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Invisible Assets

Invisible Assets. David Lashmet Editor, Stansberry Venture Technology Stansberry Alliance Conference 2019. Every Investor’s Dilemma: “If only we had bought this stock 18 months ago…”. You solve for this by investing in future events. Venture Tech’s Secret to Biotech Investing.

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Invisible Assets

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  1. Invisible Assets David Lashmet Editor, Stansberry Venture Technology Stansberry Alliance Conference 2019

  2. Every Investor’s Dilemma: “If only we had bought this stock 18 months ago…” You solve for this by investing in future events.

  3. Venture Tech’s Secret to Biotech Investing All new drugs go through six rounds of testing: [1] Animal Testing, for efficacy: Is it effective? Does it work? [2] Human tissue in the lab, for toxicology (finds 100% toxic events -- drugs poisonous to people) [3] Phase I clinical trials – A few patients. Hints of efficacy. Early safety (finds 10% likelihood events) [4] Phase II clinical trials – Tens of patients. Measured efficacy. More safety (finds 1% events) [5] Phase III clinical trials – Hundreds of patients. Statistical efficacy. More safety (finds 0.1% events) [6] Phase IV clinical trials – Thousands of patients. Statistical safety (finds 0.01% likelihood events) We buy after Phase II trials. So does Big Pharma. Wall Street buys after Phase III trials. That’s Our 18-Month Head Start

  4. Taking This Foresight Into Tech Investing New tech goes through 10 Technical Readiness Levels (TRL), starting here: [0] Theory – on paper [1] Proof of Principle, in the lab [2] Scale model, in the lab [3] Testable alpha prototype, outside the lab [4] Testable beta prototype, in field conditions [5] Operational beta testing, in rigorous field conditions (all-weather, full stress tests) We buy after TRL 4/5: Testing by customers in semi-real conditions. Wall Street buys after TRL 6/7: Formal purchase orders/GAAP backlog. Again, That’s Our 18 Months...

  5. It’s ‘Nothing’ According to GAAP Accounting It’s later Technical Readiness Levels (TRL), that produce order backlog, then revenue: [6] Gen 1.0 Product – Tested in the field (in space, at depth, on the battlefield…) [7] Gen 1.1 Product – Tweaks to first production model based on real world use [8] Gen 1.5 Product – Substantial design changes as production ramps [9] Gen 2.0 Product – Basically a re-design, well into full rate production Production contracts cannot be won until TRL 4/5 testing by customers. TRL 6 is a test order. TRL 7 is low-rate production. TRL 8 is peak revenue. TRL 9 is continuing revenue… until obsolescence. Then, the backlog stops. This process can take days to decades, based on the complexity of the product. Investing for an event 18 months out can be a long, cold wait. So verify the future promise…

  6. Here’s a Costly Science Project at Sikorsky… • This is the X-2, with counter-rotating rotor blades • When spinning, these act as a balanced wing • Pusher propeller – tested top speed 300 mph • Lots of visibility. No protection. Fake missiles. • It’s an alpha prototype. It really flies, but it’s TRL 3 • The X-2 earned the 2010 Collier Trophy for The. Best. Proven. Aerospace. Technology Sikorsky was 10,000 people – and $200 million in R&D costs So UTC’s new CEO sold Sikorsky in 2015 – for $9 billion Wall Street said, the buyer overpaid…

  7. Here’s what the X-2 became 18 months later… • S-97 Raider – now in beta flight testing • Silent blades • Twice the speed of other helicopters • Twice the range of other helicopters • 1/3 of the normal turning radius, at speed • It goes backwards “really fast” • Our guy went to the Quad A Conference…. • S-97 changed the path of U.S. helicopter replacements • Original plan: Replace the Black Hawks first

  8. S-97’s ‘Big Brother’ is the SB-1 Defiant… • Boeing bought a 50% stake from UTC. • Carries 12 troops and a dog with titanium teeth • Or lifts a Joint Tactical Vehicle underneath • Goal: Twice the speed of other helicopters • Goal: Twice the range of other helicopters • 18 months behind the S-97 in development • This makes 4,500 U.S. Army Black Hawks obsolete • 5,000 units at $30 million each is a $150 billion contract value So far, Zero Units Ordered. Official Order Book = Zero Dollars

  9. Wall Street Is Smitten with the Competition • Bell’s Tilt-rotor V-280 Valor is faster than the SB-1 • Takes off like a helicopter, but flies like a plane • 360-degree field of fire, side doors for entry • More survivable than a V-22 Tilt-rotor Osprey • Can’t hover at high altitude/hot temperatures • That’s Denver vs. Aspen or even Leadville for the S-97 • It’s nowhere near as agile as a helicopter • It’s a Bread Truck, not a Bugatti • Death by Culture: The U.S. Army Flies Zero Tilt-Rotors • But the US Army has 20,000 helicopter pilots

  10. The V-22 Osprey Is a Giant Flying Pickup Truck… • Carries 24 troops (two squads of U.S. Marines) • Rear Ramp Lets You Load a “Small Truck”: • Dune buggy with anti-drone microwave gun • Toyota Hilux up-armoured with bulletproof glass • 75 mm cannon and 200 shells (8-mile range) • USMC building an anti-aircraft missile system • Can Carry 2,000 Gallons of Extra Fuel (Tanker) • The Marines can add a mini-gun in front for 360-deg. firing • The U.S. Navy just ordered 39 more V-22 Ospreys…

  11. …To Support America’s Floating Army… USS America, Built in 2012, Re-fitted in 2015… • Landing Assault Ship, Supports 2,500 U.S. Marines • V-22 Ospreys (Tankers) • Helicopter Gunships • Its own Marine Air Force • Hunter-Killer subs, Cruisers & Destroyers Protect It Can operate independently from U.S. Navy Aircraft Carriers

  12. …And Naval Aviation for Our Allies HMS Queen Elizabeth, starts full operations in 2020 • Britain’s new Aircraft Carrier – hosts 250 Royal Marines • V-22 Ospreys (in principle. This Sept. 24 photo is a test) • Helicopters • Helicopter Gunships • Its own Naval Air Force of 40 to 75 fighter jets • The Royal Navy Protects Her & HMS Prince of Wales Overall, 24 U.S. and Allied capital ships are built or are in build with a need for fighter jets with no catapults That’s $100 billion in pre-investment

  13. All They Need Is 500 F-35 Bs F-35 B flies like a jet, but takes off and lands vertically: • Stealth Fighter with 360-degree vision • 1,000 mph top speed, takes 9G turns • 6,000 pounds in internal weapons bays • Integrated 25mm cannon with 180 rounds • 2,000 Gallons of Fuel = 500-mile combat radius F-35 Bs cost $110 million. At full rate production, $100 Million 500 count = $50 billion upfront to the manufacturer That’s only half the price of the ships

  14. Seriously – It Hovers…

  15. Lockheed Owns Sikorsky and Builds the F-35 Lockheed Martin (NYSE: LMT) by its Fundamentals: • $120 billion enterprise value, $60 billion 2019 revenue • $7.5 billion est. 2019 cash from operations • $136 billion in backlog. Top 3: F-35 A, F-35 C & C-130 • F-35 A is for the Air Force. Requires an Air Field • F-35 C lands on aircraft carriers. Needs a Catapult • C-130 J: 450 Built – eight more last quarter – at $90mm each We see three other invisible assets, worth $250 billion That Doubles the Backlog That Wall Street Sees So we picked Lockheed for Stansberry Innovations

  16. Venture Tech Dives Deeper Into Technology… Let’s Start Simple, With a Single Wave Okay, seriously – there are light waves here, in a spectrum. There’s also a mirror effect with the sky on the water. Plus, the tube of displaced water is channelling the light. But all I’m after here is dropping a rock in the water: Plop! You can see ripples of force radiating across the surface… These are transverse waves moving across a medium Light moves this way. So do radio waves. And both can reflect back the way they came…

  17. Reflected Radio Waves Reveal Hidden Objects… • Radio detection and ranging started in World War Two: • Ground radar in England found German bombers • And ground radar in Germany found British bombers • In Germany, Me 110 Night Fighters would set off to intercept • “Lichtenstein” radar offered pitch-black night detection • But active radar – radio waves – can be traced back to the source • It was dog eat dog, all night in the skies over Europe • So the Americans just attacked in broad daylight! • Over the Next 15 Years, Radar Became Sensitive Enough to See Through Weather • So When a Plane Vanishes on Final Approach, The Tower Fears the Worst Except, in This Case…

  18. A Plane Shaped Like a Stingray The Vulcan bomber was a “Flying Wing” with a vertical tail: • This “Wing” shape is key to its design: • It means minimum drag • And high structural efficiency • So, high fuel efficiency, thus: • The maximum bomb load • The vertical tail steadies side-to-side drift. • Remarkably, the Vulcan Is Invisible to Radar While It Lands • Radar Waves Deflect Off at 90° Angles (Except the Tail) This Was an Accidental Stealth Design

  19. The First Stealth Fighter Had a V-Shaped Tail The ’90s F-117 Night Hawk From Lockheed: • It’s Designed to Deflect Radar Waves: • Leading edge is a perfect flying wing • V-shaped tail deflects waves down and away • Air intakes are covered and angled up • There’s no canopy bulge • Plus It’s Covered in Radar-Absorbing Paint • Night Hawk had the same radar signature as a Hawk • And engines were on top to hide its heat signature This Was a Conscious Stealth Design

  20. Night Hawk Was Given Away by Its Contrails Hurricane Elena Seen from Space Shuttle Discovery in 1996: • This Category Three Hurricane Built Clouds up to 50,000’ • These Are the Highest Clouds Ever – Either of Water or Ice • 99% of All Water Vapor in the Sky Is Below 50,000’ • Jet Exhaust Mixes Soot and Water Vapor Which Re-Freezes • These Contrails Are a Cloud Trail Behind a Jet – up to 50,000’ • That’s over the tropics. It’s more like 25,000’ over the Arctic • Night Hawk could only fly to 47,000’ – so it made contrails • By 2000, weather radar could see contrails That’s One Reason We Retired the Night Hawk

  21. The B-2 ‘Spirit’ Bomber Flies Higher This Stealth “Wing” Deflects Radar with Smoothness And to Avoid Contrails, Northrup Modified Its Engine: • That’s to Change the Oxygen/Fuel Mix for Thin Air • You Also Need Special Fuel That Won’t Freeze • Plus You Need Bigger Heaters for the Fuel Lines • This Lets the Spirit Soar Undetected Above the Clouds • So, the B-2 Spirit Is About as Stealthy as You Can Get… The B-2 Spirit Has the Radar Signature of a Golf Ball But Once It Opens Its Bomb Bay Doors, It Re-Appears

  22. Fortunately, The B-2 Has a Co-Pilot… The B-2 Has A Pilot and a Co-Pilot/Bombardier: • Until You Open the Bomb Bay, This Guy Is Extra • But This Extra Guy Is Also a Trained Pilot… • Imagine if He Flew a Stealthy Drone, Remotely • And Imagine If This Stealth Drone Carried Bombs • That Way the B-2 Never Opens Its Own Bomb Bay • A Stealth Attack – from a Stealth Bomber with a Stealth Drone The B-2 Spirit Never Appears on Radar. It Stays a Ghost This July, a Stealth Drone Passed Its Flight Tests…

  23. The XQ-58A ‘Valkyrie’ Is a Fast Stealth Drone Fast Matters, Until You Hit the Speed of Sound… • Breaking the Sound Barrier Makes a Sonic Boom • This Sonic Boom Follows Your Flight Path • So, It’s Like a Contrail; It Breaks Your Stealth • The Valkyrie Flies Just Under the Speed of Sound • And the Valkyrie Is as Smooth as the B-2 Spirit • Northrup Won the Competition to Replace the B-2 (~250 units) Every New Stealth Bomber Needs a Valkyrie or Two That’s up to 500 units of a “Loyal Companion” Drone

  24. Kratos Makes the Valkyrie Stealth Drone KratosDefense (Nasdaq: KTOS) by the Numbers: • $1.9 billion market cap, $2.1 billion enterprise value • $750 million projected 2019 revenue • $9 million reported Q2 2019 operating income • Expanded manufacturing plant for Valkyrie in Q2 • $620 million in backlog. Mostly for target drones • Valkyrie might cost $25 million as an autonomous drone The Valkyrie is an invisible asset, worth ~$12.5 billion That’s 20x the Backlog that Wall Street Can See So we picked Kratos for Venture Technology

  25. Thank You And Thanks to the Home Team!

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