Draganfly Inc.

I think to respect everyone's time, I think we will get started. So again, greetings, welcome to all the shareholders and stakeholders on today's Dragonfly 2025 Q1 earnings call. My name is Roley Bustos. I am the Internal Investor Relations Representative here at Dragonfly. We appreciate you all joining us. We'll start as usual with our CEO and President Cameron Schell recapping the first quarter earnings headlines. Next will be a more detailed financial review with our CFO, Paul Sun, who will then conclude by addressing the pre-submitted questions we've received. As always, you can reach out to me directly at investor.relations at dragonfly.com. I remind everyone this presentation may include forward-looking information and statements. These statements are not guarantees of future performance or financial results, and undue reliance should not be placed on them. Any future events or financial results may differ from what might be discussed here. The company's results and statements are accurate as of today, May the 8th, 2025. We're under no obligation to update or renew these statements outside of material press release disclosure going forward. The full forward-looking statement and disclaimer can be found on page two of this presentation. So Cam, please go ahead.

Great. Thanks very much, Roli. Thank you to everybody for taking the time to join us here today. We appreciate it. If we just move ahead a couple of slides, that'd be great. So Q1 saw a lot of activity as I'm sure it did in the entire industry. And so our revenue was $1.547 million, which is a 16% year over year increase. We had a gross profit of $310,000. And at the end of the quarter, we had cash of about just over $2 million. So next slide, please. Thanks. In terms of the activity that we encountered over the quarter, it was a very busy quarter. So in particular, we were selected by and signed an exclusive agreement with SafeLane, which is the world's largest company. Demining and unexploded ordnance removal company, one of the oldest as well. So they selected Dragonfly as their primary partner for all aerial surveys. And so going forward, SafeLane will be using Dragonfly equipment as well as our services in order to do all the aerial mapping. and analysis using proprietary software and AI tools for pre-work around demining projects. So demining is a massive opportunity. Drones are now becoming standard fare to be used in demining operations. However, it is highly technical, requires specific types of equipment to use, specific types of expertise. Given the amount of data and experience that we have, in particular in Ukraine in this area, and the AI that's required from the data that's been collected over the last number of years, we're really excited to see this as a primary service going forward. Dragonfly does have a couple of primary services that we do offer because of the technical aspects of it. They do exist in the mining space, in the wildfire management and mitigation space, also in the wash drone space. We're very, very fortunate in Q1 and honored to have Chris Miller, who is the former acting Secretary of Defense of the United States, also a former Green Beret intelligence officer as well. Green Beret officer and intelligence officer, worked in the Pentagon for years, obviously worked his way up and became the acting Secretary of Defense. Chris has also been very kind to work and act as a spokesperson for us at many events and on national TV. He brings an incredible work ethic, a fantastic contact base experience to the table. Chris's mandate when he was working in government and the former acting Secretary of Defense was actually to mandate the DOD to be able to create projects and technology services from the ground up. So he's a big, big advocate of not having top-down decisions made. And so the access that he has provided to us into many aspects of the military has been fantastic. And we look forward to the benefits of that and the work that we're doing with him and the military community. over the course of the next couple of years as the massive amounts of budgets that actually were just talked about today in terms of automation and drones in particular that are now starting to unfold within the NATO militaries. We also announced a teaming agreement with Autonomy Labs. Autonomy Labs is a fantastic company that's actually designed a demining, I'll call it blanket, that sits on top of the surface and then has a number of ordnance on it that explode. And so they have teamed with us to utilize our heavy lift drone in particular. to actually go and place these blankets for demining operations. So this would be the first time that drones would be used in order to place this type of equipment in place. And we do expect the results of it to be obviously a lower cost of demining, faster speed and greater safety. So we're really, really happy to be selected by them to do it. And the reason that these companies team with Dragonfly isn't just because we've got great equipment, it's because we have great subject matter expertise and the ability to build solutions with them. And then these companies, of course, become a great channel for us and our equipment as they go out and sell it into their markets. So we're also selected as Belco's UAS provider of choice. So Belco builds and supplies a North American LIDAR system. And this is another example of our channel strategy. So you've got companies out there building great, great payloads, but they need NDAA compliant drones in order to carry this particular type of equipment. And so in order to be able to sell into North American providers, they need a North American drone manufacturer to work with. So all the integration, the software, the distribution, the inventory, all the things that are a challenge for these organizations to work with because they're a LiDAR company, they're not a drone company. We've been able to work through with them and they've become a great channel partner. So every time that they're going out and selling their LiDAR system, now they're also selling Dragonfly drones as well. We've seen some terrific results with them in this current quarter that we're in. So thanks to them for that work. We have established a public safety board of advisors. So this board of advisors has a number of very prominent public safety individuals that come out of many of the top organizations, public safety organizations, in particular in North America. Paul Goldenberg is our chair there. Paul's former Homeland Security, former police commissioner as well. And what this board of advisors has been able to do is provide us not just incredible product and subject matter expertise, but access, access into many of the top agencies, not just in North America, in fact, globally, as it's turned out. And they've got us running at full speed right now. I mean, our demo teams, they're overbooked and we're certainly adding more folks in that regard. So thanks to Paul and the team there and the great work. We also have closed the $3.6 million financing, which will, again, carry us forward and allow us to continue to do the great work that the team is doing and move towards the large purchase orders that we're working on. So thanks. Next slide, please. From an operational standpoint, we did open up a new facility in Tampa. This Tampa facility also includes a full testing facility that allows us to not just test drones, but actually do live ordnance as well. It's strategically located in Tampa for two reasons. One, A great customer there that we have in special ops in support of the work that we're going to be doing with them currently, obviously, but obviously the expanded work that we're looking forward to doing with them in the future. Also, what it does is it allows us to have strategic manufacturing opportunities. in that particular location for our US, in particular, military orders, but also our public safety orders. And this is really important on a number of different fronts, but in particular, as it relates to what's happening geopolitically with tariffs. So we are able to now be in a position to choose where, depending on specific models and orders, where we're going to be manufacturing out of to then best utilize how we can best serve our customer and address any geopolitical tariff situation. We did some great partner work with Volatus where we expanded our abilities in the high value geospatial area, in particular with power utility customers. So what's incredible about this space is that it's all moving towards drone inspection and the fleets that are out there in North America are actually now moving away from any of the former Chinese equipment that they had or foreign national equipment that they had. to North American equipment. Dragonfly is uniquely positioned here, obviously not just because of our North American, both US and Canadian capabilities, but also because of the type of equipment that we have in our heavy lift and our 3XL drone. So really excited about the work that is unfolded there with the lattice. And they've been a great partner to be working with. They also have development of some very specific bathymetric lidar systems for oil and gas exploration. in the ocean. And so again, we were approached by them and a customer of theirs in order to utilize our equipment because of its heavy lift capability, but also because of the software integration and engineering work we could do along with their bathymetric lidar system. So that has really opened up an incredible opportunity in that oil and gas exploration space for offshore exploration. We secured multiple waivers again this last quarter, in particular for drone operations over people and moving vehicles in the Boston area, which is an incredibly congested space. And we continue to do our work with Massachusetts Department of Transportation, where we were awarded and won a pilot project there for medical delivery, but also with Boston Mass General, who's standing up a medical delivery service throughout Boston, has selected Dragonfly to do so. So next slide. We unveiled our Apex drone last year, and this drone here is what's fit into a category one drone, but it would be considered a large category one drone for sure. But it does directly address the ISR market for both the military and for public safety. The features, the unique features of this is its payload capacity and its multi-use capability. So while we do see a number of smaller ISR drones being manufactured in North America, they're primarily a flying camera. And what we see with this particular drone is a drone that was designed because of demand signals that we were getting. out of the military and law enforcement for an ISR drone that has capability beyond just doing, um, uh, ISR meaning intelligence surveillance and, uh, reconnaissance. So this onboard, this is, this is a drone that can do multi, uh, unit, uh, payload capacity, uh, at the same time. Uh, it also has, um, uh, NVIDIA onboard computing for AI performance. So we're seeing a lot of demand around, uh, onboard processing, AI capabilities, advanced navigation capabilities, all of which are very power hungry requirements, and many of which the payloads that those support are also power hungry and somewhat heavier. So we now have a drone in the market that's meeting that need and we have tremendous demand around it. It comes with various communication links, interference, resistance, COFDM radio capabilities, multi-channel capabilities, so anti, you know, GPS denied environment capabilities and such. So really excited about how this has performed and how it's been accepted in the market. We'll continue now to press this forward as one of our main product lines. And I think that's something that's super important. Next slide, please. That's super important to recognize about Dragonfly and where it's positioned in the market. So there are some fantastic drones being made by many of the names that I'm sure some of the people on this call will recognize. And there's no but. They've really come a long way. Typically, those two drones are fitting into a couple of categories. One, the small ISR drone, which is a flying camera drone. and a variant of that that might come in a drone in a box to be able to do drone as first responder. What we're seeing with our customers and why we've designed Dragonfly in the way that we have is that the customers that we have are looking, they certainly need that type of a drone. There's demand signal out there for it. That's typically replacing the DJI Mavic type of scenario. But where we're really seeing the demand has been, okay, how do you have a product line that can address all the needs? So there's plenty of manufacturers of the small ISR drone out there, but we need a drone that can do multi payload or has capability beyond just being a camera or just flying out of a box. We need the ability to fly for three or four hours. So how do you do that with electricity? Well, you don't, you need a hybrid capability. you know how you how do you have a command you know a drone that can actually carry you know 20 or 30 pounds stay up for x amount of time i can do multiple types of missions so i don't have to buy multiple types of drones and then obviously move right into our heavy lift drone and and You know, it would sure be nice to be able to do that with a common operating system, with common attachments, with payloads that can fit across any one of those drone systems and such. And that's really a very unique what we're finding capability that Dragonfly has. I would suggest that, you know, Outside of DGI, of course, which is a massive company, they're certainly not in North America, but maybe even globally. Well, there's certainly somebody that another organization that doesn't have a full product suite. And the more that we deal with our customers, the more this is becoming a differentiator. So they want those common hookups. They want a common operating system. They want common flying characteristics. And they don't want to have to have one person trained on one system and then have to learn an entirely different system. So this gives them that common operating feature. And again, that fits in right with our flex drones, which can be flown individually or autonomously or swarmed. and or even dropped from any one of these drone systems so that they become, you know, you've got a 3XL that's flying out there. There's a payload attachment that goes with that and software that Plex FPV drones can be dropped out of there and then they can be swarmed and flown out. All of these drones have the ability to carry any number of payloads, including ordnance. So that's really the differentiator. These are workhorse drones with multiple applications. Next slide, please. I won't spend any time here. As we all know, the UAV market is growing exponentially right now. For the most part, the large purchase orders and standardization of the industry has taken the last couple of years to get to. And we are now at the very front edge of seeing those large orders happen, not just for Dragonfly, but for a number of companies. But there's three or four particular companies out there, maybe five at the outside in North America. that have the capability, ability, have been around long enough to actually have gone through all the testing selection processes, cleared all the, I'll call it background checks, clearances, et cetera, and have the ability to meet the demand requirement. And that's the other big differentiator is that Dragonfly has the ability to meet the demand requirement for X amount of hundreds of drones on a particular order. And that's that's an incredibly, incredibly strategic, important strategic differentiator for us and maybe two or three other organizations in North America. Next slide, please. What I'll do here is I'll turn this over to Paul Sun, our CFO, to run us through our financials. Paul?

Yeah, thanks, Kim. Thanks, everybody, for joining. I'll just take you through these slides with some of our adjustments. Revenue for first quarter, as Kim said at the outset, up 16.4% to $1.5 million, up from $1.3 million from the first quarter of 2024. Gross profit $310,000 compared to $280,000 in Q1 of last year. This quarter did have a one-time non-cash recovery of a write-down of inventory. Usually we have the other way. But in this case, it would have been $271,000 in gross profit compared to the same period last year where we had a one-time inventory write-down of $149,000. So making the adjusted gross profit there of $428,000. So Taking those adjustments into account, adjusted gross profit was 17.5% versus an adjusted gross margin for same period last year of 32%. And that's just a result of more sales coming from some lower margin products this year versus last year. Comprehensive loss for the quarter, $3.4 million compared to what you see here officially stated as $1.9 million. However, as noted, there were some non-cash changes comprised of a fair value derivative liability of $157,000, one-time recovery of inventory write-down, which we just spoke about, and the gain in notes receivable. So otherwise, it would have been a comprehensive loss of $3.7 million. And if we did the same thing looking at last year's lost, it would have come in at 3.6. So really pretty much the same loss a year over year. The slight increase is due to some higher office and admin and and professional fees, if we go on to the next slide please we just did the year over year comparison so now just talk about the quarter over quarter meeting Q1 compared to last quarter being Q4 of 2024. In this case, revenue was down a sneak about 4% to 1.54 compared to the 1.6 reported in Q4. Just some lower product sales, timing issues, that type of thing. Gross margin, we talked about Q1 was 20%. That compares to 13.4% in Q4. Again, if we back out those one-time non-cash items, gross margin for Q1 was 17.5% compared to 24% adjusted for the previous quarter. Total comprehensive loss for Q1, we talked about 3.5 million. In this case, it compares to a reported 4.7 million. But again, we have some adjustments that we'd like to back out. So if we do that, the comparative comprehensive loss would have been 3.7 compared to a loss of 3.6, excluding non-cash adjustments. So again, similar situation, pretty much same loss quarter over quarter. So that's, I guess, consistent. And then I think on the next slide here, we'll just go through some balance sheet items. So you can see here total assets decreased from $10.2 million to $6.9 million from the end of December. That's largely due to the decrease in cash as the company operates. Working capital surplus was $705,000 versus at December 31st of $3.8 million. However, working capital would have been a surplus of $2.7 million and shareholders' equity would be $3.5 million versus the $1.4 million shown here if we X'd out the non-cash fair value of derivative liability of $2 million. So at the end of December, adjusted working capital would have been 6 million and shareholders equity would have been 6.8, just so you guys have the comparison. And we continue to have minimal debt. And as Kim mentioned at the beginning, cash balance as at the end of March was 2.1 million compared to December's number of 6.2. But then of course, we just very recently closed on the US 3.6. With that, I'll pass it back to you, Kim.

All right. Thank you, Paul.

You're welcome.

Um, it sounds great. I think we can stop sharing. And I think, uh, Roli, if I'm not mistaken, you've got, uh, questions that, um, have, uh, come in that we can maybe address.

Yeah. Cam. Thanks. Uh, yeah, I'm looking at the list now. Uh, we did get a few questions and maybe not as many as we normally do, but, um, some of them, I think everybody probably has on the top of their, on top of the mind. Um, first one would be, uh, how many more equity raises do you plan on doing before being profitable or more specifically, when do you plan on being profitable?

Yeah, I think, um, so profitability, uh, is really all about sales at this point. Uh, we, and, uh, you know, I think we've got our, our costs, uh, where they need to be certainly on a, on a comp basis. Uh, I would suggest that we're, uh, we're, we're spending a lot less money than, uh, competitors out there. Um, And, you know, I think we basically we're going to need about thirty five to forty million dollars in revenue to be profitable. So that's I mean, that's just that's a short answer of where it needs to be. We don't give official guidance in terms of where we think our numbers will be this year. certainly in terms of orders, uh, expect us to be well North of that number. Uh, how quickly we produce those orders depend obviously on, on when we actually, uh, uh, are signed off on those particular orders for this year. So we won't be profitable, uh, this year. We certainly have a shot at being profitable, uh, next year, a very, very good shot at being profitable next year, but it's going to take us just North of about 30 million bucks, uh, to be profitable. Um, And can it be in this environment with the customers that we're dealing with? In many respects, that could be one order. So hopefully that provides some clarity.

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

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

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

Yeah, there's going to continue to be consolidation and we see it happening on an ongoing basis. From our perspective, we have not been aggressive in this regard just because we have a very modest market cap and we have the capabilities that we need to execute organically on orders that we think are completely exponential or will create completely exponential growth on the market cap or evaluation compared to where we're at today. So we've chosen to keep our resources, both in terms of capital shares and resource time, very focused on our organic situation. Weekly might be a little bit of an exaggeration, but almost weekly we see something that comes across our table that's interesting. But it'll be some time before we execute in that regard. But yeah, we're going to see consolidation, not because the market can't handle having more people in the market, but the time between where we see the tipping point in the industry happening and where it has been and where it is at today, that's that time. that trough of doom or whatever you call it, that's really takes a lot of resilience for, for companies to get through. And I think there's a pretty good indicator out there of the three or four companies that have the capability to get across that trough. But there's, there's a plethora of other technology and companies and, and talent out there that, that won't that, that won't make it. So it's, it's interesting times for sure.

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

We'll be doing at least sub-assembly work. Maybe not at that. The answer is yes. We'll be doing sub-assembly work there. The large orders will be done through contract manufacturing in the States just because of the incredible volume there. We still have, of course, we have our full-blown manufacturing facilities up in Canada as well. And they'll satisfy parts of these orders if necessary, but they'll also for the Canadian market as and the international market. So, you know, kind of more by luck than certainly by design. The geopolitical situation is serving us quite well. We have a strategy that's not affected by the tariffs to a great degree. And candidly, those tariffs actually haven't still come into effect. But even if they do, we've got a way that does address it. In terms of our international work, the fact that we can produce out of Canada has really been a great benefit. Again, that's more by luck than by design. And the Canadian market in particular has become incredibly strong for us, which again, wasn't part of the overall business plan, but very, very excited that it's working out as there's really... depending on how you look at it, there's maybe one other manufacturer up in Canada, but other than that, that's our market to lose, if you will.

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

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

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

Great. Thanks, Rolly. Thanks in particular to all the folks at Dragonfly. Our teams do incredible work. I see them going hard through the weekends, late into the evenings, road warriors all over the place. You know, really deep innovation and commitment to our customers, our product. So thank you to all of you. Thanks to also and in particular our customers who are supporting the company, who really see the vision of what's unfolding and have shown such an incredible commitment to work with Dragonfly and allowing us to be your provider. And first and foremost, thanks to our shareholders. None of this could be happening without you. We appreciate your trust. We take very seriously your consideration and the investment that you've made in the company. So while thematically the drone industry is a multi-billion dollar industry, it's incredibly, incredibly intricate and complex. And we're really privileged and proud to be, you know, kind of one of those three or four players that are standing on the precipice of multi-billion dollar type valuations. And so congratulations. Thank you for your time there. On that note, I will leave it. Roli and I are open to questions and meetings anytime that's at all reasonably possible. And we look forward to a great quarter two update. Thank you.