DroneShield continues scaling business, $70m Middle East contract on the cards

DroneShield ASX DRO marketing initiative
During the September quarter, DroneShield increased its marketing initiatives.

DroneShield (ASX: DRO) continued expanding its business during the September quarter – managing to finish the period with $3 million in placed orders with the revenue anticipated from these orders in subsequent quarters.

Cash inflows for the September quarter were $333,779, with more than half of the revenue coming from a Middle Eastern country’s defence ministry.

To boost its available cash reserves, DroneShield raised $9.55 million in August.

The company also received $302,000 from an option exercise, $14,000 in interest and $10,000 in grants.

However, the September quarter also brought with is substantially higher net outflows of $2.5 million.

DroneShield attributed this to the timing of cash receipts, and increases in orders and marketing activities, which resulted in DroneShield boosting its product inventory for sales as well as trials and demonstrations.

Additionally, DroneShield recorded an extra one-off research and development expenditure for product development.

Under the Australian Government’s R&D Tax Incentive Grant, about 43% of this expense is expected to be reimbursed in the first quarter of next year.

Despite the substantial outflows, the capital raising helped boost DroneShield’s cash balance to $7.76 million by the end of September – up from $1.56 million at the end of the June quarter.

Capital raising funds

According to DroneShield, the capital raising funds were used to finance performance bonding and working capital requirements for upcoming contracts.

Other streams the funds were channelled into include investments in sales and marketing, engineering, and inventory.

DroneShield said the raising brought with it new high-quality investors to its register and expanded the register to comprise a broader shareholder base and boost liquidity.

Moving forward

As DroneShield continues to scale up its operations, the company noted it has won its first material domestic contract with the Australian Department of Defence for its portable unmanned aerial system detection devices.

The Australian Defence contract is worth about $700,000 comprises the initial purchase price and annual subscription fees.

During the December quarter, DroneShield anticipates first cash inflows from this contract.

In addition to Australia, DroneShield has numerous other contracts in the pipeline where it is either under evaluation or has been awarded preferred bidder status.

The contracts are for deployment of its products across the Middle East, Asia and Europe.

DroneShield is finalising a contract with government agencies in a Middle Eastern country with the deal expected to be worth up to $70 million if it goes through.

The other contract values range between $500,000 and $10 million.

By midday, DroneShield was trading at $0.41 – up almost 6.5%.