ACE Investors

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By Team Ace Investors

Company Overview

DroneShield Limited (“DRO” or the “Company”) is a technology company that designs detection systems to detect and/or intercept unwanted drones and unmanned aerial vehicles (UAVs). It has developed multilayered pre-eminent drone detection and disruption solutions that protect people, organizations, and critical infrastructure from the intrusion of drones. The Company's products include DroneGun Tactical, RfPatrolTM, DroneSentry, DroneSentry-X, and a newly designed Command-and-Control (C2) systemDroneSentry-C2, etc. The Company helps security forces to identify unauthorized drones using real-time alerts and digital evidence collection. The Company's technology uses software and hardware to detect drones from one kilometer away and alert users in real-time through multiple channels. The Company utilizes audio/acoustic signatures to detect drones. The Company offers solutions for Defense forces, governments, airports, prisons, commercial venues, critical infrastructure, and executive protection.

Investment Rationale

DroneShield continues to move into the Software-as-a-Service (SaaS) space through subscription pricing models.

DroneShield continues to move into the Software-as-a-Service (SaaS) space through the use of subscription pricing models on a range of products, as well as further advancement of software-related work, especially in the defense signal processing space. Over time, the software/SaaS business is expected to account for the majority of the Group's earnings. DroneShield continues to move to a SaaS model via subscription products viz. Artificial Intelligence (AI) engine software running on the hardware of RfPatrolTM, DroneSentry-XTM and RfOneTM, camera AI engine DroneOptIDTM, and DroneSentry-C2TM Command-and-Control and analytics software. The hardware range includes RfPatrolTM body-worn detection, DroneGunTM defeat, DroneSentry-XTM on-vehicle/on-ship detect-and-defeat, and DroneSentryTM fixed site system. DRO released major tactical enhancements across its global fleet of counter-drone (C-UAS) devices with a 4Q22 software update. These enhancements are applied to its portable, vehicle/ship, and fixed site devices. Enrolled devices on subscription plans receive a quarterly update to the proprietary DroneShield RFAITM Artificial Intelligence engine. Major upgrades include:

Detection Speed Improvement: A further 25% scan speed improvement across DroneSentry-X® and RfOne® devices. In most environments, a full spectrum scan is completed in less than 1 second.
Spectrum Record Function: The capability to record high-fidelity spectrum samples.
Spectrum Recorder available from RfPatrol® onboard display
Onboard Spectrum Viewer added to RfPatrol®: Operators can review their local radio frequency spectrum in near-real time via their RfPatrol® display without the use of a secondary connected device.
Spectrum Viewer automatic assistance added to the Device Manager interface
Advanced Signal Filters: Advanced signal filters can now be added from the Device Manager to filter out specific signals based on their properties, such as frequency, vendor, protocol, or detection angle.
RFAITM Metadata exposed via API: To assist system integrators, the underlying metrics that the AI system considers within a detection event can be streamed via the device API.

DroneShield is on track to post another all-time high record revenue and cash receipts in CY2022.

DroneShield is on track to post another all-time high record revenue and cash receipts for CY2022. DroneShield posted record revenue of $10.6 million and cash receipts of $14.7 million for CY21 (DroneShield operates on a calendar year basis). For H1 CY22, the Group recorded an underlying revenue from sales of $5 million and cash receipts of $5.2 million, a growth of 21% over the 2H21 customer cash receipts of $4.3 million. The Company secured multiple $1m+ sales across the US, European and global Government agency blue-chip customer base. As of 30 Sep 2022, the Company had a pipeline of $50 million for the remainder of CY2022 (with a further $180 million pipeline for 2023 onwards), with a growing focus on the US and Australian Government customers. DroneShield achieved several significant milestones, strategic in nature, to fortify its position. Some of the highlights include:

Received recommendation by JCO (part of U.S. Army) for the rollout of DroneShield systems, as part of the SAIC consortium, across U.S. Department of Defense installations nationwide
Secured multiple $1m+ sales across US, European and global Government agency blue chip customer base
Secured $3.7 million investment by Epirus Inc, a high-growth U.S. technology company developing software-defined directed energy systems that enable unprecedented counter-electronics effects and power management solutions
Build new partnerships with Teledyne FLIR, Nearmap, Allen Vanguard, and XRG, while strengthening and making additional sales through existing partnerships with BT and Thales
Achieved first U.S. civilian airport deployment
Launched regional NSW testing facility
Deployments at Davos and IRONMAN Texas.

Received a binding commitment of $3.7 million from Epirus to scale up operations and ready inventory

On 17 Nov 2022, DroneShield received a binding commitment from Epirus, Inc (Epirus) to raise $3.7 million (corresponding to approximately US$2.5 million), via a placement of 18,500,000 fully paid ordinary shares in the Company (Shares) at $0.20 per Share (Placement). Epirus is a high-growth U.S. technology company developing software-defined directed energy systems that enable unprecedented counter-electronics effects and power management solutions to optimize power efficiency in defense and commercial applications. This includes the LeonidasTM solid-state, software-defined high-power microwave (HPM) technology to enable unmatched counter-electronics effects for a range of use cases. Net proceeds from the Placement are currently intended to be used to:

Scale up ready inventory and long lead items to rapidly fulfill anticipated orders
Scale up engineering and operations to support current momentum, and
General working capital

DroneShield announced a record all-time high purchase order worth A$11 million.

On 21 Dec 2022, DroneShield announced a record all-time high purchase order worth A$11 million from a Government agency customer. The order includes supplying several different types of DroneShield counterdrone/C-UAS equipment. A substantial part of the order is expected to be delivered shortly, with the remainder in late March 2023. A$11 million corresponds to the combined value of both phases of the project. Payment for each batch is expected to be received within a month of each delivery. The proceeds are expected to be received across March and June 2023 quarters.

ACE’s Recommendation:

DroneShield Limited (“DRO” or the “Company”) is a technology company with demonstrated technical capability. DRO has demonstrated a consistent progression, first by building and then refining its product suite along with a global distributor network, then moving to customer demonstrations, followed by initial smaller sales, repeat $1m+ sales, and now moving into $10m+ sales territory. Over the last 24 months, DroneShield made significant investments in scaling up its operations to continue to meet the delivery expectations of its customers. DroneShield achieved significant advancements strategic in nature, including a recommendation by the Joint Counter-small Unmanned Aircraft Systems Office (JCO) as part of the SAIC Team's offering for the deployment of its Counter-UAS as a Service across US DoD, an SBIR project awarded by US DoD with partner Quantum Research International, the first US airport deployment among other deployments across US, European and other Government customers, and appointment to the Australian Department of Defence Intelligence, Surveillance, Reconnaissance, and Electronic Warfare Standing Offer Panel. Additionally, last month, DroneShield secured a A$3.7 million investment from Epirus Inc, a high-growth U.S. defense technology company developing software-defined directed energy systems. We believe that the Company is well-positioned to deliver into the future with the achievement of several significant advancements strategic in nature and recently secured an A$11 million purchase order. We would like to recommend a SPECULATIVE BUY rating on the stock.

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