He Wants A $5 Billion Drone Company. Can He Build It?

0:00Well, what Dragonfly does that's that's

0:02different is that we've been doing this

0:03for 27 years. Dragonfly was the the

0:06first drone that was ever officially

0:07credited with saving a human life.

0:08Again, I'd be disappointed if, you know,

0:10we were if we were sitting here, you

0:12know, 3 years from now, we didn't have a

0:14$5 billion market cap. If I were to

0:16predict a year and a half from now that

0:17the numbers would be staggering compared

0:19to, you know, what we thought they

0:20would. Welcome to the upside with Lou

0:22Bassinise, where it's our mission to

0:23bring you the people, the companies, and

0:26the technologies that represent

0:28tremendous upside potential no matter

0:29what type of market we're in. And today,

0:31I am fortunate to have with me the CEO

0:33of one of the leading drone companies in

0:36the market, Dragonfly, Inc., Cameron

0:37Cho. Welcome to the upside.

0:38>> Yeah, thanks for much.

0:40>> Yeah, great great to have you here in

0:42New York and studio. We always start off

0:44with just like the end in mind. really

0:46tell us what is Dragonfly doing that's

0:48different than anyone else out there in

0:49the drone world.

0:50>> Well, what Dragonfly does that's that's

0:52different compared to the other comps

0:54out there and there and they're great

0:56comps and there's going to be a lot of

0:58really successful uh drone companies,

1:00but what's different about Dragonfly is

1:02that we've been doing this for 27 years.

1:04>> 27 years.

1:05>> 27. We sold

1:06>> So, where was the first drone? I mean, I

1:08think people think the first drone was

1:09maybe five years ago.

1:10>> Yeah. Well, before they were called

1:12drones, they were called quadropopters

1:14or tricopters or flying cameras. In

1:171999, we sold a drone as a pilot to a

1:20federal policing agency that was using

1:22it to do traffic investigation, traffic,

1:25uh, you know, forensics. And it was just

1:27an idea. And so they bought a quadcopter

1:29from us, uh, you know, we handbuilt and

1:31delivered to them and experimented with.

1:33And, um,

1:34>> have a jetpack for fuel. I mean, how did

1:36this thing work? Oh, it was it was

1:37battery, you know, it stayed up for

1:38probably 7 minutes, [laughter] you know,

1:40and uh and every minute was

1:42trepidacious.

1:43>> Uh so and and out of that, we learned

1:46how to put the first camera on a drone,

1:48the first uh stabilized video on a

1:50drone, the first thermals on a drone. Uh

1:53the first LAR on a drone. Um you know,

1:56Dragonfly was the the first drone that

1:58was ever officially credited with saving

1:59a human life. Okay. Uh was a Dragonfly

2:01drone. Uh [snorts]

2:03>> and what was the situation there? How

2:04>> Yeah. So, and and so that drone sits on

2:06permanent display in the Smithsonian. We

2:08have our own display there. We're really

2:09proud of that. So, it was a situation

2:10where um it was a snowstorm. Uh somebody

2:14didn't show up uh from a car accident.

2:16They didn't know it was a car accident.

2:17Somebody didn't show up after 8 hours.

2:19It's like minus 30 outside. Yeah. Uh

2:21family went out looking, found the car

2:23in a ditch on the side of the road, door

2:25open. It's 8 hours later. Oh, wow.

2:27>> They called the police. So, now it's a

2:2910 hours later. Uh they formed a search

2:31party. So, now it's 12 hours later.

2:33can't find the person. It's completely

2:35pitch black. Uh and um and they they

2:39called they that one of the officers uh

2:41happened to know this federal officer on

2:43that had bought this camera or this

2:45quadcopter and uh said, "You know, we we

2:47heard about that thermal stuff you're

2:49doing. Would you mind giving this a

2:50shot?" And and Doug, who's an incredible

2:52individual, all you know, totally always

2:54has service to people in mind. Um he he

2:57pulled out there, pulled out his truck,

2:59you know, put up the the uh the Dragon

3:01Flyer 4 it was called, and uh in 20

3:04minutes he found a heat signature.

3:06>> Wow.

3:06>> And uh we got still had a video of the

3:08whole thing. And so I mean they found

3:10the person, he was unconscious, you

3:11know, definitely had hypothermia, right?

3:13Uh they uh they air ambulanced him out

3:15of there. Happened to save his life. And

3:18uh you know the the news went big and

3:19all the rest of it, but it was the first

3:22recorded you know documented police

3:24involved search and rescue uh with a

3:26drone. And uh and that really set the

3:27ethos uh of of our company and and uh

3:31probably the second most proud event uh

3:33for us as a company was uh early in 22

3:36during the uh the invasion into Ukraine

3:39on our own cognition. You know, we put

3:42boots on the ground. I spent, you know,

3:44plenty of time in Ukraine myself, uh,

3:46over there, you know, because we felt it

3:47was the right thing to be doing. And,

3:49uh, we were providing overwatch, uh, for

3:51search and rescue missions. Okay.

3:53>> So, providing thermal cameras as they

3:54were searching buildings, searching

3:56bombed out areas. That turned into, uh,

3:59providing overwatch for, uh, relief

4:01delivery. And, uh, and then that turned

4:04into, and again, you learn these things

4:06as you're in theater. Uh, that turned

4:07into the fact that, uh, the ambulances

4:10and relief couldn't get into besieged

4:11cities. So we were like, "Dude, let's

4:14fly stuff in there." So we started

4:16flying relief supplies in. It was kind

4:18of like the Berlin drop, you know, and

4:20so we're flying relief supplies in. And

4:22then the primary supply we were bringing

4:24in was pharmaceuticals and in particular

4:25insulin. So we designed a thermal box

4:27that held temperature of pharmaceuticals

4:29at a at a at a constant, kept them cool

4:32and we were flying, you know, missions

4:34of and and then we raised money to, you

4:36know, buy insulin and and uh it was just

4:38a catalyzing event for us as a company

4:40and really just reinforced our ethos as

4:42to the importance of drug.

4:43>> So you've been around for almost three

4:45decades. You started off with traffic

4:46forensics, migrate into life-saving

4:49missions, then into war torn areas that

4:51provide intelligence, um relief. That's

4:54a broad spectrum, right? So how how do

4:56you sit today as a company in terms of

4:58you look at commercial opportunities?

5:00What's your product lineup and like how

5:01do you look at your verticals in terms

5:02of the most traction over the next 12 to

5:0424 months?

5:05>> Yeah. So I got to give you a bit of a

5:06narrative that to kind of explain why we

5:08got to that spot. So if you look at

5:10every single North American drone

5:12manufacturer over the last let's call it

5:14close to 30 years uh other than the last

5:16let's call it five to six years uh where

5:18this new wave of drone companies has

5:20emerged every single drone manufacturer

5:22in North America every single one.

5:24People argue with me on this and I'm

5:25like okay let's go through the list.

5:27Everyone has gone out of business.

5:29>> Every single one.

5:29>> Every single one. [snorts]

5:30>> So in North America is a supply chain

5:33issue is it a cost issue? Is it

5:35technology?

5:35>> The challenge is that the challenge and

5:37there's some great companies out there

5:38now. So, I'm not taking away from any of

5:39the great companies that are that are in

5:40place now, but but uh basically

5:43>> we'll save that for later in the

5:44interview. [laughter]

5:46>> Um you know, when when when these

5:47companies started, they started like,

5:49okay, we're going to build a drone. And

5:50the notion of a drone is, you know,

5:51something that's about, you know, this

5:53big. Yeah. And um and uh but what they

5:56failed to realize is that and is that

5:59there wasn't a regulatory environment

6:01for a commercial operation to exist.

6:03Yeah. So, uh, you know, if the the other

6:07people start to understand this now, but

6:08they didn't at the time that a drone's

6:10an aircraft.

6:11>> Yeah.

6:12>> Heavy regulatory environment. You want

6:14to come out with a new drone line that's

6:15going to do commercial and or military

6:17work, you better be prepared to go

6:19through what you have to do to launch an

6:20aircraft.

6:22>> Crash these things. You got to go

6:23through all kinds of regulatory testing,

6:25all kinds of approvals, all kinds of,

6:27you know, compliance and audits and, you

6:29know, internal controls and liability

6:31protection, etc., etc. So uh so most of

6:35those companies uh would then hey we

6:37want to be in the proumer market because

6:39it's you know we can actually build a

6:40product for that market and um and of

6:42course then they'll run into the Chinese

6:44manufacturing which is one very good and

6:46two just is at a cost level that we

6:48couldn't you know the North Americ

6:52so so we never really you know we had we

6:54had the fortune of of being drone people

6:56first uh and and understanding that

6:58that's not where we would compete. So

7:00where we focused uh our market was being

7:03very specialized in understanding the

7:05use cases and the concepts of operation

7:07that public safety or military were

7:09looking for. Okay. So they came to us

7:10not just because we had a great drone

7:12because our drones are three times the

7:13price but they came to us because we had

7:15an expertise as to how to help run that

7:17operation and be successful.

7:18>> Very solutionoriented very specific.

7:21>> That's right. And so

7:22>> and does that avoid or sidestep some of

7:24the regulatory since you're going into

7:26first responders and military? Do they

7:28have to worry about the regulatory?

7:29Well, it's certainly it's a different

7:31regulatory environment, but it's still

7:32heavily regulated, right? And and also

7:34the requirements

7:36>> uh the reliability is standards are much

7:39higher. So, it's a trade-off for sure.

7:41So, uh you know, we survived and that's

7:43all we did was survive. We we didn't

7:45thrive the last 27 years. Uh

7:48>> it feels like it's the you know, the

7:49overnight success 20 plus years in the

7:51making.

7:51>> That's exactly what it is. And and you

7:53know, smart money, uh if if I was a

7:55smarter entrepreneur, I would have been

7:56like, "Hey, I should be doing something

7:57else." But I had investors in, I had

7:59family in, and it was just desperation

8:01to hang on. I just had to make this

8:02work. Uh, so not and not just me, lots

8:04of other great team members, too, that

8:06that were had family in and and we're

8:08all kind of pulling together.

8:09>> But now the market's come to you, right?

8:10We were talking about a 24 billion plus

8:12market opportunity this year and

8:13scaling. Uh, I mean, yeah. Now, what's

8:16unfolding, it's kind of like the

8:18internet where, you know, when the

8:19internet started, the real only use case

8:21was email. And, you know, people are

8:23like, well, why do I need a web page? I

8:25got the yellow pages. Yeah. Right. and

8:26you you just couldn't really see it

8:28because you hadn't built through enough

8:29use cases and you know you and you know

8:32companies you know 20 years ago or

8:34whatever it was were like you know I'm

8:36I'm an internet company right well

8:38nobody's an internet company anymore

8:41>> but there isn't a company that doesn't

8:42completely rely or build on top of the

8:44the internet and the drones drones will

8:46be the exact same thing in 20 years you

8:48know kids being born today will ask the

8:50question you know what was it like

8:51before like before there were cell

8:53phones right it would be like what there

8:55was a world before drones. I mean that

8:57that is how pervasive they will be.

8:59>> Interesting.

9:00>> So, you know, to get back to your

9:01original question, you know, we survived

9:02because we were in the public safety

9:04market and we had a couple dozen police

9:06departments that believed our narrative

9:08around uh you know, the Chinese security

9:11and the requirement to buy US made

9:13drones. And the other uh thing was they

9:15they were just like, "Hey, we want to

9:16support US industry." And so they'd buy

9:18their Ford trucks and they'd buy their

9:19Dragonfly drones. and and even though it

9:22was three times the price and the

9:23capabilities were ca were the same but

9:25not outstandingly better or anything you

9:27know a couple dozen police departments

9:30you know kept us alive but it wasn't

9:32enough for us to really be making any

9:34money

9:35>> uh so we did a lot of NRE non-recurring

9:37engineering work okay

9:38>> for the military primes

9:39>> okay

9:40>> so for years aero environment as an

9:42example they were

9:43>> and I think that was the one drone name

9:45that was well known household

9:46>> they were our biggest client yeah so we

9:48we built and worked on dozens of, you

9:51know, projects with them. You think

9:52about things today that are considered

9:54new innovations. You know, counter drone

9:56drones that shoot out nets, FPV drones

9:58that are one way, uh, tethered drones

10:01that, uh, you know, use, uh, machine

10:03vision to to either target or make

10:05decisions. That's all 15 20-y old

10:07technology that that we were building.

10:09Really? Yeah. Like an interesting fact

10:11um, about FPV drones. So the the common

10:13notion out there is that the FPV drone

10:16uh, you know, the FPV. So yeah, thank

10:18you. So, uh, first person viewer, okay,

10:20drone, you know, goggles on, one way

10:22attributable, suicide drone, another

10:24nickname for it, uh, was a Ukrainian

10:27invention.

10:28>> The reality is the US Marines introduced

10:30that into Ukraine in about early 23.

10:33>> They brought that tech and they said,

10:34"Hey, this might be helpful." Now, the

10:36Ukrainians have taken it to a whole new

10:37level, right? They're completely

10:39innovative, unbelievable, resilient

10:41society. But that was a US innovation.

10:43And you know all close to 20 years ago

10:46[snorts] uh the Marines were training

10:48people on and experimenting with FPV

10:50drones and how they work. And in fact

10:51the two gentlemen that uh that ran that

10:54program uh are Dragonfly uh folks.

10:58>> Okay. You know

10:58>> so you guys have been kind of the intel

11:00inside of drone development across the

11:02space for 20 years

11:03>> and and our numbers have never been

11:04really big because they've always

11:06they've been this NRE you know

11:08consulting solutionbased. Okay. Okay, we

11:10do have a product line that we sell into

11:11some police departments, but um but that

11:14did allow us to survive.

11:15>> Okay.

11:16>> Now uh

11:16>> and then where's the pivot point? Where

11:18do things change now? Cuz you're I see

11:20revenues up, you know, growing double

11:22digits quarter over quarter. Now you're

11:23starting to get some traction. What was

11:25the difference making?

11:26>> Yeah. So the the difference was in about

11:2720 uh early 23 uh you could really see

11:30that regulations were starting to uh you

11:32know accelerate and they and so things

11:34like beyond visual line of sight

11:35operations of drones on the commercial

11:37side were going to become a reality. So

11:40uh so we did raise a little bit of money

11:41then because we felt that that was the

11:43the pivot point and then of course

11:45Ukraine was huge and by about 23 people

11:48could see the the the importance of uh

11:50drones. So uh we felt that we hit the

11:53sweet spot at that point and we started

11:55to scale out our production. We had

11:56strong demand signals. We could see that

11:58you know the departments of war and

12:00national defense and uh ministries of

12:03defense from different militaries were

12:04were going to get behind this thing and

12:06that really became the the pivot point.

12:08Uh Once again, I mean, people don't like

12:10to admit it, but conflict and wars

12:12usually is the biggest innovator for new

12:14technology. Because I I was meeting with

12:16an investor not long ago that was buying

12:17a Ukrainian drone company, a US-based

12:19investor, saying

12:20>> the amount of just like in operations

12:23testing they've been able to do and

12:24innovation is unparalleled because it

12:26was condensed. Sounds like you've you've

12:28benefited from that same experience. So,

12:29what's your lineup look like of

12:31products? Like I look on the website and

12:32there's four different offerings. To

12:34the, you know, the novice, what are each

12:36one for and what are the applications?

12:38>> Yeah. So, one one of the interesting

12:39things is um and again this is my

12:41version of the story, so I'm sure some

12:42of our you know competitors or comps out

12:44there uh would disagree with this but in

12:47my opinion uh there's only two drone

12:49companies in the world that have fully

12:51integrated product lines.

12:52>> Okay.

12:53>> Uh one of them is DJI which owns 90% of

12:56the market and is multi multi

12:57multi-billion dollar company Chinese

12:59backed you know national company and the

13:01other is Dragonfly. Now [snorts]

13:04DJI has literally 10,000 engineers,

13:08right? [laughter] Dragonfly has 12

13:10engineers now.

13:11>> But they're using AI, so it's equal.

13:13Right.

13:13>> Yeah. Exactly. Well, of those of those,

13:16you know, whatever 12 engineers, a very

13:18large portion of those engineers have 25

13:20years of experience.

13:20>> Okay.

13:21>> Right. And and so our bench strength is

13:22is incredible. and and also uh and we're

13:25scaling that bench strength obviously

13:26but right now but but the other part of

13:28that is is uh when you've had 25 years

13:30you have the ability to actually have a

13:32full product line. So if you're a a five

13:34or six year old company, you probably

13:36have a product,

13:37>> right?

13:38>> Right. And you have variations that can

13:39do different things, but and it's

13:40probably that small, you know,

13:42intelligent surveillance reconnaissance

13:44drone, you know, the SkyO X10 or

13:46something like that. But to have a

13:47product line that goes everywhere from a

13:49small little FPV, firsterson viewer

13:51drone, all the way up to a, you know, a

13:54drone that has, you know, two diesel

13:56engines, uh, can fly for up to seven

13:58hours, can lift 100 pounds, and

14:00everything in between. And they're all

14:02integrated in terms of interoperable

14:04parts, you know, common operating

14:06systems, software, universal mounts, you

14:08know, dozens and dozens of different

14:10integrations with other payloads like,

14:12you know, cameras and LARs and AI

14:14systems,

14:15>> that just takes time. Yeah.

14:16>> And so that is a big big strategic

14:18differentiator for us. So when we have a

14:20customer that comes to us and says,

14:21"Here's my use case. This is what I need

14:23to do." And most of our our growing

14:24customer base now is military. Um, but

14:27whether it's military, public safety, or

14:29industrial, they're like, "Hey, I need a

14:30drone that does this." And they go look

14:32at a bunch of websites and you know, and

14:35then but okay, this kind of fits the the

14:38time and duration and power

14:39requirements, but I need it to do this.

14:42What happens for us is okay, we pull

14:44that off the production line and now we

14:46can we can build a drone system, you

14:49know, for them to spec to to a spec

14:51>> because you control the whole stack, the

14:53software, the integration. And what

14:54happens with that customer is, hey,

14:56great. This is a drone I needed to do

14:57for ISR, you know, for surveillance or

14:59reconnaissance. But now that I got

15:01surveillance and reconnaissance, I

15:02actually need to do forward operating

15:04base logistics. I need to deliver, you

15:06know, medical supplies or ammunition or,

15:08you know, whatever the case is to this

15:10location because I've got surveillance

15:12telling me that it's clear to do that.

15:13>> Yeah.

15:14>> And they're like, we're going to find a

15:15drone that does that. Well, wait a

15:16minute. We're already trained up on that

15:18Dragonfly system. they've already got a

15:19drone platform that can do this, you

15:21know, so so

15:22>> it just lends itself to upgrades and

15:24upsells very very conveniently.

15:26>> And again, we didn't like I would love

15:27to say, hey, we strategically planned

15:29that. [laughter]

15:30Dumb luck.

15:30>> I love the honesty.

15:31>> It's all like it's like like I I think

15:34one of the the strengths we do have is

15:35that you know, we iterate based on what

15:37the customer wants because that that is

15:39what gives indication to what the future

15:41of the industry is going to be. So we're

15:42we're honestly not smart enough or

15:44trying to predict what the future's

15:45going to be. We're not ignorant to it,

15:47but but we are very customerdriven and

15:50and as the customer discovers the use

15:52case, you know, then we're actually able

15:54to, you know, kind of build into it.

15:56>> So, from that standpoint, what's one of

15:59the most recent developments that you

16:00think significant in terms of, you know,

16:01press releases you put out for for

16:03investors to understand? I mean,

16:05significance from validation from a, you

16:07know, a customer win that it's a test,

16:09you know, pilot with one or two drones

16:11that expands into multiples. I mean,

16:14what what's how do we put that in

16:15context?

16:16>> So, if if you don't mind, I'd like to

16:17give two.

16:18>> Yeah. I'll try to keep it as

16:19>> I think that was plural development.

16:21>> Okay. So, uh if if you don't mind, I

16:23I'll I'll condense it as much as

16:24possible. So, um uh southern border

16:27sheriffs, uh Coochis County in

16:28particular, um southern border has has a

16:31number of thousands of covert cameras

16:34along the southern border. And what

16:35happens is, um they get an AI, they get

16:38a hit on the camera. AI determines it's

16:40uh either a cartel activity. Uh it's not

16:43an animal walking through the you know

16:45the desert or something like that. Or

16:46they can determine from that AI if it's

16:49um uh human trafficking or if it's

16:51migration or whatever. So they get a hit

16:54uh they get the alert and they're like

16:56but that might be an hour and a half

16:57away by truck, right? So by the time

17:00they get there they're they're losing

17:02continuity of of the situation. By that

17:04time they've already hit a road. They

17:05got the pickup waiting. They got like I

17:07mean these folks are smart. They know,

17:08they test, they send out people, they

17:10get caught on purpose, they learn the

17:11system, the pattern, they go.

17:12>> So what they wanted to do is experiment

17:14with drones to like, okay, we get a hit,

17:16we deploy a drone.

17:17>> That drone can give us real-time intel.

17:19>> Now the challenge is all the drone

17:21options out there were like, okay, they

17:22got 30 minutes or 40 minutes, maybe it's

17:24really 30 minutes when they say 40, 30

17:26minutes of flight time, right?

17:28>> So it might take 20 minutes to get

17:29there. You got five minutes to dwell and

17:30then you got to get back,

17:32>> right? So it gives you it helps but it's

17:34it you know all it really does is kind

17:36of tell people that they know they're

17:37being watched. So uh so their number one

17:40issue was uh we need a drone that can

17:42stay up for hours at a time and we need

17:44a drone that can actually get and hover

17:45in place. So you can get a drone that

17:47that can stay up for hours at a time but

17:49it's a fixed wing drone and it's you

17:51know it can give you good surveillance.

17:52Um but you you know they're very

17:54susceptible to weather. Uh they're

17:57they're they can't carry a payload. Uh

17:59and often what the seraps have to deal

18:01with is life and death situations where

18:04you might have to do a search and

18:05rescue. You might have a tra a human

18:06trafficking situation where a family, a

18:09child, you know, somebody has been left

18:11behind and and or they get into a

18:13situation where they need backup and the

18:16backup is still an hour away because

18:17they thought it was an individual, but

18:19it's really a group and it's and it's

18:21hostile. So now you can drop in these

18:23drones and and they're and they are

18:25literally backup. So the [snorts] drone

18:27that we designed, so we put our IT

18:29group, which is the integrated uh

18:30tactical services group that we have,

18:32which is forward tier one operators. We

18:34spent three months at least uh with uh

18:37the sheriff's departments understanding

18:39where the dead zones on a communication

18:41are, uh what their concept of operations

18:43are, their use cases, you you know, all

18:45of the different scenarios that they

18:47were in. And then we designed a drone

18:48system with them. So we pulled off the

18:50shelf our heavy lift drone knowing full

18:52well that they had to have more flight

18:53time than that. So, we designed a drone

18:55that's 9 ft across, two diesel engines.

18:58It uh it can carry up to 100 pounds of

19:00payload, so it can act as a

19:01communication network. It can drop in

19:04supplies. Uh it can do interdiction. So,

19:06literally, this thing looks like a Death

19:08Star. So, this sucker comes down and it

19:10can hold people in place. They throw

19:12rocks at it and and you know, they run

19:14for about five minutes and then they

19:16they overheat and they, you know,

19:18they're like, "Dude, this isn't going

19:19anywhere." you know, and and then they,

19:21you know, backup shows up and uh and

19:24stuff and it's tied in with their AI

19:25cameras. It gives situational awareness

19:27to them and or border patrol or uh local

19:31police or search and rescue. They've all

19:33got the ability right from their cell

19:34phone to see real time.

19:36>> Wow.

19:36>> What's going on?

19:37>> So, it's a fully integrated system that

19:39integrated system for border control and

19:40border protection.

19:41>> And this is and this is um a market that

19:43nobody was looking at. And it's because

19:45nobody knew the market existed,

19:47>> right? the the sheriff said we have a

19:49problem and as we investigated and build

19:51the solution around the problem well now

19:53there's a 20 million uh you know

19:55addressable market just along the

19:56southern border the sheriffs you know

19:59that and and we've got the

20:00>> propri took three months to really

20:02develop the product solution for that

20:03>> which is very fast yeah no to to to do

20:07it

20:07>> very short time horizon to do

20:08>> uh so you know so there's the southern

20:10border opportunity there's the northern

20:11border opportunity there's the Canadian

20:13southern border opportunity because

20:15they're now integrated and looking at it

20:17and then there's a whole global

20:18management border opportunity around it.

20:20So that is a great in in my opinion

20:22anyway a great validation of of what

20:24differentiates us and a market none of

20:27that ever went out for you know RFPs

20:29from homeland security and it it was

20:31just like a use case that developed into

20:33like wow this solves a big problem.

20:36>> Yeah. I mean, is it is it fair to say I

20:38mean, you essentially have the building

20:39blocks, the Legos of a complete

20:41integrated drone system that you can say

20:43like these are the things we can take

20:44off the shelf and mix and match to

20:45develop a lot of situations that

20:48>> might might not even been thought of

20:49yet, but as they're thought of, we can

20:51integrate and do.

20:52>> That's right. And and these are and

20:53these are commercial projects. So, you

20:54know, typically from a say from a

20:56government procurement perspective, you

20:58know, that would go under a one-year

21:00requirements document study and then it

21:02would go into a, you know, a pilot test

21:04that would be 18 months long and then it

21:05would have to go through everything from

21:07probably Senate confirmation to, you

21:08know, whatever to, you know, to get the

21:10budget for it and then there'd be human

21:12rights, you know, investigation, you

21:13know, on and eight years later, you're

21:15coming up with the drone that today has

21:17to be developed in three months, right,

21:18to to meet the requirements. So, that

21:20would be a great example. And I won't

21:22kill you with the other example because

21:23I I know we want to be a little

21:24sensitive of time, but you know, from a

21:26military application, uh we've got the

21:28Department of War that's buying our our

21:30first person viewer uh drones. And, you

21:33know, I think it's a spectacular drone.

21:34Like I

21:35>> So, it's like an initial order or

21:36>> it's an initial order uh in a particular

21:39department that's really the leading

21:40edge of of how this will be done in my

21:42opinion, you know, through the rest of

21:44uh the Department of War. But the the

21:46the fact that they selected our drone

21:48was fantastic. But uh and and fortunate

21:50for us um but the reason we really got

21:53selected is what they were really

21:55testing out is logistics. So you can

21:57build you know and tens of thousands

21:59hundreds of thousands of drones but how

22:01do you get them to location? How do you

22:03make sure they can iterate every 10

22:04days? How do you make sure like there's

22:06all the actual logistics of winning a

22:09battle in a war that are so much more

22:11than the requirement of just the the

22:13actual product. So in this particular uh

22:16uh order which is publicly announced um

22:19what we do is uh we they actually build

22:22the Dragonfly FPV drone on their bases.

22:26>> Okay.

22:26>> And we train them how to build them on

22:28their bases and we manage the supply

22:30line so they have the parts to build

22:32them on their bases. They build in the

22:34range of let's call it about 200 drones

22:36at a particular time. Now that's not

22:38enough drones to match an active

22:40situation. Uh uh an active brigade in

22:44Ukraine will go through up to 180,000

22:47drones per month.

22:48>> A month.

22:49>> A month.

22:50>> And those drones

22:51>> And what's the ASP on those drones? You

22:53know, how much do they cost each that

22:54they're

22:55>> uh So in US terms, they're about 2,000

22:57bucks.

22:58>> 2,000 bucks times 180,000

23:02a month,

23:02>> right?

23:03>> Times 12 plus. I mean, how many years

23:05are we into it now,

23:06>> right? Yeah.

23:07>> Yeah. Well, okay. the the cost on the

23:08Ukrainian side is probably closer to 600

23:10or 700 because they'll use any part from

23:12anywhere, you know, but when you start

23:14putting in NDAA, National Defense

23:16Authorization Act requirements, cyber

23:19security requirements, you know, proper

23:20logistics requirements, those types of

23:22things, you know, you drive your costs

23:24up a little bit.

23:25>> But as a comparative cost as a munition,

23:27it's still an incredibly in inexpensive

23:30munition. I mean, basically, you're

23:31giving every soldier a grenade that can

23:33go 10 kilometers. Like,

23:34>> it's unbelievably powerful. But the

23:36challenge, the additional challenge with

23:38not just meeting the capacity

23:39requirement if they go active, uh, is

23:42how do you make sure they're ready if

23:43they don't go active, right? Because you

23:45don't want to be building 180,000 drones

23:47a month if you're not using it, right?

23:48That's ridiculous. But the but the other

23:50really tricky part is in Ukraine

23:52theater, a drone iterates every 10 days.

23:55>> It changes.

23:56>> And that is when you say it iterates, it

23:57changes in terms of its operating

23:59system, its intelligence, its

24:01>> tactics, you know, because because the

24:03adversary is countering it. the

24:05adversary has figured out a new tactic,

24:07a new way to, you know, get a drone past

24:09the GPS denied or the, you know, system

24:11or to to spoof you or to use it as a

24:14decoy. So, uh, they have to have the

24:17ability to, uh, uh, change physical

24:19hardware, change software,

24:22>> uh, make modifications to the type of

24:23munition it might be carrying, the type

24:25of payload, which might be a different

24:27type of camera, uh, you know, some

24:29shielding device, they might have to

24:30change the radio in it. They they have

24:32to be able to do all that on the fly

24:34every 10 days and switch.

24:36>> I think this is fascinating. I don't

24:37think many people recognize the

24:39requirements like the commercial and you

24:41know customer use requirements of that

24:44fast of innovation and iteration and

24:46then the quantity that's used in an

24:48active situation.

24:49>> So, so, so then you've got a brigade

24:50that's got the capability to build a

24:52couple hundred drones and they can

24:53iterate. So they're learning, they can

24:54build their own use cases, they're

24:55getting that capability of uh such but

24:58now you got how do you how do you but

25:00they don't they will never have the

25:01capacity on base or close to the edge of

25:04uh theater to build 10,000 in a month.

25:07>> Right.

25:07>> Right. So how do you design the

25:08logistics in order to do that? So uh our

25:11mission and and what we've been

25:12designing and learning with them is you

25:14know then we provide them 10,000 drones

25:17uh in inventory that we manufacture for

25:19them because we have the capacity to

25:20manage that. Yeah. And you're

25:22manufacturing in the US.

25:23>> Yeah. Correct. And then another 10,000

25:25drones that sits in our inventory or

25:28sits in our warehousing or it's

25:30officially still our inventory, but it

25:32may have to be shipped, you know, to

25:34Germany or Spain or and if there's an

25:37iteration in the hundreds of drones

25:39they're building, that iteration likely

25:41needs to be made in a very large number

25:43of the other 20,000 drones that are on

25:44standby.

25:45>> Okay.

25:45>> Right. So, how do you like that's the

25:48like and logistics wins wars, right?

25:51Weaponry wins battles, logistics wins

25:53wars. So, if you don't have those

25:54logistics figured out, there's no point

25:55in being able to manufacture close to

25:57the edge. Like, so, and then they need

25:59the ability that if on command within 90

26:02days, you got to ramp up to 50 or

26:04100,000 drones a month. You've got to

26:05have the ability to do that. So when the

26:08Department of War uh at least in this

26:09particular case and the brigades that

26:11engaged with us are looking at these

26:13types of things, they're not looking at

26:15okay uh you know can you build a really

26:17cool drone? You you have to do that and

26:19their requirements are not you know

26:20they're the real deal but they're also

26:22looking at the rest of the organization

26:23the length of experience can you partner

26:25can you manage those types of uh

26:27logistics. So those would be those would

26:29be two demand signals in my mind that

26:31really differentiate uh Dragonfly and

26:33are are indicative of you know we're a

26:36long-term player right you know.

26:37>> So what's the competition? I mean you

26:38mentioned one is DJI that's the 800 lb

26:41gorilla that has 90% market share but

26:42it's not US-based. So obviously any

26:45defense applications in the US are not

26:47going to look to procure from

26:48>> and and both department of commerce and

26:50FCC have basically you know passed

26:53legislations that just eliminate DJI

26:55from this particular market. Right.

26:57>> In large part because

26:58>> So you guys are the only fully

27:00integrated drone offering

27:02>> uh

27:03>> in the US-based.

27:05>> Well, so there are a number of other US

27:07manufacturers now that have emerged in

27:09the last 5 to seven years that are

27:10really good players and and we need them

27:12like there's there's not enough

27:14>> just from a national security and and

27:16from doing the right thing perspective.

27:18uh we need an industrial base that can

27:20provide sophisticated drone systems uh

27:24uh beyond what just one company uh could

27:26do. So these other fantastic companies

27:28out there are you know onis is a great

27:30example, Redcat's a great example. Uh

27:33Skyo uh you know they're not so much

27:35military but that that's a great we all

27:37need to be successful like and and as

27:39all of them are successful the other

27:41players that have that capability are as

27:42well.

27:43>> Of course I think we got some special

27:45sauce but you know they do too. Yeah,

27:47>> I can tell you with confidence and and

27:48in fact I was at a drone industry uh CEO

27:50dinner two nights ago and it's very

27:52collaborative at least right now.

27:54>> That's telling of itself. There's a

27:56drone industry CEO conference, right?

27:58That means there's enough activity.

28:00>> It was actually a dinner that was

28:01organized around a separate conference.

28:02Okay. Where where all the CEOs

28:04>> But like 25 years ago when you guys were

28:06founding that that was not existent. You

28:08were the only CEO of the drone company.

28:09>> Yeah, we were. And yeah, it's it well

28:12and it wasn't even an industry then. It

28:13was a hobby. It was like a It was remote

28:15control airplanes that turned into these

28:17things called quadcopters which were a

28:19neat hobby. 2008 we were on the cover of

28:21um Popular Science magazine as the

28:23innovation of the year.

28:24>> Yeah.

28:25>> And uh and in fact it was that magazine

28:29uh we got a call from the US Navy where

28:30the US Navy first uh I believe this to

28:33be true and they told me it was true. Uh

28:35the first uh quadcopter actually was

28:38still called a flying camera category

28:40one so small that the US Navy ever

28:42bought was a Dragonfly. That's awesome.

28:44And actually the the individual that

28:46that bought that and ran ran that

28:48program is is now part of Dragon

28:49Dragonfly.

28:50>> Oh, very cool. So, fast forward, you're

28:51at the CEO dinner now.

28:52>> So, we're at the CEO dinner and and one

28:55of the the the fascinating topics was

28:57none of us have seen each other

28:59competitively

29:01>> really,

29:01>> not once. Now, in the last two weeks, uh

29:04the the Department of War have uh come

29:07out with and and now almost daily, maybe

29:10every other day, there are new uh

29:12requirement or requests for proposals

29:14for multiple multiple drone programs.

29:16And we're not talking like we're talking

29:18like a million drones. It's called the

29:19drone dominance program.

29:21>> Okay.

29:21>> Now, 100% for sure all of us are, you

29:24know, bidding in on all those types of

29:26things. But that would have been the

29:28first competit like truly competitive

29:31environment that we all would have been

29:33in and and all of us don't know who

29:34who's been selected.

29:35>> I mean if we just look at it from

29:37practicality standpoint, right? You're

29:38talking about the logistics required to

29:40scale up for 20 to 100,000 monthly

29:42deployment. One company couldn't meet

29:44all of those RFPs if they tried, could

29:46they?

29:46>> Yeah. I mean this this drone dominance

29:48is a million drones.

29:49>> Yeah. So there's enough to go around

29:51even if we just don't factor in what

29:53differentiates and there's it's just

29:55apples compared. So right now it's very

29:56collaborative uh and it needs to be

29:58because you know certainly amongst kind

30:00of like the five or six leaders at least

30:02and there's probably more than that uh

30:04which I'd like to think that we're a

30:06part of is you know if one of us is

30:08doing well the chances that the other

30:10folks are doing well is is very good.

30:12>> Yeah.

30:13>> So I I think we'll continue to see lots

30:15of good collaboration and such for the

30:16next little little while.

30:17>> So how do you view the market? I mean

30:18how do you put a you know your arms

30:20around how big this market opportunity

30:22can get right now? I mean, you're doing,

30:23call it, maybe close to a $10 million

30:25run rate right now. I mean, where do you

30:27see that going with the

30:28>> uh Well, I would be disappointed if if

30:30we're not signing, you know, you know,

30:3250 million uh this year. You know,

30:34probably delivering around 20 at least

30:36that's what the analysts are calling

30:37for. Um you know, we've got 100 million

30:39of of of uh organic capacity to build.

30:43>> Okay,

30:43>> it's scheduled. It's you know, so you

30:46know, our our big thing is building out

30:47more capacity and supply chain to meet

30:49the ongoing demand. Right. right now uh

30:52we've made a very conscious decision. Uh

30:54we believe strategically for us it's

30:57it's is not to really worry about the

30:59big big picture. I mean we got to keep

31:00our eye on where the where things are

31:02going. Yeah.

31:02>> But our number one issue is to is to

31:04fulfill the contracts we have. Yeah.

31:06>> If we delight our existing customer we

31:08we you know that's that is our mandate

31:11full stop.

31:12>> Yeah. Because those customers have the

31:13potential to buy tremendous amounts

31:15volumes more behind that. Right.

31:16>> Yeah. And the one thing, you know, I've

31:18been a tech entrepreneur for close to 40

31:20years now. I've got lots of things that

31:21haven't worked, but but I but I have had

31:23a couple of, you know, really

31:25significant multi-billion dollar wins,

31:27uh, by the grace of God and some great

31:28partners and and stuff. And what I do

31:30know

31:31>> is that it always takes two to three

31:33times as long.

31:34>> Absolutely. And two to three times as

31:35much capital. Yeah. At least.

31:36>> And I also know

31:38>> that it's always about a hundred times

31:39bigger than you thought. Like in the end

31:41of the day, I think I think about the

31:43internet in particular. Yeah. Right.

31:44Right. So I was early in the internet

31:46you know 949 95 first cloud computing

31:49company and and could we imagine today

31:52what like it would be on so so when you

31:55ask the question you know where do you

31:56see this going I just know that I'm not

31:59smart enough to know how big it's going

32:00to be but but if we can delight our

32:02customers this year right

32:04>> you know we'll be around next year and

32:06you know do we do we have a you know a

32:08Google type potential yeah I I I really

32:10think we do yeah but it's ours to screw

32:12up which you know should You've done

32:15this, you've had a couple successful

32:16exits before. I mean, the same

32:17ingredients in place that you see the

32:18dynamics that worked in those

32:20situations.

32:20>> Wow, that's a great question. Yeah, the

32:22the same indicators that that I see in

32:25in the two particular winners that are

32:26always in my mind, those are the same

32:28things I unfolding, not just from a team

32:31building perspective, but also from a uh

32:33market maturation perspective and a

32:35whole bunch of things that are

32:36completely out of our control. uh

32:38geopolitics, you know, development of

32:40tech, introduction of AI, like just a

32:43whole bunch of things, you know, are are

32:46in in the spot now. And we just like you

32:48said at after 27 years, we happen to be

32:50in the right spot at the right time. The

32:53the exact same indicators are in this

32:55place. So, uh you know, I'll be bold

32:57enough and I'm not trying to give a

32:59prediction. I'm just yet, you know,

33:00reinforcing that we we'll we'll be a

33:02multi multi-billion dollar company un

33:05and it's only it's only if we don't it's

33:07management messed it up at this point.

33:08>> Yeah, it's execution risk execution s I

33:10mean that's candid. That's honest. So

33:12let's look at it from the key risk

33:14really is just keeping up with the pace

33:16of technology. I mean how do you view

33:17that? What keeps you up as if it's

33:18execution risk is the one thing that

33:20holds us back. what keeps you the the

33:22the head, you know, I don't want to call

33:24you the executioner because that's not

33:25the right [laughter]

33:27the head guy most in charge of

33:28responsible for executing you know what

33:31is it that worries you and then we'll

33:32I'll do the flip side is like what

33:34really excites you about the

33:34opportunity. Uh well so the the the

33:36number one thing that that I think most

33:38of my time around it which which you

33:39know changes from year to year one year

33:41it's got to be finance the next year

33:42it's got to be you know a particular

33:44product thing or uh right now it's it's

33:46really uh about two things a bit more on

33:48a philosophical level it's really all

33:50about culture so you know the only

33:52ultimate strategic differentiator I

33:53believe that we or anybody can have is

33:55the culture of your people and and you

33:57you know the resilience and everything

33:58that goes along with it. So certainly

34:00for this year I'll be spending a lot of

34:01time working on uh our culture but you

34:03know that's kind of a fluffy thing but

34:04it's a but it's a very important thing

34:06for us right now hasn't been as

34:08important in the past but the other you

34:09know very tactical important thing for

34:11us is supply chain management. So uh

34:14ultimately we see that like the demand

34:16signal just from the drone dominance

34:18program is so big it'll suck up every

34:21part out of the out of the market. Now,

34:23that doesn't even count the Marines or

34:26the Navy or special ops or the

34:29commercial market or the international

34:31market. So, we've been, you know, busy,

34:34you know, uh for quite some time pre-

34:36buying inventory, uh securing our supply

34:38chain line. Uh we're looking at some

34:40acquisitions to vertically integrate uh

34:43some of our supply chain. Um and uh and

34:46that's now that's more for the the very

34:48specific drone parts. The other thing

34:50that that uh is of concern is actually

34:52the payloads. So we're we're you know we

34:55already suffer significant as everybody

34:56does significant delays if a customer

34:59says okay I need a particular type of

35:01camera or sensor or a particular type of

35:04radio uh and you know you order 15 of

35:07them and you know it's a 12week delay

35:10right now but these orders aren't 15

35:13units.

35:14>> Yeah.

35:14>> These are thousands of units. Right. So

35:16that is an issue that uh that the

35:19customer in this particular case

35:20governments also recognize. So there is

35:23money pouring in to support those

35:25industries as well and to build up the

35:26industrial base. But that's that's the

35:28risk for us and every other drone

35:30company and actually on us at a national

35:32security level as well.

35:33>> Yeah. So it's of utmost importance and

35:35priority for everyone involved.

35:36>> It is. Yeah. So, let's think about for

35:38investors new to the name or considering

35:40it, what are some catalysts that they

35:41can be looking forward to or milestones

35:42that you see that are on the near-term

35:44horizon that would be indicative of of

35:46this trajectory just going in the right

35:47direction?

35:48>> Yeah, I signature customer announcements

35:50and often signature customer

35:51announcements aren't going to come with

35:52numbers because they're very sensitive.

35:54You have a particular customer that

35:55doesn't want to reveal the exact nature

35:57of or size of the order that's

35:59happening. But if you're announcing uh

36:03uh you know, tier one customers Yeah. uh

36:05from tier one governments or from tier

36:08one fortune 500 or defense primes as you

36:12know uh as partners andor you know

36:15particular wins that is going to be

36:17indicative of uh future earnings it's

36:19more important

36:20>> are those orders in the magnitude of

36:21tens of thousands hundreds of thousands

36:23potential millions uh in units I'm

36:26talking not in tens of dollars

36:28>> uh so if it's with a tier one right now

36:31if unless it's a part of a big

36:33programmer record Um it doesn't matter

36:36be because uh if they're ordering 500 or

36:39something um you're in line to get

36:43orders of tens of thousands.

36:44>> Yeah. Yeah.

36:45>> Right. So but you know they they tend to

36:47layer these things uh in. So the big

36:49drone dominance uh uh proposal or or

36:52request out right now is is the

36:55companies that are down selected. There

36:56will be 12 that are down selected and of

36:59those 12 uh they'll be there there's a

37:02bake off. It's like those 12 are going

37:04to have to produce a thousand of a

37:05particular drone in 90 days.

37:07>> Wow.

37:07>> Right. The top six of those will then be

37:10selected to uh to uh produce 2500 drones

37:15in 90 days. And the winners of those

37:17will get the first sets of contracts.

37:19>> Okay.

37:20>> Now, even if you're in those contracts,

37:21every six months they're going to reake

37:23this gauntlet, right? I mean, they have

37:24turned this into a like they're

37:26>> This is wild because, you know, everyone

37:27right now the headlines of the day is

37:28there's supply constraints with AI

37:31chips. nothing about drones whatsoever

37:33here. And it sounds like the demand here

37:35far outstrips potential supply to the

37:37point where that's why the government's

37:39setting these procurements and RFPs up

37:41this this way like having an ongoing

37:43bake off every 6 months.

37:44>> Yeah.

37:45>> Yeah.

37:45>> Because they they don't want to test

37:46just the tech. They want to test the the

37:48capability and capac like the capacity

37:50capability for it. So uh to to back to

37:53your original question, it's it's

37:55signature uh account. Like if you're

37:57winning signature customers, you're in

38:00the mix. Yeah. Right. and uh and so it's

38:02yours to lose. So I think that's a very

38:04good u indication. Uh and and then you

38:07know uh and then looking at revenue

38:08numbers we're now starting to see uh not

38:11just from us but the other great comps

38:13out there we're starting to see them

38:14start to all their numbers are starting

38:16to

38:17>> but the hockey stick is nowhere near

38:18happened. So we're not near and I think

38:20the hockey stick is best case

38:21threequarters away. Okay. uh and you

38:24know you'll start to see it uh then uh

38:27but you know if I were to predict a year

38:29and a half from now that the numbers

38:30will be staggering compared to you know

38:32what we thought they would be.

38:33>> So two quick for for a lot of companies

38:35not just for us.

38:35>> Yeah. No fair. Um two quick questions.

38:37One along just given the pace of

38:39innovation in the space does IP play a

38:42role at all? I mean are you able to

38:43protect with patents any of the

38:44technology you've developed over the

38:45last 30 years or is that more it's just

38:47it's too rapid of an innovation cycle?

38:49Uh yeah, so we our IP strategy has been

38:52so so we've got some good IP. Uh we

38:55generally publish one piece of IP a

38:57year, put one of our engineers names on

38:59it or his team's or her team's name uh

39:01on it. Uh and it's more of an internal

39:03reward system. So what we have found is

39:05that uh when we put the IP out there in

39:08general, the Chinese just copy it

39:10instantly anyway. So now uh we haven't

39:13been ligious around our IP uh ever

39:15because there's never been a drone

39:16market big enough to make it worthwhile.

39:18Right. Right. and and it's also not

39:19really in our nature. However, uh before

39:22we were a public company, uh thank

39:24goodness that we had some of those that

39:26IP uh because we did sell it off um and

39:29kept a license to it and that kind of

39:30kept us funded uh for a while. So, if

39:33you think about things like drones that

39:34go in backpacks, removable blades,

39:37lockable blades, uh drones that can move

39:39by hand gesture, like a lot of the

39:41typical things in the market, we we have

39:43patents uh around that. We'll continue

39:45to put out a patent per year. We'll keep

39:47everything else trade secret and uh

39:49we'll just continue continue to to

39:51iterate.

39:52>> That makes sense. So I always like to

39:54end on this one question is what do you

39:55think the upside here is? I mean you've

39:57kind of you've been very specific in

39:59different areas, but as you look out the

40:01next 12 to 24 months, let's assume best

40:03case scenarios. You get these big uh

40:05tier one customer signings. The industry

40:07ramps as you anticipate based upon the

40:09demand indications you're getting.

40:11You're $250 million call it market cap

40:14company right now. How big can the

40:15company get? How big can the revenues

40:16get?

40:17>> Yeah. Well, I I I again I'd be

40:19disappointed if you know we were if we

40:21were sitting here, you know, three years

40:23from now and we didn't have a $5 billion

40:25market cap and I think all to have that

40:27you need about a half a billion bucks in

40:28revenue. Okay.

40:29>> Well, you know, our pip our our very

40:32strict pipeline today is already exceeds

40:34that. So,

40:35>> so you have good confidence in that.

40:37>> So, we have good confidence in it and uh

40:39so it's not a market question. It's it's

40:41an execution question on our part which

40:43is why the cultural thing is so

40:45important for us uh right now uh because

40:48you know people are going to have to to

40:49execute on that. So it's ours to lose.

40:51Uh I think we clearly understand that

40:53and um I I also wouldn't be surprised if

40:56it was if it was larger than that and in

40:58the context of big companies in the

40:59context of military contractors the

41:02prediction around what'll happen over

41:03geopolitics over the next number of

41:05years the proliferation of drones

41:07autonomy AI all the rest of it that that

41:10$5 billion number is actually so

41:13inconsequential to the to the market TAM

41:15out there that uh it it's um

41:18>> this sounds like the stupidest statement

41:20in the world but it's going to be hard

41:21not to do that.

41:22>> Yeah.

41:22>> Yeah.

41:22>> Well, fair, listen, along the way, I'd

41:24love to have you come back and give us

41:25updates and we're executing against it

41:27and uh would love to follow the story.

41:29>> We appreciate the time. Thank you so

41:30much.

41:31>> Thank you.