The Patriot Missile Defense System has been around for several decades, gaining major notoriety during the first Gulf War in 1991. At that time, the Iraqi military was throwing everything they had at their adversaries. In return, the Allied Nations presented a comprehensive defense which included many different pieces of military hardware, including the Patriot Missile.
The acronym PATRIOT came from the radar, a Phased Array Tracking Radar to Intercept on Target, that the missile uses in its efforts to track and destroy incoming enemy missiles. Similarly, Patriot One Technologies uses a radar system on its PATSCAN security system. And, also similar to the Patriot Missile System, PATSCAN alone is not a complete security solution, but simply a part of a larger security eco-system that will be deployed to protect buildings and other venues from potential threats.
With the FCC approval obtained by Patriot One in September, the Company is ready to begin commercialization of the PATSCAN system on a broad scale. This does not mean, however, that sales will be going ballistic starting right now. Instead, the system is going to be rolled out on a methodical basis across multiple industries and geographies.
This plan for a rollout strategy has led to investor questions regarding PATSCAN. How do we know it works? Is it ready for market? Why are they not going to be launching it faster? This article will attempt to answer those questions as well as dig a little into the upside potential that exists in this unique security offering.
How do we know it works? The Salesforce analogy…
In a conversation I had with Dinesh Kandanchatha, the president at Patriot One, he helped me to gain considerable confidence in the PATSCAN system and its future usage in the security industry.
To start with, Dinesh pointed to the success Patriot One had in winning Best In Category for the Anti-Terrorism / Force Protection category in the New Product Showcase at the ISC West show in Las Vegas. This conference, put on by the Security Administration Association is widely recognized as “the largest security industry trade show in the U.S.” There are over 29,000 security industry professionals in attendance, and over 1,000 exhibitors.
As Dinesh rightly pointed out, for a product like PATSCAN, with no white papers or independent reports, getting an award from leading industry experts is the best way for someone like myself to gain comfort in its efficacy. He also went into further detail in the bios of the award committee, and how they conducted a (unknown to Patriot One) an indepth analysis of the system, which obviously impressed them.
At this point, Dinesh switched gears. This is an approximation of what he said, but it resonated with me. After hearing him, I got it…
“Look, at the end of the day, we’re a software solution. Look at other software products. How do you know Salesforce works? There is no independent third party verification. Some people swear by it. Others refuse to use it. It’s a part of your sales eco-system that works for some but not everyone.
“PATSCAN is similar. It is not a stand alone product, but a part of the bigger puzzle. At a point of entry you will have cameras, armed guards, and other security infrastructure in place. We fit into this system. For some people, we are a natural fit. Others will want a metal detector or full body scan.
“We don’t expect to be the right product for everyone. But, there are incredibly numerous situations in which we are a good fit. Where we can increase the overall security level by some percentage, that will justify PATSCAN as a piece of their overall solution. These are the opportunities that we are going after and through our rollout plans we will demonstrate our effectiveness as a part of a total security package. That’s what we’re looking to do with our initial installations.”
And, then I understood it. PATSCAN is not designed to catch every terrorist in every situation all on its own. For example, if you run past it, it won’t screen you properly. Who cares? If you run through a guarded doorway, you’ve drawn attention to yourself all on your own. PATSCAN is simply a new and innovative piece of the overall puzzle, it has won awards for what they’ve done with it so far, and, anyone looking to screen for weapons without using a full metal detector system, will be checking out this system.
Is it ready for mass market? It will be…
There are really two parts to the answer of whether or not PATSCAN is ready for the mass market. The first revolves around the technology, particularly on the software side. The system has heretofore been working in controlled laboratory situations. It is now going out into the field.
There is a lot to be learned about the system as it adapts to real world applications. This is similar, again, to Salesforce. A software system always has multiple versions with updates coming through. Users have feedback. The system is never perfect on day one, and learning systems are never “perfected” as they are constantly updated and upgraded.
In the case of Patriot One, however, it would be a mistake to roll it out on a broad basis and then start sending upgrades. Security is something that needs to be done right before taking it into the real world and risking lives. As such, the rollout is intended, as per their press release, “to immerse our engineering teams into an in-depth analysis of real-world threat scenarios in order to ensure that Patriot One offers the leading world-class solution for global threat detection.”
Quite simply, the system is now being deployed in such a way that the engineers can optimize it for broad scale installations.
At the same time, it stands to reason that installations are learning from the system in terms of how best to integrate it into their security eco-system. It’s not like it’s a simple plug and play solution. Instead, security experts are going to evaluate the most effect placement and use of PATSCAN. Which means that while the system is being perfected for real world use, the real world usage patterns are being understood so that PATSCAN can become a better solution once installed.
The whole rollout strategy now makes perfect sense. Select installations in different verticals will teach the Company how it works in areas like casinos and banks. Meanwhile, rolling it out across different geographies through assorted system integration partners, enables the partners to better understand how it fits into their complete offerings to their clients.
Is the system ready for mass market? Not yet. Is there a path to getting there over the next 6 months or so? Yes, most definitely.
What to expect in the next 6 months and beyond…
The Company has indicated over the last few months that backlog exceeds near-term capacity. This has led some to believe that large scale sales are imminent. I beg to differ.
In my opinion, Patriot One has been signaling to the market that the demand for their product, even before approval, far exceeds their capacity. This was meant to be a signal that the industry appreciates the product and it will be well received going forward. However, investors shouldn’t expect that to translate into large sales happening immediately…something the Company has clearly indicated through their continual comments about their going to market strategy and rollout plans.
I believe that Patriot One will have several key installations up and running during the 4th quarter of 2017. These will be in Vegas, which has already been announced at Westgate Casino, and in other locations such as a bank and a metro-Police force. These installations will be key reference sales for the Company in that they can lead to horizontal integration across an industry, but also to significantly more within an organization.
An example of this would be a bank installation. If the bank is happy with how PATSCAN works in one branch, it can be installed across all branches. As a point of reference, there are over 94,000 bank branches in the US. And, each branch would need at least 10 systems to be properly secured.
Thus, the bank branch market opportunity is $9.4 billion dollars. You can see why the company would want to get it right before going out on a broader scale…the opportunity is too significant to risk screwing up right out of the gate.
Back to what to expect, however. I think Patriot One will likely PR their reference installations, along with telling us who the systems integrator partners are on these projects. Likely we see at least one Tier 1 partner installation over the next 6 months.
The success of these installations, along with updates on the product will be forthcoming, too. With the goal for PTOTF to start much larger scale installations in Q2 of 2018.
Patriot missile ready for launch…
The Patriot Missile system deployed in the Gulf War was an enormous success on many levels. It acted as a major psychological deterrent to anyone thinking of trying to shoot missiles at us. The people in Israel felt safe and the soldiers staffing the batteries were feted as heroes. We had won a part of the battle just with the installation.
It is also rumored that, of the 40 SCUD missiles thought to have been brought down by Patriot missiles, they never actually hit one of their targets. It’s quite possible that the poorly made SCUDs exploded in air on their own. We’ll never know.
But, the point is simply this. Patriot One’s PATSCAN is not going to be perfect at stopping all terrorism…and it doesn’t need to be. Simply having it installed and a functioning piece of your security eco-system is plenty of reason for someone to purchase it. If it can do its small part in making the world a safer place, it will be successful.
The size of the market is enormous. I still believe that Patriot One could have over $20M in sales next year. It’s possible, but will be back end loaded. Which means that, if they hit my number, the run rate will be much higher and this stock could potentially go ballistic. PTOTF has moved higher. However, the sky’s still the limit here.
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