Draganfly Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 8, 2025

There are 3 speakers on the call.

Operator

K. I think to respect everyone's time, I think we will get started. So again, greetings, welcome to all the shareholders and stakeholders on today's Dragonfly '20 '20 '5 Q1 earnings call. My name is Roli Bustos.

Operator

I am the internal Investor Relations representative here at Dragonfly. We appreciate you all joining us. We will start as usual with our CEO and President, Cameron Shell, recapping the first quarter earnings headlines. Next will be a more detailed financial review with our CFO, Paul Sun. We'll then conclude by addressing the pre submitted questions we've received.

Operator

As always, you can reach out to me directly at investor. Relationsdragonfly dot com. I remind everyone this presentation may include forward looking information and statements. These statements are not guarantees of future performance or financial results and undue reliance should not be placed on them. Any future events or financial results may differ from what might be discussed here.

Operator

The company's results and statements are accurate as of today, 05/08/2025. We're under no obligation to update or renew these statements outside of material press release disclosure going forward. The full forward looking statement and disclaimer can be found on page two of this presentation. So, Cam, please go ahead.

Speaker 1

Great. Thanks very much, Roly. Thank you to everybody for taking the time to join us here today. We appreciate it. If we can just move ahead a couple slides, that would be great.

Speaker 1

So, q one, saw a lot of activity, as I'm sure it did in the entire industry. And so our revenue was 1.5, $47,000,000, which is a 16%, year over year increase. We had a gross profit of $310,000, and at the end of the quarter, we had cash of about, just over $2,000,000. So next slide, please. Thanks.

Speaker 1

In terms of the activity, that encountered over the quarter, it was a very busy quarter. So in particular, we were selected by and signed an exclusive agreement with SafeLane, which is the world's largest demining and unexploded ordnance removal company, one of the oldest as well. So they selected Dragonfly as their primary partner for all aerial surveys. And so going forward, SafeLane will be using Dragonfly equipment as well as, our services, in order to do all the aerial mapping and analysis, using proprietary software and AI tools for prework around, demining, projects. So demining is a massive, opportunity.

Speaker 1

Drones are now, becoming standard fare to be used in demining operations. However, it is highly technical. It requires specific types of equipment to use, specific types of expertise, given the amount of data and experience that we have in particular in Ukraine in this area, and the AI that's required from the data that's been collected over the last number of years, we're really excited, to see this as a primary service going forward. Dragonfly does have a couple of primary services, that we do offer, because of the technical aspects of it. They do exist in the the mining space, in the wildfire, management mitigation space, also, in the wash drone, space.

Speaker 1

So, we're very, very fortunate in q one and honored to have, Chris Miller, who is the former acting secretary of defense of The United States, also a former, Green Beret, intelligence officer as well. Green Beret officer and and intelligence officer, worked in the Pentagon for years, obviously worked his way up and became the sec acting secretary of defense. Chris, has also been very kind to, work and act as a spokesperson for us, at many events, and on, national TV. He brings an incredible work ethic, fantastic, contact base experience, to the table. Chris's mandate when he was, working in government and, the former acting secretary of defense, was actually to, mandate, the DOD to be able to, create, projects and technology services, from the ground up.

Speaker 1

So he's a big, big advocate of not having top down decisions made. And so so the, access that he has provided to us into many aspects of the military has been fantastic. And we look forward to the the benefits of that and the work that we're doing with him and and the military over the course of the next couple of years as the the massive amounts of budgets, that actually were just talked about today, in terms of automation, and drones particular, that are now starting to unfold, within the NATO militaries. So, we also announced, a teaming agreement with Autonomy Labs. Autonomy Labs is a fantastic company that's actually designed a demining, I'll call it blanket, that sits on top of the surface, and then, has a number of ordinance on it that explode.

Speaker 1

And so, they have teamed with us to utilize our heavy lift drone in particular, to actually go and place these blankets, for demining operations. So this would be the first time that drones will be used, in in order to place this type of, equipment in place. And we do expect the results of it, to be, obviously a lower cost of demining, you know, faster speed and greater safety. So we're really, really happy to be selected, by them to do it. And and, you know, the the reason that these companies team with Dragonfly isn't just because we got great equipment.

Speaker 1

It's because we have great subject matter expertise and the ability to build solutions with them. And then, these companies, of course, become a great channel for us, and our equipment as they go out and sell it into, their markets. So, we're also selected, as, Belco's UAS, provider of choice. So Belco, builds and supplies a North American, LIDAR system, and this is another example of, of our channel strategy. So, you know, you've got companies out there building great, great, payloads, but they need, NDAA compliant drones in order to carry this particular type of equipment.

Speaker 1

And so in order to, be able to sell into North American providers, they need a North American drone manufacturer to work with. So all the integration, the software, the distribution, the inventory, all the things that are a challenge for these organizations to work with because they're a LIDAR company, they're not a drone company, we've been able to work through with them, and they become a great channel partner. So, every time that they're going out and selling their LiDAR system, now they're also selling Dragonfly drones as well. We've seen some terrific results with them in this current order, that we're in. So thanks to them for that work.

Speaker 1

We have established a, public safety board of advisers. So this board of advisers, has a number of very prominent, public safety individuals that come out of many of the, top organizations, public safety organizations, in particular in North America. Paul Goldenberg, is our chair there. Paul's, former homeland security, former police commissioner as well. And what this board of advisers has been able to do is provide us not just incredible, product and subject matter expertise, but access.

Speaker 1

Access into many of the top agencies, not just in North America, in fact, globally as as it's turned out. And, they've got us running at full speed right now. I mean, our demo teams, like, yeah, it's, we we they're they're they're overbooked, and and we're certainly adding more folks, in that regard. So thanks to Paul and the team there and the great work. We also, have closed a $3,600,000 financing, which will, again, carry us forward and let it allow us to continue to do the great work that the team is doing and move towards the large purchase order does the purchase orders that we're working on.

Speaker 1

So thanks. Next slide, please. From an operational standpoint, we did open up a new facility in Tampa. This Tampa facility, it also includes a full testing facility that allows us to not just test drones, but actually do live ordinance, as well. It's strategically located in Tampa for two reasons.

Speaker 1

One, a great customer there that we have, in special ops, in support of the the work that we're gonna be doing with them currently, obviously, but, obviously, the expanded work, that we're looking forward to doing, with them in the future. Also, what it does is it allows us, to have strategic manufacturing in that particular location, for our US, in particular military orders, but also our public safety orders. And, this is really important on a number of different fronts, but in particular, as it relates to, what's happening, geopolitically, with tariffs. So, we are able to, now be in a position, to choose where, depending on specific models and orders, where we're going to be manufacturing out of, to then best utilize how we can best serve our customer and address any geopolitical tariff situation. We, did some, some great partner work, with the Lattice, where we expanded our abilities, in the high value geospatial area, in particular with, power utility customers.

Speaker 1

So, what's incredible about this space is that, it's all moving towards drone inspection. And the fleets that are out that are that are in North America are actually now moving away from any of the former, Chinese equipment that they had or, you know, foreign national equipment that they had to North American equipment. Dragonfly is uniquely positioned here, obviously, not just because of of our North American, both US and and Canadian capabilities, but also because of the type equipment, that we have, in our heavy lift and our three XL, drone. So, really excited about the work that, is unfolded there with, and they've been a great partner, to be working with. They also have development, of some very specific bathymetric lidar systems for oil and gas exploration, in the ocean.

Speaker 1

And so, again, we were approached by them and a customer of theirs in order to utilize our equipment, because of its heavy lift capability, but also because of the software integration and engineering work we could do along with their bathymetric LIDAR system. So, that has really opened up an incredible opportunity in that oil and gas, explorations, space for, for offshore exploration. We, secured, multiple waivers again this last quarter, in particular for drone operations over people and moving vehicles in the Boston area, which is an incredibly, congested, space. And we continue to do, our work with Massachusetts Department of Transportation where we were awarded and won a pilot project there for medical delivery, but also with Boston Mass General who's standing up a medical delivery, service throughout Boston has selected Dragonfly to do so. So next slide.

Speaker 1

We, unveiled our Apex drone, last year, and this drone here is, is would fit into a category one drone, but it's a bit it would be considered a large category one, drone for sure. But it does directly address the ISR market for both the military and for public safety. The features the unique features of this is its payload capacity and its multiuse capabilities. So while we do see a number of smaller ISR drones being, manufactured in North America, they're primarily a flying camera. And what we see with this particular, drone is a drone that was designed because of demand signals that we were getting out of the military and law enforcement for an ISR drone that has capability beyond just doing ISR, meaning intelligence surveillance and reconnaissance.

Speaker 1

So this onboard this is this is a drone that can do multi unit payload capacity, at the same time. It also has NVIDIA onboard computing for AI performance, so we're seeing a lot of demand around, onboard processing, AI capabilities, advanced navigation capabilities, all of which are very power hungry, requirements, and many of which the payloads that those, support are also power hungry and and somewhat heavier. So we now have a drone in the market that's, we're meeting, that that's meeting that need, and we have tremendous demand around it. So, it comes with various communication with links, interference, resistance, CoffDM radio capabilities, multichannel capabilities, so anti you know, a GPS denied environment, capabilities and such. So really excited about how this has performed and how it's been accepted in the market, and we'll continue now to press this forward as one of our main product lines.

Speaker 1

And and I think that's what something that's super important. Next slide, please. That's super important to recognize about Dragonfly and where it's positioned in the market. So there's there are some fantastic drones being made by many of the names that I'm sure some of the people on this call will recognize. And but if and and there's no they are just, they're they've really come a long way.

Speaker 1

Typically, those two drones are fitting into a a couple of categories. One, the small ISR drone, which is, you know, a flying camera, and, and a variant of that that might come in a drone in a box to be able to do drone as first responder. What we're seeing with our customers and why we've designed Dragonfly in the way that we have is that the customers that we have are looking they they certainly need that type of a of a drone. There's demand signal out for therefore, and that's that's typically replacing the DGI, Nabbit type of, scenario. But where we're really seeing the demand has been, okay, how do you have a product line that can address all the needs?

Speaker 1

So there there's plenty of manufacturers of the small ISR drone out there, but we need a drone that can do multi payload or has the capability beyond just being a camera or just flying out of a box. We need the ability to fly for three or four hours. So, you know, how do you do that with electricity while you don't you you need a hybrid capability? You know, how do you how do you have a command you know, a drone that can actually carry, you know, 20 or 30 pounds, stay up for x amount of time? I can do multiple types of missions so I don't have to bomb multiple types of drones, and then obviously move right into our heavy lift drone.

Speaker 1

And, you know, it'd sure be nice to be able to do that with a common operating system, with common attachments, with payloads that can fit across any one of those drone systems, and such. And that's really a very unique, what we're finding, capability that Dragonfly has. I I would suggest that that, you know, outside of of DGI, of course, which is a massive company, they're we're certainly not in North America, but maybe even globally that well, there's certainly somebody that another organization that doesn't have a full product suite. And and the more that we deal with our customers, the the more this is becoming a differentiator. So they want those common hookups.

Speaker 1

They want a common operating system. They want common flying characteristics, and they don't wanna have to have one person trained on one system and then have to learn an entirely different system. So this gives them that common operating feature. And, again, that fits in right with our flex drones, which, can be flown individually or autonomously or swarmed and or even dropped from any one of these drone systems so that they become, you know, you got a three XL that's flying out there. There's a payload attachment that goes with that and software that that flex FPV drones can be dropped out of there, and then they can be swarmed and and flown out.

Speaker 1

All of these drones are ability have the ability to carry any number of play payloads, including ordinance. So that's really the differentiator. These these are these are workhorse drones and, with multiple applications. Next slide, please. I won't spend any time here.

Speaker 1

As we all know, the UAV market is growing exponentially right now. For the most part, the large purchase orders, and standardization of the industry has taken the last couple of years to get to, and we are now at the very front edge of seeing those large orders happen, not just for Dragonfly, but for a number of companies. But there's three or four particular companies out there, maybe five at the outside, in North America that have the capability, ability, have been around long enough to actually be have, gone through all the testing selection, processes, cleared all the, I'll call it background checks, clearances, etcetera, and have the ability to meet the demand requirement. And that's, the other big differentiator is that Dragonfly has the ability to meet the demand requirement for exon of hundreds of drones on a particular order. And that's a that's a an an incredibly, incredibly strategic, important strategic differentiator for us and maybe two or three other, organizations in North America.

Speaker 1

Next slide, please. What I'll do here is I'll turn this over to Paul, Sun, our CFO, to run us through our financials. Paul?

Speaker 2

That's great. Yep. Thanks, Cam. Thanks, everybody, for joining. I'll just take you through these slides, with some of our adjustments.

Speaker 2

Revenue for first quarter, as Cam said at the outset, up 16.4% to 1,500,000.0, up from 1,300,000.0 from the first quarter of twenty twenty four. Gross profit, 310,000 compared to $2.80 in q one of last year. This quarter did have a onetime noncash recovery of a write down of inventory. Usually, we have the other way. But in this case, it would have been 271,000 in gross profit compared to the same period last year where we had a onetime inventory write down of a hundred and 40 9 thousand.

Speaker 2

So making the adjusted gross profit there of 428,000. So taking those adjustments into account, adjusted gross profit was 17.5% versus an adjusted gross margin for, same period last year of 32%, and that's just a result of more sales coming from some lower margin products this year versus last year. Comprehensive loss for the quarter, 3,400,000.0, compared to what you see here officially, stated as 1,900,000.0. However, as as noted, there were some noncash changes comprised of a fair value derivative liability of a hundred and 57,000, onetime recovery of inventory write down, which we just spoke about, and a gain on notes receivable. So otherwise, would have been a comprehensive loss of 3 point 7.

Speaker 2

And if we did the same thing looking at last year's, loss, it would have come in at 3.6. So really, pretty much the same loss year over year. The slight increase is due to some higher office and admin and and professional fees. If we go on to the next slide, please, we just did the year over year comparison. So now I'll just talk about the quarter over quarter, meaning q one compared to last quarter being q four of twenty twenty four.

Speaker 2

In this case, revenue was down a SNC, about 4% to 1.54 compared to the 1.6 reported in q four. Just some lower product sales, you know, timing issues, that type of thing. Gross margin, we talked about q one was 20%. That compares to 13.4% in q four. Again, if we back out those one time non cash items, gross margin for q one was 17.5% compared to 24% adjusted for the previous quarter.

Speaker 2

Total comprehensive loss, for q one, we talked about 3,500,000.0. In this case, it compares to a reported 4,700,000.0. But again, we have some adjustments that we'd like to back out. So if we do that, the comparative comprehensive loss would have been 3.7 compared to a loss of 3.6 excluding non cash adjustments. So again, similar situation, pretty much same loss, quarter over quarter.

Speaker 2

So that's, that's, I guess, consistent. And and then I think on the next slide here, we'll just go through, some balance sheet items. So you can see here total assets decreased from 10,200,000 to 6,900,000.0 from the December. That's largely due to the decrease in cash as the company operates. Working capital surplus was 705,000 versus at December 31 of 3,800,000.0.

Speaker 2

However, working capital would have been a surplus of 2,700,000.0 and shareholders equity would be 3,500,000.0 versus the 1,400,000.0 shown here if we exed out the non cash fair value of derivative liability of $2,000,000. So at the December, adjusted working capital would have been 6,000,000, and shareholders' equity would have been 6.8 just so you guys have the comparison. And we continue to have minimal debt. And as Kim mentioned at the beginning, cash balance as at the March was was $2.2100000.0, compared to December's number of 6.2. But then, of course, we just very recently closed on, on The US Three Point Six.

Speaker 2

With that, I'll I'll pass it back to you, Ken.

Speaker 1

Alright. Thank you, Paul. Welcome. Sounds great. Think we can stop sharing.

Speaker 1

And I think, Roli, if I'm not mistaken, you've got questions that, have, come in that we can maybe address.

Operator

Yeah, Cam. Thanks. Yeah. I'm looking at the list now. We did get a few questions and maybe not as many as we normally do, but, some of them, I think everybody probably has on top of their on top of their mind.

Operator

First one would be, how many more equity raises do you plan on doing before being profitable? Or more specifically, when do you plan on being profitable?

Speaker 1

Yeah. I think so profitability is really all about sales at this this point. We and, you know, I think we've got our our costs, where they need to be certainly on a on a comp basis. I would suggest that we're, we're we're spending a lot less money than, competitors out there. You know, I think we're, basically, we're gonna need about 35 to $40,000,000 in revenue to be profitable.

Speaker 1

So that's I mean, that's just that's a short answer of where it needs to be. We don't give official guidance, in terms of, of where we think our numbers will be, this year. Certainly, in terms of orders, expect us to be well north of that number. How quickly we produce those orders depend obviously on on when we actually are signed off on those particular orders for this year. So we won't be profitable this year.

Speaker 1

We certainly have a shot at being profitable next year, a very, very good shot at being profitable next year, but it's gonna take us just north of about $30,000,000 to be profitable. And can it be in in this environment with the customers that we're dealing with that, in many respects, that could be one order. So

Operator

Great.

Speaker 1

Hopefully, that provides some clarity.

Operator

Thank you. Next one I have here is, are we still on track to get large meaningful contracts?

Speaker 1

Yeah. That I mean, what we have right now and what we're displaying through our sales funnel right now are the the the ones and the twos and the fours and the fives, and they're consistently growing on an on an ongoing basis. But where we're spending the majority of our time, certainly, at an executive, level and our senior level, are on these large contracts, which take you you know, are incredibly intricate and, and complex. You you know, total funnel in that regard is, you know, well over well, well over a hundred million dollars that's in the funnel. Short on that end in terms of what we have hopeful expectations of of some time in the next quarter.

Speaker 1

Certainly, there's enough there that could make us profitable. But, yeah, we've we're dealing with, you know you know, nation states, militaries, very large public safety orders, and and we're we're in a position to deliver on those now. So that's that's really what the the I can't say the entire focus, but that that is the that is the ability to focus on that right now, and and we feel we're very, very close on several fronts. So

Operator

Great. Thank you. Do you think there will be consolidation in the drone industry?

Speaker 1

Yeah. No. There there's gonna continue to be consolidation on a and and we see it happening on an ongoing basis. From from our perspective, we have not been aggressive in this regard just because we have a very modest market cap, and and we have the capabilities that we need to execute organically on orders that we think are, you know, completely exponential or will create completely exponential growth on the market cap or evaluation compared to where we're at today. So we've chosen to keep our resources both in terms of capital share shares and resource time very focused on organic situation.

Speaker 1

But it's, yeah, you know, it's it's weekly might be a a little bit of an exaggeration, but almost weekly, we see something that comes across our our table that that's that's interesting. But it it'll be some time before we execute in that regard. But, yeah, we're we're gonna we're gonna see con consolidation, not because the market can't handle, having more, people in the market, but the time between where we see the the tipping point in the industry happening and where it's you know, has been and where it is at today, you know, that's that that trough of doom or whatever you call that that really takes a lot of resilience for for, companies to get through. And and I think there's a pretty good indicator out there of of the three or four companies that have the capability to get across that trough. But there's there's a plethora of other technology and companies and and talent out there that that won't, that that won't make it.

Speaker 1

So it's it's interesting times for sure.

Operator

Great. Thank you. I think you already touched on this a little bit, so you don't you don't have give a big answer. But will you be producing drones at the new Florida location?

Speaker 1

We'll be doing at least sub assembly work. May maybe not at that yeah. The answer is yes. We'll be doing sub assembly work there. The large orders will be done through contract manufacturing in The States just because of the incredible volume there.

Speaker 1

We still have of course, we have our our full blown manufacturing facilities, up in Canada, as well, and they'll they'll satisfy parts of these, orders if necessary, but they'll also for the Canadian market, and the international market. So, you you know, kind of more by luck than certainly by design, the geopolitical situation is is serving us quite well. We have a strategy that's that's not affected by the the tariffs to the to a great degree. And and, candidly, those tariffs actually haven't still come into to effect. But even if they do, we've got a way that that does address it.

Speaker 1

In terms of our international work, the fact that we can produce out of Canada has really been a a great benefit. Again, that that's more by luck than by design. And the Canadian market in particular is, has becoming incredibly strong for us, which, again, wasn't wasn't part of the overall, business plan, but very, very excited that it's working out, as there there's really, there's you know, depending on how you look at it, there's maybe one other manufacturer up in Canada. But other than that, it's, that's that's our market to to lose, if you will. So

Operator

Okay. Great. I'm I'm I'm reading I'm looking at the the last couple questions here, and and they're kind of on the same theme. So I'm gonna leave it on this on this last these last questions. This last question, I'm gonna summarize.

Operator

And and, basically, at the end, you if you just kinda give us some color of what you expect the rest of the of the year to to look like, and and kind of the way it was this question was asked was, you know, over the past several years, Dragonfly has made significant capital investment to expand operations. However, revenues have have seemed to be stagnant since 2023. When can expect investors expect this downtrend to cease?

Speaker 1

Yeah. So, you know, our expectation is that it's that this is the year. So sometime over the next, two quarters, we expect to see that scale, able to be announceable. We we have very good visibility on what's unfolding. Of course, we could only, say what we can publicly say it, in time.

Speaker 1

So we're we're really comfortable with with what will unfold and and that this year should be an incredibly strong year, if not the breakout year. So signature sales, both in terms of size and quality of customer, are the key metrics to watch and and the key metrics that we're focused on now.

Operator

Okay. Great. Thanks, Cam. Yeah. I think that's a general theme that I get from investors and and shareholders kind of is just our year.

Operator

And and and I definitely think it is, and, you you do as well. I'll leave it there for questions. As and always, anyone on the call, you can always call me or, email investor.relations@dragonfly.com. If you have something more specific to ask, I'd be happy to answer it at any time. But with that, Kim, I think this call has probably concluded.

Operator

So I'll let you make a a closing remark, and then we can end it.

Speaker 1

Great. Thanks, Roli. Thanks, in particular, to all the folks at Dragonfly. Our teams do incredible work. I see them going hard through the weekends, late into the evenings, road warriors all over the place, you know, really deep innovation and commitment to our customers, our product.

Speaker 1

So thank you, to all of you. Thanks to, also, our and in particular, our customers, who are supporting the company, who really see the vision of what's unfolding, and and and have shown such an incredible commitment, to to to work with Dragonfly and allowing us to be, your provider. And, first and foremost, thanks to our shareholders. None of this could be happening without you. We appreciate your trust.

Speaker 1

We take very seriously your consideration in the investment that you've made in the company. So while thematically, the drone industry is a multibillion dollar industry, it's incredibly, incredibly, intricate and complex. And, we're really privileged and proud to be, you know, kinda one of those three or four players that are that are standing on the precipice of of multibillion dollar type valuations. And so thank you for your time there. On that note, I will leave it.

Speaker 1

Roly and I are open to questions and meetings anytime that's at all reasonably possible, and we look forward to a to a great quarter two update. Thank you.

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Draganfly Q1 2025
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