Applied Energetics, Inc. (AERG) Earnings Call Transcript & Summary

Okay. I think we're going to get started. So let me officially begin this. Hi, everyone. Thank you so much for joining us. Before we kick this off, I do want to point out to the audience that we welcome questions, please post them in the Q&A section at the bottom of your screen and we will get to those questions, time permitting at the end of today's discussion. So I would like to now turn this over to Steven Saltzstein, FORCE Family Office's CEO.

Thank you, Callie, and thank you, everyone, for joining us today. We greatly appreciate you taking time out of your day to be with us. We have a fantastic and robust conversation that Chris Donaghey, CEO of Applied Energetics is going to head up. I mean the one thing I just want to point out to everyone aside from the fact that at least from my perspective, as someone who talks to family offices every day, they think that this new paradigm and asymmetric warfare we're not even in the first inning yet. And Chris and his company are absolutely at the forefront of this revolution, I'll call it. So with that said, it is my great pleasure to welcome Chris Donaghey, CEO of Applied Energetics. Thank you, Chris.

Thanks, Steve, and thanks, everybody, for joining us. First of all, I would like to welcome our new advisory Board member. Brigadier General retired, Samuel Luke Peterson, we're going to call him Luke, that's his preferred name. And the conversation here is we'll try to keep it to 30 or 40 minutes or so and then try to leave time for questions. So I'll just open the conversation, Luke, with asking you to just kind of give us your background.

Thanks, Chris, and thanks to everybody for the opportunity to be with you today. Like has been mentioned, recently retired, I actually just celebrated my 1-year anniversary of my retirement on 1 October after 35 years of active service, a little bit enlisted and mostly officer. I started off enlisted infantry. And when I competed for an ROTC Green to Gold Scholarship, sending back to school for my degree in commission. Commission as an armor officer and was honored to serve in 2 different cavalry Regiments and 1 armored battalion. After Command and some deployments, the Army Acquisition Corps came calling with opportunities for advanced degrees, so competed for that and joined Army Acquisition Corps in 1998. And just a footnote to set the tone for the rest of the conversation, we were an acquisition reform then, and we are obviously still reforming now, a little bit of a teaser there. I was blessed to serve at each level of command, if you will, within the Army Acquisition Corps with experience ranging from requirements generation for what turned out to be the Stryker platform we know today to working several missile and launcher programs in PEO Missiles and Space in Huntsville. Obviously, had the mandatory time in the building and the Pentagon working in the Assistant Secretary of the Army for Acquisition Logistics Technology Office, obviously, supporting the political appointee responsible for all things acquisition in the Army. And it culminated in my career as a Program Executive Officer for Combat Support, Combat Service Support in Warren, Michigan where I was responsible for the Army's tactical vehicle fleet, roughly 250,000 pieces of rolling stock in all 3 components, the combat engineer capabilities, Army Watercraft, interesting to mention there as well as some other odds and ends we'd like to stuff into that PEO. So like I said, retired on 1 October last year and honored to be here.

Thanks for that background, Luke. So with all of that being said, what key leadership lessons did you learn from your Army career? And what do you find most applicable to working with innovative technology companies? I know you serve on the advisory Board of at least 3 of those companies now. What do you add to that ecosystem?

So the leadership lessons, I think we've always struggled on how to work with the industry in the Army. And it is probably at a place now that I could not have foreseen when I first joined the Army Acquisition Corps. Back then, contractors were arm's lengths, right? We gave you a requirement, we expected you to fulfill it, deliver the capability and if you can do it faster, better, cheaper, great. And as the world grows more complex with the myriad of disruptive technologies that are out there in today's environment, I believe Steven mentioned asymmetric warfare. I think we are learning and realizing that we have to collaborate a lot more closely with the industry and a lot earlier than possibly we have ever done before. And so I would like to say that in the late 20 teens, if you had to pin me on a date, I'd say about 2018, we really started to take advantage of the authorities Congress was giving us in terms of rapid prototyping. And we changed some of our acquisition processes in order to facilitate that earlier collaboration. We also addressed how we write requirements. And it's not perfect, but we now have a requirement that cannot be approved at the Army level and doesn't have to go to the joint staff or Department of Defense, which allows us to do things faster. So I think earlier collaboration, leveraging the authorities that Congress has given us, and Congress is willing to partner with us for new and innovative ways to do things if we just collaborate with them. We can't do things in isolation. We like to refer to Congress as our 535-member Board of Directors because they all get a vote in what we do and procure within the Army -- all of acquisition actually. But I think those are some of those are the key things that I have seen evolve and grow over time, and it's ever more critical now.

Yes, that's great. And in particular, with the smaller emerging defense technology companies, what are the types of engagements that you help these companies' kind of navigate as they try to grow their business and get attention inside the different Pentagon offices.

So obviously, through the power of network and understanding the different pathways that both the Department of now, War and the -- in my case, the Army are offering to get industry in the door sooner rather than later. When we stood up Army Futures Command, they established the Army Applications Laboratory, they're in Austin, which is obviously a technology hub where we wanted to be closer to the industry, leveraging the Defense Innovation Unit, which in my last PEO, we were doing, we were using them on 2 different efforts, trying to bring in the Silicon Valley start-ups and venture capital-backed type companies like yourself. And so recently, the Army announced a new initiative called FUZE, which we're going to learn much more about next week at the annual Association of United States Army convention where they are combining some different efforts under one umbrella in order to bring in the VC-backed type companies earlier and more often. We used to have SBIRs, I mean we still have SBIRs, Small Business Innovation Research and SBIR opportunities, those are still there. But through these competition, sometimes for prices, sometimes leading to a SBIR, there's a lot of exciting different ways now small companies can get engaged. And hopefully, I can provide some insight into that.

Sounds good. Let's shift a little bit now and just talk about kind of where warfare is today and what the future of warfare looks like. So what trends in warfare or defense modernization most stand out to you?

Well, one I want to say speed, the speed that industry is innovating and iterating now. The Department of War is struggling to keep up. I think we threw Moore's Law out the window about 2 or 3 years ago, right? And I don't know if there's a new law that's been named yet for how fast the industry is innovating. And it's not just the U.S. defense industrial base. Look at what we're learning in -- from Ukraine. And so I looked at the recent attack in June that Ukraine did on the Russian strategic bomber fleet, Operation Spiderweb and they use, I believe it was 70 -- 117 drones that they secretly implanted in Russia in order to conduct this massive attack that I believe, destroyed about 41 different aircraft -- strategic aircraft. So in terms of cost ratio, that's staggering. And then really, from an operational perspective, in terms of operational effectiveness, so the asymmetric nature of warfare, the speed at which we're developing us and our near peer adversaries, new technologies is something that we've got to keep pace with. And I think some of the initiatives that we're seeing out of the Department of War now are going to allow us to do that.

Yes. It's interesting. I've received a lot of questions over the past couple of weeks since Israel announced the deployment -- official deployment of the Iron Beam laser in the directed energy field in particular. And sometimes, well, we know in most cases, necessity is the mother of all invention. They really have no choice but to move with speed in order to change those economics of the engagement. Is there a time where you see the U.S. leaning forward in that kind of way? Or is it going to take some type of watershed event inside the United States, that airbase attack in particular, proved that an airfield 4,000 kilometers from the border is just as vulnerable as the front line, and I'm sure that has had -- that opened some eyes here domestically. What -- is there another gear that we can expect this process to shift into? Or is it going to take an event?

I think the current senior leadership in the Department of War don't want to wait for an event to happen to trigger the type of response that we need to maintain pace with our near-peer adversaries and how fast they're iterating on these different asymmetric type capabilities. Like I said, a lot of these new initiatives that started really in January or February when the President signed an executive order directing the reform and then some of the policy implementation things that have come out since then, indicate to us that they realize the urgency, they being the senior leaders, realize the urgency of where we're at. And then June 1 events like that, like you said, kind of open our eyes to what is in the art of the possible and what if that happened to us. And so we need strong collaboration with industry as a nation with our defense industrial-based partners to try to get after that.

So kind of shifting just to focus on the use of unmanned systems in general. How do you view the increasing role of unmanned systems and autonomous capabilities in reshaping the battlefield, whether they're in the air, on the ground or on the surface of our oceans.

So when I was the Program Executive Officer up in Michigan for all the Army's tactical vehicle fleet, we were working a program that started as leader-follower and then grew into the autonomous transport vehicle system and then once we partnered with DIU, it's now called GEARS. And it is down to 2 competitors now and what is the capabilities being developed here. An autonomous capability for resupply. So think about what I could do, if I can take soldiers out of the cabs that are doing resupply missions in an asymmetric environment. And what that means for, one, force optimization, putting those soldiers to work doing something maybe more lethal and more effectively somewhere else; two, force protection. Think about how our convoys were attacked in the years of OIF and OEF, right? And what I'd much rather lose a truck full of ammo or supplies versus losing 1 or 2 soldiers that are driving it. And so I think that -- and based upon the technological maturity we are seeing because we're following commercial industry and the development of autonomous capabilities. It's going to be a critical force multiplier on the battlefield. Now when you get to the flying unmanned side of this, obviously, what we've seen in the use of drones by both Russia and Ukraine as well as some of the nations in the Middle East between like Iran and Israel and that attack, it's proliferating. I was reading an article this morning that units are now training soldier how to make drones because industry is either taking too long or too expensive. And this one unit is making them at a 3.5:1 cost ratio. They have blanket purchase agreements to buy the parts, they've trained some pretty technical warrant officers on how to assemble, they're basically reverse engineering the drone to begin with and they are spitting them out because we realize that in order to keep pace with our threat, we've got to be able to mass with unmanned technology. The Army has taken this seriously under the now previous Army Futures Command, and I think, obviously, with the merger of Training and Doctrine Command with Army Futures Command into this new command, it's going to be a lot more streamlined. One of their initiatives is looking at the human machine interface informations from both a heavy perspective for our heavier formations than tanks, Bradley's things like that versus our lighter formations, our inventory that are driving around in Infantry Squad Vehicles. While out of the PEO, we were supporting that initiative with 2 of my capabilities, the Infantry Squad Vehicles being one but also soldiers learning how to control a squad multipurpose equipment transporter or SME capability while in the ISV. And then there were similar capabilities being developed for both drones as well as heavier unmanned ground systems. The Army views autonomy and the use of drone capabilities is critical to our future fighting force.

Yes. There's an interesting question in the Q&A that's relevant to this. So you go back to operation of Iraqi Freedom and the use of IEDs to attack primarily logistics convoys. That was a time when we realized that every vehicle that we have in inventory now needs to be connected in some form or fashion, the use of tactical radios across the entire fleet was not a thing back then, there was a question, what percent of soldiers were killed during resupply missions. It had to be a pretty high number.

I don't have a specific number, but we knew it was significant enough that we went and redesigned vehicles. It was first by starting to up armor the Humvee. And then we introduced MRAPS on a very expeditious acquisition effort in order to better protect those soldiers and then we continue to update those and upgrade those all the way through to when we pulled out of Afghanistan. But I don't have a specific number, but obviously, it was a significant enough percentage that we needed to take better measures to protect those soldiers.

Yes. Let's move on to defense innovation and adoption. So from your perspective, what are the biggest challenges for defense companies bringing disruptive technologies to the services?

So there's a Venn diagram that describes big A acquisition. And so one circle is the planning programming, budgeting and execution. In other words, how we budget for defense acquisition, one circle is a little A acquisition, like what specific acquisition strategy are you going to use? And the other is requirements. And previously, the mantra of taking 15 to 20 years to field the capability were very true. We started to prove that we could do better than that. Stryker was an example, where we leveraged an existing capability and tailored for a specific purpose and got it out there like within 4 years. We learned through OIF and OEF that we needed to iterate a lot faster. And so the Army -- when we stood up Army Futures Command, I mentioned we developed different ways of doing our requirements, and we were able to approve those at the service level. And Congress supported it because they would support the funding that went with it. And so folks like me are, I think, try to be helpful in understanding that ecosystem and how to navigate it. I think we've come a long way in reforming 2 out of the 3 of those circles of the Venn diagram. We haven't changed how we budget dollars. And so like right now, the Army is trying to get flexible funding authorization from Congress. And the committees are resisting it. And obviously, we're shut down right now, and I don't know what's going on with the bills for '26 at the moment. So we'll see how that ends up. But the Army is saying, "Hey, Congress, you want me to go faster, you want me to deliver better capabilities for soldiers. Give me some flexibility in how I spend the dollars and the ability to take from one portfolio that maybe doesn't need it or lagging behind and apply it to where I need an urgent capability". We've been fighting this fight, if you will, for years. And I finally think that there's some traction based upon the initiative we've been talking about coming out of the Department of War to get after some of those flexibilities and help companies like yourself navigate those and understand where you can leverage push and pull in order to get the right outcome.

Yes. So we've talked about a lot about the use of drones on our side for critical missions. They're also used by the adversary principally as attack mechanisms right now. So let's shift a little bit to countering those unmanned systems, whether, again, it's the small drones in the air or robotic dogs on the ground. When you were at RCCTO, you had some oversight over the directed energy programs at RCCTO. Obviously, we see this -- just given the variability of these things ranging from the small one-way attack drones to the larger Class 3 drones. As you think about that layered defense approach, what role do you kind of see directed energy playing in general? And what were some of the positives that you saw about that portfolio? And then what are some of the challenges that you saw in that portfolio?

Absolutely. I think to answer your immediate question, directed energy is one of the critical layers of a multilayered approach to overall counter UAS. And since when I was in the Pentagon from '19 to '20, and we first established the Joint Capabilities Officer or JCO for Counter-UAS, which has now grown into a new organization that we're going to hear more about next week at AUSA. It is a critical mission because it affects everybody. It's not isolated to one part of the force that's out there fighting. It can be the low decision fixing trucks in the rear to the injury person on the front lines. And so it is in everyone's responsibility. So therefore, a multilayered approach is critical. When I was at the Army's rapid capability and critical technology office, working programmatic transitions of these prototyping efforts I got to see and support those key directed energy initiatives that are meant to be disruptive. And look, they are -- at the time, they were very early in their technology maturity levels. And we were literally prototyping in the dirt at Fort Sill with soldiers and I'm speaking specifically now about directed energy M-SHORAD, which is basically a 50-kilowatt laser on a Stryker. And working closely with soldiers' industry, the program office, the user representative there altogether on the ranges at Fort Sill for 5 weeks, learning how to make that system work and work effectively. And when it did work and soldiers were knocking drones down, there's nothing better than seeing a soldier take satisfaction and accomplishing his or her mission. But to get there, there was obviously a lot of frustration and iteration of the engineering that had to happen and was continuing to happen to make it effective sustainable and repeatable so that it is a piece of kit that soldiers know they can rely on and combat. And I think our industry partners really walked away understanding that. It's one thing to say, "Hey, we're here to protect American sons and daughters", it's another thing to be out on the range, watching them use your stuff and struggle through the challenges of it, be very excited when it works effectively and then knowing that there's a lot more work ahead when it does not over.

Yes. Thanks. So the -- obviously, the problem that we're addressing here is around the size, weight and power of these systems. That 50-kilowatt laser is a pretty massive piece of hardware. It requires a platform like a Stryker to count it on. And as you think about the proliferation of these small drones, that's not going to be an easily proliferated kind of approach. They're very expensive. They're very heavy. They consume a huge amount of power. So maybe let's talk a little bit about why you're here. What attracted you to working with Applied Energetics?

An asymmetric potential technology to get after swarm technology, which is right now my biggest concern. We have a lot of systems either in development, in testing or already out there. And I don't know that we could counter a 117-drone attack like the Ukrainians just did on the Russians. And so what you guys are doing, whether your ultrashort pulse laser, I see the potential in another complementary capability to this layered approach that we're trying to develop for counter-UAS that, frankly, I am not aware of anybody else who's out there doing right now. So I think it's a pretty exciting technology, and I look forward to partnering with you and your company on how we bring that to the Department of the War.

Yes. Thanks. What -- a couple of questions here, and then we'll open it up to the Q&A. So what advice do you hope to provide the company Applied Energetics as it grows its partnerships with government and industry?

Well, I think it's critical that we partner together to stay abreast of how the department is innovating and its approaches to working with the defense industrial base to get after some of these really hard problems like counter-UAS and obviously, leveraging experience and network opportunities and then understanding the landscape. And that's hopefully the clarity I will try to bring to you. And the good news is, if I don't know something, it's pretty easy for me to go out there and find out. It's a multilayered stakeholder approach because, unfortunately, in the Army, like any large organization, sometimes the left hand doesn't know what the right hand is doing. And so trying to understand that and some of my favorite words are to my clients or to help them educate and inform what their capabilities are, what they might need to bring that to a certain technological maturity level and then developing those go-to-market strategies, whether it's with the Department of Defense or whether it's business to business and you partner with the prime, what is the right way, the right avenue, the right strategy to get that capability in the hands of the war fighter.

Yes. Great. With that, I'll kind of wrap up the formal interview portion there. Let me just scroll through some of the questions that we have from the audience.

Do you want me to facilitate those, Chris?

Let's see how many do we have here. Yes. There's an interesting question on here is the growth ecosystem in defense similar to other industries in that a company like Applied Energetics creates and grows a new technology and then gets gobbled up by a mid-tier contractor, which gets acquired by the largest company in the -- largest companies in the defense industry? I can jump in on that a little bit having witnessed this for the better part of 20 years now. So this -- it's all about risk reduction is what I would say. What we are doing right now, as Luke pointed out, is bringing an innovative technology to an application where there is no good solution today. But typically, the life cycle that you see here is the ecosystem wants to see new ideas, but they're also content to let us spend our own money to develop that capability to reduce the technological risk. And then there's a couple of decision points there. The first is, is the technology mature enough where it's ready to now deploy? And does it easily fit into the existing portfolio that I have as a mid-tier or as a prime. And if there's no clear fit there, then they wait and they start to see the orders for those systems, build the programs that are beginning adopting that, and that's generally the second jumping off point. So after you start to see traction, you start -- the market becomes more active from an M&A perspective. Look, I don't know if you have any observations around that, having been in the industry for longer than I have.

Yes. I mean, obviously, from a defense industrial base perspective, we see these kinds of mergers, acquisitions or getting directly bought out happen a lot. And that's okay as long as we're maintaining a robust and defense industrial base, the Department of Defense wants to maintain that in a lot of different domains. And this is really one of the newer ones. So I think we naturally will expect that to kind of happen, but we're not going to get in front of that. I mean, obviously, you get your antitrust issues and all those kinds of things, legalities, I guess, that have to be worked out before something like that can happen, I'm not an expert. But as long as we can still get access to technology and the capability, right, at an affordable cost point -- price point for the Army or the Department of War. That's what we're concerned about. And if a small gets consumed by a large and then we start seeing the layers and layers of fees that go on top of that and pass through and we're like, wait a minute, "When I was talking to them before, and this was the -- announced this. Why is that?" So that's probably our concern.

Yes. And I'll just say before we started the call officially, Steve was asking me about Silicon Valley Defense Group, which is a nonprofit that generally sits between the venture capital world both the investors as well as the portfolio companies and the national security community. And the creation of that organization was specifically a result of consolidation. I watched the small publicly traded defense industry evaporate before my eyes because the primes can only buy back so much of their stock before they are expected to deploy capital in other ways. And part of the rationale for launching Silicon Valley Defense Group was to help incubate that next generation of publicly traded companies. There's another interesting question on here. What do you think about what's going on in Eastern Europe? And drone curtains, I think, is what the Europeans are referring to it now? Is this Russia actually being aggressive? Or are they just testing defenses? What are your thoughts on what's happening in Europe?

I don't know that we've come up yet with an effective strategy to stop the war without getting into political things here. I think Putin has defined objectives he's trying to achieve, and they sure are testing out a lot of different capabilities to achieve those objectives. And in a way by proxy, we get to learn from that, which is pretty critical. If we remember the initial attack in that long, however many mile long convoy that was stuck on the road and what do the Ukrainians do? They attacked it, right? Those are some pretty effective tactics to try to get after an enemy like that. But what has Russia done since then? They've adapted, right? As you would find probably in any typical conflict of this nature. So I think there's a long way to go yet, and we're going to continue to learn from the different capabilities, tactics, processes, procedures that both are employing that will help inform our efforts and we try to get after some of these hard problems as well.

Yes. There's another question on here about the Golden Dome project. Any initial thoughts that you have there? I certainly have my own as well.

It's ambitious. I think it's -- I think we can get to an initial operational capability in the time frame that's been established because of leveraging existing, excuse me, capabilities and how they interoperate is going to be very critical. So what network are they going to use? And then how are we going to maintain and sustain that capability. Well, we've kind of put our money where our mouth is, recent announcement of how many more PAC-3 interceptors we're going to buy, I don't remember the exact number, but unprecedented number in a procurement contract and a multiyear procurement contract shows that we are trying to adapt our acquisition and contracting strategies to meet that evolving need. I think it's pretty critical what happens after this administration and will it continue to be funded at the level that it's being funded at now remains to be seen, obviously. And so -- but then the acquisition strategy that has been laid out so far, I think an initial operational capability is achievable.

Yes. I think it's -- the contrast to Israel is very different in this case. Israel is roughly the size of New Jersey. A United States national missile defense program that covers everything from small drones to ICBMs and hypersonic weapons is a massive, massive undertaking. And I've had conversations with some friends at primes that make interceptors, and we were just doing some back of the envelope math. It would take 20 years of production of those missile systems in order to kind of defend an area as large as the United States. From our perspective, our technology, what we think is there is an entire layer of a successful implementation of that system would be taking out the eyes of the things that are staring at you, really at any altitude. And certainly, the higher altitude you go, the more size, weight and power becomes a pretty critical characteristic of the system. So we think that there's a pretty significant role to play there for ultrashort pulse lasers. Let me look at -- there's a question about the Iranian drones in general, are they best-in-class? What I would say is you have -- again, we've talked about this being a layered defense approach. There are some drones. The Iranian Class 3s in particular, where directed energy is -- the continuous wave directed energy systems would be ideally suited for that. I don't think that they are a great effector for the smaller Class 1, Class 2, one-way drones mainly because it still requires a dwell time to neutralize those. And if you have a swarm coming at you and it takes you 3, 4, 5 seconds to defeat each one of those drones, you're going to run out of time before the bad guys run out of drones. So maybe let's just talk a little bit more about that layered defense approach. Starting with small size to medium size to hypersonics, to missiles, it's a stack of effectors that you're going to need for that.

Yes. I think you hit the nail on the head, and you looked at the specific capabilities, RCCTO, Army Rapid Capabilities and Critical Technologies Office is working on. And they have other efforts besides the big ones, but we talked about DE M-SHORAD with a 50-kilowatt laser. They have the indirect fire protection and capability, dash high-energy laser at a 300-kilowatt capability. And then high-power microwave, right? And so partnered, I think, with the Air Force at the time for an initial capability that was deployed down range to see how effective with high-power microwave getting after this form threat. There's other initiatives that I can share where they took some of my Infantry Squad Vehicles, and we're putting 20-kilowatt lasers on those for use by more dismounted infantry type forces being prototyped right now and we'll see if those lead to any kind of further production. So the Army is making the investment here. And I know the other services are, too. But like you said, Chris, the multilayered approach because you have different classes of drones that have different effectors and can-do different things requires us to continue to iterate. And so where your capability and technology comes in is totally different from a defensive perspective, if I can disable what that drone's main purpose is and essentially, I've achieved the outcome that I need, but that may be necessarily a kinetic effect, right, which when we think about all that required for Kinetic solutions, this help with magazine depth. Obviously, the response time and the ability to knock out more than one, which we've demonstrated so far shows that there is a path for this technology.

Yes. So there's a -- and I'll ask you to weigh in on -- after I answer this one question relates to technology maturity and how the government measures it and how the government funds acceleration of that. So the question is, can you speak to the capabilities of your system and how that might differ from the capabilities of a year ago. We have made dramatic improvement in our system over the past year. And at the beginning part of the year, we put a plan in place for this year to dramatically accelerate our ability to demonstrate the capabilities of this system on demand first in our indoor laser test range and ultimately, outdoors, and we established timelines, we established accountability, we established budgets and the team here responded extremely well to that challenge, so much so that we now expect to be doing our first outdoor test of the system on a military range in the fourth quarter of the year. And that, in essence kind of puts us at a TRL 5 or TRL 6 system. So the Pentagon uses a technology maturity scale called Technology Readiness Levels. And Technology Readiness Level 1, is an idea at a university, Technology Readiness Level 9 is a fielded system that is being deployed on platforms today. And the hinge there from a budget perspective is TRL 5. The aggregate amount of funding for TRL 1 to 4 is somewhere around $9 billion. The aggregate level of funding for TRL 5 systems and beyond is north of $100 billion. So that TRL 5 pivot point is a pretty crucial catalyst to capturing interest in the guys who actually control the vast amount of -- vast majority of the defense R&D budget. How did you kind of observe that process play out, both through your time at RCCTO and as the PEO?

Not well. So we have this thing called the valley of death. I'm sure probably most of your audience here and are very aware of that, where we can successfully transition technologies from a lab-based environment into -- I'll still use the term program of record, even though that may be going away and integrated into a capability. And so Army Futures Command was stood up in order to help figure out how to get after bridging that valley of death because under Army Futures Command as the Army's developmental command or DEVCOM, were all the labs reside, right? And so partnered with ASA(ALT) who controls the funding, really ruthlessly prioritizing how those R&D dollars were going to be spent. I disagreed with that a little bit because sometimes I think we need to let engineers go be engineers, right? And so I think more in the 6.1, 6.2 area is still required. But I do think that prioritization helped focus Army R&D efforts better. RCCTO was also established to help bridge that valley of death. The 3-star director has a ton of authority at his level. Basically, PEO-like authority, but he's also got contracting. And so he can control and reprioritize how those dollars are spent and his mission is to get it to a fieldable prototype capability before it transitions to an Army program executive office to further take it into life cycle sustainment in the whole nine yards. And so we were planning on using all of those authorities. And like I said, I love to talk about for DE M-SHORAD, learning how to engineer in the dirt with soldiers was really helping us figure out innovative ways to bridge that valley of death.

Yes. So presumably then, you would agree that the sooner we can get to that same spot, where we are taking our system to the soldier itself and working with them on that and how to use that system, how to operate that system, what's good about it? What is it good for? What is it not good for? Is a pretty key event for the company that we need to drive too as fast as we can.

Absolutely. And let me give you an anecdotal example for another exciting company that I'm helping to advise right now. In an operational energy solution at the tactical edge. They went from prototype design drawn on a white board, late last fall to working prototype, being used by soldiers at a joint readiness training center rotation of Fort Polk, Louisiana and the Chief of Staff of the Army and his Chief Technology Officer got to come by and witness it, 6 months, right? So that's the speed I mentioned earlier that we are trying to learn in our very bureaucratic Army and Department of War on how to iterate with the industry. I will submit that right now, and I just retired. This is the most permissive environment that I have seen where our senior leadership is inviting industry in. It's unprecedented in my mind. For a company like that to be on call to come into the box in a controlled exercise, to help train them to -- if there was a problem, they were allowed to help fix it because the Chief Staff of the Army, General George in this case, want industry to iterate with the soldiers and to take that feedback, bring to that valley of death so we can get them a successful capability. And by the way, I'll say this too, we understand that it's not going to be 100% perfect. It just -- it needs to be good enough, whatever that measure is, right? Where it is effective for soldiers to use, and they will give you the feedback you need to go back and make it better, which is what this company is back doing right now based on that exercise.

Yes. In fact, our second outdoor test, we may or not be -- may or may not be taking one of their systems out to power the laser when we go out there. One more question on here, and then we'll wrap it up. But it's along these lines. There's I've received a lot of questions over time about when do you think you'll get your first order for 100 systems or 1,000 systems. And while that certainly is a momentous event, the research, development, test and evaluation budget is specifically set up to, as you said, help cross that valley of death. And while it feels like the current administration is sort of outsourcing TRL 1 to 5 to venture capital, the role of the research and development budget is to help get it the rest of the way from 5 to 9. And there's billions of dollars being spent to do that. So maybe talk a little bit about who are the -- who were kind of the first group of buyers to say, "You know what, this is far enough along. I want to try this out for real. What stage does that happen?" But maybe just how do we walk through that process from 5 to 9. And what are the different levels of spending that you kind of see as you make that transition?

So there's a myriad of different ways this could happen given the nature of how permissive the environment is. We're seeing everything from unit demands on certain capabilities where they're getting funding under the transformation and contact initiative for the Army to directly purchase and go out and experiment with where it's not even being managed by a program office yet. To the labs partnering with a company like yours through a creative process or potentially a prototyping effort to bring you into the lab and then graduating it out to what you're hopefully going to do here soon, a TRL level 6 type relevant environment demonstration. Everything for me, [ because I am not kind of ] multiple acquisition guy, it starts with the requirement. And so whether it's specified or an implied requirement, we're being pretty permissive about that as well. I talked about these abbreviated capabilities development document that we have. We also are doing 1 to 2-page directed requirements sometimes. We do have to have that level of traceability and accountability in there that we're going to solve a problem or an operational gap with the capability through the DOTMLPF process. And so I think that educating and informing across the myriad of stakeholders is the first step, understanding where those opportunities are and helping those decision-makers understand what your capability is, how relevant it is, how mature it is and how it can be employed by our war fighters. That's half the battle right there. If you can get that kind of buy-in from the Army senior leadership, which is why I think I am here to help with that, then I think we'll see the right doors to open up, whether it's through a direct contract or potentially partnered with a prime if they want to incorporate your capability into a larger system of system type approach. I think the possibilities are probably not endless, but I think there's several different paths that we're going to see your capability take as you continue to mature and demonstrate its operational effectiveness.

Thanks. Well, I think we're going to wrap it up there. Luke, I certainly appreciate your time. Look forward to working with you and helping us get this to put our own business into a new gear as well as we look to accelerate the adoption of this capability for what we believe is a critical gap that needs to be filled. So thanks again for your time, and I look forward to continuing to work with you.

Steve and Callie and Chris, I just want to say thanks as well for this opportunity. Part of my job is to help demystify acquisition to the best extent that I can. It requires me to stay abreast of what the department is doing as well. So if there's any follow-up questions, I'm happy to try to answer them later.

Yes. And thanks to the FORCE Family Office team as well from me. We appreciate it.

Great. Thank you, everyone. And for anyone out there that does have additional -- have additional questions, everyone has my e-mail address. Happy to facilitate an introduction. In turn, Applied Energetics will have all of your information as well and will be reaching out. So again, thank you, everyone, and thank you, Luke and Chris for a fascinating discussion. Have a great day, everyone.

Thanks, everybody.