Danielle Gagne, Head of Marketing and Communications for Volatus Aerospace, and the moderator for this call. Before we get started, just a reminder that we welcome your questions, and we'll be having a Q&A session at the end of the presentation. You're welcome to submit your questions at any time during the webinar by clicking on the Q&A box at the bottom of the webinar screen and typing in your questions. If we are unable to answer your question today, we'll be happy to connect with you after this program. This presentation will be recorded and made available on our investor website within 24 hours. I would also like to take a moment to point out that certain information set forth in this presentation contains forward-looking information, including future-oriented financial information and financial outlook, and actual results may differ materially.
The risks, uncertainties, and other factors that could influence actual results are described in the presentation, in the press release, and in our MD&A filed with Canadian regulators. This presentation also contains non-IFRS measures, which are also outlined in the presentation. There is a full disclosure on page two of this presentation, which we encourage you to read, and can be found on Volatus's Investor website at investor.volatusaerospace.com. The company considers the earnings call part of its routine disclosure to educate investors on information contained in the quarterly results and related MD&A. If you have any questions, please feel free to contact the Volatus Aerospace IR team at investorrelations@volatusaerospace.com. Now that that is done, it is my honor to introduce Glen Lynch, CEO and Abhinav Singhvi, CFO of Volatus Aerospace.
Thanks, Danielle. Hello, and thanks, everyone, for joining us. I want to start out by apologizing to those that have struggled to get online with us today. It seems that our Zoom team may have had too much turkey. So belated, happy Thanksgiving to all of our American investors joining us today. We will be recording this, so everybody's going to have access to the entire presentation when we're finished. I'm going to talk a little bit about the operational highlights in Q3, then I'm going to pass it over to Abby, and he'll walk us through the financial numbers, after which we'll be happy to take any questions if you'd like to type them into the Q&A. So we'll start out with operational highlights in Q3. Obviously, the most significant one, we completed our merger with Drone Delivery Canada.
Just so that everybody completely understands that, that's basically Drone Delivery Canada. We presented it as a merger of equals. That's basically because of the combination of the shareholders. Ultimately, Drone Delivery Canada has now been renamed Volatus Aerospace. We'll talk a little bit more about that during the financial section. We launched our European operations, and that's particularly intended to give us access to the European Economic Zone and leverage the capabilities of our remote operations center. One of the key reasons that Drone Delivery Canada was interesting to Volatus was their capabilities to operate drones remotely, which they've basically been doing throughout their history. BVLOS, or Beyond Visual Line of Sight, is the holy grail of unlocking the future of drone services.
The capabilities of the remote operations center and the experience of the operations staff and operating drones as far away from the operator as more than 3,000 kilometers on a regular basis allows us to really gain some competitive advantages and move ourselves towards the future of operating many drones with a single operator. We also received Transport Canada approval for flights beyond visual line of sight without visual observers, and that's for our DroneCare route, which is a commercial project in the Halton Region over the Greater Toronto Area. So that's using a ground-based radar for detect and avoidance or identification of other aircraft. We achieved a historic milestone in our Edmonton operation. Currently, we have one of the only, if not the only, commercial drone operation in and out of an international airport on a regular basis.
We expanded that into phase two of our project, expanding the cargo services from Edmonton to Leduc, allowing us to integrate our drone operations with the entire airport operations, even crossing an active runway as part of our activity, so moving us closer and closer towards full integration. We continued the expansion in our oil and gas sector in the United States. So if you look at our chart in the United States, you'll see here in our oil and gas chart, we currently operate almost entirely from Kitimat, British Columbia, all the way to Ottawa, overseeing pipeline infrastructure and right-of-way on anything from a daily to an annual basis. And this year, in Q3, we expanded that into the United States with our first significant contract, which basically runs from North Dakota all the way down south to Houston.
That's our first of our expansion in the oil and gas sector, leveraging our technologies such as our optical gas inspections and magnetometry. We had continued expansion in the U.K. with the strategic acquisition of UAV Hub and Drone Mentor, and we executed work, basically the inspection activities for power utilities of about 11,000 structures in the United States utilities sector. We successfully closed the merger. We talked about that with Drone Delivery Canada. If we look at some of the subsequent points I'd like to bring up, we're quite proud to be recognized at the end of September by The Globe and Mail as the second fastest growth company in Canada. That was a Globe and Mail publication around, I believe, the 27th of September.
We secured CAD 15 million in financing from two major Canadian institutional investors, Investissement Québec and Export Development Canada, to expand our operations and accelerate the development of our aerial solutions in core industries such as oil and gas, energy, utilities, public safety, and infrastructure. We successfully completed an inspection of 762,000 solar panels. That was across 16 solar fields and one large substation. That represents the largest solar farm inspection that we've completed to date, and we hope the beginning of many more to come. We announced a new collaboration with ourselves and our partners at Kongsberg for the integration of their IRIS Terminal into our operations center. What that basically does is it provides our operators with three-dimensional information of all of the air traffic that's in the immediate area, whether that air traffic has been identified or not.
It provides situational awareness and allows us to continue to operate in a true beyond visual line of sight environment without the use of visual observers. And lastly, we closed a previously announced commercial financing, a private placement, where we secured about CAD 2.7 million in additional equity financing on top of the CAD 15 million of financing I already mentioned. So with that, I'm going to pass it over to Abby to run you through some of our numbers.
Thanks, Glen. So on this slide, we'll take a glance at Q3 performance for three months ended 2024. Volatus reported a revenue of CAD 6.6 million for Q3 of 2024. The overall revenue decreased because of the lower equipment or drone sales. However, our service revenue increased by 14%. The reduction in the equipment sales was due to the working capital constraints we had previously. However, with the closing of CAD 15 million financing in Q4 and CAD 2.7 million financing in November, we are witnessing a bounce back in our equipment sales. The overall blended cost margin has remained consistent and in line with our expectations for this year. The loss from operations was higher due to one-time M&A cost. Excluding them, the overall expenses have reduced by CAD 142,000. If you look at the overall expense trend for the two quarters, marketing expenses reduced by 39%.
IT and tech have increased by 14% because of the integration. Personnel cost has reduced by 2% due to the inclusion of severance cost. We expect some more reduction. Office cost has reduced by 10%. Travel reduced by 15%. And there's an increase in external partner cost, and that's due to the one-time M&A expense. On the next slide, we compared the nine-month performance of September 2024 with the last nine months of September 2023. The overall revenues saw a reduction from CAD 24 million to CAD 20 million. It's due to the equipment sales and drone sales and the working capital constraint the company had this year. However, the service revenue increased by 17%. Management took a call this year to divert and allocate more capital on the services contract, one, because they generate more gross margin, 40% compared to 25%. And second, service contracts are more long-term and recurring in nature.
So it has a long-term lasting impact. However, on the equipment sales, once the inventory is ramped up, they bounce back. The blended gross margin is in line with our expectation of 34%. The loss from operation increased, as explained earlier, due to the higher external cost, which is the M&A cost and depreciation expenses. Excluding the depreciation and external partner cost, the overall SG&A has reduced by CAD 1.69 million, and with more cuts executed in Q4. The expense trend currently is the marketing expenses have reduced by 35% for the nine months. IT and tech increased by 13%. Personal cost reduced by 12%. Office cost reduced by 16%, and travel reduced by 50%. Our adjusted EBITDA has been consistent, and we had first-ever quarter that generated cash from operating activities.
The reconciliation between our GAAP and non-GAAP adjusted EBITDA has been highlighted in Appendix A, which is the end of this presentation. That will be uploaded as well on the website. The next slide highlights the trend in overall revenue we have. The company has been increasing on a quarter-on-quarter basis as we move ahead, and on the product mix, and that's a significant change we have noticed. Historically, the company had approximately 55%-45% ratio when it comes to services and equipment sales. This year, however, due to the working capital constraint, we diverted our attention to our services and long-term contracts, and that's why you'll see the trend has shifted from equipment to services. This is temporary. This does not mean the long-term trend as well. We expect going forward, the equipment sales will generate anywhere between 40% and 45% overall, and services between 50% and 55%.
We expect them to increase over the next few years. However, equipment sales remain as a strong segment for the business, and we continue to expand them in Canada, the U.S., and the U.K. That brings us towards the end of the organized presentation, and we're happy to take any questions.
All right. We do have a number of questions that have come in. Let me kick off with, how do you look at a strong Q4 2024 respect to seasonality? How might that measure up versus a Q3? And Glen, if you're answering that, unmute.
I say my best things when I'm talking to myself. I apologize. So we're already starting to see the recovery from our capital-constrained environment. So our services business has been fairly consistent into the fall. We still have a fairly substantial backlog of work to complete between here and year-end. The big change that we're seeing right now is a rebound in our equipment sales business. So we actually concluded the financing in, I guess it was late October, early November, and that allowed us to actually beef up our inventories a little bit, and we are seeing a recovery in our equipment sales business. Also, a lot of our cost control measures are kicking in right now, so we are expecting our Q4 to be a reasonably good quarter, certainly a stronger quarter than Q3. Abby, do you want to add anything to that?
No, I think you covered most of it, Glen. And I think the key point is the recovery of the equipment sales. So as we have ramped up the inventories already, we are expecting that. And with the, I would say, political changes that's happening in the U.S., we are seeing more demand in Canada as well.
So I'm going to actually skip over the second question and go to the third question and come back to that second question because you just brought it up. In what could be a high-tariff environment, how do you look to strategize to monetize on your equipment IP in the U.S.? And do you look at manufacturing in the U.S. or partnering or IP royalties?
So that's a very good question. There's a number of things to unpack there. First of all, obviously, it's early days to be able to determine exactly what the tariff situation is going to look like. We are expecting some pressure in that area. But Volatus also has operations established in the United States. So we do have the ability to assemble our products in the United States. The type of products that we have are proprietary IP are probably not significantly impacted from any tariffs that might be implemented because those tariffs are somewhat consistent around the world and to countries that are exporting to the United States from around the world. The big thing for our technologies is they're specialized in the drone cargo space.
The technologies that we have, in my opinion, are perhaps through Drone Delivery Canada, perhaps the most advanced small drone cargo capabilities in the industry or definitely right up there. So I think most of the technologies that have been designed for cargo delivery have been designed outside of the United States because of the limited regulatory approvals in the U.S. for that space. That's not to say that the U.S. is behind. It's just not an area that's being focused on right now with the cargo as heavily in the cargo world as it is in other places, other parts of the planet. So there's not as many OEMs that are building advanced drone cargo capabilities there. In terms of.
Sorry, go ahead.
Go ahead. Continue.
No, I would say, you know, like I said, at this moment in time, I'm not expecting any major impact on our equipment sales at all. The other reason is a lot of our OEM relationships are with U.S. manufacturers. So we actually have the unique ability to lean more heavily on existing relationships with U.S. OEMs, which obviously are exempt from any import tariffs.
Speaking of expansion, can you discuss your plans to expand into Europe?
Most certainly. So Norway was an interesting move for us. Right off the bat, Norway is adjacent to one of the biggest long-term market opportunities, the North Sea and all of the oil and gas assets that are located in the North Sea. A lot of the emissions monitoring contracts that are available through Europe can be served from there. But by establishing ourselves with Volatus Aerospace Europe, based in Norway, it gives us access to the European Economic Zone for opportunities that arise in the European Union. But it also gives us access to one of the smaller, more intimate regulators. And because of just the nature of Norway, we have a direct relationship with the regulators there and with the European Union. It allows us to put things in place very, very quickly and respond to opportunities in the larger European market.
Can you discuss the current annualized savings? Are there further gains ahead?
So Abby, maybe you can discuss the current savings that have happened to date, and then I'll touch the second half of that about further gains.
Absolutely, Glen. So I would say within 60 days in the merger, our annualized cost saving has surpassed CAD 2 million. We have approximately CAD 2.1 million. Over the next 12 months, we expect additional million dollars of synergies cost savings to realize. And these all are just cost savings. We haven't even touched on the synergies that are happening due to the geographical access of Volatus or the savings in the gross margins we'll have due to the OCC. And we expect over the next 12 months, the expectations are not just on the, I would say, overhead, but some direct cost synergies as well and overlap on the resources, plus other, I would say, insurance and those kinds of expenses which will materialize within the next 6 months.
So I'll touch on the second question about further gains. That's beyond kind of what's been planned currently and what we can actually put a tangible number on. So from our perspective, capital markets have changed fairly substantially in the last two years, particularly in the last 12 months. And while growth still remains an important part of our business, there's probably nothing more important than profitability and our drive towards profitability. So a lot of what we're doing to help get there more quickly, other than continuing just to drive our business and continue to push into higher margin business, take advantage of our remote operations capability to increase our gross margins and our competitiveness. The other plans right now are to accelerate a lot of the consolidation of the companies that we've acquired over time.
It was like, if I remember right, about 26 entities, of which I think 18 of them have been through acquisition. So by consolidating a lot of those operations, it's giving us the ability to consolidate our brand, be more effective in our marketing spend, and ultimately reduce, if I just use one example, I think right now we're reducing our number of payrolls across the company by at least a third. So that reduces the overhead costs, and that's just one example. The other part, when you look at some of the initiatives we're doing right now on the aviation side, so that's the piloted side, we've started to convert or consolidate some of the minority interests in our aviation company. For example, we own two commercial air carrier certificates, one of them called Canadian Air National .
And they're both in the same sector, but one Canadian Air National is owned 100% by Volatus, whereas Synergy Aviation is owned 51% by Volatus, now I believe 58% with the recent announcement. By eliminating or consolidating the minority shareholders, that allows us to actually merge the two aviation companies together and eliminate a lot of the duplication that exists. So we've started to build the relationships with the customers so that they understand that it's the same organization. We've harmonized. We're a long way down the road of harmonizing the actual operations so that both companies operate the same, so that as we merge them together, that becomes seamless to the operating personnel and also gives the regulators more comfort as we consolidate those activities. So that's where we expect to get continued gains into the new year.
When you look at having a lesser number of organizations, even the basic infrastructure costs or the overhead of doing annual financial audits, we have less companies that need to be audited, and that obviously translates into savings in our audit costs and our legal costs and so on. So those are some of the areas that you'll continue to see gains. I think some of those are relatively near-term. Some of them will get progressive benefits throughout next year.
Can you discuss your view on long-line inspection revenues for 2025 or your exit rate?
So, Abby, do you want to talk about that first of all, or you want me to dive into that? I think you're talking to yourself. There we go. Now I feel better.
Now it happens. So no, I can touch base on that. The growth rate in Canada has been double-digit. And when I say double-digit, more lower double-digit, around 10%-12%. The reason is we are doing today 1.7 million kilometers of inspection. We have a larger market share in the Canadian space. Last year, what we did is we started expanding in the U.S. This year, we have won some contracts in the U.S. already. And the reason we are winning those contracts is because of the proprietary technology we own, which actually removes one-man power from the aircraft. So there's a pilot, and we are able to collect data and information using a sensor and technology, giving highly precise information on the threat detection and infrastructure inspection.
So that's something very interesting to our U.S. players, especially when most of the Canadian operators on the oil and gas segment, long-linear inspection segment, are U.S. companies. So it has opened up a door in the U.S. market. We expect at least, I would say, a jump of 30% from this segment just in the U.S. So overall, I would say by end of 2025, the exit rate should be approximately 40% higher than what we have today in terms of long inspection. And the good thing is these are mostly recurring contracts, which get executed for at least five years.
Anything to add, Glen?
No, I think Abby summed that up pretty well.
Great. So I'm sure the question in everyone's mind is, do you expect continued positive cash flow in coming quarters?
I can take that. So we are excited about reporting our first positive cash from operating activity this quarter. It reflects the strength of our business model and the efficiencies we have achieved over the period of time. However, as we continue to scale, our focus remains on reinvesting in our growth opportunities. We recently completed the merger of Drone Delivery Canada and Volatus Aerospace as one entity. There is a tremendous potential and scale opportunity, not just in Canada, but in the U.S., U.K., and other international markets, where the cargo opportunities have significantly picked up in the last six to 12 months. So while we may see some fluctuations due to the investments we make, however, we are confident that the trajectory of our business and the ability will be to deliver a sustainable performance over time.
What is your guidance for revenue in Q4 and for fiscal year 2024? Is that something you can disclose at this time?
We have not disclosed the numbers for 2024, per se. The reason is, as Glen said, it's going to be a stronger quarter despite the seasonality because we ramp up the inventory. We have seen that bounce back in revenue. Due to the political environment in the U.S., we are seeing more demand in Canada to fulfill the orders in the U.S. as well. It's acting positively. We have made some material sales as well that were announced previously to some state agencies. We expect them to be delivered in Q4 as well. We are pushing them to get fulfilled completely in Q4. That's the reason we haven't given any number, is because if we are not able to deliver or fulfill the orders, some of the orders in Q4, they'll get pushed in January, will be Q1.
For FY 2024, and this is the question I keep getting as well, is how do we bridge our sales from what we have currently to CAD 70 million? The answer is we have a good line of sight on CAD 50 million-CAD 55 million already because 90% of our baseline revenue has been recurring and repeat customers. We have an existing order book of CAD 80 million. Even if we go highly conservative and let's say 10% realized next year, that adds CAD 8 million to our baseline. And we are sitting on a sales pipeline of CAD 289 million, which is a 12-month rolling sales pipeline. And we have a salespeople, sales team of over 20 people across the globe. So for them, they need to add additional, I would say, a revenue of CAD 15 million so that we can hit a target of CAD 70 million.
So, long answer to short question, but we have visibility to $50-$55 million. The delta between $55 and $70 comes from our sales pipeline of $289 million. The current cost model we have or the operating expense ratio we have, the moment we breach the $30-$35 million revenue line, we'll immediately start hitting profitability, and it bridges us to our $10 million EBITDA as well.
Glen, anything you'd like to add?
Yeah, and I'm going to add a couple of comments to that. I'll push it a little bit more than Abby will be comfortable with me pushing, but I'm going to do it anyways. So we had disclosed to the investment community that our target was to try and achieve break-even by the end of the year, break-even EBITDA by the end of the year. So it's tough for us to say that we'll actually get quite there because our financing closed a little later than we expected it to, which means that our equipment sales rebound a little later. On the flip side of that, we also executed on a lot of our cost reductions significantly faster than we expected to.
So either way, whether we get there or get very close to there, it's reasonable to assume that the performance in Q4 from a bottom line or Adjusted EBITDA basis is going to be much, much more favorable. Profitability for the company remains the highest priority. In terms of companies that are existing in this space, the first mover advantage for us is not the first mover in technologies, but the first mover to have a solid, sustainable, profitable business activity. And we feel we're getting very, very close to that right now. So that remains our biggest focus. In terms of our confidence in the numbers, which are 70 and 10, CAD 70 million in top line, and CAD 7 million to CAD 10 million is the guidance we've been providing in Adjusted EBITDA. The truth is we're pretty confident with the CAD 55 million.
With the pipeline that we have, it's not a stretch to look at that last CAD 15 million coming out of a very, very large pipeline. Our Chief Commercial Officer, now that we have our Chief Operating Officer in place, Greg was one of the founders of Drone Delivery Canada, and the guy actually working behind the scenes on the actual operations. Now that that's in place and Rob's able to focus more specifically on our sales and marketing team, I'm pretty confident in our ability to convert that business. Very, very confident in the mid-50s and quite confident in 70. What I want to say, regardless of that, our focus is primarily on ensuring that we achieve that positive EBITDA.
So if we discover over time that we're falling short of some of our sales numbers, which would be disappointing and not what I expect, but we'll adapt to that. The objective, even if you look at what we did last year, our performance continued to improve in terms of our operating margins. And that was largely because we're very much focused on making sure what we are doing is contributing positively and that our overhead is actually scaled to the size of the operation. We believe that 2025 is going to be an exceptional year regardless. There's a lot of activity in the drone industry. There's a lot of regulations that are very, very close right now, too. Regulations have been one of the things that's affected the company or the industry's ability to scale in certain segments.
Volatus has tended to focus on the segments that we could actually do. The criteria being, there's three critical criteria for us. We look for customers that have a need, that have the ability to pay, and a willingness to pay that qualifies the customers. Then we ensure that there's a technological solution, ours or others, that can fulfill that need. And then the last thing is look for a regulatory environment that we can work with to be able to have the operating approvals, be that regulatory approvals or special approvals that allow us to operate in those areas. When those three benchmarks are made, those are the areas that we focus on revenues, but as the regulations change, it opens the opportunity to scale in those segments. The example I'll use is oil and gas.
Right now, we operate almost all of our oil and gas business, probably 30% of our revenues, using piloted aircraft and helicopters. In due course, drones will take on a bigger and bigger percentage of that for a whole bunch of practical reasons in terms of increased efficiencies and whatnot, so that will improve our gross margins in those spaces. And it will also allow us to scale more quickly because our ability to operate these larger drones being a key focus and a key strength based on the capabilities of Drone Delivery Canada, we think we're going to see some pretty significant opportunities grow out of that. Canada was a very limited market for Drone Delivery Canada. They focused on drone delivery, and they focused on Canada. Volatus has been very much focused on markets where the activity can happen.
For example, when you look at cargo delivery, you're more looking at Africa, places like Australia, offshore activities, places that there's a demand where the regulatory operations are possible, be it through waivers or less restricted regulatory environments. Whereas in Canada, I would expect our cargo business to grow quite slowly. The inspection business, on the other hand, it'll grow fairly significantly because when you look at things like oil and gas, the Chevrons and Exxons and Shells of the world are not limited to Canada. So when we do a really good job in North America, we're actually building a foundation for expanding that relationship into other countries, which ultimately is where we hope to benefit from some of our developments in the U.K. and in Europe.
Excellent. It seems like we've been able to answer everyone's questions today. So I'm going to wrap this up unless there are other questions that come in at the last moment. Doesn't look like it. So I want to thank everyone for joining our Q3 earnings call today. Just a reminder that the presentation recording will be available on our investor site within 24 hours at investor.volatusaerospace.com. And if you have any additional questions, please reach out to us at investorrelations@volatusaerospace.com. Thank you again, and everyone have a great day.
Have a great weekend, everybody, and thanks for joining us.
Thank you.