David Luxton is quietly confident 2023 will be the year Kwesst Micro Systems graduates from a startup to a mature leader in its field.As the global economy braces for more turbulence, David Luxton is quietly confident 2023 will be the year Kwesst Micro Systems graduates from a startup to a mature leader in its field. Founded in 2017 by former Colt Canada executives Jeff MacLeod and Warren Downing, Kwesst has spent most of its existence developing and acquiring technology in three main product areas – systems that feed real-time information to soldiers in the field, measures that counteract deadly lasers and other space-age weaponry, and equipment such as high-tech anti-riot munitions designed to subdue aggressive protesters and other belligerents. Luxton, a longtime defence industry insider and Kwesst’s executive chairman, believes the Kanata-based technology firm stands at an “important juncture” in its history. The company, which went public on TSX Venture Exchange in 2020 and previously traded on the New York-based OTCQB exchange, debuted on the Nasdaq exchange last Wednesday in an effort to boost its access to capital markets in the U.S. Luxton says the move up to the Nasdaq is a major step forward for Kwesst. “It’s a defence technology company – that in itself makes it a very American story,” he explains. “And of course, the Nasdaq is the place to be for technology companies. The expectation is that this will vastly expand the shareholder base of the company and the liquidity of its stock.” The firm sold 2.5 million units in its U.S. offering at a price of US$4.13 per unit consisting of one common share and a warrant to purchase an additional common share on the Nasdaq. Kwesst sold an additional 726,000 units at the same price in a Canadian offering, generating total proceeds of US$14.1 million. Now, Luxton says, it’s time to put that financial warchest to use in getting Kwesst’s products to market on a much larger scale. “This is the year where we expect to see revenue ramp up,” he says. “We’ve been accumulating a big pipeline of opportunities. Some of them could be transformational to the company if they hit.” The 20-employee organization has spent $17 million developing and testing its products since its launch five years ago, but has little to show for it on the balance sheet so far. Kwesst generated about $1.3 million in revenues last year while posting a net loss of more than $9 million. Still, the company is starting to make inroads. Police used its anti-riot devices to break up crowds of demonstrators during February’s Freedom Convoy protests in downtown Ottawa, and the company recently won a $500,000 contract with Public Safety Canada to help create software used in search-and-rescue missions. In addition, Kwesst recently joined forces with defence and security heavyweights Thales Canada and Modis Canada on a multimillion-dollar joint venture to develop specialized software for the Canadian Army. The company said the agreement could position it as a “key player in the digital defence ecosystem.” But it’s the buzz Kwesst is generating south of the border that really has the firm’s brain trust excited. Aerospace and defence giant General Dynamics, for example, is installing Kwesst’s electronic decoy system, dubbed Phantom, on hundreds of next-generation armoured vehicles it’s hoping to sell to the U.S. Marine Corps. The portable devices – which range in size from a walkie-talkie to a piece of carry-on luggage – generate radio frequency signals that mimic the electronic communications of NATO forces and other military organizations in a bid to confuse enemy combatants. In a news release this week, Kwesst said the contract could be worth more than US$40 million should General Dynamics win the bid to build up to 500 next-generation vehicles. The Kanata company is also starting to gain traction across the Atlantic. Earlier this quarter, Kwesst landed its first order from an overseas NATO country for technology that detects and locates enemy lasers designed to blind soldiers in the battlefield and destroy optical-based equipment. Luxton says demand for the firm’s products is poised to spike due to the “spiralling threats” of lasers and other sophisticated electronic weapons. Kwesst cited a Fortune report saying the global electronic warfare market is projected to grow at a compound annual rate of more than five per cent, reaching US$33.5 billion by 2028. Trumpeting Kwesst’s technology as “ready for prime time,” Luxton says he expects revenues to soar in the coming years as the firm expands its own sales and marketing team and cultivates more partnerships with other contractors such as Thales. In a prospectus filed last week before its initial public offering on the Nasdaq, Kwesst management said the company aims to become profitable within the next 12 to 24 months. “When the economy takes a turn, the defence industry is usually a very good place to be,” Luxton says, pointing to heightened “geopolitical security anxieties” fuelled by the war in Ukraine and events such as demonstrations against COVID measures. “Defence is a very high priority in virtually all western countries. We are addressing a global market. This is not something that goes away or takes any precipitous dips.”
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