The DroneShield Ltd (ASX: DRO) share price is starting the week deep in the red.
In morning trade, the counter drone technology company's shares are down 13% to $1.70.
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Why is the DroneShield share price sinking?
Investors have been selling the company's shares this morning following the release of its half year update.
According to the release, DroneShield achieved record revenue of $24.1 million for the six months ended 30 June. This comprises first quarter revenue of $16.7 million and second quarter revenue of $7.4 million.
While DroneShield's growth has clearly slowed since the end of the first quarter, its first half revenue still represents an impressive 110% increase on the $11.5 million it recorded in the prior corresponding period.
Also growing strongly in the first half was the company's cash receipts. DroneShield reported record first half cash receipts of $21.4 million.
What's next?
Management appears confident that its strong growth can continue in the second half, noting that this part of the year is traditionally the strongest period for sales.
It highlights that October and November often correspond to the start of a new budget cycle for many US Government customers, with end of year underspend catch up and commencement of new year monies being deployed.
In addition, the company highlights that its sales pipeline has increased materially since the end of the first quarter. It now estimates that this pipeline is now 2x larger at $1.1 billion.
This reflects a significant ramp up in the Asia region as multiple governments are commencing substantial C-UAS programs against the threat of small drones conducting surveillance of sensitive areas, harassment, and potential attacks.
Management spoke positively about its outlook due to favourable operating conditions. It said:
As the geopolitical environment deteriorates globally, small drones continue to be used by bad actors, both State and non-State alike. Counterdrone/Counter-UAS (C-UAS) market remains at a negligible saturation point today, due to the nascent nature of the drone market. This is in contrast to markets such as helmets, body armour and tactical radios, as those markets have existed for a relatively long time, and are saturated as a result. This means the buyers of C-UAS systems, such as military planners and security acquirers are rapidly becoming aware of the need to fulfil their counterdrone requirements, and are presently gearing up for large acquisitions of C-UAS equipment, following smaller purchases and trials over recent years.
Strong balance sheet
DroneShield ended the period with a cash balance of $146 million and no debt or convertibles.
The substantial majority of this amount is earmarked for the inventory acquisition process. It notes that DroneShield's hardware carries sophisticated componentry (which assists high margins and competitive differentiation), driving the requirement for componentry purchasing in advance due to the build time of three to four months. This will help the company address its $28 million contracted backlog.
The DroneShield share price remains up 400% over the past 12 months despite today's decline.
