NGL (ASX) My Investment Thesis

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Nightingale Intelligent Systems

Ticker: NGL

Price: 0.049

Shares Outstanding: ~133.2 million

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

Market Cap: ~6.5 million AUD

Net Cash: ~811,000 USD (~1.2 million AUD)

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 4.25 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 4.25 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.

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).

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’. The ultimate purpose of a robot is to reduce human workload and make operations more efficient by handling the repetitive tasks. NGL’s biggest technical achievement over the years (according to prior interviews on YouTube) is reliability. If you don’t have a platform that is dependable, reliable and works all the time for customers – you have nothing. This is why NGL is the best candidate for first responders.

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."

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

Keep in mind it is very easy to make a robotic prototype work in a lab or at a conference. It is very difficult to make sure a product works continuously 24/7. 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.

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 one billion USD valuation.

So doesn’t 6m AUD market cap seem a little low here?

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."

If you take a close look at the Top 20, and follow the money, you'll see a lot of the Silicon Valley VC funds are still holding all their original shares from the company’s point of inception.

As always, please do your own research, generate your own ideas, and I welcome any feedback or critique.

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Decent volume today. Hoping that we have indeed reached the inflection point.