BRS Labs Financials and Future Examined 2013

BRS Labs is one of the most ambitious companies in the surveillance market. While the company has aggressively touted its achievements, IPVM's review of BRS Labs financial documents demonstrates that actual performance lags that significantly. However, BRS Labs is also now touting major new growth opportunities. In this note, we examine BRS Labs financials and future.

[NOTE: BRS Labs sent a letter to IPVM, declining to comment on specific financial details from the document save for emphasizing that, "the majority of which has not been reviewed by its auditors and is not to be relied upon." (emphasis added)]

Claims vs. Numbers

2010

In an 2009 interview with the Houston Chronicle, BRS Labs CEO said he expected to close $10 million in contracts through September 2010, noting projects with a hotel chain in India, the Dubai Airport, "a Southern U.S. Port" and a nuclear power plant.

However, the BRS Labs financial document reports audited 2010 sales at $324,000 vs. $10.6 million in operating expenses.

2011In April 2011, BRS Labs issued a press release [link no longer available] reporting “exponential growth,” boasting that they were "engaged in over $200 million in sales", 20 times what they foreshadowed to the Chronicle.However, the same BRS Labs document reports audited 2011 sales under $800,000 vs. $15.6 million in operating expenses.

By the end of 2011, total accumulated losses, since inception, of $65+ million were reported.

2012

A “confidential” presentation available online [link no longer available] says the company in 2012 had projects "underway" with Amtrak, Massachusetts Bay Transit Authority, Los Angeles County Metropolitan Transportation Authority, Illinois Regional Transportation Authority and Washington Metropolitan Area Transit Authority. Also in 2012, it penned a $2 million contract with the San Francisco Municipal Transportation Agency and possibly a contract with Tampa.

A 2012 Investor letter we obtained claimed that through the first 5 months of 2012 they had "well over $12 million in closed deals already that will hit the books this year."

The BRS Labs document reports unaudited results for 2012 that BRS Labs says are "not to be relied upon." However, they did show substantial increase of revenue over 2011 with similar expenses. However, even the unaudited numbers stated were significantly below the levels mentioned in the previous investor letter.

2013 Strategy Shift to Channel

BRS Labs says its 2013 growth strategy is “primarily focused on marketing and commercialization of AISight 3.0 [its surveillance analytics product].” What’s changed since 2012, according to BRS Labs, is its sales strategy, which moved from direct sales to marketing through resellers. In the documents reviewed by IPVM, the company said it originally charged a set price for the product and additional fees for implementation and support, but the strategy was “no longer sustainable as it was becoming increasingly difficult and expensive” due the number of international customers. The company says going forward it will market its product through resellers on short-term, fixed price agreements. If the strategy is not successful, BRS Labs says it plans to shift its focus to new product offerings.Expansion to SONAR, RADAR, Biometrics and the InternetThose new offerings would hopefully expand AISight outside of surveillance.

The company wants to develop AISight where it can be used to learn what is normal/abnormal regarding any kind of incoming electrical signals from radar readings to suspicious Internet activity. "Any signal that can be run through a computer can be applicable," the company says. Some of the stronger claims BRS Labs makes include sonar (detecting abnormalities in sound waves), radar (find abnormal situations based on radar readings), "learning" behavior of a targeted individual based on biometrics and Internet traffic. For the Internet, they note, "This same encoding could be used for searching the Internet for particular patterns based on analytics observations."

In May 2013, they announced [link no longer available] a “preferred” round of funding for development of a new line of products scheduled for release in early 2014 that will “expand outside of video surveillance” to include airspace and cybersecurity.High G&A Costs, Low R&D ExpendituresThe company’s goal to expand its technology seem especially ambitious considering its relatively low expenditures on research and development (~$2 million annually).

R&D General and Administrative Sales and Marketing

2010 $1.8 million $3.7 million $5.1 million

2011 $1.9 million $6.3 million $7.3 million

With a current round of funding it hopes to raise ~$10 million more to “meet working capital needs through April 30, 2016.” In April, we reported on BRS Labs' efforts that led to another $25 million from investors, the company’s biggest round of funding yet (That makes a total of around $87 million since 2006).

BRS Labs Potential?

The biggest advantages BRS Labs has is that:

• They address a great need for deep pocketed customers, as reinforced by the recent Boston bombings (that's not to say that they can or cannot 'stop' such events but clearly users are looking for solutions that might alert them to those incidents).
• No one, certainly in the US, is marketing a similar solution for video based, behavioral triggered alerts, giving them a fairly unique position in the market.

However, the continued losses, the far weaker revenue compared to public proclamations, especially despite sizeable SGA expenditures, raises questions about market acceptance. The potential to shift / expand into speculative new markets like RADAR, biometrics and the Internet introduces risks of its own. That said, the company has built name recognition and crafted a marketing message that appeals to customers who can easily spent hundreds of millions on BRS products.

BRS has the cash now to execute for, at least, a few more years to prove its ultimate success.