Draganfly Inc. (NASDAQ:DPRO) Q1 2025 Earnings Call Transcript

Draganfly Inc. (NASDAQ:DPRO) Q1 2025 Earnings Call Transcript May 11, 2025

Rolly Bustos: Greetings. Welcome to all the shareholders and stakeholders on today’s Draganfly 2025 Q1 earnings call. My name is Rolly Bustos. I am the internal investor relations representative here at Draganfly. We appreciate you all joining us. We will start, as usual, with our CEO and President Cameron Chell recapping the 1st quarter earnings headlines. Next will be a more detailed financial review with our CFO Paul Sun. We will then conclude by addressing the pre-submitted questions we have received. As always, you can reach out to me directly at investor.relations@draganfly.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. The company’s results and statements are accurate as of today, May 8th, 2025. We’re under no obligation to update or renew these statements outside of material press release disclosure going forward. Forward-looking statement and disclaimer can be found on page 2 of this presentation. So, Cam, please go ahead.

Cameron Chell: Great. Thanks very much, Rolly. Thank you to everybody for taking the time to join us here today. We appreciate it. If we just move ahead a couple of slides that’d be great. So Q1 saw a lot of activity, as I’m sure it did in the entire industry. Our revenue was $1.547 million, 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 just over $2 million. So next slide, please. Thanks. In terms of the activity that we encountered over the quarter, it was a very busy quarter. 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.

They selected Draganfly as their primary partner for all aerial surveys. Going forward, SafeLane will be using Draganfly equipment as well as our services in order to do all the aerial mapping and analysis, using proprietary software and AI tools for pre-work around demining projects. Demining is a massive opportunity. Drones are now becoming standard fare to be used in demining operations; however, it is highly technical and requires specific types of equipment to use, specific types of expertise. Given the amount of data and experience that we have, particularly in Ukraine, in this area, and the AI that’s required from the data collected over the last number of years, we’re really excited to see this as a primary service going forward. Draganfly does have a couple of primary services that we do offer because of the technical aspects of it.

They do exist in the demining space, in the wildfire management and mitigation space, and also in the wash drone space. We were very, very fortunate in Q1 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 Intelligence Officer, worked in the Pentagon for years, obviously, worked his way up and became the 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, and experience to the table. Chris’s mandate when he was working in government and as 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.

Q&A Session

He’s a big, big advocate of not having top-down decisions made. The access that he has provided to us into many aspects of the military has been fantastic, and we look forward to the benefits of that and the work that we’re doing with him and the military over the course of the next couple of years, as the massive amounts of budgets that actually we just talked about today in terms of automation and drones, particularly, that are now starting to unfold within the NATO militaries. We also announced a teaming agreement with Autonomy Labs. Autonomy Labs is a fantastic company that’s actually designed a demining blanket that sits on top of the surface and has a number of ordnances on it that explode. They have teamed with us to utilize our heavy-lift drone in particular to actually go and place these blankets for demining operations.

This would be the first time that drones would be used in order to place this type of equipment in place and we expect the results of it to be obviously a lower cost of demining, faster speed, and greater safety. So we are really, really happy to be selected by them to do it. The reason that these companies team with Draganfly isn’t just because we’ve got great equipment but it’s because we have great subject matter expertise and the ability to build solutions with them. These companies, become a great channel for us and our equipment as they go out and sell it into their markets. We were also selected as Balko’s UAS provider of choice. Balko builds and supplies a North American LIDAR system. This is another example of our channel strategy.

You’ve got companies out there building great payloads, but they need NDAA-compliant drones to carry this particular type of equipment. In order to be able to sell into North American providers, they need a North American drone manufacturer to work with. 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, not a drone company – we’ve been able to work through with them, and they become a great channel partner. Every time they’re going out and selling their LIDAR system, they’re also selling Draganfly drones. We’ve seen some terrific results with them in this current quarter that we are in. So thanks to them for that work.

We have established a Public Safety Board of Advisors. This Board of Advisors 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. What this Board of Advisors has been able to do is provide us not just incredible product and subject matter expertise, but access into many of the top agencies, not just in North America, in fact, globally, as it’s turned out. They’ve got us running at full speed right now. Our demo teams are overbooked, and we’re certainly adding more folks in that regard. So thanks to Paul and the team there and their great work.

We also have closed a $3.6 million financing, which will again carry us forward and allow us to continue to do the great work the team is doing and move toward the large purchase orders that we’re working on. So, thanks. Next slide, please. From an operational standpoint, we did open up a new facility in Tampa. This Tampa facility also includes a full testing facility that allows us to not just test drones but actually do live ordnance as well. It’s strategically located in Tampa for two reasons: one, a great customer there that we have in Special Ops in support of the work that we are going to be doing with them, currently, obviously, but obviously, the expanded work 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 U.S., in particular military orders, but also our public safety orders.

This is really important on a number of different fronts, but in particular, as it relates to what’s happening geopolitically with tariffs. We are able to now be in a position to choose where depending on specific models and orders, where we’re going to manufacture to then best utilize how we can best serve our customer and address any geopolitical tariff situation. We did some great partner work with Volatus, where we expanded our abilities in the high-value geospatial area, in particular with power utility customers. What’s incredible about this space is that it’s all moving towards drone inspection, and the fleets that are out there in North America are actually now moving away from any of the former Chinese that they had or foreign national equipment that they had to North American equipment.

Draganfly is uniquely positioned here, obviously not just because of our North American, both U.S. and Canadian capabilities, but also because of the type of equipment that we have in our heavy-lift and our 3XL drones. So, really excited about the work that has unfolded there with Volatus, 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. 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. This has really opened up an incredible opportunity in that oil and gas exploration space 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. We continue to do our work with the Massachusetts Department of Transportation, where we were awarded and won a pilot project there for medical delivery. But also, with Boston Mass General, which is standing up a medical delivery service throughout Boston, has selected Draganfly to do so. So, next slide. We unveiled our Apex drone last year. This drone fits into a category 1 drone but would be considered a large category 1 drone for sure. It does directly address the ISR market for both the military and for public safety. The unique features are its payload capacity and its multi-use capabilities.

While we do see a number of smaller ISR drones being manufactured in North America, they’re primarily a flying camera. What we see with this particular drone is one designed because of demand signals that we were getting out of the military and law enforcement for an ISR drone with capabilities beyond just doing ISR, meaning intelligence, surveillance, and reconnaissance. This is a drone that can do multi-unit payload capacity at the same time. It also has Nvidia onboard computing for AI performance. We’re seeing a lot of demand around onboard processing, AI capabilities and advanced navigation capabilities, all of which are very power-hungry requirements; many of which the payloads that those support are also power-hungry and somewhat heavier.

We now have a drone in the market that’s meeting that need, and we have tremendous demand around it. It comes with various communication links, interference resistance, COFDM radio capabilities, multi-channel capabilities, and anti – GPS-denied environment capabilities and such. Really excited about how this has performed and how it’s been accepted in the market. We’ll continue to press this forward as one of our main product lines. I think that’s what something that’s super important to, next slide please, recognize about Draganfly and where it’s positioned in the market. There are some fantastic drones being made by many names that, I’m sure some of people on this call will recognize, and there’s no but, they are just – they’ve really come a long way.

Typically, those two drones are fitting into a couple of categories: one, the small ISR drone, which is a flying camera, and a variant 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 Draganfly in the way that we have, is that the customers that we have are looking – there’s certainly need that type of drone – there’s a demand signal for it. That’s typically replacing the DJI Mavic type of scenario. But where we’re really seeing the demand has been, “Okay, how do have a product line that can address all the needs?” There are plenty of manufacturers of the small ISR drone out there, but we need a drone that can do multi-payloads or has capabilities beyond just being a camera or flying out of a box.

We need the ability to fly for three or four hours. How do you do that with electricity? Well, you don’t. You need a hybrid capability. How do you have a drone that can actually carry 20 or 30 pounds, stay up for X amount of time, and I can do multiple types of missions, so I don’t have to buy multiple types of drones, and then obviously, move right into our heavy-lift drone. It would sure be nice to be able to do that with a common operating system, with common attachments, with payloads that can fit across any of those drone systems and such. That’s really a very unique capability that Draganfly has. I would suggest that, outside of DJI, of course, which is a massive company, certainly not in North America, but maybe even globally, there’s certainly another organization that doesn’t have a full product suite.

The more that we deal with our customers, the more this is becoming a differentiator. So they want those common hookups, they want a common operating system, they want common flying characteristics, and they don’t want to 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. Again, that fits in right with our Flex drones, which can be flown individually or autonomously, or swarmed, and or even dropped from any of these drone systems so that they become A 3XL flying out, there has a payload attachment that goes with that, and software that – Flex FPV drones can be dropped out of there and then they can be swarmed, and flown out. All of these drones have the ability to carry any number of payloads, including ordnance.

That’s really the differentiator. These are workhorse drones with multiple applications. Next slide, please. I won’t spend any time here, 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 Draganfly but for a number of companies. But there’s three or four particular companies, maybe five at the outside, in North America that have the capability, have been around long enough to actually have gone through all the testing and selection processes, cleared all the background checks and clearances, etc., and have the ability to meet the demand requirement.

E That’s another big differentiator is that Draganfly has the ability to meet the demand requirement for hundreds of drones on a particular order. That’s an incredibly important strategic differentiator for us and maybe two or three other organizations in North America. 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 Sun: Thanks, Cam, thanks everybody for joining. I’ll just take you through these slides with some of our adjustments. Revenue for the first quarter, as Cam said at the outset, up 16.4% to $1.5 million, up from $1.3 million from Q1 2024. Gross profit was $310,000 compared to $280,000 in Q1 of last year. This quarter did have a one-time non-cash recovery of a write-down of inventory. Usually, it’s 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 one-time inventory write-down of $149,000, so making the adjusted gross profit $428,000. Taking those adjustments into account, adjusted gross profit was 17.5% versus an adjusted gross margin for the same period last year of 32%.

That’s just a result of more sales coming from some lower-margin products this year versus last year. Comprehensive loss for the quarter was $3.4 million compared to what you see here officially stated as $1.9 million. However, as noted, there were some non-cash changes comprised of a fair value derivative liability of $157,000, a one-time recovery of inventory write-down, which I just spoke about, and a gain on notes receivable. Otherwise, it would have been a comprehensive loss of $3.7 million. If we did the same thing looking at last year’s loss, it would have come in at $3.6 million. So really, pretty much the same loss year-over-year. The slight increase is due to some higher office, admin, and professional fees. If we go on to the next slide, please, we just did the year-over-year comparison, so now I’ll talk about the quarter-over-quarter, meaning Q1 2025 compared to Q4 2024.

Revenue was down slightly [ph], about 4%, to $1.54 million compared to $1.6 million reported in Q4, just due to some lower product sales timing issues. Our gross margin, we talked about, Q1 was 20%, that compares to 13.4% in Q4. Again if we back out those one-time non-cash items, gross margin for Q1 was 17.5% compared to 24% adjusted for the previous quarter. Total comprehensive loss for Q1 was $3.5 million. In this case, it compares to a reported $4.7 million. 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 million compared to a loss of $3.6 million excluding non-cash adjustments. So, a similar situation, pretty much the same loss quarter-over-quarter.

That’s consistent. On the next slide, we’ll go through some balance sheet items. So you can see here, total assets decreased from $10.2 million to $6.9 million from the end of December. That’s largely due to the decrease in cash as the company operates. Working capital surplus was $705,000 versus at December 31st of $3.8 million. However, working capital would have been a surplus of $2.7 million, and shareholders’ equity would be $3.5 million versus the $1.4 million shown here, if we excluded the non-cash fair value of derivative liability of $2 million. At the end of December, adjusted working capital would have been $6 million, and shareholders’ equity would have been $6.8 million just so you guys have the comparison. We continue to have minimal debt.

As Cam mentioned, the cash balance at the end of March was $2.1 million compared to December’s number of $6.2 million. But, then, of course, we recently closed on the $3.6 million. With that, I’ll pass it back to you, Cam.

Cameron Chell: Thank you, Paul. Sounds great. I think we can stop sharing, and I think, Rolly, if I’m not mistaken, you’ve got questions that have come in that we can maybe address. Question-and-Answer Session

A – Rolly Bustos: Yeah, Cam, thanks. I’m looking at the list now. We did get a few questions, maybe not as many as we normally do, but some of them I think everybody probably has on top of their mind. The 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?

Cameron Chell: Profitability is really all about sales at this point. I think we’ve got our costs where they need to be, certainly on a comp basis. I would suggest that we’re spending a lot less money than competitors out there. Basically, we’re going to need about $35 million to $40 million in revenue to be profitable. That’s the short answer of where it needs to be. We don’t give official guidance in terms of where we think our numbers will be this year. Certainly, in terms of orders, we expect us to be well north of that number. How quickly we produce those orders depend obviously on when we are signed off on those particular orders for this year. We won’t be profitable this year. We certainly have a shot at being profitable next year – a very good shot at being profitable next year.

But it’s going to take us just north of about $30 million to be profitable, and candidly, in this environment with the customers we’re dealing with, that could be one order. Hopefully that provides some clarity.

Rolly Bustos: Thank you. The next one I have here is: are we still on track to get large, meaningful contracts?

Cameron Chell: What we have right now, and what we’re displaying through our sales funnel right now, are the ones, twos, fours, and fives, and they’re consistently growing on an ongoing basis. But where we’re spending the majority of our time, certainly at an executive level and senior level, are on these large contracts, which are incredibly intricate and complex. The total funnel in that regard is well over $100 million that’s in the funnel. Short on that end, in terms of what we have hopeful expectations of sometime in the next quarter. Certainly, there’s enough there that could make us profitable. We’re dealing with nation-states, militaries, and very large public safety orders, and we’re in a position to deliver on those now. That’s really almost, I can’t say the entire focus, but that is the ability to focus on that right now and we feel we’re very, very close on several fronts.

Rolly Bustos: Thank you. Do you think there will be consolidation in the drone industry?

Cameron Chell: There’s going to continue to be consolidation, and we see it happening on an ongoing basis. From our perspective, we haven’t been aggressive in this regard just because we have a very modest market cap and we have the capabilities that we need to execute organically on orders that we think are or will create exponential growth on the market cap or valuation compared to where we’re at today. We’ve chosen to keep our resources – both in terms of capital shares and resource time – very focused on our organic situation. So weekly might be a little bit of an exaggeration, but almost weekly, we see something interesting come across our table that’s interesting. But it’ll be some time before we execute in that regard.

But, yes, we’re going to see consolidation, not because the market can’t handle having more people in the market, but the time between where we see the tipping point in the industry happening and where it has been and where it is at today, that trough of doom or whatever you call it, that really takes a lot of resilience for companies to get through. There’s a pretty good indicator out there of the three or four companies that have the capability to get across that trough, but there’s a plethora of other technology, companies, and talent out there that won’t make it. It’s interesting times, for sure.

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

Cameron Chell: We’ll be doing at least sub-assembly work there – Maybe not at that. 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. We still have, of course, we have our full-blown manufacturing facilities up in Canada as well, and they’ll satisfy parts of these orders, if necessary, but also for the Canadian and international markets. Kind of more by luck than certainly by design, the geopolitical situation is serving us quite well. We have a strategy that’s not affected by the tariffs to a great degree. And candidly, those tariffs actually haven’t still come into effect. But even if they do, we’ve got a way that does address it.

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

Rolly Bustos: Okay, great. I’m looking at the last couple of questions here, and they’re kind of on the same theme. So I’m going to leave it on this last question and summarize. Basically, if you can kind of give us some color on what you expect the rest of the year to look like. The way the question was asked was: over the past several years, Draganfly has made significant capital investment to expand operations; however, revenues have seemed to be stagnant since 2023. When can investors expect this downtrend to cease?

Cameron Chell: Our expectation is that this is the year. Sometime over the next two quarters, we expect to see that scale able to be announceable. We have very good visibility on what’s unfolding. Of course, we can only say what we can publicly say in time. We’re really comfortable with what will unfold and that this year should be an incredibly strong year, if not the breakout year. Signature sales, both in terms of size and quality of customer, are the key metrics to watch and the key metrics that we’re focused on now.

Rolly Bustos: Okay, great thanks, Cam. I think that’s a general theme that I get from investors and shareholders, kind of it’s our year. I definitely think it is, and obviously you do as well. I’ll leave it there for questions. As always, anyone on the call can call me or email investor.relations@draganfly.com. If you have something more specific to ask, I’d be happy to answer it at any time. But with that, Cam, I think this call is probably concluded, so I’ll let you make a closing remark, and then we can end it.

Cameron Chell: Great thanks, Rolly. Thanks in particular to all the folks at Draganfly. Our teams do incredible work. I see them going hard through the weekends, late in the evenings, road warriors all over the place – really deep innovation and commitment to our customers and our product. So thank you to all of you. Thanks also to our customers in particular, who are supporting the company, who really see the vision of what’s unfolding and have shown such an incredible commitment to work with Draganfly and allowing us to be your provider. First and foremost, thanks to our shareholders. None of this could be happening without you. We appreciate your trust. We take very seriously your consideration and the investment that you’ve made in the company.

While thematically, the drone industry is a multi-billion-dollar industry, it’s incredibly, incredibly intricate and complex. We’re really privileged and proud to be kind of one of those three or four players that are standing on the precipice of multi-billion-dollar type valuations. Thank you for your time there. On that note, I will leave it. Rolly and I are open to questions and meetings anytime that’s at all reasonably possible, and we look forward to a great Q2 update. Thank you.