Welcome back to another interview. Today I have the pleasure of welcoming back Cameron Chell who's the executive chairman of Dragonfly. Hey Cam, how are you?
I'm great. Thanks for having me back, Justin.
Thanks for being here. And you have some pretty exciting news today. I'm reading this here saying Dragonfly establishes advanced trading partnership with Dell Marorrow Aero. What exactly does this mean, Cameron?
So we were awarded a contract with the US Air Force special operations group to supply them with FPV drones and training. So it's a very significant contract for us because obviously US Air Force special operations is a tier one customer and operator, very rigid and strict protocol in order to buy a combat tested and ready drone system and to contract with the company to do the training of that system for US Air Force special operations. So we're thrilled and excited and it's another indication that Dragonfly's been doing the right things and made the right moves to win this type of business.
So, in the past, what we've talked about in previous interviews and I'll leave a link to those in the description if people want to go watch. We've talked about people, process, product, which means that a successful company generally has all three. Most companies have two. So, if we go through those, the people, the process, and the product. From what I understand from the news release, like this is the government, right? Like this is a tier one customer. Is that fair?
Correct. That's absolutely correct.
And this is you expanding on an existing partnership, right? Like you've already sold into this agency or to the US government and this is kind of like an upsale where now they have the hardware and now they're looking for some training on that hardware. Is that a fair way to think about it?
Yeah, it is. So we've sold into a number of different areas of the Department of War now. So whether that's airborne or army or now air force and air force special ops is the first time we've sold to them specifically, but these things come from a referral from other areas. And so we're thrilled and now to be actually not just selling the product in there but providing training for the next couple of years of cohorts of special air force special operations coming through there and having chosen the Dragonfly FPV drone for these operations and then having us train them on those drones not just how to fly a drone or use an FPV but actually be thinking through the concepts of operations and the use cases and such I think speaks loudly to the experience and the boots on the ground that we've had in the Ukraine, the work that we've done in parts of Africa, the things that we do in Asia. I think that's a big differentiator is that we're very operationally focused with our integrated tactical solutions group who are all former tier one operators who actually go out and help us design that or understand the concepts of operations so that we design drones that are very very effective for the missions at hand.
So people often say that success takes years to build and it becomes like an overnight success right. Overnight success usually takes a very long time to build. So, Dragonfly has been around for, I believe, 25 years. Is that correct?
Yeah, 27 years this year. Yeah.
Okay. 27 years. And sometimes it's easier than others. Sometimes the market fully appreciates what's happening and sometimes there is a disconnect. So from where you started versus where you are now, you've probably seen a few different administrations. So, this comes down to the process and the product you're actually selling. So, my question is, as you're working in different geographies and with different governments, like the US government is the gold standard. How have those conversations progressed? Like have they gone from we're curious but not really urgent to now it's like oh my god we have to really make this thing happen and we want to work with existing suppliers? Are you talking to them? Are they talking to you more? Just curious like what that's looked like over the years and different administrations.
Yeah, you know when we first started, the first application that we sold into was public safety. So, it was actually a traffic accident reconstruction and it was an experiment by a federal police agency and somebody who was a remote control airplane pilot who had heard about these quadcopters. They weren't even called drones or tricopters that we were making and they said, 'Hey, maybe we could use that for...' and it was just an experiment. And then when you're that close to it, you see all the massive vast applications that a flying camera, which was the other name before they were called drones, would or could have. And so that was kind of like the first real commercial application that we started to develop. And then there was volumetrics and pipeline inspection and road inspection and things like that. But it wasn't until we had talked at lots of different militaries and of course they're all big air force and big army and they're like, 'Oh I'm going to play with this, these are toys, what are they going to use for?' And so there was really almost no traction in 2008. We had a mail order, believe it or not, come in from the US Navy. And so as best I understand it, and this is what I've been told by the operators there, the first category one, so small drone, that the US Navy ever bought was from Dragonfly. And that was in 2008, and that was after they saw us on the cover of Popular Science magazine as the innovation of the year back when they had magazines, and Popular Science was a really important publication. And so the operator who was working out of the Philippines at that time on a navy ship, they were tracking terrorists coming down a particular river and really expensive helicopters and planes and they're like, 'Why don't we try one of these flying camera things?' And so it was a mail order that came in. Now interestingly enough, that person from 2008 who was a Navy aviator at the time and responsible for that pilot program actually works at Dragonfly now.
Okay. So yeah, so that was the first real kind of military order that we ever got and that was a grand experiment at that time. You know, up until around 2015, 16, we started doing a lot of NRE, so non-recurring engineering work for like an environment was our biggest client in that regard for years. So we were building tethered drones, we were actually building FPVs back then for the Marines. A lot of people don't realize they're that old. A lot of people don't realize that it was the US Marines that introduced FPVs, one-way suicide drones to Ukraine. Now, the Ukrainians took it to a whole new level. But that was, and in fact, the two gentlemen that were responsible for that program in the Marines over 15 years ago are Dragon Flyers. So, they weren't with us, you know. So, that's the depth of experience. And then Ukraine happened in 2010. And so, we still didn't get any traction. It was all like it was, you know, and that marine program even 15 years ago it was an experiment. It was like, 'It's interesting, you know, kind of thing.' But after what people saw happen in Ukraine and then the advent of really autonomy, which is really the bigger category of where drones fits in, it's grown now to nobody questions the use cases anymore. I don't spend any time talking people into why drones are important. [laughter] I now spend time talking through actual concepts of operations and very intricate details of like, you know, when this comes in, when that happens, when this happens, okay, how's the adversary going to respond to that? You know, what are the counter measures? Okay, what do we need to design around the counter measure to the counter measure? It's you know, that's where it's at today. And to where the number one question is how much volume can you provide, what is the capacity that you have? And so, you know, other than meeting NDAA compliance and having a great product which is table stakes, the only other thing they care about is how fast can you deliver and how reliable are you to deliver on quantity. That's the big question today.
So people, process, product. So we talked about the product a bit and it was really refreshing when we talked in our first interview where you mentioned that this was actually the first drone that helped save a human life too.
So at the time pretty novel, right? You think it's going to be used in rural areas, it's going to help save lives. Every company, not every company but most companies make pivots and like you said, we're experimenting and now you see that there's a much bigger market here. The total addressable market for the government guaranteed buyer is significantly bigger and I like at least for someone like me, like a civilian who's watching all these conflicts around the world, I think people get really distraught when they see human lives taken. So if they're seeing drone on drone, right, that doesn't get as much attention and that's exactly what people want. They want it to be unmanned. They don't want boots on the ground. So what I'm hearing is that a lot of the military stuff now like in Ukraine or over in the ocean, it's drone on drone. Which means that you need to really have the ability to ramp because like in Ukraine especially, they're going through drones pretty quickly. They're doing a lot of the attacks and they're finding pretty intuitive ways to use them too, like going after power stations and stuff. So that going back to the news release from today is probably particularly important. And when I think of any good hardware software company, they control the whole stack because if you control like a Windows machine, so if you control the hardware but not the software, they might not speak perfectly together. But if you have the hardware and the software and the training, they're creating that vertical stack. I'm guessing that's the reason why you've been selected by the government more than once. Would that be a fair assessment?
I think it's a fair assessment on lots of different levels. We do pursue an open architecture for the simple reason that we want as many payload options like the camera that's hanging underneath this that's above me or logistics boxes or weaponization or MC catchers which are part of a surveillance network or communications devices. And so we want as many options that can go onto our drones as possible. So, one of the great advantages that Dragonfly has simply because it's been around so long is, at least to my knowledge, there's only two companies in the world that have full product lines. One of them is DJI. That's a company that's got 10,000 engineers, right? Owns 90 or 80% of the market, whatever it is. The other company is Dragonfly. So, we have everything from the small FPV drone all the way up to our out rider drone which can stay up in the air for 7 hours, carry up to 100 pounds, two diesel engines, like it's, you know, and everything in between. And they've all got a common operating picture, flight characteristics, operating system, universal mounts, all the different payloads can fit on all the different drones as long as they're not too heavy. But the training is all similar and that's what people want. So we don't try to lock people out of the payload that they want. We don't even lock people out of the AI that they may want because they may have a particular AI system for a particular reason that they want. All of our systems have Nvidia chip integrations and some Qualcomm chip integrations, even down to our FPVs, some Jetsons in them, meaning that they're AI enabled. And so, that just takes years to do. So a lot of the newer drone companies have some fantastic drones and capabilities, but they don't necessarily have a whole product line across it that does that whole thing. And so, we're finding that to be a very big advantage for us right now.
I'm going to repeat back what I heard and correct me if I'm wrong. So what I'm hearing you say is that there might be a misconception that fully vertically integrated our system is closed might not be the best solution because like you said, they might be used in different applications, might be used in different geographies, or potentially they say now we want to attach this 100 pound payload and you have to know how to actually use it. So you're creating kind of a platform. As we look towards the future for drones and stuff, is what you're kind of saying like there's going to be like a marketplace where you can plug and play different things into there, like you said, with the Nvidia stack or with a Qualcomm stack where
Yeah. Well, what the Ukraine military did, which was very clever, is they actually have a marketplace where their commanders can go in and, hey, these are all the different drones and the different things I can attach and move over and all that type of stuff. And some of that really lent to our design and our form factors and stuff over the last number of years. And so you see other militaries now doing the same thing where even in the US they've selected who those players are that are going to be on the US marketplace. That's going to be out there. [clears throat] And so that was a very important factor that you have a common operating system but you've got an architecture that's open enough where you can integrate all these different special payloads that are being innovated because like you said in Ukraine, a particular brigade in action could go through 180,000 drones per month and they have to iterate those drones every 10 days for tactics because the other side is countering what they're doing and then switching it up and then you're switching things up. So, you've got 180,000 drones in a month that change technology or some form of the technology three times in that month.
So, somebody might come out with a new IR camera that is $40 cheaper and can stay lit for 20 minutes longer. That changes the entire mission profile of what you can do with 15 more drones. So, you can change your tactics. Well, you don't have time to change a whole new drone platform. You got to be able to plug and play and get that thing in there. And so that's really the fundamental basis that we built upon and I think why we're getting a lot of traction. And none of that would come from, we have brilliant engineers, but it's our field operators that are boots on the ground that understand that. Like a big advantage that we find with our FPVs is that they come apart and so you can put them together in a way with different sizes of arms and blades. So in one mission you have now multiple opportunities to carry out different types of tactics. But the biggest thing that we found is that when you take them apart instead of getting three FPVs in a backpack you can get nine.
Okay. Now a squad has completely different capabilities with nine. Or you're driving out your trucks early in the morning and your three-quarter ton truck can take 600 drones instead of 150.
Okay. And your concept of operations can change. So it's all those types of things that we've learned on the fly, learned in the real world that actually inform our design and manufacturing. So the arms race is really getting you to innovate much more quickly because when you're getting real test data and real battlefield experience, you have to innovate. When you're working in the lab, sometimes you're working on theories. It's not necessarily what's going to happen in the real world.
You're innovating every 10 days at volume. It's insane. It's absolutely turning the logistics, you know, logistics wins wars and it's turning the logistics notions and everything that people were trained on completely on its head. So I do want to come back to the news release from today and talk about the specific training because what I noticed is you were doing some outdoor training sessions with different departments where they can come, they can test, they can see what it's doing. So it kind of seemed like there was a lot of education had to happen and then when they're looking for that natural provider they come to you. But in terms of actually ramping to production like you mentioned before, I'm guessing that when they go through procurement they're looking to choose the company that can have again the best people, process, product. I'm guessing that the list is pretty short. I'm guessing that there's prerequisites you have to have. And what my question was is if you're working, like I know you guys have been working on the last year and a half to increase your capacity. But what I'm wondering is like you mentioned that more than one drone can use the same base. So would it be fair to think of it like a car where you have a chassis and then you can print the shell on top so that you have the production line which is producing the chassis and then you just choose whether this is going to become a light truck or it could become an SUV. Is that the kind of way you guys are producing these?
Yeah, it kind of, you know, so if you look at even the form factors, the connectors, how things, where our chips sit within them, they're all like if you really get jammed and you got to pull a chip from one and go somewhere else or like you know, blaze from like yes, all those things are factors that are driven by that, of what happens out in the field. So that's and again that just comes absolutely from that experience of just 27 years of making a lot of mistakes.
How many could you produce if they said, 'Hey, Mr. Chell, we want to have a lot of drones and we want them as soon as possible.' How many could you produce today?
Well it depends on the actual drone and of course we've got five in the lineup and we've got three that are really hardcore on production lines. So organically we can do about $100 million worth of product right now. And then inorganically, meaning through our contract manufacturers who are particularly in the United States who have our tools and trained by our people and all the rest of it, we could by the end of this year, we could ramp up to another $300 million of capacity. So, we're not going to hit those numbers. I don't want to mislead anybody because, you know, even when you get the orders, it takes time to get it going and all the rest of it. But if you don't have that type of capacity, you will not even get the orders.
Well, that's what I was going to say is that I don't think the government would invest into again sourcing from a company unless they know that they're able to actually ramp to where they want to go. So again, the future is always unknown. But if you don't have the capacity and like you said, how many drones were being used in Ukraine? Sorry. Like how many?
So an active brigade will use up to 180,000 drones per month.
