Regardless of opinions re: Kip, C-Suite responses below FYI:*****FRESH UPDATE FROM KIP’S VRA REPORT*****
VRA Update: Patriot One Technologies, Call With CEO Peter Evans and CFO Karen Hersh
Dec 23, 2020 Good Wednesday afternoon. Tyler Herriage here. Yesterday we had our second call with Patriot One Technologies new CEO, Peter Evans, and their CFO Karen Hersh. We can confidently report that this is a strong and tightly focused duo. We covered Peter’s extensive background/experience in technology in our November 24th update (below), and we can tell you Karen’s background is impressive as well. Karen was previously CFO for a private equity group that focused on cybersecurity technology. Two great fits for the leadership team at Patriot One. (
https://patriot1tech.com/about/leadership/)
Our conversation yesterday spanned a number of topics. We remain impressed with their direct answers and their commitment to adding shareholder value, both short and long term.
First, we talked briefly about the new stimulus bill (porkulus) and the grants that look to be available for school security ($140 million), and if this is something they were pursuing for Patriot One. Peter told us they do have groups they are working with on this in the Washington D.C. area, including Tom Ridge (first US Homeland Security head), who has been an advisor to Patriot One from near-inception. We had not heard much about Tom Ridge from Patriot One lately, so it’s good to hear that relationship is still strong.
As Peter said the language in the bill, “isn’t well defined as to what they mean by security. Is it protection from guns? Coronavirus? Or other things? So there will be a lot of people clamoring for those dollars, but the good news is that folks are recognizing that protecting our kids should be front and center. With Patriot One’s (new) ability to scan for temperatures on top of weapons protection, it seems we would be a great fit for some of these grants to help schools”.
Kip: “Every year we pay attention to the ‘January effect’, where stocks that take a hit in December due to tax loss selling, then return to be the biggest winners in January. Is Patriot One a candidate for the January effect?
Peter: “The past month, since I started, has mostly been about taking inventory. Taking inventory of our customers, what was previously announced by the company, looking at our technology, and our operational skill sets. The conclusion I’ve come to is that there is a significant market need for our technology, every customer (potential customer) that I’ve talked to has not gone away and is actually accelerating.”
Peter told us the clients he spoke to are now “not just talking about running pilot projects, but talking about what a full roll out of the technology would look like to address their full business needs. This is across industries from casinos to sports venues, schools, etc.”
The hold up has been with coronavirus restrictions. Due to some restrictions it has been hard to get the Patriot One team into sites to do a full evaluation of what their needs will be. As Peter said, “It is not a question of if they want it, but questions of when can we get access?”
“As we know, solving the problem of gun detection in a non-obtrusive, high accuracy way is a complex problem, and so we know there is a market for a product that solves this problem, but the technology has not yet caught up to the market. What Patriot One has done is developed a very robust platform that can solve a variety of problems, and the company had not even realized how great the platform is…”
“When I look at Patriot One I find that not only do we have the software right, but it is applicable to all sorts of adjacent markets beyond just weapons detection, things like theft, crime, break-ins, trespassing and vandalism. So we can address a broad variety of security needs. These are things that can reassure patrons that come to their doors that they are preventing risk within the facility.”
From an operational point of view, Peter told us they are rebuilding the sales and marketing organizations. Their goal now, well underway, is “building a world class team of sales experts that can aggressively move the deals from being conversations to being closed deals”.
“To answer the question about the “January effect”, with our new sales team coming onboard we will turn Patriot One to a revenue driven organization taking place at the beginning of 2021.”
As Karen brought up (both her and Peter) are “impressed by the capacity of their technology, and what they have done is built a natural barrier to entry for any other companies because the Patriot One platform is so robust and flexible with the ability to add new technology to their platform”.
Now their goal is to take a look at the cash flow and as Karen said, “finding the non-strategic expenses and reallocating those funds into areas that can drive the company forward, and we have gone about it in a very strategic way that will allow us to be better positioned with the right team at the table while still reducing their cash burn.”
Peter continued this by saying, “We have been diving into the balance sheet and P&L and taking out anything we don’t see as strategic and that isn’t going to drive revenue in the next 6-12 months. Our focus is on top-line revenue and profitability right now.”
Kip: Great info. The next question I have is about the use of this technology on an individual basis. Is there the possibility to use this technology, maybe in a scaled down way, in the residential space? People are scared to death by coronavirus, wearing masks in their cars and homes. I know lots and lots of people that would want both Pat 1’s weapons detection and the ability to scan temperatures of people coming to their door. Possibly a partnership with Ring, or other security companies already working in this arena.
Peter: “It’s probably not in our sweet spot now, but could it be in the future? Certainly. However, we have been more focused on being a B2B company rather than a mass-scale B2C company. That is in terms of our selling-model, our channel partners, and the way our technology has been built, but could our IP be packaged in a way to serve the consumer market? Potentially. At this time we want to be sure we are at a cost point that best serves our company.”
“I also want to be careful about falling into some of the traps that the company may have fallen into before by saying too much about things that may not come to fruition, but do I think our technology could be extended and applied to that kind of a market place in the future? Absolutely.”
The biggest theme Patriot One is pursuing now is the digitization of the global market place. Patriot One as a data driven, AI company with a multi year lead on competition. .
Peter: “We all have experienced the benefits of digitization of various vertical industries, look at the entertainment industry and the way you consume Netflix in your home. Look at education where you can learn anything all over the world remotely. Look at what Amazon did to retail. This was all based on very targeted designs of innovation. Now, look at the models that are not there yet, for example a guarding service is a very labor based model, and no one has yet cracked the code to reinvent this market. What attracted me to Patriot One very specifically, is the collateral benefit of solving the very complex problem of non-intrusive gun detection with high-accuracy has created an AI platform unlike any I have ever seen before. The future for that AI engine is incredibly compelling to solve a lot of these problems in a lot of these markets that are today still labor based.”
What is different about Patriot One now, as both Peter and Karen said, is that “we are taking a very focused approach as to what we want the technology to do and finding the best place that it can be applicable. Now, not later.
Kip: Do you feel the company is financially in a place that you will be able to hold off on doing another share offering...how long will your current cash last?
Karen: “We have a good amount of cash, with $18 million from our last quarterly report, and we are trying to be as careful as we can to spend our dollars wisely. That is a focused change from some of the ways the company operated in the past and we are going through line by line to cut expenses where we can and investing where we need to.”
“We are taking advantage of a lot of grant opportunities that have helped us a lot. Right now we have a very large engineering team which does not cost us a lot because of our partnerships with companies like Raytheon, which have been great for us.”
Kip: So it sounds like you believe that what we are seeing now is mostly year-end, tax related selling?
Peter: “I think it’s a combination of things. There is tax-related selling in my opinion. The market also has interest in where exactly we are going to next. Since I came on we have been pretty quiet so I think there are a lot of people who want to hear what I have to see and see what my vision is before they go buy and drive the price up. Our plan going forward is to have a very rigorous and proactive communication plan in front of the investors, going forth and starting in January.”
“So, there is a bit of a wait and see approach to where we are going from here, but we don’t want it to trickle out to the market in what appears to be a fractured and unorganized manner. We want to be able to tell people, ‘here is our vision for the business, here is how that translates to our execution steps, and here is what the market is telling us about those execution steps.’ A well crafted vision and execution process as opposed to what may be perceived as random and disconnected press releases.”
Kip: One last question. Why should investors own Pat 1 stock here...what is the big picture potential that you see for Patriot One?
Peter: “I came here intentionally because I saw great potential in the innovation, not only for our weapons detection, but for full threat protections and the potential for what our AI platform can provide. After having worked in this industry for many years and having conversations with fortune 500 companies and what they are looking for in the future, those conversations mesh with what I see in the potential in what our platform can do and tells me there is great upside potential for our company.”
Kip: VRA Bottom Line: We like what we are hearing from Peter (and Karen) a great deal. A lifetime of working in the tech/AI space, with co’s from every part of the size spectrum, makes Evans uniquely qualified to aggressively build-out Pat 1. His connections, both US and globally, should pay quick dividends in 2021 and beyond. The public markets should begin to respond favorably to Evans as CEO. Martin Cronin shepherded the company to this phase well, and as normalcy begins to return (they both believe vaccines/treatments will play a powerful role in the global economic recovery), Evans is well positioned to begin building major successes at Pat 1. The fact that Cronin is remaining with the company is another major benefit of this transition.
We will be meeting with Evans, in his home town of Austin, in early January (as he works primarily out of Pat 1’s Toronto office).
Keep buying Patriot One Tech, a VRA 10 bagger.