Draganfly Inc. (DPRO) Earnings Call Transcript & Summary

Hi, everybody. Welcome to our Q2 2026 earnings call. We'll just give this a minute. We just started it, but just letting people file in the room, and then we'll get started. Thank you. All right. I think to be respectful of everyone's time, we will get started just as people are still starting to file in. So as always, welcome and greetings to all the shareholders and stakeholders who always tend to join us on these calls. This time is the Draganfly 2026 Q2 Earnings Call. My name is Rolly Bustos. I'm the Internal Investor Relations rep here at Draganfly. We appreciate you all joining us as always. We'll start with our CEO and President, Cameron Chell. He'll be talking about and recapping the second quarter. Next up will be a detailed financial review with our CFO, Paul Sun. We'll then conclude by addressing the presubmitted questions we've received. As always, you're welcome to reach out to me directly at investor.relations@draganfly.com, if we didn't 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 company's results and statements are accurate as of today, August 10, 2026. We are under no obligation to update or renew these statements outside of material press release disclosure going forward. The full forward-looking disclaimer can be found on Page 2 of this presentation and on the screen right now. Cam, if you're ready, please go ahead.

Sounds great. Thanks Rolly. Sure appreciate it and appreciate everybody taking the time to afford us the opportunity to update our earnings call for this last quarter. So the net-net here is that Draganfly, we had a record quarter in our second quarter and we're really very pleased with the progress that we are moving forward with. It's super pragmatic. I understand that it's a very pragmatic approach compared to maybe, say, a number of other comps out in the industry, but we're super pleased with where we've ended up and what the pipeline looks like going forward. So our revenue was $2.664 million. That's a year-over-year increase of 26% with gross profit of $533,000 plus. We have a current cash balance of $131 million, and we did just over $2.5 million of product sales. Some of the highlights from the last quarter included IACLEA which is the International Association of Campus Law Enforcement Association or Officials/Professionals (sic) [ Administrators ]. This is a 3,000-strong campus association, and they signed an exclusive deal with Draganfly to provide their association members -- the 3,000 campuses that are a part of this -- with the training for drones and counter-drones on their campuses. It also includes product and they went through what I would call a pretty exhaustive series of tests and litmus tests and interviews and all the rest of it to determine who they were going to go with, who they were going to endorse and what program they were going to put in place. I would say that this was 50% based on product and 50% based on subject matter expertise and the quality of the training program that was being put forward that campuses will go through. So it's a tremendous market win for us. We have an immediate pipeline of over 50 campuses that signed up. We are in -- typical fashion of what we do, which I know is frustrating at times, taking a very pragmatic approach to how we do this. So we're moving up. We did some pilots previous to launching the whole program, which helped us establish what that training protocol would be, what were the use case scenarios and the concepts of operations that we were going to have to be planning for. We had to make some key hires in campus security, counter-drone and a number of other tactical positions in order to really develop that right programming. And we're rolling out the first 3 campuses that have signed up with us in the next quarter. We'll assess those 3 campuses. We'll probably run them. We'll sign up another 3 of the 50 that are indicative in the pipe. And we'll run them for a quarter, then run the next ones for a quarter and get all that operational expertise, make the adjustments necessary and then we'll open up the spigot to it in probably the second quarter of next year, which works well in terms of most of the budget timing and actually most of the decision timing that it takes for things to move forward. But we really want to make sure that we've got a great reference base in this regard. It's a bit of a captured market for us. So really hats off to our public safety organization and how they organize this. I will mention as a subsequent event, we also did sign the Small and Rural Association and that's a very, very important association for us to sign as well. And part of our whole strategy here is not necessarily to go after the urban centers. So those urban centers are really well-serviced by organizations like Skydio, Axon, BRINC who are very, very targeted in those areas, have obviously very strong balance sheets, competent management teams, and we didn't want to be going head-to-head with those folks. Now the campuses is a terrific set of organizations for us to go and work with, including the release of our drone-in-a-box solution to them. However, the rural, which makes up about 80% of police forces in the country but they're smaller. So they're a little bit more expensive to work with, but they're not quite as fussy. So you've got a balance there to work with. There are a couple of other associations that we're close to signing. But again, we're just -- we're trying to roll it out in a measured way. We also completed the acquisition of Skip Dynamix. Now this is a really strategic acquisition for us. Skip Dynamix is -- the 2 founders involved here are former Navy grads. They're actually the individuals that designed the original FPVs for the Marines and over 15 years ago, trained Marines and built protocol around FPVs. Now a lot of people don't know this, but FPVs weren't invented in Ukraine. They were introduced to Ukraine by the U.S. Marines as a bit of a Hail Mary to like 'You guys are in a tough spot, try this.' And lo and behold, it worked. So the amount of experience that these 2 individuals brought to the organization -- not just in terms of their engineering prowess, capability, operational prowess, but also their contacts in the existing work that they do within the government -- was really important. Now this particular product that you see in the picture there, that is initially designed as a one-way attributable fixed-wing drone. So the part of the strategy here is twofold, and we see it unfolding exactly as these guys had predicted. There's 2 reasons that fixed wings will become much, much more prevalent over the coming couple of years. First of all, if there's engagement in Taiwan or the South Pacific, you're dealing with a surface area -- an ocean -- that's 5x the size of the Atlantic. Distance matters, and you're not going to be using quadcopters in those types of engagements. And it will basically be a naval or a marine or a beachfront type of engagement. So you need a different type or piece of equipment. And this is positioning us for that spend that's coming up in that regard. It is our estimation that the 100-nautical-mile Lucas program -- this is exactly what this is targeted toward -- and we're down to the final few contestants or selections for that, and we feel pretty good about it. Now interestingly enough this particular plane is also an excellent ISR. It could be hand thrown. It could be from a ship or from the shore. So it's like an anywhere, anytime, very easily manpackable. And an interesting piece of the construction around this product is the fact that it's not composite. It's actually a thermoform. So we can mass produce this thing today. Today we can push out tens of thousands of these things in a month at very, very low cost, like 4-figure cost. And that's really important, and they're completely customizable inside. So depending on the type of radio that you want to run or the type of payload that you want to have or ordinance or such. So it's very, very modular as well. So it really fits our philosophy of modular drones. Draganfly was very proud to be awarded by DEVCOM development of a counter-drone system. This is an ultra-light, ultra-mobile counter-drone system. It has all kinds of different use cases. The primary use case was forward-operating bases or even squads that have to go out and maybe spend time overnight and need to protect personnel. It does include a tethered drone. It includes an effector that can be either kinetic or RF and some pretty sophisticated software on the tracking side. So we're really excited about what's happening there and how that's -- we've got strong experience in the counter-drone space, but winning this DEVCOM contract is significant and I believe translates into hundreds of millions of dollars of revenue, not just within the U.S. DoW, but in the international markets as well over the coming years. We launched a brand-new line of cameras in a partnership with a company called Blitz. And you can see by the picture of that camera there, this is not a typical consumer dual-use type camera. It is a hybrid of a military camera and a dual-use commercial camera, but packed in a case and container that is much more durable and the optics on it are incredible compared to what you would get in a prosumer or in a dual-use type drone. And this is a bit of a trend that we see in the defense side of the business where you see the quality of the product, even if it's dual-use, moving up the food chain. And I would suggest this is also a reason that we continue to see a slight -- a meaningful delay in our revenue ramp because the specifications and qualifications that are being asked for are being refined on the fly. So we may have a large order and then as the order gets there, they're like, 'Hey can you make this tweak?' And then you've got to redesign some cameras. And candidly, this is why we worked in partnership to develop this entire camera system. It's very unique to Draganfly. It'll fit on any of our models. It'll also fit onto other drone models as well and really launches us into the optics business. Draganfly, the Flex, the FPV drone was selected by 2 additional U.S. Department of War units. I can tell you that these are all Special Forces units and we're really proud of the fact and pleased with the fact that these particular Special Forces units are selecting the Flex drone. There's a couple of primary reasons that we can't really talk about but a couple of them that are disposable is in particular that you've got arms and blades that you can switch out. So what that means is that you've got variability in your mission profile without having to carry a whole bunch more equipment. But the unintended consequence of that design was that you can fit between 3 and 4 times as many drones in the same space whether that's a backpack or the back of a truck because of the way they pull apart and it takes seconds to pull apart or put together. But the way they do, they just pack nicely into very contained spaces. So again, that wasn't part of the original design concept in terms of what the benefit was, but it's actually turning out to be an incredible benefit. Now the performance of it will match -- the difference between FPVs out there in terms of speed and maneuverability is marginal between any of them. But because you can put some bigger blades on this even with shorter arms you actually can do some bigger payloads and some more sophisticated radios. Some of these are actually being used in live situations right now even as ISR drones. So some great lessons that have come out of that, and we see a great future for this particular one. ACSL and Draganfly have partnered to bring NDAA-compliant Japanese drones into the Canadian and actually into the U.S. market as well but into the Canadian market it's exclusive. But into both of these markets it's important to note that these are not just typical ACSL Japanese-made drones. This is originally a drone that was originally designed by Hitachi but the ACSL drones that are in our lineup are in our lineup because we've integrated them with our other drones. So you'll see on the front of the ACSL drone a camera system that pops off and another camera that can pop on whether it be a thermal, a higher res, hyperspectral or whatever the case may be. There's 4 different cameras. But those cameras now also pop off and are being fitted onto the APEX drone and eventually onto all of the drones. So we'll have an interchangeable camera system that will be included in the ACSL line. Now only Draganfly will have that interchangeable capability with ACSL. So we're building strategic differentiators into this particular product line. Now the reason that we didn't build this product ourselves is that everybody builds this product and it's typically a low-margin product but it's something that you've got to have in your product mix because it's a very convenient and popular-sized drone and it works great for ISR whether that be in military, public safety or industrial. But that particular drone model in our opinion is a race to the bottom. So we wanted to come up with a strategy that would still allow us to scale, still build some unique capabilities within our product line but also not have us utilize valuable resources to develop a me-too type product. And I'm not suggesting ACSL is a me-too or that company is a me-too. They've done some really, really cool things here, but this is all they do. You really have to just be focused in that particular product line if you're going to be even somewhat successful. And, of course, our product line tends to be first of all interchangeable, modular. Arguably we're still the only folks out there that have a fully integrated product line across 6 different drone sets. So if you're a squad, a company, a battalion, a brigade, you've got all the different drone sections that you can pick from 1 supplier. We supply everybody from a squad right up to brigade. We don't go up to command level because those are typically drones that are Category 3 drones. But interestingly enough the biggest demand signal that we see over the next couple of years is going to be medium- and long-range strike drones. And hence that's exactly why we bought the expertise and technology behind Skip Dynamix. So you will see us entering into at least the medium-strike and likely the long-strike area over the next number of years as well. I had the great pleasure of -- man that picture is -- I got to talk to our PR department. That was a long time ago. But anyway I had the great pleasure of providing testimony to the Canadian Senate specifically talking about how to speed up the procurement cycles: one, to help industrialize the military complex in Canada; but 2, to help ensure that they are able to get the equipment they need in the time frame they need because everything is sped up. Now it's interesting because Canada has also in many respects become a leading voice and a leading industrial nation even within the European pack. So much of that testimony was applied over into NATO. I was invited also by the Prime Minister's Office to attend a NATO summit in Turkey along with 6 other Canadian defense executives. And it was probably one of the most productive and insightful trips that I've ever had the pleasure of being on with direct contact with multiple world leaders talking specifically about procurement cycles, where we're at in the drone space, what are the things that we need to do to be effective long term. Not next quarter, but what do we need to do to build a successful long-term industrial base. So it's premature to say right now, but you will see massive procurement coming out of the Canadian market even by the end of this year which is another reason that our procurement and revenue cycle will see a significant bulge in it because we've had to remain measured in order to meet that demand on a timeline that's going to be required of us. So again, we've worked ourselves into a very privileged situation to be able to serve the people that serve, and we're hopefully going to be able to do the job that's being asked of us. At this point I'm going to turn it over to our CFO, Paul Sun, to run through the financial highlights. Paul?

Yes. Thanks, Cam. Thanks everyone for joining. So yes, this first slide here we'll look at a snapshot of the second quarter comparing it to the year-over-year quarter last year. So revenue as Cam mentioned 26% up to $2.7 million from $2.1 million in the second quarter of '25. Second quarter revenue comprised of $2.6 million in product sales with $100,000 for the balance coming from drone services. Gross profit $533,100 compared to $504,000 in Q2 of last year. We did have a onetime noncash write-down of inventory of $43,700 and otherwise would have been $576,800 compared to the same period last year where there was a onetime inventory write-down of $10,400 making the adjusted gross profit $515,000 last year. Adjusted gross margin for Q2 was 21.7% compared to last year's adjusted number of 24.3%. This was a result of products and services mix comparing the 2 quarters as some products have different margin profiles than others. Total comprehensive loss for the quarter was $11.8 million compared to a loss of $4.7 million in the same period last year. This quarter does include that noncash write-down of inventory of the $43,700 and a small fair value of derivative liability loss of $8,900. You'll recall that's from a February '24 financing that we did where it's just the way we report functionally in Canadian, so we have to account for that as a derivative. So loss otherwise would have been a comprehensive loss of $11.7 million versus an adjusted loss of $4.6 million in the same quarter of 2025. Increase is primarily due to higher office and admin cost, R&D, share-based comp, professional fees, travel and wages. And if we can go to the next slide please to do a quarter-over-quarter change. Looks good. Yes, so revenue for Q2 was up 15.2% to $2.7 million again compared to the $2.3 million for Q1 of this year in '26 mainly due to higher product sales. Gross margin for Q2 was 20% compared to 15% in Q1 of '26. However if we back up that onetime inventory write-down that I mentioned before gross margin for Q2 would have been 21.7% compared to 19.6% adjusting for noncash items in the previous quarter. Total comprehensive loss for Q2 again $11.8 million compared to a comprehensive loss of $5.7 million for Q1 of '26. And, of course, you'll recall we had that loss in fair value of derivative liability of $8,900 and the write-down of inventory of $43,700. So Q2 would have been $11.7 million compared to a loss of $6.6 million, excluding noncash adjustments in Q1 of this year. Again, increase in quarter-over-quarter was primarily due to the same factors being high office and admin costs, R&D, share issuance cost, professional fees, travel and wages as the company continues to scale as per Cam's earlier comments. Moving to the last financial slide here. I think we've got a snapshot of the balance sheet. So you can see total assets increased from $101.3 million to $154 million from the end of the year, largely due to the increase in cash. You'll recall we did do a relatively large financing in February of this year. The working capital surplus as at June 30 was $144 million versus $95.2 million from the end of 2025. Shareholder equity was $148.9 million at quarter end compared to $96.6 million at the end of last year. However, both working capital and shareholders' equity would have been a little bit higher if we ex'ed out those noncash fair value of derivative liability that I mentioned earlier for the quarter as well as at year-end. You can see we continue to have minimal debt and our cash balance at the end of this quarter was $131.9 million compared to $90.2 million at the end of '25 as again we did that February financing. And with that I'll pass it back to you Cam.

Great. Thank you, Paul. Appreciate it. Just a super quick review. This is our core line here along with 2 additional -- actually 3 additional products. So we've got the Flex FPV, the APEX, the Commander, the Heavy Lift Drone. That Heavy Lift also comes in a hybrid called the Outrider which is up to 7-hour flight time with a 67-kilogram payload capacity. And the ORCA the beginning of our fixed-wing line, our medium- and long-range strike. This is currently short-range strike. Short-range we're calling 100 nautical miles. Depending on the area that you're working in like 100 nautical miles would actually be about a medium-range strike drone in the Ukrainian theater. But in the Pacific theater that's a short range. And then, of course, we've got the SOTEN which is unique -- with the modifications that we've made and the integrations that we've done, that is a unique product for us. You will continue to see product rollout from us over the coming quarters as well. I shouldn't say more than that but pretty excited about the things that are being driven by customer demand and where we're positioning those things from both our military and in particular public safety customers.

So there are a number of questions that came in that Rolly provided to me so I'm just going to read them here if that's okay and do my best to answer them. So could you discuss Draganfly's strategy in the current UAS -- counter-UAS market? Is Draganfly developing its own counter-UAS system or do you expect these capabilities to be delivered primarily through strategic partnerships and integrations. So great question. And I think as one of the advantages that we have or one of the strengths that we have is the fact that we've been building drones for 27 years. We understand the vulnerabilities of them extremely well. And we have -- we were doing counter-drone work 15 years ago. Well it was 12 years ago. We built a drone that shot nets out using airbag explosives under contract with AeroVironment who was a big customer of ours at that time. And we've seen many progressions and one-offs that we've built for different programs out there. So we are developing our counter-drone capabilities. We have purposely not tried to be first to market in this regard because it is like the UAS space, a very fast-moving, continually changing space, more because tactics from aggressors can change so quickly. And because it's such a nascent industry, the concepts of operations and the use cases all change super quickly. So we're definitely an innovative company. We don't try to be first movers but we definitely take the time to do the research and be very innovative so that when we are coming out with stuff it works and can be really well deployed. So our counter-drone strategy is being able to have certain specific capabilities that are unique but that can also be applied into existing product out there so that we want to be able to use the existing well-established counter-drone companies to be able to be channel partners of ours. Now we've been very fortunate and won the DEVCOM contract in order to build an ultralight, ultramobile counter-drone system for the Department of War. Which is a massive opportunity for us as I mentioned before, hundreds of millions of dollars over the coming years is the potential. And it's certainly on track. There are a couple of partners in there. There's a tether company that's in there that we've partnered with in order to provide some of the unique capabilities of the proposed -- or the system that we did propose. But for the most part the hardcore IP underneath, the tracking system, how everything integrates together, the fact that it's modular, it can use multiple types of effectors whether that be kinetic, soft kinetic, low collateral, RF, whatever the case, is all entirely unique to us. So the short answer is we're developing our counter-drone capabilities. It will have proprietary aspects to it ,but we're certainly not afraid of partnering or purchasing or joint venturing. What we really care about is providing the greatest amount of safety to the people that we serve. And that's the approach that we'll continue to take on that. So do we think anything will come of our attending the NATO summit? The NATO summit was one of the most fascinating experiences. And I've been to NATO summits before. Not invited in at this level for sure and certainly not maybe in times that are as unpredictable as they are right now with the types of budgets that are going into NATO-type countries. We will undoubtedly see more than significant results from this NATO summit and the ongoing NATO participation that we will have and the unique position that Canada presents within NATO as being a North American company but a part of the European Defense Act and really having a leadership position there. So our international business we're very fortunate that we have manufacturing in Canada and the United States and representation in both countries. All the way up to a Board level about 85% plus of our shareholders are U.S. citizens. However because of the domicile of Canada and what that affords us is the ability to have some really nice open doors not just within NATO but also within many Latin American, many Asian, many Eastern Bloc countries. So we see a tremendous amount of opportunity in those markets, and we see very strong support from the Canadian government in order to supply and -- both for geopolitical but also for economic reasons we're getting some great support in that regard. So we'll really start ramping up our capabilities within that regard. So it was a fantastic trip and incredible learning for all of us. Is Canada going to be an important revenue source for us? Can we expect contracts to be announced? The answer to both of those is yes. We never planned in our original business plan that Canada would be an overwhelming like almost even material revenue source for us. And it's really turning out to be quite the opposite. One, the budgets are very significant. It's the 10th or 11th largest economy in the world that's literally deploying tens and tens of billions of dollars over very short periods of time with the best talent that they've got in order to have these capabilities. Some very unique things about Canada is a massive coastline so marine is becoming a specialty for us. Arctic without question is becoming a specialty for us and Canada really wants to position itself as an Arctic expertise. And it is geographically a big part of their responsibility, whether it be NORAD or their own sovereignty. So pleasantly it is. Now that said, I don't want to take away for 1 second our commitment into the United States. We have facilities in Florida. We have additional facilities that will be very large facilities that will be stood up before the end of the year along with personnel to meet the demand that is there. And I know there's that question, well if the demand is there why don't the numbers show it? And it is intricate. The reality is we've just got to have that capacity for when the ball drops. And the ball's dropped and it's dropping. So it's just we're probably maybe 3 or 4 quarters behind some of the other comps out there in terms of the ramp that they saw. However, I think because of some of the international opportunities we've certainly got as large, if not larger, total TAM to be able to provide. And also because we've got a full product suite which we've spent a lot of time building out. Again, being that first mover is not the most important thing to us. Being a complete mover is the most important thing to us. So buyers are becoming much more discerning very quickly. And so, it's over the last number of years of education something that flew could be sold. However, that is not the case anymore. And so, they want to have these integrated systems to provide and execute on integrated missions, whether that's public safety, military or frankly even industrial. So we've seen an impact from Skip Dynamix. Had we seen an impact from the Skip Dynamix acquisition? Yes. The impact certainly isn't on the revenue side but that wasn't the objective. The objective here was the talent both from a pure intellect standpoint, also from an integrity standpoint and also from a contact standpoint. And it was the technology itself. We are thrilled around the thermoplastic technology, which reduces the weight and the cost and the scalability of these things. It's like nothing else I've seen out there. So that is a really, really important aspect of why we -- and so we've seen a big impact and we're going to see very sizable orders because of it. And orders not just in the particular ORCA or Dolphin product lines but also the learnings that are being applied into the other areas of our product line. So what has been the feedback and initial interest in the drone programs from IACLEA? Do we have an idea of what revenue that these partnerships will bring? So the small and also the small rural SRLEEA. Listen that represents 80% of the police forces in the United States. It's just that simple. It's just not something -- we're just trying to be where other people aren't, number one, and aren't thinking are important. Now the use cases in some of those areas are different than pure urban areas but they lend themselves to the type of work that we have traditionally done. Traditionally our drones have been a bit bigger, longer distances, heavier payloads. And when you're in those rural areas that's exactly what you've got to do. So you're going to be looking at situations where a small little Mavic 3 or ISR drone just doesn't fly for 15 minutes. That's not going to get you across a farmer's field, much less across the county. So those are the types of things that we're looking at, and we think it's going to have a very big impact because like I say it's 80% of the police forces out there fit into that category that I wouldn't say we've got locked up, but we got a stranglehold on and hopefully we'll be able to provide the right type of service to continue to earn that position. So as Rolly mentioned, we are available as much as possible and reasonable to answer any questions. We appreciate everybody's time and thank you for the consideration that you've given us today.