Interview with Droneshield CEO Oleg Vornik

0:04So we get a lot of feedback from Ukrainians that in addition to saving their lives, it actually gives them a lot of that psychological confidence. because you think about it, like for us, that buzzing, annoying buzzing sound from a drone is just a bit of a nuisance. For them, it's full-on trauma because you hear that thing like it's going to kill you.

0:28That was Oleg Vornick, CEO of DroneShield, an Australian-based defense company that specializes in counter-drone technology. I'm Motley Fool producer Mac Greer. Motley Fool co-founder and CEO Tom Gardner talked with Vornick about that technology and about the business of DroneShield. Hello, fools. Very excited for this time together with the CEO of DroneShield, an Australian company in the counter drone solutions business. And the CEO, Oleg Vornick, is with us. Thank you so much for being here, Oleg. Thanks for having me. And we also have BG Al from The Motley Fool, who's going to be guiding us through some of the technical questions we're going to ask.

1:09But I think, Oleg, what we want to do to start this time together is just maybe a one or two sentence description of the business, because we're going to be going through the hardware and software solutions in a bit, but just sort of a quick overview and then the history. We know you were founded in 2014. I'm kind of curious what the first year was like in a business that nobody was likely making any significant purchases from in the first 12 months. So I'd love to hear just a one or two line overview and then a little bit of the history of the company. DroneChill makes hardware and software that detects and takes down drones.

1:39It uses completely soft approach so there's no physical harm to the drones or in fact any surrounding environment. So modalities like the radio frequency and radars and cameras to detect and then mostly smart jamming to take the drones down. In terms of our first year in the business, so the company was started by two American scientists and they had the idea back from the Boston Marathon, which had terrorist attack a couple of years earlier before the business started, that as any technology evolving, drone technology was going to rapidly evolve. And back then drones would, you know, fly 30 yards, smash against the nearest building, and that'll be the end of it.

2:22You couldn't really do much nefarious activity with it. But they had the vision that as drone technology was going to, all the bad guys would eventually start using it effectively, as we, of course, saw subsequent in Ukraine and other places. The first year was very much just a garage company until they had a conversation with a New York-based fund manager who agreed to give them some seed money in exchange for two conditions. One, the listing on the Australian stock exchange as means of raising more money for more growth for the business. and secondly to have somebody commercial to come in and run the business and they knew me from previous experiences i was a banker at the time and looking to do something more productive with my life and so they gave me a call and introduced me to the two founders and the rest was history now let's talk about the product suite of the business you mentioned that this is non-kinetic these aren't hard kill devices that are taking down drones but maybe just sort of a little bit of the overview as to why there is a demand now and why that demand is half military and intelligence and half civilian opportunity out there for the business.

3:31So maybe we start with the hardware and then you can talk a little bit about the software and subscription. So first series demand we saw was in 2018 where Houthis were attacking Saudi oil facilities using small drones. Now why small drones? That's the only effective way of attacking that they had. So Saudis were scrambling to find effective counter drone systems. And they were our first multimillion dollar customer. And then, of course, Ukraine happened at that point where we are supplying Poles with our systems and Poles turned around and donated some of them to the Ukrainians. So we had early experience in protecting against the Russian drones attacking Ukraine.

4:12And that drove Ukrainians to ask for more of our systems. And we've delivered hundreds of our systems to Ukraine since then. The technology uses a combination of different types of approaches. So you have radio frequency, which is essentially listening for the connection between the drone and the controller. And the connection is not just the controller telling the drone what to do. Often the drone wants to report back where it is, the telemetry, and also the video feed from the drone. And we can listen to that traffic both ways. and then on the flip side when you're defeating you're looking to severe that traffic both ways and also the connection to the satellite so when often people think about autonomous drones what they're really thinking is the drone controlled by the satellite as opposed to by a human and we severe that connection to the satellite as well now the best way to deal with drones is a layered approach so when you introduce a radar a radar is like a motion detector in the sky anything that moves will get picked up.

5:14Raiders standalone have their own issues in the sense that other flying objects like birds or even moving trees often get picked up. Raiders have evolved this technology to detect large shiny reflective objects like airplanes high up in the sky where there is no other object that can be confusing that looks like an airplane but a small plastic object that doesn't really give much reflection which is what Raider relies on then means that Raiders have a lot of difficulty by themselves and often you need to have customized radars that are specifically formulated for tracking drones. So you take your radar, you take your radio frequency sensor and then you can add a camera to it as well.

5:54So a camera does that final visual confirmation and camera has been developed to track humans and vehicles for decades but it's actually quite difficult to use a camera to detect an object flying 100 miles an hour against complex background like weaving in and out of buildings, trees, and so on. So you're looking for specialized software behind each of these modalities, RF rate and camera, to accurately fuse it together into a single track or tracking multiple drones at the same time. And that's the beauty of the smart command and control system. And then on the defeat side, apart from jamming, you can do other things.

6:33Like I'm not a big fan of bullets or lasers, not so much because of, you know, being anti-war or whatnot, but I mean, war is a terrible thing, but simply because those are very narrow applications. Unless you are in a open warfare, like say, for example, you're in a stadium or you are protecting military base within the US, you can't really just get a gun out and start shooting, right? You're not allowed to. So you're restricted to more passive methods like jamming, or we quite like interceptor drones. So we don't make our own planes. People make great interceptor drones, but you can integrate that into your command and control system that sends out the good drone and basically either rams or captures the bad drone.

7:13The Civil War and Reconstruction was a pivotal era in American history. When a war was fought to save the Union and to free the slaves. And when the work to rebuild the nation after that war was over turned into a struggle to guarantee liberty and justice for all Americans. I'm Tracy. And I'm Rich. And we want to invite you to join us as we take an in-depth look at this pivotal era in American history. Look for the Civil War and Reconstruction wherever you find your podcasts. Could you just walk us through a single customer example, a situation, a circumstance where somebody is using both the hardware and the software in a military setting and in a civilian setting.

7:59So you could take an actual one. You probably may not want to name names or anything, but yeah, what's a specific example of both? So one product we sell is called RF Patrol, which is a body-worn drone detector. It looks a bit like a radio, sort of a couple pounds a kilo in weight. So we've got hundreds of these now deployed in Ukraine and a lot of soldiers wear them. So what it does is that if you're a Ukrainian soldier in a trench or inside the building and the device goes off and you were about to pop your head up above the trench or maybe come out of the building, you're like, oh no, no, no, I gotta stay where I am and wait for the Russian drone to go away.

8:35Because a lot of these drones are kind of just scavenging around, looking for humans and then just go for a collision and have a bit of explosive on them to basically kill a person. So that gives you that sense of psychological confidence that you can come out of your cover and not have an enemy drone kind of smash right into you. Because if a drone sees you, it's kind of too late. Like the thing is moving so quickly that it's going to follow you wherever you go. So we get a lot of feedback from Ukrainians that in addition to saving their lives, it actually gives them a lot of that psychological confidence.

9:08Because you think about it, like for us, that buzzing annoying buzzing sound from a drone is just a bit of a nuisance for them it's full-on trauma because you hear that thing like it's going to kill you so that's the one application for one of our devices in a civilian setting infrastructure probably be a good example so you think about a data center so we for example are seeing when people are building data centers you have enemy drones no i wouldn't say enemy you have drones flying around this is all in a domestic setting, like in the middle of the US, basically spying on how the data center is laid out.

9:45Now, who is behind it? That's the thing about drones. You never really know. It could be Chinese industrial spies. It could be just curious onlookers. It could be potential terrorists. You don't know. So first of all, you see a lot of drones flying around when the data center is being built. So you see a bit of a blueprint of the design. And then once it's built, what data center often experiencing and they have products like our drone century x are put on the roof is a drone can attempt to land on the roof of a data center and use the proximity the wireless networks around the data center to hack into it and do a cyber attack or steal data and so our device would basically alert the security of the data center that there's a drone coming drone land on the roof.

10:32And so the security can basically apprehend the pilot and grab the drone and so on. In the winter of 2000, I was invited to give a speech at West Point, which was a wonderful experience. And afterwards, there were a collection of, well, we had a sort of an after dinner group and a Lieutenant Colonel turned to me and said, I often ask in those situations, what can I ask you that's on the verge of what you're not allowed to talk about, but actually makes it on the side that you can't. It's like one of my favorite questions to ask somebody in the State Department. And this would be November 2000.

11:03And he said, there is an increasing risk of an attack on American soil. So that was nine months before 9-11. So I don't know what, you know, intelligence they had or why he would suggest that, but I've never forgotten that. When I was listening to a recent presentation of yours, you were talking about the rising risk that there will be a drone attack. I don't think you may not have made specific reference to U.S., but let's just say a drone attack on U.S. soil in a civilian setting that would cause a big wake up to the need for counter drone solutions in non-military settings. So maybe you could talk about what you think the risk is there.

11:42What would be the environment? Would it be an open air stadium or, you know, who should be using drone shield products right now in civilian settings that isn't yet? So we're talking about a drone 9-11 type event and I think it's remarkable it hasn't happened and I really hope it never does but probability is that it would so you think about any sort of crowd gathering which you mentioned a stadium so that'll be an obvious one especially open air stadiums that don't have a roof so a drone can easily come in or otherwise even with a closed roof a drone can be smuggled inside the facility or even an aircraft so engines of airplanes have been designed to withstand bird strikes but not drone strikes i remember i was at a at a seminar with an faa representative and she was telling a story how faa used to test rolls-royce engines or rolls-royce obviously makes engines for a lot of airplanes and they used to test for bird strikes by throwing frozen chickens into the Rolls-Royce engines and just see what happens.

12:45And then FAA decided to do the same with drones and they go to Rolls-Royce, are you okay for us to throw some drones into the engines? And Rolls-Royce is like, no, absolutely not. You're just going to blow out the engine. Just think about it. You're taking a metal parts object with lithium-ion batteries in it and throwing into an engine with really fine tolerances. It's not the same as flesh and bone or frozen chicken. So since then, there've been all these studies that basically show not just the engine but damage to the fuselage, cracking of the shield of the plane. Now an airplane is not that easy to take down so often you have multiple engines so if you burn out one there are still others even if you burn out all of the engines the airplane usually has an opportunity to just glide down so it's not a trivial thing but it is a significant danger to aircraft which is why today if a drone is sighted along the perimeter and obviously take off an approach path at an airport, so the ends of runways are the most dangerous, because if a drone is just hanging around there, sooner or later it's gonna get ingested into the engine of an aircraft taking off or landing.

13:51And very difficult to detect these things, right? Like if you're just relying on your eyesight on a clear day, you know, white drone against a white cloud, like good luck, like that's why you need dedicated drone detection equipment, not just the takedown. In the stadium context, there are multiple permutations. The most obvious one is somebody just strapping a piece of explosive to a drone and flying into a stadium and detonating it there. Or alternatively, and you're probably going to be wondering, what is Oleg eating for breakfast? Think of all these nightmare scenarios. But even putting a bit of washing powder onto a drone and spraying it and people being concerned in anthrax.

14:28So panic, stampede, or even in fact taking a biological agent. And thankfully, we've never seen anything like it. but it's entirely possible and spraying a city with it. So today you can buy a heavy capacity drone that people use to spray crops that have something like a 50 pound capacity. Now that's a lot if you're using it for biological age and basically like a spray a big chunk of the city. So permutations are significant and from a terrorist point of view the attraction is you will probably not get caught because it's not like you're doing it in person right there. You're just flying a drone from a remote location.

15:05You can be a long, long distance away and nothing really pointing at you. So I think it's a miracle, honestly, that we never see anything like this. And I think it's a matter of time. To add to, you mentioned data centers a while ago, and that was actually a surprise for me during my research about your company. And it seems like anything that's being cyber attacked is a target surface for drones as well. Some examples are energy places, you know, like power plants or nuclear plants, especially because there has been hacks or attempts of hacking in those places. Oil and gas fields was also a surprise for me.

15:43Yeah. Do you mind chatting more about, you know, about those scenarios? And the other thing that I want to point out too is that it really goes beyond military or military, like there's a lot of civilian applications for this. So we say that the civilian market is as large and in time may even be larger than the military market. It's just that the military has been more proactive in deploying counter-drone solutions. And even now the military penetration in terms of counter-drone would say sub-five percent. The civilian market for counter-drone is probably zero, close to zero penetration. The energy infrastructure generally is highly flammable, right?

16:17You think about these oil and gas wells, the transport infrastructure. So it doesn't take much for a drone to create a meaningful incident, explosion, that kind of environment. And then you have things like prisons. So prisons have developed to be very good at stopping people from the ground up, delivering contraband, but they are really not very good at stopping people delivering drugs, weapons, cigarettes, escape kits Amazon style to prison windows and in fact that was I was actually quite surprised didn't get more recognition than I did there was an incident in Italy a couple years ago of somebody actually delivering a handgun to an inmate using a drone absolutely insane right and even today prisons just really have no way to stop any of this while counter drone allows you not just to track it in real time, but also often to tell you where the pilot is so you can send security and arrest whoever the piloting drone.

17:24Oleg, you can provide some rapid fire answers to these last couple of questions and we can wind up. First is what defense companies, large or small in the public markets, do you admire? Palantir. The growth has been insane. I think Palantir has really shown how you can move away from traditional defense primes and move into the new gen and defense technologies. Have you ever thought about or run a product demo where the drone fireworks show is put on and DroneShield takes all those drones down one by one or all at once? No comment. No comment. Okay. You might have a no comment on this one also.

17:59I mean, given the work that you're doing, like what is your personal safety risk? I know I shouldn't even ask that question, but do you think about that? Are you concerned about that in the world given the levels of conflict, the military conflict that exists today? or whatever, that would be the same for anyone in the defense company leadership position. Well, I got put on the Russian government sanctions list, essentially being declared enemy of the state by Putin as part of our involvement in Ukraine. It's a large list. It's not that exclusive, but it's still a worry. I'm not really that concerned with it in Australia, but when you travel to places that have meaningful Russian community presence, like London, for example and like some of Europe or Middle East it is it is a worry and you have to think about essentially opportunistic versus dedicated type contact I mean my view is that if a tier one government like Russia if they want to take you out there's zero I can do they will but what I can do is to reduce opportunity for an opportunistic engagement so like when you travel you don't put your morning breakfast on Instagram in real time, revealing your location.

19:07You just have to be sensible about how you live your life. Thank you. And the final question is, could you share one or two principles of your leadership style? How you administer, guide, encourage, and challenge the leaders of your company that have led to such great growth rates, great financial performance, a high rate of R &D, R &D reinvestment and innovation, and the 300 plus engineers you have working for you and having them inspired by the possibilities. Just one or two of your principles. Well, first, I recommend Ben Horowitz's book, Hard Thing About Hard Things. I think that encapsulates a lot of my principles, but generally you just work hard and people observe you and they try to do the same, assuming they're the right kind of people.

19:48Oleg Vornick, the CEO of DroneShield has been an early winning investment for us at The Motley Fool, but we're in for five plus years, almost certainly. And we're looking forward to following along your business success. the innovations that you drive, and what we can learn about the category you're in, the world that we're living in, and how to invest better. So thank you so much for this time. And BG, thank you as well. Pleasure.

20:12As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. advertisements are sponsored content and provided for informational purposes only to see our full advertising disclosure please check out our show notes for the motley full money team i'm matt greer thanks for listening and we will see you tomorrow