Why I was willing to add to Mission Ready Services

Yesterday and today have been busy.  I got smacked on Empire Industries and on Blue Ridge Mountain, but also piled into a number of lithium, vanadium and graphite names that has helped claw some of those dollars back.  I will write about those names another time.  Today I was also working on a second post on Mission Ready Services and I wanted to get that out before anything else.

I wrote about Mission Ready Services on Friday.  Over the weekend and yesterday I spent a lot of time researching the company.  The basic question I wanted to answer was whether the company, and its recent news release, are legitimate?

I may yet be proven wrong about this, but so far I do not see anything to make me think it isn’t.

To recap, the news released last week had the following points:

• Agreement is with a US based contracting party
• Agreement is for purchases to a large foreign military.
• Minimum Purchases as per agreement are (USD): Year 1 (2018), $50MM; Year 2 (2019), $50MM; Year 3 (2020), $100MM; Year 4 (2021), $100MM; Year 5 (2022), $100MM.
• Advance Payments: Distributor agrees to pay Mission Ready (the “Manufacturer”) a down payment equal to forty percent (40%) of the purchase order amount within 10-days of submitting the purchase order.
• Exclusivity: Manufacturer appoints Distributor, on an exclusive basis, as its sole distributor for the defined territory.

So its huge if it’s the real deal.

As I have dug into Mission Ready, I have actually been quite surprised with the strength of the company’s product.  Here is what I found.

In 2011 a company called Protect the Force (PTF) partnered with the U.S. Army Natick Soldier Research, Development and Engineering Center (NSRDEC) in an attempt to develop a better body armor.  This was in response to soldiers complaining about the bulk and discomfort of existing body armor options.

Together PTF and NSRDEC came up with a new body armor called the Ballistic Combat Shirt.  This article talks is detail about the ballistic combat shirt, describing the creative design that was a departure from existing body armors available, how it benefits soldiers, and some of the awards that it has won.  It references Robert DiLalla, who led the team on the NSRDEC side that partnered with PTF to develop the body armor as well at PTF themselves.

There doesn’t seem to be too much question that the Ballistic Combat Shirt (which Mission Ready has called Flex9Armor for their own product distribution) is better than its predecessors.  DiLalla comments that its “35% lighter, form-fitting and more comfortable”, and reduces the soldier’s thermal burden compared to the Interceptor Body Armor system.  Soldier acceptance has been terrific:

“The Soldiers have spoken loud and clear with more than 90 percent user acceptance in multiple user evaluations,” said DiLalla. “Typically, as we assess new body armor components, we’d consider 60 percent a successful number. So we were quiet surprised…”

There is also a video on Youtube of the armor being tested.

In 2012 Mission Ready merged with PTF, and along with them, acquired their development activities.

In May 2015 the development of the new armor was complete and Mission Ready said the US Army Contracting Command was soliciting bids for the Ballistic combat shirt.  PTF bid on the contract.  The company sounded quite optimistic in the press release.  However it was not to be.   In July 2015 they issued another press release saying that they had not won the contract with the US government.  They met all technical requirements but did not have the lowest price (there is a table below that will show the pricing breakdown).

Being the co-developer of the product, this must have stung.  In response PTF filed a protest.  The outcome of the protest was sustained, as described in a December 2015 news release.

“We recommend that the Army either: (1) reasonably re-evaluate the proposals in accordance with the RFP as written, and make new source selection decisions; or (2) re-examine the RFP’s minimum requirements and evaluation criteria, to determine whether they accurately and unambiguously reflect the agency’s needs, and, if appropriate, amend the RFP, re-open discussions, obtain and evaluate revised proposals, and make new source selection decisions.

The GAO decision on the protest also outlined the original bidders on the BCS.

But nothing much has come of it since.  According to this article, the new armor is being rolled out to the US military in 2019.   PTF isn’t supplying the initial order of the product.  After the December news release articulating that they had won their protest, there was nothing further on the matter.  I think a company called Short Bark Industries (second from the top in the table above) won the bid.  I note this article, which describes the suppliers that Short Bark is using to fulfill its order of BCS, and these government contracts (a government contract for $8.86mm, here for another $15mm, and another for $6mm).  Its worth noting that these contracts are for orders until June 2019 and all orders have been obligated, which means they are filled.  Its also worth noting that, at least from what I can tell, Short Bark is in bankruptcy proceedings right now.

But Mission Ready has kept rights to distribute the armor elsewhere.  The patent on the ballistic combat shirt lists them and the US government as assignees, though I am not sure whether that means Mission Ready actually holds the patent, or whether the patent belongs solely to NSRDEC.  In November 2015 Mission Ready signed an agreement with NSRDEC that gives them exclusive rights to market the Flex9Armor to governments outside of the United States and to other organizations within the United States.

In February of 2016, Mission Ready announced the launch of their version of the Ballistic Combat Shirt, called Flex9Armor.  The armor retails for $500-$600 USD (its worth noting that sometime in the last couple weeks a change was made whereby the retail armor can no longer be ordered on the website).  As described in the news release:

Co-developed with the US Army Natick Soldier Research and Engineering Center and launched by Protect the Force Inc., the Flex9Armor tactical solution is ideal for breaching operations, tight spaces, first-responder protection, and training exercises.  While the Flex9Armor is designed specifically for physically demanding conditions, the low-profile ‘exoskeleton’ design maintains comfort and full functionality for greater articulation in the shoulder and deltoid region.

Since that time not too much has happened in the way of contracts.  Mission Ready has added other products to its portfolio (they acquired a company called ForceOne, announced a small contract for Riot shield covers, and established relationships with the government on a couple of other product developments such as a safety vest for sailors) but revenue from any of the products has been lacking.  Until, of course, the recent news.

The order is so big, it seems most likely that is is from the US government.  The “foreign military” in the news release throws me off that trail, but it is a Canadian listed company, so maybe the US counts as foreign?  Edward Vranic wrote something up last week speculating as much.  As I pointed out, the winner of the previous contract with the US government, Short Bark, appears to be in bankruptcy, which seems coincidental.  But I see nothing about a new tender by the government as of yet, and there is nothing yet in the government contract list.

In some potentially related scuttle that I have to warn you I can’t confirm, there have been some comments on Stockhouse about a 10 year Egyptian contract that they are near finalizing.   Its a bit of hearsay because the presentation that discussed this has been modified.  There was apparently an early version of the August presentation that said they are “finalizing teaming agreement in EagleShield International/Tactical Elite Systems in Egpyt for a 10 year deal that Protect the Force would supply body armor for Egyptian military and later law enforcement”.

In the revised version of the presentation (with the reference to Egypt deleted), on slide 25 it says more generically that “Multiple foreign military and law enforcement opportunities identified since the beginning of 2017– Initial shipments expected to commence in Q4 2017”, which is still a pretty bullish statement.  The same slide also says that Mission Ready is “partnering with ADS Prime Vendor on Air Force Carrier and Armor project” (this one hasn’t been deleted).

The bottom line for me is that if the distribution agreement is legitimate the stock is significantly undervalued.  A contract that delivers $500 million over 5 years is clearly worth more than a $25 million market capitalization.  While I can’t be positive that the distribution agreement will lead to those kind of revenues, there are plenty of signs that it could.  I was however wrong when I implied on Friday that this was binding, it’s not.  It’s a distribution agreement, so what really matters is the first purchase order from that supplier and the subsequent funds from that order (40% of which are required to be delivered 10 days after the PO).

I added some to my position yesterday.   The product is there without a doubt.  The design team they have at Protect the Force is technically sound, has developed other products for the military, and received awards for their work.  The CEO, Jeff Schwartz, has a background in manufacturing and so that gives me some comfort (there is a Youtube video of both Schwartz and CTO Francisco Martinez talking about the company here).  Nevertheless I still have questions about manufacturing in those quantities (the distribution agreement implies quantities exceeding 100,000 per year), but they were in the running when bidding on the vest manufacturng a few years ago, and their bid was described as technically acceptable, so I would expect there is a plan for manufacturing.  Most important, I still want to see a PO.

I can’t say with 100% certainty that things will go forward as hoped, but there are enough signs that I’m willing to scale up my bet a bit.