Draganfly Inc. (DPRO) Q4 2022 Earnings Call Transcript
Draganfly Inc. (NASDAQ:DPRO) Q4 2022 Earnings Conference Call March 27, 2023 5:30 PM ET
Company Participants
Rolly Bustos – Internal Investor Relations
Cameron Chell – President and CEO
Paul Sun – Chief Financial Officer
Scott Larson – Lead Director
Conference Call Participants
Rolly Bustos
All right. I think to respect the time that we have and for everyone else’s time, I think, we’ll get started. Greetings. And welcome to the Draganfly Q4 and Full Year 2022 Earnings Call. As most of you know, my name is Rolly Bustos. I’m the Internal Investor Relations here at Draganfly. I welcome each and every shareholder, stakeholder and analysts who are joining us here today.
The format of the call will be the same as previous ones and it always begins with our CEO and President, Cameron Chell, discussing the fourth quarter and full year operational highlights. From there, our CFO, Paul Sun, will jump in and discuss the financials as we reported earlier this afternoon. We will then conclude, as usual, with our Lead Director, Scott Larson, facilitating the Q&A portion, both live and the ones that were pre-submitted. Remember, you’re always welcome to reach out to me at investor.relations@draganfly.com.
Lastly, I want to remind everyone that this presentation may include forward-looking information and statements. These statements are not guarantees of future performance and undue reliance should not be placed upon them. Any future events or financial results may differ from what might be discussed here. The full forward-looking disclaimer can be found on page two of our presentation and I would be happy to send that to anybody upon request.
Cam, please go ahead.
Cameron Chell
Welcome, everyone, and thanks very much for joining us for our earnings call for Q4 and year-end 2022. I’m just going to do a shared screen here. That’s okay with everybody. One quick second.
Starting off right out of the gate, we did have a record year of revenue in 2022. We had total revenue of $7.605 million and that would include $5.5 million of product and $2 million of services.
Our gross margin normalized was 33%. However, due to one-time and non-cash write-downs, which we were assertive and aggressive with over Q4 and the year-end, in particular, our gross margin on a non-cash basis was 10.4%.
As of December 31, 2022, our cash balance was $7.8 million, just under $7.9 million was — which is the budget that we had projected at the beginning of the year.
So a couple of things just to note on this is that, while we have incredible demand for product, in particular, our numbers have been constrained by our capacity to deliver, somewhat supply chain related but more just manufacturing capacity.
And as noted in a press release from last week, we have our new plant in Burnaby, British Columbia, coming online as of the end of Q2 of this year. It is now already starting to produce product for us. Candidly, again, the pipelines are really healthy.
So the majority of the product that’s coming out of the new plant now is all going out for demos and/or demonstrations at our Texas like facility as well. So a good problem to have, but nonetheless, that’s just the stage of the development that we’re at and somewhat expected.
Just for a quick review because I know there’s a lot of new people on the call. Draganfly is recognized as a leading commercial multirotor drone entity in North America. We are often cited as the oldest commercial drone manufacturer in the world.
We have a rapidly growing drone manufacturing facility, capabilities, and obviously, demand. We are very focused on artificial intelligence and data analytics, which again will help reduce our constraint issues as we move forward on the manufacturing side.
We do have a strong IP portfolio. We do invest heavily in R&D that’s driven by customer demand and we’re pretty focused on new products, three of which we came out with just this year, which is why we’ve gone through the introduction of a new facility and new tooling, et cetera.
From an industry standpoint, I think, it’s important to note that, the industry today is about a $30 billion industry. The absolute vast majority of this industry today is in the military space, probably, somewhere in the neighborhood of 95% to 97% of that $30 billion is in that military space. There’s a few percent or a couple of percent that’s in the consumer or the prosumer space, which is dominated primarily by the Chinese or foreign national manufacturers and then there’s a percent or two in there that’s commercial.
The reports these days and the analysts would suggest that the majority of that growth now between the $30 billion and the $50 billion is going to happen in the commercial space, notwithstanding the outlier of Ukraine that’s happened and really changed the entire military dynamic around small UAS, which certainly, in my opinion, bodes well or even better for these particular numbers.
Operational highlights for us going forward is or operational highlights, excuse me, from the last year really has been the introduction of the new product lines. So two years ago, the FAA came out with new guidelines around how they were going to be approaching beyond visual line of sight.
And so this really was the advent of the commercial industry that propelled us forward to actually start doing some financings and move from a small technical development shop servicing primarily public safety for the last 20-some years into a full-blown manufacturer, which we have now been developing to do with an incredibly strong in — history with our engineering bench.
So the three products that we introduced this year, which is a Heavy Lift and it’s actually really even a fourth product in here, but which is really a big lift for a development stage company is, first of all, the Heavy Lift Drone. So that drone that you see in the far left there, that’s about 9 feet in span.
If you carry 70 pounds worth of payload has a flight time of 50 minutes and that’s a thermal controlled or a thermal managed box there. So that box can keep things like pharmaceuticals or temperature sense of products at a consistent temperature for up to 24 hours without utilizing any battery life and it does it without the use of any ice or anything like that. So it still remains very lightweight. That’s a patented technology that we utilize there.
And so this particular drone is now actually its demo units are out in the field. We are starting to take orders for it. Full production of this really gets going in about Q3. So into Q4, we’ll start to see the initial sales of it and Q1 of next year, we’ll actually see that one start to ramp.
I’m going to say the middle one for last, because that’s really kind of our flagship at the moment. But on the far right, what you’ll see is the LiDAR System. Now that’s a LiDAR System with the weight that it used to have and the sensitivities that it used to have, that’s a LiDAR System that typically would have had to be flown on a manned aircraft — a fixed-wing aircraft or a helicopter. We’ve got that now down into the size where it can actually fit onto a drone, one of the drones that we manufacture.
Now the other reason that we’re very focused on some particular sensors in the market is simply because we see the sensor market starting to move the same direction as the drone market as it relates to security concerns and regulations.
So nothing collects data better than a role, because you’ve got this aerial platform with terrific battery capability that can run very sophisticated sensors. But it’s the sensors themselves that actually collect that data. And so we’re now starting to see a hard bias or skew towards those sensors now being regulated or restricted in terms of where they can be bought from national companies, the same way that we’ve seen with drones over the last 18 months.
So we think this bodes very well for not only just the sensors that we manufacture, but the amount of sensor, integrations that we do and the amount of partnerships that we have, because a lot of those sensor companies out there are now looking for North American built platforms to replace the Chinese platforms that they can no longer fly on. And so you’ll — we’ll talk a little bit later, but you’ll see a number of those platforms that we’ve announced and the terrific sales channels for us.
Now the middle product there, this has really become our flagship product, and no surprise to us, but this is a drone that’s about the size — the surface area of your desk, if you will, your desk that work, your work desk. Now it’s not quite that deep or quite that high, but this is about a 2-foot by kind of 2.5 foot diameter of a drone. So it’s quite a bit bigger than what it may — you may get the sense up from that picture.
What’s really unique about this drone are a couple of things. First of all, fully loaded, it is under 55 pounds. Now that’s important because it keeps it under the weight requirements for a whole different set of exemptions and restrict flight restrictions that you would have to have as a commercial operator in order to fly it. So anything about 55 pound is just an entirely different class of regulations, exemptions, et cetera.
Now that would apply to our Heavy Lift Drone for sure, but this particular drone is about a 20 — 2-pound, 23-pound drone and it carries about 23 pounds to 24 pounds of weight and flies for about 50 minutes. So that keeps it under that 55-pound requirement.
It’s unique in the market on a couple of different fronts. It’s likely the most efficient drone in the market today. The other defining feature of this role is that it has already 17 payloads that simply click in underneath.
Now this is super important because we’ve dubbed this as the Swiss Army Knife of Drones. So if you’ve got an existing inventory of payloads that you’re looking to continue to utilize, because you’ve got a significant investment in them, you’ve got training in them, you get software built around them, et cetera, et cetera, you can utilize those payloads on this drone. So it’s really meant as a modular platform.
The other thing to note is that, this drone conveniently replaces the DJI M600. Now the DJI M600 carried about 15 pounds of weight, didn’t quite carry what this would carry. But that drone has been disconnected. Now they’re discontinued entirely. It’s end of life and so all of those — but all the payloads still fit onto this particular drone.
So with the discontinuance of that drone, this fits really nicely into the marketplace in addition to the fact that as North American made. So at this point, it’s really the only replacement for tens of thousands of the M600s that are out there in the market today.
We are taking orders on this right now, we are extremely backordered on this particular product and we’re really excited about the signature customers in all industries and defense that are now ordering this particular product.
Just as a quick touch base. When you think about Draganfly, in the top right corner there, those — that would be military AI-based systems. In the bottom left corner of this graph would be toys, if you will.
So you can see, obviously, that the work that Draganfly does, whether it’s been our personnel, whether it’s projects that we’ve worked on for military contractors or whether it’s a product that we actually put out into the market, we definitely skew up into the right.
And so — and the timing of this really comes from the fact that we’ve been in the business for so long, we’ve got such a strong bench that can do this type of work and so we’re well positioned for this area of the market, which is where the market is growing, not just because of regulation, but because of also the additional utility that we’ve seen and expertise that we’ve seen come out of Ukraine.
As I mentioned earlier, the Draganfly has been accepting a growing roster on our wait list of applicants and orders in order to take the Commander 3XL in Q4 and that’s, obviously, when we’ll have our new plant fully up to speed and starting to ramp, and we’re really excited about the visibility that we’ve got on revenue going forward in that regard.
Operational highlights from this last year, to tell you, there’s just pages and pages that we could go on talking about what the team has been able to put together this year. Of note, I think, is the work that we have done and we are continuing to do and vastly expanding in Ukraine, in particular, our exclusive relationship with DEF-C, who is distributing our products, managing a bunch of demonstrations and integrations for us over there. The delivery of our first three and now more situational assessment drones for the State Emergency Services of Ukraine.
We’ve had a number of contract engineering projects that we put together, including promo drone. The Commander 3XL Drone was voted the best enterprise drone in the market by the droning company. CorrecTek, they did a full integration of our Vital Intelligence technology into their software for correctional institutions.
Now if you remember correctly, Vital Intelligence is our AI software utilizing machine vision that will enable our drones to be able to read vital signs. So we can read heart rate, respiratory rate, blood pressure, blood oxygen level, heart rate variability, all from our cameras.
Now this is incredibly important in many military applications, but is really, really important in search and rescue applications. So search of rescue teams can determine the state of the potential state of survivors and triage and victims — triage victims in emergency situations.
Vermeer, which is now a premier provider into the military GPS-denied environments so that literally you can be flying drones in environments where you do not have GPS and you can still do that accurately.
Also, it’s boost environments where you’ve got some multiple types of spoofing happening including space forms and things like this. And so they’ve chosen to integrate into the Draganfly platform and have done extensive testing with their customers on our platform and vice versa. So we’re really excited about what’s unfolding there and the customers that we’re jointly bringing to the table.
One of the things that really caught the market’s attention and we’re really excited about is our relationship with Lufthansa. So Lufthansa Industry Solutions, who was very, very strong in the marine industry. We’re working on multiple applications with their customers in both man overboard, search and rescue, and with our Vital Intelligence technology for health and safety onboard, both cargo and cruise ships.
Bluedeck Technologies [ph] is a partner that we are working with in the Ukraine for counter drone technologies incorporated onto our flight platforms, as well as us utilizing and integrating with their ground platforms. And so we actually have units that are working in theater today or about, excuse me, they’re on root and about to be working in theater today and we expect to see some really spectacular results coming from this, not just from the actual technical side, but from the sales side as well.
And then, of course, our relationship over in India, which is not a market we had thought we’d be working in this quickly, given the geopolitical situations and the mandate from the Indian Government around drones for agriculture, for geospatial work and for the military, we’ve been very positively pulled into that market by some very strong players and just have a line blowing amount of work that’s unfolding in that regard. That will also help us address some of our constraint issues as we go forward with manufacturing in the region as well.
I did want to touch specifically on Ukraine and it’s important for a number of reasons. Not since the advance of the tank in World War I, have we seen any particular device or machinery to have such an impact on feeder or the conflict like theater. And so typically in the past, the — whoever has air dominance in a particular scenario, generally has by far in the upper hand, if not almost assure the winning hand.
And — but air dominance has really been the purview of those with multi, multi, multimillion dollar platforms, manned aircraft and $12 million and $50 million and $20 million drones and satellite systems, et cetera, et cetera. What the Ukraine conflict unfortunately has revealed is the air dominance from 10,000 feet down now, which is everything at the tactical level, is now dominated by small UAS.
So we see budgets all over the world. Well, is the visibility we have in NATO countries shifting heavily into small UAS and dozens and dozens of different platforms to do this. And so the work that we’re doing in the Ukraine, while provides revenue and we’re really establishing on many different fronts our footprint there. It’s just as important strategically, one for us to understand how the equipment works in those regions and it’s one of the reasons that we’re producing drones that certain customers are very, very akin to and can relate to because they’ve seen our experience in that area and now translated into the product.
It also has garnered us incredible credibility in other areas of the world, knowing that we have boots on the ground and that we have equipment in theater and that we’re learning on a daily basis, how things work, not just obviously on a kinetic level, because we don’t view kinetic devices, but on things like humanitarian delivery, land mine detection, reconnaissance, surveillance, search and rescue. And of course, for those who choose to put kinetics on drones, we’ve learned a great amount of lessons as it relates to counter-drone technology, spoofing technology and electronic warfare.
We’re there in a way where we’re just not trying to sell product. We’ve been over there on speaking engagements. We’ve been very fortunate to be part of several conferences. We’re working at various high levels of government on — in many different countries that are in support of Ukraine. And so we also have a really good sense of the dynamic that it takes in order to sell product and be a credible partner there.
And so there are many channels to potentially sell product into the Ukraine, but it’s a very complex sale when you’re actually going through the proper channels and so it’s been a long, arduous track, but man, it’s really start, it — well, it’s paid off already, but it’s really starting to pay off and we see it as a massive credibility and sales generation piece for us for decades and decades to come.
On that note, three of the key areas that we have been involved with, these are not the only areas that we’re involved with in that particular theater is landmine detection. It’s probably interesting to note that it will take 40 years to demine Ukraine. And for every day of war, there’s 30 days of demining and drones are becoming probably one of the key tools now as we understand more over the last year, how to use drones and how to use the sensors and how to build the software to utilize into the workflow of the demining crews.
Like I said, we have full-time crews over there now rotating in and out and like there’s 40 years of work there and I’m confident in saying that we’re a leading player in this space from a credibility standpoint and from a technical standpoint.
We got into Ukraine doing medical response drones and that’s really now conveyed more and more into logistics roles. So we see many, many players over there using drones more and more to do logistics delivery.
Now these are things that are necessarily close to the front, because drones right to the front end short lifespan and are really becoming much more sophisticated in terms of the electronic warfare capability, unless they’re just a one-way rollway type drone for obvious reasons.
But we see the logistics use of drones for military, public safety and even on the commercial side now really growing it. So we’ve learned a ton in this space over there. We’re actually able to apply it back into the North American market.
And then, of course, surveillance, reconnaissance and search and rescue, we’re very, very active, and we’ve made some announcements around that and established ourselves as a credible player who’s in country and working with the governments and organizations for the betterment of their cause and building a lot of trust in doing so. So we expect to continue to see some great things over there.
And we don’t see other drone companies, we see lots of them trying to sell product or little garage shop operations, but we don’t see professional teams over there from North America and nobody else does either and so it’s well noted within the right circles and it’s really starting to reap some great benefit for us.
At this note, I would like to turn it over to Paul Sun, our CFO, to give our financial results. Paul?
Paul Sun
All right. Thanks very much, Cam, and thanks, everybody, for joining us, as usual, to listen to our results. So looking at the left here for the year-end, revenue, as Ken mentioned at the outset, was up 8% to $7.6 million, up from $7 million from the same period last year. Full revenue comprised of $5.6 million in product sales with $2 million coming from drone services.
Looking at gross profit, we came in at $790,000 for the year, compared to $2.6 million last year, due to the one-time non-cash write-down of inventory that Cam mentioned that occurred in Q4 of this year and otherwise would have been $2.8 million in gross profit for the 22-year representing an increase of 5%. Gross margin as a percentage of revenues would have been 36.4% versus 37% last year. So pretty much flat year-over-year.
Total comprehensive loss for the year was $27.3 million, compared to a loss of $16.4 million last year. That loss ended this year includes a non-cash change comprised of a change in fair value of derivative liability of $5.5 million and expense for an impairment of note receivable of $309,000, a write-down of inventory of $1.9 million and expense for goodwill and intangibles of $6.4 million and what otherwise have been a comprehensive loss of $24 million versus last year’s $19.1 million, excluding non-cash items from last year as well.
So the largest contributors to the year-over-year increase are insurance costs, professional fees, advertising, marketing and wages. Following that, the loss per share would be approximately $0.71 per share versus the loss shown here at $0.81 per share, again, if we back out those non-cash items.
Looking over to the right side, looking at Q4, doing a year-over comparison there, revenue for the fourth quarter was down about 19% to $1.3 million from $1.6 million in the fourth quarter of last year. Fourth quarter comprised of about $1 million from product sales with $300,000 coming from drone services.
Gross profit was negative due to a one-time non-cash write-down that we took in Q4, as mentioned. Otherwise, it would have been $310,000 for the quarter and gross margin as a percentage of revenues would have been 24% this quarter, down 14% from the same period last year. This was a result of more sales coming from lower margin products versus those sold in Q4 of last year, and as you know, for those that follow us, the product mix obviously changes from quarter-to-quarter. So that can cause some lumpiness there.
Total comprehensive loss for the quarter was $16.6 million, compared to income of $12.6 million in the same quarter of last year. This quarter includes non-cash change comprised of fair value of derivative liability expense of $334,000, a write-down of $1.9 million and inventory and expense on impairment of notes receivable of $1 million and the expense of goodwill of intangibles of $6.4 million. Otherwise, that loss would have been $7.4 million versus a loss of $6.2 million. So the slight increase in loss was due to professional fees, wage costs, partially offset by lower insurance costs.
So now since we just did the Q4 year-over-year, we’ll look at Q4 quarter-over-quarter comparing it to Q3. So revenue for Q4 decreased by about 29% to $1.3 million, compared to $1.8 million for Q3 of 2022, mainly due to the lower product sales.
Our gross margin, as mentioned, was negative due to that onetime inventory write-down, otherwise, it would have been 24%, compared to 33% in Q3. Again, decrease is due to the sales mix of the products sold that we just talked about.
Total comprehensive loss $16.6 million. We went through this compared to Q3, a comprehensive loss of $4.9 million. So remember, we had all those non-cash items. I won’t mention those again, but if you break those out, the comprehensive loss would have been $7.4 million versus a loss of $5.3 million, excluding the non-cash adjustments that were made in Q3 of 2022.
And if you could flip to the next page, I think, we have quick snapshot on the balance sheet. Yes, yes, so, yes, so here, you can see total assets now at $14.6 million, most of the change due to a deployment of cash and a reduction of inventory and prepaid.
The working capital surplus at the end of the year was $10.1 million. If you ex out the non-cash value of derivative liability, which was actually quite small, the surplus would have been $10.2 million, so really no big change. Same with shareholders’ equity would be $11.1 million versus the $11 million shown here. You can see that we continue to have minimal debt, and as Cam mentioned at the outset, our company’s cash balance at the end of the year was $7.9 million.
And with that, I’ll pass it back to you, Cam.
Cameron Chell
Thanks, Paul. I think maybe what we do now is I’ll throw it over to Scott Larson and we’ll open it up to Q&A. Scott?
Question-and-Answer Session
A – Scott Larson
Yeah. Thanks, Ken, and thanks, Paul. As we’ve done for the last number of calls, of course, a bunch of questions have come in, in advance of the calls. There have been questions that have come in, actually during the call right now a little more specific with regards to the financials or just things that — just to questions or comments on some of the things that Cam has said or Paul. But with that said, we have a number of questions that were sent in before to the Investor Relations line. So what I’ll do is I’ll just go ahead some of these for Paul, some of these for Cam.
Cam, the first one is for you. What do you think the biggest revenue driver will be for the remainder of 2023?
Cameron Chell
Yeah. The — I believe that the visibility would suggest that the biggest revenue driver for 2023 will be our 3XL and that will really — we’ll start to see that start to ramp up in Q3. That said, the crazy thing about this is, there are so many outliers out there right now, which are not just the typical selling of this particular product line. This is something that’s now providing us with some predictability. So on that front, I’ll make the call and say, it’s going to be the 3XL that’s going to drive the revenue.
And again, because that 3XL could have so many different payloads on it, it drives payload sales as well. But to speak to that outlier piece, there are so many buss dev outliers outside of just the sales channel that are happening that could surprise us. So that’s the best answer that I can give at this time.
Scott Larson
Yeah. Fair enough. Okay. There’s a lot of other drone companies out there that are both better, as well as less capitalized to Draganfly, what advantages the Draganfly have over the other competitors, where does it fit into the market, where do you think some of the things that Draganfly is working on right now is going to have the greatest impact on shareholder value. Cam that’s for you as well.
Cameron Chell
Yeah. So in terms of competitors out there, being in the game, the business as long as Draganfly has and as long as I’ve been lucky enough to be part of the leadership team for the almost close to 15 years here, we’ve seen Airwear, Air Lilly, 3DR, GoPro, the list goes on, all better capitalized, all crazy, big names behind them, amazing management teams and what’s really served us every single time is our history.
We have a keen understanding of what the user is looking for. We are so user focused and so customer-focused that while we think that there’s a lot of companies who are very well capitalized, buildings some really, really cool products out there. I’m not 100% sure that those are the products that are really going to scale sustainably over time.
So I do think that our experience, even though we’ve been a small company, we’ve been the company that has survived and so we take a very cautious approach to where the market is going because we know how quick it is. And one regulatory change changes your production, changes your product line very significantly.
I would go on a limb here and say that the reason that Amazon backed off completely, again for a second time on their programs is because the FAA took out the type certification certainty, right? So you had to go to — in order to do delivery, you’re going to have to get your drones type certified.
And now they are — they switching that around, so you can get a 108 certification for those of you that are in the history you know what I’m talking about, that’s hundreds of millions of dollars of investment that they’ve made into this. And you’ve got a lot of smaller companies, they just — whether they’ve admitted or not or whether people know it’s wiped them up, because they back on type certification for drone delivery over population. So I think our ongoing cautious approach to the product that’s going to be sustainable, working directly with the customer.
Now I would suggest in record time, we brought out the 3XL and the Heavy Lift, but we had years of working with a customer base before that, knowing that that’s what they were going to do and we just were capitalized to pull the trigger on and it would have been premature scaling as well. So we’re going to continue to take a pragmatic approach and we think that’s ultimately our advantage.
Scott Larson
Okay. Any view on the recurring nature and longevity of the recent Ukraine contracts. How do you be implementing them? Talk a little bit some of the operational constraints, as well as the opportunity given the uncertainty in the region?
Cameron Chell
Yeah. So I mean if that conflict, God willing ended today, just in demining work, there’s 40 more years, much less in reconstruction work, much less the understanding now of how small UAS is utilized in theater.
So if that conflict ended today, military budgets in the region are going to continue to increase for the next 10 years. And a significant or meaningful portion of those are going to be spent on UAS, small UAS, because it is so efficient, so effective.
So the fact that we’re there, we’re in the region, we’re a trusted partner. Again, we’re not taking a next quarter view on this, like, okay, how do we get in a bunch of cheap drones and sell it to somebody who kind of authorized and knows Bob’s uncles, friends, brother type, like these are — we’re really taking the time to make sure that we’re built into the regulations that we have the right clearances, that — those types of things.
So this is a game changer. Now how that also affects all the rest of the budgets from around the world, right, and the credibility that we’ve got boots on the ground in that space, it’s a game changer, it’s completely in my opinion, puts Draganfly in an entire new level of the trajectory of this.
And it really, really protects us from the number one threat the Draganfly or any North American manufacturer had previous Ukraine and that was for national manufacturing, right? That threat is now eliminated for at least 10 years, at least, just for all the practical reasons out there. So while we certainly wish that never happened, we’re going to make the most of it and do the most that we can for our partners.
Scott Larson
Can you talk a little bit about the opportunity in India? Maybe I’ll go ahead and take that myself.
Cameron Chell
Okay.
Scott Larson
I’ve been a little more involved in that one, of course. A little bit of color on this. We — over the last 18 months, 12 months, we’ve received calls from Indian companies, a number of them. I — some of the largest multinational companies in the world, in fact, have called up and said, we’re looking to explore drones in India, what that means and just kind of called in and started to talk about partnerships and things like that and what that might look like for the Indian market.
For a little bit of background, India of course, is a huge market. The government has come out and said that drones are going to be a significant part of a number of different initiatives that they have moving forward. We have made a couple of trips over there once last October and once just a few weeks ago to kind of dig into that.
We did announce a partnership with a company called RSI, which is a geospatial company. It’s been in India for the last 15 years to 20 years, I’d say. And they have started to move into the UAV sector.
So specifically with regards to the market or the opportunity over there, we think it’s massive. They’re looking for large drones that are specifically designed for 20,000 foot-type altitude, which isn’t us on one hand.
On the other hand, there’s a huge opportunity for mapping, cadastrol, light deliveries, coast guard, water petrol. India has a number of active borders, of course, both north, south — north, west and east. And so agriculture, spraying, mapping, forestry, disaster management, monsoons flooding, things like that. They can’t get deliveries across borders and bridges that are washed out over rivers.
And so when we were over there just a couple of weeks ago, they were talking about orders for, the government is looking for tens of thousands of drones, in fact, across some of these different sectors, and in some cases, no limit on those. So certainly, more than would have the ability to deliver on in the near-term, but the plan is to pursue India as heavily as we can.
We think we have the right partner. We’re going to keep going down that trail and look to get as much of this market as we can, working with the local provider, drones that are built over there who can better navigate some of that market over there for us.
Moving on to another question here. Cam, can you provide a little more color on the sales cycle? How is the pipeline looking currently in the macroeconomic environment? Have you been expanding the sales team? Maybe we’re not — just keep in mind, of course, that we’re not giving guidance here, but talk a little bit about the sales cycle and what some of our efforts look like?
Cameron Chell
Yeah. So the sales cycle is about six months to a new customer and it’s still a big education process. So the decision to purchase drones seems to be imminent in the inbounds that we have coming in and — but the sales cycle really does take some time.
So some of that sales cycle has been a bit longer for us, because we’ve had the new product coming out and so people have wanted to wait for the new product. And then once it comes out, they like it, and then they want to demo it and then we got to test it and so it’s just taken some time.
So the new flight center in Texas has been fantastic for us, because we’ve been able to start to make that quite efficient and use the same systems over and over again and bringing people in, organizations in for these demos. But it’s still about a six-month cycle. To existing customers, the cycle is still — it’s really only about three months. It’s really like when the budget — when their budget cycle is and when and how things come up.
Now this is on the 3XL. The sales cycle on the demining has been a year and that’s even pretty short and sped up because of, I think, the circumstances involved. And so those engagements just kind of start falling into testing orders now going forward, so some of those types of services and things, we’ll see it shorten up a bit.
We have beefed up our marketing and our sales teams more — there’s been a lot of training going on and now that the products are starting to come online with a little bit of volume, I mean, they’re kicking into actual sales more.
But we take training quite seriously. So whether it’s training on the product or product training or regulatory trading or regulations training, two very different things, we’ve put that in place and we — I wouldn’t say we have a fully built-out sales team, but we have a — we can take more sales anyway.
So we’re pretty cognizant of not over building it at the same time. But we brought new — we brought leaders sales — leadership on in the last two quarters and we’ve got a sufficient number of the right sales folks who are really specialized in the particular areas that we’re selling into.
Inbound wise, I think, we’re probably upwards of a couple of thousand inbounds a month at this point, probably, more than that if they weren’t called so much. So you have to be very selective about who we work with and what we can promise right now.
Scott Larson
Paul, let me give this one to you here. What operational improvements are you embarking on at a company level to make things more efficient from a cost perspective, what does gross margin look like moving forward? How does this improve? Again, keep in mind that we’re not giving guidance here, but maybe give a little bit of high level comments on from an operational standpoint and efficiencies, what is the company doing?
Paul Sun
Sure. Yeah. Thanks, Scott. So, yeah, from a company cost operational outlook, we’ve centralized the company, if you will. So we have the parent and then three operational entities underneath it. We’ve gone through a robust centralization where we’re looking to eliminate any potential duplication and then, of course, gain synergies across the functional units, whether it’s sales, as Cam just mentioned, we have sales finance, marketing.
So basically, not only are we looking to eliminate duplication, but we’re also looking to get those synergies, which will improve efficiencies. We’ve also put in an ERP across the entire organization, which will also help processes make things a lot more efficient. And also now decentralization, we’re cross-pollinating opportunities across the various units.
So you have innovation, you have Dronelogics or Candrone, you have in the U.S. So now it’s a very holistic approach to the business. As we’ve always talked about, we’re moving towards very much a solution-based business and these are the things that we’ve put in place to not only make the company more efficient, but also save costs moving forward.
Scott Larson
Okay. Good. Cam, maybe I’ll — it’s 45 minutes here, we just try — which is how we try to kind of measure these or keep these calls to you. There’s a couple more questions here that I think we can get that — get to and maybe even one or two that have come in online, of course. But Cam, back to you, why the revenue is not increasing if demand is so high, we’ve been talking about increase in revenue — increased demand for a long time. Why are the revenues not increasing to meet the demands that you talk about? Yeah. Can you answer it?
Cameron Chell
Yeah. The period will stop, yes. Yeah, just building out capacity to meet the demand. So maybe the first half of that was really understanding the product that we’re building out to pick our lane. And once that was done, then probably get product out, test again, all that type of stuff, which we’ve done and then having the capacity on hand, the right machine, the right tooling, the right people, there all that type of stuff. And so that seems to be well in hand and close to being unleashed if I can use that word and so we’re pretty comfortable with where things are going.
Scott Larson
Okay. Let’s take — how much more time do we — do we have time for one or two more.
Cameron Chell
I think we will probably do it.
Scott Larson
Let’s take one that’s come in here, which is, with regards to the LiDAR and optics and imaging. Based on what we have seen and read, what out, based on what I’ve seen and been reading, it’s easier for the LiDAR, optics, imaging companies to take over a drone company than it is for a drone company to attempt to building a comprehensive imaging offer. How big of a threat do you think that is? What is adding a little bit of color here, but we did come up with the LiDAR. So what are your thoughts on that, Cam?
Cameron Chell
Yeah. So, again, we’re in a really privileged position where we’ve got such an experienced bench, probably, the stretch for us to go from building drones — to building sensors that we use on the drones, that we have used on drones for years and years, probably, isn’t as big of a stretch for maybe some other drone companies.
Now that said, we have to — we can’t build any sensor, right? Like, I mean, there’s — and there’s very good sensor builders out there. And a lot of those sets, so we have to pick and choose, we have to really pick our spots there. And so this particular LiDAR unit, we had demand on the services side. We — it fits into a particular part of the market and on our drones in a way that it was immediately cash flow positive for us even if we just use it on our own services.
It also enables us to generate proprietary data that other LiDAR systems don’t necessarily produce. And in doing that, we can come up with a unique data set that our competitors in the services business can’t provide that same customer.
And at the end of the day, it’s all about that unique data and then the analysis that you can provide from it. So that’s why that particular LiDAR was important to us. We can’t do just every sensor and so and nor would we want to.
Also, every — a lot of those other sensor companies, they’re looking for a platform to be on. So they’ve got a great sales channel, they’ve got demand and so us integrating and doing that software work where their sensors work well with our and they really become our customer. We want to over-service them and provide them the best capabilities down to their customers, now they become a sales channel for us. So we don’t necessarily want to do all kinds of sensors.
In terms of a sensor company, building a drone, I would actually say, it’s probably somewhat the opposite. When you start getting into the regulations of flying something over people’s heads, the certifications that are not required, this isn’t — you’re right, you could buy a hobby drone and put some propellers on it and think you’ve got to draw.
But when you’re talking about something that’s got applied thousands of hours with liability and reliability and integrate with other sensor products and on and on and on, it’s an incredibly complex business, notwithstanding the engineering behind it. So anyway, the point of the question doesn’t escape me and you’re right, and we’re not going to go build every sensor out there and nor should we.
Scott Larson
And I think the other part of that, just to add a little add to that with regards to what we heard from the market was the market was looking for a North American built LiDAR.
Cameron Chell
Yeah. 100%. Yeah.
Scott Larson
Because of the type of data take, the data sensitive, of course, it can be, it’s valuable data. And so having a North American build offering in that particular product suite was where we decided to push ahead.
So I think that is it. There’s been a number of questions that have come in online that have been answered. There’s been a number of questions that were — of course, that came in before that we worked our way through. I think that’s it for that Cam I will hand it back to you.
Cameron Chell
Thank you, in particular, to all the employees and the team members at Draganfly. I know how much work and commitment, whether you’re back and forth to Ukraine, whether you’re to India, whether you’re on the finance team, getting these numbers out, what the sales folks and the engineering teams, like, I guess, really — they just — I’m inspired every day by the passion that you put into this and I can’t thank you enough on behalf of myself and our shareholders for the work that you do.
Our shareholders, you — we understand you’re trusting us and we understand the execution and the opportunity in front of us. We appreciate your patience. We’re not here for the next quarter. We’re here for another 25 years and it is absolutely our intent to build a multibillion-dollar organization to be the number one, two, three player in the small UAS market globally. And so we’re making decisions that are pragmatic and are not shortsighted and we appreciate you as investors trusting that with us. And on that note, we really want to thank you for your time and appreciation and your consideration. Hope you have a great day.
Paul Sun
Thanks very much.