Earnings call transcript: DroneShield Q2 2025 sees 210% revenue surge

Published 05/08/2025, 00:08
 Earnings call transcript: DroneShield Q2 2025 sees 210% revenue surge

DroneShield Ltd (ASX:DRO), now valued at A$2.1 billion, reported a significant revenue increase in its Q2 2025 earnings call, with first-half revenue reaching A$72 million, marking a 210% year-over-year growth. The company’s stock rose 3.86% following the announcement, closing at A$3.91, contributing to an impressive year-to-date return of 393%. The surge was driven by strong performance in the counter-drone technology sector and new product launches. According to InvestingPro data, analysts expect this growth momentum to continue, with sales projected to increase by 252% this fiscal year.

Key Takeaways

  • First-half revenue increased by 210% to A$72 million.
  • Q2 revenue soared 480% year-over-year to A$38.8 million.
  • Stock price increased by 3.86% post-announcement.
  • SaaS revenue grew 177% to A$3.5 million.
  • Gross margin maintained at approximately 70%.

Company Performance

DroneShield’s impressive revenue growth reflects its strong position in the rapidly expanding counter-drone market. The company’s focus on innovation, such as the launch of the Sentry Sieve for civilian markets and the development of next-generation products, has bolstered its competitive edge. The counter-drone market is estimated to be worth US$10 billion, driven by geopolitical tensions and increased drone usage.

Financial Highlights

  • Revenue: A$72 million, a 210% increase year-over-year.
  • Q2 revenue: A$38.8 million, up 480% from the previous year.
  • SaaS revenue: A$3.5 million, a 177% increase.
  • Gross margin: Approximately 70%.
  • Secured revenue pipeline: A$176 million.

Outlook & Guidance

DroneShield has projected a robust sales pipeline of A$2.3 billion, with 284 projects in progress, including 13 deals over A$30 million each. The company plans to expand its manufacturing capabilities beyond its Australian base to Europe, the US, and potentially the Middle East and South America. The focus remains on technology development and increasing SaaS revenue. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading above its intrinsic value, suggesting investors should carefully consider entry points. For comprehensive valuation insights, access the detailed Pro Research Report available exclusively to subscribers.

Executive Commentary

CEO Oleg Warning emphasized the company’s unique position in the market, stating, "We are not competing with other counter-drone manufacturers. We are competing with Chinese, Russian, Iranian governments." He also highlighted the vast market potential, noting, "Counter drone is an approximately 10,000,000,000 US total addressable market."

Risks and Challenges

  • Geopolitical risks could impact market stability.
  • Dependence on technological advancements to maintain competitive edge.
  • Potential supply chain disruptions affecting manufacturing expansion.
  • Market saturation as more competitors enter the counter-drone sector.
  • Economic downturns that could affect defense budgets and spending.

DroneShield’s strategic initiatives and robust financial performance position it well for future growth in the burgeoning counter-drone industry. The company’s ongoing focus on innovation and market expansion is expected to drive continued success.

Full transcript - DroneShield Ltd (DRO) Q2 2025:

Oleg Warning, Chief Executive Officer, DroneShield: Welcome to the DroneShield second quarter twenty twenty five investor webinar. I’m Oleg Warning, the chief executive officer of DroneShield, and with me is Carlo Belanco, our chief financial officer. This session will go for approximately just under an hour starting with about twenty minutes of the presentation going over the presentation we released a week ago in conjunction with our four c followed by q and a. We encourage the participants to submit the questions as they arise so we can go straight into q and a at the completion of the main section of the presentation.

On the macro thematic, we’re seeing increasing geopolitical threat profile as the world is unfortunately becoming a less stable place. A number of actors, governments are continuing to significantly increase their covert operation capability and other attacks including cyber, but also drones, and, of the war in Ukraine is continuing. As a result, we’re seeing the all time high global defense spend, especially in Europe, but also more generally across native governments and elsewhere. Drones are playing increasing part in just about every conflict around the world, and with it is the requirement for increased adoption of counter drone solutions. Unlike other technologies, more established technologies like night vision goggles, guns, radars, there’s virtually no market penetration of drone and counter drone solution today given how nascent the whole industry is, which is driving the urgency of procurement of both drones and counter drone solutions.

DroneShield believes that counter drone is an approximately 10,000,000,000 US total addressable market with a very small to negligible market situation today. Lot of what you’re seeing on the slide on the screen is military based, but we are expecting to also see the civilian markets such as data centers, stadiums, airports, and the like become significant contributors to our market as it starts starts to mature. Snapshot of the drone show performance, we have secured approximately 72,000,000. This is all Australian dollars for the first half, and the and the full set of first half results would be available at the end of this month as part of our half annual presentation. This is a 210% increase versus our ’24, by far the highest first half result to date, and that includes the second quarter twenty five.

So when December year end, so June 25 quarter revenue of $38,800,000,000, up 480% versus ’24. Again, highest quarter revenue to date for the company as we continue to pick up steam. On the SaaS front, so SaaS is relatively small in dollar terms, 3 and a half million dollars for the half year, but growing quickly, up 177% versus ’24. And the company’s strategy to keep driving SaaS is to continue to roll out new families of products. So for example, today, SaaS is driven mostly for the drone detection products, but we’re also aiming to release a SAS product focusing on drone defeat and also drive broader adoption of command and control systems, which are subscription based, and also the next generation of drone guns will be SaaS enabled, which today’s generation is not.

So all of that is expected to continue driving the SaaS. 176,000,000 of year to date secured revenue. So that means either revenues are recognized, which is the 72,000,000 of it, as of the June 30, or we have received binding purchase orders, and we intend to deliver that revenue prior to the end of this year. Now this was as of mid July, so we expect to receive a number of additional POs prior to the end of the year, which will add to that amount. In addition to the record financial performance to date, we’re continuing to execute on what we’re seeing a once in a lifetime opportunity for for the company.

We have a $2,300,000,000 pipeline, which has increased about a 112% over the ’24, comprising about 284 projects, and that’s corresponding to visibility to end of this year in 2026. So that’s an increase not just in dollar terms, but also number of projects from 24 to now. Importantly, that includes a number of large deals. So 13 deals over $30,000,000 each and 52 deals over 5,000,000 each. In terms of going forward, the complexity of the industry continues to evolve as drones themselves are getting more sophisticated.

To deal with that, DroneShift is fundamentally an engineering business. So today, we employ 285 world class engineers across half a dozen different disciplines. Don’t We rely on any secret third party source. We generate the IP that we sell inside the company, and we’re continuing to selectively increase that engineering skill bench as we grow in sophistication of our products. We spend more than $50,000,000 in r and d annually, and we have a significant cash balance to support our growth.

Now as you’ve seen, the second quarter twenty five was actually positive cash flow quarter, but the cash balance ensures that regardless of what might possibly happen to revenues, we can continue to execute on our r and d programs, things that we work on today. Some of those products will not see light of day for another year, two years, and it’s important to have that continuity. And, also, we are selectively looking at acquisitions which might be value adding to the company. We’re very disciplined when it comes to acquisitions. We’re mindful that for a lot of acquisitions, the target benefits more than the acquirer does, and it would need to really add to our presence in the counter drone space for it to make sense.

The next slide is largely a graphic of what we just talked about. So 176,000,000 of revenues locked in, about 3,500,000.0 in SaaS for half year to date, growing cash receipts, and importantly, 70% roughly gross margin maintained across the board. Our products are highly differentiated. We’re not a price taker, and continued rapid development of drone technology is what ensures that we can maintain our margins and keeps us away from the industry becoming commoditized. We like the complexity.

We like the challenge. We feel we’re well positioned for it, and that’s what creates the economics of this company. The sales pipeline is becoming significantly more diversified compared to the previous years where the business was significantly geared towards our US market. The US market has continued to be exceptionally strong in terms of the outlook where we have a 25 person office, substantially sales driven, but also increasingly r and d where we now have several r and d pieces that we’re expanding into. The current US administration large recent bill is expected to significantly drive both our defense and Department of Homeland Security work, and that’s reflective of the 100 deals in the pipeline, about $684,000,000,000.

Europe is the largest in terms of the pipeline outlook that is both for Ukraine as well as NATO and other governments. That’s also where we recently received a 62,000,000 order that we expect to complete delivery of prior to end of this month. UK has been a relatively small market for us where we operate in partnership with British Telecom, but we believe that that market is really going to expand very quickly. So the deals and the dollar values we’re displaying on this page is just set well defined projects that we’re seeing as of today. So all of that is going to grow as the urgency in the counter drone space continues to increase.

Australia is our home, and this is also where we currently project about $80,000,000 over 16 deals. And, again, this is just for rest of ’25 and ’26, the time frame on all of this page. In terms of specific contracts, land one five six is unquestionably the biggest opportunity. We have recently announced a $5,000,000 win on first phase of land one five six. And now we are patiently awaiting the outcome of phase two or system integration partner project, which would be a large and significant deal.

It’s difficult to tell exactly when it’s gonna come to fruition, but we are hopeful that we’ll see announcement of the preferred tender at this year. In addition to that, we’re executing on other opportunities in Australia. For example, our electronic warfare work where we recently announced a two year department of defense contract. Asia Pacific remains significant market for us where we announced a thirty two million dollar deal in April and working on other opportunities as well as other regions we have now boots on the ground in terms of sales in Latin America as well as Middle East. In the interest of time, I will skip through our product summary.

Most of you will be well familiar with it. With with the only newsworthy item is the addition of Sentry Sieve, which is right at the right edge of the slide, which is the recent product we’ve done in a soft launch mode focused specifically on the civilian market. So it’s a subscription based product. It’s a low priced product, but still has very favorable margins compared consistent with the rest of our economics. And as we believe that the civilian market is likely to explode in the next couple of years, this product will be our go to for a lot of those customers that do not necessarily have the budget for our full fledged DroneCentury solution, but require some kind of ability to detect and track drones from other facilities.

Our hardware is complemented by several subscription packages, which will continue forming the backbone of our SaaS. On the detection front, it’s RFAI or radio frequency intelligence. So using AI on a library less basis to detect never seen before drones, and RFAI attack, which we’re planning to launch in near future, which is the same but for drone defeat. In the middle of the slide is DroneSentry c two or the command and control system. So DroneShield is both a sensor maker as well as an integrator.

And when you have multiple types of sensors pulling into your system, customers don’t wanna have lots of boxes. They wanna have one smooth operating system using AI to do sensor fusion. So that pulls everything onto one pane of glass, giving you drone tracks, giving you alerts, analytics, and so on. And that is available both as the fully fledged DroneSentry c two, a control room type software, and DroneSentry c two tactical for field deployment on the tablet. And we believe this is fairly unique software, DroneSentry c two tactical.

The last bit, electronic warfare and signals intelligence. So very synergetic to our main Carotron business about detection of never seen before signals and libraryless approach, and this is what we do our electronic warfare multiyear contracts with. Many of you will be familiar with our differentiating factors, largely its technology and the commercial factors. On the technology factors, in short, we’ve been there right from the start. We had one of the largest engineering teams in the world at any given point in time.

So that means we’re able to, as a result, sense further, defeat further, be more accurate, better built, and so on. Importantly, we believe data is critical. So about five years ago, when we moved to AI enabled detection, we started collecting what now became an exceptional large dataset of drone signals in different environments around the world, and we have data engineering teams in Australia to manage the data, and it consistently gets larger as those devices provide additional data points to our engine, which drives the quarterly updates of that AI engine. On the commercial front, over the last ten years, we have established number of relationships with tier one customers who are feeding us intelligence from all over the world, which enables us to respond and build our technology road map. So today, we operate roughly a two, two and a half year road map, which is delivered on a monthly basis, and that is being consistently revised back based on the feedback from the customers.

And and that is really key advantage for us, those customer relationships as far as our commercial differentiators. And the strength of the branding and the pipeline, of course. When you sell into defense and security markets, you don’t just turn up and sell. Opportunities can take a long time to mature, and you have a number of compliance certification, etcetera, metrics to meet. So having been in this game now for a number of years and having sales with Materializing Now, which might have started a while ago, is in line with our commercial advantages.

On the tech roadmap, broadly two priorities, so acceleration of the current gen and release of next gen products. The focus, of course, is to try to put as much into the second box as possible, but it’s also important to maintain the existing generation platforms. And then in terms of executional strategic priorities, I won’t read through all of the slide, but, essentially, it’s about saying we wanna keep launching next gen of hardware and software to keep up with the increasing drone threat. Ultimately, what we say is that we’re not competing with other counter drone manufacturers. We are competing with the likes of Chinese, Russian, Iranian governments who are seeking their best to avoid sensing and and defeat of their drones by technologies like drone shoots.

In addition to enhancement of our technology, continue to increase our SaaS revenue. So the ultimate goal is to have many, many thousands of devices in the field while receiving multiple SaaS updates, and that is forming the backbone of the revenue of the business. And this this will take us years to achieve, but that is the goal. And then also enhancing our regional manufacturing. So we started with manufacturing on base in Australia.

Today, as those following us would see, we are expanding as part of our 2,400,000,000.0 annual capacity manufacturing goal to set up manufacturing in Europe as well as in The US. And also down the track, we see potentially establishing manufacturing hubs in Middle East and South America as well. So I’ll complete the presentation at this point, and we’ll turn to questions. I believe all of you guys will know how to ask a question. Please feel free to to add into the queue, and I’ll go through it in order.

So the first question is how do we stay ahead of the fast changing technology? So local intelligence is key. You need to know what you are dealing with first. So that’s where our tier one customer relationships come into the game, the feedback from from the field, from the customers, the feedback from the demos. So first, you establish a problem set, and then you have what we believe is the best and the brightest in the field in terms of engineers shaping the response, then you pull the products to customers, through your own demos and customer demos, and then you deploy the resulting software and hardware into the field.

So even though our hub is in Sydney at the end of the world, and this is truly global problem, having those networks of customers, distributors, field teams that we’ve established over the last ten years is what’s feeding us intelligence to continue being one ahead in this threat. The next question is how do we make sure that given the fast changing technology that our increased stock holdings do not become redundant. Stock redundancy is absolutely a risk, and we are cognizant of that. And this is a risk that we’ve been managing for the entire ten years of the business. If you think about drone guns today, we started with drone gun mark one in at the 2016, then we moved to mark two, three, and now four, and also drone gun tactical.

RF patrol is now in mark two, but also mark two widebands, second and third generation offering. So there are multiple ways in how you deal with it. So when you develop technology road map, you have anticipated completion dates for the release dates of the new product. So you try to basically run down stocks of a particular line of the product before you release the new one. Also, even when you release the new product, there’s quite a period of time when the existing product will continue to sell while you’re bidding down the new product.

So the aim is to continue to or or aim to fully sell out of the existing or the older product before you get to to the new one. Then on the product build front, you try to have as many interchangeable parts as possible. So for example, our drone guns and our drone gun mark four and our RF patrol mark two have identical battery kits, charging kits, and so on. So you you’ll be able to potentially reuse a lot of the parts even if you do have a a redundancy scenario for some units. The next question is there is notification on those tender for an approximately 12,000,000 contract.

Is that the research package already announced? Yes. That is the research package that we have previously announced, I think, about maybe two or three weeks before the post tender notification came up. Also, to what extent are there conflicts between ASX reporting obligations or material sales and obligations of confidence, national security, commercial, commercial, and confidence, and what are consequential delays in announcing material sales results. So if we receive a material sale, it is our obligation as a company to immediately announce it to ASX, and the company continues to be in compliance with their obligation.

ASX has rules that enable companies in the national security space like DroneShield to be less stringent on the specifics inside the contract when you do the announcement. So put it in simple terms, SX says, well, it doesn’t matter if the contract is Brazil or Colombia as an example. What matters is what is really important as a type of information for the investor to know. And if you cannot state a name of the country or a name of the customer, can you do a description that gives investors essentially same level of information without specifically saying what it is? And we’ve been working constructively with ASX on this now for several years.

This is not a new issue. So that way you get around not breaching national security issues and at the same time have timely disclosure to ASX.

Carlo Belanco, Chief Financial Officer, DroneShield: I can take the next one. So there’s a question here. What what are the percentage of product turns from warranty claims? What is the cost what is this costing the company? Are there different products that have high or low warranty claims?

So around warranty claims, the current cost to the company in relation to the warranty claims is currently around 1% of revenue, so it’s still relatively low.

Oleg Warning, Chief Executive Officer, DroneShield: Thank you, Carla. The next question is the impact of, fiber linked drones. So my personal views of fiber linked drones are overhyped, and it’s partly deliberate in terms of information, warfare, disinformation, and so on. So for those on this call, I invite you to think practically of how it works when you have a small drone dragging potentially 10 kilometers of a fishing line behind it. If you go in a straight line in an open space, potentially no issue.

But otherwise, the chances of you snagging 10 kilometers of fishing line that you’re dragging behind you on trees, buildings, artificial lines, even drone doing a maneuver and snagging into its own line are quite significant. So while we are seeing this as a threat, I’m not being dismissive of it. And, for example, our radars are able to detect drones that operate using fiber optic lines because they still move. And we also cooperate with hard defeat systems, for example, with our good friends in California at Epirus that do high power microwaves that fry electrics in drones that move towards their panels, and so that’ll be effective with the fiber optic drones. We believe it is more of a niche issue as opposed to a structural change, and, fundamentally, radio frequency will remain the backbone of drones going forward.

My personal view is that radio frequency to drones is a bit like wheels to cars. Whatever cars will look like in fifty years, chances are they will have wheels on them. Is there any update on when LEN one five six SIP award will be announced? No. Unfortunately, we know just as much as everybody on this call does, so we’re patiently waiting to hear from the government.

Next question is, is it only defense and airport industry sales come from? So today, sales come from defense, law enforcement, border security, intelligence, and facilities protection. We expect and I’m talking materialist. I’m not talking small sales, which can come from number of other sectors. But we expect that over the next two years, the civilian sector will significantly wake up, and a lot of it can be a nine eleven of drones type driven where a drone delivers a loaded handgun to a window of a prison, and the inmate shoots a bunch of people inside, and then there’s an overnight change in legislation.

Now every prison facility has to have a counterdrawal system, which is where our Sentry Seal offering comes in. So we think there is a large likelihood of the civilian sector changing their approach overnight, and we need to be ready. Interestingly, production capacity is coming as an important differentiator as we’re hearing that a lot of our competitors are struggling with significant production capacity, which is also where the 500,000,000 to 2,400,000,000.0 annual production expansion is coming into play to give confidence to our customers that we can fulfill larger orders as well. The next question is, the person asking says that they believe Mark four does not have SaaS tied to it. That’s correct.

Whereas the Mark five will have the SaaS component tied to it, also correct, which will help fuel the SaaS revenue growth. Yes. That’s correct. When do we expect the Mark five to be released? There’s no release dates at this stage, but we are working on the on it.

How do we manage data sovereignty? So we have a partnership with a military grade data center in Australia that hosts the information that were required, like the datasets and so on. What do you do to protect against a hostile state actor? So I’m assuming we’re talking about attack on drone shield itself as opposed to our customers using drone shield equipment to protect against hostile state actors using drones. In terms of drone shield security, there are particular standards that are a benchmark in Australia for defense companies.

Those standards range from cyber to physical security to protection against insider threats to how you best practice, how you segregate information, so on. So we have an inside security team, and they are ensuring that we are difficult to crack. Look. Don’t get me wrong. Nothing is nothing is perfect.

Nothing is completely impossible to crack, But we have never had issues to date, and we hope to keep it that way by staying step ahead. The next question is when may we list on The US exchange? So today, I believe it makes no sense to list on The US exchange because at the current market cap of couple billion dollars, we are significant by Australian by ASX standards. So for example, I believe that we’ll be entering the new tier of the ASX index in September at the time of the next rebalance. However, by The US standards, we are I would not say microcap, but we are a fairly small business.

So if you either dual list or you move the listing across, you will end up losing a lot of liquidity for not a lot of benefit. I also find that a number of American investors have no issue investing in a sex listed stocks. Like, for example, FMR or Fidelity Management Research has recently taken just under a 10% stake in DroneShield. Now this is a Boston based world class American fund. And similarly, Vanguard is just on just over 5% of our register and other US based fund.

And underneath the substantials, we have a number of other US funds that have no issue under their mandates to invest in their sex listed stocks. In terms of more ordinary retail, American investors, generally, we believe that most of The US stockbrokers enable you to trade international stocks like ASX stocks. You just have to set it up on your trading account. The next question is, can we get a set of the slides? So the slides that we’re using today are the same set of investor slides as we released about a week ago when we released the four So please look at either the DroneShield investor page under our website or under the website for DroneShield from about a week ago.

Was the q two profitable? So we will be releasing the full set of accounts for the first half, so q one and q two, by the end of this month as part of our h y twenty five report. How do we characterize our competition, and in what ways are you ahead? Let me share the competition slide that we have in the appendices. I would categorize competition

So in different product categories, we have different firms, and, also, they’re usually fairly geographically focused. Angel, for example, will be our prime competitor for LAN one five six program. However, they are not our competitor in a sense of making drone guns or drone Sentry X products or even RF patrols for that matter or even really operating outside of Five Eyes. Drone Shield is a fairly global business. I won’t go through all of these names, but just to give you maybe selection of overview others.

When it comes to dDrone that was acquired by Exxon, so they’re a credible competitor in the law enforcement space as their products are, in our experience, lower grade compared to the products that we offer. And, also, they don’t have strength in portables in the same way as we do. And now we are pushing into their space, the recent hire of an ex FBI sales director based in Virginia. So we’re trying to crowd into their space, but we don’t really believe that they have ability to move into the defense space where where we operate. And Axon, their parent is fundamentally a great company, but in the law enforcement space primarily.

So similarly, when you go through the others, like AeroVironment Blue Halo, they have a product called Titan. It’s a Trauma Century x competitor, but we don’t really see them in the handheld space or really outside of a handful of countries that they prioritize. The next question is I’ll try to paraphrase the question. That drones for warfare are evolving in terms of the number of manufacturers out there significantly. Is it similar for the counter drone space?

Fortunately, no. So drones are a very commoditized market. I would not wanna be in the drone market today as it feels like every man and his dog are trying to build a weaponized drone. Camtodrone is, if anything, consolidating. If you look at the list and the notes on the page we are displaying, a lot of these companies actually been acquired over the last twelve to twenty four four months.

And the reason for that, it’s actually much harder to build counter drone tech than it is to build drone technology itself. So I would say that the counter drone tech, if anything, is maturing and shrinking in size due to its increasing complexity. The next question is do we think the revenue will continue to grow at the rate we’re seeing? So we do not great question. We do not publish guidance because of the nascent nature of the industry.

However, I believe we’re well positioned for growth due to the low market situation. So customers so the first thing is low market situation. Customers who are buying from us, they have nowhere near enough gear to meet their requirements. If you think about every group of a handful of soldiers needing a system, every armored vehicle, every installation, You guys probably all heard of the operation spider web in in Russia and operation rising line, which is similar in Iran with drones essentially delivered via a van or similar to an edge of an airfield and then lying out from the edge and and destroying a bunch of expensive airframes. The reality is that majority of, if not almost all, air bases in the West have nothing to protect themselves against a threat like this.

And if anything, it’s a miracle. We’re now seeing more of these attacks now happen that the blueprint has been so well established over the last couple of months. So there is this enormous rush by military planners to think how to stop attacks like this, drones being delivered to their front door and then attacking their facilities, because traditional method of stopping people walking into the base or sending a missile into the base are not effective or small drones, which can get around sensors built for sensing things which are not drones and same thing for the defeat. So we’re seeing this exploding demand. There’s only limited amount of parties that can provide counter drone solutions to deal with that.

Defense primes are not our competitors. They’re in our experience, they’re generally struggling to innovate at the speed of relevance. And then from our perspective, we’re well positioned on the technology front with our large engineering team. We’re scaling up the operations. Sorry.

That time in our production capacity. So the next question is is demand largely driven by defense, or has public safety aided to the growth? So public safety is is rapidly emerging. It is part of our sales already, and and I think we’ll continue to grow in legislation in The US, which enable public safety use of drone countermeasures, I think, will continue expanding that market because legislation, especially in The US, meaning state and local law enforcement, cannot jam drones is probably the biggest stop to that market really growing really quickly. Next one is being at the end of the road in Sydney, as you say, are there any problems in this connected world?

So as I was saying, our strength is deployment around the world. So we we have a number of distributors, customers, sales teams, field teams around the world, and they’re feeding us that intelligence information. Is there any is there an application for commercial airport flight paths stopping rogue private drones entering hands in danger of passenger planes? So I think to rephrase the question, are drones dangerous for airports? 100% they are.

So if a drone gets ingested into an airplane engine, that means all kinds of studies showing you’re gonna blow out the engine because something that’s been designed deal with birds cannot deal with metal objects with lithium ion batteries in them. So it’s pretty pretty deadly for engines. Now if it’s a four engine plane, you’re kinda probably gonna blow out one engine but gonna still land. If it’s a single engine plane, you’re probably gonna crash the aircraft. So it’s the reason why when today drones are detected around pathways at airports, you have to shut down the whole airport until you deal with the drone.

Now that’s a lucky scenario because it means you’ve detected the drone. But if you haven’t, the time when you’ll know the drone is there is when it gets ingested into the engine of the plane. Luckily, they never been publicly reported incidents of a drone getting ingested into the engine, but there already been cases of a drone cracking into a windshield and damaging fuselage of an airplane. I really think it’s a matter of time before there’s gonna be something worse in the sense of an engine actually ingesting a drone. The next question is, are there significant European competitors within the same sector as drone shield?

Do we have a head start? So if you look at the competitive slide that you should be seeing in front of you, so we’ve got a couple of European competitors. They tend to be niche y to largely their own countries, be it Germany or France. There is a Danish competitor that is a bit more global in nature, but we find that we outperform them consistently on the quality of of the products. So we are not really seeing European competitors as as much of an issue.

I mean, our stronger competitors, I would argue, are American based. But it’s an interesting time. I would I would find it challenging today to be an American company being in Europe due to the general sentiment with the geopolitics going on. This is one of the strengths of being an Australian company. It’s considered a fairly neutral place to be.

Frankly, everybody loves Australians. In in our experience, there there’s nobody who is who is negative to to Australians. So that’s our strength in terms of being a global exporter business. So the next question is, the the person asking noticed that the company was cash flow positive from operating activities in the last quarter. That is correct.

He’s asking, can we provide some guidance on on when we expect to achieve positive net profit on the full year basis? We don’t provide guidance, but stay tuned. I mean, the the objective for us and we received a clear message from our shareholders that they want us to be profitable. Now it is important for us to continue investing in r and d because it’s very easy for the style of a company to milk it for cash for couple of years and then see the revenues drop off the cliff because you haven’t kept up in this rapidly expanding sector. So on one hand, we are solving for continuing to be the leader in what is a absolutely exploding industry size wise.

And on the other hand, we understand that our investors want us to be profitable. So the next question, I’ll try to I’ll I’ll I’ll try to paraphrase it. I’m not sure I understand it, but I think it was about what happens to AI enabled drones when you jam it. So I think there’s a lot of misconception out there about autonomous and AI enabled drones. A lot of people think that if you fly without a pilot, that’s autonomy.

Now a lot of those drones are flying using satellite communication, and that is fairly easy to jam because satellites are quite high up in the sky. The signal is weak. If you jam that, the satellite communication is lost. So then the next piece of technology that we have seen coming into play is computer vision. So a drone uses a camera, and it flies traditionally for the first majority of its flight until maybe the last 500 to 1,000 meters.

And then it’s just close enough for the drone to see the target that is recognized. It’s like a tank or a human. Now keep in mind that if it’s a small target like a human and a drone will not carry an amazingly expensive camera, remember, it’s a $1,000 drone, That creates limitation on the distance. The technology is fundamentally similar to what you might use if you say running in the in the field and the drone is tracking you and filming you, so it knows what you look like, so it just keeps following you. So, similarly, a drone recognizes an object, and then at that point, it just barrels towards an object and smashes into it.

And at that point, jamming is still useless. So the aim is to detect and jam the drone before the drone can see you, which is actually not that challenging because you just have to exceed the distance that that computer vision for the drone enables you to do. The other thing to keep in mind is a lot of functions of a drone do not go well with autonomy. So for example, if a drone is collecting data, it has to send it back to to its base. Or if a drone is having is needing to do precise strikes, it needs to often be guided by the pilot.

If you cut away that and you just have a complete autonomous drone, that really has issues with how well it will continue performing. Next question. Are we looking at water based drones? Yes. So to us, a drone is not c or not UAS, I mean, aerial system, but CUXS.

So x could mean a drone that swims on the surface of the water, so USV, unmanned surface vehicle. It can mean a drone that’s crawling on the ground, unmanned ground vehicle, UGV. It can be a drone that swims under the surface of the water, u UV, and we believe that eventually there’ll be concept of drones in space, although some may say satellite is already a drone anyway. So so, yes, drone in any environment to us is a target. How do we protect against hostiles taking equipment in the field and using it themselves or reverse engineering it?

It’s difficult to reverse engineer our products for a number of reasons. One, you have very high degree of encryption inside of them. Now nothing is impossible to break, but even if you eventually break the encryption, remember the algorithms are built together with the AI dataset that I was talking about. If you get access to the code, but you do not get access to the dataset, which is stored in Australia, you can’t really progress the code forward. So a lot of these things you can see looking backward, but you can’t necessarily project it forward.

Also, technology evolves super rapidly. So if you haven’t built the code and, again, you don’t have the data, what you have today will be largely useless in six or twelve months from now with how rapidly the technology evolves. So the speed of evolution and the software updates on quarterly basis is is critical in this as well. So, yes, technically, adversary can use the products if they find them in the field, and this is, I guess, same issues for really any defense technology. I mean, yes, there are things like, you know, you can put a drill into the middle of the product and destroy it if you if you have time.

But if you don’t, it’s just like any other one. Anything can be hacked into ultimately. But the speed of evolution and needing to marry it with the dataset to to really be useful for development is what what makes it really useless in the long term. Next question is, have we or do we expect to be approached by a larger competitor in the takeover bid for DroneShield and for DroneShield to become their subsidiary? Look.

We have had approaches in the past, and none that the board has seen as credible enough to take two shareholders for a vote. We are the only public listed company in the world, meaning we release a lot more information than our competitors do. So I think this will continue. The way the board thinks about it is, ultimately, we’re here on behalf of the shareholders. So we are not running the company for sale.

We’re running it for growth. But if we have an offer that’s considered as credible enough of potentially worthy of shareholder acceptance, the board will take it to shareholders. And if there is a sufficient voting threshold that the vote is approved, then that will go ahead. So we have a pre pre print bank. Have we made any plans to ensure that the supply chain isn’t disrupted in the event of a global war?

So COVID was enough of a dry run for us, and we we ran the ship pretty tight. So majority of our supply chain resides in Australia. RF Patrol, our body worn drone detection device, for example, is 85% Australian industry content. There are some things we get elsewhere, like, for example, chips we get from The US because Australia doesn’t have a chip industry. But, generally, in terms of how we build redundancy, how we hold supply of worldly items, how you when when I say redundancy, it’s it’s a number of ways in terms of your contract manufacturers, in terms of supply chain parties for a particular discipline, like metal fabrication and so on.

You try to have as much diversity as possible to to avoid options.

Carlo Belanco, Chief Financial Officer, DroneShield: There’s a question regarding foreign exchange risks. How do we manage that? So currently, our strategy is using a natural hedge, but we are closely monitoring if we need to do anything above that. But that’s our strategy at the moment.

Oleg Warning, Chief Executive Officer, DroneShield: Thanks, Carl. The next question is about deploying the company’s cash position towards acquisitions to accelerate growth, and how do we see the reasonable conversion rates of the pipeline? So on the cash position, the primary use in terms of acquisitions is acquiring other synergetic technologies, and we are regularly looking at potential technology targets to see what could make sense. There’s always buy versus build. We’re happy with our core technologies, so radio frequency, jamming, integration, and we don’t really need more capability in that space.

But in terms of other modalities of detection and defeat, this is something that we are regularly regularly assessing. In terms of the conversion rate of the pipeline, historically, it’s it’s been changing. And as the industry is rapidly maturing, it it’s changing again. So it’s it’s a bit hard for for us to comment. Next question is, do we have a product for swarm protection?

Yes. So the great thing about radio frequency detection and and jamming is that it’s irrelevant where whether you’re dealing with one drone or 100 drones. So both the detection and the defeat is for a particular area. So for example, our drone Century X will give you a complete bubble over your facility. So as a as a result, you you can deal with virtually Marvel.

Nothing is unlimited, but a very, very large number of targets. Next question is, is electro optic systems a major competitor to us? No. So electro optic systems does remote weapon stations, hard defeats. We think hard defeat is a very limited application for counter drone specifically, and detection, tracking, soft defeat integration is where vast majority of the market is.

Next question is is the and and by the way, we’ll be wrapping up in the next couple of minutes. Is the plan to pay dividends is there a plan to pay dividends at some stage? So folks for us right now is growth. Board is regularly assessing it, and we’ll advise if if that changes. Is there a sustainability model in place to manufacture droneship products?

Yes. So we follow the best in field practices in terms of sustainability for for how we build. What excites us about the future of drone shield? Do we ever become a prime defense player? So counter drone is what we do.

We are not gonna become the next lock here. I think the fastest way to get out of business is to become too broad in your offering and and lose being the best in particular thing. Counter drone is a huge, huge coming space, and we think being a leader in that is more than plenty. And say if we happen to win the SIP role for 11/01/1956, that essentially makes us a prime and that you deal with a lot of subcontractors underneath you. And in fact, we’re already a small prime in our own way.

We work with radio manufacturers, camera manufacturers, and we supply complete systems, which is kind of a definition of a prime. And the size of the contracts is is also increasing. So the $62,000,000 contract that we recently announced and large ones in the pipeline. I think at this point, we’ll take the rest of questions on notice. If those of you that have questions outstanding are please able to email us to investors@DroneShield.com, and we’ll aim to revert to you with all of your queries.

Thank you for your time.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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