Draganfly 2026 Q3 Earnings Call - First Revenue Decline in Years as Draganfly Bets on a Delayed Defense Inflection Point

Rolly Bustos, Internal Investor Relations Representative, Draganfly: All right. I think to be respectful of everyone’s time and to get started in a timely manner, I think we’ll get going here. As always, greetings and welcome to all of our shareholders, stakeholders, partners, customers, who are on today’s Draganfly 2026 Q3 earnings call. As always, my name is Rolly Bustos. I am the internal investor relations representative here at Draganfly. We appreciate you joining us. As usual, we’ll start with our CEO and President, Cameron Chell, recapping our third quarter. Next will be a more detailed financial review with our CFO, Paul Sun. We will then conclude by addressing some of the pre-submitted questions we’ve received. Remember, you’re all welcome to reach out to me separately, [email protected], in case we didn’t get to your question today. As always, I remind everyone 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, November 10, 2026. We’re 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 two of the presentation and on the screen right now. Cam, if you’re ready, please go ahead.

Cameron Chell, CEO and President, Draganfly: Great. Thanks, Rolly. Welcome, everybody. It’s a pleasure to be here for our Q3 update. Revenue for Q3 was CAD 2,048,425, which represents a slight decrease over last year, which we’ll explain here over the next short bit. We had gross profit of CAD 128,000. That’s gross margin of 6.3%, also squeezed, but we’ll explain specifically why here shortly. We have a cash balance of over CAD 128 million, and overall, it was a really exciting quarter for us. Surprising in many ways, not from a sales standpoint, but actually from the amount of work that we’ve got going forward and the result because of some of the decisions we made in Q2 and Q3. Some operational highlights, just to let everybody know, is that basically, one of the things that was really exciting for us is standing up of Draganfly Defense USA.

And in doing so, we hired our President of Draganfly Defense USA, retired Brigadier General AJ Pasagian, from U.S. Marines. AJ was an acquisition specialist at the Marines. He then spent five years after retirement, he spent five years in the professional consulting with one of the big four firms, and we’re super lucky to have him come over and lead that organization now. And Q3’s been really busy in terms of standing that organization up. The AUSA conference was incredible for us, just in terms of not just the amount of activity that was happening in Draganfly in general, but the specific buzz around AJ and a couple team members heading up Draganfly Defense USA, which would be headquartered out of Tampa.

The other really important, there’s a number, but the other really important thing to announce here is basically the Heavy Lift, we passed a 44807. The Heavy Lift, which can carry just under 67 or 70 pounds, now has clearance to fly BVLOS over highways and people. There’s only about four or five of these 44807s that have been passed in the States. One of the things that’s really important about this 44807, not the fact that it’s just done on such a big drone, but that 44807 now actually also applies down onto our customers. As our customers are buying this product, the waiver and the clearance is actually held by us. They still have to have their requisite licensing and stuff as well, but they don’t have to go get a 44807 license as well.

We hold that, and that stands for the drone, and then our customers actually get to use it. Really excited that we It’s a lot more than just the equipment certification. It’s process, it’s people, it’s a whole stream of matters that have to be approved and pushed through by the FAA or approved by the FAA. Congratulations to the team on that. It has very big implications for sales coming up, as it relates somewhat on the commercial side, because as we know, these are used to stand up cell towers in emergency situations where cell towers come down. These actually become cell towers. But also on the military side, we’ve got a number of projects that in order to move forward and complete the sales, we had to get the 44807 certification. Pretty excited about that.

Also, up in Canada, the Defence Drone Initiative, which is Canada’s CAD 2 billion plus, actually, I believe it’s CAD 3.8 billion over the next five years on category 1, category 2, and some category 3 drones, called Canada’s Defence Drone Initiative, sorry, DDI. Within that, there’s also a thing called the RFSA. That’s the request for supply arrangement. This is something that’s the equivalent of Canada’s marketplace in order to participate in the basically the defense industry working with the Canadian government. Draganfly has qualified in the RFSA under all five categories, a big part of which obviously is the Defence Drone Initiative Marketplace.

You have to be a Canadian company to actually participate in that, and which basically lines us up, if we continue to be successful with what’s happened here over the last quarter, and is indicative of what’s coming in the future, then we should see ourselves hopefully getting a pretty big chunk of that spend. As a part of that, we did strengthen our Canadian leadership significantly. We now have Kevin Leblond, who’s come on board. Super excited about Kevin joining us. He comes out of the Canadian Armed Forces, a colonel in the Air Force, previous director of NORAD, et cetera. Kevin is actually heading up our Canadian defense and security. He would be very similar to what AJ is doing in the States, who’s taking on Draganfly Defense USA. Kevin’s running our military or defense security operations, sales, and initiatives in Canada.

He brings an unbelievable amount of experience to the table, not just from CAF, but also from international NATO, as well as a ton of global affairs experience as well. Kevin and I are off traveling the next two weeks to the Philippines and to Ukraine. Really excited about the work that we’ve been able to get done there, which will be coming to fruition here in the next couple of weeks. On the specific sales side, a couple things that are important, in particular, is the selection by the government of Canada, DND in particular, for our low-cost tactical ISR drones. This is up to 5,000 drone order, a total of CAD 25 million. There are a few people, excuse me, that are included in this bid. What happens is we actually deliver the first 100 drones here in short order.

They go through a bunch of training, they go through a bunch of tests, and then those drones, and they start making subsequent orders depending on demand that we’ve been able to create. We feel really confident about what we’ve been able to deliver here. This particular drone is really kind of like a new category of drone that the Canadian Armed Forces have required for themselves. It’s kind of like an FPV, except it’s really more designed as an ISR drone for surveillance and reconnaissance. But the difference is it’s almost a throwaway. You wouldn’t call it a throwaway, but it is kind of considered a consumable. If you’re in a situation and you’ve got a squad out and they need to see just what’s over the next hill, like that doesn’t have to be more sophisticated than that.

They can go see what’s over the next hill, and if they end up losing it, they end up losing it type of thing. It’s not the intent to lose it, but it needs to be something that is a piece of equipment that’s disposable in the field if need be. It certainly can cross over, in my opinion, as a one-way strike mechanism as well. Anyway, I think it’s an upgraded FPV with much better optics on it, and we’re excited about what this has to do for a category. Also this last quarter, we were very pleased and honored to take an investment from Unusual Machines. This is really for us more about working with a fantastic company down there who has a terrific lineup of NDAA parts, and really driving our U.S. business through AJ and Draganfly Defense USA.

We’ll be down at their event here coming up shortly, and look forward to a number of ongoing strategic talks and initiatives that we have ongoing with them. I think overall, let me just There we go. Just before I get to turn this over to the financials, we have seen our first down quarter in a long time. Now, we’re very conscious of it. We absolutely knew it was going to happen. We needed to do this in order to basically hold production capability for this current order that we’re starting to work on now from the CAF, as well as a number of other not yet announced, not just initiatives, but situations or scenarios that we have to be ready for. I can tell you unequivocally that we have never been busier. We have never seen volumes moving faster.

This is really a circumstantial situation that we had to account for, and we are pretty excited about what will start happening now over the next couple quarters to come, in particular, starting in Q1. On that note, I am going to turn it over to Paul Sun. Paul?

Paul Sun, CFO, Draganfly: Great. Thanks, Cam. Thanks, everyone, for joining. Thanks for setting the stage there. Revenue for the third quarter was down slightly 5% to CAD 2 million from CAD 2.1 million in the third quarter of 2025. That was actually primarily due to some lower services work. Third quarter revenue comprised of CAD 1.6 million from product sales, which was pretty much flat year-over-year, with CAD 436,000 coming from drone services. Gross profit, CAD 129,000 compared to CAD 421,000 in Q3 of last year. Q3 did have a one-time non-cash write-down of inventory of CAD 367,000. Otherwise, it would have been CAD 496,000 compared to the same period last year, where there was a one-time inventory write-down of CAD 43,000, making the adjusted gross profit of CAD 464,000. The adjusted gross margin for Q3 was actually 24.2% compared to last year’s adjusted number of 21.5%.

There was an improvement year-over-year from a gross margin and profit perspective year-over-year due to products and services mix comparing the two quarters. Total comprehensive loss for the quarter, CAD 13 million compared to a loss of CAD 5.4 million in the same period last year. This quarter includes non-cash changes comprised of a fair value of derivative liability. This quarter only CAD 57,000, and that one-time inventory write-down of CAD 367,000 that I just mentioned. Breaking that out, the loss would have otherwise been CAD 12.6 million versus an adjusted loss of CAD 3.6 million in the same quarter of 2025. The increase in loss is primarily due to higher office and miscellaneous costs, some share-based compensation, professional fees, wages, and travel, and whatnot. As Cam mentioned, we have been very busy in scaling the business from the same time last year.

If we move to the next slide, we just kind of went over the year-over-year changes, so now I will just go through the quarter-over-quarter changes between Q3 of 2026 and Q2 of 2026. Q3 revenue decreased about 23% to CAD 2 million compared to CAD 2.6 million for Q2, mainly due to lower services sales again. You will recall Q2 was our best quarter, so we just had this timing as well as some services changes quarter-over-quarter. Gross margin percentage for Q3 was 6.3% compared to 20% in Q2 of this year. However, again, if we back out that one-time inventory write-down that I mentioned before, gross margin again for Q3 was 24.2% compared to an adjusted 21.6% in Q2. Again, the improvement quarter-over-quarter in gross margin was due to product mix between the two quarters.

Total comprehensive loss for Q3 was CAD 13 million again, compared to a comprehensive loss of CAD 11.8 million for Q2 of 2026. We had that fair value of derivative liability of CAD 57,000, the write-down of inventory. If we break that out, comprehensive loss on an adjusted basis is CAD 12.6 million compared to CAD 11.8 million, excluding all the non-cash adjustments for Q2 of this year. The slight increase in quarter-over-quarter is primarily due to some higher office and miscellaneous costs and wages as we have added more headcount quarter-over-quarter. Next slide, Cam. I think we got the balance sheet. Here you can see total assets increased from CAD 101 million to CAD 158 million, which is largely due to the increase in cash.

The working capital surplus as at the end of the quarter was CAD 144 million versus CAD 95 million from the end of 2025. Shareholders’ equity was CAD 151 million at quarter end compared to CAD 96.6 million at the end of last year. However, both working capital and shareholders’ equity would have been even higher if we X’d out the non-cash fair value of derivative liability of CAD 376,000 for this quarter as well as at the end of the year. We do continue to have minimal debt, and our cash balance at the end of the quarter was CAD 128 million compared to CAD 90.2 million, as we did a financing earlier in the year in February, as well as the most recent strategic financing that Cam mentioned towards the end of September. With that, I will pass it back to you, Cam.

Cameron Chell, CEO and President, Draganfly: Excellent. What I will do now is I am going to go to the Q&A. Just a quick reminder on everybody that this is our full product lineup. There are a number of other products that are coming out, being announced in the next couple of quarters as a result of some very direct sales processes that we have gone through with a number of different militaries. As it stands right now, we have got the Flex, the Apex, the Commander, and the Heavy Lift, which covers everything from something this small that is a strike, all the way up to something that can be carrying 67 pounds over distance. We also have an Outrider version of that Heavy Lift, which has two diesel engines on it, which gives it up to seven hours of operations and up to 100 pounds of capacity.

Then, of course, we have got the Orca, which has been just trailblazing like crazy as of late throughout a number of different militaries. Excited to answer a couple questions on that. We have got the SOTEN, which is kind of like our DJI Mavic type of replacement drone. Pretty excited about that product lineup as well as what is coming down and all the variants of these as well. What I am going to do is I am going to just go to a bunch of questions that were sent in. Just let me get them pulled up here for one sec. The first one that Rolly sent over that came in is, "Revenue growth is still slow. When do we expect to see a real inflection point?" I would have liked to hope to see it would have happened already.

However, knowing what we know about the industry now, I can see why that inflection point, it may be specifically for us, but maybe for a bunch of others, also hasn’t happened up until this point. I think we’re looking to see that happen in a kind of like a Q2-ish of 2027, in particular a Q3. Frankly, that’s about a year behind of what I thought it would be. What we’re now seeing is that, well, in the U.S., it’s probably backed off a bit just because of everything from the continuing resolutions and a bunch of election stuff and a bunch of money getting unlocked in order to flow through particular programs that us and many others have won. In other situations like Canada and maybe a few other militaries that we’re fortunate enough to deal with, they’re actually now just coming to fruition.

We did see our first win this year, which was the first contract that the Canadian Armed Forces let out under its Defence Drone Initiative, which is a CAD 25 million contract, so we’re super excited to be executing on it. Excuse me. We have been very busy and expect announcements before the end of the year, at least on two more. There are actually 19 RFPs that we are involved with across the Canadian military right now, just to give you a size and scope. Those all took, they’ve all taken until this point to get there. We have been incredibly busy just keeping up with that.

Between that and some work internationally that will come to light here very, very quickly for the rest of our shareholders over the coming weeks, it’ll be clear to see why we’ve not pushed forward with jamming a bunch of sales through that are sitting there ready to go now on production. We’ve had to switch some of the production lines because of some matters that have to do with sales and contracts being one. I think the real specific reasons of that will come to light here over the next couple of weeks for you. Canada announced a big commitment to drones in the recent budget, and how much of that do we expect to get? We’re going to have to continue to earn our way with that, but we do expect to earn a very significant portion of that.

We have been scaling the organization in Canada, not just from a capacity standpoint, but also from a capability standpoint. We’ve made several key hires over the last six months in order to meet this demand that’s now upon us, just in order to even to respond to the demand that we’ve had from bids and such has been overwhelming, much less now starting to deliver on it. As a percentage or how much of it, we’re not really focused on that. We are focused on doing the best job that we can and winning the business that we can do to do the best job for those operators out there. It’s certainly over the course of the next couple years, well into the hundreds of millions of CAD. Why did we invest in a Ukraine software company, and what is our strategy in the Ukraine?

We invested in DoD Solution for a couple of reasons. One, they’re really, really good at what they do, and they actually can supplement our engineering and software capabilities. They have a fantastic terminal guidance system. They are also part hardware and part software. They aren’t just developing software, but they’ve actually got the hardware that goes along with it. In the FPV market, there’s one in particular kind of like dominant camera and board that’s analog. Analog’s super important because it’s harder to jam. The latency is also such that it takes a pretty What’s the best way to put it? It’s tricky. You need to use an analog camera 90% of the time in your FPV right now.

There is some stuff coming that will change that, but there’s kind of like one dominant player that provides that out there. That dominant player is also an FPV provider. The market is looking for a way to move off of their particular camera and board solution. Anyway, DoD Solution provides us that opportunity to do it. They also are supplying five other of the top Ukrainian, five top Ukrainian manufacturers with variants of their boards and terminal guidance and such. Just in terms of our network that exists in Ukraine and our ability to continue to expand that network, develop great product, develop great people, relationships, et cetera, we just felt that this was pretty strategic.

As mentioned, Kevin and I and a number of people are going to be in country in the next couple of weeks, and probably some more of this will come to light at that time. With the recent sell-off in most drone stocks, do we see a consolidation in the industry? Yeah, for sure. We’ve got a number of acquisitions that we’re looking at. As you know, we’re sitting on a pretty healthy balance sheet right now. We’re very conservative with our cash. We definitely, as we move into this phase of the industry where there will likely be consolidation, we definitely want to be one of those companies that can afford to be taking advantage of that. I don’t know that we’ll see it at the kind of like the top public company names for some time, or maybe if ever.

Certainly for the next little while, I don’t see it there. A lot of the private companies, a lot of the component makers, a lot of the folks that were participating in the picks and shovels of the industry, I do see that now starting to consolidate into the known names out there. I know there’s been a call for bigger consolidation happening, and some of that will happen, but I don’t see it as prevalent as maybe what some others are predicting. With the recent midterm election results, do we expect that to negatively affect U.S. drone-specific spending? Well, the budget went up to $1.5 trillion. Now it’s going to come down to $1 trillion. That’s still hundreds and hundreds and hundreds of billions of dollars more than it was before.

So on the overall picture, if we were looking year-over-year, the answer would be no, I do not see an effect. If we look at maybe short term, I do see some squeeze happening in terms of more funds not getting released, things getting drawn out more, revenue being pushed out more quarters, just in general in the industry. I do not think that is necessarily going to be the case for us now. I think we have faced most of that getting to where we are at today, as evidenced by this quarter. But I do think industry-wise, that is a bit of what will happen. However, overall, stocks need to be replenished. There is a rearmament going of an entire category of military strategy, tactics, weapons, mass low cost, mass precision. The cat is out of the bag. All of that is going to have to continue to happen.

Historically, we have not seen Democrats spend less money on defense overall than the Republicans. I think in the big picture, the answer is no. Is there going to be some short-term pain and some news media around how things are getting cut back or maybe that. Yeah, possibly, for sure. But every nation in the world right now is rearming, right, and retooling. So, we have got a 10-year policy cycle here of increased budgets. So, next question I have is, I have not seen contracts being announced for Orca. Do we expect any to come? Absolutely. Yeah, the product itself has been an incredible addition to the product line. It has opened up an entire new set of doors for us. It has also given great capability to our existing product line, because remember, most buying is happening not for a single purpose, but for missions now.

Being able to combine fixed-wing capability, long-range strike, long-range loiter, or long-time loiter capabilities along with the multi-rotor line has been fantastic. So the answer is, I cannot say more than that, but the answer is yeah, super excited what was happening there, and I think you will be pleased over the next couple of quarters. Are we still focused on counter-drone technology? For sure. So we were awarded a DEVCOM contract to develop a mobile counter-drone capability. That thing is moving along quite nicely. There are already demonstrations happening in various different aspects of the DOW. We are continuing to push forward and invest in that particular area. We have been participating in bids and opportunities around counter-drone, in particular on our public safety, around security and private security.

We really believe we built up a very significant pipeline of work in that regard, as well as what we are doing in public safety and on the military side. So counter-drones, it is just becoming part of what a drone company is. It is pretty tough to be doing drones at all unless you are also doing counter-drone. So they are being one and the same has given us great advantage, and it is a lot of the same expertise, a lot of the same equipment, a lot of the same policy, so not a huge amount of cost to making sure that you can offer 100% solution to your customer. Then, final question here is, what is management’s long-term and mid-term plan to achieve self-sustaining cash flow without relying on continued share dilution? Well, we are going to be driving three areas. So maybe just to recap.

We have three particular verticals that we focus on. We have our commercial industrial, which historically was quite prevalent for us. Now it is our smallest division, but really important. We do a specific type of work in there that is key, especially for the future. We have our public safety business, and we have our military business. Currently, the military business is driving things forward. We have Canadian military, we have U.S. military, and we have international military, much of which we will be talking quite a bit about over the next couple of weeks. It is really about just building size, volume in those areas now. We have developed incredible, I believe anyway, incredible capabilities in those areas that match what those particular militaries are looking for, and it has taken them those years, those militaries, to understand what it is that they really need.

We will be providing products into them, but also providing manufacturing capability. More of that to come in the coming weeks. On the public safety side, we are dealing primarily in Canada and the United States. We are just about to launch our DFR product, which we are excited about. Our campus facility, our campus program in particular, has really taken off for us. We are engaged only with three campuses right now by design, very simply because we are really working through all the very finite details of operations and training and such. We literally have a list of 1,500 campuses that have inquired right now. There are 3,000 in the United States in total.

We will go full bore on that after the next quarter, and we get through the rest of the implementation of these three so that we have got showcases, testimonies, use case scenarios, studies, and every question that can be answered around that. Also in public safety, we tend to focus on small, rural, tribal, sheriff, and border, because our equipment is really designed a bit more for heavier use, a longer range, heavier payloads, multi-payloads, things like that. It lends itself more to those types of environments, as opposed to being necessarily in New York or San Francisco or such, where we have got great competitors like Skydio and BRINC that are battling it out for market share there. Then obviously on the military side, we are going to grow with the military budgets as they grow over the next number of years.

Now listen, we also think we have got a terrific lineup of products that are differentiated, and we will continue to hone in and make those differences, continue to use our ITS team, our Integrated Tactical Solutions team, to embed with our customers and learn what is the things that they need the most, what are the nuances that make our equipment better use for them, and we will just continue to do more of the same. On that, it takes a lot when you are building a company that has seven product lines to serve that type of a customer base. You kind of have to go wide first before you go deep. Now, that is against conventional startup wisdom.

We’re in a unique situation where we’re a 27-year-old startup. We had the ability to go wide before we went deep, and so that breadth now is pretty much put in place. I think what you’ll see actually over the very short order here, but certainly over the coming quarters, you’ll see the depth of that now be able to penetrate and start to drive some pretty significant announcements and orders for us. On that note, I think I’ve covered off everything. I appreciate everybody’s patience. I really wanted to thank three particular groups. First of all, the people that work with us, our employees, the amount of commitment that we see in this organization, what people are willing to do to live our purpose, which is to be of service to others, and to save time, money, and lives. First of all, thank you to you.

Thanks also to our customers, for sure, for the amount of feedback and input that you’ve been giving us, how deeply you’re working with us, and how you have a long-term view of what your business can become because of what we can bring to you. It inspires us. Obviously to our shareholders, thanks for your patience. This has taken a lot longer than we all thought. It has for the entire industry, but we couldn’t be where we are at today without you. Man, we are excited about where we’re at and what we’ll see coming out in the very, very near future here. From all of us to all you, we really appreciate it, and we’ll continue to do our best to be of service. Thanks very much, and talk to you soon.

Rolly Bustos, Internal Investor Relations Representative, Draganfly: Thanks, everybody.