Drone Volt unveiled promising results with a strong gross margin improvement that was not yet enough to compensate for the massive decline in revenue from the distribution segment. The group reiterated its guidance for 2025, which is reachable in our view, thanks to the strong order intake related to defence notably. Despite the recent impressive share price performance related to the broader defence names trend as well as an improved financial situation, we think the upside potential is not yet exhausted.
Sales decreased by almost 79% to €1.9m (Q1 24: €8.9m) due to the reduction of its distribution activities, which were higher than our expectations (-90% to €0.8m vs -70% expected).
The gross result also fell, but by “only” 31% to €702k from €1.023m, resulting in a gross margin of 38%, a huge 27pp improvement thanks to the improved mix towards higher margin services activities, notably (57% gross margin for Drone Volt Factory, Services and Academy).
The company reiterated its objective of becoming EBITDA positive in 2025.
Big slash in distribution marks new era
The sales stemming from Drone Volt Factory, Services and Academy exceeded for the first time those from Distribution, due to its strong growth (+61% to €1.055m) as well as the disengagement from distribution activities. We should see an accentuation of this trend going forward as the order intake from defence players is growing, as shown by the Hercules 20 orders from the Marine National and a defence group which are not accounted for in Q1 25 results.
This new situation is resulting in a better gross margin than two years ago, when the revenue level was similar at €1.6m, but the gross result is nearly twice the amount registered in Q1 23 (€702k vs €327k).
Secured financing
The group also managed to secure financing thanks to the indirect impact of the election of Donald Trump, which has underlined the necessity for Europe to rely on local providers such as Drone Volt for its own defence and thus attracted new investors. The group successfully raised €2m in February followed by €5m in March, enabling the early repayment of the €2m convertible bonds mostly in cash, while leaving a cushion for funding its growth in new activities. Although there has been some dilution along the way, the future of the company is now safer, especially with the profitability prospects ahead.
Unchanged Outlook
The company reiterated its objective of becoming EBITDA positive in 2025, which is likely given the current trend seen at the gross margin level that should progressively reach the 50%+ level with the improvement in revenue mix. The growth in high-margin activities could accelerate further thanks to new orders in defence/security sectors, around the world and even in the US now that Chinese drone makers are now forbidden there, thus effectively opening a market opportunity for Drone Volt with its Drone Volt (European made) after the new distribution agreement signed in the US.
We will slightly adjust our forecasts downwards on the distribution segment, which is declining faster than we expected, but this should not heavily affect our target price.
