That’s the title of an excellent interview of DRO’s new CEO, Angus Bean, by Alan Kohler, published on Intelligent Investor. Long, detailed, and much more informative about DRO’s current situation - as per the recent Investor Presentation, this reflects a more open style of communication by the new CEO. The interview is behind a paywall, so I won’t put in the link or copy wholesale, but here’s my summary:
1) On Oleg Vornik’s recent departure - OV made the decision to leave over Christmas, basically due to burnout after being CEO for more than 10 years.
2) Governance overhaul post the share dump incident has resulted in an increased minimum shareholding policy for management – they have to hold a minimum of 200% of annual salary in shares - and also mandates policies and procedures for share sales by employees. In Bean’s case, with a 850K salary, this means his minimum shareholding is 1.7 mil in shares. He already had those shares. The board has Implemented a ‘front page’ test for trading by directors and employees to protect against the perception of inappropriate trading – meaning: would they be comfortable with this being on the front page of the AFR.
3) Bean speaks of the entrepreneurial culture that drove the company from the get-go – in the early days they did not have cash to pay staff so essentially ran at a US-style entrepreneurial model of remunerating staff via options vesting unto shares. They still do that today for key executives and management. The current goals for options to vest are to hit revenue/cash receipts of 300 mil by end 2026, 400 mil by end 2027 and 500 mil by end 2028. Options vested into shares now have rules for selling that spread out sales over time. Options are ZEPO (zero cost to exercise). Bean as CEO gets 200% of fixed remuneration ZEPO (total of 1.7 mil) if he guides the company to achieve the above targets. The options are deliberately structured this way to incentivize executives and management to drive for the growth targets.
4) A short history of DRO: Founded in 2015 by two American engineers, Brian Hearing and John Franklin in Virginia – both were acoustic scientists. Oleg was employee #1 as the CFO. DRO listed on the ASX in 2016, which was when Bean joined (employee #6) – he was an engineer, previously working with CSIRO and in a consultancy on an early crude drone platform for the mining industry. DRO listed on the ASX because the investment fund supporting the early business had a lot of experience floating on the ASX and it was easier to float a micro-cap here.
Hearing and Franklin exited the business in the early years, when the tech moved away from acoustic to RFD sensors. Bean has been responsible for DRO tech and product strategy for a decade, building the engineering team from 4 to ~360 engineers, developers and designers. It was a very small company for the first 6-7 years, building the industry as well as the actual company and pioneering a lot of the tech and the approaches to market. More recently, they separated the Chief Product Officer from the CTO role, with Bean remaining as CPO, and appointed Angus Harris as CTO. Bean has been formally Oleg’s 2IC for 6-7 years and during that time, Bean is the one who’s been running the engineering and development team (with Oleg overseeing marketing, presumably) but Bean was also involved with the key customer relationships as well.
The Russian invasion of Ukraine was a turning point for the industry and the company – DRO has been involved in the conflict since day3 of the fighting. Because of that, Bean, Oleg, and several other key DRO personnel have been sanctioned by Russia, so they can’t risk setting foot in any country that has extradition arrangements with Russia
5) Back to the now - DRO don’t use acoustic sensors anymore because so many of the sites to be protected are noisy (e.g. stadiums). Their core tech is now RFD plus GPS disruption, radar and C2 integration. They view the DRO Sentry C2 (command & control) system as a platform into which they can engineer different sensors – not just RF but also various radars, lidars, optics, lasers, and now various types of interceptor drones to adapt to new drone tech.
6) Pricing – DRO deliberately position at the lower end of the high range, with pricing reflecting the capability of the system.
7) Products - There are 3 core scenarios in which counter-drone security operations take place – 1) dismounted; 2) on the move; 3) fixed site. Over the last 10 years, DRO has developed solutions tailor made to provide capability in all 3 scenarios.
7a) Dismounted: Their Drone gun has been a staple for many years, based on RF detection and disruption. In FY25, it was about 30% of revenue and the total for dismounted solutions (including RF patrol backpack) about 43% of revenue, but currently, only 5% R&D goes to Dismounted solutions. When hit by RFD, most drones, including FPVs, will essentially fall out of the sky, but more modern ones try to do a controlled landing. RFD has a disruption range of a couple of kilometers but effectiveness depends on distances b/w drone, controller, and disruptor.
7b) They are seeing significant uptick in on-the-move solutions, meaning vehicle based. (I believe these have a wider range of customization, too, not just RFD).
7c) Fixed site installations cover air bases, military installations, law enforcement areas, plus critical infrastructure including power stations, nuclear power plants, data centers, airports, etc. – all these now need drone security and protection. DRO are active in this area and seeing a really large increase in sales revenue and volume of orders for fixed site solutions.
8) Competition: Most competitors are US companies, and one of the real advantages DRO has is that it’s NOT a US company. Explanation - the US is dominant in military and defence tech, BUT has really strict export controls (International Trade Arms Regs) which restrict US competitors from competing elsewhere in the world. While DRO is active in the US market and are very competitive there, DRO also has great opportunities across EU, South America, Asia, ME where DRO is only regulated by Australian export controls.
Also, competition is less about price and more about capability – these are live-saving, safety-critical devices that are protecting world leaders around the globe. DRO has done the EU NATO summits and other critical global events – at all of these, the performance is paramount. DRO's attitude is they will not compete on price but on performance and reliability.
9) Iran - DRO has a presence in the ME and have provided systems to Gulf States as well as to US and allied forces in the region. Iran has some incredible drone tech that is very effective against traditional land-based assault.
10) The future of drones and counter-drones: Bean feels we have yet to see the full extent of drone tech as it revolutionizes defence and security, and DRO has been deliberately positioned to continue to evolve. As the drone tech evolves, DRO evolves with it. Traditional defence primes are used to having very long development runways, with very large budgets and long R&D cycles, but that all collapses when applied to drone tech, which evolves every 90 days. To play in the drone space, you have to have a tech-first mindset, an agile workforce and an entrepreneurial attitude. You need to be constantly building new solutions in a cost effective way – drones currently cost 5K to 30K and there can be hundreds deployed simultaneously.
DRO is currently preparing for AI-controlled drones including AI-swarming tech – these are coming and DRO expects them in 18 – 24 months and are building counter tech for that. DRO current tech is designed to deal with swarms.
Beam is very clear that the drone itself is only the physical platform for many different techs and all the technologies – the flight control system, the radio control, the optical detection, and navigations systems, batteries, etc – are all improving and evolving over time. Drones are not a static threat and they also enable non-state actors with relatively low capital to equip with very sophisticated tech. Most drone tech is open source or freely available.
11) His comments regarding the route to 500 mil annual revenue: the super cycle continues and DRO is a supplier to almost all Tier 1 militaries globally. Brand Australia is well respected and liked in EU, US, Asia and South America and DRO is looking to expand in all these markets. DRO has very likely the largest tech team fully focused on counter-drone solutions and in the second half of this year, DRO will release their next generation platforms. They aim to maximize growth while maintaining current profitability – see recent trading update; very strong start to year. Bean expects to hit the 500 mil within the 3 year frame.
AK question: Why haven’t any of the big guys bought DRO?
Bean answer: Because those companies are DRO’s customers, not their competitors.
My takeaway: It seems pretty clear that as an engineer, Bean is totally up for the challenge of continual evolution of counter-drone solutions to meet the ever-evolving drone tech. DRO is now very much an engineering technology company focused on providing solutions for their customers against a constantly evolving threat. I think a case could be made that the constantly evolving nature of the threat - assuming DRO continues to meet the challenge - is a form of moat (once they’ve made a sale, certainly of the more expensive fixed-site and on-the-move C2 systems which can be updated wirelessly). That also foreshadows continuing growth in that recurring revenue stream, which from memory, they have mentioned in their reports.
Disl: Held.