slowdown in revenue, huge drop in SP (from peak) and also in chat! We used to be very interested in this stock as a community… just a heads up to keep it on your radar, might reach value again if it continues on current SP path…

30 September 2024

Quarterly Report

For the period ending

DroneShield Limited (ASX:DRO)

ASX Release

ABN 26 608 915 859

Image: DroneSentry-X Mk2 on a vehicle

DroneShield Limited ABN: 26 608 915 859 ASX:DRO

Level 5, 126 Phillip St, Sydney NSW 2000

1

25 October 2024 ASX Announcement

Quarterly Activities/Appendix 4C Cash Flow Report

DroneShield Limited (ASX:DRO) (“DroneShield" or the “Company”) is pleased to release its

business update and Appendix 4C for the three-month period ended 30 September 2024.

Highlights

Notes:

1. Revenues from existing orders relate to existing orders scheduled to be delivered and recognised as

revenue in 4Q24. Excludes revenues for any additional sales to be made and delivered for the remainder

of 2024.

2. Results for YTD 3Q24 are preliminary estimates. The audited results are due in February 2025, as part of

the 2024 Annual Report.

• 1Q-3Q 2024 cash receipts of $30.5 million, up 20% vs 2023 ($25.5 million) – noting the 2023

1Q-3Q period included $2.4 million in R&D tax incentive (now received as a tax offset)

- Highest 1Q-3Q cash receipts in DroneShield’s history

- 3Q24 customer cash receipts of $9.1 million, up 18% vs 3Q23 ($7.7 million)

- Highest 3Q customer cash receipts in DroneShield’s history

• 1Q-3Q 2024 revenues of $31.1 million

- 1Q-3Q 2023 revenue was $39.0 million – difference with 1Q-3Q 2024 due to the delivery

of a material amount of the $33 million order announced in July 2023, during the 3Q2023

- There are material deliveries already delivered and scheduled for 4Q2024 from existing

orders, of which an additional $24.1 million in revenue is estimated for 4Q2024, resulting

in an estimate of $55.2 million in 2024 revenue only from the existing orders, prior to

any additional new orders to be received and delivered prior to year-end (vs $54.1 million

total revenue in 2023)1

• DroneShield is well placed to deliver orders at short notice prior to year-end, with $240

million in existing inventory (completed and in progress/long lead items) by sale value held

- The technology obsolescence is managed by providing quarterly AI software updates to a

number of products, as well as forecasting inventory requirements by comparing sales

pipeline vs the timeframe of release of the next generation of hardware across its products

- The hardware carries sophisticated componentry (assisting high margins and

differentiation), driving the requirement for componentry purchasing in advance due to the

build time of 3-4 months

- Customers have urgent requirements and are unable to wait months for delivery

- The sales team is focussed on maximising revenues prior to the calendar year-end, with

October marking the start of the US new fiscal year

1 Estimate only, and should not be considered as guidance.

DroneShield Limited ABN: 26 608 915 859 ASX:DRO

Level 5, 126 Phillip St, Sydney NSW 2000

2

• Robust pipeline of $1.1 billion2 (as at 25 October 2024)

- Buyers of C-UxS systems are aware of the need to fulfil their requirements, and are

gearing up for large acquisitions of C-UxS equipment, following earlier smaller

purchases and trials

- Significant ramp up in the Asia region (especially countries neighboring China), as multiple

Governments are commencing C-UxS programs against the threat of small Chinese

drones conducting surveillance of sensitive areas, harassment and potential attacks

- The US is expected to continue to be the largest market for DroneShield (70% of 2023

revenues, and 60% for 2024 YTD), with a growing customer base across numerous

government agencies, including military and non-military agencies

- Drones are continuing to play a major role in the Ukraine war, including C-UxS foreign

military aid into Ukraine

- In Europe, the NATO framework agreement awarded to DroneShield is expected to drive

material sales, both directly and via the “halo effect” of being selected by the NATO

authorities

- With the larger C-UxS program acquisitions, the procurement times to award are longer for

larger projects, due to additional probity requirements associated with larger deals. There

are currently 34 separate sale opportunities, each in excess of $5 million, in the $1.1 billion

sales pipeline. Some may be potentially awarded prior to year-end.2

• Strong cash balance as of 30 September 2024 of $238.3 million, no debt or convertibles

- Up from $145.5 million as of 30 June 2024, and including the proceeds from the $120

million Placement in August 2024

- This also includes cash outflows of $19 million during the quarter on inventory

- There is currently $40 million in additional inventory payment commitments

- Key areas of spend going forward will be R&D investment to stay ahead of innovation in

the drone technology, as well as a gradual build out of inventory

• Current team of 220 staff includes 140 engineers to drive the technology development with

quarterly AI software updates and 2-3 year hardware development cycles

- 300 staff including 220 engineers planned by the end of 2025

- A number of hires are recent, with productivity expected to get a further significant boost

as they ramp up their contribution to the business

- DroneShield receives significant amounts of cutting-edge tech intelligence on drone trends

from Ukraine, Middle East and elsewhere globally via its network of tier 1 customer and

partner relationships

- Ramp up in Europe, with 3 experienced senior sales hires (all with ex-C-UxS competitor

background) in Denmark and Germany, as well as an experienced senior sales hire in the

Middle East. Two senior ex-Australian Defence Force (ADF) Australian hires (VP Strategy

and a senior adviser) have joined the business engaging on ADF’s C-UxS deployments,

which are expected to ramp up significantly. They are supported by other ex-senior ADF

staff as advisers where appropriate

- DroneShield has also hired Kacey Lam-Evans as its Government Affairs Director, based

in Canberra, who was in the original team at Pyne and Partners with Hon Christopher Pyne,

as the Company expects Australia to commence large C-UxS programs in near term

• Ukraine, Middle Eastern and other global conflicts substantively use small drones

- This is driving significant innovation in the small drone warfare, and as a result innovation

in counterdrone (C-UxS) systems. DroneShield does not consider itself competing with

other C-UxS companies in the market, but rather the drone technologies themselves

• 1H24 SaaS revenues of $1.3 million, up 93% vs 1H23 ($663k)

- SaaS revenue update incl 3Q and 4Q will be available as part of the 2024 full year results

- Customers require the Company’s latest AI software engines, upgraded quarterly on SaaS

basis, in response to a rapidly evolving drone threat

2 There is no assurance that any of the Company’s sales opportunities will result in sales.

DroneShield Limited ABN: 26 608 915 859 ASX:DRO

Level 5, 126 Phillip St, Sydney NSW 2000

3

- As the hardware becomes more flexible/open-ended with each generation of the product,

the software updates will play an increasing role, critical to effectiveness

- Additional SaaS based solutions planned for launch in the next 12 months

• $42 million contracted backlog

- Increasing amount ($28 million in 2Q24), and with $24.1 million expected to be delivered

this quarter and recognised as revenue

• Further expansion of DroneShield’s Sydney facility and its supply chain network, which is

expected to increase the manufacturing capacity from the current $400 million p.a. to $500

million p.a.

- Signed lease for a significant additional 1,800sqm space at the current Sydney HQ facility,

from the current 2,100sqm, for the combined total of 3,900sqm, with the move into the

expanded space planned to occur prior to 2024 year-end

- Expected to provide additional revenue opportunities (through higher production capacity)

- Majority of the expanded space is for DroneSentry-X Mk2 production (multi-mission

vehicle/fixed site/vessel detect and defeat system), which is expected to drive significant

revenue in 2025 and beyond

- The associated increase in annual lease cost (and other costs) is not material. The fitout

is expected to be covered via the landlord fitout incentive. DroneShield’s own operations

do not have substantial capex outlays associated with them, as only the final assembly and

testing part of the manufacturing is performed at the Company’s own facility, and the

remainder is outsourced with strict specifications

Outlook and Key Themes

As the geopolitical environment deteriorates, small drones continue to be used by bad actors,

both State and non-State alike. C-UxS market remains at a low saturation.

The C-UxS program managers are seeing the rapid evolution of drones on the battlefield, which

drives a degree of delay in larger acquisitions, for the concern of the purchased equipment not

being fit for purpose within a couple of years. DroneShield is approaching this concern in a number

of ways, including building a higher degree of flexibility in its hardware (with software updates

driving the technology), as well as commercial structures in its engagement that reflect the

fast changing technology landscape. The Company also benefits from having a wide range of

products, including handheld solutions, deploying AI on edge (in contrast with the server farms in

the cloud, which is the more traditional deployment of AI, however not suitable for battlefield

applications with no readily available network access at all times).

In terms of the evolution of drones, over the last 12 months, there appears to be penetration of

military technologies into what was originally a consumer technology space for small

drones, with a key focus to avoid detection and defeat of C-UxS systems on both sides of the

Ukraine conflict. Ongoing technology effort is required to keep up with this challenge. DroneShield

is well placed to meet this challenge due to its culture of rapid technology development.

While today the majority of hardware purchases are by customers who require additional

equipment to what they may already have (or it’s their initial purchase), in the next 5-10 years

significant sales are expected to be driven by the customers moving from the older to the latest

generation of hardware. For some customers, this may also lead to C-UxS-as-a-Service model,

with longer term contracts which include hardware purchase and refreshes, regular software

updates, installation and field support. This is positive, as it reduces the lumpiness of cashflows.

While today the military is majority of DroneShield’s customer base, over time the civilian segments

are expected to go through rapid acquisition cycles, likely triggered by incidents. The spread of

such acquisitions will be assisted by the cooperative nature of information sharing of such

customers (as opposed to militaries).

DroneShield Limited ABN: 26 608 915 859 ASX:DRO

Level 5, 126 Phillip St, Sydney NSW 2000

4

The C-UxS sector is continuing to consolidate in 2024, with Axon acquiring Dedrone,

Bridgepoint acquiring MyDefence and High Point acquiring Radio Hill, this year alone.

DroneShield remains the only publicly listed pure-play C-UxS company globally, as well as

one of the last original C-UxS pioneers in this space.

DroneShield’s Positioning

As a pioneer and global leader in the C-UxS sector, DroneShield has a number of technical and

commercial differentiators compared to its competitors. These differentiators have been developed

over years and are challenging to disrupt. On the commercial side, this includes deep trusted

relationships and being written into multi-year requirement plans with key customers across the

US Department of Defense (“DoD”) and other organisations directly, and the defence prime

contractors working with the DoD, to support current and coming priorities. Global primes are often

customers and partners, as opposed to competitors for DroneShield, as they prefer to leverage

DroneShield’s ability to deliver at the required speed of innovation.

With numerous customers and supporting several different C-UxS use cases, DroneShield is

poised for continued diversified growth. The Company is actively progressing opportunities, both

directly and as a subcontractor, across all of its major accounts.

With a large and agile team of hardware and software engineers (estimated as the largest C-UxS

engineering team globally), and a decade of solving C-UxS technology problems as they continue

to rise in complexity, DroneShield is rapidly innovating and building on its unique differentiators.

Payments to related parties of the entity and their associates

Board fees paid to Non-Executive Directors and salary to CEO amounted to $561,483.

This announcement has been approved for release to ASX by the Board.

For enquiries, please contact:

About DroneShield Limited

DroneShield (ASX:DRO) provides Artificial Intelligence based platforms for protection against

advanced threats such as drones and autonomous systems. We offer customers bespoke

counterdrone (or counter-UAS) and electronic warfare solutions and off-the-shelf products

designed to suit a variety of terrestrial, maritime or airborne platforms. Our customers include

military, intelligence community, Government, law enforcement, critical infrastructure, and airports.

To learn more about DroneShield click here: www.droneshield.com/about

ENDS

For more information

Oleg Vornik

CEO and Managing Director

E: [email protected]

P: +61 2 9995 7280

ASX Listing Rules Appendix 4C (17/07/20) Page 1

+ See chapter 19 of the ASX Listing Rules for defined terms.

Appendix 4C

Quarterly cash flow report for entities

subject to Listing Rule 4.7B

Name of entity

DRONESHIELD LIMITED

ABN Quarter ended (“current quarter”)

26 608 915 859 30 September 2024

Consolidated statement of cash flows Current quarter

$A

Year to date

(9 months)

$A

1. Cash flows from operating activities 9,086,328 30,411,925

1.1 Receipts from customers

1.2 Payments for

(912,178) (2,371,213)

a) research and development

b) product manufacturing and

operating costs

These costs correspond to more than the

current period of sales, due to advanced

inventory purchases (19,017,571) (50,823,288)

c) advertising and marketing (892,815) (3,963,073)

d) leased assets - -

e) staff costs (6,991,794) (17,769,651)

f) administration and corporate costs (2,187,586) (6,663,455)

1.3 Dividends received (see note 3) - -

1.4 Interest received 1,474,537 2,156,999

1.5 Interest and other costs of finance paid

Interest paid relating to the lease liability for

DroneShield’s Office lease in Virginia and

Sydney. Payments for the Sydney office

commenced in July 2024. (84,819) (105,175)

1.6 Income taxes paid - -

1.7 Government grants and tax incentives 97,629 124,804

1.8 Other - -

1.9 Net cash from / (used in) operating

activities (19,428,269) (49,002,127)

ASX Listing Rules Appendix 4C (17/07/20) Page 2

+ See chapter 19 of the ASX Listing Rules for defined terms.

Consolidated statement of cash flows Current quarter

$A

Year to date

(9 months)

$A

2. Cash flows from investing activities

- -

2.1 Payments to acquire or for:

a) entities

b) businesses - -

c) property, plant and equipment

$879k relates to leasehold

improvements at DroneShield’s

new Sydney premises. IT

equipment, vehicle and production

tools contribute to the remainder of

the balance (2,332,311) (4,529,256)

d) investments - -

e) intellectual property - -

f) other non-current assets - -

2.2 Proceeds from disposal of:

- -

a) entities

b) businesses - -

c) property, plant and equipment - -

d) investments - -

e) intellectual property - -

f) other non-current assets - -

2.3 Cash flows from loans to other entities - -

2.4 Dividends received (see note 3) - -

2.5

Other

Leasing incentives received in relation to

DroneShield’s Sydney premises. 422,476 1,123,344

2.6 Net cash from / (used in) investing

activities (1,909,835) (3,405,912)

3. Cash flows from financing activities

120,062,501 243,414,473

3.1 Proceeds from issues of equity securities

(excluding convertible debt securities)

3.2 Proceeds from issue of convertible debt

securities - -

3.3 Proceeds from exercise of options - 1,432,528

3.4 Transaction costs related to issues of

equity securities or convertible debt

securities (5,400,000) (11,993,820)

3.5 Proceeds from borrowings - -

3.6 Repayment of borrowings - -

ASX Listing Rules Appendix 4C (17/07/20) Page 3

+ See chapter 19 of the ASX Listing Rules for defined terms.

Consolidated statement of cash flows Current quarter

$A

Year to date

(9 months)

$A

3.7 Transaction costs related to loans and

borrowings - -

3.8 Dividends paid - -

3.9 Other

Lease liability principal repayments relating

to DroneShield’s Office lease in Virginia and

Sydney. Payments for the Sydney office

commenced in July 2024. (242,384) (365,882)

3.10 Net cash from / (used in) financing

activities 114,420,117 232,487,299

4. Net increase / (decrease) in cash and

cash equivalents for the period

145,540,681 57,889,056

4.1 Cash and cash equivalents at beginning of

period

4.2 Net cash from / (used in) operating

activities (item 1.9 above) (19,428,269) (49,002,127)

4.3 Net cash from / (used in) investing activities

(item 2.6 above) (1,909,835) (3,405,912)

4.4 Net cash from / (used in) financing activities

(item 3.10 above) 114,420,117 232,487,299

4.5 Effect of movement in exchange rates on

cash held (288,238) 366,140

4.6 Cash and cash equivalents at end of

period 238,334,456 238,334,456

5. Reconciliation of cash and cash

equivalents

at the end of the quarter (as shown in the

consolidated statement of cash flows) to the

related items in the accounts

Current quarter

$A

Previous quarter

$A

5.1 Bank balances 56,158,487 38,493,207

5.2 Call deposits 861,377 841,726

5.3 Bank overdrafts - -

5.4 Other (Term Deposits) 181,314,592 106,205,748

5.5 Cash and cash equivalents at end of

quarter (should equal item 4.6 above) 238,334,456 145,540,681

ASX Listing Rules Appendix 4C (17/07/20) Page 4

+ See chapter 19 of the ASX Listing Rules for defined terms.

6. Payments to related parties of the entity and their

associates

Current quarter

$A

6.1 Aggregate amount of payments to related parties and their

associates included in item 1

Payments to CEO and Non-Executive Directors

561,483

6.2 Aggregate amount of payments to related parties and their

associates included in item 2

-

7. Financing facilities

Note: the term “facility’ includes all forms of financing

arrangements available to the entity.

Add notes as necessary for an understanding of the

sources of finance available to the entity.

Total facility

amount at quarter

end

$A

Amount drawn at

quarter end

$A

7.1 Loan facilities - -

7.2 Credit standby arrangements - -

7.3 Other (please specify) - -

7.4 Total financing facilities - -

7.5 Unused financing facilities available at quarter end -

8. Estimated cash available for future operating activities $A

8.1 Net cash from / (used in) operating activities (item 1.9) (19,428,269)

8.2 Cash and cash equivalents at quarter end (item 4.6) 238,334,456

8.3 Unused finance facilities available at quarter end (item 7.5) -

8.4 Total available funding (item 8.2 + item 8.3) 238,334,456

8.5 Estimated quarters of funding available (item 8.4 divided by

item 8.1)

12.27

Note: if the entity has reported positive net operating cash flows in item 1.9, answer item 8.5 as “N/A”. Otherwise, a

figure for the estimated quarters of funding available must be included in item 8.5.

8.6 If item 8.5 is less than 2 quarters, please provide answers to the following questions:

8.6.1 Does the entity expect that it will continue to have the current level of net operating

cash flows for the time being and, if not, why not?

Answer: N/A

8.6.2 Has the entity taken any steps, or does it propose to take any steps, to raise further

cash to fund its operations and, if so, what are those steps and how likely does it

believe that they will be successful?

Answer: N/A

ASX Listing Rules Appendix 4C (17/07/20) Page 5

+ See chapter 19 of the ASX Listing Rules for defined terms.

8.6.3 Does the entity expect to be able to continue its operations and to meet its business

objectives and, if so, on what basis?

Answer: N/A

Note: where item 8.5 is less than 2 quarters, all of questions 8.6.1, 8.6.2 and 8.6.3 above must be answered.

ASX Listing Rules Appendix 4C (17/07/20) Page 6

+ See chapter 19 of the ASX Listing Rules for defined terms.

Compliance statement

1 This statement has been prepared in accordance with accounting standards and policies

which comply with Listing Rule 19.11A.

2 This statement gives a true and fair view of the matters disclosed.

Date: 25 October 2024

Authorised by: Board of Directors

Notes

1. This quarterly cash flow report and the accompanying activity report provide a basis for informing the market about the

entity’s activities for the past quarter, how they have been financed and the effect this has had on its cash position. An

entity that wishes to disclose additional information over and above the minimum required under the Listing Rules is

encouraged to do so.

2. If this quarterly cash flow report has been prepared in accordance with Australian Accounting Standards, the definitions

in, and provisions of, AASB 107: Statement of Cash Flows apply to this report. If this quarterly cash flow report has

been prepared in accordance with other accounting standards agreed by ASX pursuant to Listing Rule 19.11A, the

corresponding equivalent standard applies to this report.

3. Dividends received may be classified either as cash flows from operating activities or cash flows from investing

activities, depending on the accounting policy of the entity.

4. If this report has been authorised for release to the market by your board of directors, you can insert here: “By the

board”. If it has been authorised for release to the market by a committee of your board of directors, you can insert

here: “By the [name of board committee – eg Audit and Risk Committee]”. If it has been authorised for release to the

market by a disclosure committee, you can insert here: “By the Disclosure Committee”.

5. If this report has been authorised for release to the market by your board of directors and you wish to hold yourself out

as complying with recommendation 4.2 of the ASX Corporate Governance Council’s Corporate Governance Principles

and Recommendations, the board should have received a declaration from its CEO and CFO that, in their opinion, the

financial records of the entity have been properly maintained, that this report complies with the appropriate accounting

standards and gives a true and fair view of the cash flows of the entity, and that their opinion has been formed on the

basis of a sound system of risk management and internal control which is operating effectively.