Draganfly Inc. Q3 FY2025 Earnings Call

All right. To respect everybody's time, I think we will get going right away. So again, greetings, and welcome to all the shareholders and stakeholders for joining us today for the Draganfly Q3 Earnings Call. My name is Rolly Bustos, and I am the Internal Investor Relations representative here at Draganfly. We appreciate you joining us. As always, we'll start with our CEO and President, Cameron Chell, recapping the third quarter earnings highlights. Next will be a more detailed financial review with our CFO, Paul Sun. We will conclude, as always, by addressing the pre-submitted questions we have received. You are welcome to reach out to me anytime at [email protected] if you have further questions. I remind everyone that 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, November 12, 2025. We're under no obligation to update or renew these statements outside of material press release disclosure going forward. The full forward-looking disclaimer can be found on the screen right now. So Cam, if you're ready, please go ahead.

Sounds great. Thanks, Rolly. I really appreciate that. And thank you, everybody, for taking the time to be with us today. We really deeply appreciate your time and consideration. So maybe just to hit the highlights out of the gate. So our revenue for Q3 2025 was $2.155 million, an increase of 14.4% year-over-year. That includes $1.6 million of product sales and about $530,000 of services. Our gross profit was $420,000, and our cash balance as of September 30, 2025, was just underneath $70 million. So maybe just to run through a few of the highlights for the quarter. In particular, these are the ones that we felt were certainly material and meaningful to the shareholder and our future revenues. So first of all, we are unveiling the Outrider Southern Border drone, which is a Multi-Mission Drone in a Live Operation at Cochise County. So we basically commissioned a heavy rider, or what we call an Outrider drone, which is designed with the Southern border sheriffs to address the specific mission sets that are required along the southern border. This unique drone has a large addressable border opportunity globally, not just along the southern border. It positions itself to perform pretty much anything a fixed-wing surveillance aircraft can do with the versatility of a Heavy Lift multi-rotor drone. We'll talk a little bit more, and I know there's some Q&A that came in around that as well. This was a significant win for us. In fact, on Monday of next week, we are conducting the inaugural missions with that drone going live and operational. We are really excited about the 100 or so different government and international representatives that will be there, witnessing and participating in those missions along the border in Arizona. We also significantly bolstered our military and defense capabilities with the appointment of both Victor Meyers and Keith Kimmel, who are incredibly accomplished war fighters that bring very strong educational and operational backgrounds to the table. They are heading up our military Board of Advisors, operational within the business, and supporting our sales teams as well as our operational teams. We are thrilled to have brought them on board, and they are very well-known within the community. We were approached and very pleased to arrange a deal with Paladin AI, and we are collaborating on an opportunity that came to us from a military customer. We are also incorporating their AI into our drone fleet. We treat our AI as payloads. What that means is that because our systems are modular, whether it’s a particular type of camera, payload, sensor, or even a particular type of AI, all of our systems, from hardware through software, are managed in a modular way. So if we have a customer with a particular workflow requirement that requires a specific AI over another, we can incorporate that as needed. Paladin has done fantastic work in the industry, especially in defense, and we are excited about the opportunity we've put together with them. We expect big things from this relationship, starting off with a specific customer that we are working with. We also announced that Drone Nerds, the largest reseller in the United States, has taken on the Draganfly line. This includes products for public safety and military use. We spent about a year working with them to ensure we are well-positioned within their customer base. They are a very discerning organization, and our offerings fit well within their NDAA-compliant strategy. Notably, I think it's accurate to say that, in terms of manufacturers from anywhere in the world that have a comprehensive lineup of NDAA-compliant drones, Draganfly can be pointed to as the leader, if not the only one, with over five NDAA-compliant drone systems. This ranges from small FPV drones we’re selling into the military to the Outrider drone, which is a hybrid dual-diesel engine, seven-hour, 100-pound capacity drone. Drone Nerds now has the capability to offer our entire product line for public safety. We had a fantastic show at AUSA, the Army Association Show—basically the big military show in the United States. We were able to display there with our partner, Global Ordinance, one of the largest suppliers of munitions and equipment into Ukraine, among many other things. They featured our drones and have now brought us into multiple opportunities we’re working on side-by-side. This event marked a coming out for Draganfly regarding our capabilities, and we received overwhelming positive feedback. We also had a significant announcement with the U.S. Army, which I'll discuss shortly. We also announced that Autonomy Labs, a strong U.K. company, decided to standardize on our Heavy Lift platform for their mine-clearing operations. This illustrates how payload companies are looking to capitalize on the drone market, and we are the right partner for building their payloads. One of the key components of our modularity is that a payload is only as successful as the drone platform it operates on. Our core strategy is to cater to channel partners and payload companies, whether they are making LED signs or mine-clearing carpets, or developing specific camera systems or AI systems. The more we can integrate into our drones, the larger channel we create for those providers. Draganfly, with 25-plus years of experience, can integrate multiple payloads effectively. It takes time to build critical mass around customers needing to run a particular payload across multiple uses, which we are finding as a significant strategic advantage. We are thrilled to have worked on this project with Autonomy Labs and displayed with them at the DESI show in London, which generated considerable interest and many orders from military organizations worldwide. We demonstrated both our Flex FPV and Commander 3 XL platforms at the invitation-only U.S. Army T-Rex experimental showcase. We were demonstrating how they can work together. The Commander 3 XL features a flat bottom, providing ample surface area for different payloads and multiple sensor capabilities. The 3XL can transport FPVs to specific locations, including GPS-denied areas, deploying them close range. Another notable point is that we are establishing seven new plants in the United States through our contract manufacturing arrangement. We are currently in the process of tooling these plants, which will quadruple our capacity. As for those who are unaware, our current plants have about $100 million worth of capacity that is just coming online. It took until about Q3 for us to get that built out. We're now starting to produce on these lines, especially for a U.S. Army order announced about four weeks ago. The company we selected for this contract manufacturing had an arduous selection process; they specialize in contract manufacturing and are very skilled in global logistics and supply chain management. This is key because of the type of Army orders we are now entertaining. We are uniquely positioned to support not just NATO but particularly the Canadian government as well. Canada has announced that 5% of their GDP will be moving towards defense spending, which translates into billions of dollars of new spending this coming year. There is upwards of $2 billion in the next couple of years spent just on drone technology. Given the current tariff situation, which is working in Draganfly's favor, Canada currently has a very explicit defense policy. With our manufacturing facilities and strong routes from Canada, we are well-positioned to address that market, with only two companies in Canada likely able to do so, among which one only has one type of drone, a helicopter. We feel incredibly well positioned and look forward to servicing those organizations and customers over the coming years. We also had a Fortune 50 telecom company begin to purchase our Heavy Lift Drones, using them for communication support following natural disasters. We are very hopeful about expanding our relationship with this company. They are moving away from Chinese manufacturing and are seeking a solid long-term partner with NDAA-compliant drones capable of scale. This was an initial order, but it is significant for us, and if we receive more orders from this company, it signals they are standardizing on our fleet. These orders could lead to hundreds of units being ordered, not just small ISR drones but also a sizable nine-foot drone with high capabilities, including standing up cell towers and tethered components. A notable event from Q3 was our announcement of an order for our FPVs from the U.S. Army. Though I cannot disclose too many details, I believe we secured this order because of our exceptional FPV platform with unique features developed from our boots-on-the-ground experience in Ukraine since 2022. This order involves not only drone provision but also supply chain and logistical support. We are training this section of the Army to assemble and manufacture our drones, allowing for modifications on the fly, and we are providing logistics for resupplying those drones into various locations. This means Draganfly will manufacture on U.S. Army locations, which is significant. It took about 1.5 years and more to put this order together, and it's one of the reasons we began building our capacity two years ago. To summarize, our drone platform does not include the Outrider drone, which will launch next Monday on the Arizona border. The Outrider drone has combustion engines and can fly for up to seven hours carrying 100 pounds of payload. This drone will be utilized for communications, mesh networking, surveillance, reconnaissance, logistical resupply, medical emergency support, and many more applications. Over 100 people from multiple countries focused on border operations will attend the launch event next Monday. Early indications suggest that this drone will be a key driver of sales for us, even next year, although we initially did not plan for it to be a major revenue driver until 2027. All the drones are interoperable, meaning that payloads can fit across different models. If we integrate AI with one drone, whether it’s the Flex, FPV, or the Heavy Lift Drone, it will work within the same common operating environment. Even legacy DGI payloads can be integrated with our system, ensuring customers do not lose their investment when transitioning from their old fleets. The military impact of small UAV markets is significant. The U.S. government recently discussed acquiring over one million drones, and we are confident in our ability to capture a meaningful share of that market. Draganfly is among a select few companies in North America with the capability and capacity to meet this escalating demand.

Yes. Thanks, Cam. Thanks, everyone, for joining. I appreciate it. Taking you through the tables here, revenue for the third quarter was $2.16 million, an increase of 14.4% from $1.89 million in the third quarter of 2024. Third quarter revenue comprised of $1.62 million from product sales, with the balance coming from drone services that Cam mentioned at the outset. Gross profit was $421,000 this quarter compared to $441,000 in Q3 of last year. This quarter had a one-time noncash write-down of inventory of $43,000. Otherwise, gross profit would have been $464,000. Gross profit for Q3 of 2024 would have been $617,000 if we excluded the one-time inventory write-down of $176,000 from the same period last year. Taking these noncash items into account, gross margin this quarter would have been 21.5% versus 32.7% year-over-year. Total comprehensive loss for this quarter was $5.4 million, compared to a loss of $364,000 in the same quarter last year. This quarter included noncash changes, comprised of a fair value of derivative liability loss of $1.8 million, the $43,000 inventory write-down mentioned earlier, and a gain on a notes receivable of $35,000. Otherwise, it would have been a comprehensive loss of $3.6 million. The same period last year experienced a one-time noncash change in derivative liability of $3.6 million, including the $176,000 inventory write-down along with a gain on an impairment note of $8,000. The decrease in loss is mainly due to foreign exchange gain and lower professional fees, offset by higher office and miscellaneous costs, wage costs, and share-based payments. Comparing quarter-over-quarter between Q3 of this year and Q2 of this year, revenue for Q3 '25 increased $41,000 to $2.16 million, up from the $2.12 million in Q2 of '25—an increase of 2% due to higher product sales. The gross margin for Q3 '25 was 19.5% compared to 23.9% for Q2 '25. If we back out the one-time inventory write-down mentioned earlier, the gross margin for Q3 would have been 21.5% and for Q2 would have been 24.3%, with the change attributed mainly to product mix during the quarters. Total comprehensive loss for Q3 was $5.4 million compared to $4.7 million for Q2 of '25. Please remember that we experienced a derivative liability loss of $1.8 million, the write-down of inventory of $43,000, and the gain on a note of $35,000, resulting in a comprehensive loss of $3.6 million. If we adjusted for noncash items in Q2, which included a noncash gain on derivative liability of $180,000, a write-down of inventory of $10,000, and a gain on a note of $8,000—then our adjusted loss would have been $4.6 million. The quarter-over-quarter reduction in loss is mainly due to foreign exchange gain and reduced professional fees, offset by wage costs and share-based payments. High-level balance sheet items show total assets increased from $10.2 million at the end of '24 to $77 million, largely due to increased cash balance over the year. Working capital at the end of September was $69 million versus $3.8 million at the end of December. If we exclude the fair value of derivative liability of $3 million, working capital would show a surplus of $73 million this quarter compared to $6 million at the end of December last year. Shareholders' equity at the quarter-end would be $73 million versus the $70 million reported and $6.8 million at the end of December compared to the $4.6 million previously reported. We continue to maintain minimal debt. Our cash balance, as Cam mentioned earlier, was $69.9 million at the end of September, compared to $6.3 million at the end of December.

Great. Thanks, Paul. What I'll do now, if it's all right with everyone, is jump into some of the questions. There are nine questions that came in. I'll certainly do my best to be timely and answer them as thoroughly as is reasonably and regulatorily possible. The first question states, 'You seem to have more cash on hand now than ever; what are the scenarios or use cases for any potential future raise?' We will be opportunistic about potential future raises. I believe we've raised less cash than our comparables, and we're cognizant of cash being a strategic advantage. That said, we are highly sensitive to dilution and shareholder value. Currently, we have $70 million cash on hand and are burning about $1.5 million a month. Business is scaling well. Our pipelines are unbelievable. There is not an acute need to raise cash. Being in business for 27 years, we think we have good visibility to becoming EBITDA positive and cash flow positive over time. That said, there are key acquisitions of interest. These are focused not necessarily on technology or a specific product; rather, we want the right team and people to serve our customers effectively. We are looking to layer in the right personalities, leadership, and technical capability to meet demand because it’s truly astronomical right now. If any acquisition makes sense, we would consider a raise for that. We need to be prudent about decisions surrounding cash. The second question is about expanding on the press release regarding manufacturing and overseas military facilities. How large is the potential revenue here? I can share that manufacturing in overseas facilities specifically refers to military installations where they are assembling a Draganfly product. This might involve modifications rather than complete manufacturing. The prime driver is that those facilities must be able to make modifications quickly without going through the procurement cycle. They require training to manufacture, modify, repair, and adjust products based on their operational needs. For scale, I cannot provide specific numbers, but there are numerous brigades in the U.S. Department of War and all NATO and the 5 I countries. The Army announced that every soldier would be trained on a drone. This substantially expands what they might need in terms of drone usage. When we talk about utilizing drones at scale, we need partners to facilitate that embedded manufacturing capability. As for financial metrics, there could be substantial revenue outcomes. The U.S. intends to order millions of drones, and I believe we can capture a meaningful piece of that market. This doesn’t require a large percentage to be significant. Our ethos is to ensure our customers are unbeatable in both military and commercial sectors. That is our goal and focus. Continuing with questions, Canada aims to purchase Canadian-made drones. Can we expect meaningful orders from Canada and the Department of Defense soon? I believe so. Although I cannot predict specifics, we are exceptionally well-positioned among all potential competitors globally. Canada, while not often thought of as a military powerhouse, is one of the largest economies, now directing 5% of GDP toward rearmament and reimagining military operations. A considerable portion of that budget will also focus on drone technologies which, historically, has transformed military budgets across the globe. Yes, border security remains a primary focus for the company. The recent success with Cochise County and the Southern Sheriffs underscore our specialization in border management, not merely through drones, but also by providing strategic solutions to understand operational needs. This specialization in ISR is essential, especially considering the complexities like search and rescue, human trafficking, weapons, and armed militias that arise in border contexts. A specialized team capable of collaborating with law enforcement professionals is critical for providing effective service. Regarding consolidation in the drone industry, yes, we expect further consolidation. While many players are entering the market and discussing acquiring one million drones, the complexities of manufacturing aircraft entail a depth of understanding that many lack. A lot of businesses are ordering parts online, thinking they can develop their own drones; however, scaling production, especially for mission-critical solutions, presents unique challenges. We do anticipate market expansion, with many smaller players falling off, and that is a cycle we've witnessed in previous years. We have survived several lean times, equipped with the experience necessary to navigate these challenges and solve problems at scale. As for our production capacity, yes, our primary focus is organic capacity. Currently, we can produce around $100 million worth, and we plan to increase that in 2026. We are incorporating additional capacity to address supply chain management. North American manufacturing positions us uniquely in this context. Lastly, what percentage of revenues will be from military versus commercial sectors, and do we expect military orders to dominate our revenue? Currently, military revenue accounts for roughly 30%. However, next year, with large single orders pouring in, I expect military revenue to soar to 90%. Our commercial and public safety markets may also see 200% growth this year, but military orders will significantly heighten our overall revenue. What differentiates Draganfly? Our integrated practices and tactical services are significant factors. The Cochise product involved extensive fieldwork on-site, understanding communication gaps, operational tactics, and engaging with southern border sheriffs to develop targeted solutions. Such an approach has proven effective, whether in military contracts or industrial applications. Our 25 years of experience enables us to offer a full product line while leveraging integrated services. Ultimately, we believe it is our people, their capability, and expertise that allow us to excel. Additionally, our cross-border manufacturing fortifies our unique position, particularly now that the Canadian market is burgeoning as a substantial opportunity. As we pursue our strategy, we aim to create blue ocean markets. While many companies chase small ISR drone replacements, we seek unique border solutions with high-margin business prospects. Our focus is on becoming a dominant player, ideally in niches where we can operate as the #1 or #2 provider. Even as a smaller entity, we are leaders in the target markets we pursue. I appreciate everyone's commitment and encourage you to reach out with any questions. Rolly, thank you for your continued support and dedication.

Thanks, everybody.