Draganfly Inc (CNSX:DFLY) CEO Cameron Chell joins Midas Letter to discuss why the company is the most advanced drone systems company. Draganfly’s primary market is public safety and first responders working with police forces as well as military applications for the US government. Draganfly’s product offering includes quad copters, ground robots, universal controllers and autopilot systems, as well as software. The company also works with various agencies in a contract engineering capacity. The CEO explains he is looking to organically grow the company into that billion-dollar position through acquisitions of a number of small manufacturers that are highly specialized in key areas.
James West: I’m joined now by Dragonfly, Inc. CEO and Chairman Cameron Chell. Cameron, welcome.
Cameron Chell: Thanks, James, for having me.
James West: Cameron, tell me: What is Dragonfly, what does it do?
Cameron Chell: Dragonfly is the oldest operating drone company in the world. We are an A-Z manufacturer and systems provider of drones. Our primary market is public safety/first responders, police forces, and our actually largest market is, we do contract engineering for military contractors in the US.
James West: Wow. And so, how do you make money?
Cameron Chell: We make money, we have three product categories. Our first product category is contract engineering. So, think about the large military contractors out there who have really difficult problems, generally classified type of projects, that they need solved. They’ll come to our engineering bench because we’ve been around longer than any other drone company in the world. We developed the first quad copter, we commercialized the first quad copter; our quad copter was the first one that ever saved a human life. It’s in the Smithsonian.
James West: No kidding!
Cameron Chell: Yeah, we’ve got a large patent portfolio.
James West: So, how is it that DJI stepped in front of you to be the world’s leading sort of drone manufacturer?
Cameron Chell: Yeah, so our three – I’m going to answer that in one second, here. So our three, we have contract engineering; we have our product line, so we have our quad copters and our fixed wings and our ground robots and our universal controllers and our autopilot systems, and our software that we sell. And then we have managed services. So we have large industrial companies that are now launching all of their own entire drone fleets, so their own branded drones, their own private security, autopilot systems, closed, because it’s highly sensitive, data-collection type work; and we completely outsource and manage those. And those are our three primary revenue streams.
We, the origins of our company, we originally designed an AI based and machine-vision based drone that could follow you. And this was almost ten years ago now, long before they were out.
James West: Right.
Cameron Chell: And we had visions of putting it in the consumer market, but saw that the Chinese manufacturers were completely going to dominate that space, and we weren’t going to be able to compete, regardless of the quality of our tech. We found a market niche in public safety with officers and special forces teams that were looking for drones that were a replacement or an adjunct to body cameras.
And so, and through that, we got to meet the folks at Dragonfly, and that was a little over seven years ago, and so we made that acquisition seven years ago. And since then, we’ve been building up our expertise in military, public safety and that type of stuff.
So we pivoted away from the consumer market and the light commercial market, because we saw that the Chinese manufacturers were going to come to dominate that.
The value proposition for Dragonfly today is, quite frankly, the large Silicon Valley VCs have thrown billions of dollars at trying to produce a drone manufacturer, a North American based drone manufacturer, to compete with the Chinese manufacturers. And whether it was Airware at 130 million, or whether it was 3DR at 100 million, and, you know, Andreesen-backed Horowitz, and, you know, or Lilly – all of these companies have tried to buy us at one point, which we’ve not gone down that path.
And they tried to go right up against it, and they got just creamed, right? The Chinese products are very good products.
We pivoted into an area where we had a competitive advantage, where we have complete control of our supply chain, and it’s all North American built, and we are qualified, certified and, you know, passed and check-marked and all the rest of it, to be able to provide that military level of security and manufacturing.
So in doing that, we’ve been able to just build a great little business, and grow it from there.
James West: So you have the US military as a client?
Cameron Chell: Yes, we do.
James West: Oh, okay.
Cameron Chell: We have contractors.
James West: That’s a pretty big –
Cameron Chell: We have large, yeah, we have Tier 1 customers. We’re in a good spot. So what’s happened here in the last six months is, in fact in the last year, but really ramped up in the last six months, is that the US government has banned the use of Chinese drones.
So whether it’s the Department of Interior, whether it’s any of the military branches, whether it’s an independent construction company that’s doing work on a government site or any airport proximity or hospital proximity, Federally, it’s off-limits.
So that’s about a third of the entire market that somebody like a DJI, who does about $3 billion a year, that’s about $1 billion of their market.
James West: Hmm. And so, what is the competitive landscape like in the US for that market?
Cameron Chell: We’re it.
James West: You’re it.
Cameron Chell: We’re this tiny, little company that’s it, that’s now completely overwhelmed with, in a good way, with opportunities, not just on the military front but all the government fronts, large industrial fronts. You know, we already own – like, you know, our patents are things like folding wings and removable propellers and battery – like, things that pretty much the entire industry uses. And, you know, we did about $1 million in licensing last year. We don’t use our licensing to go out and be aggressive with it, we use it to land contracts with Tier 1 customers, because they know that, you know, a large customer’s not going to infringe on our patent. They need to check the boxes on that.
James West: Right.
Cameron Chell: So what we’re seeing today is an opportunity for us to organically grow, and by way of acquisition with a number of other small, small manufacturers that are highly specialized in some really key areas for us, into that billion-dollar position. We believe that we’re well-positioned to do that, and you know, our thesis is, hey, look: over the next few years, can we grow into 100 million of that billion-dollar opportunity that’s now opened up, where you’ve got to be a North American and US-based organization to do this? We think we can.
So today, as part of that, we announced Andy Card to our Board. Andy’s the, he was the Chief of Staff for the White House for 8 years. He led the war on terror; he was the Secretary of Transportation in the United States, he sits on the Board of Union Pacific – like, he –
James West: He’s the right guy.
Cameron Chell: He’s the right guy. And you know, I would suggest that we have other right people that are involved, as well.
There’s a series mandate within the US to ensure that there’s a drone systems industry that is for the North American market, and that there’s a certain level of – I mean, they definitely want competition, but they want a certain level of security and a surety that this very, very important industry that collects more data than pretty much any other device out there, other than maybe your cell phone, you know, has a data security path and a supply chain that remains inside the US. That’s our opportunity, plain and simple.
James West: Okay. So as a, I guess it’s sounding like a hardware as a service kind of operation?
Cameron Chell: That’s a really good description. The thing about drones is, you can’t deliver a drone without delivering software, and you can’t deliver a complex drone system without delivering a complex software system. So, at the heart of what we do is our software. Our autopilot systems, our security systems, our encryptions, our GPS management, our data management – that’s the heart of what we do.
However, again, in order to be able to deliver those, in particular, to a US client, you have to manage that whole supply chain, that entire piece of hardware. And so a lot of people for a lot of years told us we needed to get out of manufacturing, we needed to get out of, and what it’s turned out to be today is, it’s become our strategic differentiator.
James West: Wow, fascinating. All right, Cam, that’s a great introduction to the company. We’ll leave it there for now; I’ll come back to you in due course, and we’ll follow up with you soon. Thanks for joining me.
Cameron Chell: Thanks so much for having us.
James West: You bet.
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