Draganfly - Q4 2021

Transcript

Rolly Bustos (Head of Investor Relations)

Hello, all. Greetings, and welcome to the Draganfly 2021 year-end and fourth quarter shareholder update call. My name is Rolly Bustos. I head the internal investor relations here at Draganfly. I've had the pleasure to speak to many of you on the call throughout our journey, and I personally welcome you to this update. Today's call will follow a similar but slightly different format as previous ones with our CEO, Cameron Chell, discussing our full year and fourth quarter operational highlights. Then our president, Scott Larson, will facilitate the Q&A portion. This will include both questions submitted during the call and ones that have been sent, pre-sent to us during the past week. While we'll try to get to them all, I apologize in advance if time doesn't allow us to do so.

Cameron Chell (CEO)

Remember, you're always welcome to reach out to me at [email protected] to follow up if we didn't get to yours specifically. So without further ado, Cam, please go ahead.

Amazing. Thanks, Rolly, and thanks, everybody, for taking your precious time and being on this call with us. We are really, really excited about what's going on at Draganfly. Incredibly, humbled and gracious or thankful for the year that we've had, and look forward to talking a bit about that year and maybe some subsequent events of what's happening here in Q1. The first thing that we need to start off with is that our numbers are going to be filed tomorrow. So, this is our first full year year-end on NASDAQ, and our auditors are behind schedule, which is a very common problem with companies across all public companies right now. There is no material problems. There's no issues. We know what the numbers are.

We're dying to talk about them. We're very happy where they came in, but the auditors, you know, persnickety little things that they're checking off and doing, and third readings and such. So they'll be filed tomorrow, and that's all I can say about that. So first of all, I apologize. But that said, I guess we still wanna provide a company update, which will give color to our last year. We'll also be able to talk about some of the incredible subsequent events that are ongoing right now in Q1, and certainly we wanna be able to take your Q&A. So thank you for your patience, and thanks for your trust in being a shareholder at Draganfly.

So, basically, you know, Draganfly is, as I've said many times, the often referred to, and likely is the oldest commercial drone manufacturer in the world. And, you know, both, you know, they'll say, "You know, both you and Cam or you and Scott, Cam, have built companies that have been billion-dollar market caps with hundreds of millions in revenue before, and you've got this, really, this tiny little revenue company. What— Why has it taken so long to get there?" And, the reality is, that today, the drone industry is a $20 billion industry.

But what most people don't realize is that 97%-ish% of that industry is military, right? And a couple % of that industry is consumer. And then, you know, 1% or 2 or 3 maybe is commercial. And so it's really... This is a very unpopular thing to say in the industry, but it's a really, a very small industry up until now. And so, while we've seen the likes of, you know, Lily and Airware and 3DR and GoPro, $multi-hundred million investments with people like John Chambers as the chairman and, you know, the biggest names with the biggest VCs in the world having backed them, all of those companies have been in the commercial space in the last 15-20 years.

All of those companies, at least once, have tried to buy Draganfly, if not multiple times. And for any number of reasons, we ended up not selling out, which is more luck than anything. And we're here today, and they're not. And the reason that we're here today and that they're not is because, you know, they came in with huge investment into the space and expectations to service the commercial market that just wasn't there yet. And so they routinely started making cheaper and cheaper drones to try to compete against the Chinese equivalents, the DJIs, which are light commercial drones and, you know, great consumer drones.

And every single one of them can't compete, could not compete in that market. You've got a, you've got a Chinese-made product with incredibly low labor costs, subsidized company, 10,000 engineers, well done, well-made products, all, like, fantastic company in so many regards. And that's why they just and so they all dwindled away, and they just couldn't survive. Now, Draganfly, on the other hand, you know, we're a private company. We had to make our monthly nut. You know, we had to make payroll, we had to do those things. So we generally survived on either selling into public safety or doing, you know, selling into different industries that would approach us, that where having a North American-made drone or having a drone that had greater capabilities was important, right? Greater reliability, et cetera, et cetera.

Or, we would do contracting for military contractors. So, you know, we've built systems out there that drone companies today out there that are commercial would have not built, and would dream of building, you know? So we built systems, you know, counter drone systems with drones that fly at hundreds of miles an hour, 100% autonomous, shooting out Kevlar nets using airbag explosives, capturing drones, you know, and pulling them out of the theater, whether that was a combat scenario or whether that was over a correctional facility or something like that, or scenarios where we've run theater and pilots where there's blood being delivered onto the battlefield.

So this amount of AI and autonomous work and highly specialized work is what's made our engineering bench so strong and allowed us to attract the top talent in the industry and keep that talent. In fact, in the 24 years, we've only had two people leave. And one was by retirement a few weeks ago, and one, Google got one of our engineers about 5 years ago. Every time we've tried to be acquired by one of these other, you know, drone companies, it's because they really wanted our engineering bench and the IP that we have.

But here's the difference, and here's what's happened, is that, you know, basically two years ago, the FAA came out with very clear rulings about what was gonna be happening in the industry. We had guidance, real clear guidance for the first time, about beyond visual line of sight, which is the key regulation that scales the commercial industry, right? And operation of drones over populations, both day and nighttime. With those two pieces of regulation put out there with clear guidance on what we can do today and where they're going to take it, literally, you know, my time went from spending my days either, you know, helping design solutions and selling, like, every you know, every single day on the phone, selling, selling, selling, you know, going, everything was outbound for us, to within two weeks, everything was inbound.

Everything now is absolutely inbound. Since that time, you know, our revenues have doubled every single year. The reason they haven't more than doubled is we've just been building capacity, whether that was resource capacity, whether it was manufacturing capacity, distribution capacity. You know, we were very fortunate to do some financing last year to get public on NASDAQ, and to have a balance sheet and a capital base that have, that have allowed us to build that capacity to start to meet demand. So last year, we doubled in revenue. If you look at our last three quarterly filings, you'll see that we were, we were on track for that same kind of trend for this year.

I feel really confident that saying that next year, we'll more likely than not, in my opinion, all things being equal, be able to double revenue over what this revenue is gonna be. And I cite, you know, our November announcement, where we had one contract for $9 million, and that's $9 million of recurring revenue for three years, where we're producing 50,000 drones just for one customer. And our pipeline is absolutely jammed. We are in an incredibly grateful and gracious position to get to pick and choose our customers today.

I believe in the after, you know, a decade plus of having to fight for every single customer, you know, this is an incredible space for us to be in, and we, we don't, you know, we, we're not taking it for granted. And so we continue to move forward. But that, that's really why we have been a small company. But the advantage here is that we've been a small company, we have an incredible portfolio of IP, we have an incredible engineering bench. We have as much experience in building incredible drones and mapping systems and autopilots and hardware and software and AI, as any large company out there could imagine happening.

But it's because we, you know, we ran a very pragmatic business for years and years, and we had to, you know, listen, we had to put food on the table every single day. And so we still have that mentality in our management infrastructure and in our ethos. So while we are doubling, we're gonna continue to double and, you know, listen, us and management, if you look at the pedigree of our board, you know, we're out to build a billion-dollar company plus, and we're out to build a company that is gonna be the number one or the number two player. And I feel confident saying that, you know, at this point, we're on track.

Now, there's some great competitors out there, some great companies, and I think that's really important because it helps validate the entire industry. I can also say that we don't have one piece of work in our pipeline or one, or one WIP going on that was a competitive situation. And I would hazard to say that the other drone companies are probably in the same situation. None of us have run into each other or seen each other, so that won't last forever, for sure. But certainly for the next, you know, at least, you know, 18 months, if not 24, I would suspect that that will continue to be the case. So, you know, the industry is growing to a $43 billion industry by 2028. There's all kinds of different analyst reports that cite this.

Now, to be clear, I've never believed these reports because, you know, I've read them before about how big the industry was and everything that's going on, and I was like, everybody's going, you know, bankrupt, and, you know, we're struggling every single month to make sure we hit our numbers and do all these things, and we're not doing billions or hundreds of millions in revenue, so I don't know where all this industry stuff is. But I can say unequivocally for the first time, I do believe these numbers, because every day there's inbound that we just can't take on. And or that, you know, we get to select which ones we do, get to take on.

Of course, the stuff that we're taking on is solution-based business, higher margin business, things that help us build a strategic moat for our current and future verticals that we're gonna be serving. You know, we're not doing one-off manufacturing for things. We're not doing low margin, you know, low-end consumer drones. We're not, you know, or, you know, things. It's gotta be special for us to take on. And I think we've got a runway of a few years for sure to be able to continue to do that. So, you know, a bit, just a quick bit of review. You know, in the 1990s, we were building hardware.

In the 2000s, we were building hardware, and we were doing software, mapping systems, autopilot systems. You know, we were building applications for customers, and we were doing sensor work. And then, you know, as we moved into the late teens, you know, it really became more about autonomous work and AI. And you know, ultimately, the future of the drone industry, whether it's you know, delivery or whether it's entertainment or education or any part of it, it's really all gonna be data-driven. And so our ultimate focus is really all about data. I would hazard to say, for a number of different reasons, that in 3-5 years from now, you know, Draganfly will always be known as a drone company. We're always gonna make great drones.

We're always gonna service our customers in that way, but nothing collects data better than a drone, nothing. Like, and we can put a drone up, and within five minutes, we can give, you know, anything from down to centimeter mapping, to traffic patterns, to, sound analysis, to, carbon, emission analysis, to, visual, recognition of things to, vital signs of people, to, like, in five minutes. Like, like, data on a drone is just so unbelievable and game-changing at what it's going to do. And so, so in three to five years from now, I think we will be a data company. We'll always be known as the drone company because that's the primary collection point.

But we will own that entire data chain so that we're not just collecting the data and building specific sensors and AI to collect that data for our customers, but we'll be housing and helping analyze that data as well. And that's where we really see the future of the drone industry. And again, whether that's in delivery or whether it's in, you know, in industrial inspection or whatever, at the end of the day, it's really all about that data and how your AI can utilize it.

This is what I do think is different about Draganfly, compared to a lot of players out there right now, where they might be building a specific piece of hardware, you know, to work in a great industry, but they're looking for their signature customer, or they're looking to get their signature product out to market or mature it or whatever the case is. You know, the reality is, I'm just gonna skip ahead one slide here, is we have a mature product line. Our product lines are not just hardware. Our product lines are full solutions.

They come with, you know, whether it's the piloting systems or integrated with other software that they have to be integrated with, or whether it's the AI, or whether it's the data collection or storage, it's really a platform. It's not a piece of hardware that we sell. We do not have customers that come to us and saying, "We want a drone that flies 5 minutes longer and, you know, 13 meters higher." That's just never a question that comes up. You know, maybe in the early 2000s, and the late 1990s it was, but today, you know, a customer comes up and says: We've got 23 ports. We're a port authority, and we need to do this type of security, this type of vital intelligence monitoring. We need to do this type of environmental monitoring.

We need to house the data in this format, and we need to... You know, where do we start? They're not looking for a drone and a pilot. They're trying to, you know, do a whole solution. And a great example of this, you know, was a couple of years ago, you know, we had a client come to us, and they were looking to be able to do recognition of social distancing and face mask wearing because this was the epicenter of where the COVID outbreak had sprung from in New York. And so that particular sheriff's office asked if we could design this into our systems, and we did. And so they were able to change policy. They were able to readdress resourcing.

They got incredible data about, you know, what signage worked, and they were able to give good stats to their council, and one of the officers at the end of that deployment, she said, "You know, what would be really cool is if you, if you folks could detect COVID-19." And we all kind of chuckled, but later that night at the motel, we were working on the problem. And less than nine months later, we came out with a product that was commercialized, that would allow our drones, right, or any camera, to be able to read vital signs. So it can read your heart rate, your respiratory rate, your blood pressure, your blood oxygen level, your heart rate variability.

And we've deployed these systems now into manufacturing facilities, into correctional facilities, into doctor's offices, and, you know, just a plethora of different applications. And where it really counts is in the humanitarian side of things. So one of the things that has happened to us in the last few short weeks here is Coldchain Delivery Systems, which is a channel partner of ours, where we're building delivery, medical delivery and first responder systems for Texas EMS. It's a contract about a $750,000 contract that we announced last year. Phase one, it's a five-phase contract that eventually leads into multiple year support and services of the supply and provisioning and operations of what will be hundreds and hundreds of drones for 911 stations.

They were contacted by a humanitarian organization in the Ukraine. The reason that they were contacted was because they had seen the work that we had done with our medical relief drone and the work that we're doing with Texas EMS. We've got hundreds and hundreds of flights on this drone, tons of data that we're providing to the FAA. We have a proprietary 35-pound payload box that, in this case, sits on top of the drone and can deliver temperature-sensitive supplies into a situation. So whether it's vaccines, or whether it's insulin, or whether it's EpiPens, whether it's blood, whether it's pharmaceuticals or painkillers or whatever it is, you know, we can do that work, and we've got experience doing that work.

You know, given the fact that, you know, the first drone to ever save a human life was a Draganfly drone, and that drone today sits on permanent display in the Smithsonian. And so our public safety work is just part of our ethos, and it's just incredibly, incredibly important to us. And so, Revived Soldiers Ukraine approached Coldchain, and Coldchain was like, "Yeah, Draganfly is gonna be all over this." So they put an initial order of 10 units. And, you know, these are, you know, $30,000 units. They put an initial order of 10 units in with us.

We donated another 3 units, which is the least that we could do, because they were actually buying. They have bought multiple dozens, if I'm not mistaken, of ambulances and put them in theater to get supplies in, but those ambulances are literally getting taken out and shot and stopped and confiscated and such. So they're looking to a drone solution, and we think we've provided it. This drone can fly from over 5 kilometers away. It can fly by wire and goggles. It moves incredibly fast. It drops in, puts the drone right where it's needed.

It's about a three-second release to pull out the thermal pack, and so that the survivors or the people on the ground, you know, can get that and get out of the way as quick as possible. And then that drone can get, you know, get lost as quickly as possible. The question I get is, you know, what if the drone gets shot down? And it's like, who cares? Send another one. You know, what if it gets shot down? It's like, send 10 more. Like, it just doesn't...

Like, these drones at $30,000, you know, to save a life, who cares about what it costs, when the ordnance alone or the missiles or just the plain ordnance or shells that are used to hit that building or take those people out or crush the neighborhood are. One of them costs 10 times this, you know, so, or multiple times even more than that, so who cares? You swarm the place with 50 drones, like, you're going to get equipment in there, and you've got people 5 kilometers away doing it, and you're doing it with drones that are made with the security that Draganfly provides.

We have footage of Chinese-made drones, where a pilot will have the drone land the drone, and literally seconds later, it's hit by a missile. It's unbelievably disturbing footage. And so, you know, organizations over there were literally going to Amazon and buying drones just to try to get thermal cameras so they could see survivors in buildings. And, of course, they've had to abandon all of them now because both the controller, whoever has the control, and the drone can be targeted. And that's absolutely not the case with the Draganfly, which is also why North American-made drones and the security and the amount of time that we've made drones, the amount of military clients that we have, is so incredibly important to this humanitarian effort.

I just got to throw it out there that... It's hard to even talk about without getting choked up. But you know, we've had shareholders that have stepped up, multiples of shareholders now that have stepped up and are on top of the order that we've already got, are buying drones, which we're selling at cost and doing the logistics for free. And they're donating them.

And they're just like, "Hey, this is—I was gonna donate to, you know, some cause, but if I can, you know, if I can do this and send a drone over there, that has a direct impact with people that are on the ground doing it," you know, and to me, it's just an incredible sign of the type of shareholders that you are, the type of company that you're backing, and another reason that we, we're just gonna keep working so hard to earn your trust. It's incredible. So, a program, this kind of grassroots program is sprung up here.

So those folks that are buying those drones, they get to name them, you know, like, write something on there, and we'll provide them the mission stats, and we'll provide them to the extent we can, as long as it's nothing inappropriate, we'll provide them the footage from their drone, as well. And so, you know, the great part of it is, we've now had another company that stepped up and said they'll provide insulin to put inside the drones, which is actually one of the biggest requests that are coming through to Irene at RSK or RSU, excuse me, is people just can't, they can't get insulin, and they're trapped in places and such.

So we're super excited about what's going on here. Now, the other great part about this is this advanced our product release, this particular product release. We're releasing five products this year, including everything from, you know, secure, brand-new North American-made Lidar systems, right through to heavy lift systems and a couple of other things that we'll announce coming up. But this particular product has now been rushed into market, which is great, and quite frankly, the inbound from multiple parts of the world for this humanitarian drone now is off the chart. And so, I mean, it's just, it's been a...

We want to give everything we can, and it's already giving back to us in terms of inbound sales leads and stuff, which was never the intent, but it's an unintended and unexpected consequence that's coming out of it, and we're really excited about what's happening there. Just talking a little bit about Q4, you know, we were excited in Q4. We closed a contract to do a bunch of spraying of our proprietary disinfectant with our drones at CES, which was a big success, in particular at the government conference that's at the tail end of CES, which was really successful for us. And we're still not even able to...

Well, we followed up with all the leads there, but yeah, you know, we're—it's just overwhelming trying to get to everybody. We've had a really successful relationship with DRL. And, you know, DRL is, you know, a lot of people don't realize it, but the Drone Racing League, you know, they're a Drone Racing League, but really, they're a tech company. I mean, these folks are just absolutely brilliant in what they build and how they build it, the communication links that they have to do, the complexity of being able to do a fair drone race is just off the chart.

You know, what's really interesting is DRL gets a lot of inbound requests to, "Hey, how do you do this?" Or, "How do you build that?" Or, "Can you build this for us?" And our relationship and the lab that we're building with them, while the intent is to take the innovation and then commercialize it, which we were doing, and we'll talk a little bit about here in a second, the unexpected and unintended consequence, which has been incredibly beneficial to us, is the biz dev opportunities that are coming to us because of our association with DRL, and companies coming to them because of their expertise in technology, and then they're really just saying, "Hey, you should talk to our partner, drone racing or, Draganfly." So we just, I wanna throw it out again to DRL for being such an incredible partner and letting us be a part of something that they do, and they do so well.

Like, I mean, I learned a ton from their management team because they are... I don't, I really, they just, they all just seem so congruent and, and aligned. We've continued our partnership with Alabama State University, so along with our kiosks that are in there, and again, they've had the lowest COVID rates, and they sailed through the latest surge and everything else. Dr. Ross there is just such an incredible leader.

We did spraying for their season, and again, they just, they've just seen so many financial benefits all the way from, you know, things like lower insurance rates and higher enrollment rates and everything because of the stance that they took with ASU, with COVID, and then actually deploying it and using our solutions with them on our drones and Vital Intelligence artificial intelligence software. It's been great. But we have also launched a training program with them, and we've gone through our first cohort now and trained 13 pilots, a couple of which are gonna end up becoming Draganfly people, we hope and we think. And they're the rock stars of those cohorts.

You know, with the employment crunch, this has been fantastic. But it's also a money maker for us, and so we're looking to roll this out through all the HBCUs, if possible, and we'll run a couple more cohorts. There's 100,000 jobs that are gonna be required between engineers and pilots over the next five years. And so we're really excited to work with ASU and their partner universities in order to roll out the proprietary 107 certificate program, as well as the other advanced programs that we're now beginning to offer, which is, you know, how to fly drones in humanitarian situations, how to be a first responder drone operator. You know, the list goes on.

So, thanks to them for their partnership and their ongoing business. Customer VARs, Coldchain Delivery Services, the EMS project out of Texas, you know, we've just about completed phase one. We expect that to move into... We know it's gonna move into phase two at least, and hopefully right through to phase five, which would be massive contracts for us over the years. Unexpected benefit is the incredible work that they brought to the table to allowing us to work in the Ukraine. Of course, Coldchain, their parent company, is one of the largest logistics providers into the DoD and NATO.

In fact, they, they provided, Coldchain provided all of the vaccines, delivery, storage and delivery in the state of Texas, for COVID, for the city of Chicago and a number of other places. So a great partnership there, and thanks to them. The Mint 400, the reason I bring this up is because, we had a direct commercialization of some of our work that went into the Mint 400.

The Mint 400 is a Baja race, and so the reason I'm highlighting this is because, about a year ago, we started designing in our lab, and we're actually working on some of this with DRL as well, a thermal system that will actually see through dust in the Baja race and actually map that with Lidar that we do before a race. So in the Baja race, it's over just, you know, hundreds of miles, and so, we'll actually fly Lidar, map that in, combine it with a thermal system, so as they're running through these incredibly dusty provisions, they can actually see through the dust and actually down to the centimeter inch where they're at on the track. Now, the truck that we put this in, it was a beautiful installation.

You know, we opened it up to the whole industry to see. Of course, it's an incredibly influential industry. Most of these people that are running these trucks are billionaires, and this is for fun for them. So it's great exposure in that regard for us. And Kyle Washington, in particular, with his truck and the Washington family, have been just incredible supporters and amazing shareholders for us. And so when we did that install, it made a difference. The truck led most of the race, and if you talk to Ryan, the driver, he will tell you that he's never had that type of intelligence in dust before. It just was incredible.

Now, the truck blew an engine as it was in the lead for most of the race, but he credited that positioning mostly. I mean, he, he's got to take credit, he's an incredible driver, but the new tech on there was incredible. And so this is a great example of how we're gonna be able to use this as technology, you know, obviously not just in Baja racing, because it's not an already big market or anything like that. But imagine, if you will, when you're putting drones in emergency situations or in desert situations, where you've gotta be able to see through things, where you don't have clear line of sight, or in cloud situations, or in clandestine situations, this is where we apply this type of work into the technology that we do.

That's really the differentiator for Draganfly, is that we're not—you know, we know a drone can fly, and a lot of people can make a drone. But can you make a drone that reads vital signs? Can you make a drone that can see through a dust storm? Can you make a drone that can get through clouds, right, and support, you know, either your personnel on the ground or whatever the case is, or give you eyes in the sky when you're a small unit or when you're an emergency situation, almost regardless of the weather conditions? Now, of course, extreme winds and stuff are still gonna be an issue, but we're working on a lot of stuff that actually dampens and increases the capability for these drones in those situations.

But that's just how we think, and we have customers that want these types of requirements, and that's the differentiator. The reason that RSU came to us, or came to Coldchain, was because we had this application that they needed. There's nothing else out there like it. You know, these drones are coming in, delivering these medical supplies, and providing vital sign readings back to the people to find out who needs to be triaged. How bad are the people that are in those surviving situations? Are they in shock? Are they dehydrated? Are they like ... you know, so, and over time, that's the stuff that will make the difference. It's that data, it's the information.

It's not just, you know, that makes for a better delivery, but actually utilizes every aspect of a delivery or a flight or a mission to be able to collect all the information you need in order to be more successful, rather than just getting a package somewhere. Fobi, a fantastic partner to work with. They did a number of events this year with their event check-in system and utilizing our Vital Intelligence software. We're really excited about some very big things that are happening in that space with, you know, world-class size events that are mandated now to manage the health services and the health monitoring of all of the volunteers and all of the athletes and all of the people that participate when you bring big crowds together.

So, we're really excited about what's coming up out of that, and the health security and services that we'll be providing for some of those global type of events. And we, you know, a couple new sheriff's offices have come on board with us with new drones and utilizing the Vital Intelligence kiosk systems for check-ins at their jails or intake, and things like that. And there's just more than I could list here, but just wanted to give a sample of it. So, this is. On that front, you know, the bottom line is we're going through rapid growth. We're providing advanced drone services and solutions.

We're in a heightened regulatory environment, which is a benefit to us because the amount of time we've been in at this, the amount of drones that we've had certified compared to other companies, the relationship that we have, working with the regulators, and because we're very, very comfortable working with government agencies and 911 and sheriff's departments and stuff. So the more regulation, even though it's very friendly right now, the more regulation, the better in terms of a moat or a barrier to entry from competitors for us. We have a seasoned executive team. You know, Scott and I have had the good pleasure of building a couple of great companies before.

Not everything's been successful, but on par, I mean, we've had a couple of knock it out of the parks. And this, in my opinion, is another one. And quite frankly, you know, this is probably the most meaningful one, especially considering the events of the last month and the type of work that we're getting to do. So but if you also, again, look at our board, if you look at gentlemen like Andy Card, the former White House Chief of Staff, Secretary of Transportation, you know, John Mitnick, the former GC of all of Homeland Security, Julie Myers, who ran ICE, the list goes on.

You know, for a company our size to have that type of pedigree and governance is what's really helping us to win some just incredible customers and, you know, making sure management's on top of their game. So, on that front, first and foremost, I really appreciate everybody allowing us to have the time to give this presentation. Certainly as we release our numbers over the next 24 hours, if you want individual follow-up, check with Rolly. We're happy to do one-on-one calls with analysts and institutions or shareholders to run through the numbers. Again, there's nothing material in terms of any problems at this point. It's just a late filing on the auditor side of things.

Just trying to be as kind as I can and not as frustrated as I probably really am in that regard. And we're just thrilled with the results that we hit in the last year, and this quarter that we're in right now just is looking great. So on that note, what I'll do is I'll turn it over to our president, Scott, to facilitate questions, and Rolly, I think you've been busy on the Q&A as well. So thank you very much, and very thank you just for allowing us to do what we do and being a part of it. We appreciate your trust, and we'll work hard to keep it. Scott?

Scott Larson (President)

Yeah. Thanks, Cam, and thanks to everyone who has sent in questions. We've had a number of questions who came in prior to the call, so we've got a list of questions there. We have a list of questions that are coming in kind of during the call. And so I'm just kind of gonna take these as they've come in, and some I'll answer myself, some I'll defer back to Cam, and you know, keeping, of course, an eye on time and all the rest of it. We'll work through as many of these as we can. There's lots of doubles up and all the rest of it. So, just kind of jumping in right here. First one: Please comment on international expansion plans for Draganfly.

Cameron Chell (CEO)

So I'll go ahead and take this. We over the last 5, 6 months, we've had a number of international initiatives that have come our way, opportunities that have come our way, things we've looked at, things that were passed on. We were invited down to Bahamas a couple weeks ago to look at putting together an inter-island kind of delivery network. There was a bunch of media that came out from Bahamas, local TV and radio and so forth. And so that's just an example of it. There's been other islands that we've looked at, as well as other things international.

One of the advantages, of course, of international opportunities is a slightly less regulated environment in terms of what you can do, where you can fly drones, flying them further distances over people and things like that. So there are opportunities that come at us for sure. There's opportunities that we're looking at. I think we should be able to come up with with announcements that are a little more material and updates, and shareholders, and kind of the plans as we as we work our way through this. So I don't wanna get too far into that, just to say that certainly international markets outside of the North American regulatory environment, something that Draganfly's been looking at for a long time.

Over the last 4 or 5 months, actually, we've made some significant traction with regards to customers, opportunities, different levels of service that we can provide in generally island-type countries, but also other countries that aren't islands. On that one, it's a great question for all kinds of reasons, and but just bear with us on that one.

Scott, not to give too much color, but, you know, that was a very big initiative. There were, you know, dozens of agencies, dozens of dignitaries, dozens of, you know, government officials that were there. It was a, you know, invite only. We were the only company there. We were completely always, like, well, I wasn't there. You got to go, but you got to go. You know, I don't wanna overstate it, but at the same time, you know, we're not chasing every opportunity out there, you know, because there's thousands of them.

But when there's that type of an opportunity with an international organization that set this up and invited it, and government invited you, you know, those are the things that we're putting effort into, because they have the right size and scale that can meet the expectations that we wanna build in terms of the company. But, anyway, I just wanted to add that it, you know, it was an incredible job and a big deal that what you and Paul Mullen pulled off down there.

Scott Larson (President)

Yeah, it's a good point. These initiatives are typically government-sponsored, government insight, invited, and it's with ministries of forestry, transportation, environmental, Coast Guard monitoring, as an example. So yeah, it's a very good point there, Cam. Another question that's come in from a couple different people here. With global supply chain constraints, how does that affect what you guys are doing with regards to chips and things like that? Cam, why don't you go ahead and take an answer to that, and maybe I'll comment afterwards.

Cameron Chell (CEO)

Yeah. So, certainly over the last year and a half, we've been building up our capacity and our manufacturing capacity, in order to, you know, meet the demand and such. And so, we've seen our delivery times... You know, we haven't been talking massive, massive volumes, so the supply chain, and we have decent inventory, so our supply chain really hasn't been as big an issue for us. And, we are, you know, feeling that now just because the size of our orders are growing and the supply chain, you know, in some aspects, is not getting a lot better, like it's still lagging. So with that said, we're still kind of within that, we're not in an ideal timeframe for delivery.

We're kind of in that 6-8 weeks delivery time for product, which isn't great. You know, we would like to be in that, you know, we're not a come in, buy it off the shelf type of company. But within a couple of weeks, we would like to be able to deliver any product anytime, and that's just not entirely possible right now with the supply chain. I guess the leveling factor is, it isn't for anybody right now. Now, I think we've been probably less affected by it because we've been in the scale up rather than already at scale scenario.

The other aspect of it is that a lot of the stuff that we do has a longer lead time up front because we're doing a lot of design, engineering, integration, workflow management, business process. You know, how do the drones fit into the airspace? How, what data are you pulling down to fit into your ERP? So as all of that work is kind of happening, we're already ordering parts and building, you know, prototypes and things like that, so that by the time we get to scale, you know, we, we've had longer lead times. So it's also why we kind of see a lag in the scale, even though we're growing like crazy. It's because we have this upfront, you know, you know, kind of consultative phase a lot of times.

You know, we're not in, you know, we're just... You don't walk into Best Buy and buy our drones. You buy entire platforms from us. So, so overall, we actually haven't been that affected by it, but it's something we're keeping a very close eye on, for sure.

Scott Larson (President)

... Yeah, it's, you know, to Cam's point, it's affected everybody, of course, you know, drones and all other industries, and so it is tricky. We think we've done a pretty good job of managing it, buying in bulk, getting ahead of supply chains and things like that, buying some of the long lead items in advance. But it's an issue. For sure, it's an issue. It's affecting anyone. We think we've managed to work our way through it and done a pretty good job on it, and to that point, hasn't affected numbers and so forth, but we spent a lot of time working on it, for sure.

Cameron Chell (CEO)

Yeah. Yeah. It definitely, it takes more resource time, for sure. That's a great point. Yeah, that's a fair, fair.

Scott Larson (President)

Another question here: Any military contracts or clients in the pipeline? You know, we haven't actually. We haven't announced any. You know, we do some humanitarian work, of course, which is the right thing to do. Some of it's donation, other bits, of course, is, you know, with the contracts that we've announced. And so, I would say, you know, have some government contracts, but with regards to specific military, no. That's not who Draganfly is. You know, we're an engineering customers in the past, but certainly nothing too pointy, but certainly humanitarian, as we've talked about, and we think we'll continue to do that in the future.

Cameron Chell (CEO)

Yeah. I think if I can just add into that, I think wanna be a little bit careful on how big you call military. So, you know, what we call military is we don't build bombs, right? We don't build ordnance. We don't build things that kill people. We have done some work in the non-lethal space, so, you know, kind of 40-millimeter launchers that sit underneath a drone that shoot a beanbag or, you know, a non-lethal, non-explosive doorbuster, you know, for a SWAT team or something like that.

But as soon as we get into the military work that, where we're asked to build a, you know, a guidance system or, you know, whatever, you know, that's just not what we're gonna do. That said, our military contractors and the agencies in the government that are military are important customers of ours, and do we work with them? Absolutely. But whether it's, you know, kind of reconnaissance or humanitarian or border patrol or, you know, border surveillance, all of those types of things, for sure, that's... There are lots and lots that it works. But as Scott said, we're not doing anything that, you know, that goes out and kills somebody.

Scott Larson (President)

Yeah. Quick question here has come in, say, with regards to what's the payload capacity of the drones? I think the reference is to the stuff that we're doing in Ukraine. Can a rescue dog, for example, fit in one? Is it, you know, the size of a large pizza box? And yes is the answer. I think, you know, depending on kinda how far the drone needs to go, obviously, you know, the less mass that goes into the box, into the delivery unit, means it can go further, but generally, think around something in the 10-30-pound range. If it's less, go further.

Cameron Chell (CEO)

If it's a little higher, obviously, you go, you know, you can go a little shorter distances, but yeah, you know, something the size of a pizza box, if a little bigger, even higher, 18 inches, 18 inches high, maybe even a little deeper than that. So insulin, medical, a search and rescue dog, as you asked about, certainly, you know, 25-30 pounds would, would generally be the max weight, the max mass, for a, you know, for this type of drone that we're talking about, but it's an interesting question.

You know, on that, like, if there's demand, like, the one thing that's... You know, we try to anticipate where the market's gonna go and prepare to build product for it. We don't build product for it before we have seen customer demand, though. So, you know, we try to live in between that space, where Steve Jobs would say, "You know, you have to build, you know, the car before anybody knew they needed a car." Or the other end of the world, which is only build what a customer asks for. We try to manage right in between that space. One, because we know you gotta go to...

You gotta skate where the puck's gonna be, but from a financial perspective, it's pretty easy to blow your brains out on things that you might happen. And so, the reason I bring that up is because, you know, this medical relief drone that is 35 pounds, some of the heavier lift drones that we're working with some of the island customers and, or prospects, excuse me, that we're working with, can do much more than that. But if, you know, it's really all in many. It's all about engineering, right? And then, of course, regulation. And so, now we're not in the move human space.

That's an entirely different set of regulations and a world that we're not—like, we think that space is gonna be owned by the, you know, the Bells and the Airbuses and, you know, or the other really big companies that are financing into that. And that's not where we're going. But yeah, to move a dog or to move a, you know, something like that, because we think there's a market that would be needed for that, we can, you know, knock on wood, with a slight grain of salt, we can build anything, right? It's just engineering.

Scott Larson (President)

Okay, it's 10 minutes before the end of the hour. Let's see if we can work our way through a few more of these questions and then end up pretty much right on time. Cam, I'll send this one back to you. Any update on DDL?

Cameron Chell (CEO)

on DDL or on Woz ED?

Scott Larson (President)

DDL.

Cameron Chell (CEO)

Yeah, DDL. Well, so, we're in the process for tooling right now. We expect to start production in December. So if things go, you know, kind of according to plan or a little bit better than planned, we'll be into shipping first units in Q4. It's gonna be questionable whether we can recognize the revenue quite in Q4 or not, but other than that, it's on track. It's not other than that, it is, that is the plan. It's on track. We've done a bunch of work, design work. All the designs have been approved. You know, testing has been done. Modeling has been done. Tooling is in process right now. There's some specialized machines that we had to build and create for it.

So yeah, we're really excited about it. We think not only because it's a great $9 million a year recurring contract and 50,000 drones a year that we're putting out, but it's also really demonstrates to our other customers how we can make something entirely strategically differentiated for them. Like, they will have a product in the market that nobody else will be able to compete with, and they're not gonna be able to go get it somewhere else, unless people are willing to do that engineering and do the special tooling and build the machines and all that type of stuff for it.

So I'm as excited about it to demonstrate to our customers our capabilities, and commitment that we can make and strategic differentiator we can provide to them, as I am about, you know, the revenue and the margin in the deal. And they're a fantastic company to work with, too.

Scott Larson (President)

How about an update on Woz ED?

Cameron Chell (CEO)

Yeah. So, we announced. I thought it was maybe in Q1 here, or maybe it was Q4. We announced that we finalized our deal with Woz ED. Actually, DRL became part of the deal, and Robotify also became part of the deal, where we're providing educational software development equipment and drones into the next generation of what Woz ED will be providing into the school system.

And, I can tell you that the work that we've done with DRL in that space has really informed us and taught us a lot in terms of how we're actually creating this additional or not, not just us, but along with Robotify, DRL, and Woz ED, how we're creating this incredibly differentiated product that will go primarily into middle schools. And actually, it's gonna be a product that will then support DRL and what they're doing in the middle schools and their whole league development. So we can't talk about specific numbers or anything like that, but again, we're thrilled that, you know, Steve Wozniak's organization chose us to work with and such with them.

So, I can say it's not a contract that's the size of DRL by any stretch, but it is one of these contracts that once you've built it, that with them, that it is lifelong. So who knows? Like, over the course of the next 15 years of this product's life cycle, and how it integrates with schools and all the middle schools, over 500 middle schools already, that Woz ED services and the Draganfly name in there, you know, the unintended benefits, I think, will be quite large. But it could be as big as DRL because it just has that type of long tail to it.

But, but on the surface, it's not just, just to put it in context, it's not a 50,000-drone-a-year, $9 million-a-year contract, but it, it's sizable. And to the extent that we can, you know, talk about specifics, you know, whatever the lawyers will let me say, and the accountants, we will, and so more information coming, but it's successful, and we're thrilled that we're chosen to be able to do it.

Scott Larson (President)

Yeah, we've had a few dozen questions come in, so, unfortunately, I'm not gonna be able to answer all of them, but, we'll take a couple more. Do you see opportunity for more delivery drones outside of Ukraine? And the answer is yes, of course. We've talked about some of those, some of the initiatives that we're doing here in the U.S. with Cold Chain. I mentioned a little bit earlier on the call, of course, there's been some international customers and potential opportunities that we've engaged and, you know, responded to, and, those are moving along at their own pace with regards to putting together delivery networks for using drones outside of both North America as well as Ukraine. So, yes is the answer to that.

Cameron Chell (CEO)

We do see significant opportunity for using drones for delivery purposes outside of Ukraine, certainly, and, you know, this would be outside of humanitarian purposes as well. This would be just goods and services and products and things like that, where, you know, the drones are typically used for things that are more valuable, single kind of deliveries. But yes, significant opportunities and look forward to dragging some of those over the line over the next little bit here and being able to come out with some announcements and initiatives.

Yeah.

Scott Larson (President)

Um-

Cameron Chell (CEO)

There's some great questions here. I'm just dying to answer them online, but I know I can't do three things at once, even though I tell everybody I can. So I just really want to encourage everybody, you know, to send these questions into Rolly because once this thing ends, I don't know if I can save these, but we'll get back on every single one of them. There's some really great ones in here, so yeah, please, if we don't get to you, get a hold of Rolly, and we'll answer them.

Scott Larson (President)

Yeah. So, yeah, so 100%, right? So, send them into our investor relations line, email them in. We'll get back. We'll be on top of them for sure. You know, they don't need to all come in at one day or, you know, show on the call here. So, why don't we take one more? Cam, I'll send this one back to you. And any new Vital Intelligence, what's the update on those kiosks, customers, things that are kind of working their way through without getting too far ahead of ourselves, any thoughts on that?

Cameron Chell (CEO)

Yeah, so, we're finding a great market in the correctional facilities market, in the sheriff's department market, and in manufacturing, where they have people that are all coming together, and they need to make sure that the ROI on making sure that their population is healthy and stays healthy is, and regardless of now that we're moving to an endemic from a pandemic, or we're preparing for the next pandemic or whatever, they just realize that, you know, that their corporate risk now, the pandemic risk is something that auditors even look at for these larger companies, and governments look at, and unions look at. So we're finding a really strong market in those particular areas for the kiosks.

We're continuing to integrate the technology into other forms. We've got a really cool company that we're working with overseas that works in the autonomous automobile and machinery space. And so you know, they're you know, just incredible company in the autonomy space. And so they're looking to incorporate into their platform, which supplies many of the largest manufacturers today the ability for the vehicle itself to read the vital signs. So we think about heavy machinery or a car or something like that, and being able to read the vital signs of the driver all the time, or the operator, you know, for safety reasons or those types of things.

And that's actually a direct result of the work that we've done with DRL, where at the Drone Racing League, we actually have the drone racers, our cameras are looking at them and providing live feeds on their vital intelligence or on their vitals. So, you know, as they're whipping through certain parts of the course, or if they're behind or if they're ahead, we can see what their heart rate is, you know, what their respiratory rate is. Like, the data is really quite incredible.

We've even had inquiries from gaming companies that say, "Hey, we want that kind of data, you know, for people that are playing our video games, because we wanna show and demonstrate, you know, the physical stress and capabilities that are required in order to play our games." So the whole e-sport thing is even chiming into it. There's a number of things happening in the telemedicine space and such as well. But again, unless they're really big and significant opportunities, we're not chasing everyone down. We're making sure that they're driven by customers, and customers that have budget. And then in fact, that budget then helps drive our R&D costs.

The most eminent sales numbers that will drive the Vital Intelligence product line will be events, large events.

So I'm not talking your average, you know, meeting at a convention or something, but if you think about a very large sporting event or a very large convention, where the risk and the liability of an outbreak happening there or people not being sick, or the ability to demonstrate people coming to that event, whether it's, you know, governments sending athletes or volunteers into an area, and they're doing a best practices around health and security, which might include things like spraying and Vital Intelligence and stuff like that, that's been an unexpected, you know, market for us that's really maturing quickly, and we expect to make some great progress and announcements in that regard shortly.

Scott Larson (President)

Yeah. Okay. Okay, so, it's 4:00 P.M. here, Pacific Time. Wanna thank everybody who joined the call. Thanks for the questions. Thanks for the interest, of course, as Cam mentioned in what we're doing. There's some great questions, great suggestions as well in terms of ideas and opportunities and, you know, things for us to kind of get our head wrapped around. So I think, we will, we'll end it there. As Cam mentioned, keep emailing the questions in. We'll respond to them as we can over the next little bit. You know, stay connected. If there's things, thoughts, of course, we're trying to continually improve our shareholder communications and just, you know, being part of the community and engaging as best we can.

Cameron Chell (CEO)

Not giving guidance, of course, but just, just keeping people aware of the things that we're doing, because, in fact, we're doing a lot of the things. And, you know, the opportunities continue to go up, and some of those we've announced, and some of those are still to come. So I think with that, I'll go ahead and thank everybody, and Cam can sign us off here.

Yeah. Thank you, Scott. As always, it's such a pleasure to serve with you and with Rolly and the entire team that you've put together, of course, including our board. Most importantly, quite frankly, is our customers. So for those customers who may be on or our shareholders or that are our customers as well, we just thank you for the trust. We're gonna work hard to continue to make you strategically differentiated from your competitors and hopefully help build out your business for you. So we'll humbly work that direction. Our shareholders, which are in, you know, the lifeblood of the company, especially when we're growing, and we need the trust and the belief of you. That doesn't escape us.

And so, you know, you know, Jerry, Chet, Sam, Chris, Gregory, Eugene, you know, Kenneth, Katul, Nick, I'm sorry we didn't get to your questions today. We will answer them. And, you know, just thanks for your patience and time, and then to our employees. I mean, you're amazing. Like, what you are pulling off and what you are doing for people right now is truly, truly incredible. And, as part of management and founder, I'm honored to get to work with you. So anyway, thank you so much. Look forward to the numbers coming out tomorrow and don't be afraid to reach out to us. Thank you.