Greetings, and welcome to the Draganfly Q1 2022 Earnings Call. Though our last call seem to be so recent, much has happened within our company and around the world even in the past few months. My name is Rolly Bustos. As most of you know, I am the Head of Internal Investor Relations here at Draganfly. I personally welcome each and every one of you and thank you for joining us today. Today’s call will follow the same format as previous ones, which means it will start with our CEO and now our President, Cameron Chell discussing first quarter operational highlights; from there CFO, Paul Sun will jump in and discuss the financials as were reported earlier today. We will then end with our Lead Director, Scott Larson facilitating the Q&A portion. While we’ll try to address them all, I apologize in advance, if time doesn’t allow us to do so. I’ve already talked to so many of you, but remember, you’re always welcome to reach out to me anytime, investor.relations@draganfly.com. So, without any further hesitation, Cam, please go ahead.

Hi, everyone. And thanks very much for taking the time to be with us today. We appreciate your consideration and your graciousness in terms of looking at Draganfly as an investment. And hopefully as we expect and we’ll work toward being the number one or number two player in the North American drone space in the coming years. I’m just going to do a share screen here and take us through the presentation. So, this will be review for some of you and certainly for some of our new shareholders hopefully give you an orientation point of who Draganfly is and what we are endeavoring to do. So, Draganfly is a leading and rapidly growing drone manufacturer. In fact, certainly within the industry, we’re known as the oldest commercial drone manufacturer in the world. We’ve been manufacturing drones since 1998. We got a start in the drone industry really focusing on the public safety and services business by attaching thermal cameras to drones and providing them to search and rescue teams in order to look for heat signatures. And in fact, a Draganflyer drone was the first drone that was ever credited with saving a human life, and today that drone sits on permanent display in the Smithsonian. And in fact even recently this week, I got a -- some pictures and the text from a shareholder who was in North Carolina, at a police museum, and they actually had old Draganfly drone controllers in the police museum as the first drones that were used in public safety and public service. So, we have a rich history and an incredible bench. And I think what’s really important to note there is that in our 24-year history, we’ve only had two employees that have left, and one of them retired and…

Thanks very much, Cam. So, looking at this slide here, if you looked at the left table, that’s basically an income statement. So for the quick snapshot of Q1 2022, you’ll see that revenue for the first quarter was up 32.8% to just over $2 million, up from $1.53 million in the first quarter of 2021. First quarter revenue comprised of $1.64 million from product sales, with $406,000 coming from drone services with the balance coming from engineering services. You’ll see that gross profit increased by $301,000 or 58.5%, this quarter over the same period last year. And gross margin as a percentage of revenue was 39.93% this quarter versus 33.4% in Q1 of last year. And this was just primarily a result of more sales coming from higher margin products versus those sold on Q1 of last year. Total comprehensive loss for the quarter was $6.29 million, compared to a loss of $44.91 million in the same quarter last year. But for some of our investors that have been with us for a while, they’ll recall that there’s an accounting treatment where a non-cash change in fair value from derivatives are included in these numbers. So, in this quarter, there’s a non-cash expense of $1.2 million from the derivative liability along with a non-cash recovery of $771,000 from receivable. So, the comprehensive loss would have been $5.83 million. And if you ex out the non-cash change in fair value of derivative liability of $41 million from Q1 of last year, the comprehensive loss would have been $3.9 million. So, the year-over-year increase in loss was mainly attributed to an increase in office and miscellaneous expenses, professional expenses. Following that loss per share would have been $0.18 versus the reported $0.19. Now, looking at the middle table about our balance…

Thanks, Paul. Paul, I know it’s a really challenging environment to ensure that all these numbers get in and we just had a new ERP implemented in this last quarter and a bit. And so, great job to you and your team and thanks again, for all your efforts that are amazing.

I appreciate it. Thank you.

I think the highlights here for me, which are really exciting, which might not be obvious. But I think it’s worth mentioning is that first of all, this is organic growth. This is -- all of this revenue is organic. This isn’t -- we didn’t go and buy some company and add the acquisition numbers in and such. We have an integrated company. We’re growing it annually and quarterly. We’re up 25%, again, over Q4, which was a record quarter, which I think we’re up about 20% on that quarter as well. We’re up over 30% year-over-year, organic growth based. The constraints right now are all about just increasing our capacity to meeting the demand, picking the right customers. And what’s most important is I think that we’ve got really credible customers. We’ve got an incredibly strong pipeline. And certainly, I don’t see any insight in ongoing growth in this measured fashion. And I think we’re well on our way to hitting our objectives of being the number one or number two player in the space. I also really like to see what’s going on with the margins right now. They’re maintaining and in fact going up a little bit. And we think that that’s going to be a continued trend for the next quarter or two. So, great job, everybody. And thanks in particular to the engineers for the incredible work they put together and the sales folks, customer service and our financial teams. Just really want to touch on a couple of customer highlights for the quarter. In particular, Revived Soldiers Ukraine, which is a prominent NGO, working in Ukraine. They ordered 10 of our medical response drones. This is a drone, it’s very unique to Draganfly, that you’ll see the box or the payload that’s on that…

Yes. Thanks, Cam and thanks, Paul Sun, for walking through those financial numbers and the results, and so forth. So, as we’ve done in the past, a number of people have emailed in questions beforehand, some of which were worked into the presentation. We had questions come in regarding Ukraine and a few other things, I think Cam has probably addressed. We’ve had questions that have come in just during this, that some have been addressed, some haven’t. And so, we’re just kind of going to make our way through the -- through here as best as we can. I’ll answer a few. A few, I’ll send back to Cam. Cam, why don’t I start off -- start this one off with you. Are there any concerns in relation to cost of materials, inflation driving up costs, and so forth? The supply chain issues, what does that mean for cost of goods and so forth, and pricing perhaps?

Well, I’m not particularly concerned about it, because the same thing that we face, every single one of our competitors faces. So, some customer expectations are in line with what’s happening with inflation and what’s happening with supply chain challenges. So, where before, I would even say pre-COVID, people had an expectation that you had next day delivery and/or 3-week turnaround time, now 12 to 18 weeks isn’t out of question. Now, we’re -- to give you an example, when we had the Ukraine opportunity come into us, we turned that entire thing around in less than four weeks. So, we did some big inventory purchases, I think we’ve done what we can to make sure that we’re in a good position to be able to meet the demand. We have good visibility on what demand is coming. And ultimately, I have a concern around it, but only because we want to do the best job for our customers. But as it relates to the entire industry, I think we’re delivering as quickly and certainly with as much passion and vigor as anybody could expect us to. And certainly not more than what any other competitor could do. So, I don’t have big concerns around it just because customer expectations are in line with what’s real.

Yes, fair enough. Another one that’s come in. Is this a good time for consolidation within the drone sector? Are you guys looking at acquisitions? Maybe I’ll quickly take that one myself. We’ve talked about acquisitions before. We’ve talked about growing organically, as well as going through acquisitions and kind of large partnership deals with, I don’t want to step over any disclosure lines here, but certainly, this has been something that Draganfly has mentioned previously. We’ve kind of talked quite openly about it. I think the best way to probably put this is that we are always looking at acquisitions. We’re obviously quite frugal in terms of how we do this acquisition. So, a big thing we’ve done too in the past few years, and so it’s not outside of what we do, but we look at them at a case by case basis. And as they come in, we do a decent job of vetting them, both initially and then kind of a technical review and then a financial review and then kind of tie it into strategy and so forth. So, quick answer to that question is yes, this is a decent time for consolidation, acquisitions within the industry. And Draganfly along with probably a number of other companies are looking at them as they see fit. And, I think we’ll expect to make some prudent decisions, but it certainly is part of our strategy. Yes, go ahead. Cam, if you want to add to that.

No, no. Well said. Listen, our organic growth is as much as we can take on right now and we are going to keep pushing that. And that’s probably the best use of our capital. There are, as Scott said, specific situations where it really does make sense for us. The reality is our valuation is down too. So, it’s not like we have an incredibly rich currency in order to go out and make these acquisitions. It’s only been recently that the private company acquisitions have started to come down where the public ones have been down for quite some time. But, there are a couple of real gems out there that Scott’s cranking. So I’m pretty confident that we’ll have some that will be very accretive.

Fair enough. Any more color that we can add or any update on the Vital Intelligence? Some of the things we are looking at -- we’ve talked about it before, of course. Any things that we will continue to chase without getting too far ahead of ourselves here?

Yes. We are finding a very robust market in the travel industry space, particularly the cruise line industry. We had a fantastic show down at Seatrade where we partnered with Lufthansa, and they took us around to the industry. They’re big players in that space. And they put us through a pretty rigorous diligence process to utilize our products or to endorse it from that matter. And we had some great success there. So, we are really looking forward to what’s happened in that regard, as well as the other travel industry. The other areas that are really big are corrections. And so, we seem to have some great inroads into corrections and into sheriff’s departments. And basically, anywhere they are looking to intake populations or have to register populations and manage their health, security events are proving to be an important aspect for us. And then, ultimately, on drones doing search and rescue and humanitarian work. That’s where a lot of this technology is going to lead. But we do have significant business development happening just on the pure software side of this. So, if we think about things like telemedicine and how this technology could be used in that regard. So, we think this is a really, really big piece of business for us over time. And post-pandemic is really when we’re getting the serious inquiries. So, during the pandemic, there is everybody was thinking about how to use this in the pandemic, which is really a very small piece of where this technology applies. Now, that that kind of seems to be fading, we are actually talking about the real scalable businesses out there, and that’s a pretty exciting time for us.

Yes. Okay, good. Maybe we’ll just take a couple more questions, and they’re -- they keep coming in. And just as a quick note here. If we don’t have time to get to all the questions, feel free to follow up with us afterwards. You can, of course, contact Rolly at the IR, email it in and we’ll try to make a way through as many of these we can here. Quick, another question here. Looking at the most recent filing, and Cam, I’ll send this back one to you. It seems cash burn is less, which is obviously positive. With generating cash from operations being so important in the markets, can you speak to some of the things that Draganfly is doing to increase capacity, conserve cash, grow cash, maybe just a slight comment or two there.

Yes. So, I mean, overall, we needed to get our capacity in place based on what we saw in our pipeline. So again, we are data driven. We are looking at what’s happening in the pipeline, what products need to be produced, what machining and tooling we have to put in place for the orders to be had or orders we expect out, and then building the capacity to meet those. So we have done a number of things, I think very creatively in order to -- in our product line, standardizing some of our base platforms, much more product stuff will be coming out in this next quarter that we’ll be talking through in order to not have to overload capacity or build two types of machining things or tool too many things overall. So, I think, Paul in particular, the engineering teams have done a fantastic job there. We’re very conscientious of cash in particular, in this market. I think we’ve been prudent with what we’ve had. And, we’ve got sufficient cash burn. So hopefully not have to be thinking about doing any financings in the near-term, unless it’s acquisition based. So, listen, we’re just going to keep driving revenue. We’re going to focus on products that have margin in them. And so, to the extent that that is hardware, it’s hardware that always leads to a bigger solution, that always leads to a software or a reoccurring revenue base. And that’s what we’ll continue to focus on. So, we’re very fortunate to be in a strong cash position. We’re very fortunate to have a governance organization that’s focused on, making sure that we are doing things that -- be able to generating cash and shareholder value.

Okay. Maybe just one last one here. Maybe I’ll take a stab at this. With just -- someone’s asking for updates on some of the services that we’ve talked about in the past with regards to drone deliveries and surveillance services and kind of making the transition from being a hardware focused company to more of an integration service type company. And so, this is something that Draganfly has talked about for the last 12, 16 months, probably, with regards to FAA regulations opening up. Cam mentioned this already, it’s easy for us to operate. It allows us to get into things like drone deliveries. I was at a conference just last week in Orlando, one of the largest drone focused conferences. And virtually every session was about deliveries and kind of expansion of services, particularly drones overpopulation, and being able to fly drones beyond the visual line of sight, as Cam mentioned earlier. And so, I would say -- and I’ll let Cam give a little more color on this as well. Draganfly’s looking hard at this. We’ve mentioned in the past about different island nations that we’ve been talking to opening up networks that are focused on drone deliveries from island to island and in multiple different parts of the world. We’ve had inbound calls related to this coming in from Asia, Europe, and the Middle East and Africa as well. So, these were all long lead items, these are things that take a long time to work their way through the system with regard to the proposal on the operations and setting this up. But I think the overall Draganfly strategy is to keep working on technology, keep making sure that we come up with technology that’s relevant to the market, as Cam mentioned, but then also looking for services and ways that we can scale this, not only here in North America, but globally. And I don’t know, Cam, if you want to add another comment or two on that.

Yes. No, I think, you covered it off pretty well, Scott. It is interesting to us, the international work that’s coming in where the regulations aren’t quite as onerous as they are in North America. That said, we’re really focused on being experts here in North America. I think that lends credibility to doing the work in other areas. But the international inbound has really been much more than I would have expected, not that we didn’t have some expectation around it. A lot of really big projects. Like big thinking projects, kind of some longer lead time, but multiyear integrations. And that’s what we see happening in the drone industry. So, I think you summed it up well, Scott. And like you said, we’ll just keep meeting demand and keep hitting numbers.

Final question here, maybe, and then we’ll look to wrap it up. Question is about the share price, the stock price. How do you guys explain the decline in the stock price, despite the recent growth? And do you see any link between operations and share price? And it’s kind of a tricky conversation, of course, because we’re not given guidance here. But Cam, just a word or two about how we try to focus on operations perhaps and look to do the right things and the share price as well.

Yes. So, I think the saving grace that we’ve got here is, if you look at every other drone company out there, the charts are pretty much the same. And on top of it, we’re in a pretty tough market right now, in particular, for micro caps. So, again, for us, we’re in a fortunate position, we got a strong balance sheet, we have an excellent management team, and we’re growing revenue organically. That’s what we’re going to focus on, incredible products for incredible customers and keep driving that revenue. We’ve got a solid plan, we’ve got a capacity built out, we’ve got our infrastructure in place, we’ve got our ERPs done, we’ve got -- like, we’re in a spot where we’re going to be able to produce the results. The downturn in the stock or maybe -- just I think people are just getting out or looking for other opportunities or exiting the market, or they don’t like the micro caps, whatever the case, may be, I view it as a buying opportunity. And I feel really, really confident about where this company is going to go, how we’re doing it, where the industry is going to end up. And I think that’s what we’re focused on is just we’re focused on the fundamentals, we’ve been super consistent, we’ve hit all our numbers, everything we’ve committed to doing, we’ve got done. And I see no reason why we’re not going to continue to do that. The market may be what the market is going to be, but we’re going to be the winner at the end of the day.

That’s very well said. Okay. So, listen, it’s 45 minutes after we started. I know it’s late, particularly for folks on the East Coast. And so, I think with that last question, we’ll look to wrap this up, I just want to say thank you to everyone who joined us, for this. I appreciate you guys joining in. We appreciate the interest, we appreciate the conversation, we appreciate the questions that come in, in between times and comments and thoughts and ideas. And so, we like this kind of dialogue back and forth with shareholders, and thankfully, doing all we can to update and just do this as best we can. So, Cam, I’ll let you close it off. And then we’ll say goodbye.

Well, first and foremost, to our employees, I really want to thank everybody for the commitment that you’ve done -- you’ve shown in the last quarter for the incredible growth. I know how passionate everybody is, in particular around our humanitarian work and the work in Ukraine. And I know you all know what this means for the Company and where we’re going and how this is scaling for us. So, for that commitment and the crazy weekends and long hours, I thank you, you inspire me and I know you inspire the leadership team, to our customers. Thank you for your trust, and your belief and just going with us. We love working hard for you. We appreciate the opportunity. We’re going to continue to work hard for you. And to our shareholders, it’s a grind out there. So, we can’t thank you enough for your consideration and for sticking with us and being part of what I think is going to be the next multibillion dollar drone company. So, thanks very much. Hope you all have a great day.