Did Some Digging on Liberty Defense After the recent Financial News Now analysis of weapons detection companies, I figured I might as well do some diligence of my own.
Liberty certainly has a compelling idea in using millimeter wave imaging to construct images of any material. So I read through news releases, their Corporate presentation, some message boards and their financials. My thoughts:
-> Until 4 weeks ago, Liberty was using a Stop -> Turn -> Go model, where the patron needed to get between the scanners, turn sideways, line up on 2 footprints, then turn forward and walk out. Apparently, that was slowing things down, so just 4 weeks ago they announced people could just walk through “for high throughput.” They have only just built one model to these specs, so I would say it remains to be seen how effective their device is with moving targets.
-> Liberty has virtually no cash on hand today. Rather than do another private placement, they signed a factoring agreement with someone to loan them up to $10mm to build units based on confirmed purchase orders. Liberty has a burn rate of $3mm a quarter, so this is a problem that must solve extremely soon. They are in a super tough spot, given the current financing environment. And the current lack of funding does not speak well to their prospects.
-> Liberty has yet to obtain any external validation from NCS4, TSA, DHS. This does not preclude from selling units, but as we well know, that probably puts them a couple years behind XTRA, and there is no guarantee their model will pass. My sense is there is no specific metal detection being used in their technology, so they’re taking in a whole lot of data that produces some pretty fuzzy images (not like the stand still, crisp X-rays you see from an airport luggage scanner) and having to parse through the entire image instead of just the metals. Add in the recent “upgrade” of catching a moving target, with no field testing to date, and I think it’s fair to say they have a ways to go.
-> Liberty is working on the development of an upgrade to TSA’s systems, for which TSA Paid $1.75mm to develop a prototype about 11 months ago. A good thing for Liberty, but also another effort that may require precious time and money away from their HEXWAVE walkthrough systems.
-> Liberty has recently been signing distribution agreements for its products. Not sure what to make of this.
-> Peter was saying in the Sidoti presentation this week that each competitor in the marketplace may be serving a specific market. In Liberty’s case, it would seem they are having more early interest (no meaningful sales yet) with places that highly value detection of explosives and overall weapons of any kind (Los Alamos labs, TSA airport worker entrances, Toronto airport passenger screening beta test machine purchase) at the expense of false positives and/or throughput. Whereas, Xtract One may be in the space that provides a serious upgrade to existing metal detectors in terms of throughput, reduced staffing, weapons detection precision and customer experience. The third party validation and the widespread adoption and increasing backlog it has developed the past few years seems to suggest its solution is what industry feels is the next logical step for high volume venues. It does seem that “shape detection” may be integrated into solutions of the future, but I’m not convinced that Liberty One has cracked the case for all applications just yet.