Is Drone Delivery Canada (CSE: FLT) the Uber of Drones?

I recently learned about drone technology / software company, Drone Delivery Canada (OTCQB: TAKOF) / (CSE: FLT) (“DDC“) from a good friend and took a closer look at the Company.  Commercial drones; increasingly used for the delivery of goods & services, mapping, photography, the inspection of utility and energy infrastructure, etc., fall into the category of a disruptive technology.  But, clearly not all drone companies or business models will be winners.  Readers please note, DDC is not a hardware company, it does not make or sell drones. 

As a software solution in the drone operations / logistics management space, DDC is a rare bird in Canada.  This by no means guarantees its success, but in my opinion, greatly increases the odds.  In the interview that follows, it’s clear that management has been working very hard to obtain a commercial license and that they believe they will be the first company in Canada to receive one, probably within the next 3-4 months.  

Think of DDC as an “air traffic control” for a fleet of commercial smart drones that it will own and operate on behalf of high-quality, blue-chip customers that are integrated onto DDC’s highly-specialized software platform.  If all goes as planned, DDC’s customers will be as sticky as those of cell phone or cable providers, 95%+ retention rates.  

Management was not able to discuss revenue projections for 2018-2019, but the amount of money spent on the daily delivery of mail and packages by governments and private companies like Fed-Ex and DHS is staggering.  UPS recently estimated that reducing the distance its trucks drive by just one mile per driver, per day, over one year, could save the company up to US$50 M (~C$62 M).

Industry numbers will get really big, really fast, and that goes for both the cost savings side and revenue gains from new business.  If DDC can tap into this paradigm shift from the far less competitive, but incredibly important software side, it could be poised to be a major beneficiary of this disruptive technology.  Without further delay, here’s my interview of Mr. Tony Di Benedetto, CEO of Drone Delivery Canada.

People have pre-conceived notions about drones and the ability to monetize a world filled with them.  Please describe Drone Delivery Canada’s business plan.  

Over the past 3 and a half years, we have developed a highly sophisticated software platform that will allow our owned & operated commercial delivery drones to operate safely & efficiently in Canada.  We believe our services will be indispensable, an ‘air traffic control‘ for commercial drones.  Like commercial airplanes, our customized drones will fly on designated routes most of the time.     

We will be a trusted, outsourced drone logistics provider, with the entire operation seamless to our customers, who will connect with us through the front end of our integrated software. 

Our Company is not about faster pizza delivery, we’re initially targeting remote northern communities in Canada.  We’re talking about delivering life-saving medicines & medical devices, just-in-time replacement parts for critical machinery or auto parts, hospital supplies, pharmaceuticals.  And, faster, cheaper more reliable deliveries of everything else that makes sense to move by drone instead of truck, boat, plane or helicopter.

Why does this giant opportunity (still) exist for a small company like Drone Delivery Canada?  Why hasn’t a company like Amazon or Google conquered this playing field by now? 

That’s a great question, we get asked that a lot.  When we first looked at the drone space in 2013, we, like everyone else, looked at delivery.  We quickly found that it would be crazy to go up against what we figured Amazon was about to roll out.  So, we talked to a lot of people, including local politicians, regulators, academics, logistics people….  It turned out, no one was thinking at all about the regulatory / legal / compliance side, the ecosystem that the systems platform will slip into.

So, that’s where we decided to stake a claim.  Our relationships with regulators, community leaders and industry groups and our reach into universities to grab top technological / software engineering talent set us off to the races in 2014.  Now that we have over 3 years working with Transport Canada and other groups, dozens of companies, including Staples and TECSYS Inc. have expressed keen interest in partnering with us in trials of various drone delivery services in Canada. 

How have you been able to attract and keep high caliber technical talent in what must be a highly competitive field? 

We are on the cutting-edge of commercial drone technology, one of the hottest technologies in the world, one that’s ushering in a paradigm shift in how goods & services will be delivered.  The commercial drone logistics revolution is poised to change the world in ways we can’t even imagine, and it’s next year, not in 10 or 20 years.  Who wouldn’t want to be a part of that?  

We are partnered with Canada’s top universities and have attracted a number of highly skilled and enthusiastic people through that channel.  

Key to the substantial progress we’ve made, and continue to make, is our collaboration with various government agencies and industry groups, mostly notably Transport Canada.  Canada is at the forefront of the global move towards the commercialization of drones.  It’s been baby steps, a measured & prudent process, but we expect 2018 to be a very exciting year for us and the industry.  

What are the biggest pushbacks you receive from regulators and other interested parties?  Is it safety?  Privacy?  

Pushback is not the right word, it’s all about safety and everyone wants things to be done the right way the first time around.  That takes a lot of planning and cooperation.  We do a lot of listening, we listen to everyone, because who knows what issues could become important down the road, we want to be prepared for everything.  

Regulators, and all interested parties, want solutions that are fair and make sense for everyone.  Rules and standards that are transparent and clear, easy to implement and follow, not just today, but in the future.  It’s more than just stating what we think makes sense, we have to try to prove that it makes sense.

We have been very fortunate, everyone has been incredibly supportive, and I think that’s because we’re all working towards a goal to get critical medicine, supplies, parts to remote locations significantly faster, more reliably and at much lower cost.  Honestly, if we were working on pizza delivery, we probably would not be enjoying the same level of commitment!

To some, drone delivery sounds cool, but hardly an absolute necessity or the NEXT BIG thing.  What are the benefits beyond the, “cool factor?”  

The benefits to the customer will be spectacular improvements in delivery time, cost & reliability.  Because we will be working with remote towns in northern Canada, where delivery costs can be quite high, savings could be substantial.  In some cases, from hundred(s) of dollars to under five or ten dollars, delivery times cut from several days to a few hours.  How is this possible?  By eliminating the elevated costs of drivers, pilots or captains (and their employment benefits)fuel, corporate overhead, insurance, etc., in places where resources are scarce and the cost of living is high.  

This magnitude of improvement has the hallmarks of a disruptive technology– a paradigm shift in the movement of goods & services around the world.

Please describe your revenue model.  Is there reason to believe margins will be high? 

We plan to generate revenues from well established companies like Staples Inc. that has an C$8 billion market cap and > C$20 billion in sales.  We will charge an integration fee, plus a set-up fee per location that will include training in the use of our software.  Then, there will be a monthly usage fee based on the number of deliveries, like a cell phone data plan.  Since we expect to roll out with large customers, we believe our revenues could ramp up into the tens of millions within a year of commercial operations, which we expect to start sometime in the first half of next year. 

Another key client will likely be Canada Post.  It stands to save a tremendous amount of money in coming years, and annually, by switching (where applicable) from trucks, vans, planes, boats & helicopters, to smart drones.  Regarding margins, successful tech companies like Google and Intel are known to enjoy high margins, and we hope to follow their lead.  We expect to have more to say about revenues & margins in the first quarter of next year. 

Sometimes a, “First Mover” advantage is a blessing, other times it’s a curse, why do you want to be first in this case? 

Barriers to entry are going to be high on the software side, we don’t know of any meaningful direct competitors in Canada yet.  Over time, competition will appear, but our first mover advantage should give us a major head start in lining up customers.  Once they are integrated onto our network, the ‘switching costs’ (the time, capital cost, logistical difficulty) of switching to a competitor will be high, perhaps even prohibitive, when taking all the factors involved in switching into consideration. 

How will an early-stage company like Drone Delivery Canada be able to build, operate & maintain a fleet of hundreds or thousands of world-class, customized drones?

Easy, the costs to operate & maintain the fleet will be largely, if not entirely, covered by our customers.  Even some of the costs to build the drones might be passed through to customers.  In any event, the costs will be incurred and paid (for hundreds and potentially thousands of drones) over several quarters, not all at once.  Importantly, we are outsourcing the construction of our smart drones to contract manufacturers who are specialists in the field.  They will embed the brain (our software) into the best hardware (the drones) available on the market at the time.    

THANKS TONY FOR YOUR TIME, I WILL BE WATCHING FOR ANNOUNCEMENTS OF YOUR PROGRESS, GOOD LUCK! 

Disclosures:  The content of this interview is for illustrative and informational purposes only.  Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research[ER] including but not limited to, commentary, opinions, views, assumptions, reported facts, estimates, calculations, etc. is to be considered implicit or explicit, investment advice. Further, nothing contained herein is a recommendation or solicitation to buy or sell any security.  Mr. Epstein and [ER] are not responsible for investment actions taken by the reader.  Mr. Epstein and [ER] have never been, and are not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and they do not perform market making activities. Mr. Epstein and [ER] are not directly employed by any company, group, organization, party or person. Shares of Drone Delivery Canada are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they consult with their own licensed or registered financial advisors before making investment decisions.

At the time this article was posted, Peter Epstein owned shares in Drone Delivery Canada and the Company was an advertiser on [ER].  By virtue of ownership of the Company’s shares and it being an advertiser on [ER], Peter Epstein is biased in his views on the Company.  Readers understand and agree that they must conduct their own research, above and beyond reading this article. While the author believes he’s diligent in screening out companies that are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. Mr. Epstein & [ER] are not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article. Mr. Epstein & [ER] are not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. Mr. Epstein and [ER] are not experts in any company, industry sector or investment topic.