Tues 18.06.2024

Up dated Technical Analysis. New price target 1.15. to 1.23

It bee some time since I have done any analysis on DRO as it blew past my targets and left me confussed as to what rules it was working within. Well turns out it is still working to the same rules I follow, just not applied to daily charts, weekly charts.

Keep in mind it could still climb to 1.64 as its still in the wave 3 zone, however all the indicators are pretty topped out and its due for another draw down into wave 4. At least thats what im going for hence posting it to keep myself accountable. Do as you please with this info. I myself am curious to see if im correct.

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

Nice repeat government contract win, additional material contracts expected to follow.

Drone Shield Awarded $5.7 Million U.S. Government Contract

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02809245-2A1524494

Hold IRL & SM

So Dro is still pushing ahead, which was contrary to my last update, however Im still seeing the setup for the decent pull back I was expecting. The signs are now even stronger, favourable to the down leg Im waiting on. I still hold my target zone below as shown where I have set an alert for me to revisit the technicals (on no positive news). 2 Items on the charts are swaying me to resist taking any position still.

1) The incline wedge it is working within. (look up incline wedge pattern for stocks)

2) The ongoing divergence on the rsi/stochastic indicator (Indicator dropping showing weakness while stock keeps rising)

I also noted an article on Market Index written by a Dr. David Allen from Plato Investment Management on insdier buying and selling showing that last big draw down had an element of DRO management selling. That $11.9m works out to be approx 2.5% of the total approx market cap. It is good to see the ivestors eating it up though with it rising back up (says they are very bullish on the stock). However even the DRO inside sellers thought it was a little too preemptive, hence there partial sell out.

Im also tracking AD8 & TPW waiting for there lows.

Good luck everyone

A very compelling slide from Droneshield's Investor Presentation (28th Feb 2024).

$29 mill already booked this year with another $50mill highly likely!

It seems quite certain they will match or beat this year's revenues by year's end (which is still 10 months away), unless something really unforseen happens.

Share price up 15% today.

Interested to hear other's thoughts on this.

Last night I was jamming with a mate and some kids I'm going on a surf trip with later this year. One of them, Ando - a sparkie who has just finished his apprenticeship, tried to pitch me Droneshield. He was a little light on detail, in fact he misquoted the name of the company, but he'd been tipped into the stock by a mate of a mate and he assured me it was "a sure thing".

Now Ando is a lovely kid. I've got a lot of time for him. But he's a country bogun. When the Ando's of this world are pitching me a stock, I'm going to assume the top is in.

I noticed today that Bell Potter had placed a buy rating on DroneShield with a 50c price target, i don't have a subscription so i could only attach a screenshot below and a link to their last buy rating 12 months ago for comparison.

https://onlineresearch.bellpotter.com.au/fileGet.aspx?guid=9d85a6bd-abf7-4b82-9015-28551956ebc5

Also; I remain supportive of the company and very much look forward to whats to come, however i have voted NO to the Incentives at the upcoming AGM.

Not that i am against Incentives, i just feel that $200 million for the dilution is not enough; especially after the recent cap raise and dilution.

remain a holder in RL and SM

$13 Million Progress Payment received.

cash receipts of $62.9 Million to date year 23

No debt and $62.5 Million in the bank.

Current order back log of $38 million

Sales Pipeline of approximately $400 million

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02742018-2A1488711?access_token=83ff96335c2d45a094df02a206a39ff4

Happy long term holder, accumulating when possible.

Baby Giant !

Repeat Government Order!

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02740821-2A1488140?access_token=83ff96335c2d45a094df02a206a39ff4

Hold IRL and SM

Announcement

The Good

• Although cash receipts from sales were down compared to the previous quarter, this has been offset by the receipt of a $2.5m government grant and cash receipts of $17.3m in October which is setting up Q4 to be significant for the company. 

• Staff growth sounds like it is largely complete for now, given the move to the larger facility before the end of the year, other ongoing expenses are likely to rise.
• Reported pipeline has now increased to $400m which are double the previously reported figure of $200m. This indicates that the market tailwinds are continuing to improve

• Order backlog reduced to $51m.
• New products launched over the quarter. Hard to identify specific impacts, but new products are a sign that Droneshield are trying to stay up to date in a rapidly evolving segment. 

The Not So Good

• Blending of YTD and Q3 numbers in the quarterly update. The developments in October are worth mentioning but lack consistency.

• Operating cashflow continues to fall, however this is mostly due to costs from increasing inventory and order fulfilment. Other operating expenses are starting to level out.

Watch Status: 

What To Watch

• With a increase to the cash position of $12.8m since the end of Q3 and a current operating cash burn for the year of $11.4m and significant payments scheduled in November, Droneshield could be on track to be operating cash flow positive for the full year.
• Completion of move to new facility by end of the year and how this impacts the speed of order fulfilment.
• Planned US Federal roll-out of body worn devices
• Air Service Australia C-UAS rollout - 29 Airport contract to be awarded
• European framework agreement for 24/25 rollout ($30m+)
• Start of JCO US DoD rollout. Still no indication of when this will start. (Carried over from previous quarter)
• Revenue at the end of Q3 was $39.3m. Oleg has previously indicated that this could be in the range of $70m for the full year.

Nice way to Start Independence day

DroneShield signs DoD Contract worth $9.9 Million

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02682771-2A1458776?access_token=83ff96335c2d45a094df02a206a39ff4

$9.9 million DoD Contract

• Five Eyes DoD awards DroneShield a record $9.9 million contract

• The award follows DroneShield successfully completing a $3.8 million contract with the same customer

• Ongoing significant momentum in the business in a rapidly expanding market DroneShield Ltd (ASX:DRO) (DroneShield or the Company) has been awarded a follow-on 2- year R&D contract with a total value of $9.9 million by a Five Eyes Department of Defence (DoD). Approximately $4.5 million is due in the September and December 2023 quarters. Five Eyes refers to the defence/intelligence alliance between the US, Canada, UK, Australia and NZ.

The award follows DroneShield materially completing the $3.8 million contract announced 4 June 2021 with the DoD, with a final milestone payment expected this month.

Oleg Vornik, DroneShield’s CEO, commented, “Follow-on contracts are the ultimate customer measure of our performance. As an Australian sovereign industrial capability business, DroneShield is proud and pleased to continue undertaking multi-year contracts of increasing size with this customer.”

“This is the largest long-term contract received by DroneShield to date, significantly larger than the earlier, $3.8 million contract. The 2-year term locks in cash receipts over a period of time. Further larger contracts are anticipated following completion of this phase.”

“In the current uncertain geopolitical environment, there is a significant focus by the Five Eyes Governments to procure from defence industrial capability champions within their network of countries. Having deep engineering and research capability, TRL9 products and a track record of working with Defence, places DroneShield in a favourable position for ongoing work.”

Operational Update

• Following a strong $7 million cash receipts 1Q23 quarter, DroneShield is on track for an all-time record 2Q23 quarter and continuing on a trajectory for another record year for cash receipts in 2023. Further detail will be provided in the next 4C quarterly, due to be released later in July.

• Significant progress on manufacturing, operations and inventory scale-up to support additional anticipated orders for remainder of 2023. DroneShield is currently finalizing the location for a larger industrial site to move its Sydney operations to enable the growth.

• With the $11 million contract announced in December now fully delivered and paid for, DroneShield is progressing the inventory build of the second $11 million order announced in January, expected to be delivered later this year.

• Current order book (committed and binding customer purchase orders) of approximately $29 million, an all-time record.

• Over $200 million qualified opportunities pipeline (in addition to the order book), across approximately 80 projects.

• Ongoing record demand for counterdrone / C-UAS equipment, underscored by the events in Ukraine and increasing defence and security budgets globally.

• In addition to military and intelligence communities, significant engagement with critical infrastructure plants, airports and other civilian customers. 

Disc Hold

Another Strawman favourite also made the AFR Fast Global List with an article included in todays AFR

https://www.afr.com/technology/why-the-ceo-of-droneshield-is-studying-flight-paths-20230523-p5danz

Oleg Vornik, the chief executive of DroneShield, is extra careful about which airlines he chooses to fly with after his name appeared on Vladimir Putin’s naughty list for supplying counter-drone technology to Ukraine.

Speaking to The Australian Financial Review from Turkey, the chief executive says he chose not to fly with a particular airline on his most recent trip abroad because the route skirted Russia’s southern border.

The chief executive, whose family migrated from Russia to New Zealand when he was 15, was wary after a Belarusian activist was detained in 2021 when his flight was forced down while passing Belarussian airspace.

“I don’t want the same thing repeating [for] me. So, I was like, all right, I guess I’m flying with Singapore Airlines instead to make sure I’m not flying over Russian space,” Vornik says.

The rise in geopolitical tensions complicating Vornik’s travel plans has also provided a serious boost to the drone detection and security software group’s international revenue, which has grown from $3.8 million in international revenue in FY20 to $14.4 million in FY22, according to The Australian Financial Review’s Fast Global list.

DroneShield has been providing its counter-drone technology to Ukraine since the start of the war with Russia and in December 2022 and January 2023, the business won two separate $11 million contracts with US and European government agencies.

Its share price is up almost 26 per cent so far this year and while not yet profitable, the $175 million company is forecasting a strong result in fiscal year 2023 with $22.5 million of orders under contract so far this financial year.

DroneShield was founded in Virginia by two US scientists in 2014 and moved its headquarters to Sydney to coincide with its ASX listing in 2016.

Back in those days, Vornik says DroneShield’s biggest challenge was convincing potential customers that drones would cause a threat that would justify investing in the hardware and software solutions that detect and disable drones used for nefarious purposes.

Its first big customer came from Saudi Arabia, who wanted a way to stop Houthi rebels in Yemen from deliberately crashing small drones into their oil facilities, Vornik says.

The South Korean army’s drones fly during South Korea-US joint military drills earlier this year. 

The chief executive says the extensive use of drones by both sides in the Ukraine war has “opened the eyes of defence customers around the world” that both drone and counter-drone equipment will be necessary in future conflicts.

“In military thinking, you have to fight the next war, not the last war,” he says.

“We see the US in particular, but also dozens of other countries around the world, continuing to stock up on both drones and counter-drone kit.”

That kit includes the DroneGun Mk3s, a two-kilogram pistol that neutralises an attacking drone by sending a powerful signal to the drone which forces it to land on the ground, at which point it can be captured and forensics extracted from it.

The ASX-listed company raised $40 million from shareholders this year to secure the inventory and staff needed to make sure it can deliver big contracts to customers quickly.

“When customers come to us asking for counter-drone equipment, they have a pressing, urgent problem that they cannot wait for six months to receive delivery,” Vornik says.

I am curiously keeping tabs on Droneshield. I have a small holding, on here and IRL. I got a little lucky with my entry, it was actually the meeting on Strawman many months ago that resulted in me taking the plunge. Since then, the company has had a few record-breaking deals and fortified their balance sheet while the going was hot. There are a lot of tailwinds, the industry-specific ones have been regularly discussed on here so I won't repeat them. But they might not last forever, and there is also the question mark around competition – the more of a problem drones are seen to become, mainly around warfare, the risk increases that a powerhouse company or two decides to invest significantly in this niche market. That might be a massive problem for Droneshield. Alternatively, there might be an assessment that they aren’t worth competing with and someone tries to buy them out.

Droneshield need to capitalise on this momentum, while continuing R&D efforts to ensure they remain one of the world leaders. Should they not, deals will dry up pretty quickly and governments will look elsewhere. That said, and perhaps the main point of this straw, they need to do so profitably, or demonstrate that they are scaling nicely to reasonably quickly achieve this profitability. The Strawman meeting with Oleg was around 8 months ago now – Oleg clearly mentioned that they expect to be cash flow positive going forward. So how have they done?

March 4c: -1.8m

Dec 4c: +333k

Sep 4c: +1.2m (Strawman interview just after this from memory).

All in all, not bad. The last quarter was obviously not a strong one, and contradicts Oleg’s comments in the meeting. Another cash flow negative quarter around similar levels and an orange flag is presented (in my opinion). Momentum has never been higher in this industry – if they aren’t making cash now there is a question mark over their ability to do so sustainably into the future, even as world leaders. One thing I will compliment them on is strengthening their balance sheet after shares increased significantly, limiting dilution somewhat. Their balance sheet is a very healthy 37.8m as of their last update; this will hopefully be the last capital raise they ever have to do. Famous last words, perhaps?

A really Interesting article from the ABC regarding Kamikaze Drones,

https://www.abc.net.au/news/2023-04-01/fpv-racing-drone-kamikaze-attacks-ukraine-russia-war/102155702

Two things stuck out for me-

Ukraine Government referring to Drones a s revolutionary Combat tool.

What Drones maybe capable of with the Introduction of AI and the removal of humans making the decisions.

Disc Hold IRL and SM

this ‘major’ release, hard to know how major from an outsiders perspective, which goes to those subscribed to drone sentry will help to build saas/recurring revenue and build the kind of business model we all love (I hope)…

20 February 2023 ASX RELEASE

Release of 1Q23 DroneSentry-C2 Platform Update

DroneShield Ltd (ASX:DRO) (DroneShield or the Company) is pleased to announce it has commenced the release of a major update to the proprietary DroneSentry-C2TM (Command & Control) platform to its subscribed customer base. Enrolled systems on subscription plans, receive a quarterly update to the Command-and-Control engine.

DroneSentry-C2 Version 9.0.0 has been in development for over 12 months and has been completed with close collaboration and partial funding from the Australian Department of Defence via the Defence Innovation Hub (https://innovationhub.defence.gov.au/).

The software update provides the next generation of the DroneShield Sensor Fusion engine, completely redeveloped using the absolute latest techniques in fusion, Machine Learning and data driven development.

Image: DroneSentry-C2 Sensor Fusion Graphic

Major upgrades include:

• New Sensor Fusion Engine: DroneSentry-C2 uses the latest in Multi-Hypothesis

Tracking and Random Finite Set Analysis to determine the presence, predict the historical

position and evaluate the threat of detected objects.

• Site Modes: The mode of each site can now be set to better accommodate critical operator

tasks. Modes include Active, Monitor and Calibration.

• Simplification of Site & Sensor Settings: Major improvements to complex system

settings provide a more intuitive user experience.

• Improved Filtering for Analytics: Events can be filtered based on key parameters such

as time, detection features and probability.

• Consolidation of Analytics: Events are now grouped by their ‘fused object’ rather than

individual sensor detections leading to more easily interpretable reports.

• Improved Filtering & Masking: Adding RF Filters and Radar Masks is more straightforward; the user creates filters at the C2 layer, and the information is passed to

each sensor.

droneshield.com DroneShield Limited ABN: 26 608 915 859 ASX:DRO 1 Level 5, 126 Phillip St, Sydney NSW 2000

 • Probability Based System: Many of the sub-systems of DroneSentry-C2 have been updated to allow for probability-based rules, for example Alert Zones can set minimum probability thresholds prior to triggering a notification.

• GUI Overhaul: Major consolidation of GUI elements including map icons, notification panel and alerts due to ‘fused objects’ rather than separate sensor detections.

Angus Bean, DroneShield Chief Technology Officer, commented, “This DroneSentry-C2 system update is the largest in the company’s history. We have taken the learnings from the past 7 years to produce our next generation software platform that will offer major capability enhancement to our existing end users and provide new users a more intuitive and functional system. Using this new Sensor Fusion approach we can increase the accuracy of detection information, reduce the cognitive burden of the operator, and improve the response reaction time to emerging threats. Through our quarterly release cycle, we will continue to evolve, expand, and refine the DroneShield-C2 platform.”

Oleg Vornik, DroneShield CEO, added, “The commercial significance of this release is monumental.”

Firstly, a major differentiator of DroneShield is being both a sensor maker and a C2 (ecosystem) integrator. This enables a better customer experience as we control the entire technology chain in what we sell. It also gives us further flexibility into making sales either as sensor or C2 provider, where for legacy or commercial reasons the customer choses to acquire only a part of our offering and supplement them with third party systems.

Secondly, the C2 is a gateway to customer experience as it is the front facing part of the system, and having a sophisticated system that is embedded with a wide range of end users, enables us to control the user experience without a third-party integrator overlay, and acts as a channel to sell more systems and sensors.

Thirdly, C2 is a pure software, subscription-based product, with corresponding attractive margins and which lends itself to a rapid scale up.”

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

Further Information

Oleg Vornik

CEO and Managing Director

Email: oleg.vornik@droneshield.com Tel: +61 2 9995 7280

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 globally.

ENDS

droneshield.com DroneShield Limited ABN: 26 608 915 859 ASX:DRO 2 Level 5, 126 Phillip St, Sydney NSW 2000

The Good

• Increasing cash receipts and close to operational cash flow break even. (Last quarter was distorted by government grant receipt). 

• Expenses remained level, however staff and admin costs are likely to go up in the future as noted in the capital raise use of funds breakdown with $2m allocated to staffing.

• Strong cash balance of $14.1m heading into likely cash flow positive territory in the upcoming quarters.. This will be further strengthened by the injection of the $10.9m from the recent capital raise.
• The repeat customer metric is a good indication that currently the products that Droneshield provide are performing as expected by the customer base, which backs up the companies claims to being an industry leader.

• Continuation of a strong future sales pipeline.

The Not So Good

• Recently there have been several instances of management not being completely transparent with shareholders. I.e On both $11m contract award announcements it was indicated that further working capital would not be required. Then within weeks of the announcement a capital raise is announced with the prime reason being working capital. It even says the same thing within the capital raise slide deck.

Given Drone shields operating margins, these orders would likely cost around the $7m range to fulfil which would have been only around half of the cash balances at the time.

The team is likely confident around the timing of further upcoming orders and are being proactive in addressing stock levels and are unable to announce a specific deal to go with the raise, however the mixed messaging is an orange flag for me.

What To Watch

• Cash receipts likely $11m + for Q1 FY23 with partial receipts of both $11m orders in Q1.
• Start of JCO US DoD rollout. In a recent interview Oleg mentioned that the Droneshield hardware forms the backbone of the detect and jamming.
• Management communications vs delivery. 
• Size of SaaS revenue in the annual report. It will provide an indication if clients are taking up the ongoing upgrade cycle.

Drone Shield is a company that provides a range of products and services for detecting, tracking, and mitigating drone threats. The company's products are designed to help organizations protect against unauthorized or malicious drone activity, such as drone surveillance, drone-based attacks, or drone smuggling.

Drone Shield offers a variety of products for detecting and tracking drones, including radar systems, thermal cameras, and acoustic sensors. These products can be used to detect drones at long ranges and in a variety of weather conditions. Droneshield’s three streams of revenue include

-       Hardware (drone detection and defeat devices)

-       SaaS (device software updates)

-       R&D contracts

DroneShield has its own production facility, supplemented by two outsourced manufacturers, to ensure ability to manage large hardware orders. It currently employees over 60 staff made up of engineers, sales and field support and production technicians. 

From the 2022 Annual Report the main product range is as follows:

Brief Summary of Current and Past Products

·      November 2022 DroneSentry-C2 Command and Control System Upgrade – software platform, providing counter-UAS awareness and reporting capability. https://www.asx.com.au/asxpdf/20221116/pdf/45hn16hsr6375b.pdf

·      April 2022 DroneSentry-C2 in partnership with Nearmap https://www.asx.com.au/asxpdf/20220405/pdf/457q1j380l52qg.pdf

·      September Sonar One – sonar monitoring device capable of detecting and tracking hostile unmanned underwater vehicles (UUVs) or diver intruders in protected waters. Ideal for deployment around naval vessels, harbours, and critical infrastructure. SonarOne is easy to install and monitor via the DroneSentry-C2. https://www.asx.com.au/asxpdf/20210901/pdf/4501kkmhyww1y5.pdf

·      August 2021 CompassOne – device provides real-time military grade location, orientation and direction sensing for deployed static and on-the-go assets. https://www.asx.com.au/asxpdf/20210823/pdf/44zkx2hbhvws67.pdf

·      August 2021 DroneSim – a lightweight and rapidly deployable UAS/drone simulator that is able to mimic common drone signals for the purpose of counterdrone (C-UAS) system testing and validation. The device is capable of generating aerial (UAV), ground (UGV) and water surface (USV) drone signals. https://www.asx.com.au/asxpdf/20210817/pdf/44zcmk9tt2ch7r.pdf

·      November 2019 DroneSentry-X – vehicle-mounted drone detection and defeat product. Lightweight at approximately 10kg, compact size and easily mountable on most vehicles. https://www.asx.com.au/asxpdf/20191114/pdf/44bkh00sq9q5kk.pdf

·      August 2019 RfZero is an omnidirectional drone detection device with a 1km range. It is designed to be a cost effective fixed site alternative to Droneshield’s higher end product RfOne (a 5km radiofrequency direction finder). Completely non-emitting. https://www.asx.com.au/asxpdf/20190802/pdf/4474v1xp18s3zc.pdf

·      July 2019 DroneGun MKIII – portable pistol-shape drone jammer, weighting under 2kg. Having a shorter effective range of 500m verus 1-2KM for DroneGun Tactical. https://www.asx.com.au/asxpdf/20190715/pdf/446lzqk0qszn9n.pdf

·      May 2019 RFPatrol – body worn drone detection product. Weighing under 1 kg, completely passive (non-emitting product. https://www.asx.com.au/asxpdf/20190501/pdf/444r4gbqzgn2rz.pdf

·      October 2018 DroneCannon RW – a lightweight “soft kill” drone jammer for use with “hard kill” remote weapon station. Can be used on a fixed site or a vehicle solution https://www.asx.com.au/asxpdf/20181010/pdf/43z3qbnwk9pthb.pdf

·      February 2018 Radar Zero – compact drone detection radar product. At roughly the size of a paperback book, the product can detect up to 750m away and sells for a fraction of the cost of the larger longer-range more conventional radars. Complements existing longer-range RadarOne product. RadarZero is portable and mobile. https://www.asx.com.au/asxpdf/20180207/pdf/43rdb8d4n05gzh.pdf

·       January 2018 - DroneGun Tactical No backpack – the product is entirely self-contained within the rifle body, whilst maintaining light weight and long effective range (over 1km). Addition of 433Mhz and 915Mhz frequencies, to ensure complete effectiveness across drone models. Ergonomic body and controls. Further alignment with standard military specifications, including standardised NATO military battery power. https://www.asx.com.au/asxpdf/20180131/pdf/43r5crbpxb8xww.pdf

·      September 2017 - DroneGun MKII development of second generation of DroneShield tactical drone jammer.https://www.asx.com.au/asxpdf/20170911/pdf/43m6wfp64xp3y0.pdf

·      June 2017 - Thermal Camera and Optical Camera Products – Launch of two new products – DroneHeat, a thermal camera, and DroneOpt, an optical camera, to supplement its existing acoustic products. https://www.asx.com.au/asxpdf/20170614/pdf/43jxmzp3y1thw2.pdf

·      January 2017 Drone Sentry Product – an integrated drone detection and countermeasure product. Two key categories of products acoustic drone detection system and second is DroneGun, a drone jammer, effective at distance of up to 2km. https://www.asx.com.au/asxpdf/20170116/pdf/43fb8jddq290dy.pdf

·      Dec 2016 – DroneShield - Effectiveness With deployment taking place in a dense urban area, the user has opted for DroneShield’s omnidirectional detection sensors (“omnis”), which provide a wide 180 degree protection with up to 150m range. The omnis provide an alternative to DroneShield long range dish sensor product, which is effective at up to 1km in a 30 degree cone. DroneShield’s detection sensors are not time of day dependent, do not rely on line of sight, completely passive to the surrounding environment, are not subject to export restrictions, and cover all major drone models, including frequency hoppers. https://www.asx.com.au/asxpdf/20161220/pdf/43dvgx88h84k5n.pdf

·      Nov 2016 - Drone Gun – a rifle style handheld jammer device, highly effective at 2.4Ghz and 5.8 Ghz frequencies (the standard frequencies of consumer and commercial drones globally). AN optional GPS-jamming capability is also available to customers where lawful. https://www.asx.com.au/asxpdf/20161128/pdf/43d7xbhdc23d5p.pdf

If anyone has used or been exposed or has any more information on DroneShield products would love hear about it. Thanks

DroneShield Capital Raise History – Raised $44.37m since IPO June 2016 current market cap today $126.3m ($0.28).

·      November 2022 – Raised $3.7m via Epirus at $0.20 – Epirus is a high growth US technology company

·      August 2020 – Raised $17m, $7.5m Share Placement, $9.5m SPP at $0.125 per share

·      August 2019 – Raised $9.55m Share placement at $0.20 per share

·      February 2019 – Raised $1.3m Share Placement at $0.115 per share

·      October 2018 – Raised $1.7m through SPP at  $0.14 per share

·      March 2018 – Raised $2.55m Share Placement at $0.21 per share

·      October 2017 – Raised $2.32m Share Placement at $0.20 per share

·      July 2017 – Raise $1.25m through SPP and Share Placement at $0.237 per share.

·      June 2016 - Raise $5m for IPO at $0.20 per share

Director Shareholding            Ordinary Shares          % DRO Issued              Net Value at $0.28

CEO Oleg Vornik                     15,310,356                              3.39%                          $4.29m

Peter James (Chairman)         9,301,688                                2.06%                          $2.6m

Jethro Marks (Board)              666,666                                   0.14%                          $186K

Total                                        25,278,710                              5.59%                          $7.1m

Management Changes

·      January 2022 appoints Matt McCrann as its US CEOhttps://www.asx.com.au/asxpdf/20220105/pdf/454r9lpqj6772b.pdf

·      November 2018 Angus Bean promotion to Global Technology Officer previously Vice President of Product Design https://www.asx.com.au/asxpdf/20181126/pdf/440mfhs7d7nrqx.pdf

·      May 2017 Ryan Vervack appointment of Chief Technology Officer (US) https://www.asx.com.au/asxpdf/20170522/pdf/43jdrm4k33wckb.pdf

·      Jan 2017 Oleg Vornik becomes CEO previously been the Chief Financial Officer of the company for over a year. https://www.asx.com.au/asxpdf/20170124/pdf/43fhjq7tlrz830.pdf

Here’s an interview of The DroneShield CEO and Managing Director Oleg Vornik by Market Herald. In this interview Oleg talks about current big contract wins and is upbeat about the future. In it he states they are expecting to release a great set of results for the 2022 year. 2023 is expected to be a transformative year for DroneShield.

Also, Oleg states that DroneShield has been in Ukrainian since Feb 2022.

“Network of 100+ in-country partners globally”. That’s huge!

https://vimeo.com/787815161

The following is from an investor email I received:

2022 and early 2023 to date has seen a number of milestones for DroneShield, including:

• Record $11 million order received in December followed by another $11 million order from a different Government customer
• Recommendation by the Joint Counter-small Unmanned Aircraft Systems Office (JCO) as part of the SAIC Team's offering for deployment of its Counter-UAS as a Service across US Department of Defense nationwide across the US, expected to commence this year
• SBIR project awarded by US DoD with partner Quantum Research International
• Successful completion of the Australian DoD Defence Innovation Hub project
• The first U.S. airport deployment
• Numerous $1m+ deployments with the U.S., European and other Government customers,
• Appointment to the Australian Department of Defence Intelligence, Surveillance, Reconnaissance and Electronic Warfare Standing Offer Panel.
• $3.7 million investment from Epirus Inc, a high-growth U.S. defense technology company developing software-defined directed energy systems
• New partnerships with Teledyne FLIR, Nearmap, Allen Vanguard and XRG, while strengthening and making additional sales through existing partnerships with BT, Trakka and Thales
• Launch of a dedicated testing facility in Australia
• Deployments at Davos and IRONMAN Texas
• Brazil presidential inauguration (held in early January 2023)

DroneShield CEO, Oleg Vornik, commented: “2023 is expected to be a transformative year for DroneShield, following our maiden $11 million sale order in December followed by another $11 million order from a different customer, as the counterdrone industry continues to rapidly grow, with DroneShield is a pioneer and global leader in this sector.”

“Ukrainian conflict (where we have been deployed since the start in February 2022 on the Ukrainian side) has clearly demonstrated the potential of drones and counterdrone systems on the battlefield, coupled with significant non-military use cases for intelligence community, airports, prisons, border security, stadiums, and other facilities. Nefarious use of drones is a global and rapidly rising threat, with DroneShield providing proven market leading suite of solutions, directly and also via our network of 100+ in-country partners globally.”

Announcement covered by @slymeat and @Lambo but the line that I found interesting was "Importantly, this order does not require working capital, due to the payment structure from the customer". I reckon that line is a bit clumsy because I don't see how a customer's payment terms changes the fact Droneshield will need to pay for the inputs, but I interpret it as meaning they're getting all - or at least a chunk - of the order paid up front. Replace the term does not require for does not adversely impact and the line makes more sense to me. They would be getting the payment up front if, for instance, the customer was Ukraine.

Putting aside speculation about the customer, if they are being paid up-front that's great news for Droneshield. Their cashflow in 1H FY23 (calendar year aligns with financial year) should look really good. The positive working capital nature of the business has been one thing that's just kept them on the watchlist. Up until now they've struggled to make the inflection to positive free cash flow and although they managed to do so last quarter that was on the back of substantial government grants. Could a deal like this be the catalyst to delivering sustainable free cash flow, without needing to tap shareholders again? I dunno but they've been stringing together a series of pretty constructive announcements lately.

[Not held - but definitely interested]

Wow! Yet another $11M order, i.e. worth more than the record breaking 2021 total revenue. And that revenue is expected to be realised in the March and June quarters.

By my back of the hand calcs, expected revenue is already twice the record set in 2021 financial year and should easily be more than 2022, even with that also expecting to be a record year.

Talk about growth! And I expect this to just be the start.

Nice exposure for DroneShield.

It’s no wonder they are nervous about drones, following the recent run-in they had with them at a recent public event.

How cool are the photos of guards sporting DroneGuns. I do hope those photos go viral

DroneShield Protects Brazil Presidential Inauguration

DroneShield Ltd (ASX:DRO) (DroneShield or the Company) is pleased to advise its DroneGun Tactical™ counterdrone/C-UAS system has been utilised in the inauguration ceremony for the president-elect of Brazil, Luiz Inácio Lula da Silva, held at the Cathedral of Brasilia. 

Lula da Silva, a 77 year-old who already served as Brazil's president from 2003 to 2010, is taking the Presidential office for the third time.

Presidential security has utilised DroneGun Tactical™ to neutralise four suspicious drones that were heading towards the President at the inauguration event. 

Tens of thousands of people have attended the ceremony. 

Image: A security agent walks with DroneShield’s DroneGun Tactical™ next to the presidential Rolls-Royce that was used by President-elect Luiz Inácio Lula da Silva at his inauguration ceremony in Brasilia, on January 1, 2023 (Photo by CARL DE SOUZA / AFP)

DroneShield has expanded into the Brazil market in mid 2021, when it has received a formal approval from Anatel, the Brazilian National Telecommunications Agency responsible for issuing the concession of new radio frequencies, for deployment of its devices. Following the approval, the Company has now sold a quantity of its DroneGun Tactical™ units to Brazilian Government. 

DroneShield CEO, Oleg Vornik, commented: “Brazil is a key South American market for DroneShield, and we are pleased to see deployment of our systems in the country at the highest level, which is expected to flow down to further systems being utilised in Brazil, as counter-UAS requirements continue to rapidly grow.”

Image: Brazil media coverage of the DroneGun Tactical™ at the Presidential inauguration (credit: Globo)

This one has taken me a while to work through, and the rest of the sections are still in the works but here is my first pass on the business summary for Droneshield.

• What does the company do and is it easily understandable?

Droneshield is a provider of UAV countermeasures including drone detection, tracking and disruption. They provide products and services to both the public and private sectors.

• What is the problem the company is solving and how are they solving it? - Where? Why does it need solving? 

As drone technology becomes more sophisticated, drones are increasingly being used as tools in nefarious activities such as smuggling of drugs and weapons, disruption to airports and other infrastructure, spying, remote controlled explosive devices etc, which are costly to the asset owner in terms of capital, reputation and human cost.

Due to their size drones are unable to be detected using conventional technologies. Droneshield provides a range of fixed and portable equipment which can detect, track and disrupt a drone’s flightpath. These devices can be used to protect critical infrastructure and locations from the threats listed above.

• What is the company business model? What is the pathway from product/service/offering to payment? 

Droneshield sells their devices to both private and public entities through a mixture of direct sales and partnerships. Typically a proof-of-performance trial or extended tender period are a precursor to being awarded a contract.

• Is the product offering diverse and therefore income generation diverse?

The company offers a limited range of fixed and portable devices, which can be mixed and matched to provide a tailored solution to their clients needs. The limited range of equipment is a risk in the rapidly evolving technology area, however droneshield are regularly releasing upgrades and new products to compliment the existing product range. 

The limited offering could be seen as a potential risk.

Diversity in income is primarily from the range of clients / applications for the technology.

• Is the company a price maker or price taker?

The counter drone equipment space is rapidly becoming more competitive, (8 competitors are listed in the company investor slides) and although Droneshield claim their technology is superior, they are a price taker.

• Does the business generate recurring revenues? How reliable is this recurring revenue? 

Recurring revenues are generated through ongoing software upgrades to the equipment. The recurring revenue would be expected to last for the install life of the equipment where it has been taken up by the customer. (Estimate ~5 years?) 

Currently recurring revenues only make up around 4% of total revenues as of H1FY22, but as the install base of hardware expands, the recurring revenues from software sales are expected to grow.

The CEO has stated that he expects this component of the business to grow to ~ 50% of revenues in the future.

• Who are the core customers of the business?

Core customers are government entities, such as military & law enforcement, but private sector customers are growing such as airports and infrastructure owners.

Currently defence makes up 75% of revenue and the intelligence community 15%.

• Is the customer base diverse? / • Does the company operate in multiple markets/countries?

Droneshield sells to a global customer base. (Limited by Government approvals etc). Revenue splits for H1FY22 can be seen below.

• Is it easy to convince customers to buy the products/service?

Initial sales are usually led by a proof of performance period or trials of the product, there are also significant onboarding and vetting processes to be able to sell products to many of the government institutions that Droneshield has as customers.

Once these barriers are crossed and droneshield has been awarded a contract, sales become much easier.

As drones increasingly become an problem in need of a solution the global sales pipeline available to Droneshield continues to increase. (Note. As reported by DRO)

• Does the company operate in stable markets?

Both the markets and customer base of Droneshield are stable and low risk of having significant disruptions all at once

• Is there a history of launching new lines of business successfully?

The company has launched several products over the years which complement each other. Each has had progressive trials with several entities leading to contracts.

• Is the company disruptive and innovative in its field?  

Droneshield uses similar technologies to many of its competitors using RF Jamming for its defeat options, and RF, EO/IR, Radar for it’s detection technology.

• Are the profit margins attractive (better than industry)?

Currently gross profit margins currently are around 70% (H1FY22) 

• What are the CAPEX requirements and are they ongoing?

To be able to deal with additional or large orders, droneshield has manufacturing partners to be able to subcontract to without the need to scale up its own facilities and maintain the ongoing operating expenditures. This does incur additional manufacturing costs but currently contracts are lumpy which make scaling up their own facilities a risk.

• To what degree is the business cyclical?

A large part of droneshield’s current revenue is based on government military spend, which although budgets are usually relatively stable the allocation of the budgets can vary. As Droneshield expands across wider industries and geographies the cyclicality may smooth out.

• What extent does the business experience operating leverage?

Droneshield sells manufactured devices which means there is a fixed cost that is required for each unit sold. There may be elements of efficiencies of scale, but that can’t be relied upon. There are two things working in the favour of Droneshield. 

First, most of the business’s main overheads and operating expenses have not been increasing with sales. Once staff costs do the same there will be an element of operating leverage that will appear as sales increase as operating expenses become a smaller portion of the overall expenses.

Second management have indicated that they are targeting for software upgrade sales to increase towards 50% of revenues and SaaS style sales tend to lend themselves much more favourably for demonstrating operating leverage at scale.

• How does interest rate increase and inflation affect the business?

The manufacturing costs and operating costs will be impacted and likely increase at a rate near that of inflation. As each contract is usually tendered at a single point in time supply, cost increases can be passed on to customers.

Droneshield has minimal liabilities so interest rates don’t have any significant impacts.

• Does the company spend a reasonable amount on R&D? Look at how R&D evolves over time in % of sales.

 R&D spend has stayed relatively steady at around $200k - $300k per quarter over the last 3 years which has now decreased from over 100% of sales to less than 10%.

• Is the company unknown or misunderstood by the market?

Being at the smaller end of the market and with an average volume of $120k of shares traded per day Droneshield is still a hidden company. Given the sector in which they operate it is easy to dismiss the technology if the partners and client base is not known.

Just a few quick notes following our meeting with Oleg while they are still fresh in my mind. I would encourage you to watch the recording if you missed it (see meetings page).

I'll be honest, I last looked at this company a few years ago and pigeon holed it as a serial capital raiser, always bleeding cash and always on the cusp of something big. Yes, the technology seemed cool, but what could a tiny ASX company really bring to the table when you (i assumed) have some huge military-industrial giants likely in the same space?

So the first thing to note, taken Oleg at his word, is that Droneshield is the global leader in this very fast growing space. It sounded like they were well ahead of competitors, with a decent first mover advantage and a far more holistic product set.

Contract negotiations -- especially with defence agencies -- can be very protracted, but then tend to be very sticky. Given their existing partners in this space, they seem to be very well placed to win a lot more work here. Indeed, Oleg certainly suggested that they expected a lot more orders in the coming years.

Another noteworthy fact is that they have essentially doubled revenues each and every year in recent times, and Oleg suggested that they would again get close to doing that in FY23 (ends Dec31) -- although there can be a month or so delay between contracts signed and revenue recognised. He said that things could triple in the following year.

What really stood out was that they achieved cash flow positive status in the 3rd quarter and expect this to be the case each and every quarter going forward. With $7.5m in the bank, assuming this is true, they should avoid any capital raise. And while it's true that the global economic picture isn't pretty, this is a business that is seeing some strong tailwinds -- such is the state of the world :(

Oleg mentioned that the cost base was pretty well established and could handle 10x revenue here -- at least from an engineering perspective. There could be some additions in terms of sales. The use of contract manufacturers to help provide some elasticity to their own capacity seems smart given the lumpy nature of orders. It was also prudent, it seems, to bulk up on inventory given chip and component issues in the global supply chain.

At present 70% or so of revenue is hardware based, but Oleg expects that SaaS subscription revenue will grow to about 50% in the coming years.

Assuming (conservatively) that they do $15m in sales this year, the company is on about 3x sales. Doesn't seem that onerous for a CF +'ve company with expectations for continued strong sales momentum.

I don't own at present.