Draganfly Inc. (DPRO) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals a strong financial position with a significant cash increase, strategic military partnerships, and expected revenue growth from military sales. Despite a decrease in gross margin due to a one-time inventory write-down, the company's focus on securing large military orders and strategic partnerships suggests positive future prospects. The Q&A session highlights management's confidence in capturing military orders and expanding production capacity. Overall, these factors indicate a positive sentiment towards future stock performance, likely resulting in a price increase.

Key Financial Performance

Revenue for Q3 2025 $2.155 million, an increase of 14.4% year-over-year. This includes $1.6 million of product sales and about $530,000 of services. The increase is attributed to higher product sales.

Gross Profit for Q3 2025 $420,000, compared to $441,000 in Q3 2024. The decrease is due to a one-time noncash inventory write-down of $43,000. Without the write-down, gross profit would have been $464,000.

Gross Margin for Q3 2025 19.5%, compared to 32.7% in Q3 2024. The decline is due to the one-time inventory write-down and changes in product mix.

Total Comprehensive Loss for Q3 2025 $5.4 million, compared to a loss of $364,000 in Q3 2024. The increase is due to a fair value derivative liability loss of $1.8 million, inventory write-down, and higher office and wage costs.

Cash Balance as of September 30, 2025 $69.9 million, compared to $6.3 million at the end of December 2024. The increase is attributed to higher cash inflows during the year.

Working Capital as of September 30, 2025 $69 million, compared to $3.8 million at the end of December 2024. Excluding the fair value of derivative liability, working capital would have been $73 million.

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Operating Highlights

Outrider Southern Border Drone: Unveiled as a Multi-Mission Drone for live operations at Cochise County, designed for specific mission sets along the southern border. It has a large addressable market globally and is capable of performing tasks similar to fixed-wing surveillance aircraft with the versatility of a heavy-lift multi-rotor drone.

AI Integration: Collaborated with Paladin AI to incorporate AI into the drone fleet, enabling modular AI integration for specific customer workflows.

NDAA-Compliant Drones: Draganfly is positioned as a leader in NDAA-compliant drones, offering a comprehensive lineup of 5+ systems, including the hybrid dual diesel engine Heavy Lift Drone.

Heavy Lift Drones for Telecom: Fortune 50 telecom company started purchasing Heavy Lift Drones for post-natural disaster communication support, signaling potential standardization on Draganfly's fleet.

Drone Nerds Partnership: Largest U.S. reseller took on Draganfly's product line, focusing on public safety and military applications.

Global Ordinance Collaboration: Partnered with a major supplier of munitions and equipment to Ukraine, showcasing drones at the AUSA military show and entering multiple opportunities.

Canadian Defense Market: Positioned to benefit from Canada's increased defense spending, with a focus on drone technology and Arctic operations.

New Manufacturing Plants: Standing up 7 new plants in the U.S., quadrupling capacity to meet demand, including U.S. Army orders.

U.S. Army Collaboration: Demonstrated drones at the T-Rex experimental showcase and secured an order for FPV drones, including supply chain and logistical support.

Modular Drone Systems: Focus on modularity to integrate various payloads and AI, enhancing customer flexibility and investment protection.

Arctic and NATO Opportunities: Leveraging Canadian manufacturing to address Arctic and NATO-related opportunities, including NORAD collaborations.

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Risk or Challenges

Revenue growth: While revenue increased by 14.4% year-over-year, the company still faces challenges in achieving higher gross margins, as evidenced by a decline in gross margin from 32.7% to 21.5% year-over-year. This indicates potential inefficiencies or cost pressures in product sales.

Comprehensive loss: The company reported a total comprehensive loss of $5.4 million for Q3 2025, compared to $364,000 in the same quarter last year. This significant increase in losses, even after adjusting for noncash items, highlights financial challenges and the need for better cost management.

Inventory write-downs: The company faced inventory write-downs of $43,000 in Q3 2025, which, while smaller than the $176,000 write-down in the same period last year, still indicates potential issues with inventory management or demand forecasting.

Dependence on government and military contracts: The company is heavily reliant on government and military contracts, such as the U.S. Army and Canadian defense spending. Any delays, cancellations, or changes in government policies could significantly impact revenue and operations.

Supply chain and manufacturing capacity: The company is expanding its manufacturing capacity with seven new plants, but this expansion comes with risks related to execution, cost overruns, and supply chain management, especially given the reliance on global logistics.

Economic and geopolitical risks: The company’s operations are tied to defense and border security, which are subject to geopolitical tensions and economic uncertainties. These factors could affect demand for its products and services.

Customer concentration: The company’s reliance on a few large customers, such as a Fortune 50 telecom company and government entities, poses a risk. Losing any of these customers could have a significant impact on financial performance.

Product diversification and modularity: While the company emphasizes modularity and product diversification, the success of these strategies depends on market adoption and the ability to integrate various payloads effectively. Failure in these areas could limit growth.

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Guidance & Outlook

Outrider Southern Border Drone: The Outrider drone, designed for border surveillance, will go live next Monday in Arizona. It has a large addressable market globally, with potential sales expected to drive significant revenue starting next year, earlier than the original 2027 projection.

Expansion of Manufacturing Capacity: Seven new manufacturing plants in the U.S. are being set up, expected to quadruple production capacity by the end of next year. This expansion is driven by increasing demand, including U.S. Army orders.

Canadian Defense Market Opportunity: Canada's increased defense spending, including $2 billion on drone technology in the next few years, positions Draganfly as a key supplier due to its Canadian manufacturing capabilities.

Fortune 50 Telecom Partnership: A Fortune 50 telecom company has started purchasing Heavy Lift Drones for post-disaster communication support. This initial order could lead to standardization on Draganfly's fleet, with potential for hundreds of additional orders.

U.S. Army FPV Drone Order: Draganfly has secured an order from the U.S. Army for FPV drones, which includes supply chain and logistical support. This order is expected to lead to further similar contracts.

Global Military and Defense Market: Draganfly is well-positioned to capture a share of the U.S. government's plan to procure over 1 million drones, leveraging its capacity and experience.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What are the scenarios or use cases for any potential future raise?

A:The company is opportunistic about potential future raises, with $70 million cash on hand and a burn rate of $1.5 million per month. There is no acute need to raise cash, but raises may be considered for key acquisitions focused on people and culture rather than technology or products. The company aims to maintain shareholder value and avoid unnecessary dilution.

Q:Can you expand on the press release about manufacturing and overseas military facilities?

A:The manufacturing in overseas military facilities involves assembly rather than full manufacturing. The goal is to enable modifications and repairs without going through procurement cycles. The scale of operations is enormous, with the U.S. and NATO countries planning to train every soldier on drones and potentially order millions of drones. The embedded hybrid manufacturing capability is strategic and significant.

Q:Do you think the company will get a meaningful piece of the U.S. military's drone orders?

A:Yes, the company believes it can secure a meaningful portion of the U.S. military's drone orders by focusing on adding value and making customers unbeatable. The goal is not to be the largest manufacturer but to be the best partner for customers.

Q:Can we expect meaningful orders from Canada and the Department of Defense?

A:Yes, the company is well-positioned to secure orders from Canada and the Department of Defense. Canada is focusing on rearming and investing in drone technologies, which presents a significant opportunity.

Q:Is border security still the main focus for the company?

A:Yes, border security remains a major focus. The company specializes in border management solutions, including drones and tactical solutions, to address various challenges such as search and rescue, human trafficking, and drug smuggling.

Q:Do you see consolidation in the drone industry?

A:Yes, consolidation is expected as the industry expands. Many small companies may struggle with scaling production and meeting mission-critical requirements, leading to fallout and opportunities to acquire talent.

Q:What is the company's current production capacity, and are there plans to increase it in 2026?

A:The company’s organic production capacity is up to $100 million, with plans to expand further in 2026. Additional outsourcing capabilities are being developed to enhance efficiency in supply chain management and manufacturing.

Q:What percentage of revenues is military versus commercial, and will military be a major part of revenue going forward?

A:Currently, military accounts for about 30% of revenue, but this is expected to rise to 90% or more next year due to large military orders. Commercial and public safety markets may grow, but military sales will dominate due to the scale of orders.

Q:What differentiates Draganfly from competitors?

A:Draganfly’s differentiators include integrated tactical services, deep understanding of customer needs, 25 years of experience, and unique manufacturing capabilities across borders. The company focuses on creating blue ocean opportunities and addressing niche markets with high-margin products.

Q:Review of Unclear Management Responses

A:Management avoided providing specific revenue figures for the manufacturing in overseas military facilities and the scale of operations, citing regulatory and strategic reasons. Additionally, they did not provide detailed predictability or deeper insights into potential orders from Canada and the Department of Defense.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

DPRO Transcript

Draganfly Inc. (DPRO) Q3 2025 Earnings Call Transcript

Positive11-13

Draganfly Inc. (DPRO) Q2 2025 Earnings Call Transcript

Positive8-11

The earnings call highlights a 22% YoY revenue increase and improved comprehensive loss figures, indicating strong financial performance. The Q&A session reveals confidence in handling large contracts and a focus on organic growth, with no significant negative impact from regulatory delays. Despite a decline in gross margin, the strong cash balance and revenue growth, coupled with strategic positioning in the drone market, support a positive sentiment. The market's reaction is likely to be positive, given the optimistic outlook and robust financials, despite some execution and technological risks.

Draganfly Inc. (DPRO) Q4 2024 Earnings Call Transcript

Unknown3-28

The earnings call summary reveals mixed signals: significant revenue growth and improved liquidity are positives, yet ongoing comprehensive losses and competitive pressures present challenges. The Q&A section highlights management's cautious optimism, but lack of forward guidance and profitability uncertainty temper enthusiasm. Overall, the sentiment is neutral, with potential for positive movement if upcoming contracts materialize.

Draganfly Inc. (DPRO) Q4 2024 Earnings Call Transcript

Unknown3-28

The earnings call summary shows mixed signals: strong revenue growth and improved financial health, but ongoing losses and competitive pressures. The Q&A reveals management's optimism but lacks concrete guidance or timelines, especially regarding profitability and UAS list inclusion. Despite revenue growth, the absence of a share buyback program and competitive/regulatory risks balance out potential positives. The stock price is likely to remain stable, as the financial improvements and optimistic outlook counterbalance the lack of guidance and ongoing challenges.

DPRO Report

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