All right. Just to be respectful of everybody's time and to start on time, we will get started. Hello and welcome again to the Draganfly 2023 Q1 earnings call. As usual, my name is Rolly Bustos, internal investor relations here at Draganfly. I welcome each and every one of you today, shareholders, stakeholders, and analysts. The format will be the same as previous, then I'll begin with our CEO and President, Cameron Chell, discussing the first quarter operational highlights. From there, our CFO, Paul Sun, will jump in and discuss the financials as reported earlier. As always, we'll conclude with our Lead Director, Scott Larson, facilitating the Q&A portion. You're always welcome to reach out to me at investor.relations@draganfly.com after the call if your questions did not get answered. Lastly, I want to remind everyone that this presentation may include forward-looking information and statements.
These statements are not guarantees of future performance, and undue reliance could place upon them. Any future events or financial results may differ from what might be discussed here. The full forward-looking disclaimer can be found on page two of this presentation, and I'd be happy to send that to anybody upon request. Cam, please go ahead.
Right. Thank you, Rolly. Thanks, everybody, for taking the time to be here today. It's an honor and a pleasure. Just pull up the screen share. Welcome to our Q1 2023 shareholder earnings call. Thanks, Rolly, for reviewing the disclaimer with us. To immediately and right to the point, review our financial results for Q1, which, given all of the circumstance around, we're very happy with, and we think it set a great platform for the coming quarters going forward. We had revenue of $1.6 million or just over that. Of that, $1.38 million of that was product sales, with basically the remainder of that in service provision.
Our 2023 Q1 gross profit was $443,000, which represents 27.7% gross margin. I think it's very important to note that that gross margin would've been $500,000, or comfortably over 30%, had we not included a one-time inventory charge of $77,000. Again, taking conservative action at the advice of our finance team and auditors. Our March 31st, 2023 cash balance is $13 million. We're in a strong financial position still. We can continue to be on budget. This is a bit of a review for some, but a level set for a number of new shareholders that we'd like to welcome to the company, and thank you for your trust and the opportunity to serve.
Draganfly is recognized as a global commercial leader in the multi-rotor space, we are a rapidly growing drone manufacturer and solution provider. We do have a strong emphasis on artificial intelligence and data analysis capabilities. We've been saying for quite some time now that, you know, 5 years from now, Draganfly will, you know, be known as a drone company, but really, we're a data company. At the end of the day, data is the only thing that will probably differentiate artificial intelligence. We'll continue to place focus on data collection, data analysis, and being able to do things with that data or provide or unique ways to collect that data 'cause nothing collects data better than a drone for our customers to give them a strategic advantage.
We have a very strong IP portfolio. We have a culture of developing, IP. We definitely have a tech focus and engineering focus culture as well. I'd like to suggest that that will continue to the largest degree. We have always new product development, but it's always driven by customers. We're not R&D-ing things that aren't brought forward by a customer. What that provides us with is an advantage in today's market is that we have a product line that has matured, that previously has matured, and as we've cut over to our new product line, has matured quickly.
I'll give some analysis and some observations from the UVSI show that I'm currently attending in terms of where we see the rest of the industry and where some of our specific advantages are. The other kinda global things that are happening right now is that the market has significantly expanded in the government, civil, and commercial sectors. That's primarily because of security concerns, offshore concerns, data concerns. We see that there's a domestication of product manufacturing in North America. There's a handful of manufacturers in North America and even a smaller handful that can do the type of work that we're doing, which also speaks to the amount of time it takes to get products to market.
I mean, these are aircraft, if we think about how long it takes an aircraft to get to market, you know, that's how these things are being treated by the FAA and by our commercial and by our military partners. I'm really pleased to see where we're at with that and how we're rushing through it and the advantage that gives us. We're also now moving and have moved into a favorable regulatory environment where things like BVLOS, beyond visual line of sight, as an example, or pre-flight inspections done by video as opposed to humans. Those are the types of things that are now unfolding and opening up the entire commercial market.
In terms of industry outlook, 2022 is about a $30 billion industry, but it's really important to note that the vast majority, 97% plus of this, was in the military space and very large drone systems, not necessarily the small UAS space. A couple percent of this was in the consumer space. But it's really, only a % or two of this is in the commercial space, but the vast majority of that growth through 2020, through 2030 is going to be in the commercial space. The other outlier out there is Ukraine. The Ukraine has completely expanded the military space into small UAS or four small UAS. Previously 10,000 feet down...
Well, previously air dominance was all very large air systems, and now 10,000 feet down, air dominance is all about small UAS. We've seen entirely new budgets either shifting or being created for small UAS. It's taken, you know, this last year of unfortunate conflict in Ukraine for those budgets to start to move through. We now start to see requests and tasking orders and procurement orders and things like that flowing through to budget. As we go into early next year, we'll see large military budgets starting to come into effect. I think our product line is lined up quite nicely for that.
In terms of our history, you know, the bottom left here is toy drones, the top right would be the most sophisticated AI-based, you know, Predators or Reapers or, you know, tens and tens of millions, if not $100 million systems. The black dots represent the products that we have out in market. The blue dots represent systems that we've done contract engineering for with U.S. military contractors. The yellow would represent the types of systems that our personnel have worked on. You can see we skew heavily to a much more sophisticated drone system. What's interesting about the military market is that's obviously where that needs to be.
When you think about the commercial market now that it's maturing, you know, they're looking at who has hardened systems, who has the most amount of flight times, who has systems that can operate in weather. You know, it's one thing to produce a drone, and this is a big thing that we're seeing at AUVSI. Lots of new whiz bangs out there. Not as much vaporware, still a lot of vaporware, but not as much. Lots of new whiz bang features, great things like that, but not a lot of product that's ready to be sold into the market, because it hasn't gone through extensive testing.
The product that is ready to go to market, you know, hasn't gone through the production cycle, for the most part, 90% of it out there, where it can be done at scale. You know, what we're seeing in the marketplace going forward here is the winning companies are the ones that can actually produce product and get it out into the market. Whiz bang features are going to become a little bit less and less over the next 18-24 months. Again, I think, you know, in this last quarter, we've got a new production facility coming online, actually at the end of this month. We've tried to time that as best as possible, you know, when we see our sales ramping, which they're now doing, and we've got a backlog.
That production capacity is really, really important to us. I really wanna throw it out to our team for the work that they've done, you know, in timing that, not overspending, building our infrastructure, not pre-scaling, but at the same time having a product that's ready to be sold into the market. Just in terms of some operational highlights, Draganfly heavy lift drones, our Commander 3XL, and our Draganfly LiDAR system. The 3XL is now, we are now starting to carry inventory of it. It's all, you know, sold out. And we're building up that inventory absolutely as fast as we can. The heavy lift drone, we've got multiple customers either putting deposits or wanting to put deposits on it.
It will be available Q4, really for full delivery into Q1. Our LiDAR system, we have systems sold and again, it's probably about a Q3 before the production comes off there. A combination of getting the products ready. Again, this is a new product cutover. You know, we've had, you know, several successful product lines in the past and, you know, basically doing a cutover from last generation into this new generation, also taking into account the new rules and regulations that are available to us and taking into account the new customer requirements. What you don't see here at this point are small UASs. Like that middle drone there, that Commander 3XL, that's about the size of a coffee table.
You know, to just give you a sense of the scale of it. That particular drone will lift 23 pounds. It's only about a 24 pound drone, so it's under the 55 pound regulatory limits that, you know, kinda changes the scope of what the drone can do and is allowed to do, is probably the most efficient drone and, certainly in terms of demand. We're gonna have a tough time keeping up on this thing for quite some time. As mentioned, we now have product waitlists. Again, the sales teams, which have matured, our new ERP systems got put into place last year. Our sales processes are hardened, and we've got experienced sales staff on now. That's.
We've also have brought on new business development staff. We didn't wanna overscale or pre-scale on the biz dev side until we knew we could meet demand on the sales side. Now, not only do we have a waitlist that's growing for both these products lines, but we now have business development that's adding into, okay, how are we actually going to be utilizing these with partners? As, as evidence of that, in this last quarter, Actually, I'll come back to this slide in 1 second. In this last quarter, we announced 4 key partnerships. We are a direct sales model. We do not sell through a reseller type of program. As such, and we're doing that for a number of reasons.
It really helps ensure that the product that we're getting to the market, we have direct contact with the customer. Our customer is that end user. Our customer is somebody who we want to create advantage for their business. That's always been our ethos. As we go to market, how do we amplify our particular sales capabilities? Well, we do it through partnerships.
The Draganfly 3XL drone is really designed to be a utility drone, kinda like the Jeep or the Humvee of the military, you know, in their day, where you can bolt on all types of systems to it. What that means is that as we go to market, whether it's software or different payloads, you know, actually one of the biggest sales challenge that these partners have is that as they go out to market, they may have a particular customer that wants to use their particular software or their particular payload. It's hard to match it with the drone that actually is integrated or can be used for that particular mission 'cause it's too small, it doesn't fly long enough, the battery life, but any number of reasons.
What we've done in building the Commander 3XL in particular is a drone that already has dozens of payloads that fit onto it. It's integrated into several systems. DJI had a very popular drone called the M600 that they took off life, and that this has now replaced into the market, so that the thousands and thousands of payloads that were designed for that actually clip right into this particular drone. Now, these partners here that we're listing are all strategically chosen, and we're completely honored to be working with them. AgileMesh basically builds, will add its technology to our UAV platform for wireless surveillance products. These folks really are really strong in the public service and the public safety market. We're referring business back and forth with each other.
They have a very specific market that they go after. Our drone, you know, fits that very specific market within their vertical that they're doing. We're honored to be working with them. SkyeBrowse integrates world-class reality capture platform with Draganfly software. In theory, you can, you know, kinda integrate this with any drone system. As you optimize it with ours, there are a whole bunch of advantages, you know, everything from speed and accuracy and such in terms of how it works with the Draganfly drone. We have got a similar customer set that we can go and talk to. Vermeer, this is primarily military. It's got lots of commercial application as well. They provide virtualization environments in GPS denied areas.
If you're flying in theater and you don't have GPS, but you need to fly, either on screen or first person, they can actually provide an environment even if you don't have GPS in there. This is an organization, as all these organizations are, you know, Vermeer and Codan in particular, that are at SOFIC this week, which is the special operations conference down in Miami. We certainly have representatives down there, but both these organizations are carrying our product and our drones in their booth because we are co-selling into that market. These are very established companies in that market. Really excited about our relationship with Codan Communications. They provide a COFDM radio.
We do work with other radio systems as well that are requested by our customers. There's incredible great competitors in this market. The Silvus Radio is one of them. In particular, we have built a really strong relationship with Codan as they look at those particular markets, and we're co-developing products together. We're working in those particular markets. They've been very gracious in representing us at their shows. We have customer engagements that are happening with them multiple places around the world, as we do with our other partners. This is the type of work that will actually propel Draganfly forward. These are the types of customers that help us do that.
What I'd like to do now at this point is turn it over to Paul Sun, to talk about our financial results for Q1. Paul?
Thanks, Cam, thanks everybody for joining. Looking at this table here, we'll go over the year-over-year comparisons for Q1 of this year versus Q1 of last year. Revenue for the first quarter was down 21% to $1.6 million from $2 million in the first quarter of 2022. As Cam mentioned at the outset, revenue comprised mainly of product sales, $1.38 million, with balance coming from drone services. As mentioned earlier, some of the reduction in revenue is due to new products cut over our production capacity build-out. Gross profit was $443,000 due to a one-time write down of inventory and otherwise would have been $520,000 for the quarter.
As a percentage of revenues would have been 32.5% this quarter, which is down 7.4% from the same quarter of last year. Again, this is a result of more sales coming from lower margin products versus those sold in Q1 of last year, as the product mix just changes from quarter to quarter. Total comprehensive loss for the quarter was $7 million, compared to a loss of $6.3 million in the same quarter of last year. This quarter, as mentioned, includes a non-cash change comprised of a derivative liability of $57,000 and a write down of $77,000 of inventory and would otherwise be a comprehensive loss of $7 million. No real big change there versus an adjusted loss of $5 million a year ago.
The increase is due to higher office and miscellaneous advertising, marketing, IR, wages, partially offset by lower insurance costs. Continuing to focus on the quarter, if we now look at the table on the right, since I just went over year-over-year changes, we'll look at quarter-over-quarter changes comparing this quarter to Q4 of last year. In this case, revenue actually increased 22% to $1.6 million compared to $1.3 million in Q4 of last year due to higher product sales. Gross margin, as just mentioned, would have been 32 and a half percent. The actual posted value was 28%, and that compares to a negative gross margin in Q4 due to an inventory write down, et cetera.
The gross margin actually would have been 24%. We're still seeing an increase in gross margin of 8.5% quarter-over-quarter, again, due to the sales mix of the products sold. Total comprehensive loss, we talked about this, $7 million compared to a comprehensive loss of $16.7 million in Q4 of last year. For those that were with us on the call then, we had a number of non-cash items last quarter. If you excluded those, the comprehensive loss would have been $7.4 million in Q4. Our loss this quarter was a bit better, primarily due to higher revenues. If you go to the next page, Cam, you're just looking at a kind of a high-level balance sheet.
You can see that our total assets increased from $14.6 million to $19.6 million from the year-end, which is largely due to the recent financing the company did. We have a strong working capital surplus. At the end of the quarter, we're at $14.7 million versus $10.2 million. You can see that the company continues to have minimal debt. As mentioned, company's cash balance is $13.3 million compared to $7.8 million at the end of fiscal 2022. With that, Cam, I'll pass it back to you.
Great. Thank you very much, Paul. That concludes the formal presentation. I think we're lucky enough to have some Q&A at this point, so I think I'll be turning it over to Scott.
Thanks, Cam. We have a number of questions that came in before the call. Of course, feel free to send the questions through during the call as well. Of course, there's some coming in right now. I'm just gonna go through some of these questions, and I'll be screening them and sending them back and forth to either Paul or Cam as they come in. First question here, Cam. Talk a little more about Ukraine. Is this an area that we still wanna be putting time and effort into it? What does it look like over the next 6, 12 months? You know, we haven't talked too much about customers, but what do you think the Ukrainian efforts that we're gonna do is, will impact Draganfly in the future?
Yeah. Great. I'm really glad somebody asked this question because I didn't focus on it, purposely during this particular call 'cause we wanted to get through, you know, and really talk more about where we're at on the product side, which has been a big focus of ours, these last couple of quarters. Obviously, Ukraine remains strategically imperative to us. It's a, it's very, very important. It will in the future, if you are a player in Ukraine, you will be a credible player going forward in the UAS market. Obviously, not just in the commercial market, but on the defense side.
The numbers that we talked about at the beginning, those industry numbers really don't account for what has happened in Ukraine and what this means in terms of, you know, what I refer to as air dominance and how budgets are now shifting toward that. I would say that the primary reason that we have so much activity in our military business right now is quite frankly, because of the credibility that we've built up in theater in the Ukraine. We're there with pilots. We're there with people on the ground. We're doing de-mining. We understand, you know, the search and rescue. We understand reconnaissance. Basically the skill of what it takes for pilots to work.
We have product that's that is hardened in those areas. That's a whole bunch of credibility as we are moving forward with our military prospects here. Just from that pure prospect, it's really important for us to be there. In terms of revenue generation out of Ukraine, we have been very focused on the de-mining market, because it also has a much it has a very large global footprint. It's not something that's been comprehensively tackled by somebody in the past because it's, one, it's tough work, but two, there's not really ever been this active of a theater in order to be able to do it. We do have expectation of some significant announcements that will be coming from that particular business.
In terms of other drone sales, and training, we are active in the region and, we have to be a little bit careful with announcements and such, but, we expect Ukraine in particular to be a large revenue source, for us and really, kind of a stepping stone for defense budgets over the next, you know, 7-10 years, which will be at absolute record levels, in particular, for, drones and things like AI.
Thanks, Cam. Can you talk a little more about the production capacity? What does that look like? How is that scaling up? We've talked about it at the last call. Maybe give a little more color there if you can.
Yeah. Without saying things that are probably, you know, might be a little close to the edge, you know, we were on the new product lines, we were at a spot where we could produce, you know, 10s at a time. Now keep in mind that that was also because we were making, you know, product adjustments based on customer feedback and tests and all the rest of it. Now that the product, the 3XL in particular, is hardened, we've moved to be able to be producing, you know, 100s in a short timeframe. Then by 2 of next year, we'll be in the spot where, you know, those kind of scales are in 1,000s of a short timeframe.
That's a combination of the new plant opening up. It's a combination of new plant, new processes being implemented. It's a combination of some continual redesign of those products so that, so that our production capacity is optimized and we have less supply chain risk. These are all the things that, like, when you, when you're in manufacturing, especially in an industry that's so new and doesn't have set requirements, coming out or even, you know, government regulations in some cases that would over, you know, provide oversight on how certain things have to be done, you're in this kind of continual flux of, like, okay, what does the customer need? What can the actual customer do? you know, and such.
It's a very tough business and a very tough time to build scale unless you're in like, you know, kind of like a consumer space where you know, those things don't come into effect. Anyway, I think, you know, I think we're there now and we look forward to filling the backlog and having some financial results to demonstrate that.
Yeah. Okay. Good. Any progress here with Windfall Geotek in regards to landmine detection or some of the downstream stuff that we talked about with them before?
Yeah. So they're active with us in our work that we're doing in the Ukraine. Certainly the AI system that continues to develop out as we gain data, we think will be game-changing in the space. We're thrilled to be working with them. We have the strategic imperative to develop this out with them. And this is now moving over actually into our mining business as well more and more. I'm pretty excited about what's going on in the mining industry in terms of the size and type of drone that they are moving to, which fits very, very well with our 3XL.
obviously, a number of the other players in the industry, other than a couple of the monsters that we're dealing with, you know, moving to this AI software for prospecting. I think our mining offering will be second to none. Well, probably already second to none, but we'll start to see some scale around it in the next Q, maybe 2 Qs.
Paul, maybe I'll throw this back to you. Can you talk a little more about the cash position, current cash burn? Maybe a little more color just on the financial statements that we just released, talked about how we did a financing, of course. You know, we don't give guidance, we never have. What kind of runway does this look at, you know, how we, in terms of expenses, things like that, without getting too much detail, but maybe a little color and commentary on that if you can?
Sure. Yeah. We announced an $8 million financing right at the end of, right at the end of Q1. We also announced an at-the-market transaction, which gives us, I think, flexibility to, you know, to pull that lever if we need it. You know, as we've always said, you know, we do balance, you know, cost versus, you know, scaling. You know, Cam just spoke a lot about how we're building capacity expansion, positioning ourselves. We have a lot of great initiatives. You know, I think it's really on us to kind of decide how we, how we deploy. If you look historically at our cash burn, it's anywhere, I guess, between $1 million and $1.5 million kind of thing a month.
You know, that's not necessarily to say that that's gonna be, you know, as Scott said, we don't give guidance, but trying to give you a sense of the range. You know, if you look back at our quarters, you know, we are cash flow negative right now. Our losses do fluctuate, though. You know, this loss this time was better than, you know, last quarter and, you know, sometimes it flips back and forth. We are cognizant. You know, we have a healthy cash balance right now. I think that gives us a lot of flexibility. That can give us, you know, quite a bit of runway to do the things that we have in our business plan.
Hopefully that's, you know, again, gotta be careful to not give too much detail, but hopefully that helps a little bit on the context.
Yeah. Good. Thanks. With regards to the questions that came in advance, I think that's all of them, actually. There's been a couple that have come through during, a few that have come through during the call right now, and those are in the process of being answered. Maybe just a real quick one here, a technical one. How many shares do we have outstanding, Paul?
Yes. We are at, $43 million-ish.
Okay. That's all the questions. That's all the questions that have come in and all the questions that we've answered that were emailed in before. There are still one or two that are still being answered right now, just ones that are answered in the chat for those of you who have sent those in. We'll continue to do that. I think with that said and done, Cam, unless there's anything else, I think we can probably sign off. I'll let you go ahead.
Yeah. You're on mute, Cam.
Probably everybody was relieved at that. I was just trying to get to 2 questions in the chat before we signed off. Yeah. No, thanks, everybody, for your time and consideration. I have an opportunity to talk with a lot of shareholders, and really appreciate the faith and trust and we'll continue to work to be of service. The AUVSI show right now and the SOFIC show are really indicative of what's going on in the industry. To say the interest is overwhelming is probably accurate. It's really because we have product that's ready for the market now and the majority of the rest of the market doesn't. They have product that's you know, either going through testing or it looks good or...
Not that there isn't other product out there that's available, but there's a real surge and a real opportunity. It's been a long haul. It's been a struggle. We'll continue to work this through. As difficult it is for us, it is for everybody out there. I think we're there and it's fun to be on the road selling. I love product building and as does our team. It's fun to be on the road selling, know that we can start deliver. Thanks everybody for your time and consideration.
Please follow up with any questions that we didn't get to with Roly and he and I will do our best to get back to you as soon as we can. The recording has stopped.