Drone Defense Co. Releases Record Numbers for FY23

DroneShield Ltd. (DRO:ASX; DRSHF:OTC) has released its full-year FY23 report, showing "record" results and a "surging to profitability." In the press release, the company revealed that 2023 was its first profitable year, "with AU$9.3 million profit after tax." The same day, DroneShield's stock reached a new high of AU$0.93 per share. 

Other highlights from the release include news of "record contracts and rapidly growing cash receipts," including cash receipts totaling AU$73.5 million, up 5x vs. FY22, and revenue to the value of AU$55.1 million, up 3x from FY22.

The company explained that the difference between cash receipts and revenue was due to "advanced payments on product subscriptions (SaaS), warranties, as well as grants received."

DroneShield also noted that 80% of revenues were from repeat customers and that the geographical locations that offered the largest revenue contributions were the U.S. (68%) and Australia (23%).

The report went on to reveal that the company's share price has increased by 64% over 2023, compared to 9% for ASX300.

The company has a cash balance of AU$57.9 million as of December 31, 2023, with no debt or convertibles. It has also committed to supply chain payments of AU$30 million.

According to its website, DroneShield is an Australian and U.S. company that provides C-UAS (counter drone) protection, with a focus on Radio Frequency sensing, Artificial Intelligence Machine Learning, Sensor Fusion, Electronic Warfare, Rapid Prototyping and MIL-SPEC manufacturing.

Its technology uses "a multi-layered artificial intelligence-based solution for both detection and defeat, with smart, non-kinetic defeat." The company offers "protection against a wide range of improvised threats" through UAV (Unmanned Aerial Vehicles), UGV (Unmanned Ground Vehicles), USV (Unmanned Surface Vehicles), and UUV (Unmanned Underwater Vehicles).

Benefitting from these protections are the military, government agencies, law enforcement, critical infrastructure, commercial spaces, and VIPs across the world.

The company has also announced that it has begun the development of custom higher-performance multi-channel software-defined radios (SDRs), that will be used in new evolution capabilities of future generations of its products.

In an updated March 4 report, Laing gave the company a Buy rating, saying, "DroneShield (DRO) has had an outstanding last 12 months."

Of this update, DroneShield Chief Technology Officer Angus Bean said: "As the drone threat space continues to rapidly evolve, DroneShield continues with a significant investment into next-generation technologies, including moving into fully custom software-defined radios in-house."

The aim of this new development is to assist in the reduction of hardware to an ultra-small size, weight, and power (SWaP), with dimensions that can be "tactically deployed in the field by end users, while ensuring sufficient computing ability to run complex AI-algorithms on the devices, without referencing cloud or other systems."

In a recent article, The Wall Street Journal stated that "drones are changing how wars are fought," making "combat faster, cheaper and smarter, as shown in Ukraine's fight against Russia and Houthi attacks in the Red Sea."

McAlinden Research Partners recently reported that defense orders are outpacing equipment losses in Ukraine. Following Russia "swinging the initiative in its favor throughout the past several months," it stated that "Ukraine's next chance for a counteroffensive may not arrive until 2025, and the potential for such a maneuver will continue to be heavily dependent upon a revival of U.S. and European aid to the country."

It also listed DroneShield as one of the top two most important military AI companies, alongside One Stop Systems.

Upcoming Catalysts

DroneShield's FY23 report also noted that the company has an AU$30 million contracted backlog and a pipeline of over AU$510 million.

It has also substantially expanded its team, enabling it to build, deliver, and support materially larger orders. It completed a move to a facility in Sydney with three times more floor space than they have to work with currently, and its supply chain partners have been expanding rapidly. This move came with no material cost to the company, as its heavy machinery work is outsourced, and it had landlord fit-out incentive payments.

According to the report, this move "positions the company for AU$300-400 million annual production capacity." The company now has 115 team members, including over 90 engineers.

It noted a "favorable environment" due to rapidly rising counterdrone, defense, and security spending globally.

What the Experts Are Saying

Technical Analyst Clive Maund made positive predictions for DroneShield in 2023, writing that he thought it looked "set to succeed."

More recently, at the beginning of February, he wrote: "After starting higher again in November, it has advanced in a classic bullish staircase pattern, but over the past week or two the advance has accelerated dramatically with the price at last breaking out to new all-time highs, an impressive move given the number of shares in issue."

Daniel Laing of Bell Potter Securities Ltd. had similar views in December 2023, predicting revenues of AU$69 million (around US$45 million) for 2023. Darren Odell of Peloton Capital also predicted good things for DroneShield, writing in July 2023 that the company had "already exceeded 2023 revenue estimates."

In an updated March 4 report, Laing gave the company a Buy rating, saying, "DroneShield (DRO) has had an outstanding last 12 months, which has been reflected in the share price performance YTD." 

Ownership and Share Structure

The company reports a cash balance of AU$58.9 million and a buffer of AU$400 million in its sales pipeline, as well as an order backlog of AU$30 million.

Management and insiders own 11% of the company, as CFO Carla Balanco owns 1.44% of the company with 8.45 million shares, CEO Oleg Vornik owns 1.40% of the company with 8.18 million shares, CTO Angus Bean owns 1.26% of the company with 7.39 million shares, and Non-Executive Chairman Peter James owns 1.09% of the company with 6.40 million shares, according to DroneShield.

The company reports that the largest independent investor, Charles Goode, owns 4.41% of the company with 21.5 million shares, while strategic investors own a total of 13.99% of the company.

Eprius Inc. is the second largest shareholder, with 3.16% of the company with 18.5 million shares.

In its February 2023 placement, Droneshield said that it brought ten new institutional investors on board, but it has not yet released more details.

The company reports that there are 612,153,611 million shares outstanding, while free float traded shares make up 83.51% of traded shares, and the company has a market cap of around AU$450 million.

Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of DroneShield Ltd.
2. Lauren Rickard wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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