Why no-one is complaining about the Delta Drone breakout

Aussie small cap,  the future-facing Delta Drone International (ASX: DLT), has offloaded its drone safety business for $6 million Aussie dollar-bucks.

The question is… why?

Let’s run some some quarterly numbers first, for a bit of context.

Delta Drone Q4 FY21 Highlights:

• Receipts from customers totalled $2.0m, an increase of $584K (41%) on the previous quarter
• Divestment of Parazero for $6.0m in cash, post reporting period
• Results driven by contracts with Thompson Reuters, GoviEx and Northern Star
• Australian operations accounted for $454k (23%) of group cash receipts in the quarter
• Appointed Paul Williamson as CFO

Let us be frank

The global drone market is a monster. A tentacled fiend with its puckered little suckers in everything.

Just in terms of revenue alone, the early days of what is certain to develop into this accurate depiction of drone swarm warfare was bringing in more than US$18 billion in 2020.

And that’ll be US$40 billion in just five years, growing at a CAGR of 12.2% from 2021 to 2027. Good CAGR that.

An integral part of the unholy  Skyne-, sorry, La Group Delta Drone, the ASX-listed DLT is already a major player in what they’re calling the Civilian Drone Sector.

And DLT is like the stalker of the sector

The firm develops, offers and operates a range of  solutions based on drone technology for professional use, up and down the supply chain. Got a hiccup in the supply chain? Turns out, there’s a drone for that.

Speaking to Stockhead’s resident drone conspiracist about the sale of Parazero, CEO Christopher Clark says it was a hard call, determined by quality of customer, product confidence and the favourable terms of the deal itself.

Late last week DLT confirmed it’s offloading the safety business to a consortium led by NASDAQ-listed Medigus  – a US tech firm all about growth partnerships for innovative medical solutions . These guys are developing a hack for those hard-to-reach and difficult-to-enjoy endoscopies and making sci-fi tools for gastroesophageal reflux throat disease.

It’s hard to swallow

Clark says the deal for Parazero will free-up DLT to focus on becoming, “one of the world’s leading drone service providers, globally.”

Tautologies aside, it’s a goal which seems to have come into view after the successful acquisition of the Delta Drone South Africa business in December 2020, listing on the ASX a few months later and then the subsequent purchase of Arvista here in Australia in September. 

Clark said, “it was a tough decision and letting go of the successful ParaZero was no walk in the park, though essentially we’ve managed to negotiate the best of both worlds.”

It’s all in the haggle

Now we get to focus on our core markets – Australia and Africa  – solving complex drone service-related problems, while still being able to use the Parazero safety-tech for our customers.

Then there’s the strengthened balance sheet. And sure, it means no heading back to market for cash to fund exciting and expensive ongoing R&D which the Parazero business was particularly noted for. Some might even say, guilty of.

This, Clark says, is the deal which comes with a back-to-back supply agreement, in addition to the sale.

There’s been some good haggling – DLT retains direct access to the evolving Parazero technology.

“And we also have the option, should Parazero re-list in the next five years, to purchase shares at the IPO price.”

We’re acutely aware that a pay-out of this size needs to be utilised carefully to give the most benefit to the company– which is why our priority will be providing renewed value for our shareholders. So all is not lost,  and now we have the freedom to support our Services-based strategy.

The deal: 

• Purchase price of $6 million payable to the Company in cash, with $5.1 million to be received on completion and $0.9 million to be released from escrow after 12 months 
• The company to retain usage rights in relation to the use of the technology and products developed by ParaZero 
• The company to retain additional equity upside in the transaction value from the issue of Warrants to invest in ParaZero again in the future under certain conditions.

Catch and feast

After a decade operating under an SME philosophy, Clark says DLT has perfected the lean-and-mean mindset.

“We only eat what we can catch and the Parazero funds will allow us to catch more as we invest in building teams, particularly in sales, marketing and service areas… Saying this, where there may be an opportunity to make similar investments like Arvista, we would definitely consider them.”

Here’s an idea, from this nutbag from Uncut Angling on the shorelines of Manitoba’s Lake Metigoshe in Canada:

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The national drone services market is also growing fast, if not as humorously. There was over $600m in drone services billing last year, within Australia. 

We’re starting to notice a fundamental mind shift and acceptance of what drone technology can do in Australia. 

Not only are regulations becoming more amenable and ambitious, but the public at large is also starting to witness the wonder of what professional drone services can do. Very recent examples include the NYE drone “fireworks” shows across capital cities – here you have between 200 and 400 mini-drones, generally operated by a single pilot, flying in an autonomous swarm, to deliverable entertainment value to hundreds of thousands of people.

Or take over the world. Spidey knows what I’m talking about.