Drone Aviation Holding Corp (OTCMKTS: DRNE)
For those that have not been paying attention to the transformational shift in technology, especially in the area of artificial intelligence and drone technology, I would advise you to take an afternoon and become familiar with what is transpiring in a space that used to seem so futuristic. Once you complete that, I want to introduce you to DRNE.
For old timers like me, although we hear about these technological advances, much of the news is quickly absorbed, and we move on to our traditional email and regular cable television.
Streaming data and tweets? If I didn’t have teenagers, I would think that both of those terms related to either a New Year’s Eve party or a flock of birds. Seriously, though, the technology at a consumer’s fingertips is changing at such a fast pace that even the technology created just a year ago is becoming obsolete.
And, with this transformational process only into the early innings, investors will have enormous opportunity to catch rising stars in the industry; Drone Aviation will likely be one of them.
DRNE Positioned For Success
DRNE develops and manufactures cost effective, compact, and rapidly deployable aerial platforms, including electric-powered aerial drones that are lighter than air, designed to provide government and commercial customers with enhanced surveillance and communications capabilities.
At DRNE, the company is strategically positioning itself for rapid and transformational growth in the next 18-24 months, so investors should have some patience with this investment. However, that is not to say that the stock will not rise in tandem with incremental developments at the company, which have the potential to be extraordinary.
A key feature that differentiates DRNE from most others in the drone field is that they use a patent-protected tether system allowing their drone products to offer prolonged operational capability. The extended operational advantage provides real-time data combined with reliability to fulfill crucial requirements in military, law enforcement, commercial, and industrial applications.
The tether technology provides for the unique ability of their drones to virtually fly forever, providing a continuous flow of real-time data to the user. The extended observation capabilities provide valuable strategic benefit and advantages in battlefield circumstances, but also offer significant value in providing an eye-in-the-sky security tool at major events and gatherings around the world.
The DRNE Model For Growth
Without a doubt, the market for drones will be accelerating over the next decade, with huge opportunities available to the early players in the market. Amazon, for instance, is already using a small scale test market to deliver small- and medium-sized packages with drone technology, and Google is using similar technology in various applications that will support the change from human direction to robot-controlled delivery systems, both package oriented and computer controlled.
While big names are certainly well entrenched in the field already, companies like DRNE are differentiating themselves from the pack by offering unique applications for specific and targeted markets.
For instance, the growing and addressable market for tethered aerostats and drones is increasing dramatically in key market segments, especially within the Department of Defense, whereby DRNE is uniquely positioned to provide them tactical aerostat solutions in critical missions. The tethered drone offers a more detailed and powerful intelligence, surveillance, and reconnaissance payload (ISR), with the ability to stay mission focused for a virtually unlimited amount of time. This compares to unmanned and untethered drones that are limited in mission scope to between 15 minutes and 2 hours of transmission time.
DRNE offers investors a targeted and pure drone market opportunity, one that sells itself on its strength of management, clean capital structure, and balance sheet that is free from long-term debt. Additionally, DRNE is in a market that is expected to mature into a $21 billion dollar industry within the next six years, according to a MarketsandMarkets analysis.
DRNE has been steadily increasing its sales organization and has expanded its territory into Washington, D.C., where the company is building both relationships and sales momentum through drone product contracts that have been procured in 2016 by the DoD.
The company’s Gen 2 products are moving from the developmental phase into a commercialization stage, focused on aerial products primarily designed for military and civilian markets. They are also attracting top military officials and officers to assist the company in increasing its military exposure and to build key relationships. DRNE has a distinguished advisory board, inclusive of Lt. General Michael Flynn, who is advising the company on military use and strategic applications for their drone offerings. The Gen2 drones are designed to combat terrorism and to provide additional support in homeland security applications.
DoD Contracts For DRNE
Despite being a relative newcomer to the industry from a publicly traded standpoint, DRNE has been capitalizing on its technology. DRNE has been awarded four DoD contracts to date, providing revenue in excess of $1.4 million dollars since 2015. The company has also secured a contract from BAE Systems for its WAP technical system upgrades, providing an additional $194K dollars of revenue.
Although revenue may seem light at $1.6 million dollars in a billion dollar industry, the footprint that DRNE is making should lead to repetitive long-term contracts and peripheral business opportunities, due to the need for consistent, secure data transmission and compatibility between drones that are working a specific intent.
Importantly, DRNE’s technology is in compliance with new FAA regulations that went into effect in August of 2016, designed for civilian commercial applications.
DRNE Can Focus On The World
The DRNE technology and product line clearly support’s the need for counter intelligence in high risk areas such as the Middle East, Africa, Russia, and high profile terrorist locations throughout the globe.
Beyond the tactical advantages provided to the military, DRNE technology offers extended communication and surveillance, can provide port and border security, and can provide critical infrastructure protection and monitoring. With the eye in the sky, real time communication feature, DRNE can also provide customers with first responder capability, aid in search and rescue missions, and help them gain situational awareness in both air and ground settings.
During the next five years, DRNE expects to exploit military, domestic, and foreign opportunities, utilizing their drone platform to provide specific and user intended services. Supported by its strong IP portfolio, DRNE can intensify their sales campaign and secure a foothold within the market, offering a broad range of customers vision-aided navigation products, a patented tether tension control system, and software/hardware designs that make DRNE user specific and reliant on company upgrades and service.
DRNE’s Capital Structure
As of September 30th, DRNE had approximately $3.6 million dollars in cash and listed current liabilities at $501,747 dollars. There is some long-term derivative liability on the books that totals roughly $2.4 million dollars and a convertible note payable in the amount of $607, 848 dollars.
DRNE has an authorized share treasury of 300M shares and currently has only slightly more than 8.8 million shares outstanding. Coming public off of a reverse split, management has done a great job of clearing all legacy matters (nothing inordinate) and has reduced the share count to a low level, allowing considerable leverage for growth in the future.
The stock is trading just under $3.00 per share and has traded in a range of $2.61 and $3.55 per share during the prior 52 weeks. The stock is thinly traded with the daily trading average sitting at approximately 11K shares.
DRNE Offers Investors Early Opportunity
DRNE has positioned itself well for the future. With a top tier advisory board, including Lt. General Michael Flynn, DRNE is able to capitalize on existing and future opportunities in segmented areas of the drone market.
Although the low share count and float may lead to share price volatility, investors with a medium- to long-term horizon could benefit quite well from an investment DRNE. With commercial compliance from the FAA already established, and with their solid balance sheet, DRNE investors are protected from near-term and unforeseen circumstances that could not be quickly addressed and remedied.
With the Trump administration geared toward border protection and rebuilding the military and infrastructure within the U.S., the potential for DRNE to capitalize on segmented market opportunities is significant. With contracts already in place and with diligent execution of these contracts, DRNE can be expected to secure additional and repeat business from specific clients that require seamless technology and proven performance.
At these levels, DRNE is quite worthy of investor consideration and would fit well into a portfolio with a medium- to long-term time horizon.
Disclosure: I have no position in any stock mentioned, but may initiate a long position in DRNE within the next 72 hours.
I wrote this article myself and it includes my own research and expresses my own opinions. I am not receiving compensation for it (other than from CNA Finance). I have no business relationship with any company whose stock is mentioned in this article.
[Image Courtesy of Wikimedia]