Hello and welcome to the Q3 2024 Draganfly Call. We just opened up the call and the attendees are just filing in. So we'll just give it a minute but then we'll get started. Okay. To be respectful of everybody's time, I think we will get started today. So as always, greetings and welcome to all the shareholders and stakeholders on today's Draganfly 2024 Q3 Earnings Call. My name is Rolly Bustos and I’m the internal Investor Relations representative here at Draganfly. We appreciate you all joining us. As usual, we'll start with our CEO and President, Cameron Chell, recapping the third quarter earnings headlines, we'll move right into a more detailed financial review with CFO, Paul Sun. And then as always, we'll conclude with our Chairman, Scott Larson facilitating the pre-submitted questions that we have received. You are always welcome to reach out to me at investor.relations@draganfly.com if we did not get to your question today. I remind everyone that this presentation may include forward-looking information and statements. These statements are not guarantees of future performance or financial results and undue reliance should not be placed on them. Any future events or financial results may differ from what might be discussed here. The full forward-looking disclaimer can be found on Page 2 of this presentation. So Cam, I think we're ready. Please go ahead.

Great. Thanks very much, Rolly. And thanks everybody for joining us today. It's a great pleasure to be here. So the market continues to be relatively robust with an incredible amount of business development that's unfolding, in particular around – well, all of our products, but in particular, around the APEX Drone which we launched last quarter. So the financial highlights for the quarter is that we had revenue of $1.885 million, which is seasonally our best Q3 ever. We had product sales of $1.3 million and services of $0.5 million. So we had gross profit of $440,000 with a margin of 23%. And Paul will explain a number of things as he goes through his presentation, talking through actually how that margin calculates out to be a bit larger than that. And of course, we've got cash on hand right now of a little over $3.9 million, close to $4 million. So we're in a really stable position. We've got really good biz dev on the go. We've got a lot of our systems dialed in and really looking forward to what this means for Q4 and going forward. In terms of the operational highlights for Q3, we had Honorable Mr. Andy Card, the former White House Chief of Staff, who previously was a board member of ours, has joined our advisory board. Of course, he stepped off the board earlier this year just for some other commitments that he had been making. He's such a key contributor and of course, a mentor on many levels. And so he's still working with us closely, advising the board and helping us provide access into many accounts and relationships that are incredibly important to us as we build out Draganfly, this amazing industry that's just on the verge of completely booming.…

Yes. Thanks, Cam. And thanks everybody for joining our call. Just go through the year-over-year numbers here for third quarter. So starting with revenue, we came in at, call it, $1.9 million down 11.8% from $2.1 million in the third quarter of last year. Third quarter revenue comprised of $1.3 million from product sales with the balance coming from drone services. Gross profit $441,000 compared to $895,000 in Q3 of last year due to one-time non-cash write downs of inventory of $176,000. Otherwise would have been $617,000. Gross profit for the same period last year would have been $903,000, if we took away the same one-time inventory write downs associated with that period. So taking these non-cash items into account, gross margin would have been 32.7% versus 42.2% year-over-year. On the loss side, total comprehensive loss for the quarter was $365,000 compared to a loss of $5.5 million in the same quarter of last year. However, this quarter does include non-cash changes comprised of a fair value of derivative liability gain of $3.6 million. The inventory write down that I spoke about $176,000 again on an impairment of notes receivable of $7,000. So if we ex those things out, the loss would have been around $3.8 million versus an adjusted loss of $5.6 million a year ago. So the decrease in loss year-over-year is primarily due to lower office and miscellaneous expenses, professional fees, and wage costs. So Cam, if you can move to the next slide so we can go through the quarterly table there? That’s great. Thank you. So yes, we just went through the year-over-year changes. So now we’ll just do a quarter-over-quarter analysis looking at Q3 versus Q2 all in 2024. So revenue was up $152,000 to the $1.9 million up from $1.7 million in Q2…

Great. Thanks, Paul. Why don’t we go right into Q&A because I think that’s highly productive and allows us to answer a lot of the curiosities that our shareholders, investors have and gives a good overview of what’s going on in the market and with the company right now. Scott?

Yes. Thanks, Cam. I just want to reiterate and welcome from the board standpoint everyone on the call. So as we’ve done with previous calls, there’s been a bunch of questions that have come in. I’m looking at them on my screen here. A few that have come in real time during the chat that we’ve tried to answer and so forth. And so we have a list of six or seven questions, maybe seven or eight. There’s some crossover here. I’ll go ahead and ask them to either Cam or Paul, direct them as needed. There’s a couple things we always can’t answer just because we don’t get guidance and so there’s a little bit of nuance here, but we’ll try to kind of piece together, parse together as well, some of the questions here. So, Cam, will the Trump election help win or delay any new military contacts? Any thoughts there on what happens to south of the border in the U.S.? How that impacts Canada? What that looks like? How that impacts us? We’ve got operations down there, of course, but just maybe a little color or context regarding what the new administration, how that might impact some of the things that we’re seeing, if at all?

Yes. So in terms of our overall numbers, it won’t have any impact because the percentage of penetration that not just us, but some other public drone companies out there have into the markets that would be affected by, say the Trump administration is still so small that even if they made a sweeping change on something, the NATO militaries in particular, and specifically here, the U.S. Military, they’re just starting their adoption cycle. And so, there’s hundreds of millions of dollars of purchases that need to be happened just because drones are the new reality within the military. But from a policy standpoint, we do expect to see significant increase in the Pac Rim, the Pacific Rim area, which by size dwarfs the budget sizes required or looked at in the Eastern European Theater. So if there is offset, it’s actually a much bigger offset. But the expectation is no. I mean, there may be policy changes and some shifts, but overall the penetration so small that drones are being adopted and there’s a very few select players now that are left in the ring to be able to provide the products and requirements necessary.

Any new sales – yes, so since we announced the distributor partnership in Australia, what does that look like traction? What’s the sales cycle? How does that – these all mostly the long lead items, of course. But what does that look like? Any color context there?

Yes. Yes. So the sales cycle that we started in Australia this year would be similar to the sales cycle that we started in earnest with a couple of our different and now meaningful military clients about a year and a half ago. So it’s going to take a solid year to get through that sales cycle. We are in testing, we are in pilot projects, we are in use case and mission profiling. The budget season there is kind of opposite to the budget season here. They’re down in their summer, so about early Q2, that’s when we start to see some budgets opening up and such. But yes, the response has been fantastic. This speaks largely to the Pac Rim opportunities within the military that are likely to be unfolding at large scale in the next couple of years, which is why we thought it was really important to be entering into that market down there. Australia will be a very big launching pad. Australia is also really forward thinking in its public safety work and its search and rescue work, first responder work, which is a key market for us as well. So yes, really confident about what will be unfolding there. But you do need time on the ground and to make that happen. But I think we’ve got the right representation and we’re in the right offices.

Any updates on [indiscernible] we’ve talked about it before. It’s come up on previous shareholder calls. There’s been lots of reports in the industry about companies that are going through some difficulties. And I think we’ve even disclosed in the past that that we take a look at all of them, but any more thoughts there?

It’s still really active and we’ve still elected not to participate up until this point. And I know on our desks that there are a couple things that look pretty interesting. But again, it’s an opportunity cost and the focus on our organic growth meeting the demand that continues to build and is kind of committed and getting through budget cycles and getting through final sign offs and that type of stuff you just can’t compare right now us taking on too many other things. That said, there are some pretty interesting things going on. We’ll continue to see consolidation in the space, building drones for these types of use cases is a lot trickier than people think when it comes out of the game. There are so many variables. So we’ll remain active, we’ll continue to see lots of activity, but we’re in a spot where we just have to be incredibly discerning.

Yes, I would just – from my own personal thoughts on that, some of the stuff ends up on my plate as well, of course. We don’t – it would be an exaggeration to say every week, but certainly fairly regularly they just keep coming in either from bankers or someone in the mix, advisors who have clients that are struggling, going into some level of receivership, protection, whatever that is. And they’re looking for either consolidation, asset sale, shareholder sale. And so a lot does come through our desk kind of trickles in. We look at all of it, we scratch a bunch of it. We decline it, as Cam mentioned, but it’s certainly been part of what we’ve talked about before. And I don’t think any of that’s an exaggeration and it’s probably not going to change. But to Cam’s point, these are opportunity costs. And so we have to be measured and make the right decisions, which I think we’ve done a pretty good job so far when it comes to that.

Yes. I mean, this is about the seventh cycle that having – the company having been around for 25 years, this is about the seventh cycle of this, that we’ve seen. And of course, all indications are that this is the cycle that actually it will pop and we’ll see that beyond explosive growth of drones. And so, the few companies that out there that are, it’s still a game about, of survival and if you’re going to – it’s going to be last man standing. With great product and great customers and there’s lots of reasons you are last man or last person standing, but that’s still a game. And this time, instead of there only being one company in North America that’s left standing, there will be three or four, which still isn’t enough, frankly. So it’s been interesting this time and probably a bit more catastrophic in terms of the amount of companies that really got excited and jumped in hard this time, and with lots of funding and they just didn’t make it.

That kind of leads pretty well into the next question, which is regarding supply chain. I think a couple, three years ago that was a concern we’ve talked about in the last couple of shareholder calls, that that’s less of an issue. But frankly, there’s been new reports that have come out even over the last few months that other companies probably with regards to or as an effect of some of the large military contracts that have been discussed, where companies have come out and said that the supply chain is an issue again, particularly because it impacts some of the China issues and so forth. So any thoughts there? What does it look like for Draganfly? How much of an issue is this? How are we mitigating around it? How much can we expect to mitigate around it?

Yes. Yes, no, it’s an issue, again, it doesn’t have any direct effect on us at the moment, but it is an issue, again, or becoming an issue again, but for different reasons. So the last time supply chain was a real matter was kind of COVID related and just not being able to get supply. Today the supply chain issue is, is kind of twofold. One, people who are in the industry and in the know see the demand curve and where the buying cycle is about to hit. And so it's like a basketball going through a garden hose. So that will work itself out in some time. However, the variable is part one of this, which is now the security concerns. So if a bunch of that supply chain is not coming from specifically domestic sources, it might not be Chinese, but it's still coming from overseas or very close to China, in those packed rim areas. It's very easy for that supply chain to be disrupted. So the concern is around the dependence of the geographical location and supply from that area into where it needs to be manufactured for all other kinds of security reasons. So we will see ancillary market growing in North America. It will take a few years for it to happen where more and more of these parts and certainly the critical parts will be manufactured here. There's a number. So the build of materials being all North American or all NATO based or all protected supply chain based is going to become a reality in the drone space. But there's a lot of really smart people thinking about it. And the top three or four companies again, at least, I know we are – I think we're – well, nobody's ahead of the curve, but I think, we're on the curve in terms of being able to address those concerns from our customers going forward. But in the short-term as it relates specifically to our financials and I know we don't give guidance, I wish we could but – or I wish we did, but it shouldn't have an effect here certainly in the next three to four quarters.

What do you – yes, again with the other saying that we don't get guidance, what do we think the next three to nine, 12 months is going to look like with regards to, these are long lead items. So any context around there, is the funnel getting bigger? Is it pushing out, just maybe a little bit color there and again without overstepping any of the lines?

Yes, so the funnel, which I'll call confirmed, has definitely pushed to the right for all kinds of administrative reasons and such. The funnel does continue to grow, but it's almost pointless. I would say the funnel, it continues to get refined. So we're swapping in items that are either higher margin or more use case critical for us and our focus in for and we're taking other orders and pushing them further out. And that's kind of what we see. There's no point in the funnel getting bigger. It's already just enormous. But I do see – and we haven't given guidance in the past, but I do see us in a spot finally. And I know I certainly alluded to this before, but I can say with a very high degree of confidence we're more than on track for our best Q4 ever by far. And the size of opportunities that we'll be able to talk about in Q4 are, orders of magnitude bigger than what we do on a yearly basis. So if that gives some indication. And they're really fun projects, they're really interesting work.

Which of the drones is getting the most attention? So which of the drones within our suite of products right now is getting the most attention?

That is a great question. And as soon as I think of the one, I'm going to say, but the other one is getting the – so right now, FPVs are incredibly hot and those sales cycles are shortening and in the first quarter we didn't anticipate that they were going to be requiring this much demand. So FPVs are very, very hot. But we also launched the APEX this last quarter and it fits into a spot where we were being asked to produce this thing by so many people. So, we'll be delivering those in Q4 at some significant scale. So that's also very hot for us. The Commander 3 XL, it's got the longest amount of time with pilots on the stick out there, having tested it, having put it through its paces, and we've got the most amount of payload partners that have integrated with the 3 XL. And quite frankly, they're generating demand for us. So those are the three platforms that are shortest to having to create this sales bubble that finally, hopefully will get spit out at the end of the garden hose. We see significant interest on our heavy lift because a lot of people are just seeing the utility of drones and we'll have some additional product announcements in a couple of quarters around even heavier drones there. So definitively, I couldn't tell you like, we built our products based on customer demand and we built them to be interoperable. So we're seeing demand across our categories. But right now I would have to say that the majority of inbound and immediate pressures is probably around FPV. But to us, FPV is a bit of a loss leader because they're a low cost, often one way product. Now there are some very interesting developments happening with those one way products where they're getting the requirements, are being asked to be more sophisticated, being able to operate in GPS denied environments, et cetera. Because everybody hears about the effectiveness of FPVs but you also don't hear about the fact that their success rate, their effectiveness is based on numbers, but their percentage of success rate is much, much lower than anybody would like to talk about. So there is a level of sophistication that's going up there, but they're also a means to an end for us. So FPVs are going to allow us to sell a lot of HellHives and a lot of 3 XLs because people want to get these FPVs deeper into particular geographic regions and, and they want to be able to swarm with them. And so again, the level of sophistication in the FPV and using things like the 3 XL as a mothership or a carrying case for them is it drives significant sales with good margin for us.

Perfect, thank you for that. That is actually all the questions we have. There's been a couple that have come in that have been answered online in kind of real time. But in terms of questions, that is all the ones that came in. I think we'd like to just to reiterate what Rolly said at the onset, which is if there's – feel free to email in, we do do our best to get back to you right away. Thoughts, comments, things like that incorporate into some of our disclosures if need to be. But certainly feel free to email through to the Investor Relations questions, comments on what's happening here and we do our best to answer them without crossing any of the disclosure issues. So with that, Cam, we'll send it back to you to end this out and look to close it off.

Well, first of all, I really want to thank our shareholders and investors for the extreme patience and that they've displayed. It has been a real grind for you, we understand, but I think we're in the right place at the right time. We'll be one of the last ones standing. We have an incredible product lineup. We have an incredible service ethic. The ethos of the company is all about making our customer uncompetable, being able to provide them strategic differentiation whether they're military or police or industrial or whatever the case is. And I think we're meeting that order. And I think we continue to build a reputation as a really, really strong player in the market that can do things that a lot of other companies can't do. I also really want to thank our partner and employee base like people are working, like ridiculous hours. They're doing crazy amounts of travel. They're like bending over backwards for the customer. I mean, it's really, at the end of the day, it is about the people that are attached to the mission and the passion that we have around that mission. So I just really, deeply want to thank our board, the executive, and most importantly, our frontline people who are just crushing it. I mean, the stories we hear back all the time about what we were able to do and what it's going to mean for our customers future is really incredible. So thank you for that. Thanks everybody for your time and patience. And we look forward to a fantastic Q4.