Drone Delivery Canada Chosen in Transport Canada Pilot Program

WOW, it’s been more than 4 years since Amazon​’s(NASDAQ: AMZN) CEO Jeff Bezos proposed on a “60 Minutes segment” that drones could be delivering goods to homes within 30 minutes of ordering.  Bezos said it was inevitable that drone delivery would lead a paradigm shift in client-customer logistics.  He estimated Amazon Prime Air’s delivery drones would be in action in the U.S. by 2018 or 2019.  

Here we are half way through 2018, Amazon and more generally, the U.S., is still 3-5 years away from meaningful drone delivery services.  I mention Amazon as it was conspicuously left off a list of 10 companies chosen to participate in a big U.S. drone pilot program in May.  On the list were giants including Intel (NASDAQ: INTC), Microsoft (NASDAQ: MSFT), General Electric (NYSE: GE), FedEx (NYSE: FDX),  Alphabet [Google] (NASDAQ: GOOG), Uber Technologies (private) & Qualcomm (NASDAQ: QCOM).

Is Amazon’s Loss Drone Delivery Canada’s Gain?

This news is very exciting for Drone Delivery Canada (“DDC“) (TSX-V: FLT / OTCQB: TAKOFbecause it proves that drone delivery is shaping up to be a very serious business and that hundreds of players around the world will want a foothold in this vitally important sector.  Although 10 companies were chosen by the U.S. Dept. of Transportation to take part in the 3-yr program, 149 entities applied!

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Among the companies not involved in the most significant drone initiative in the U.S. are; Amazon, UPS, DHI (private), Lyft (private), Oracle, IBM, SAP, Hewlett Packard, Cisco, Hitachi, XPO Logistics, Target, Walmart, Alibaba, BAE Systems, Airbus, Boeing, NVIDIA, Texas Instruments, Siemens, Northrop Grumman, Lockheed Martin, STMicroelectronics, Best Buy….

Sure, it’s easy to drop the names of heavyweight companies with market caps in the tens & hundreds of billions…. and say that they could be acquirers of DDC.  But it’s an undeniable fact that several of the roughly 30 companies mentioned above will need to make drone logistics acquisitions to gain critical mass in this area.   

Drone Systems Leader in, “Software as a Service” (SaaS) Sector

Let me step back and describe Drone Delivery Canada, a company pioneering a game-changing technology that will enable commercial drones to perform autonomous deliveries of goods & services.  DDC’s drone delivery platform will be used as Software as a Service (SaaS) for government & corporate organizations.  DDC will be an outsourced drone logistics provider.  

The entire operation will be seamless to customers who will connect through an integrated software platform to utilize DDC’s drone delivery applications. 

Drone Delivery Canada is on the cutting-edge of a must have technology for a number of industries.  Once companies start delivering products by drone, all companies will covet that capability.  The ones who gain access will thrive, those who don’t could falter.

DDC is poised to become an “air traffic control” for a fleet of autonomous drones that it will own and operate on behalf of high-quality customers.  NOTE:  {Customers will pay all or a large part of the cost of designing & building drones}

The Company is initially targeting very remote northern communities in Canada with plans to deliver life-saving medicines & medical devices, just-in-time replacement parts for critical machinery or auto parts, hospital supplies, pharmaceuticals, etc.  And eventually…. faster, cheaper, more reliable deliveries of everything else that makes sense to move by drone instead of truck, boat, plane, snowmobile, dogsled or helicopter!

Remote Communities Highly Motivated to Adopt Drone Delivery

In these remote locations, running an errand can take hours and involve multiple modes of transportation, while polluting the environment along the way.  Nearby drone pick-up/drop-off points would be a win-win-win for consumers, retailers and communities. 

Since DDC is working in regions where delivery costs are quite high, savings could be substantial.  In some cases, from as much as hundred(s) of dollars to under five or ten dollars, delivery times cut from several days to several hours.  How is this even possible?  By eliminating or greatly reducing the elevated costs of drivers, pilots or captains (and their employment / health/ retirement benefits), salaries, fuel, tolls, corporate overhead, insurance, maintenance etc.

That magnitude of overall improvement in logistics and costs has the hallmarks of a truly disruptive technology– a paradigm shift in the movement of goods & services.  

On the drone logistics / software side; the ecosystem underlying drone businesses, barriers to entry are high because unlike on the hardware side, software teams have to deal with the really hard stuff regulation, compliance, legality, safety, privacy.  Rules, protocols & industry standards have to be in place, well understood and agreed upon to support a complex, growing, and ever evolving network of autonomous flying robots.

In an environment like this, a “first mover” advantage makes a huge difference.  DDC is poised to become a railway in the sky, the first of its kind in Canada, and among only a handful of publicly-traded companies globally.  DDC has over C$20 M in cash, comfortably funding it for the next few years.  It has received substantial interest from a growing number of multi-national corporations including Staples and more recently, Toyota Tsusho.

Update on Drone Delivery Canada’s Recent Milestones

DDC announced that Transport Canada (“TC“) has selected it to participate in the department’s Beyond Visual Line of Site (“BVLOS“) pilot project.  This is big news, the pilot project will advance DDC’s BVLOS capabilities in Canada and more specifically, will further DDC’s capabilities in the Moosonee & Moose Cree First Nation communities in Northern Ontario, Canada.

The pilot project will take place with drone deliveries of letters, packages & medical deliveries from a group of DDC’s existing customer base including its recently announced partnership with Toyota Tsusho Canada.

CEO Tony Di Benedetto commented,

We are quickly advancing our technology out of the lab and into the skies.  This begins with DDC providing a logistical solution for remote communities where infrastructure is limited or non-existent…  With approximately 1,000 of these communities across Canada’s north, the opportunity to help drive social & economic betterment to these communities by deploying our drone delivery platform is evident.”   

Just 3 days before the BVLOS pilot project announcement, DDC signed an agreement to collaborate on a drone delivery logistics platform.  From the press release, 

This agreement with Toyota Tsusho Canada (“TTC”) is expected to open international markets for us…. Working alongside a global industrial leader such as Toyota Tsusho provides us quick access to a very extensive international network and a breadth of commercial skills.

Under the agreement, TTC will participate in DDC’s pilot program in Canada.  Collectively, the two groups will look to commence flight testing and identify other international markets to deploy DDC’s proprietary drone delivery platform as a transportation solution.

TTC has 7 operating divisions and more than 1,000 subsidiaries and affiliated companies engaging in a wide range of business in more than 120 countries.  

This new arrangement with TTC is a tremendous opportunity for DDC as it greatly expands its horizons from Canada (followed by the U.S.) to developing countries the world over.  Countries in Africa were specifically mentioned.  And a key part of the story with TTC is the possibility of achieving meaningful revenue faster outside of Canada.  

Is Drone Delivery Canada Closing in on Revenues?  

I have to admit, a year ago I thought initial revenues might commence in 2h 2018, but it now looks like a 2019 event.  However, the outlook for revenue is even brighter now than it was before and SaaS companies are well known to enjoy high margins.  Management believes that it could potentially derive revenue from about 20% of the 1,000 remote communities in northern Canada, and that total annual revenue from these communities could reach into the hundreds of millions in 4 or 5 years.

The really exciting thing about the TTC agreement is that it opens up new markets that share characteristics with remote northern Canada regions.  Namely, areas with limited to no infrastructure, (roads, bridges) combined with natural barriers to conventional transportation (mountains, rivers, lakes, forests, deserts).  

African countries are considered to be even more amenable to drone delivery services than northern Canada because in addition to severe remoteness, there’s much higher population density.  In addition, management and industry experts think that the regulatory environment in many African jurisdictions is more favorable (less red-tape, faster moving) than more developed places like Canada & the U.S.  

Could TTC help DDC generate hundreds of millions in revenue outside of Canada?  Possibly.  But, to be clear, it’s still early days.  Luckily, DDC is well funded with C$20 M in cash, enough to potentially bridge the Company all the way to cash flow break-even.  If I had to guess, I imagine cash flow break-even by mid-2020, about 2 years from now.  That’s just my opinion, not necessarily that of management.

In the meantime, more and more companies will be looking to get a jump start into the action-packed world of drone delivery.  It seems likely that it’s a matter of when, not if, a multi-billion dollar company will swoop in and takeout Drone Delivery Canada (TSX-V: FLT / OTCQB: TAKOF).

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At the time this interview was posted, Peter Epstein owned shares and/or stock options in Drone Delivery Canada and the Company was an advertiser on [ER]. Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is 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 or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.