Draganfly Inc.

Hello, all. Greetings and welcome to the Dragonfly 2021 year-end and fourth quarter shareholder update call. My name is Roli Bustos. I head the internal investor relations here at Dragonfly. I've had the pleasure to speak to many of you on the call throughout our journey, and I personally welcome you to this update. Today's call will follow a similar but slightly different format as previous ones with our CEO, Cameron Chell, discussing our full year and fourth quarter operational highlights then President Scott Larson will facilitate the Q&A portion. This will include both questions submitted during the call and ones that have been pre-sent to us during the past week. While we'll try to get to them all, I apologize in advance if time does allow us to do so. Remember, you're always welcome to reach out to me at investor.relations at dragonfly.com to follow up if we didn't get to yours specifically. So without further ado, Cam, please go ahead. Amazing.

Thanks, Rolly, and thanks, everybody, for taking your precious time and being on this call with us. We are really, really excited about what's going on at Dragonfly, incredibly humbled and gracious or thankful for the year that we've had. And I look forward to talking a bit about that year and maybe some subsequent events of what's happening here in Q1. The first thing that we need to start off with is that our numbers are going to be filed tomorrow. So this is our first full year end on NASDAQ and our auditors are behind schedule, which is a very common problem with companies across all public companies right now. There is no material problems. There's no issues. We know what the numbers are. We're dying to talk about them. We're very happy where they came in. But but the auditors, you know, persnickety little things that they're checking off and doing and third readings and such. And so they'll be filed tomorrow and that's all I can say about that. So first of all, I apologize. But that said, I guess we still want to provide a company update, which will give color to our last year. We'll also be able to talk about some of the incredible subsequent events that are ongoing right now in Q1. and certainly we want to be able to take your two and eight. So thank you for your patience and thanks for your trust in being a shareholder at Dragonfly. So basically, Dragonfly is, as I've said many times, often referred to and likely is the oldest commercial drone manufacturer in the world. and one of the biggest questions that I get is, you know, if you guys are the oldest in the world, why are you still such a small company? And, you know, both, you know, they'll think, you know, both you and Cam or you and Scott Cam have built companies that have been billion dollar market caps with hundreds of millions in revenue before and you've got this really this tiny little revenue company. Why is it taking so long to get there? and the reality is that today the drone industry is a $20 billion industry. But what most people don't realize is that 97-ish percent of that industry is military, right? And a couple percent of that industry is consumer. And then a percent or two or three maybe is commercial. This is a very unpopular thing to say in the industry, but it's really a very small industry up until now. While we've seen the likes of AirMilli and AirWear and 3DR and GoPro, multi-hundred-million-dollar investments, with people like John Chambers as the chairman and the biggest names within the biggest VCs in the world having backed them. All of those companies have been in the commercial space in the last 15 to 20 years. All of those companies, at least once have tried to buy Dragonfly, if not multiple times. And for any number of reasons, we ended up not selling out, which is more luck than anything. And we're here today and they're not. The reason that we're here today and that they're not is because, you know, they came in with huge investments into the space and expectations to service a commercial market that just wasn't there yet. and so they had expectations to hit scaling numbers and revenue and they had to put that money to work and so they routinely started making cheaper and cheaper drones to try to compete against the Chinese equivalents, the DGIs, which are light commercial drones and great consumer drones and every single one of them could not compete in that market. You've got a Chinese-made product with incredibly low labor costs, subsidized Company, 10,000 engineers, well-made products, fantastic company in so many regards. and that's why they just, and so they all dwindled away and they just couldn't survive. Now, Dragonfly, on the other hand, you know, we're a private company, we had to make our monthly nut, you know, we had to make payroll, we had to do those things, so we generally survived by either selling into public safety or doing, you know, selling into different industries that would approach us where having a North American-made drone or having a drone that had greater capabilities was important, right, greater reliability, etc., etc., or we would do contracting for military contractors. And so, you know, we've built systems out there that drone companies today out there that are commercial have not built and would be dreaming of building. You know, so we've built systems, you know, counter drone systems where drones can fly at hundreds of miles an hour, 100% autonomous. shooting out Kevlar nets using airbag explosives, capturing drones, you know, and pulling them out of the theater, whether that was a combat scenario or whether that was over a correctional facility or something like that, or scenarios where we run theater in pilots where there's blood being delivered onto the battlefield. So this amount of AI and autonomous work and highly specialized work is what made our engineering business so strong and allowed us to attract the top talent in the industry and keep that talent. In fact, in the 24 years, we've only had two people leave, and one was kind of by retirement a few weeks ago, and Google got one of our engineers about five years ago. and every time we've tried to be acquired by one of these other drone companies, it's because they really wanted our engineering bench and the IP that we have. and so but here's the difference and here's what happened is that you know basically two years ago the FAA came out with very clear rulings about what was going to be happening in the industry and so we had guidance real clear guidance for the first time about beyond visual line of sight which is the key regulation that scales the commercial industry right and operation of drones over populations both day and night time and with those two pieces of regulation put out there with clear guidance on what we can do today and where they're going to take it, literally my time went from spending my days either helping design solutions and selling, like every single day on the phone, selling, selling, selling, everything was outbound for us to within two weeks, everything was inbound and everything now is absolutely inbound and since that time, Our revenues have doubled every single year. And the reason they haven't more than doubled is we've just been building capacity, whether that was resource capacity, whether it was manufacturing capacity, distribution capacity. We were very fortunate to do some financing last year, to get public on NASDAQ, and to have a balance sheet and capital base that has allowed us to build that capacity to start to meet demand. Last year, we doubled in revenue. If you look at our last three quarterly filings, you'll see that we were on track for that same kind of trend for this year. and I feel really confident that saying that next year we'll more likely than not, in my opinion, all things being equal, be able to double revenue over what this revenue is going to be. And I cite our November announcement where we had one contract for $9 million and that's $9 million of reoccurring revenue for three years where we're producing 50,000 drones just for one customer. And our pipeline is absolutely jammed. We are in an incredibly Greenberg, Paul Mullen, Paul Sun But the advantage here is that we've been a small company. We have an incredible portfolio of IP. We have an incredible engineering bench. We have as much experience in building incredible drones and mapping systems and autopilots and hardware and software and AI. and any large company out there could imagine happening. But it's because we ran a very pragmatic business for years and years and we had to, you know, listen, we had to put food on the table every single day. And so we still have that mentality in our management infrastructure and in our egos. And so while we are doubling, we're going to continue to double and I can also say that we don't have one Peets have worked in our pipeline or one whip going on that was a competitive situation. And I would hazard to say that the other growing companies are probably in the same situation. None of us have run into each other or seen each other. So that won't last forever for sure. But certainly for the next, you know, at least, you know, 18 months, if not 24, I would suspect that that will continue to be the case. So, you know, the industry is going to a $43 billion industry by 2028. There's all kinds of different analyst reports that cite this. to be clear, I've never believed these reports because, you know, I've read them before about how big the industry was and everything was going on. And I was like, everybody's going, you know, bankrupt. And, you know, we're struggling every single month to make sure we hit our numbers and do all these things. And we're not doing billions or hundreds of millions in revenue. So I don't know where all this industry stuff is. But I can say adequately for me for the first time, I do believe these numbers because there's Every day there's an inbound that we just can't take on. And we get to select which ones we do get to take on. And, of course, the stuff that we're taking on is solution-based business, higher margin business, things that help us build a strategic moat for our future verticals that we're – current and future verticals that we're going to be serving. You know, we're not doing one-off manufacturing for things. We're not doing low-margin products. Lowe and consumer drones. It's got to be special for us to take us on and I think we've got a runaway of a few years for sure to be able to continue to do that. Just a quick bit of review. In the 90s, we were building hardware. In the 2000s, we were building hardware and we were doing software mapping systems, autopilot systems. You know, we were building applications for customers and we were doing sensor work. And then, you know, as we moved into the late teens, you know, we became more about autonomous works and AI. And, you know, ultimately, the future of the drone industry, whether it's, you know, delivery or whether it's entertainment or education or any part of it, is really all going to be data driven. And so our ultimate focus is really all about data. I would hazard to say for a number of different reasons that in three to five years from now, Dragonfly will always be known as a drone company. We're always going to make great drones. We're always going to service our customers in that way. But nothing collects data better than a drone. Nothing. We can put a drone up and within five minutes we can give anything from down to centimeter mapping, to traffic patterns, to sound analysis, to carbon emission analysis, to visual recognition of things, to vital signs of people. In five minutes. Data on a drone is just so unbelievable and game-changing what it's going to do. So in three to five years from now, I think we will be a data company. We'll always be known as the drone company because that's the primary collection point. But we will own that entire data chain so that we're not just collecting the data and building specific sensors and AI to collect that data for our customers. But we'll be housing and helping analyze that data as well. And that's where we really see the future of the drone industry. And again, whether that's in delivery or whether it's in industrial inspection or whatever, at the end of the day, it's really all about that data and how your AI can utilize it. This is what I do think is different about Dragonfly compared to a lot of players out there right now where they might be building a specific piece of hardware to work in a great industry, but they're looking for their signature customer or they're looking to get their signature product out to market or mature it or whatever the case is. The reality is, I'm just going to skip ahead one slide here, is we have a mature product line. and our product lines are not just hardware. Our product lines are full solutions. They come with, you know, whether it's the piloting systems or integrated with other software that they have to be integrated with or whether it's the AI or whether it's the data collection or storage. It's really a platform. It's not a piece of hardware that we sell. We do not have customers that come to us and say we want a drone that flies five minutes longer and you know, 13 meters higher. That's just never a question that comes up. Maybe, you know, maybe in the early 2000s and the late 90s it was, but today, you know, a customer comes up and says, we've got 23 ports, we're a port authority, and we need to do this type of security, this type of vital intelligence monitoring, we need to do this type of environmental monitoring, we need to house the data in this format, and we need to, you know, where do we start? They're not looking for a drone and a pilot, they're trying to, you know, do a whole solution. A great example of this was a couple of years ago. We had a client come to us and they were looking to be able to do recognition of social distancing and face mask wearing because this was the epicenter of where the COVID outbreak had sprung from in New York. That particular sheriff's office asked if we could design this into our systems and we did. And so they were able to change policy. They were able to readdress resourcing. They got incredible data about, you know, what signage worked. And they were able to get good stats to their council. And it worked great. And one of the officers at the end of that deployment, she said, you know, what would be really cool if you folks could detect COVID-19. And we all kind of chuckled. But later that night at the motel, we were working on the problem. and less than nine months later, we came out with a product that was commercialized that would allow our drones, right, or any camera to be able to read the vital signs. So it can read your heart rate, your respiratory rate, your blood pressure, your blood oxygen level, your heart rate variability. And we've deployed these systems now into manufacturing facilities, into correctional facilities, into doctor's offices, you know, just a plethora of different applications. and where it really counts is in the humanitarian side of things. So one of the things that's happened to us in the last few short weeks here is Cold Stream Delivery Services, which is a channel partner of ours where we're building delivery, medical delivery and first responder systems for Texas EMS. It's about a $750,000 contract that we announced last year. Phase one, it's a five-phase contract that eventually leads into multiple year support and services of the supply and provisioning and operations of what will be hundreds and hundreds of drones from 9-1-1 stations. And they were contacted by a humanitarian organization in the Ukraine. And the reason that they were contacted was because they had seen the work that we had done with our medical relief drone and the work that we're doing with Texas EMS. and we've got hundreds and hundreds of flights on this drone, tons of data that we're providing to the FAA and so we have a proprietary 35-pound payload box that in this case sits on top of the drone and can deliver temperature sensitive supplies into a situation. So whether it's vaccines or whether it's insulin or whether it's EpiPen, whether it's blood, whether it's pharmaceuticals or painkillers or whatever it is, We can do that work, and we've got experience doing that work. Given the fact that the first drone to ever save a human life was a dragonfly drone, and that drone today sits on permanent display in the Smithsonian. Our public safety work is just part of our ethos, and it's just incredibly, incredibly important to us. and so Revived Soldiers Ukraine approached Cold Chain and Cold Chain was like yeah Dragonfly is going to be all over this so they put an initial order of 10 units and you know these are you know $30,000 units they put an initial order of 10 units in with us we donated another three units which is the least that we could do and because they were actually buying, they have bought multiple dozens, if I'm not mistaken, of ambulances and put them in here to get supplies in. But those ambulances were literally getting taken out and shot and swapped and confiscated and such. So they're looking to a drone solution, and we think we've provided it. This drone can fly from over five kilometers away. It can fly by wire and goggle. It moves incredibly fast. It drops in, puts the drone right where it's needed. It's about a three-second release to pull up the thermal pack, and so that either the survivors or the people on the ground can get that and get out of the way as quick as possible. And then that drone can get lost as quickly as possible. And the question I get is, what if the drone gets shot down? And it's like, who cares? Send another one. What if it gets shot down? It's like, sent him more. Like it just doesn't, like 30 grand, you know, to save a life, who cares about what it costs? When the ordinance alone or the missiles or just the plain ordinance or shells that are used to hit that building or take those people out or crush a neighborhood, one of them costs 10 times less, you know, or multiple times even more than that. So who cares? You swarm the place with 50 drones, like you're going to get We have footage of Chinese-made drones where a pilot will have the drone, land the drone, and literally seconds later get hit by a missile. It's unbelievably disturbing footage. and others. Organizations over there were literally going to Amazon and buying drones to try to get thermal cameras so they could see survivors in buildings. And of course, they had to abandon all of them now because both the controller, whoever has the control, and the drone can be targeted. And that's absolutely not the case with Dragonfly, which is also why North America made drones and the security and the amount of time that we've made drones and the amount of military clients that we have is so incredibly important to this humanitarian effort. I just got to throw it out there that it's hard to even talk about without getting choked up. But we've had shareholders that have stepped up, multiples of shareholders now that have stepped up. and on top of the order that we've already got are buying drones which we're selling at cost and doing the logistics for free. And they're donating them. And they're just like, hey, I'm going to donate to some cause, but if I can do this and send a drone over there that has a direct impact with people that are on the ground doing it. And to me, it's just an incredible sign of the type of shareholders that you are, the type of company that you're backing. And another reason that we We're just going to keep working so hard to earn your trust. It's incredible. So, a program is kind of grassroots program that's going up here. So, those folks that are buying those drones, they get to name them, you know, like write something on there and we'll provide them the mission stats and we'll provide them to the extent we can as long as there's nothing inappropriate. We'll provide them the footage from their drone as well. And so... and, you know, the great part of it is we've now had another company that stepped up and said they'll provide insulin to put inside the drones, which is actually one of the biggest requests that are coming through to Irene at RSK, or RSU, excuse me, is people just can't get insulin and they're trapped in places. So we're super excited about what's going on here. Now, the other great part about this is this advanced our product release, this particular product release. We're releasing five products this year, including everything from, you know, secure brand new North American made LiDAR systems right through to heavy lift systems and and a couple of other things that we'll announce coming up. But this particular product has now been rushed into market, which is great. And quite frankly, the inbound from multiple parts of the world for the humanitarian drone now is off the chart. And so, I mean, we want to give everything we can, and it's already giving back to us in terms of inbound sales and stuff, which was never the intent, but it's an unintended outcome. and Paul Mullen. Well, we followed up with all the leads there, but it's overwhelming trying to get to everybody. We've had a really successful relationship with DRL. And DRL is, a lot of people don't realize it, but the Drone Racing League, You know, they're a drone racing league, but really they're a tech company. I mean, these folks are just absolutely brilliant in what they build and how they build it, the communication links that they have to do, the complexity of being able to do a fair drone race is just off the chart. And, you know, what's really interesting is DRL gets a lot of inbound requests to, hey, how do you do this? So how do you build that? Or can you build this for us? And our relationship and the lab that we're building with them while the intention is to take the innovation and then commercialize it, which we were doing and we'll talk a little bit about here in a second. The unexpected and unintended consequence, which has been incredibly beneficial to us is the biz dev opportunities that are coming to us because of our association with DRL and companies coming to them because of their expertise in technology and then really saying, hey, you should talk to our partner, Dragonfly. So I want to throw it out again to DRL for being such an incredible partner and letting it be a part of something that they do. They do so well. I learn a ton from their management team. They all just seem so congruent and aligned. We've continued our partnership with Alabama State University, so along with our TEOCs that are in there. And again, they've had the lowest COVID rates, and they've sailed through the latest surge and everything else. Dr. Ross there is just such an incredible leader. We've been spraying for their season, and again, they just need so many financial benefits all the way from things like lower insurance rates and higher enrollment rates and everything because of the stance that they took with COVID and then actually deploying it and using our solutions with them on our drones and vital intelligence, artificial intelligence software. It's been great. But we have also launched a training program with them and we've gone through our first cohort now and trained 13 pilots. a couple of which are going to end up becoming dragonfly people we hope and we think. and they're the rock stars in those cohorts. And, you know, with the employment crunch, this has been fantastic. But it's also a moneymaker for us. And so we're looking to roll this out through all the HSBCs if possible. And we'll run a couple more cohorts. There's 100,000 jobs that are going to be required between engineers and pilots over the next five years. And so we're really excited to work with ASU and their partner universities in order to roll out the proprietary 107 certificate program as well as the other advanced programs that we're now beginning to offer, which is how to fly drones in humanitarian situations, how to be a first responder drone operator, the list goes on and so forth. Thanks to them for their partnership and their ongoing being a customer of ours. Cold Chain Delivery Services, the EMS project out of Texas, you know, we just about completed phase one. We expect that to move into, we know it's going to move into the phase two at least and hopefully right through to phase five, which will be massive contracts for us. over the years. Unexpected Benefit is the incredible work that they brought to the table allowing us to work in the Ukraine. Of course, Black Coal Chain, their parent company, is one of the largest logistics providers into the DOD and NATO. In fact, they provided, Coal Chain provided all of the for the vaccines storage and delivery in the state of Texas, for COVID and for the city of Chicago and a number of other places. So a great partnership there and thanks to them. The MID 400, the reason I bring this up is because we had a direct commercialization of some of our work that went into the MID 400 and the MID 400 is a Baja race. And so the reason I'm highlighting this is because About a year ago, we started designing in our lab, and we're actually working on some of this with DRL as well, a thermal system that will actually see through dust in the Baja race and actually map that with LIDAR that we do before a race. So in the Baja race, it's over just hundreds of miles. and so will actually fly LIDAR, mount that in, combine it with a thermal system so that they're running through these incredibly dusty provisions. They can actually see through the dust and actually down to the centimeter inch where they're at on the track. Now, the truck that we put this in, it was a beautiful installation. You know, we opened it up to the whole industry to see. Of course, it's an incredibly influential industry. Most of these and other people that are running these trucks are billionaires and this is for fun for them. It's great exposure in that regard for us. Kyle Washington, in particular, with his truck and Washington family have been just incredible supporters and amazing shareholders for us. When we did that install, it made a difference. The truck led most of the race. The driver, he will tell you that he's never had that type of intelligence in dust before. It was incredible. Now, the truck blew an engine as it was in the lead for most of the race, but he credited that positioning mostly. I mean, he's got to take credit. He's an incredible driver, but the new tech on there was incredible. And so this is a great example of how we're going to be able to use this As technology, you know, obviously not just in Baja racing because it's not an overly big market or anything like that. But imagine, if you will, when you're putting drones in emergency situations or in desert situations where you've got to be able to see through things, where you don't have clear line of sight. or in cloud situations or in clandestine situations. This is where we apply this type of work into the technology that we do and that's really the differentiator for Dragonfly. We know a drone can fly and a lot of people can make a drone, but can you make a drone that reads vital signs? Can you make a drone that can see through a dust storm? Can you make a drone that can get through clouds and support either your personnel on the ground or whatever the case is or give you eyes in the sky When you're a small unit or when you're in an emergency situation, almost regardless of the weather conditions. Now, of course, extreme winds and stuff are still going to be an issue, but we're working on a lot of stuff that actually dampens and increases the capability for these drones in those situations. But that's just how we think, and we have customers that want these types of requirements. and that's the differentiator. The reason that RSU came to us or came to cold chain was because we had this application that they needed. There's nothing else out there like it. You know, these drones are coming in delivering these medical supplies and providing vital sign readings back to the people to find out who needs a pre-office. How bad are the people that are in those surviving situations? Are they in shock? Are they dehydrated? Are they like and over time, that's the stuff that will make the difference. It's that data. It's the information. It's not just that makes for a better delivery but actually utilizes every aspect of a delivery or a site or a mission to be able to collect all the information you need in order to be more successful rather than just getting a package somewhere. Foley, fantastic partner to work with. They did a number of events this year with their event checking system and utilizing our We're really excited about some very big things that are happening in that space with world class events that are mandated now to manage the health services and the health monitoring. of all of the volunteers and all of the athletes and all of the people that participate when you big, big, big crowds together. So we're really excited about what's coming up out of that and the health security and services that we'll be providing for some of those global type of events. And we, you know, a couple new sheriff's offices have come on board with us with new drones and utilizing the vital intelligence kiosk systems for check-ins if there are jails or intakes. and things like that. And there's more than I could list here, but just wanted to give a sample of it. So on that front, the bottom line is we're going through rapid growth. We're providing advanced drone services and solutions. We're in a heightened regulatory environment, which is a benefit to us because the amount of time you've been in at this, the amount of drones that we've had certified compared to other companies, the relationship that we have working with the regulators and because we're very, very comfortable working with government agencies and 911 and sheriff's departments and stuff. So the more regulation, even though it's very friendly right now, the more regulation, the better in terms of a moat or a barrier to entry from competitors for us. And we have a seasoned executive team. You know, Scott and I had the good pleasure of building a couple of great companies before. Not everything has been successful, but on par, I mean, we've got a couple of knocking out of the parks. And this, in my opinion, is another one. And quite frankly, you know, this is probably the most meaningful one, especially considering the events of the last month and the type of work that's that we're getting to do. But if you also, again, look at our board, if you look at gentlemen like Andy Card, the former White House Chief of Staff and Secretary of Transportation, John Mittman, the former GC of all of Homeland Security, Judy Myers, who ran a knife, the list goes on. If we're a company on our side to have that type of pedigree and governance is what's really helping us win some just incredible customers and making sure management's on top of their game. So, yeah. On that front, first and foremost, I really appreciate everybody allowing us to have the time to give this presentation. Certainly, as we release our numbers over the next 24 hours, if you want individual follow-up, check with ROLI. We're happy to do one-on-one calls with analysts, institutions, or shareholders to run through the numbers. Again, there's nothing material in terms of any problems at this point. It's just a late filing on the auditor side of things. just trying to be as kind as I can and not as frustrated as I probably really am in that regard and we're thrilled with the results that we hit in the last year and this quarter that we're in right now just is looking great so on that note what I'll do is I'll turn it over to our president Scott to facilitate some questions and Roli I think you've been busy on the on the Q&A as well. So thank you very much and thank you just for allowing us to do what we do and being a part of it. We appreciate your trust and we'll work hard to keep it. Scott?

Yeah, thanks, Cam. And thanks to everyone who has sent in questions. We've had a number of questions who came in prior to the call. So we've got a list of questions there. We have a list of questions that have come in kind of during the call. And so I'm just kind of going to take these guys that come in. And some I'll answer myself. Some I'll just throw back to Cam. And, you know, keeping, of course, an eye on time and all the rest of it. We'll work through as many of these as we can. There's lots of doubles up and all the rest of it. So just kind of jumping in right here. First one, please comment on international expansion plans for Dragonfly. So I'll go ahead and take this. We, over the last five, six months, we've had a number of international initiatives that have come our way, opportunities that have come our way, things we've looked at, things that we've passed on. We were invited down to the Bahamas a couple weeks ago to look at putting together an inter-Island kind of delivery network. There was a bunch of media that came out from Bahamas, local TV and radio and so forth. And so that's just an example of it. There's been other items that we've looked at as well as other things international. One of the advantages, of course, of international opportunities is a slightly less regulated environment in terms of what you can do, where you can fly drones, flying in further distances over people and things like that. So there are opportunities that come at us for sure. There's opportunities that we're looking at. I think we should be able to come up with announcements that are a little more material and update and shareholders and kind of the plan as we work our way through this. So I don't want to get too far into that, just to say that certainly international markets outside of the North American regulatory environment is something that Dragonfly has been looking at for a long time. And over the last four or five months, actually, we've made from significant traction with regards to customers, opportunities, different levels of service that we can provide in generally island-type countries, but also other countries that are islands. So on that one, it's a great question for all kinds of reasons, but just bear with us on that one.