Ready, Aim, Fire

Smartkarma

Contributor:
Smartkarma
Visit: Smartkarma

By: subSPAC

EXECUTIVE SUMMARY

  • Since the boom in 2020, SPACs have been instrumental in taking high-risk, technologically disruptive companies public.
  • This includes space startups building rockets focused on carrying payloads to space, Quantum Computing firms creating solutions for challenging tasks, and a host of Electric Vehicle Makers looking to challenge Tesla’s crown in building environmentally sound vehicles.
  • Texas-based True Velocity Ammo, which develops and markets composite-case ammunition, aims to disrupt the highly mature ammunition industry on the same scale as these other emerging firms, delivering lighter and more efficient solutions to the public and military.

DETAIL

Happy Sunday, Friends! 

Since the boom in 2020, SPACs have been instrumental in taking high-risk, technologically disruptive companies public. This includes space startups building rockets focused on carrying payloads to space, Quantum Computing firms creating solutions for challenging tasks, and a host of Electric Vehicle Makers looking to challenge Tesla’s crown in building environmentally sound vehicles.

Texas-based True Velocity Ammo, which develops and markets composite-case ammunition, aims to disrupt the highly mature ammunition industry on the same scale as these other emerging firms, delivering lighter and more efficient solutions to the public and military. Can True Velocity disrupt the heavyweights in the industry and break its longstanding monopoly, or will it fail to live up to the hype? 

Reinventing the Wheel 

The global ammunition industry can essentially be described as a mature industry, having not seen a significant revolution in the case of design in over 175 years. True Velocity is looking to shake up the industry with its composite-cased solution. Conventional brass cases dominate the current industry, but the company claims its solution has several technological advantages over the current system. First, traditional brass cases can produce good accuracy, but its material has limitations since the extrusion process used to craft it leads to stretching and mild variations.

By comparison, polymer cases use a forming process that begins with a steel-cased head that’s over-molded with polymer, leading to more precision than what is possible with brass. Composite cases are also significantly lighter (30% less vs. brass), saving around 20 pounds for a fully equipped soldier or enabling them to carry an additional 300 bullets.

The same benefits also translate to aircraft or crew-operated vehicles, where the more extensive scale translates to higher weight and cost savings. In addition to the lower costs, weight, and higher precision, composite-cased solutions also have another significant advantage over brass; it doesn’t hold heat as extensively. Since composite cases act as insulators, they reduce the temperatures inside the firearm chamber.

Traditional brass chamber-based solutions can have excessive heat buildup that causes a bullet to be prematurely fired due to a ”cook-off” effect in the chamber. Not only does True Velocity’s polymer-based solution prevent this excessive heat, but in doing so, it also ensures that the life of the firearms is significantly extended in the process. 

Commercial Opportunities  

True Velocity anticipates generating around $77 million in gross proceeds when it completes its merger with Breeze Holdings Acquisition in the first half of 2023. The company plans to use this to accelerate its growth into new regions and markets, expand its manufacturing capacity from 50 to 60 million rounds in 2023, and use it for strategic acquisitions. This is expected to build on the company’s current momentum of signing commercial agreements with Bass Pro Shops and Cabela’s.

The deal, which will last for at least three years, will place the company’s ammo across 127 initial locations, with more expected to follow. Part of the partnership involves True Velocity developing a subscription with Bass Pro that can potentially capture a portion of the 200 million annual visits that will gradually increase the company’s exposure and revenues over time.

While some may be skeptical about the long-term demand for firearms for the civilian population, the reality is that guns aren’t going anywhere despite increased calls for regulation and background checks. Nearly 45% of the world’s privately held firearms are in the US, accounting for close to 400 million firearms in possession, with four in ten households reportedly owning guns.

True Velocity estimates that the strong gun demand, coupled with an enthusiastic, growing market for shooting sports, should result in a commercial opportunity of close to $6 billion. However, the company’s most significant revenue opportunity could be a contract with the US military. 

The Military-Industrial Complex 

The US Army has been hunting for lighter and more reliable weapons to replace the standard M249 Saw Automatic, which has been used in every major military conflict since it invaded Panama. In addition to allowing soldiers and warplanes to fight longer in battles, carbon composite solutions also enable them to reduce the cost of shipping due to a weight reduction, generating significant cost savings. True Velocity was shortlisted for a multibillion contract to create bullets for the US Army’sArmy’s Next Generation Squad and ultimately lost out on its bid, with Sig Sauer winning the contract.

However, there are still countless future opportunities, with the company anticipating a total addressable market of the US army to be close to $18 billion. In addition to its existing commercial partnerships and potential, True Velocity also has more than 300 patents, protecting its intellectual property and ensuring that the company gets paid no matter who decides to commercialize and mass produce composite-cased ammo. The company also has a 66,500 square feet manufacturing facility in Garland, Texas, which is expected to significantly scale up the total rounds of ammo produced.

Despite the progress the company has made since investing over $150 million from its inception in 2010, it is still a way off from genuinely commercializing its technology. Carbon Composite solutions have been around since the late seventies and early eighties, but gun enthusiasts have been apprehensive about switching from existing brass-based solutions. Furthermore, a government contract is unlikely in the short term since the company’s scale is low and reliability remains untested. If True Velocity successfully demonstrates its value, a potential partnership with the military could go a long way in leading to success. 

Bottom Line 

True Velocity is looking to disrupt the highly mature ammunition industry by popularising composite-case ammo solutions. There’s no doubt that the company’s solutions offer tangible benefits over existing brass-case solutions, but time will tell if these benefits can outweigh the current market hesitation in switching to a newer solution.

While the benefits of reduced gun weight might not be as apparent or essential in the civilian world, increased efficiency, lower heat transfer, and cost savings ensure that the company’s solutions are critical in solving the industry’s pain points. True Velocity has recently gained momentum through several partnerships, helping accelerate commercialization. However, the most significant revenue opportunity currently stands in securing a military contract, which will require the company to successfully scale its manufacturing facilities to mass-produce bullets reliably. 

Originally Posted November 21, 2022 – Ready, Aim, Fire

Disclosure: Smartkarma

Smartkarma posts and insights are provided for informational purposes only and shall not be construed as or relied upon in any circumstances as professional, targeted financial or investment advice or be considered to form part of any offer for sale, subscription, solicitation or invitation to buy or subscribe for any securities or financial products. Views expressed in third-party articles are those of the authors and do not necessarily represent the views or opinion of Smartkarma.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Smartkarma and is being posted with permission from Smartkarma. The views expressed in this material are solely those of the author and/or Smartkarma and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Alternative Investments

Alternative investments can be highly illiquid, are speculative and may not be suitable for all investors. Investing in Alternative investments is only intended for experienced and sophisticated investors who have a high risk tolerance. Investors should carefully review and consider potential risks before investing. Significant risks may include but are not limited to the loss of all or a portion of an investment due to leverage; lack of liquidity; volatility of returns; restrictions on transferring of interests in a fund; lower diversification; complex tax structures; reduced regulation and higher fees.