Transcription of The Stock Network Interview with DroneShield (ASX:DRO) Managing Director, Oleg Vornik
Lel Smits: DroneShield provides cutting-edge AI-powered hardware and software solutions designed to detect, track, and defeat unmanned threats from drones and autonomous systems used by terrorists, criminals, and other unfriendlies. DroneShield’s customers include military, intelligence, community, government, law enforcement, critical infrastructure, and airports. And this year alone, DroneShield’s stock has soared 400% and hit record highs.
Joining me to discuss more is DroneShield’s CEO and Managing Director, Oleg Vornik.
Oleg, welcome to the Stock Network.
Oleg Vornik: Thanks for having me.
Lel Smits: Now, DroneShield has just shared that Pat Conroy, the Minister for Defence Industry, has awarded an initial Land 156 contract to supply handheld counter drone equipment to the Australian Defence Force. Can you outline what funds that DroneShield will receive and also what the significance is of this award?
Oleg Vornik: It’s a relatively small contract of $5 million to DroneShield. However, it’s part of a very significant program that we expect to be in the order of magnitude of hundreds of millions of dollars, being Land 156 or rollout of counter-drone systems across Australian military bases and also for the overseas deployments.
So this is the very initial step, which is the rollout of handheld equipment, but then there’ll be follow-on systems or awards that we expect to get or announced, whether it is to us or somebody else over the next six to 12 months.
Lel Smits: Excellent. Now, DroneShield also recently unveiled plans to invest $13 million in R&D, research and development, of course, and manufacturing capacity expansion. What kind of return on investment are you expecting and how soon will it be reflected on your balance sheet?
Oleg Vornik: Today, we have approximately $500 million annual production capacity, and we are expecting to increase that to about $2.4 billion a year by the end of next year. That’ll be achieved in several ways. One, we are moving into a brand-new Sydney-based, much larger, about three times larger manufacturing facility.
And also our two Australian contract manufacturers are expanding at the same time along with the rest of our supply chain. Also, we’re setting up contract manufacturers in Europe as well as the US for those markets. And you may have seen in Europe now there’s a massive mobilization for defense.
And as part of that, there is an 800 billion euro rearm Europe plan. And for that, there is a strong emphasis on locally European made. So that’s part of the reason why we’re setting up production in Europe.
But there’s also sales office in Europe and generally much stronger presence compared to historically doing it through in-country distributors, which is how we’ve been doing it around the world. So return on that. Look, we are currently sitting on close to $160-$170 million of locked in revenue for the year.
It’s going to be by far our record year already. We did $57 million last year, which was in itself a record year. So we just want to make sure that we’re one step ahead of our sales. So we’re not hitting bottlenecks in terms of ability to fulfill orders as they grow. Speaking of records, you also have just won a $61.6 million European military contract, which of course is your biggest ever.
Lel Smits: How does this order also show that military customers are moving from testing to actually rolling it out to in the field situations? And do you also expect for this to continue?
Oleg Vornik: Absolutely, we do expect for it to continue. So Europe has been a slow but growing market for us for several years. We’ve been busy establishing a network of distributors and now on the ground presence doing NATO certifications, smaller tests, smaller sales, and now leading into much larger sales. Europe is now operating on a heightened state of emergency with very significant funds flowing into defense.
And within that, obviously all eyes are on Ukraine and with drones and counter-drone equipment being key, and also importantly, very low market situation. So unlike other military equipment like tanks, helmets, guns, which lots of places, lots of countries have plenty of, drones are such a new thing that nobody really has nowhere near enough either drones or counter-drone equipment to deal with other people’s drones. So because of that, there is now a significant urgency.
And all the work we’ve been doing over the last several years, positioning ourselves as the global leader in the counter-drone equipment is really paying off. And on top of it being Australian is actually a great advantage. Australia is seen in the current geopolitical climate, a neutral supportive country, and it certainly doesn’t get caught up in politics like some other countries do, especially in Europe at the moment.
Lel Smits: Yes, speaking about Europe and conflicts, we’ve got conflicts around the world at the moment, which are clearly indicating that drones are cheaply also effectively disrupting the way that modern warfare is conducted. How can AI add to drones military specific effectiveness? And also what’s the financial upside to drone shield from these trends?
Oleg Vornik: AI or artificial intelligence is used significantly both in drones themselves, as well as in counter-drone equipment, which is what we do. For example, in the drone space, AI is used extensively for targets homing in. So instead of a pilot manually trying to look through the camera of a drone and figuring out where the target is, AI is able to scan for those targets using computer vision. On the flip side, which is what we apply, AI can be used to detect never seen before drones. So there are thousands of new drone types being out in the market every year, and both in the radio frequency as well as in the optical domain, when you are sensing the perimeter for drone incursions, you want to be able to sense and track never seen before targets.
As the other side, the drones obviously trying to make themselves as invisible as possible using novel techniques. So this is what we do. We release quarterly software updates to our artificial intelligence engine using data we get from many countries around the world.
And we have built a huge database over the last five years in terms of drones sounding in all kinds of different ways all over the world. If you are running an AI business, you really need to have very large, clean, well-tagged databases. So this is really the future applying artificial intelligence specifically for tracking and also defeat of drones.
And this is also the genesis of our SAS program. So we sell our hardware as a one-off sale, although in the military, there’s essentially a repeat relationship anyway. But on top of that, we sell subscriptions to our devices, a bit like antivirus, so customers can stay up to date with the latest AI software.
Lel Smits: Now, drone shield stock has already soared nearly 400% this year and hit record highs with that kind of run. Many investors are wondering how much more upside is left. What’s the next catalyst that could push the share price even higher from here?
Oleg Vornik: There are several types of catalysts, as I see. So we have on sales front a $2.4 billion pipeline. And that’s across about 250 opportunities, so diversified across geographies, types of products, stages of maturity of the pipeline. And importantly, because market situation is so low, even customers that are giving us those large contracts, like the $62 million contract we announced, or the 9.7 Latin American contract that we announced just before, and $32 million Asia-Pacific contract we announced in April, all of those customers are already discussing with us larger follow-on contracts, because those kind of contracts that we just talked about are very small compared to the actual requirement that they have.
So this is still the very beginning. So sales is the first one. Then in terms of technology, we’re working on a number of really exciting new technologies.
We’ve got a team of about 250 engineers now, and a lot of those will start rolling out in 2026 to deal with all novel techniques that drones use themselves. So new technology developments. And then also we are busily looking at M&A space in terms of acquisitions.
So we are very happy with the core tech that we have, so radio frequency detection and defeat, but there are a number of adjacent technologies where radars, cameras, and different defeat techniques on top of smart jamming, which is what we use. So to the extent that we meet somebody who we feel can add to our capability inorganically, that’ll be an acquisition target for us. And this would be essentially sort of five eyes, Western world type opportunities. So it’s a pretty global search for us.
Lel Smits: Well, Oleg, thank you for the update. It’s great to see your record run and a string of strong announcements. Look forward to seeing what’s next for DroneShield.
Oleg Vornik: Thank you.
Ends