DroneShield's (ASX:DRO) first quarter might have been a straightforward update, but instead blurred recognition timing and raised pull-forward risk due to a material revision to revenue for a closed quarter, Jefferies said in a Wednesday note.
The company lifted reported March quarter revenue to about AU$74 million from roughly AU$63 million at the April 8 update as a result of customer acceptance occurring after the earlier release.
"While technically acceptable, revising revenue for a completed quarter weakens confidence in the finality of reported numbers and clouds the distinction between 1Q and 2Q performance, effectively introducing timing noise rather than new demand," Jefferies said.
It added that the company's staff expenses declined from the previous quarter despite an increase in headcount, with management pointing to engineer salaries being classified within administrative and corporate costs and noting that this accounting treatment is unchanged.
"The economics may reconcile, but the disclosure may obscure true cost momentum, in our view," the equity research firm said.
DroneShield also reported a FIFA World Cup contract, which offers useful civil application validation and global visibility, but the contract's value is immaterial and is unlikely to move near-term revenue or earnings, Jefferies said.
Jefferies lowered its price target on DroneShield to AU$3.40 from AU$3.70 while maintaining a hold rating.
Shares of DroneShield were down 4% in recent Thursday trade.