warfare.

In this context, we're seeing startups—like Anduril—starting to gain traction in selling to governments. These companies are leveraging technologies like artificial intelligence to develop solutions that can address the evolving threats and challenges of the 21st century battlespace.

Venture capital firms, which were once relatively hesitant to invest in the defense sector due to perceived regulatory barriers and ethical concerns, are now beginning to recognize the massive potential in this space.

Between January and May 2023, U.S. VCs invested $17 billion in defense and aerospace companies—more than the total for the entire year of 2019, which stood at $16 billion. This influx of capital is enabling defense startups to scale rapidly and compete with the established primes.

The United States remains the global leader in military spending, having allocated a staggering $727 billion to the Department of Defense in 2022.

When combined with the defense budgets of all NATO allies, total spending exceeded $1 trillion in the same year. This massive and growing market presents an enormous opportunity for companies like Anduril that are at the forefront of developing cutting-edge defense technologies.

While the traditional focus of defense spending has been on hardware platforms like aircraft, ships, and vehicles, the nature of modern warfare is increasingly shifting towards software and autonomous systems. This trend is reflected in the U.S. defense budget priorities.

In FY2021, the Pentagon earmarked $1.7 billion specifically for autonomous technologies aimed at enhancing "speed of maneuver and lethality in contested environments" and advancing "human/machine teaming."

Another $800 million was allocated to artificial intelligence initiatives. Across a three-year period, the average annual investment in autonomy and AI-related programs within the U.S. Armed Services and DARPA totaled $5.2 billion.

Anduril is strategically positioned to capitalize on this massive market opportunity. The company's proven track record in developing game-changing technologies like its Lattice AI software platform, Ghost UAS, and Anvil interceptor has established it as a leader in the emerging defense tech space.

As more countries seek to modernize their militaries and maintain a competitive edge in an increasingly tech-centric security landscape, Anduril's suite of AI-powered, autonomous solutions will be in high demand.

Moreover, Anduril's unique business model, which emphasizes speed, agility, and continuous innovation, gives it a significant advantage over the slow-moving incumbent primes.

By taking on the R&D risk upfront and offering readily deployable, commercial solutions, Anduril can rapidly address the evolving needs of defense customers without getting bogged down in the traditional acquisition bureaucracy.

Friction and procurement practices: If the Pentagon's procurement practices remain rigid and continue to favor established defense contractors, Shield AI may find it difficult to secure long-term contracts that are crucial for its sustained growth and scalability.

Government largesse: It’s been typical practice for the DOD to spread contracts around the country to different contractors as part of winning political support and decentralizing their supply chain. These kinds of market dynamics could limit Anduril’s growth and ability to dominate in defense/aerospace.