Nightingale Intelligent Systems

Ticker: NGL

Price: 0.054

Shares Outstanding: ~135 million

Top 20: Own ~58% of shares on issue.

Market Cap: ~7.5 million AUD

Net Cash: Approximately ~1.5 million AUD (my estimate)

Summary

NGL is a recently-listed robotics and artificial intelligence security solution, on the cusp of a major automation wave. NGL has now had two positive operating cashflow quarters in a row, significantly mitigating (but not entirely eliminating) the risk of unnecessary dilution. It provides robotic security solutions to customers including first responders, the private sector, and the military. The co-founders and board have a documented history of being involved in successful Silicon Valley startups, and are passionate about technology.

Management:

Jack Wu, Co-founder and CEO with ~5.65 million shares - previously, Jack was hired by Carl Page (the venture capitalist brother of Google co-founder Larry Page) and was the third employee in a startup called eGroups which was acquired by Yahoo in August 2000 for approximately USD 432 million. (Source: https://en.wikipedia.org/wiki/EGroups )

John Hsu, Co-founder and CTO with ~5.65 million shares - former SpaceX engineer who received his Ph.D. in Aeronautics and Astronautics from Stanford University in 2004. Upon completion of his Ph.D., John worked on the Falcon's navigation system, developed aerodynamics and structural coupled loads analysis simulations, and performed orbital trajectory optimisation analysis.

Additionally, at Willow Garage, John was responsible for defining the vision for the autonomous car project.

https://en.wikipedia.org/wiki/Willow_Garage

Willow Garage hired its first employees in January 2007: Jonathan Stark, Melonee Wise, Curt Meyers, and John Hsu. The company was best known for its open-source software suite Robot Operating System, which rapidly and widely become a common, standard tool among robotics researchers and industry. It was begun in late 2006 by Scott Hassan, who had worked with Larry Page and Sergey Brin to develop the technology that became the Google Search engine.

Roman Quaedvlieg - Recently added the inaugural Australian Border Force Commissioner as an Independent Non-Executive Director. In 2015, Mr Quaedvlieg co-led the merger of Australian Customs and the Immigration Department before becoming the inaugural Australian Border Force Commissioner, responsible for the protection of Australia’s borders and tackling transnational crime syndicates. Mr Quaedvlieg also chaired the operational arms of the Australian and New Zealand Counter Terrorism Committee and has coordinated both global and domestic police executive development programs. Prior to that, Mr Quaedvlieg had a lengthy and diverse career in the national security domain, including serving as the ACT Chief of Police before joining the Australian Customs Service as Deputy CEO – Operations, where he was responsible for enforcement and trade operations, including the maritime component of Operation Sovereign Borders.

Corporate Strategy:

NGL are currently in a 'land and expand' phase, which is all about getting their foot in the door before scaling up recurring revenue (which they have coined Robot as a Service). They are continuing to secure repeat customers including the US Air Force and prestigious US police departments (including the world’s biggest – the NYPD).

(Above: Mayor of New York City inspecting the drone)

NGL’s flagship product is its AI-powered Blackbird Security Drone (which includes a Base Station and Intelligent Mission Control Software). NGL customers typically have large facilities or jurisdictions with potentially thousands of square miles to patrol. In these scenarios, human security guards struggle to physically inspect the entire perimeter – even when they are able to drive around using vehicles. It is also cost prohibitive to install cameras everywhere when your perimeter is miles long. This is where NGL’s patented technology platform comes in – it is capable of solving large perimeter patrol requirements autonomously and rapidly responding to incidents when required. The product is very well tailored to respond on a moment’s notice – whether that be in response to a gunshot or a 911 call – this drone is the new first responder.

Why is a speedy response time important? Fast response times reduce liability and the ability to cause further harm. The drone has the ability to broadcast a live video feed to responding police officers for example, who are able to determine what is going on before they even arrive. No more guesswork or police going in blind to potentially dangerous situations – drones are a tremendous capability for law enforcement and this uptake will almost certainly continue.

It also has an exceptional ability to document crime scenes and accident sites from superior angles; can assess hazardous environments like a structural weakness in a burning building (using AI); and can assess dangerous situations from a safe distance such as potentially armed suspects.

Example Police Footage of Nightingale Blackbird Drone in action:

In footage captured by the NGL drone, the suspect is seen climbing out of a second-story window as officers make entry into the home. The drone also recorded the suspect climbing over a fence into an adjacent yard, where he attempted to hide in a trash can. The pilots manning the drone led officers to the hiding spot, and the suspect was arrested without further incident, police said. (Source: https://richmondstandard.com/crime/2022/02/24/drones-help-capture-fleeing-suspect-in-san-pablo/ )

Tailwinds:

In December 2023, the US legislated the National Security Drone Act of 2023, which blacklisted aerial tech from non-US based companies for use in official federal agency work – including NGL’s largest competitor DJI (who, until now, had an uncontested 70% of the global drone market). NGL is perfectly poised to take advantage of these new tailwinds, particularly for securing critical infrastructure. (Source: https://www.flyingmag.com/defense-policy-bill-would-ban-chinese-russian-drone-tech-in-u-s/ )

Furthermore, automation and AI is a ‘mega-trend’.

https://www.washingtonpost.com/politics/2024/01/04/some-good-news-us-drone-manufacturers/

U.S. small drone makers are optimistic about their sales prospects after the annual defense policy bill, which passed last month, included curbs on the federal government purchasing foreign drones.

"We think the total addressable market now for us after last week has gone up at least four times," Jeff Thompson, founder and CEO of the Utah-based drone maker Red Cat, told Tech 202.

Competitive Advantage:

As mentioned, the NGL drone has been iterated on over many years with millions of dollars sunk into R&D – these are developments and breakthroughs that only occur by going out to tender with real customers in real locations to generate live operational experience. It has flown successfully from places like Germany, to Saudi Arabia, to Arizona.

"The more our drones operate over time, the more they learn about the operational environment so they can better differentiate between threats and nonthreats. It’s kind of like piano lessons; the more you learn, the better player you become."

NGL does things cheaper, faster, and better than traditional physical security. With this tech acting as a ‘force multiplier’, you can get situational awareness; see in the dark with thermal vision; fly directly to where an incident has been detected; and, broadcast to any personnel using the software application. It is a proven technology. It is a data-gathering, edge-based computing platform – it takes off by itself, lands by itself, and charges by itself.

♦ It is a proprietary drone made in the US, with a proprietary base-station also made in the US, and the C4-AI proprietary software coded in Silicon Valley. The entire technology stack is proprietary.

♦ Computing is done both on the drone and in the base-station. There is a server inside the base-station. It's all edge-based computing - all data is stored on the base station for cyber security reasons - it never communicates with the cloud (unless the customer wants an exception).

♦ The drones would ideally work in a lot of 100 to 1000 (a swarm) controlled by an individual pilot (e.g. southern border perimeter given as an example). They need to be smart enough to coordinate between themselves and minimise human intervention. As an example of multi-drone operations, if one drone is low on battery, another one can take over mid-flight and send the first one back to base to recharge. The system is able to automatically select the most qualified drone for each specific mission based on parameters (like battery life, proximity to the target/incident, weather conditions). There is also single beam LiDAR and an altimeter to prevent crashing and avoid obstacles.

♦ Integration with 911 dispatch calls plus gunshot sensors to automatically send drones to any triggered events as first responder.

♦ Built a very extensible technology platform - the AI will eventually be able to recognise and distinguish things like fork lifts and delivery vehicles from unwelcome intruder vehicles in parking lots. We will ultimately get to a world where all the robots are going to communicate and check in with each other - part of their patent calledR2D2D - Relay 2 Drone 2 Drone - it enables different robots (not just our drones) to communicate. The overall vision is one day you are going to have all these robots (e.g. self-driving cars, delivery robots) talking to each other and collaborating with each other for a superior security outcome. So those who are NOT meant to be there will be quickly flagged and identified.

(Patent: https://patents.google.com/patent/US10303167B2/en )

♦ The technology itself is going to evolve to become more and more autonomous.

♦ With more interface evolution towards not just clicking, but input of natural language (you’ll be able to speak to your robots just as you would with another human partner)

♦ On the product side, you’re going to have more drone-drone coordination (R2D2D as I mentioned previously) so they are constantly aware of each other’s location.

♦ Later on, with R2D2D, they will be able to share a mission together: search for a red car; search for a person that is wearing yellow etc. and then they will go and find that person or object – BUT they will operate together to minimise their overlap! So the robots would conduct a faster, more efficient search of a particular zone of interest than ordinary humans could manage with the same level of precision

Example Competitor Valuations:

Skydio (US) - ~2 billion USD valuation

Percepto (Israel) - ~200 million USD valuation

Conclusion:

NGL has now had two slightly cashflow positive quarters, with more contracts to follow.

Since the IPO in November 2022, NGL has not received much coverage. I think it has been overlooked by the Australian market. It’s a nano-cap in a fast-growing segment (infrastructure security) with an accelerating trend (AI). The company continues to sign new contracts all while conservatively managing its limited cash reserves without resorting to dilution. It is punching well above its weight class, and if you look at its nearest American equivalent (Skydio), that alone has a two billion USD valuation.

In the recent Quarterly, we also saw the following items:

♦ Nightingale continued to deliver on its pipeline of attractive opportunities by finalising supply contract negotiations with global car manufacturer Volvo and mass media and entertainment conglomerate Universal Studios. Contracts are expected to be executed in Q1 2024.

♦ Nightingale expects to close commercial partnership negotiations in Q1 2024 between the Company and a US security monitoring firm to combine their monitoring services with Nightingale’s Blackbird Drones to provide large corporate and government customers with an attractive total security solution.

Ultimately, I view this as a very cost-effective way of investing in the ground floor of a Silicon Valley robotics company which we don’t often get access to on the ASX; with demonstrated global potential; backed by very experienced founders and management; who all have skin in the game.

Finally–and I get this question a lot–why is it on the ASX, and not say, the NASDAQ? For one, it is way too small. But it has to list somewhere.

To quote the company:

"Listing on ASX will significantly increase the Company’s credibility, transparency, and ability to represent itself on procurement/tender opportunities given a public listing profile. Additionally, listing on ASX will provide the Company with access to growth capital, institutional investment and will support and accelerate the Company’s growth strategy."