Andrew Musgrave

Welcome again to ASX Briefs. Today we're joined by Oscar Leslie, the Managing Director and Co-founder at Overwatch Technologies Limited. Overwatch is an Australian data aggregation company providing cost-effective drone-based intelligence, surveillance, and reconnaissance capabilities to improve maritime domain awareness. Oscar, great to have you with me today and welcome to the ASX Briefs Podcast.

Oscar Leslie

That's great to be here. Thanks for having me.

Andrew Musgrave

Now, Oscar, obviously plenty happening with the company at the moment, but for listeners that may be new to the Overwatch Technology story, you are advancing plans for an $8 million float this week at 20 cents per share on the ASX. Can you give us a quick snapshot of what the company does and why improving maritime domain awareness is such a compelling need right now?

Oscar Leslie

Absolutely. So, Overwatch is fundamentally a maritime intelligence surveillance and reconnaissance company. What we do is we deploy autonomous systems enabled by artificial intelligence to collect and understand what's happening in the ocean. To give you a clearer snapshot, that might be to counter the trafficking of narcotics across someone's maritime border. That might be to detect illegal fishing or to protect and offer border security to governments and their partners. We are an early-stage company. We've been in operation for 14 months, and so we're on a pretty accelerated pathway. The IPO for us is an opportunity to transition from the early development, being in hardware sales, in acquiring regional government customers, to now scaling our maritime domain awareness as a service model out and to expand beyond the initial traction we've had into more enduring partnerships in the Indo-Pacific region, being everything from India across to the Pacific Ocean.

Andrew Musgrave

The global geopolitical landscape is prompting governments to move away from high-cost proprietary platforms towards lower cost, high-volume autonomous solutions. How does Overwatch position itself to capture that demand?

Oscar Leslie

So, Overwatch doesn't want to position itself as a single drone manufacturer or an uncrewed surface vessel manufacturer. What we do to fit into that ecosystem is we work with the best platform at the best cost to deliver the best capability to governments. You're entirely right, Andrew, that really governments have identified that whilst there are certain parts of that problem, they're exceptional at, there is a real gap in how you achieve the level of coverage you need. For a country like Australia, where we have an enormous exclusive economic zone and enormous maritime and coastal border, how do you actually achieve that coverage? By using very low-cost technologies, and we're already seeing the acceleration of these coming out of conflicts like Ukraine, what's occurring in the Hormuz Strait, we're able to pull those together and pick the best tech for the best purpose. And then by deploying our proprietary sensors, some of those collect radio frequencies for, say, an AIS on a vessel that's gone dark, some of those collect electro-optical imagery to identify a boat moving at night or by day. And so, we pull that together into a cohesive network so that governments can reserve their resources. We can support their detection and identification before they need to deploy the very expensive assets they have in Australia's context before they deploy a frigate or before they deploy a PA Poseidon, one of those large aircraft, with a first layer that they can use in that process.

Andrew Musgrave

Now, Overwatch is platform agnostic, meaning you don't manufacture drones, but instead use third-party platforms to carry sensors, capture data, and run it through your software. Can you walk us through your sense, capture, process, and monetize framework?

Oscar Leslie

Absolutely. So, for us, the delivery of those platforms has become really rapidly commoditized. So how we operate is we identify in an example such as Fiji, where they're dealing with an enormous problem with the transport of cocaine through their maritime borders. They have very limited naval resources to monitor that. We can pull together the right uncrewed surface vessels, the right drones, and then we deploy the right sensors onto them. So, when we talk about sense, that first element is about identifying the signals that are coming off. That might be imagery being captured of a vessel, that might actually be a signal for radio frequencies, maybe a cellular device or a radio occurring on that vessel. We pull that together, we then form a picture about what's happening by fingerprinting vessels, by identifying activity that doesn't align with what should be happening in that area. We then fuse that together using our proprietary software and we make that available to our customers. The monetized component and what's really relevant for shareholders in that, is that we're able to both deliver value by deploying that network and then by building and scaling the model over time. So, making the data that we capture available to more customers as we step through that process. Why that's important for us, just to give you a snapshot, is that that means we're not stuck to a single customer for a single deployment. We can actually accrue value and our moat starts to extend as we acquire more data.

Andrew Musgrave

You also hold an exclusive regional license to commercialize military grade RF sensing technology from a European autonomy company, Polus Tech. How does this partnership underpin your current hardware and support revenue stream?

Oscar Leslie

Polus is an exceptional technology provider. And what they've developed over the last 10 years is a series of radio frequency sensors that are able to operate in a variety of environments, but importantly for us, are also not subject to the sorts of export controls that technology would be if it was developed out of the United States, a restriction known as ITAR. And so, what we're able to do is take European technology, integrate it within our platforms to do some of that radio frequency sensing. So, things like radios on maritime vessels, cellular devices, other elements of the radio frequency spectrum. And so, by partnering with them, we can really closely integrate them with other platforms we're working with and deliver data that would otherwise not be accessible to most of these regional governments. And so that's a really unique partnership for us. And certainly, in the first sort of 14 months of operation, it has underpinned our expansion into the region.

Andrew Musgrave

Now, Overwatch has secured commercial orders with a total contracted value of approximately $3.8 million with around $2.88 million invoiced. Can you explain your current accounting treatment where these amounts sit as contract liabilities until delivery is completed?

Oscar Leslie

Yeah, so the reason that we structure them that way on our accounts is really about the point at which the hardware reaches the end customer. Now, in the early stage of our business and our revenue development, we are heavily focused on hardware sales because that gives us an opportunity to work with and understand the government. But the accounting treatment is about when that technology actually arrives in the government's hands. So, from our perspective, the technology is built, developed, and then when it arrives and when we conclude the training and development is when we account it. So, you're exactly right. We have received that cash already. So, this isn't theoretical revenue, but we're just very careful about ensuring we don't record it as completed until that's actually delivered to the end customer.

Andrew Musgrave

Your business model is organized into three phase revenue streams: hardware and sales now, maritime surveillance as a service next, and data monetization over time. Can you explain how moving towards Maritime Surveillance as a Service changes your margin profile and customer stickiness?

Oscar Leslie

So, when we're focused on hardware sales, the margin that we're accruing in that instance can be from 8% to about 12%, depending on the customer and the structure of that arrangement. Importantly, when we shift to maritime domain awareness as a service, that margin expands out closer to 35 to 45%. The reason that we are really focused on that transition point is by actually controlling and deploying the networks on behalf of these host nations, we're actually able to work much more closely with them and we transition from being single point contracts for hardware to being recurring contracts multi-year, and importantly, we're able to develop and learn a lot more about that customer, which to your point increases the stickiness. The other element that really increases the traction with that customer is that by developing data, we are operating AI-enabled platforms. So, the more we operate in a given environment, the better we become, and the more significant it is for our assets being able to operate more efficiently, reduce our operating costs and our maintenance requirements, and increase the value that they're delivering back.

Andrew Musgrave

Your $8 million capital raise allocates $3.2 million towards technology development and inventory build alongside funds dedicated to demonstration units and sales expansion. How will these proceeds accelerate your operational goals post-listing?

Oscar Leslie

By allocating that 3.2, what we're able to do is pre-position assets to meet the requirements of those services contracts over the next 12 to 24 months. So for us, the IPO unlocks the potential to not only do the work we've already been doing in securing initial hardware sales, working alongside partners, but it actually enables us to now deploy the assets that we either lease or own outright, operate them in ourselves, and importantly transition from that hardware sale multiple across to the service multiple where our margin increases significantly and our accrual of the data, which is our third phase of revenue growth, starts to become the real differentiator for us as an operator in the maritime domain awareness ecosystem.

Andrew Musgrave

And you plan to establish Australian-based capabilities for the final assembly, testing and integration of the polis platform while investing in sovereign research and development. Why is this domestic capability so vital for allied cooperation frameworks like AUKUS and Five Eyes?

Oscar Leslie

For myself personally, you know, as one of the founders and MD, we come out of the Australian ecosystem in terms of the defence of the national security ecosystem. We're a proudly veteran-led organisation. So, for us, actually being able to work closely with the Australian government, Australian partners, and to build sovereign capability is incredibly important. By forming really strong research and development relationships with Australia's leading expertise, whether they be in university or industry, by internalizing some of that assembly and manufacturing here, we see that as being the greatest pathway to actually growing the collective pool of talent here in Australia and enabling us to quickly respond to opportunities that we see from our customers. So, whilst we are platform agnostic, we certainly want to be able to be as responsive as possible when we see a pressing demand either for a service delivery or for a unique data stream. And by building a strong capability here in Australia, we're able to scale that. And we see that being a really competitive advantage for us moving into the future.

Andrew Musgrave

Now, to wrap things up, Oscar, what are some of the key goals and milestones investors should keep an eye out for over the next six to 12 months?

Oscar Leslie

So, we'll certainly continue to deliver upon those hardware sales so that we're not seeing a lag in revenue. But the metric that we really want to be measured against is conversion of that initial traction into services contracts with regional partners. And we don't want to be thought of as measured against a number of assets, but really the range and reach of our coverage. You know, in 12 months' time, we're seeking to have those early services contracts with regional governments established and producing revenue. And towards 18 to 24 months is where we see an increase in revenue off of data sales. That's what our team internally is laser focused on, and that's how we really want to show investors, both our existing investors and those coming on during the IPO, that we're delivering value back to them.

Andrew Musgrave

Okay, Oscar. Well, it's been great to have you on the podcast. So, thanks for your time. We wish you all the best and look forward to further updates over the next 12 months. 
 
 
 

Oscar Leslie

Thanks, Andrew. 

Andrew Musgrave

That concludes this episode of ASX Briefs. Don't forget to subscribe, and we look forward to catching you on our next episode.