DroneShield shares slump 14pc despite new contract win and record sales as gross margins slide

Investors were unforgiving towards DroneShield (ASX: DRO) today as they pushed the Sydney-based counter-drone technology company's shares more than 14 per cent lower following a first-half trading update that revealed a sharp decline in gross margins.

The margin fall has overshadowed a 74 per cent jump in revenue and a new European military contract worth $23.2 million from one of DroneShield’s long-standing resellers in the Benelux region.

The shares hit an intraday low of $1.78, down from the prior close of $2.08, as investors zeroed in on estimated gross margins of 60 per cent for the first half of FY26, down from 65 per cent in the prior corresponding period.

DroneShield attributes the margin compression to a shift in sales mix between its proprietary solutions and third-party hardware, adverse currency movements, and a raw material impairment linked to the relocation of a manufacturing facility and the implementation of a new enterprise resource planning system.

The update has landed alongside the announcement of a $23.2 million package of European military contracts secured through reseller COBBS BELUX BV, with $21 million earmarked as committed revenue for FY26.

DroneShield has also used the update to unveil RfAI-3, its third-generation radio frequency detection engine that has been developed to provide enhanced situational awareness in complex and rapidly evolving threat environments.

First-half revenue has come in at a record for any six-month period of $125.8 million, up 74 per cent on the prior corresponding period, and the company says committed revenue now stands at $206 million.

CEO Angus Bean describes the first half as "an important period" for the company, noting that committed revenue is already near the record revenue delivered across the whole of 2025.

"We have converted global customer demand into revenue, deepened engagement with defence and government customers, and continued to scale the business at pace while executing a structured leadership transition," says Bean, who was appointed CEO in April to replace Oleg Vornik.

Bean says the committed revenue for 2026 is "powerful validation of the relevance of our solutions, the quality of our people and the strategy we are executing".

"Following the leadership transition in April, we completed a detailed assessment of the organisation, focused on sustaining high revenue growth alongside disciplined cost management and operational resilience," he says.

"That work validated where we are already operating at scale, and equally importantly, gave us a clear view of the capabilities we need to build out to support the next phase of growth."

Bean says DroneShield is investing from a position of strength.

"We continue to invest deliberately in R&D, sales capability, systems and operations, and to fund the working capital that growth at this pace requires," he says.

"This plan underpins our growth trajectory and positions the business to deliver sustainable long-term returns.

"We have also commenced the rollout of our next-generation product roadmap, the most significant product cycle in our history, which we expect to begin contributing from 2027."

Bean says DroneShield is targeting a blended gross margin of "around 65 per cent" in the second half, supported by the launch of next-generation hardware and rising subscription revenue.

The company set full-year revenue guidance at $250 million to $270 million, representing growth of 15 per cent to 25 per cent over FY25 revenue of $216.5 million.

DroneShield, which supplies counter-unmanned aerial system technology to military and government customers globally, delivered record revenue of $216.5 million in FY25.

The company has been scaling rapidly on the back of surging global demand for drone detection and defeat capabilities driven by the conflicts in Ukraine and the Middle East.

Shares in DroneShield closed at $1.805, down 13 per cent for the day.