DroneShield (ASX:DRO) management emphasized strong cash generation, an expanding sales pipeline, and continued investment in research and development as it discussed recent results and fielded investor questions. Executives said the company generated about AUD 9 million of net cash from operations, which they said supports their aim to grow rapidly while remaining profitable and cash-flow positive.
The company also pointed to an increase in its sales pipeline, which management said has grown from roughly AUD 2.1 billion to AUD 2.3 billion over the past month. Management attributed much of the change to growth in the Asia-Pacific pipeline, noting rising concerns among countries bordering China about drone threats. Management said the pipeline spans about 295 deals and includes 18 deals above AUD 30 million each. The company’s largest pipeline opportunity was described as approximately AUD 750 million, down from a previously cited AUD 800 million due to Australian dollar strength against the euro.
Profitability and cash flow highlights
On margins, CFO Carla said the statutory FY2025 gross margin of 61% was impacted by inventory impairment, and that a normalized run-rate gross margin should be viewed as about 65%. She added that the product mix can move margins, noting systems sales include third-party components such as cameras and radars that carry lower margins.
Pipeline and regional demand drivers
Management highlighted several regions as key growth contributors:
- United States: Executives cited expectations for growth from military demand and public safety. Management referenced a $1 trillion record defense budget for 2026 and a $1.5 trillion defense budget proposed for 2027, and pointed to the Safer Skies Act as enabling police to take down drones. The company also expects demand ahead of the FIFA World Cup in June and July, and said it is engaging police agencies through a public safety team in the U.S. office.
- Europe and the U.K.: DroneShield said it opened a sales office in Amsterdam to manage distributors, and that momentum is being driven by security concerns tied to Ukraine and broader instability. Management added that being Australian can be an advantage as a “neutral” supplier.
- Australia: Management said DroneShield has been selected on the panel for LAND 156, a AUD 1.3 billion rollout across defense bases nationally, and expects meaningful business potentially starting this year.
On the largest European opportunity, management said signing a AUD 750 million deal is “not going to be trivial,” but added it is the same customer that placed a AUD 62 million order mid-last year along with additional smaller orders. If executed quickly, management estimated it could deliver in batches in under nine months, though a staged approach could extend the timeline to roughly two years.
Operations, inventory, and scaling manufacturing
Management said the company has over AUD 200 million in cash and continues to invest heavily in R&D, describing annual spend of about AUD 70 million+. DroneShield also described its workforce as 160 employees in about seven countries, including 350+ engineers.
The company reported approximately AUD 79 million in inventory as of Dec. 31, consisting of AUD 26 million in finished goods and AUD 53 million in raw inventory (long-lead items intended to shorten delivery times). Management said it moved to an enterprise ERP system and is targeting an increase in production capacity from about AUD 500 million per year to AUD 2.4 billion by year-end, supported by a 3,000 square meter facility in Sydney and manufacturing hubs in the U.S. and Europe that it said are being finalized.
For 2025, management said inventory impairment totaled about AUD 10.3 million, including AUD 8.5 million in finished goods tied largely to DroneGun Mk4 outselling DroneGun Tactical. Management characterized this as a one-off related to releasing two product lines close together, and said it does not intend to introduce superseding versions of DroneGun Mk4 and RfPatrol within their existing form factors. The remaining AUD 1.8 million impairment related to raw materials and was linked in part to the ERP transition.
Product mix, SaaS ambitions, and backlog commentary
Management said DroneShield’s revenue mix has shifted, with DroneGun representing about 19% of FY25 revenue. It said the fixed-site and on-the-move DroneSentry system accounted for just under 40%, while RfPatrol represented just over 40%. Executives also highlighted SentryCiv, a civilian subscription-based product launched last year, as a potential growth area as civilian demand develops.
On software, management said SaaS is continuing to grow and reiterated a goal to increase SaaS to over 30% of revenue per year over the next five years, up from roughly 5% currently. Management said growth is expected to come from multiple SaaS layers tied to hardware deployments, including device-level capabilities (such as detection software and a planned paid “defeat” module referenced as RFAI-ATK expected around mid-year), camera and radar-related software, and command-and-control software including DroneSentry-C2 and DroneSentry-C2 Enterprise.
Regarding committed revenue, management said charts show “a bit over AUD 100 million” in committed revenue for the year, with roughly AUD 20-ish recognized so far, implying a backlog of about AUD 80 million largely for the current year. Management added that it prefers delivering quickly rather than building backlog.
In discussing profitability and scaling, the CFO said the company’s fixed cash costs for the year are expected to be around AUD 150 million, and that it plans to capitalize approximately AUD 25 million to AUD 30 million of R&D. She said the company is balancing rapid growth with added costs related to systems, manufacturing expansion, and new operational initiatives, and did not provide a net profit margin forecast.
Management also addressed corporate governance, saying it engaged Freehills to help establish “gold standard” policies following media scrutiny late last year, and announced updates to policies including trading and disclosure. It also cited recent leadership hires, including a Chief Operating Officer with prior experience at Thales.
About DroneShield (ASX:DRO)
DroneShield Limited engages in the development, commercialization, and sale of hardware and software technology for drone detection and security in Australia and the United States. It offers DroneGun Tactical, a portable rifle shape drone disruptor, causing the drone to safely land, or fly back to the starting point; DroneGun Mk4, a rugged handheld counter-unmanned aircraft system (UAS) effector; DroneGun Mk3, a pistol shaped compact drone disruptor; RfPatrol Mk2, a wearable AI-enabled multi-mission detection tool; DroneSentry-X, a cross-vehicle compatible automated 360° detect and defeat device; and DroneSentry-X Mk2 is a software-defined detection and adaptive disruption system.
