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A Fresh Look at a New Military Tech Opportunity

Dave Jackson Dave Jackson, Stockhouse
0 Comments| March 19, 2021

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(Click image to play video)

It is a recognised fact that military spending – both globally and especially in the U.S. – is increasing and represents a highly lucrative market opportunity worth billions. Now, a well-positioned Canadian military and defense tech company is bringing its arsenal of solutions to fulfill specific industry needs for the safety and effectiveness of defense personnel.

Ottawa, ON-based KWESST Micro Systems Inc. (TSX-V.KWE, Forum) is engaged in the business of developing intelligent tactical systems for just those military purposes. Its product portfolio includes Tactical Awareness and Situational control systems, counter drone systems, electronic decoy systems, smart ordinance systems, and other related products.

Stockhouse Media’s Dave Jackson was joined by KWESST’s Executive Chairman David Luxton to discuss recent company news, what’s to come, and investment opportunities in the defense and securities systems sector.


SH: So to start off, can you tell us a bit about yourself and the history of the company?

DL: Sure. I've been in the defense and security business for many, many years…more than I want to count. And what I've done in every incarnation has been to found or build out very significant enterprise enterprises that became world leaders in their niche. And so the KWESST project really just taking a page from that playbook.

SH: Can you update our investor audience and your KWESST shareholders on any new company developments, especially in the wake of COVID-19?

DL: Well COVID-19 is a drag on the economy and every business that everyone knows about that's had some effect on this industry, but the reason I like to be in the defense industry is it doesn't go away, right. Pandemics, or no pandemics, it soldiers on to use the right analogy. And so we've, you know, like a lot of our country accompanies, adapted, and found work arounds. And as I say, thankfully, military contracts continue to proceed no matter what. And we're benefiting from that, by being in this industry.

SH: David, the company recently entered into an agreement to add a proprietary non-lethal munitions technology system known as the ‘Low Energy Cartridge’ to its network of products. Can you expand on this for investors and what it’s all about?

DL: Sure. Let's just talk about what the non-lethal market or industry is in the first place. It's they didn't, there's many, a market segments so that everything people would have seen in the news from, you know, riot control police defending themselves against dangerous offenders military force on force training, which they use non-lethal systems for personal defense. And that's really been a rising market, as well. That category of non-lethal where people don't want to be shooting people with a gun, but we do want to be able to defend themselves and even high action gaming…like a paint ball and their software where that segment of the market has been trying to find a way to be ever more realistic. Most of the technologies that are used today, actually all of them are legacy technologies that have had maybe incremental improvements to them over the years, but they all have big deficiencies either.

They're not really non-lethal and they kill people and that's happened quite regularly or they're not reliable. If they’re air powered that air seals dry out and burst and you get catastrophic failures in the middle of a mission and or they're very crude if you're trying to direct a crowd and you're trying to do it with tear gas grenades that carries risks of its own. And it's a blunt instrument for trying to direct a crowd where you want it to go. We could go on and on, but all of these things have their issues. And so there's long been a demand to have something that would be reliable. That's why it's a cartridge-base cartridge, reliable air gun systems or not. And that would have universal application across these different market segments, which makes it a very interesting business opportunity because that's a multi-billion-dollar business.

And so this technology is novel, it does have universal application. It is non-lethal. So this is not going to kill anybody. And it provides a lot of advantages and takes away a lot of the disadvantages that have been problematic with existing solutions. So I've been in this market and myself a long time and a deep background in non-lethal munition systems. I was the founder of a company called Simunition, which I sold. It's now owned by general dynamics. So that is if you Google it just a Simunition like it sounds, and that's used for a very realistic force on force training by military counterterrorist teams, police, tactical teams. So that's a good example of what I mean by a, a cartridge-based technology, but that's a dated technology. And so the market's looking for something new that, that solves all the problems they have with the existing technology. So the market's not going to universally jump on all this overnight, but I think a very significant segment of it will. So it's a very attractive business to be in, particularly because it's a consumer, right? It these things get bought and consumed every year in large quantities.

SH: As I briefly mentioned it in the intro, can you tell us a bit about your ‘TASCS’ or Tactical Awareness and Situational Control System and how it works?

DL: Sure. Well, that's a signature product, a to date from a quest and I promise it'll be the only acronym, but it is transformative in that it, it pushes situational awareness out to soldiers on the ground forces to their smart devices. They all have them, and it goes further, and it pushes that same information, you know, maps and overlays and where adversaries are right onto their weapons with little snap on device. And with that, soldiers can be further back behind covers, so they're safer, they will be much more operationally effective because they can now converge fire networked fire, cause they can all see the same picture, right onto average series positions with unprecedented precision young soldiers, you know, get this right away. It's like playing you know, call of duty or other combat video games. And it does really take soldiering into the realm of things that look like video games and Hollywood movies. But that ability is not existed until now with this technology from KWESST.

SH: You recently announced Canada’s former Chief of Defence Staff General, Rick Hillier, has been chosen to lead KWESST's new International Advisory Council. Sounds like quite the coup…pardon the pun!

DL: Well he's a terrific guy and a much-admired leader and for good reason, and he's a pretty busy guy right now with the rollout of the COVID vaccines for the premier of Ontario. And so he's doing a yeoman's work on that, but when that wraps up, yeah, we will be ramping up this international advisory group under his leadership and with some other notable people from other countries. And this is just a group I like to create around any company that gives us perspective at a very high level of what's going on in the world. These people are obviously so experienced, you know, deep insight and, you know, great connections where we can talk to people and share views on, you know, where's the world going. So let's always a, a reality check for us, for any company at a macro level.

SH: The company looks set for strong growth in 2021. How are you currently placed to expand your operations to meet increased market demand?

DL: We have an operating model that's geared to do exactly that. And again, it's a page from a playbook we've executed on very successfully before, and that is to, to do all the innovation in, in house. And then outsource production. We'll do a little bit of an initial what's called low rate, initial production in house, some demonstration samples, but the model is to outsource production. And we have a great sort of ecosystem of vendors and suppliers for that in the Ottawa area actually right through Western Ontario, right through to Eastern Ontario. And so we benefit from having that kind of supply chain here and it gives a company great operating leverage because it means that it's not investing in plant and equipment. And so on. So as revenues rise, profitability rises even more.

SH: For company shareholders and potential investors, what kind of future development, partnerships, and progress can we expect from KWESST?

DL: A few things that will be pretty apparent this year, this is really kind of a breakout year for quest. It's an early stage emerging company, but it's now in revenue at announced an important $1.1 million contract with a key military customer that was in December, it's fulfilling that contract. Now it's got more in the works. I think investors can expect to see contract announcements through the year. Equally importantly, they'll see a lot of other validating events around the products themselves because the newer products are coming to market. They go through the usual gateways of being trialed and so on. And the company's been making great progress in that regard as well. And as we've said, publicly part of our go-to-market model is to engage with OEMs, big defense contractors, again, something we've done before too. It's a great with great success and a couple of those are already in place and they're on the company website, one with ManTech, one with AeroVironment, which is the biggest supplier of tactical drones to the U S military and quite a number of others that are, are in progress and under discussion. And I think that's something else that investors can expect to see newsroom.

SH: I have to mention your stock has had a very nice bump mid-November…a nearly two-and-a-half-fold increase. What can you tell our investor audience regarding the current valuation of your stock and why you think it’s still a good buy right now?

DL: Well, it's got great growth potential. When I went into this venture with the other folks that are in it I did so because of the size of the markets, this company can uniquely address and with many ways to win an attribute I look for, so it's not a betting it all on lucky Eddie in the eighth, right? With one-on-one technology, many ways to win. That's a very attractive attribute to me as an investor in the company key investor. And so, you know, as we head forward, obviously we're going to we're gonna, our plan is to realize on that value and truly reward shareholders. We have you know, a management team that's deeply invested in the company and deeply committed and deeply experienced. And so this is not the first rodeo we've done this before, very successfully.

We, we know the kind of value that can be created. We know this, the vast size of the market niches we're addressing in every case. And that makes it for me a valuable platform company for this kind of a build-out in this industry at a great time to be doing it where budgets are way up in the defense industry, almost everywhere and where that's the trend for the future and where a big piece of what's driving the market is this type of technology innovation in order to improve capability and, and frankly, to really modernize land forces because that's who has lagged and been the poor cousin over the past many years.

SH: And finally, David, if there’s anything I’ve overlooked please feel free to elaborate.

DL: I'm an investor invested in the company and the investment attributes I look for that are standouts to me and made me jump on this opportunity and jump in with both feet are that it's got this diverse diversity of products. Diversity of customers in the military market is never one market. It's hundreds of different customers in many countries around the world has got a very seasoned management team. It's, it's got a scalable model because it outsources production and it's got unique technology rarely do you see that combination? So that's why I am in. And for those reasons I recommend it to my fellow shareholders.

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FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.

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