Draganfly Inc. ($DPRO)

All right. I think to respect everybody's time, I think we will get started here. So again, greetings, and welcome to all the shareholders and stakeholders who are joining us on today's Draganfly 2026 Q1 Earnings Call. My name is Rolly Bustos, and I am the Internal Investor Relations rep here at Draganfly. We appreciate you, as always, joining us. We will start with our CEO and President, Cameron Chell, recapping the first quarter. Next will be a more detailed financial review with our CFO, Paul Sun. We will then conclude, as always, by addressing the pre-submitted questions that we have received. Though I know many of you, as always, anybody is welcome to reach out to me directly at [email protected], and I'd be happy to have a conversation. I remind everyone that this presentation may include forward-looking information and statements. These statements are not guarantees of future performance or financial results and undue reliance should not be placed on them. Any future events or financial results may differ from what might be discussed here. The company's results and statements are accurate as of today, May 11, 2026. We are under no obligation to update or renew these statements outside of material press release disclosure going forward. The full forward-looking disclaimer can be found on Page 2 of this presentation and on the screen right now. So Cam, if you're ready, please go ahead.

Great. Thanks, Rolly, and I really appreciate everybody's time and consideration and joining us on today's Q1 earnings call. So I'll start off with the financial highlights for Q1 2026. So our revenue in Q1 2026 was $2.3 million plus, which represents a 49% plus year-over-year increase and about $2.2 million in product sales. That's $347,761 of gross profit. And currently, as of March 31, 2026, we have a cash balance of just over $147 million. So overall, we're very pleased with the quarter in terms of the year-over-year growth in sales, and we continue to take a very pragmatic approach on how we're scaling into very particular customers that we're targeting to be our base over the next decade. To talk a little bit more specifically about the sales highlights for Q1, we had a number of significant sales primarily into our military vertical. We did announce at the beginning of the quarter an order of FPV drones from the U.S. Army. This was from an existing customer of ours, which we are continuing to build a very strong relationship with, and we'll talk a little bit more about that later. We also secured a strategic international military orders for our Commander 3 XLs. We also announced a project and a sale along with Palladyne AI, who is on an Air Force contract right now regarding swarming technologies, incorporating the use of Draganfly drones. We announced a Fortune 50 telecom company purchasing Draganfly heavy lift drones for disaster response. And this is actually for lifting cell towers up either for doing repairs or when systems are down or in emergency response situations. And in fact, they're switching over their entire fleet from a Chinese fleet now actually into a Draganfly fleet, in particular, because of our heavy lift capability. And we also announced Draganfly Outrider sales along the -- with Cochise County and a number of other counties along the southern border, where we provided what we call our Outrider drone, which is a long-range heavy lift drone for doing patrol, search and rescue, personnel support, surveillance and communication networking. So overall, a really important quarter for us in terms of delivering really important strategic imperatives to very, very select and specific customers that we've been targeting for quite some time. And that's going to continue to be our strategy. We really want to -- we have the opportunity to be selective right now about who we're targeting into. And the reason that we're targeting those specific customers does lend into a larger strategy around how we're building out our capability and how eventually that beachhead then leads to further and further advancements into our particular markets, which are designated somewhat differently from some of our comparables out there. Also, in terms of a financial highlight from Q1 was we did close a $50 million U.S. financing and we're really pleased with the actual investors that came into that fund. They were, by far, I would say, 90% were long-only, very well-known Tier 1 funds that came into that. And so it really elevated us from that kind of microcap market up into the small even beginning of the mid-cap market. We also had new initiation of research on us from some great banks. We appreciate their support. And we look to continue to build those relationships. And as we move forward, while we're really well cashed up now, we do believe that in the far future, we will have the opportunity to finance at much higher levels as sales will demand that additional growth again. For the remainder of this year, though, we're not expecting that. Strategically, a number of things also unfolded for us in Q1. So we did bolster our military and defense capabilities by bringing on 2 gentlemen who now head up all of our military sales partnerships and initiatives in that regard and business development. Larry Thewline is still heading -- is now heading all of our military sales, and he's working along with Vic and Keith, who are both former Tier 1 operators, both come out of Deutsche Bank after their Tier 1 careers and have done just an incredible job in terms of helping us continue to scale our business development and sales operations, align that with our production capabilities, our R&D and our research capabilities. And I can definitely say that we're operating at new levels with individuals that we're very pleased to work with across many militaries throughout the world, in particular, the Department of War right now. Draganfly is uniquely positioned in that regard to support Canada's new $2 billion military commitment to Ukraine. Now that's actually since this slide was made, that's actually gone up to $3 billion. And as many of you will know is that Canada has actually committed 5% over the next number of years of its GDP to rearm its military. Now that's a big number, like it's certainly not a big number compared to the DoD -- or excuse me, the DoW and what they spend. But in terms of the mid-market country and what it's spending, it's now amongst the top military spenders in the world. A massive function of what they're doing is on autonomy and in particular, aerial and drone autonomy. And there's a very, very select few companies, maybe 1, maybe 2 in Canada that can meet this demand. So we're highly engaged at, I would say, probably every level of CAF, what they call Canadian Armed Forces, and DND at this time and working extremely hard in order to progress the contracts that we've been working on with them over the last couple of years. Their requirements are coming out. They have an equivalent of what's called -- what's known in the United States as Drone Dominance, the 1 million drone program. It will be many more than 1 million drones that are produced down in the States as part of that and subsequent programs. There's an equivalent program up in Canada, which we're deeply embedded in as well. We also announced our strategic defense partnership with Prime Global Ordnance. And Global Ordnance is, as an example, the largest supplier of ordinance into the Ukraine. They have a strategic view that much of the drone market, at least the drone market they're dealing with, they view drones as an ordinance or as a munition. And as such, they are really building a strategic focus in drones, and we're super pleased that they've chosen us as their prime supplier into this market. So we've got a couple of dozen major initiatives ongoing with them as well. And we have a very large presence -- well, large presence for us anyway at SOF Week coming up in addition to a very large presence with Global Ordnance. It should be noted that Global Ordnance was just 1 of 5 companies that was selected for the drone dominance munition program as well. We also announced a strategic defense partnership in the Asia Pacific region. This is with Babcock. And so Babcock is a large British prime who's very strong in the Indo-Pacific region. And so we are building very similar to what we're building with Global Ordnance as a strategic relationship as a prime drone supplier, not just -- well, for a number of reasons, but primarily because of our capabilities across multiple drone platforms. So a lot of departments, units, et cetera, are still defining what they are looking for in terms of their drone capability. And so what that means is that these primes need to be able to work with an organization that doesn't have necessarily, hey, this is our drone that we sell, it does ISR work or this is our drone that we sell, and it does logistics work. They're really looking for an organization that has a capability across all these drone systems that's interoperable, and that's turning out to be one of our major strategic advantages. It takes a little bit longer to implement that across many of these units because they're looking at it strategically rather than tactically what can we get happening right now. But we're finding the benefit of it is gaining momentum quickly. Then a subsequent event, which is worth noting is that we were selected by 2 additional units within the Department of War. All I could really say is that these are special operation units. And -- but what's really important is that they're special operation types of units. And these are the types of units that are selecting the Draganfly product. And they're selecting it for many reasons, not just because of the company's capability, but also the product performance and our flexibility across that entire product line. So we are thrilled on this, and that will have heavy bearing on exactly what our numbers will pan out for this year. On that note, and I'm going to come back to talk a little bit about our strategy in a bit. I'm going to throw it over to Paul to actually talk about our results from this last -- or from Q1. Paul?

Thanks, Cam. Thanks, everyone, for joining. Yes. So I'll just take you through year-over-year comparisons for the first quarter of '26. So revenue for the first quarter, as Cam mentioned at the outset, was up 49.8% to $2.3 million, up from $1.5 million in the first quarter of '25. First quarter revenue did comprise of $2.2 million of product sales with the balance coming from drone services. Gross profit, $347,700 compared to $310,100 in Q1 of last year. Q1 did have a onetime noncash write-down of inventory of $105,800 and otherwise would have been $453,600 compared to the same period last year where there was a onetime inventory write-down recovery of $38,700, making the adjusted gross profit of $271,400 last year. So taking all those things into account, adjusted gross margin for Q1 this year was 19.6% compared to last year's adjusted 17.5%. And again, this was a result of product and service mix comparing the 2 quarters, but they were quite similar. Total comprehensive loss for the quarter was $5.7 million compared to a loss of $3.4 million in the same period last year. This quarter includes the noncash change comprised of a fair value derivative liability gain of $1 million and that onetime inventory write-down that I mentioned of $105,800. It also included a share issuance cost of $2.4 million related to a derivative liability from the February financing and its treatment on the income statement versus it normally being treated on the balance sheet. So the loss would have otherwise been a comprehensive loss of $4.2 million versus an adjusted loss of $3.6 million in the same quarter of '25. The increase year-over-year is primarily due to higher office and miscellaneous costs, travel and wages. Moving on to the next slide to look at the quarterly table. We obviously just went through the year-over-year comparison. So here, we'll just do a quarter-over-quarter comparison with Q1 of this year and Q4 of last year. So revenue for Q1 increased by 20.9% to $2.3 million compared to the $1.9 million reported for Q4. The difference was mainly due to higher product sales. Gross margin percentage for Q1 was 15% compared to 4.5% in Q4 of last year. However, again, if we back out that onetime inventory write-down mentioned before, gross margin for Q1 was 19.6% compared to 17.2%, adjusting noncash items for the previous quarter being Q4. Total comprehensive loss for Q1, again, was $5.7 million compared to a comprehensive loss of $9.3 million for Q4 of '25. Again, you'll recall the gain in fair value of derivative liability of $1 million and the write-down of inventory of $105,000 plus that onetime share issuance cost on the P&L versus the balance sheet of $2.4 million. So again, comprehensive loss for Q1 of this year was $4.2 million, comparing it to an adjusted loss of $8.3 million of Q4 last year. So the decrease quarter-over-quarter is primarily due to lower office and miscellaneous costs, in this case, comparing the 2 quarters. And then on the last page here, I think, just going through some balance sheet items. You can see our total assets increased from $101.3 million to $161.1 million, and that's largely due to an increase in cash. Working capital surplus as at March 31 was $154.4 million versus the $95.2 million from the end of 2025. Shareholders' equity, very healthy $155.8 million at quarter end compared to $96.6 million at the end of last year. However, if we look at both working capital and shareholders' equity, it would have been even been higher if we ex out those noncash fair value of derivative liability. But again, very healthy nevertheless. You can see we continue to have minimal debt. And as mentioned, our company's cash balance at the end of the quarter being March 31 was $147 million compared to the end of December, which was at $90.2 million, again, because of the February financing that Cam touched on earlier on. And with that, Cam, I'll pass it back to you.

Great. Thanks, Paul. Great job. I just want to talk a little bit about our product lineup because it does speak greatly to a strategic differentiator that we have. Many of the questions I'll be able to address that came in that will speak to this as well. So again, having been around for 27-plus years, what we are really good at is delivering what the customer needs. And what we have seen through the last number of years that we believe will play out very strongly in the coming year or 2 is that as the customer gets more and more sophisticated, and this is just isn't military. This is public safety and industrial as well, but it's really emphasized in the military side of things is that in the beginning of the cycle, they're looking to understand what drones do, how they can be used and they've got a specific use case in mind. But as soon as you start moving to concepts of operations, how do you have integrated operations? How do you do targeting? How do you do repeater drones? How do you have communication set up? What's your targeting being done with? What is the actual strike capability? How do you rearm, resupply? How do you support personnel that are in the area, you realize quickly that you don't need a drone to pull off a concept of operations. You need a series of drones. So we spent a lot of time upfront because of the 27 years working with this, recognizing that this is -- that the overall game and dominance in this space is not going to be done by a drone. It's going to be done by a platform. It's going to be done by something that can service a concept of operations. So everything that we do is built in a modular fashion and can take on multiple types of payloads and is all interoperable. So if you look at the -- even the basic designs of the drones that we put out, they are all designed to have their own internal payloads, but they all have the capabilities for external payloads as well. Many of the customers that we have coming to us are -- and some of them even from the same units even within the same yes, units within units, if you will, trying to be less as specific as I can be, they have different requirements around what their AI does, what type of sensors they want, what type of mapping they need. And so all of our systems are able to incorporate multiple types of payloads from multiple types of vendors. So if we have one particular sensor that's required and we need to mix it with another type of sensor, we spend a lot of time doing those integrations with those partners. Now the added benefit to that is all of those partners also become channel sales partners for us in that regard. So now we are doing some vertical integration of some of those key assets through some M&A work that we're doing. But for the most part, we're very, very partner-centric in order to build those capabilities into each one of these units. Now each one of these units also operate with each other and across separate and different and sometimes diverse communication platforms. Again, interoperability across the unit and different unit and different branches of the DoD is becoming increasingly important, not just so that they have interoperable capability, but so that they can deconflict their existing operations or their upcoming concepts of operations. So the fact that we can go in and we can offer people one place to have consistent interoperability, one place to do the maintenance work, interoperable parts, a consistent supply chain, all the things that are really, really difficult in the market right now, we have been addressing upfront. And so we're really pleased with the progress that we're making there. And in addition to this, you can expect Draganfly to be adding to this product line this year on products that we have been working into the concepts of operations over the last couple of years. One of the advantages that we do have in the market is because we have been around so long, we are able to field an entire product line. It generally takes a couple of years to get a new product into the market. Now pretty much anybody can slap some propellers on an airframe and throw it up in the air, but that's a long way from actually getting something to a TRL9 or something operational that can be worked in a very, very harsh environment, much less in conjunction with other systems out there. So while other companies, I do believe, are going to be moving into additional product lines, and I don't mean going out and necessarily just buying another company and bolting on something. I mean actually building it so that it's interoperable. It takes -- it just takes a lot of time. So I think we've got to step up in this regard. Now 100%, I believe that our comps out there are going to be very successful in the market, if not just generated by the incredible demand signals that we're getting, not just in the United States, not just in allies, but across even developing nations right now who are all looking for that asymmetric capability because this is still a relatively very inexpensive capability compared to what the alternatives are out there in the market. So this is really important to us and a big part of our strategic differentiator. Of course, the other strategic differentiator that's working out well for us is the fact that we manufacture on both sides of the North American border. We've got great representation in both countries. And as we go abroad in many of the international opportunities out there right now, often the credibility, the fact that we are selling into the Department of War right now, meeting those standards, et cetera, but then are actually approaching it maybe from a position of a European or Canadian type of provider that also provides us some great sales opportunities as well. So overall, a really positive quarter for us. It has laid the groundwork for what we expect to be some really outstanding quarters coming forward.

On that, I am going to open the Q&As that came in. If you can just give me one quick second here. Appreciate your patience. So I'm reading these directly from -- I'll never get -- well, there's only 6 or 7 of them. So one of the questions that came up here is, are you gaining traction with the Canadian government military for orders? I was hoping something would have been announced after the end of March budget cycle. Can you comment? Yes, certainly, we're super deep on -- I don't think I'm overexaggerating by saying probably every level of CAF, Canadian Armed Forces and Department of National Defense in Canada, politically, bureaucratically, operator based, et cetera. There are about 4 or 5 significant programs that have been announced through Canadian DNA. We are participating in all of them. We're well positioned, I believe, in all of them presently. And in fact, the big CANSEC conference is in 2 weeks. We have 2 separate sets of exclusive and private demonstrations that are happening at request in addition to all the, I'll call it, the Drone Dominance or what's called MINERVA up in Canada programs, the Arctic military programs, et cetera, et cetera. So we continue to take a pragmatic approach. We've got our manufacturing setup up there. And I think we're meeting that challenge honorably and on target at this time. So like I say, the budgets up there are significant. And just given the fact that there's so few less competitors in that regard, we think we're well placed. Second question here is, are you going to participate in Drone Dominance Gauntlet II? The answer is yes. We participated in Drone Dominance Gauntlet I. We were down selected in that. We did not make the final grade. There was some nuance as to why that didn't happen. We were only scored on 2 of the 3 challenges there, and we still only just narrowly missed it. And there was some circumstance of why we were not able to participate in 3. But given that, we -- in my opinion, we most certainly would have made it. We're very, very excited about Gauntlet II about what we can bring to the table, what our capabilities are. And again, because we bring so much operational experience to the table from the work that we've done abroad, in particular in Ukraine, we think we're well suited for this. We seem well cashed up, but I'm afraid of further dilution. Do you expect further raises? Or can you be specific on what scenarios you would go back to market? That basically right now, it would be M&A scenario or massive, massive orders. But even really big orders right now at this point with cash on hand, it's not a reason for us to finance. We do have some very meaningful M&A ongoing, and we do expect to make some of those announcements upcoming. And a couple of them of our are large size that we could potentially go back to market for those. But that will be dependent on how the market is doing, what that dilution might be and the accretive nature of hopefully what our shareholders are rewarded for, for these particular acquisitions. We have been very pragmatic about what we're looking at in terms of acquisitions. I am happy to say that these would be significant revenue and EBITDA adds. That said, that's not why we're buying them. We're buying them to execute on the interoperable strategy and the capacity capability, which lends to our ability to innovate more quickly and secure our supply chain more succinctly. Those have been -- we've been very, very disciplined about that. And we've looked at well, hundreds is an exaggeration, but dozens and dozens of opportunities, and we've narrowed it down to a couple that we've been moving forward with. So what revenues are you currently getting out of Ukraine? It's nominal. Specifically from Ukraine, I would say that the answer is very nominal. But in terms of Ukraine purchasing equipment being sponsored by other countries that are purchasing on behalf of Ukraine, we do expect that to be meaningful. We have not built that into our consensus for this year. So if anyone doesn't know, we don't, at this point, give guidance. However, we think that there's really solid consensus out there amongst the analysts right now. We're very comfortable that we will hit consensus this year. And our consensus is based on orders and contracts that we have in hand currently. They are not based on home runs or a drone dominance or a MINERVA or a big sale in Ukraine or any number of the other dozen-plus outlier-type projects that we're well down the path of. So again, we just feel that at this point, in order to build strong credibility, not just with the market, but very importantly, with our customers is that we're not trying to overpromise. We're really trying to be pragmatic about our approach to it. Like I say, we've been around for 27 years. We're not chasing the next quarter, at least not yet. We're probably a couple of years away from worrying about what happens next quarter. Right now, we're really establishing ourselves strategically so that we have a base to ensure that we can be doing very, very significant revenues in the relative near future. So drone sector is currently seeing record budgets for DAWG, D-A-W-G. Please describe how Draganfly is positioned across different categories of spending and what is likely the most significant near-term revenue opportunities. So there are certainly the big RFPs out there like a Drone Dominance, and there are a number of those out there from the Marines as an example, also in other nations as an example, which I've spoken to a bit. But where -- and so we're chasing those, and we think we're well positioned. It'd be naive to say, oh, we're going to win all of them, but we're going to win our fair share of them. I'm confident in that, and maybe even hopefully more than our fair share of them. That said, in terms of the specific military opportunities, which this whole call seems to be skewed towards, if you look at something called Executive Order 44807, that's where 06 and 05 command level personnel can be making purchasing decisions. So I think it's really important to watch some things like the Army marketplace, the Marine marketplace. These are Amazon-type closed websites where 05 and 06 commands can go in and make purchases. And these are coming to bear later in the year. And I think you're going to watch really closely who are the first movers who are chosen to be on that. And so pre those coming out, that Executive Order 44807 is a really important order because if you look at the 05s and 06s, many of which are in special operations that are making the early decisions now who are they choosing and evidenced by what we talked about earlier in the presentation and the sales that we have made in first quarter, that's where we continue to win. And most important for us at this point is to continue to win in our military business is to continue to win with that war fighter to continue to win with that 05 and 06. The operators need to believe in the equipment and the people that are building the equipment and supplying the equipment and understanding the concepts of operations. And so that's where we're really spending our time right now. Again, a little bit slower, a little bit more pragmatic. I'm not saying what anybody else is doing is wrong, but this is where we find that we can exercise the skills that we have, the capabilities that we have the best. And again, because of the different personnel that we have and the long-standing experience. So Draganfly is sitting on $140 million in cash and the stock is trading relatively low. I don't understand they're saying less than $2 a share, but that's not quite true. Obviously, maybe they're talking enterprise value. Can you help investors understand why the market is undervaluing Draganfly compared to all other drone companies when Draganfly could be in a commanding position compared to some of your counterparts? And what do you see as the clearest path forward in the next 6 to 12 months in closing the gap of investor confidence, and that is a great question. We are very, very aware of this, and I think it represents an incredible buying opportunity in Draganfly. So if you're looking at an organization that's not chasing the quarter, but building something really sustainable across a strategy that's around understanding what are the longer-term concept of operations and how are they going to have to be met by a particular company. That's likely why we're a bit of a laggard in this space. We recognize we are. We're not panicked by it at all. We've seen 7 or 8 drone cycles in the past, of course, nothing like this. And every single time, everybody has been bigger, everybody has been smarter, everybody's had more cash, everybody's got the better engineers, the better -- whatever the case is. And every single time, they're all gone and Draganfly is still here. Now I don't think in this particular cycle, everybody is going to be all gone. There's some really great operators out there, and they're doing a fantastic job. I do get a sense a little bit more that, one, they were cashed up sooner. So they're 3 or 4 quarters ahead of us in terms of maybe some of that cycle. And also their strategies are a bit different. And again, not saying their strategies are wrong. It's just not a strategy that lends to what we want to build and where we think will be an ultimate one of significant dominant players in the space. And those strategies might be larger acquisitions, unrelated acquisitions, revenue-based acquisitions, maybe some sales between companies that help those revenue numbers -- bolster those revenue numbers a bit. And again, all not bad strategies, all can work. But for us, our capability is really based on infield work, proving out that product and working from the ground up. Now I do think we have some great top cover. We've made some incredible resource acquisitions or hires in the last 6 months. I think we have an incredibly strong Board that also has a very pragmatic approach to what the militaries around the world, in particular, the DoW, want to see and how they want to be treated, what type of company that they want to deal with. And again, not saying that the other companies are not the types of companies they want to deal with, but our capabilities lend to this particular strategy. So I think it represents an incredible buying opportunity in Draganfly right now when you compare our capability to the other capabilities that are out there. It's just a matter of time before that revenue number more than, in my opinion, catches up and probably surpasses maybe where a number of others are, maybe not all of them, but certainly where a number of the others are. The press release on Friday, the 8th was pretty vague, but exciting. Any color on what potential size these deals might be? So the press release on Friday was about 2 additional sales into Department of War units. All I can say is that they were special operations type of units. And 2 things. First of all, these are the leading types of units that other nonspecial operations units are looking to in terms of what capabilities are they building and who are they choosing to build them with. So in the bigger picture, the potential size of them is much larger even than just the size within these specific units. However, what we have seen is in the units that I would loosely call us embedded with, we definitely have one unit that we are entirely embedded with. The other ones that we are being relied on as a preferred vendor and partner. We continue to see every single month, their orders going up, but not just their orders, their actual requirements changing and they're coming to us because, hey, we got a requirement change, we have an idea, we want to do this. We've got a budget for that. Can you guys pull this off? Can you put people in this situation and can we design something together? So the potential size of these things certainly is well into the tens of millions, if not more, just within units, right? And again, this has got nothing to do with the RFPs out there or the larger programs which are also participating in. So not to be vague. I think it's understandable why we're required to be vague on many of these things, but the numbers will prove themselves out. So on that note, I hope we've been thorough enough for everybody today. We really appreciate the time and consideration. As always, we want to throw our thanks out to our people in Draganfly, to our shareholders and of course, to our customers, whether they're in public safety, industrial or on the military side, we appreciate the freedom you provide for us and the quality of life. On that note, we continue to look forward to be of service, saving time, money and lives. And thank you for your loyalty and your attention today.