“Drones, Defense & Arctic Power: Inside Volatus Aerospace’s Master Plan” $TAKOF

Yeah, I'm going to have top level status with more than one. Great to be here, Tim. Thanks for having me again.

You know, there's no question that things are changing worldwide, right? The biggest impact is the increase in defense spending. Countries are stepping up to the plate, arguably in a way that we should have done for years and years, but there's a big catch-up happening right now. And countries globally are investing heavily in defense and really focusing on dual-use technologies that are mature for defense. They're de-risked for defense applications and capability partners. We could talk about the FCC ruling in January and the impact in the United States. It poses a challenge for the US supply chain because the US supply chain has been underdeveloped in that area. But at the same time, these changes create massive opportunities. And you and I both know we're both big fans of Unusual Machines. The day the FCC ruling came out, I'm sure the Christmas holidays were spoiled for the leadership team at Unusual Machines because they probably started working that instant. But massive opportunities now. And I think you'll see long-term benefits for the industry will be huge as we see the American supply chain develop rapidly.

But interestingly enough, if you understand that model in the United States, you realize it's the same activity that's happening now around the globe. Canada has a similar situation. In past years, defense spending — 75 cents of every dollar spent in the Canadian defense market went somewhere else. It left Canada. The defense industry was quite small here because our government had underinvested for the best part of three decades. But we have a current government that stepped up and said we will hit our spending targets, our 2% spending targets. We will achieve the 3.5 and 5% targets that we've committed to. And the other part is to deal with the changing geopolitical trade scenario, basically a reset in global trade. We're going to develop sovereign capability in Canada. That's happening also in the UK and in Europe. In the United States, in our business, we're participating as part of a very large community with lots of competitors. Canada — this has created a huge opportunity for Volatus because there's very few competitors that can actually step up and produce domestic supply that'll meet the demands of our Canadian armed forces and to increase domestic security, which also fits in with the government's Buy Canada initiative. We're adapting to that where our business in America is for America, by Americans, in America. And we're doing the same thing in Canada — developing in Canada, for Canada, by Canadians.

I think it's a tremendous time with massive opportunities that are going to benefit our industry. And you know, I get asked oftentimes about valuations in the drone space and how I feel. People refer to it as a bit of a bubble. I don't see that at all. If you want to understand the reality of defense spending, you can pick up just about any publication — the Wall Street Journal, New York Times, the Globe and Mail in Canada — and you understand what's going on. Drones are the future, and drones, autonomy, robotics, and all of the supply chain that goes with that — that is the future, and that's where we're investing heavily.

A couple of things I'd say if I'm describing Volatus. It's interesting — as our business expands, it kind of changes the narrative slightly. If you think of Volatus, we're a company that's a dual-use aerial intelligence and logistics company operating at a commercial scale. We're one of the few that can say that. We integrate piloted aircraft or crewed aircraft and uncrewed aircraft and data services, and then we deliver critical intelligence products to everything from critical infrastructure — oil and gas, power utilities — security organizations, and to a growing degree, defense. What's really key is it's not stimulated by any one thing. This is a global change in priorities where governments around the world are prioritizing sovereignty, sovereign manufacturing, and capabilities. And for Volatus, what we already do at a commercial scale translates naturally into that space. We're not pivoting into this — our company was built for it. I don't think I've ever been as excited as I am right now, which is why I live in the back of an airplane most of the time.

Yeah, personally, I'm not — but the reality is there's so much going on. You don't belong in a cockpit if your brain isn't 100% there. I wake up thinking about this and I go to sleep thinking about it. Ensuring that we're responding well in everything from our capital market strategy, which is important to make sure that our shareholders are realizing value. And we recognize there's a disconnect, right? Our comparables are trading at a significantly higher multiple than we are despite the fundamentals of our business. And that disconnect also creates an opportunity, but it means that we have to work hard at closing that gap by telling our story a little bit better and attracting eyeballs to the company. But making sure that we never lose sight of the fact that we're an operating company. We have to continue to deliver.

The capital market strategy is always something we look at. I'm fortunate to have a brilliant CFO that leads our corporate development and capital market strategy. Being listed on a junior exchange is part of the challenge. We qualify for listing on the senior exchange in Canada and in the US. It's an issue of timing. Cross-listing has a lot of cost associated with it. There's some people that say we're almost a little bit too early and others would say no, you're in the sweet spot. What we decided to do last year was focus on what we're calling internal institutional hygiene so that our internal reporting meets big board requirements, our compliance is there, everything is a natural thing. We have multiple options — graduation to a senior exchange in Canada, cross-listing at the correct time. The question is what is the correct time? Being prepared for any of those things, creating optionality so that when the time is right, we're actually prepared to move quickly. The good news for us right now is we're adequately capitalized. We finished out the year with somewhere in the neighborhood of about 40 million Canadian dollars on our balance sheet, and that gives us plenty of runway for what we have planned. There's a lot of programs right now that assist us with the ramp-up of the manufacturing plant in Quebec, which will hopefully be producing initial products in Q2.

Just being ready. It's being ready for it and trying to realize that if we do it, it has to be for a reason. And remember, we're also an acquisitive company. We've done 20 acquisitions since 2019. So it's pretty safe to assume opportunities will continue to present themselves and be explored. And some of those things can affect when the right time is. Have we made a decision to do it? No. Are we preparing to be able to act in a manner that would allow us to move quickly? Yes. Right now, the key thing is focusing on execution and leverage — taking advantage of this once-in-a-generation opportunity to grow our business.

Yeah. The dog sitting up behind you — a wolf thing.

No, I think we're trying to lead more in the US using our US leadership team. Our US corporate office is based out of Syracuse and we have a full leadership team in the United States. Also from the standpoint of manufacturing, any large-scale projects, it would be our intention to build domestically. We do have the ability to do that now. A lot of what you're hearing around Canada is — let's be realistic, Canada has big demands and not a lot of competition in the space and a Buy Canadian emphasis. For an American supplier, Canada's a small market, right? It's a tenth of the US. For us, when you're a big fish in a small pond, it creates a lot of opportunities that can be realized quickly. We've really bifurcated our strategy. In the US it's run out of Syracuse and in Canada it's run separately, sharing the resources and relationships that build that. Because Canada and the United States — we're partners, we're family, and we have some interesting dynamics going on in the world right now. But those dynamics are both challenging and creating massive opportunities.

But do I think that in the end it's good for everybody? I really kind of do feel that way because countries are taking actions that they haven't taken, they are strengthening themselves, and I don't see that as a bad thing. In our business, it's most definitely created massive opportunities for us — not just in the US market for our US operations, but in Canada where Canada is now stepping up and spending dollars on defense. That is creating a massive opportunity. Same thing in the UK, same thing in Europe, same thing in even Southeast Asia where countries are having to do the same thing. I believe a lot of what's happening — the way I look at it is, it doesn't matter what people's views are. The reality of where we are is where we are. We have to pay attention to threats but we have to pay attention to opportunities. In North America, there's a rebalancing going on. But we share not just a common border — we're family. We're intermarried back and forth, we have friendships like yours and mine, and those things will endure. North America is a fortress in itself and it will continue to be that notwithstanding any of our challenges. Change is hard, and you can argue what's good or bad. The key part is pay attention to the things that could hurt you and mitigate those, but recognize that change is the opportunity.

Actually, if you sit in on our panels, it's actually fun when I sit with Allan and Jeff and Eric Brock and Cameron Shell and we all sit on a panel. It's amazing how we have this mutual admiration and support society, and there's a reason for that. It's a rising tide.

Funny enough, for example, Unusual Machines — you hear me talk about them. It's a mutual respect that goes on. They're actually a strategic investor in Volatus. The relationships are strong from an industry standpoint, and I think that's largely a sign of the times. We have a good run ahead of our entire industry. People have said, do you think the bubble will burst? The truth of the matter is if violence ceased, if everything stopped around the world, we still have a deficit in our defense organizations that it's going to take three or four years to catch up. So I think we got a good run ahead of us because what's really going on right now is we're facing the new reality of our world. The underinvestment that's happened for so long is now being corrected, and when you're involved in drones — whether they're terrestrial, ROVs, UAVs, or any autonomous technologies, even automation in manufacturing — all of this has been an underspend and now we're spending, and that creates a bit of a whiplash effect where we've got all of this tremendous energy being built up. I would encourage anybody to look at our comps and say if you believe we're going to perform, there's a disconnect.

Yeah. The other thing you'll see is this year we've made major investments in autonomy. For example, our chief technology officer is responsible for our autonomy systems. We've created a platform that really is the brain. If you think about a drone, a drone is basically a robot, right? They're a vessel, a body. The sensors replace the eyes, ears, nose — all of the human sensations are inputs that come through sensors. And then you have a brain. That brain has to be able to function and operate these bodies, ingest the data, make sense of it, and then decide and act — with a pilot in the loop, on the loop, or completely out of the loop. What we've done is develop that as a platform-agnostic stack. So you imagine that's at the center of our R&D, IP, and product strategy, with all the drones around the outside and a common brain capable of being installed on any of them to create whatever level of autonomy is necessary. Our big contribution as a company, if I deal with the Canadian piece, is Arctic. Arctic is the next major topic, and there's only a couple of countries in the world that actually fully comprehend what operating in the Arctic really means, and Canada is one of them. As we prepare our products for the Arctic, I think Canada's commitment and investment in the Arctic is going to be substantial, and that makes America stronger. When I say America, I mean North America. That's what creates this huge opportunity for us, not just on the operating side, but also on the manufacturing side.

Well, you know, I think I may be responsible for that. As excited as I get and as hard as I work, I'm not sure — I think there's a lot of room for improvement in how I communicate the strengths of Volatus. I like to think I'm getting better at it and I'm representing a whole bunch of people that are worthy of strong external messaging. But the truth of the matter is, like I said earlier, the key part is when I look at today's environment, Volatus is actually built for it. We've got what our CFO calls dull, boring revenue — we're doing a million miles plus of pipeline inspections and tens of thousands of power utility structural inspections, and that machine keeps operating and is still growing. We haven't changed our focus on growing our industrial commercial business, especially in the energy sector. It's now just that the opportunity is bigger and it's asymmetric because I don't have to change my business model. The biggest change in Volatus is the bolt-on of our manufacturing facility. I have a background in aerospace manufacturing. The biggest reason we didn't do it before is because there was no opportunity to be a Canadian manufacturer. You need the government to support domestic manufacturing, which now they're doing. It helps support not just our defense requirements but also creates jobs that protect our economy and creates some independence for the economy, which I think is what most nations are attempting to do right now.

I like to think we're good at M&As. We've got a pretty good team and I've been doing it for most of my life. As a company, we're pretty well refined in terms of how we manage that. I wouldn't say that there's any of them that I'm disappointed in because they've all had a place in our history and they've all brought something to the table. Hindsight's always 20/20, so you can look back and say I could have done these things differently, but I don't spend a lot of time on that. In general, our strategy to date is what's created a company that I think is no longer defined by its products or services, but more based on the fact that we're a capabilities partner. That's been driven by those acquisitions. Now what's happening is the scale of our company has allowed us to start looking at larger opportunities. No, I don't have any regrets. One of the best things that's come from our strategy is we have strong people. We've got some extraordinary people on our team. If I look at our leadership team, it's an honor to represent them. They're a bunch of people that drive as hard or harder than I do. They're all brilliant in their own sense, but the other thing is the camaraderie that exists in that group. They're people rowing the same boat hard with common purpose, and it's been a real privilege to be part of it.

Financially, I think they can do that. If they look back at what were our results in 2024, very shortly we'll see the results for 2025, and then project that forward and add in their own assumptions of what the current growth in defense could mean. That's the first thing. We are a company driven to achieve profitability. We're very close to that right now. We've obviously, because of current situations, increased our R&D investments significantly, but from an operating standpoint that doesn't change our priorities. Our goal is to treat a nickel like a manhole cover and stretch it as far as we possibly can and make sure that our investments always — remember, I'm one of our largest investors. I've never sold a share. Even when our stock price touched close to a dollar. Internally, all of our full-time employees are shareholders. We've got a good ESOP program. All of our leadership are well invested into the company, which means our interests are aligned with our investors. Ultimately the decisions that we make are designed to generate real value. The first thing we do is take care of the company because that's what makes it sustainable. But we also pay attention to how the decisions we're making affect our stock price. We finally had the opportunity for the sun and the moon and the stars to line up last year and we had some good stock performance. There's a reason nobody inside is actually selling — we all believe in the story. We're invested, we believe in the opportunity for the future. It was not an opportunistic play. The reason for going public was to have access to capital so that we could actually seize the opportunity created by the growth in our past, which is now accelerated by the current realities in defense spending globally.