As a general rule, the most successful man in life is the man who has the best information
Today I’m speaking with David MacMillan, President and CEO of Deveron UAS Corp (SNX:DVR), an Ontario-based agriculture focused drone service company. Deveron has a fleet of drones it is using to gather and analyze data for farmers – all packaged in a compelling business model that features a constant revenue stream and a massive opportunity for growth.
AOTH - I want to start with a little bit of history of Deveron, how did the company get started?
David - My background is in public venture capital. I spent some time in the mining space helping a couple of different companies raise money but my real interest was in scalable technology.
I approached a group out of Toronto, Greencastle Resources Ltd. (V:VGN), who had a TSX.V listed shell company and after several meetings they became interested in turning me loose to see what I could find.
It took six months of due diligence but I identified agriculture as a really exciting scalable giant market. The data side of drones was super exciting and there was a lot of value in the future of the intelligence that we could actually gather from this information.
Pretty quick I realized that to be successful in farming, you have to speak the language of the farmer, and that was the skill I didn't have, so I started reaching out to folks that were spending some time building these service-based companies but also have a background in agriculture. And that's when I found Norm Lamothe who became a DeveronUAS co-founder.
Eagle Scout was, at the time, the largest Ontario-based drone imagery service company. Eagle Scout’s problem was the lack of a large scalable network, they were getting calls from all over the place but did not have the network of pilots spread across the province to economically cover such diverse, distant acreages.
My ag data vision and venture capital raising ability combined with Norm’s operating and farming expertise enabled us to acquire Eagle Scout and we went full scale across Ontario with our new entity Deveron.
AOTH – What exactly are the problems Deveron is trying to solve for farmers?
David - We just don't believe that individual farmers will be buying drones at scale. I think there'd be some people that do, but I think the majority of people are just really interested in the data and the intelligence, and not in the process of actually having to go and collect drone data.
So we’re looking at the idea of precision agriculture as a team concept, Deveron and the farmer, enabled by digital agriculture. We want to collect the drone data for farmers to use and share it with them to help them make better decisions.
Farming is all about yield and cost. We saw the ability of drone data to drive a very important value proposition for a farmer, which is increasing yield while reducing cost. We saw the idea of creating a network of drones to allow the everyday farmer in large or small enterprise to look at drone data without having to take any technology risk.
AOTH – You are trying to increase yields by decreasing the inputs which drives down costs and increases profits. Inputs in farming are, at the most basic level, seeds, fertilizers, and chemicals. Explain to us how Deveron could save a farmer money, and increase yield, using your drone data.
David - A good example on the yield side would be looking at a parcel of your land and looking at a variable rate of seeding application. Rather than putting the same population of seed down across an entire field you can use drone data to get a picture of the overall perspective and then use that elevation data to help create a more economic algorithm for planting your seed population. Your maximizing what's going on dynamically in the soils to plant seed in a better way.
The idea being you have different soil layers, you have different elevation, and you have all these dynamic things that are happening in a farm that actually leads you to not have the same amount of seeds planted everywhere.
There's the input side that can drive better application of fertilizer, thus better yield. You do not have to fertilize at the same rate across an entire field. By using drone data you can stop over or under fertilizing an area by analyzing, in real time, a crops growth.
There's also the side of crop protection, it’s more like yield protection than the total yield pop up. Most times a farmer isn't going to go out and spray, just too expensive being his only option is to spray his whole field or spray none. But that changes with drone data because now you can now target specific areas that have disease. What we're doing is targeting select areas to actually provide protection, and that's beneficial to a grower. It's also beneficial to the crop protection company because they have all this product that, in general, they've never been able to sell but can now sell with drone data because they can apply it in specific areas.
We talked about disease but storm damage assessment can be a factor. We can use drone data and we apply that to the farm as soon as the weather event has happened. We can catalog it into two-centimeter accuracy where there's been damage. So now you have a GPS, geo-tagged image that the farmer can look at and the insurance adjuster can look at. Those images settle any disagreement about damage extent pretty quickly.
I think there's quite a bit of inefficiency in crop insurance right now. For example, in western Canada hail is a huge problem. Some years hundreds of thousands of acres are damaged by hail. That’s not only of interest to the insurance folks, it's of interest to the grain guys who have a contract to sell X number of bushels at the end of the year. With our drone data we'll be able to quantify very early how much they're going to have to go out and maybe buy from somebody outside their supply pipeline if they have this very important piece of information. So we're definitely excited about that.
AOTH – What other data could you supply the ag community?
David - One that we could talk about is forecasting yield. You fly a site in July and then take that data and correlate it to the yield data that comes off the combine. It's actually astounding how we can see what the maximum potential of that plant is going to be way before we harvest. Think of all the important factors that that can have towards financial market prediction and fulfilling contract prices for growers. So we're really excited about that on the predictive side of things for yield.
Imagine a farmer who's farming 15,000 acres of corn, at some point we start to get plant emergence, or not. There's really no way to assess how successful the planter was unless you're going to go out and walk all these acres. So what we can do with the drone is we can fly the field after emergence.
There's a few company’s out there that have the algorithms called plant counting, so we run our data through that. And it can actually pull out the areas across an entire operation of where we've not seen emergence, and then you could start using that as a calculation of, "Okay, one, we want to go and re-plant. Two, how close are we to the number of seeds we put in the ground to the emergent that's come out?" So these are all really useful decisions for the farmer that in the past, the only option has been to wait until the yield has come off the field, take a measurement from the combine based on what you planted, and then try to make a reactionary decision for the next year.
This is the first time where someone can say there's a huge amount of yield at risk because we didn’t have get a high percentage of emergence over several blocks. And they go out there early enough to re-plant those sections. I think that's a really powerful tool especially when you're starting to consider some large farmers in western Canada would farm 60,000, 70,000 acres. It's humanly impossible to walk these acres so rather than just hoping for the best at the end of the season, you can now be proactive to ensure that "all my corn is emerging," it's a very valuable thing for large operations.
AOTH – Can you explain the differences between using satellites, planes and drones?
David - In satellite and in manned aircrafts, there's different ideas of what could be done. Satellite is the lowest resolution but right now the highest ability of coverage and capacity. Drones on the other hand are a couple of centimeter resolution on-demand field level data. And only companies like Deveron are really figuring out how do we manage the logistics of collecting multiple fields at once. I think the airplane is sort of in the middle. The resolution is better than satellite, but nowhere near as good as a drone. They also don't have multiple types of sensors that can fly in every aircraft like we do with drones. But the biggest problem with aircraft is this idea of on-demand. It's very hard for an airplane to be economic for one 300-acre field. If you're going to have an airplane go up, you need to have a minimum order of say 20,000 acres in one spot.
What we find is customers might want 20,000 acres of drone data, but they don't want it at all at once and they have varying geographical needs, say 5,000 acres done in Ontario, 7,000 acres in Saskatchewan, back to Ontario, maybe out to Quebec. Our drone network of pilots can handle that, how many planes would you need?
AOTH - How important is speed in getting the data out?
David - It's super important if the data is being used for spray decision. If we're going to go apply a fungicide or fertilizer or insecticide, the farmer needs to spray now. So we have to collect the data and turn it around, process it and get it to their agronomist within 24 hours. So it’s super timely and important and part of the value proposition of this idea of on-demand drones.
AOTH - What are the next steps for Deveron to build that shareholder value, David?
David - I think it's fairly straightforward. We've identified what I think is a gigantic opportunity, even if you just look at the North American market and how many acres there are under management. Our baseline revenue model is based along the idea that for all types of commercial purposes, we can charge anywhere from $3 to $5 an acre. Obviously there’s a discount for volume but that's great for us because we get the volume. We see people needing drone data on an average of two times a year every year. So we’re really focused on building this recurring revenue model.
This year we announced our first multi-year deal with Thompsons, which is a large mom and pop based ag retailer that's owned by Anderson. Anderson’s a billion dollar NASDAQ company but they're mom and pop in terms of global standards, they're a leader in the Ontario market and we're really stoked to be working with them.
And so I think we can look at that, and a few of our more recent deals (linked to – editor) as a symbol of where the company is going to go. We’re now starting to do all the work moving forward on translating all of these people into more multi-year agreements because it's important for us to show that there's a recurring revenue model. We're going to continue to build the base from our home of Ontario, scale out into the rest of Canada, the U.S. and go global eventually. We've already gone from a few pilots in Ontario last year (2016) to now having pilots covering Alberta all the way out to Quebec. We're getting into the United States and potentially going global. We validated that this data is valuable to not just individual farmers but the large enterprises and we're starting to get those relationships.
AOTH – What do you think is your biggest advantage?
David - Look, here’s an undeniable fact, Deveron UAS is a first-mover into a US$32 billion sector. We have to explain what that does for us, we have to explain to people that ag is a different piece of business because the sales cycle is a little bit longer. When we do a project, we have to wait 365 days to get validation and then re-sell for the next cycle. Of course what's key and integral to that is the first mover advantage that we have.
I haven't crossed a single other drone service player for ag, nor have we had to bid on a contract because somebody's enterprising.
AOTH – How do you build value for retail investors from this point forward and what do those investors watch for regarding whether or not your growth strategy is a success?
David – Our key strategies for growth are organic growth and looking at any kind of potential roll-up strategy that a first mover advantage can benefit from.
So the question going forward becomes ‘how do we execute and build our business from Ontario outward?’ Well, we're already starting to do that, and we've demonstrated that we're capable to do it.
In February 2017 we announced we had completed 500 commercial drone flights in 2016 and we plan, in 2017, to add customers in Alberta, Saskatchewan and Manitoba – a potential market of 50 million acres.
In terms of total acreage potential, Deveron is expanding into the United States, that opens up to us, as a first mover, a market of another 315 million acres plus the 88 million acres in Canada.
We just closed on a $2 million financing which gives us a lot of runway to execute on our plan. We've gone from Ontario validation to across Canada data coverage and we’re already working with some of the largest companies in the world of agriculture. Deveron has already built, as a first mover into the sector, the necessary relationships with the companies who have the largest penetration into those 400 million acres across Canada and the U.S.
So the question for individual investors is, do they feel, over the next few years that 80% of the farms will have drones flying over them, collecting this data that's valuable, and if they see that, then I think Deveron can really be seen as an industry leader because we're so vertically focused.
I know that if you start looking at the opportunity from a revenue perspective of collecting drone data across North America, it's a giant number. And to me, we're either going to be of interest to a big guy in ag who's going to look at drone data as a way to market his software offerings in a better way or Deveron takes over the world of drone driven data in agriculture.
Then of course, geographically speaking, we can collect data for far less cost than anyone else in infrastructure, in oil and gas, in pipelines etc because of our huge existing network that we scaled up and out of Ontario. You can start getting into other verticals once you build something like what we’re doing.
AOTH - Thank you David, it’s been a pleasure.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.
Richard owns shares of Deveron UAS Corp (CSE:DVR) and DVR is an advertiser on his site.