I’m getting a bit bearish over the amount of revenue being captured by DRO for the Drone Guns (https://www.droneshield.com/c-uas-products/dronegun-mk4). Looks like > 50% of total revenue from the latest investor presentation

From what I can understand, these guns effectively work to interfere with the signal between the Drone and its operator making it either land safely or better still return to its operator (so you can then counter with your own killer drone or artillery strike). Eg. https://forum.dji.com/thread-281795-1-1.html

The DRO guns are basically little portable/personal versions of the Russian Krasukha Electronic Warfare trucks https://en.wikipedia.org/wiki/Krasukha which disrupt all manner of communications including GPS signals. https://www.popsci.com/technology/russian-electronic-warfare-equipment-ukraine/ 

Where I am a bit bearish about the future efficacy of these guns is where the Drones start to adopt some AI (as is already happening in the Ukraine conflict) effectively allowing them a level of autonomy if they are subjected to electronic warfare such as the DroneShield DroneGun. Effectively the AI might allow them to continue flying to a target, identify a target (such as a the nearest tank with a Z on the side) and kamikaze into it. Alternatively, cheap drones working in a swarm may also be able to overwhelm the effectiveness of drone guns.

Here's a smattering of articles on the topic:

• https://edition.cnn.com/2024/04/01/energy/ukrainian-drones-disrupting-russian-energy-industry-intl-cmd/index.html
• https://www.livescience.com/technology/engineering/ai-drone-that-could-hunt-and-kill-people-built-in-just-hours-by-scientist-for-a-game
• https://consortiq.com/uas-resources/drone-ai-technology-how-it-works-why-it-matters
• https://shield.ai/
• https://www.dji.com/au/ai-module -
• https://www.nationaldefensemagazine.org/articles/2023/12/13/industry-perspective-autonomous-swarm-drones-new-face-of--warfare
• https://mwi.westpoint.edu/swarm-clouds-on-the-horizon-exploring-the-future-of-drone-swarm-proliferation/
• https://www.axios.com/2024/03/15/drone-swarms-ai-military-war

Has anyone else looked into this in their investment thesis?

Or do you think the bigger risk at the moment is the amount of hype on the DRO share price?

DISC: Held IRL and SM

Just trawling through the recently release 2023 Full Year report to review my valuation. I'm wondering if anyone wiser than me is able to help interpret the taxation & R&D credit situation as it makes quite an impact on overall profitability.

Looks like Earnings before tax is actually only around 3.166m on about 55m of Revenue (so < 6%) but the headline numbers DRO are throwing around are after tax profit of 9.3m (about 3x) which seem to mostly be constituted from Deferred Tax Benefits and R&D Tax incentives. This makes a pretty major difference in future valuations as they are material to the models and it seems difficult to predict what these amounts will be in future years.

They seem to be chewing through their accumulated losses pretty quickly (going from 26.6m in FY22 to 11.34m in FY23)

Additionally there is mention of a 9.9m R&D contract received from Australian DOD which presumably will be treated as revenue.

I suspected something like this might be up 7 days ago

https://strawman.com/forums/topic/8514

Looks like these managers continue to act as a selling block (while they continue to issue themselves more options with lowball targets).

This looks like its really becoming a recurring pattern.

DISC: Held IRL and SM (but looking for a possible exit as I'm losing faith in management's behaviour ... maybe I'll top up my BTC investment with the proceeds)

@GazD in response to your post about CEO selling shares.

I did a bit more digging and a couple of counter points. If I'm reading the FY21 annual report (to Dec 2021), it looks like CEO exercised 12.4m options and Chairman 6.6m during that year. Given they were zero price options and probably deemed to be worth in the 20 to 25c each range (i.e. $2.4m for CEO and $1.3m for Chairman) then the reasoning for the disposal is in the 16 Jan filing sounds like it is plausible.

https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_DRO_2021.pdf page 42

Interestingly, the SPP prospectus issued on 6 Feb explicitly calls out that both the CEO and Chairman are going for the maximum $30,000 purchases as part of the raise. Perhaps token amount but better than them not participating.

On the subject of the raise:

I understand that a big part of the capital raise is to build more inventory. In the October 2022 announcement they said they have $15m inventory built up (at sale price) but I'm guessing that the two 11m orders 21 Dec and 9 Jan have probably drained their inventory backlog. I hope their supply chain is scaling up appropriately.

I found and interesting quote in the e-mail from Peleton who is running the SPP the following: "DroneShield has a number of unique differentiators and is able to pass on cost increases and retain its high margins (65-70% gross margins on hardware and close to 100% on SaaS subscriptions)." I think that's probably a factor of the way they are accounting for their staff costs, corporate costs etc. separately. I'm hoping 2023 is the year they round the corner and can move towards profitability in 2024.

Disclosure: Held IRL