DroneShield Limited (DRO) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to DroneShield's First Half 2026 Results Call. My name is Angus Bean, the CEO of DroneShield. This morning, I have with me Josh Bolot, which is -- who is our Director of Investor Relations and Strategy. It's an absolute pleasure to be speaking with you this morning. I'm really excited to present our first half results. There's plenty to talk about it. So let's just jump in. We're going to cover an overview of the first half, the highlights. We're going to speak a lot about the growth platform that we are building and provide some sentiment outlook information for our investor community. We will also conduct a Q&A at the end of this presentation. So the first half has been an incredibly transformative time for the business. We have both simultaneously improved our governance systems, uplifted the organization, invested in ERP systems and provided a phenomenal new production facility for our expanded growth. Meanwhile, we've also achieved record revenues. And so simultaneously, the continued growth of the business in all aspects has been very strong. A number of our core objectives, both the overall revenue growth, but also the recurring nature of that revenue growth has increased substantially. We are now sitting at 9.2% recurring revenue for the first half, and that's almost 3x where we were last year. Again, it's important to understand that for every device that we sell, there is a hardware cost. But as that builds up, the software is of a recurring nature. And for that recurring revenue number we will continue to build as we have more devices in the field. We have over 4,000 devices now around the world. What's really exciting and what I'm really proud of the team in the last -- particularly in the last couple of weeks, we have now achieved a committed revenue number of $240 million, and that is up substantially on the Trading Update we released to the market only a couple of weeks ago, which was only at $206 million. So it's been a great couple of weeks for DroneShield, and we'll look to continue that momentum well into the second half. And I think what is also a great achievement for this organization, we had a record year last year of $216 million. We're now well surpassed that number for committed revenue for 2026. So overall, I'm very pleased with both the continued revenue growth, but also the growth of the organization and building our platform as we move forward into this really significant market opportunity. One thing I would like to touch on is our gross margin. It was slightly down on where we would like it to be, which has been widely reported at 65%. We feel strongly that we can return to that 65% number through the remainder of the year and moving forward. What that depression in that margin was, was around the product sales mix. So as many of you know, we sell both our products as well as interoperable third-party solutions, which have a lower margin, which we sold a significant amount of in the first half. Also, due to our ERP implementation and our significant warehouse move, we had a product impairment that we took in the first half, which lowered the overall number in the first half. Again, we feel confident that we can have that number rise in the second half, closer to where we wanted to be in the mid-60s. The balance sheet remains strong, $180 million cash and term deposits, no debt, and we have invested heavily in long lead items, including things like CPU and chips that we need for our next-generation AI edge deployed sensors. The revenue outlook, I was very pleased to be able to provide a revenue guidance for the first time in the company's history only a couple of weeks ago at $250 million to $270 million. This represents 15% to 25% increase on that record year last year, and we have now reaffirmed that number. We'll continue to provide updates to the market when we need to, should that change. But right now, we're comfortable with that range. A few comments from myself. This was certainly an investment-heavy period for us, bringing online our next-generation platforms, improving the governance, controls and systems across the organization. We decided to spend these 6 months, 4.5 of which I was the CEO is required for the ongoing growth of the business. So we've done that now and we'll now look to continue to optimize the business and drive the growth platform forward. The foundations are very much set not only the systems and processes we've spoken about, but the leadership team and everything that we're doing to make sure that globally, we are scaling the organization. So I feel strongly that we've laid a lot of the great foundations in this first half, and we'll continue to execute in the second half of '26 and well into '27. We're doing all of this because of the opportunity we see in front of us. The doctrine has very much shifted. Counter-UAS or counter-UxS solutions are now front and center in the media every day. Drone technology is fundamentally reshaping defense and security as we know it. The doctrine has completely shifted. The world understands now that there's no silver bullet to this and only the most competitive solutions will win. Our intention is to make sure DroneShield will always have the most competitive solutions. What's been really interesting is we have thought about and spoke about the idea that eventually, there will be a market outside of the military. And over the last 10 years, primarily the only major customer base for us has been defense. That changed in this half. We have now seen huge demand and lots of engagement well outside the defense industry from everything from government to security teams, data centers, critical infrastructure providers, correctional facilities and even some use cases that surprised us where drones are causing real issues in the day-to-day industry and people's lives. And so the threat continues to evolve and continues to expand in the market need. And that's a really exciting thing, specifically for DroneShield, which is one of the only counter-UAS companies that has a true dual-use strategy. And what I mean by that is our technology is as applicable to the military domain as it is to this emerging nonmilitary market, which is really exciting. One thing that we've struggled with over the last 10 years is the budgets that were assigned to solve the counter-UAS problem. It's been a very nascent industry for a long time. As many of you know, DroneShield was really early one of the original pioneers of this industry. What's exciting to see now is budgets are becoming structural. We can now have line of sight to where world governments and world militaries as well as large organizations are budgeting for counter-UAS solutions in -- over the next 5 years. So that's giving us greater insight into the pipeline, greater insight into the size and shape of the market moving forward. And this has only again happened in the first half of this year. Let's move through some of the highlights. So again, revenue up really significantly, 74% on the first half of 2025, which was that record outstanding year for us. We've again, we've beaten those numbers quite convincingly, really proud of the whole team working together to achieve that. Recurring revenue, which provides the sustainability for the business, up significantly, certainly coming from a low base. But again, something we'll continue to drive forward with a number of devices, but also some product mix changes that we'll make throughout the second half of this year and well into '27. Gross margin, I believe we've touched on. Again, our strategy is set, and we believe that we can return to close to a 65% gross margin moving forward. Absolutely, this was a period of significant investment, and that's what has contributed to the underlying EBITDA stats you see there. But we feel strongly in the future of this business, and it's up to us to be -- make sure that our solutions are world-leading and absolutely the most competitive they can be. The committed revenue number is really exciting. To be sitting here at the end of August with already $240 million, just slightly over that committed in the books is really, really encouraging. And again, one thing I would comment here is the market and many of our investors are used to seeing lots of individual contract updates from us that previously were over $5 million. What we're seeing now is a change in the market. And I think this is really important to understand. You're going to probably hear from us less as our announcement threshold is now $20 million. But as you can see with the committed revenue numbers later in this presentation, the consistency of the repeated nature of the orders that we are receiving from repeat customers as well as new customers just continues to roll in the door week after week. It's really great to see. And for me, that's a much more sustainable long-term high-growth business. Cash, we absolutely utilized our cash position this half to invest in that working capital, R&D and our team. It's really important we do remain debt-free. We have no debt currently on the books. I'm going to hand to Josh now, who's going to talk about some of the exciting numbers when it comes to our revenue contribution.

Thanks, Angus. The first half revenue segments really demonstrate that DroneShield is continuing to be more diversified across region, type and segments. Starting with the regions, the callout here are that Europe and the U.K. continues to be our strongest region with 52% of revenue. And this reflects that strong reorder activity and the scope expansions, which have come from existing and new end users. In the half, we opened our regional headquarters in Amsterdam as well as in-region production, showing our commitment to that important core market. We're also very pleased with the growth coming out of the United States, where this time for 2025, that was 14%. It's now at 17%, and we confirmly see a track for that to be even stronger with the committed revenue we have. Some of that growth out of the U.S. is coming from the multi-agency procurement mechanisms such as JITAF401, where they recently launched an online ordering portal, and we are one of the first providers in that portal. The diversification sees the balance of our business coming from LatAm, Middle East, North Africa and Asia-Pacific. And we've got really good engagement and promising opportunities across all of these markets and continue to build, particularly with the next-generation product discussions. Importantly, demand is increasingly global, and we're now operating in well over 40 -- we've got products in well over 40 countries on the edge of 50 as well as representation in 70-plus countries. By revenue type, we are heavily still anchored towards the hardware. But with subscriptions representing 9% of revenue, up from 5% across all of last year, that's a dramatic shift because it shows that hardware wins the deal, but software provides a long-term value to the end users as they rely on the software upgrades, the AI-enabled part of the product to keep them up to date with the latest in drone threats. Counter-drone is not a [ static ] solution. We currently have 4,100 software-enabled units, and that will be an important metric to track over time as it has a direct impact on our broader aspirations for recurring revenue to be a major feature in our future revenue. Alongside our existing hardware lineup, the next-generation products will help compound the value as there are more devices in the field. By segment, military is still the largest contributor. However, to be able to report the non-military segments, which includes commercial activities is already at 15%, and this is from a negligible amount about a year ago. It's a very positive outcome. We are the only scaled operator who can provide products from the battlefield through to the suburbs. While the headlines and awareness is there in Ukraine and Middle East conflict zones, every day, we're hearing about drone-related issues at airports, critical infrastructure, prisons, public safety venues and other major events, such as our work at the Kansas City Police Department and the FIFA World Cup sites around Kansas City. I would encourage everyone to look at the case study of this on Page 28 of the pack as this is just one situation where airspace awareness is critical in non-military settings. Turning now to our revenue outlook. As Angus noted, committed revenue is at $240 million, and this includes $126 million of which was delivered in the first half. This slide provides a clear evidence behind our outlook for the $250 million to $270 million of revenue for the year and our ability to reaffirm this guidance. The growth in committed revenue through the year reflects a solid run rate through repeat reorder and expansion orders from existing end users and this is an important point. DroneShield is not only winning new opportunities, it is seeing customers expand scope as operational needs evolve. We're sometimes asked what proportion of our orders come from existing end users, and that can be a tricky question to answer. For example, if we're working with a national defense force, is each area of that defense force considered either the same or a unique end user? In our case, we would say that it's an existing end user. While we also know that big headline material contracts get a lot of attention, there's a very clear pattern of healthy and regular reorders that flow through without fanfare, and this is plotted out in this chart here. With more than 4 months of the year still to run, $240 million is 36% above the prior corresponding period and represents 111% of the total revenue of last year. As we have previously said in notes to the market, some of the orders that continue to build through the balance of this year, particularly some of the more complicated orders, which have interoperable systems with third parties, will take slightly longer to deliver and will more likely start building into committed revenue for 2027. So what we've provided as a guidance is based on what we can see based on the conversations we're up to and where new conversations commence. It doesn't mean that we won't necessarily secure those in the next few months, but it is possible that those may fill into next year. On that basis, we are already at committed revenue for 2027 and beyond of $43 million. And again, this is consistent with the move from urgent purchases to more programmatic and budgeted counter-drone procurement. On the revenue growth more generally, over the last 5 years, DroneShield's delivered a cumulative average growth rate of 113% between 2021 and 2025. Now this is clearly from a very low starting base and over a period where awareness and funding for counter-drone capability have accelerated profoundly. However, the observation we would make is that DroneShield has historically invested ahead of this demand. And there are signs of that in the company's history when there have been more modest periods of growth. Periods of meaningful R&D investment precede revenue step changes. This is a pattern we see is continuing, especially as we bring on board our next-generation products to the market. And that's where we are today. Starting with RfAI-3 and RfRecon, there is a major rollout of our next-generation solutions from now until the end of 2027. And I know Angus will delve into that more shortly. Finally, the recurring revenue line shows DroneShield's growth is not simply a function of one-off hardware demand. It is being driven by structural market adoption, product evolution, software-enabled AI intelligent devices and an expanding installed base that supports future recurring revenue opportunities. We now -- we also recognize that there's been an increase in the cost base. H1 2026 was a deliberate investment period as we continue to build the operating platform required to run this business now and well into the future. For context, on this slide, we have shown 4 major expense categories from within our P&L. With each, the black bar represents the 6 months to June 2025. The orange is the growth to the current period with a slightly lighter orange, what we consider to be individually significant items as discussed in the Appendix. This leads us to the gray bars, which show the 6 months to June 2026, the period we just reported. And within that, the dotted lighter gray section is the comparison to the 6 months to December 2025. The reason is that in some cases, those costs, which we have reported for this half are actually more in line with where they were for the December half that is not -- that has just been completed prior to this one. In the case of employee benefits, this is a material increase, reflecting the growth in the headcount to 537 employees as at 30 June compared with 332 last June and 482 at the end of last year. This increase reflects sales, technology, operations and corporate support capability as well as recruitment costs and various senior hires. There is no doubt that we have to put more people in this business ahead of this next stage of growth and particularly at more experienced levels. This organizational maturity is both necessary and deliberate. While we are likely to see selected headcount growth in some areas of the business, we're being far more considered in how and where we add people. For example, we know that additions in our sales functions will be a priority in the near-term. At the end of last year, in the current period, we saw an increase in our sales and marketing costs ahead of our next-generation product releases. The emphasis in the second half shifts toward more targeted customer acquisition and the channel activation, so we should see a moderation in these costs. Corporate and professional costs are also increased with added governance, legal and finance and specialist support functions needed for our scale. And again, this is by design and critical as we continue to grow. Finally, business systems costs reflect the implementation of the new ERP and sales systems. These are the lighter gray box -- sorry, the lighter orange box, the $3 million is the implementation cost of those. And it's very clear that these systems are already providing operational benefits and process benefits across sales, procurement, productions and finance. So on balance, the company has increased operating expenses to support the scale. Much of this is needed, and it is better to have this in place now rather than later. However, equally, the focus has shifted on disciplined management of these costs. With a healthy delivery of revenue, the operating leverage of that largely relatively fixed cost base will bring profitability back to the bottom line. To drive this point home, operating leverage means that, for example, another $50 million of revenue at a 65% gross margin will bring a faster delivery of that $32.5 million of gross profit to the bottom line quicker. Thanks Angus.

Thanks, Josh. I think that's a great summary of some of the critical investments we made in the first half of this year. Even with those, our cash and term deposits remain strong. We've increased our inventory as many of our investors would know, around the world, hardware chips, memory, software-defined radios are critical line items for many industries and many sectors now. We've had to strategically invest in those with our supply chain partners. One thing I'm incredibly proud of at DroneShield is that over the last 10 years, we have never missed a delivery. And that's something we'll continue to strive towards and maintain even as the numbers grow in terms of size and complexity. And the way we do this is investing ahead of time, making sure that we have the chips, the memory, and the GPUs and the software-defined radios ready to go to put into production. We've also slightly increased our research and development team ahead of our next-generation product releases. As has been widely reported, we've also looked at our governance and the maturity of the business. We only have to go back a couple of years. This business was not even inside the ASX 300 and was producing significantly less revenue than it is today. We have now focused fully on this in the first half, bringing on our new Chair, Hamish McLennan, who we've been working with incredibly closely and Retired Rear Admiral, Lee Goddard has joined the Board recently. This represents a major governance uplift, and we'll continue to do this in the second half of '26. We continue to invest in our people and our systems. As Josh mentioned, the ERP system as well as the CRM allow us to make better decisions when it comes to inventory planning and capital allocation. And these things, due to the start-up nature of the business for many years were not fully in place, and I'm really pleased to say they are now. We've also been looking at our governance policies and raising our standards across the board in terms of our policies and procedures. While these are not as exciting as some of the revenue numbers we've spoken about earlier, I think it's just as critical that our investment community understand that this business is maturing at an incredibly rapid pace, again, ahead of this next stage of growth. So let's talk about that growth platform. We've mentioned before that there's no silver bullet for counter-drone, and that is something that we realized many years ago and started building our DroneSentry-C2 ecosystem. What remains still very much the case is that radio frequency Detection and Defeat technologies remain at the forefront and are often the first products that our end users look to acquire and deploy to counter the drone threats that they have. Why is that? RF Detect & Defeat solutions are arguably the most capable solutions that provide coverage for the most amount of drones at a -- within a product format that is easily deployable, easily trained upon and is incredibly effective as well as cost-effective. This is not changing. We look at the next generation of drones and swarm technology as well as man-to-machine teaming technologies that are being developed. All of these require radio links. We only have to look at some of our great peers in the ASX who like Elsight and Codan who create some of the radio links that are being used in the next generation of drones to see the significant increase in these radio links. The good news for DroneShield is that's exactly the type of things that we work on and we target. So as those radio links proliferate, our technology is even more in demand to make sure we can detect and track these types of communications. Our C2 remains a core part of our strategy as we integrate additional Sensors & Effectors in Layers 3, 4 and 5. And this continues to be a really positive strategy, winning some significant contracts such as the JITAF401 contract we announced in the previous period. We'll continue to work with partners, and you'll see some additional exciting partnership announcements from us in the next several months when it comes to our partnership ecosystem. As many of you know, I have been -- devoted the better part of my working life to the counter-drone mission. Starting very early in this business. We have tracked this industry day-in, day-out, and it is really encouraging as the organization matures to see those structural -- that this industry becoming much more structural, less one-off and more reliable. The technology we deploy is now in high demand around the world. I'm looking forward to in the second half of this year, completing trips to both Europe and the U.S. as well as core markets such as Asia-Pacific, where we're seeing huge demand and to engage with our channel partners as well as our end customers around the world. There's a lot to do and many conversations to have in the second half of this year. But it's really exciting to see that the counter-UAS issue is now very much a standard issue for militaries as well as security and law enforcement agencies around the world, and DroneShield is incredibly well-positioned with both our technology as well as our partner network around the world to provide that capability. I'm incredibly excited about our next-generation platforms. Some of these technologies and solutions, we started talking about over 6 years ago. RfAI-V3 was something that we started working on over 3.5 years ago and has culminated in the launch of RfRecon, which is the first of our true next-generation detection platforms. I still don't think it's fully understood the level of technology and complexity that we've built into this platform. Most software-defined detection systems are banded, meaning they can scan individual portions of the radio frequency spectrum. The RfRecon can scan from 100 megahertz all the way through to 7.125 gigahertz fully continuously. This is a huge achievement and a core part of our ultra-wideband technology that we've built over the last 3.5 years. Not only that, with the launch of RfAI-V3, which is our next-generation RfAI model, our solutions can detect drones they have never seen before. And that's really easy to say and almost impossible to do. Only this week, we saw the latest of that model, which has not been released to the market yet, doing some of the other incredible technology aspects, including detecting new emitters and promoting those -- classifying those based on the behavior of the emitter, not just the underlying data that it was seen. This is incredible technology that I'm incredibly proud of DroneShield for pioneering. So we continue to build on those platforms. The second half of '26 for us is about producing the production and scaling those solutions as well as generating revenue. And we will -- we do look forward to announcing our first sale of next-generation platforms shortly. Again, really excited and lots of great customer conversations happening around those platforms every day. As Josh mentioned earlier, by the end of '27, we expect to have our entire product suite fully refreshed with next-generation hardware built on our ultra-wideband technology underpinned by RfAI-V3 with some of the best hardware we've ever put together. All of this is supported by our software and our recurring revenue streams. We get asked often about the competitive landscape and what are the moats around the business. I've never been more comfortable with our competitive moats around the business and our position in the competitive landscape. We have -- we would arguably have more hardware devices in the field than almost any other provider in our category with over 6,200 devices around the world. That's a lot of experience building a lot of hardware at scale, and that really counts when it comes to reliability and performance over time. The hardware that we build is incredibly intricate and complex in nature. And there's a real competitive moat around just building the hardware part of our business. Secondly, the second moat around our business is our AI-driven software. We have a unique environment of engineering here where we have engineers capable of understanding the radio frequency spectrum, deep software experience as well as some of the leading AI engineers from across Australia. And we also have 10 years of proprietary threat data that all of this is built on. Again, these are not -- this is not data that you can go online and scrape off the web. This is data that is hard fought and hard earned that we have recorded from around the world over a decade. So that's the second moat around the business. And the last moat that we have is the trust in our brand, the trust in our solutions that are deployed every day in safety and life-critical operations. We now sell to just under 50 countries, and we look forward to hitting that 50 mark hopefully soon. But just under 50 countries, we're deploying our solutions every day around the world. Josh?

Thanks, Angus. We get a lot of questions around the broader thematics across funding and other aspects of the counter-drone industry. It's clear that governments and alliances around the world are increasingly acknowledging the drone threat by unlocking funding, procurement channels and the regulatory gates needed to implement counter-drone measures. In the U.S., which is the world's largest military spending nation, the budgets are getting bigger and bigger. The call out here, as I mentioned earlier, is the JITAF401 counter-drone marketplace platform. And already there's $900 million committed for 2026 to that platform in terms of their spending allocation. DroneShield was one of the first companies to have the products on the platform, which is an important validation point of the work we've been doing with them over some time. We see procurement portals where end users can fill their cart with direct counter-drone solutions for quick delivery as more evidence of the reorder, up order and expansion order approaches that have been a feature of our committed revenue development over the year. Again, we would call out the implications of the Safer Skies Act, which opens up the counter-drone access for 17,500 local and state law enforcement agencies with FIFA World Cup 2026 providing a useful operational case study of this. Europe and the U.K. remain highly significant with NATO commitment referencing at USD 40 billion for counter-drone over the next 5 years and the U.K. putting GBP 790 million towards integrated air and drone and missile defense systems. This region, obviously, is DroneShield's fastest-growing revenue contributor at the moment and remains an area of opportunity. On that, we have previously made mention of a major European opportunity. Today, we are sharing a very disciplined message. It remains the largest program in DroneShield's sales opportunity pipeline. We will refer to this as the COBBS Anduril-Nokia consortium. Down selection is expected in the second half of this year. But to protect sovereign commercial and competitive sensitivities, we will be making a deliberate decision to reduce the commentary on this terminology, and we will provide the market with appropriate updates when appropriate. In Asia-Pacific, counter-drone capability is increasingly discussed in the context of protecting crowded spaces, vulnerable targets and critical infrastructure. And in Australia, we've seen approximately $1.5 billion earmarks for counter-drone as well as clearly reported needs based on recent coverage. On the commercial side of the market, I can see questions come through on how big is the commercial side of the market. Our total addressable market reports on that, which are available on our website. I think [ Mark ] put that number at $28 billion. As we've previously noted, counter-drone is no longer defined to the battlefield -- confined to the battlefield. The numbers on this slide speak for themselves, and it's evident -- it's scarily evident that drone incidents are escalating across public safety and critical infrastructure and commercial settings. The strength is persistent, geographically widespread and relevant to both government and commercial operators. This is -- this dynamic creates a broadening set of use cases for DroneShield's Detection and Awareness solutions. Importantly, DroneShield, I would say, is arguably possibly the only operator in counter-drone space that can service both military and commercial markets. As regulations funding and real-world case studies developed, our Fielded Systems and Software-enabled devices provide a -- part of a multilayered architecture as we participate in this market.

Thank you, Josh. So what are we doing in the second half? We will deliver on our FY '26 guidance, which we have reaffirmed this morning. We will look to recover that gross margin trajectory through a combination of our new products being sold as well as not needing that one-off stock impairment there. We also look to ship -- sell and ship our first RfRecon devices. We're really excited about this as DroneShield's next-generation flagship product moving forward. We'll continue to build on the recurring revenue base. And as Josh mentioned before, we are looking to expand our commercial team and really drive that growth engine well into '26 and '27. Some notes again that underpin the thesis behind DroneShield and what we think about often. This is -- and you've heard us from this morning, this problem is becoming structural. We now have visibility into the budgets. Budgets are now being allocated. Again, this has all happened in the first half of this year, giving us much more confidence that there are numbers behind the demand and where we need to focus our attention. The committed revenue number, I think, is outstanding for this part of the year to be in August with $240 million committed revenue, and we'll look to continue to aggressively build on that in the second half. We also move to our platform transition. So moving again to a full product refresh by the end of '27, underpinned by our next-generation technology, some of which the market has seen, some of which we look forward to announcing through that period. The balance sheet remains strong, and I'm excited about the experienced leadership team that we have driving every day to continue to build this company around the world. With that, we'll end the formal part of this presentation, and we look forward to running through some of the Q&A that we have from our investment community.

Thanks, Angus. I'll moderate the Q&A. And in some cases, I'll answer those and then throw some others to you as well. Taking -- we also received questions in advance. I appreciate those which have been submitted in advance. Maybe starting at a more local level. Is the Australian defense establishment by DroneShield products? Do you think the Australian defense is paying enough attention to both defensive and offensive drone technology?

As an Australian business, we're incredibly proud, and I'm personally incredibly proud to be providing our capability into ADF. This is through the LAND 156 program, which we are part of Line of Effort 2 and Line of Effort 3. So we are continuing that and we've had a lot of engagement with the ADF again in the first half of this year. We've seen as widely reported in the media, some of the challenges that exist to the ADF in terms of the RAAF Williamtown done incursions. I'm not going to speak too much about that as that is an ongoing operational situation. But certainly, DroneShield, I would say, obviously stands ready, and we will continue working with the ADF on this significant issue. In terms of what Australia is doing in the drone and counter-drone space, there are significant investments upcoming in the Australian defense budget for both drone and counter-drone technology. And all I would say there is we look forward to working with our partners in the ADF to provide them with technology, but as well as our information and support in any way. One thing that's not probably known to many of our investors, but we have a capability agreement with the DSTG, so the Scientific arm of Defense, where DroneShield and DSTG have a monthly meeting to discuss the latest intelligence and requirements that we're seeing from around the world from a DroneShield perspective, but also from an Australian perspective through DSTG. So we have deep partnerships into both the commercial, the military and as well as the Scientific arms of the ADF.

Thanks. Moving on to the technology for a second. There are a few questions around counter-drone more generally as well as our solutions. So the questions, I'll summarize as thoughts on drones controlled by cyber or AI-enabled drones or drones which don't see themselves controlled by radio frequency, the use of sound detection for drones. Maybe that's the first part of that, and I'll wait for the second part, but if you want to address those parts of it.

Look, certainly, there is a lot of technologies when it comes to drones and something that we talk about often is that you shouldn't think of the drone as the technology, right? The drone is a platform of many different technologies that can be configured and reconfigured. Many of these technologies are on their own. exponential development curves, creating additional challenges for drones. Clearly, DroneShield, we have world-leading RF detection technology and RF jamming technology, particularly with the release of our RfAI-V3 engine, which, as I mentioned before, is able to detect drones that is never seen before and promote those into -- based on the behavior of those emitters into a threat profile for our operators is technology that I believe that we are pioneering around the world. So clearly, that's a core part of our technology and our strategy. But similarly, we have developed and invested heavily in our DroneSentry-C2 platform, which is our Sensor Fusion system. The reality is you need multiple different technologies to detect and deter all the different types of drones that we see now and well into the future. DroneShield, we want to be that integration layer or interoperability layer that allows all those technologies to work together and get the best out of those technologies. So having one sensor offset the weaknesses and with the strengths of another. This is what our Sensor Fusion technology is designed to do, and I think we're getting more and more traction with that platform over time. So look, there will be different technologies. And certainly, we've discussed previously, the fiber optic drones we see primarily in the Ukrainian and Russian conflict as one area of technology innovation. And again, our Radar technology, our Sensor Fusion, our Interceptor Drone platforms and our -- and some of the interesting partnerships we'll announce shortly are designed to deal with those types of threats. But realistically, what we're focused on is building solutions that are easily operated and deployable today around the world, and that's what we are focused on at scaling the business.

I'll give you a bit of reprieve, and I'll take a few questions. So one of the questions which has come in is the current status of the ASIC investigations and when will this investigation be closed? As we've identified the market, we're cooperating fully with the investigation being conducted by ASIC. And it's not clear what action, if any, may result from these investigations. As it is an ongoing investigation, it will not be appropriate for us to comment further around their time lines, and we'll obviously update the market when there are developments that we can share. So that's as much as we can say on this today. There are questions also regarding a note in the accounts regarding a payment to -- as part of the settlement with a member of the key management personnel. This matter is a confidential matter. It is a settlement which has been reached where it does not relate to termination, misconduct, proprietary or any other of those sort of nefarious matters. It is a private matter, which we are not able to explore further, but we have acknowledged that in the accounts. It is not a matter of remuneration or employee benefit, and we'll close that matter with that context. The other questions which arose were a lot of commentary around or questions around the share price. Clearly, we do see the share price. We acknowledge that the share price moves on -- sometimes it can move on no information and sometimes it can move -- it can not move on a lot of information. Really, what we're trying to do here and show is that we have had to make a number of important decisions over the last 6 months around how we invest in our business in order to support the business for the future of DroneShield. And the future requires us to have a more stabilized base to it across every aspect of it, whether that's in the production through our new production facility, whether it's in our sales functions despite having an Amsterdam office and building up our sales team around the world. This business has run for over a decade on a very lean structure. And as we see the demand coming from our next-generation products, as we see the demand coming from the threat of drones, this is a business that has a very promising future, but sometimes we do need to reinvest in the base of it in order to support that growth. So we understand that the share price has caused frustration to people. And as a shareholder myself, causes a frustration to me. We obviously are building a long-term story here, and this does sometimes require a little bit of investment in that period. One of the other conversations is around the impairments and around the -- we have previously talked about impairments around the inventory earlier in the year. This was -- that was in relation to a specific -- large amount of that was in relation to a specific product, which we identified back in, I think it was February. This impairment that we've talked about for this half is more around as we open that new production facility, moved the ERP system, identified items that, frankly, when you move out sometimes, you sometimes realize that actually it's not worth moving some of the stuff. It's raw materials. It's not -- in this case here, for the 6 months we just reported, it's raw materials. It's not finished product. And we really do hope that it's not a recurring feature, which is why we see the confidence in being able to rebuild the gross margin back towards that 65%. So that covers that one. Angus, I'm going to bring something to your attention regarding Ukraine, and this has come up a lot. One is how do we -- do we sell to Ukraine? How do we get products sold to Ukraine? And what evidence are we seeing out of that market?

Sure. So Ukraine continues to be a core focus for us from an intelligence perspective on the nature of drone warfare. I would argue that the best drone operators in the world are the Ukrainians and secondly, only by the Russians. Interestingly enough, I would say the third best in the world, some of the drug cartels that exist in South America. They are utilizing drone technology and some of the tactics and operations that are being refined in the Ukrainian-Russian conflict. So it definitely underpins that this is a global problem that is existing. Ukraine represents, I would say, less than 10% of our revenue, but we do engage with that market specifically for the reason that it is the most real world and probably the most advanced drone warfare that it exists. We do have an in-country partner. We do not have people in the ground ourselves. We do have a very close in-country partner who is with us recently when we opened up our Amsterdam office. So we do have -- and they provide all the servicing of the thousands of devices over the years that we have across Ukraine. So still very much engaged in that market, probably less than 10% of our revenue at the moment, but a critical area of focus from us from an intelligence and as well as just supporting the people of Ukraine.

While we're in sort of that broader part of the world, there's some questions received regarding the European opportunity, which we talked about. One was what does down selection mean and sort of the timing beyond that. And yes, so yes, if we can talk a little bit more about that opportunity.

Sure. So I think I'll add the color to that at a macro level. Europe is going through a very significant rearmament phase. It's industrial base as well as the organizations that are there, I would say, have been underinvested in for many decades. And it's exciting to see the different -- various European nations rearming. But for us as an Australian business, also outreaching to people like DroneShield to help them with that technological uplift and that rearmament of their protection and defensive technologies. So this is the macro environment for Europe for us. And as Josh highlighted with our revenue contribution continues to drive a lot of the growth that we see, and we're very grateful and thankful to the various European military as well as government agencies around the world who have chosen DroneShield to be their counter-drone partner. That specific opportunity is at one of the programs under the ReArm 2030 program that is ongoing with significant funding attached to it, a very large portion of that funding for that individual European nation. The down selection process, as we've touched on, DroneShield has teamed up with Anduril, COBBS and Nokia in a consortium to go after and bid for that significant, significant opportunity. We feel that those 2 partners, both particularly, obviously, our relationship with COBBS is incredibly strong. But to be partnered there with Anduril and Nokia, 2 great technology companies with similar like-minded mindsets when it comes to these issues is a great opportunity. And I was pleased to join Anduril and Nokia in the first half of this year to open up the COBBS Battle Lab facility in line with our tender process and our down selection opportunity for this opportunity. Down selection for us would be essentially reaffirming that our consortium will be one of the smaller group that will pass through that gate and then have the opportunity to fully engage with the Department of Defense of that country and go on to tender for that opportunity. So it remains a very significant opportunity, a lot of funding attached to it. But again, I would like to state that this business is very global, very diversified by product, region and opportunity and now by segment as well with the non-military market very quickly creeping up in terms of the revenue contribution. So it's not live or die on one opportunity, certainly not anymore. But there's no question that we are putting everything we can behind to be successful in this down selection process. Again, we will -- we are expecting that down selection process to be published in the second half of this year, and we will update the market when we hear that.

A couple of questions about RfRecon. I'm going to merge them together. So one is talking about the actual technology, the hard-to-replicate aspects of it. So what actually makes it special in the IP or the moat around that. And I think more commercially moving to -- we've given illusions to strong interest from end users around RfRecon. That's off the back of some of our prelaunch work with those end users over a number of periods. What needs to happen for those to convert into meaningful orders and the timing around that? So one is the technology and the next part is the commercialization of [indiscernible].

Thanks, Josh. So RfRecon is a platform that we're incredibly proud of. What makes it hard to build? Well, there's a number of factors. One of them is we decided about 3 years ago that we were going to build the next-generation platforms on a specific chipset that was not even released to the market yet. So we essentially worked very closely with that chip designer, chip manufacturer to line up this next-generation product essentially as the product -- as that chip was going to be made available to the global market. So DroneShield was one of the first to receive that specific software-defined radio and we were able to launch our platform essentially in line with those chips being available to the market, which puts us at a real competitive edge and again, took a lot of planning to execute on. The hardware itself is incredibly complex. I've spoken before about our ultra-wideband technology that we've developed. This, again, represents years of research and development, being able to scan the multitudes of frequencies that we now are able to and I believe will put us in a class of our own when it comes to these next-generation solutions. In terms of converting those purchases, historically, we would often say we would release a product, and it would be somewhere between 12 and 18 months before we would see the first sales of that product due to things like the relatively slow nature of military procurement programs. What we are seeing is that those structural changes flow through. And thankfully, for our investment community, we're not anticipating having to wait 12 to 18 months for the first sales. We do anticipate to make our first sales in the second half of '26 and build on those sales through '27 as our new flagship products. So I think we'll continue to update the market as we progress with that product. And I would say that it has been in the hands of some of our core end users, as you can imagine, across Europe and the United States. Some of those core end users who we have a very close relationship have had early access to the product and have had -- it has already been deployed at a major international defense exercise. Again, there's a lot of secrecy around that. But certainly, our campaign has been deployed by one of our customers who's been working with us actually on what their requirements were for that platform. So really excited about that, and we'll continue to update the market as we need to.