Q4 2024 Red Cat Holdings Inc Earnings Call

August 8, 2024

www.ashokkumar.com

Operator: Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the Red Cat Holdings Fiscal 2024 Annual Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star and 1 on your telephone keypad. To withdraw your question, please press star then 2.

Unknown Executive: Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Red Cat Holding fiscal 2024 annual financial results and corporate update conference call. As this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by crossing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask the question, you may cross star than one on your telephone keypad. To withdraw your question, please press star, then two. Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes.

Operator: Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Red Cat Holdings Fiscal 2024 Annual Financial Results and Corporate Update Conference Call.

Operator: At this time, all participants are in a listen-only mode.

Speaker Change: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions.

Operator: To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.

Operator: Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through November 8, 2024. Joining us today from Red Cat Holdings are Jeff Thompson, Chief Executive Officer, and Leah Lunger, Chief Financial Officer. During this call, management will be making four looking statements, including statements that address Red Cat's expectations for future performance or operational results.

Operator: Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes.

Unknown Executive: A webcast replay of the call will be available approximately one hour after the end of the call through November 8, 2024.

Operator: A webcast replay of the call will be available approximately one hour after the end of the call through November 8, 2024.

Unknown Executive: Joining us today from Red Cat Holdings are Jeff Thompson, Chief Executive Officer, and Leah Lunger, Chief Financial Officer. During this call, management will be making four-looking statements, including statements that address Red Cat's expectations for future performance or operational results. Four-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Red Cat's most recently filed periodic reports on Form 10-K, and in Red Cat's press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time-sensitive information that is accurate only as of today, August 8, 2024, except as required by law. Red Cat describes any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

Operator: Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Red Cat's most recently filed periodic reports on Form 10-K and in Red Cat's press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time-sensitive information that is accurate only as of today, August 8, 2024.

Speaker Change: Joining us today from Red Cat Holdings are Jeff Thompson, Chief Executive Officer, and Leah Langer, Chief Financial Officer.

Operator: During this call, management will be making four looking statements, including statements that address Red Cat's expectations for future performance or operational results.

Operator: Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements.

Operator: For more information about these risks, please refer to the risk factors described in Red Cat's most recently filed periodic reports on Form 10-K and in Red Cat's press release that accompanies this call, particularly the cautionary statements in it.

Operator: The content of this call contains time-sensitive information that is accurate only as of today, August 8, 2024.

Operator: Except as required by law, Red Cat disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

Jeffrey Thompson: It is now my pleasure to turn the one to our fourth quarter in full fiscal year 2024, our names conference call. I will start by summarizing up performance and recent achievements. Leah will then take you through our financial results in greater detail, and then Leah and I will take your questions. I am pleased to report record results for the quarter and a record-breaking fiscal year for Red Cat. First, for the full fiscal year, revenue increased 286 percent to a record 17.8 million compared to 4.6 million last fiscal year. Fourth quarter revenue rose to 6.4 million, over 100 percent increase from the same period last year, and now a new top line quarter record.

Operator: Except as required by law, Red Cat disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Jeff Thompson, Chief Executive Officer. Jeff, please go ahead.

Operator: It is now my pleasure to turn the call over to Jeff Thompson, Chief Executive Officer. Jeff, please go ahead.

Jeffrey Thompson: Welcome everyone to our fourth quarter and full fiscal year 2024 Earnings Conference Call. I will start by summarizing our performance and recent achievements. Leah will then take you through our financial results in greater detail, and then Mia and I will take your questions, and please report record results for the quarter, and a record-breaking fiscal year for Red Cat. First, for the full fiscal year, revenue increased 286% to a record $17.8 million, compared to 4.6 million last fiscal year.

Speaker Change: Thank you. Welcome everyone to our fourth quarter and full fiscal year 2024 earnings conference call.

Jeffrey Thompson: Fourth quarter revenue rose to $6.4 million, over 100% increase from the same period last year, and now a new top-line quarter record. This is our fourth consecutive quarter of top-line sequential growth averaging above 10%. The last four quarters were driven by feet on the street organic sales revenue. None of this revenue was from a program of record production contract or the replicator initiative.

Jeffrey Thompson: I will start by summarizing our performance and recent achievements.

Speaker Change: We will then take you through our financial results in greater detail and then me and I will take your questions.

Jeffrey Thompson: and please report record results for the quarter and a record-breaking fiscal year for Red Cat.

Jeffrey Thompson: First, for the full fiscal year, revenue increased 286% to a record $17.8 million.

Jeffrey Thompson: Come here to 4.6 million last this year.

Jeffrey Thompson: 4th quarter revenue rose to 6.4 million over 100% increase from the same period last year and now a new top line quarter record.

Jeffrey Thompson: This is our fourth consecutive quarter of top line sequential growth, averaging above 10 percent. The last four quarters were driven by feet on the street, organic sales revenue.

Jeffrey Thompson: This is our fourth consecutive quarter of top-line sequential growth, averaging above 10%.

Jeffrey Thompson: No. None of this revenue was from a program of record production contracts or the Replicator Initiative. These record-breaking achievements were completed with a single product, the TL2. During this past fiscal year, global demand continued to surge for small, portable, autonomous systems, and Red Cat responded accordingly. We invested across the organization to strengthen our product portfolio and expand our manufacturing capacity to meet the evolving needs of our customers.

Jeffrey Thompson: The last four quarters were driven by feet on the street organic sales revenue.

Jeffrey Thompson: None of this revenue was from a program of record production contract or the replicator initiative.

Jeffrey Thompson: These record-breaking achievements were completed with a single product, the TL2. During this past fiscal year, global demand continued to surge for small, portable, autonomous systems, and Red Cat responded accordingly. We invested across the organization to strengthen our product portfolio and expand our manufacturing capacity to meet the evolving needs of our customers. Our product portfolio has expanded from one drone to three drones, completing our recently announced family of six. Let's discuss the Red Cat family.

Jeffrey Thompson: These record-breaking achievements were completed with a single product, the TL2.

Jeffrey Thompson: During this past fiscal year, global demand continued to surge for small, portable, autonomous systems, and Red Cat responded accordingly.

Jeffrey Thompson: We invested across the organization to strengthen our product portfolio and expand our manufacturing capacity to meet the evolving needs of our customers.

Jeffrey Thompson: Our product portfolio has expanded from one drone to three drones, completing our recently announced family of systems. Let's discuss the Red Cat family of systems. Our family of systems strategy is a result of listening to our urgent user needs regarding the deployment of low-cost, portable, field-repairable, and recoverable ISR and precision strike systems. This is a paradigm shift in the drone industry, where more expensive, non-recoverable systems have dominated the market for the last decade. The family of systems addresses a variety of mission sets for medium-range ISR, short-range reconnaissance, and first-person view FPV precision strike capabilities, commanded and controlled from a singular tactical ground control system and optimized for GPS-denied and other contested environments.

Jeffrey Thompson: Our product portfolio has expanded from one drone to three drones, completing our recently announced family of systems.

Jeffrey Thompson: Our family of systems strategy is a result of listening to our urgent user needs regarding the deployment of low cost, portable field repairable, and recoverable ISR. Precision Strike System This is a paradigm shift in the drone industry, where more expensive, non-recoverable systems have dominated the market for the last decade. The Family of Systems addresses a variety of mission sets, from medium-range ISR, short-range reconnaissance, and first-person view, or FPV, precision strike capabilities commanded and controlled from a singular tactical ground control system, and optimizes for GPS-denied and other contested environments. I will now discuss our recent acquisitions and partnerships. I will start with Flightways.

Jeffrey Thompson: Let's discuss the Red Cat family of systems.

Jeffrey Thompson: Our family of systems strategy is a result of listening to our urgent user needs regarding the deployment of low-cost, portable, field repairable, and recoverable ISR.

Jeffrey Thompson: and Precision Strike Systems.

Jeffrey Thompson: This is a paradigm shift in the drone industry where more expensive, non-recoverable systems have dominated the market for the last decade.

Speaker Change: The Family Assistance address is a variety of mission sets for medium range ISR.

Jeffrey Thompson: short-range reconnaissance and first-person view, FPV, precision strike capabilities, commanded and controlled from a singular tactical ground control system.

Jeffrey Thompson: and optimize for GPS denied and other contested environments.

Jeffrey Thompson: I will now discuss our recent acquisitions and partnerships. I will start with flightways. Our proposed acquisition of Flightway Aerospace brings medium to long-range ISR and high-resolution mapping capabilities to the Red Cat portfolio, through their flagship products, the Edge 130 Blue. With a range of 20 kilometers in extended flight endurance, the Edge 130 outperforms other drones in its class while maintaining a small portable form factor, which is critical to frontline warfighters. In the near future, the Edge 130 will complement the solutions of Red Cat's other subsidiary, killed drones, by performing joint-matched network-atonomic ISR missions in multiple domains, such as land, sea, and air.

Jeffrey Thompson: I will now discuss our recent acquisitions and partnerships.

Jeffrey Thompson: Our proposed acquisition of FlightWave Aerospace brings medium to long-range ISR and high resolution mapping capabilities to the Red Cat portfolio through their flagship product, the Edge 130 Blue. With a range of 20 kilometers and extended flight endurance, the Edge 130 outperforms other drones in its class while maintaining a small, portable form factor, which is critical to frontline warfighters. In the near future, the Edge 130 will complement the solutions of Red Cat's other subsidiary, Keel Drones, by performing joint mesh network autonomous ISR missions in multiple domains, such as land, sea, and air.

Speaker Change: I will start with Flightways.

Jeffrey Thompson: Our proposed acquisition of FlightWave Aerospace brings medium- to long-range ISR and high-resolution mapping capabilities to the Red Cat portfolio through their flagship products.

Jeffrey Thompson: The Edge 130 Blue

Jeffrey Thompson: With a range of 20 kilometers and extended flight endurance, the Edge 130 outperforms other drones in its class while maintaining a small, portable form factor which is critical to frontline warfighters.

Jeffrey Thompson: In the near future, the Edge 130 will complement the solutions of Red Cat's other subsidiary, Kiel Drones, by performing joint meshed networked autonomous ISR missions in multiple domains such as land, sea, and air.

Jeffrey Thompson: We also have an exclusive partnership with Sentient Robotics. The partnership between Red Cat and Sentient Robotics will enable Red Cat to provide warfighters with the ability for continuous uninterrupted reconnaissance on enemy targets with drone swarms. Teal drones, battlefield-tested drones, coupled with sentient sweet-handling capabilities, give warfighter tools and technology they have never had access to. New technology is dramatically changing the nature of warfare, and we believe those who can integrate defensive and offensive assets across multiple domains and rapidly deploy those capabilities against adversarial targets will gain tactical superiority. This agreement with Sentient is a major step toward the autonomous deployment in control of drone swarms and the capability to launch from small boats or ships.

Jeffrey Thompson: The partnership between Red Cat and Sentient Robotics will enable Red Cat to provide warfighters with the ability for continuous, uninterrupted reconnaissance on enemy targets with drone swarms. Teal Drones, battlefield-tested drones coupled with Sentient's fleet-handling capabilities, give warfighters tools and technology they have never had access to. New technology is dramatically changing the nature of warfare, and we believe those who can integrate defensive and offensive assets across multiple domains and rapidly deploy those capabilities against adversarial targets will gain tactical superiority. Disagreeing with Sentient is a major step toward the autonomous deployment of drone swarms and the capability to launch them from small boats or ships.

Jeffrey Thompson: We also have an exclusive partnership with Sentient Robotics.

Jeffrey Thompson: Teal Drones, battlefield-tested drones, coupled with Sentient's fleet handling capabilities, give warfighter tools and technology they have never had access to.

Jeffrey Thompson: New technology is dramatically changing the nature of warfare and we believe those who can integrate defensive and offensive assets across multiple domains and rapidly deploy those capabilities against adversarial targets.

Jeffrey Thompson: will gain tactical superiority.

Jeffrey Thompson: Disagreeing with Sentient is a major step toward the autonomous deployment and control of drone swarms and the capability to launch from small boats or ships.

Jeffrey Thompson: This brings us to the Replicator Initiative, which seems to be focused on the Indo-Pacific region. For investors new to the Red Cat story, the Replicator Initiative is a program launched by the U.S. Department of Defense in that rapidly delivering advanced autonomous systems to the military. Now, it's in August 2023. The initiative focuses on creating and deploying thousands of all-domain, credible autonomous systems, or otherwise known as ADA2, within 18 to 24 months. The Senate Appropriations Committee recently approved a defense spending bill for fiscal 2025 that would provide full funding for the Pentagon's high-profile autonomous systems initiatives known as Replicator, and lawmakers raised the possibility that even more money could be allotted for the effort.

Jeffrey Thompson: This brings us to the Replicator Initiative, which seems to be focused on the Indo-Pacific region, for investors new to the Red Cat story. The Replicator Initiative is a program launched by the U.S. Department of Defense, aimed at rapidly delivering advanced autonomous systems to the military. Announced in August 2023, the initiative focuses on creating and deploying thousands of all-domain attritable autonomous systems, or otherwise known as ADA2, within 18 to 24 months. The Senate Appropriations Committee recently approved a defense spending bill for fiscal 2025 that would provide full funding for the Pentagon's high profile autonomous systems initiative, known as Replicator, and lawmakers raised the possibility that even more money could be allotted for the effort.

Jeffrey Thompson: This brings us to the Replicator Initiative, which seems to be focused on the Indo-Pacific region.

Speaker Change: for investors new to the Red Cat story.

Jeffrey Thompson: The Replicator Initiative is a program launched by the U.S. Department of Defense aimed at rapidly delivering advanced autonomous systems to the military.

Jeffrey Thompson: Announced in August 2023, the initiative focuses on creating and deploying thousands of all-domain attributable autonomous systems or otherwise known as ADA2 within 18 to 24 months.

Jeffrey Thompson: and lawmakers raised the possibility that even more money could be allotted for the effort.

Jeffrey Thompson: This DOG funding for drones is going to be the primary vehicle the U.S. government uses to kickstart domestic production. This budget plus the continuing resolution last year and other allocations will result in about 1.5 billion in funds for Replicator alone, going to drone manufacturers from now until September of 2025; that will be approximately 100 million per month. We believe we are well positioned for future Replicator launches with our family of systems combined with our forming capabilities.

Jeffrey Thompson: This DOD funding for drones is going to be the primary vehicle the U.S. government uses to kickstart domestic production. This budget, plus the continuing resolution last year and other allocations, will result in about $1.5 billion in funds for REC-A-THETA alone, going to drone manufacturers from now until September of 2025. That will be approximately $100 million per month.

Jeffrey Thompson: This DOD funding for drones is going to be the primary vehicle the U.S. government uses to kick-start domestic production.

Jeffrey Thompson: This budget plus the continuing resolution last year and other allocations will result in about $1.5 billion in funds for Replicator alone going to drone manufacturers from now until September of 2025.

Jeffrey Thompson: We believe we are well positioned for future replicator tranches with our family of systems combined with our swarming capabilities. Last but not least, let's discuss programs of record. Again, for people new to the story, a program of record in the Department of Defense refers to an acquisition program that has been officially recognized and funded through the Future Years Defense Program. This means the program has successfully passed through the necessary approval processes and is included in the DOD's budget planning.

Speaker Change: That would be approximately $100 million per month.

Speaker Change: We believe we are well positioned for future replicators' punches with our family of systems combined with our swimming capabilities.

Jeffrey Thompson: Last but not least, let's discuss programs of record. Again, for the people near to the story, a program of record in the Department of Defense refers to an acquisition program that has been officially recognized and funded with the Future Year's Defense Program. This means the program has successfully passed to the necessary approval processes and is included in the DOD's budget planning. SR, the short range reconnaissance program, is a U.S. Army initiative designed to equip soldiers with small, rapidly deployable unmanned aircraft systems for reconnaissance and surveillance activities. The primary goal is to enhance situational awareness and provide a tactical advantage at the platoon level.

Jeffrey Thompson: Last, but not least, let's discuss programs of record.

Jeffrey Thompson: Again, for the people new to the story, a program of record in the Department of Defense refers to an acquisition program that has been officially recognized and funded with the Future Years Defense Program.

Jeffrey Thompson: This means the program has successfully passed through the necessary approval processes and is included in the DOD's budget planning.

Jeffrey Thompson: S.R.R., the Short Range Reconnaissance Program, is a U.S. Army initiative designed to equip soldiers with small, rapidly deployable, unmanned aircraft systems for reconnaissance and surveillance activities. The primary goal is to enhance situational awareness and provide a tactical advantage at the platoon level. This program of record selection process has gone on for over five years, started with 37 companies and is now down to Red Cat and one other company. The final test for the Army was in May.

Jeffrey Thompson: SRR, the Short Range Reconnaissance Program, is a U.S. Army initiative designed to equip soldiers with small, rapidly deployable, unmanned aircraft systems for reconnaissance and surveillance activities. For more information, visit www.srr.gov.

Jeffrey Thompson: The primary goal is to enhance situational awareness and provide a tactical advantage at the platoon level.

Jeffrey Thompson: This program of record selection process has gone on for over five years. It started with 37 companies and is now down to Red Cat and one other company. The final test for the Army was in May. We had to deliver approximately 50 final prototype systems. The final down collection is scheduled for the end of next month, September 2024. When we believe this production contract will be in the hundreds of millions. Usually, when we talk about programs of record, they are U.S. based contracts.

Jeffrey Thompson: This program of record selection process has gone on for over five years. It started with 37 companies and is now down to Red Cat and one other company.

Jeffrey Thompson: We had to deliver approximately 50 final prototype systems; final down collection is scheduled for the end of next month, September 2024. We believe this production contract will be in the hundreds of millions. Usually, when we talk about programs of record, they are U.S.-based contracts. Red Cat is also in the late stages for NATO programs of record, and we believe that they are also significantly larger than the U.S. SOR program of letters.

Jeffrey Thompson: The final test for the Army was in May, we had to deliver approximately 50 final prototype systems.

Jeffrey Thompson: The final down collection is scheduled for the end of next month, September 2024. We believe this production contract will be in the hundreds of millions.

Jeffrey Thompson: Red Cat is also in late stages for nail programs of record. We believe that they are also significantly larger than the US SLR program of Red Cat Holdings. These programs are expected in the next two months to have their down selection.

Jeffrey Thompson: Usually, when we talk about programs of record, they are U.S.-based contracts. Red Cat is also in late stages for NATO programs of record.

Jeffrey Thompson: [inaudible]

Jeffrey Thompson: In summary, 2024 was a great year for the TIL2 with record revenues. We are steadily reducing cash firm while gaining market share. We expect 2025 revenue to be another record year in top line growth and scale. We expect a lightweight deal to close Zoom at a significant revenue to the 2025 calendar year. We believe we are well-positioned for a short and age reconnaissance program of record win, worth hundreds of millions of dollars, and we hope to finalize NATO-based programs of record before the end of calendar of 2024.

Jeffrey Thompson: We are steadily reducing cash burn while gaining market share. We expect 2025 to be another record year for top line growth and scale. We expect the Fightwave deal to close soon, adding significant revenue to the 2025 calendar year. We believe we are well positioned for a short-range reconnaissance program of record win, worth hundreds of millions of dollars, and we hope to finalize NATO-based programs of record before the end of calendar 2024. And with that, I will hand the call to Leah.

Leah: In summary,

Leah: 2024 was a great year for the TL2 with record revenues.

Jeffrey Thompson: We are steadily reducing cash burn while gaining market share.

Leah: We expect 2025 revenue to be another record year in top-line growth and scale.

Jeffrey Thompson: We expect the Fightwave deal to close soon, adding significant revenue to the 2025 calendar year.

Jeffrey Thompson: We believe we are well positioned for a short-range reconnaissance program of record win, worth hundreds of millions of dollars, and we hope to finalize NATO based programs of record before the end of calendar 2024.

Leah Lunger: And with that, I will hand the call to Leah. Thank you, Jess, and everyone for joining the call this evening. As Jess highlighted, fiscal 24 was an exceptional year marked by record revenues of 17.8 million compared to 4.6 million in fiscal 23. This represents growth of 286 percent. All four quarters of fiscal 24 brought record revenues sequentially. Quarter four revenues totaled 6.3 million compared to 1.1 million in the same quarter of the prior year, representing a 485 percent increase. Gross profit for fiscal 24 totaled 3.7 million, or approximately 21 percent of total revenues, compared to negative 18 percent in fiscal 23.

Leah Lunger: Thank you, Jeff, and everyone, for joining the call this evening. As Jeff highlighted, Fiscal 24 was an exceptional year, marked by record revenues of $17.8 million compared to $4.6 million in Fiscal 23. This represents growth of 286 percent. All four quarters of fiscal 24 brought record revenues sequentially. Quarter 4 revenues totaled $6.3 million compared to $1.1 million in the same quarter of the prior year, representing a 485% increase. Gross profit for fiscal 24 totaled $3.7 million, or approximately 21% of total revenues, compared to negative 18% in fiscal 23.

Leah Lunger: And with that, I will hand the call to Leah.

Leah Lunger: Thank you, Jeff, and everyone for joining the call this evening. As Jeff highlighted, Fiscal 24 was an exceptional year, marked by record revenues of $17.8 million compared to $4.6 million in Fiscal 23. This represents growth of 286 percent.

Leah Lunger: All four quarters of Fiscal 24 brought record revenues sequentially. Quarter 4 revenues totaled $6.3 million compared to $1.1 million in the same quarter of the prior year, representing a 485% increase.

Leah Lunger: Gross profit for fiscal 24 totaled 3.7 million or approximately 21 percent of total revenues compared to negative 18 percent in fiscal 23.

Leah Lunger: We continue to expect steady improvements in growth margin over time as we focus efforts on manufacturing efficiencies and reductions in cost of goods sold. We now have dedicated teams for manufacturing engineering and quarantine returns to accomplish these goals effectively. Our focus on controlling costs while scaling revenues led to a decrease in operating expenses for fiscal 24. Adjusted operating expenses, which exclude non-cash items of impairment loss and stock-based compensation expense, totaled 17.5 million in fiscal 24 compared to 18.1 million in fiscal 23. This represents a decrease of approximately 600,000, or 3 percent. As a percentage of revenue, adjusted operating expenses decreased from 391 percent of revenue in fiscal 23 to 98 percent of revenue in fiscal 24, which demonstrates our success in controlling costs while nearly quadrupling revenues.

Leah Lunger: We continue to expect steady improvements in gross margin over time as we focus efforts on manufacturing efficiencies and reductions in cost of goods sold. We now have dedicated teams for manufacturing engineering and warranty and returns to accomplish these goals effectively.

Leah Lunger: Our focus on controlling costs while scaling revenues led to a decrease in operating expenses for fiscal 24. Adjusted operating expenses, which exclude non-cash items of impairment loss and stock-based compensation expense, totaled $17.5 million in Fiscal 24 compared to $18.1 million in Fiscal 23. This represents a decrease of approximately $600,000, or 3%. As a percentage of revenue, Adjusted Operating Expenses decreased from 391% of revenue in Fiscal 23 to 98% of revenue in Fiscal 24, which demonstrates our success in controlling costs while nearly quadrupling revenue.

Leah Lunger: Our focus on controlling costs while scaling revenues led to a decrease in operating expenses for fiscal 24.

Leah Lunger: Adjusted operating expenses, which exclude non-cash items of impairment loss and stock-based compensation expense, totaled $17.5 million in Fiscal 24 compared to $18.1 million in Fiscal 23. This represents a decrease of approximately $600,000 or 3%.

Leah Lunger: As a percentage of revenue, adjusted operating expenses decreased from 391% of revenue in Fiscal 23 to 98% of revenue in Fiscal 24, which demonstrates our success in controlling costs while nearly quadrupling revenues.

Leah Lunger: Our combined cash and accounts receivable balances as of April 30, 2024 totaled over 10 million dollars. Additionally, in July, we secured $4.4 million of non-diluted financing through the divestiture of our investment in Unusual Machines. Closing this transaction eliminated our equity and method investment while providing additional funding for accomplishing our strategic objectives. We are pleased to report that our cash used in operations has decreased significantly on both a quarterly and annual basis. Cash used in operations for quarter-four of fiscal 24 was 2.3 million. This represents a decrease of 1.8 million or 43 percent sequentially and a decrease of 5.2 million or 69 percent compared to the same quarter in the prior fiscal year.

Leah Lunger: Our combined cash and accounts receivable balances as of April 30, 2024, totaled over $10 million. Additionally, in July, we secured $4.4 million of non-dilutive financing through the divestiture of our investment in Unusual Machines. Closing this transaction eliminated our equity method investment while providing additional funding for accomplishing our strategic objective. We are pleased to report that our cash used in operations has decreased significantly on both a quarterly and annual basis. Cash used in operations for quarter four of fiscal 24 was $2.3 million.

Leah Lunger: Our combined cash and accounts receivable balances as of April 30, 2024 totaled over $10 million. Additionally, in July , we secured $4.4 million of non-dilutive financing through the divestiture of our investment in Unusual Machines.

Leah Lunger: Closing this transaction eliminated our equity at method investment while providing additional funding for accomplishing our strategic objectives.

Leah Lunger: We are pleased to report that our cash used in operations has decreased significantly on both a quarterly and annual basis.

Leah Lunger: Cash used in operations for quarter four of fiscal 24 was 2.3 million. This represents a decrease of 1.8 million or 43% sequentially and a

Leah Lunger: This represents a decrease of $1.8 million, or 43% sequentially, and a decrease of $5.2 million, or 69%, compared to the same quarter in the prior fiscal year. On an annual basis, cash used in operations decreased by $6.6 million, or 27% compared to fiscal 23.

Leah Lunger: and a decrease of 5.2 million, or 69%, compared to the same quarter in the prior fiscal year.

Leah Lunger: On an annual basis, cash used in operations decreased by $6.6 million, or 27%, compared to fiscal 23.

Leah Lunger: On an annual basis, cash used in operations decreased by $6.6 million, or 27% compared to fiscal 23.

Leah Lunger: Overall, fiscal 24 has been a year of growth and accomplishment. We have successfully scaled revenues both domestically and internationally while controlling costs, and we look forward to continued revenue growth and improved profit margins in the upcoming year. Shortly after year end, we completed our engineering efforts for the Army, having delivered final prototypes in April and May of 2024. We remain one of only two finalists in the SRR Trunch 2 program, and we believe we are well positioned to receive an award next month.

Leah Lunger: Overall, fiscal 24 has been a year of growth and accomplishment. We have successfully scaled revenues both domestically and internationally while controlling costs, and we look forward to continued revenue growth and improved profit margins in the upcoming year. Shortly after year-end, we completed our engineering efforts for the Army, having delivered final prototypes in April and May of 2024.

Leah Lunger: Overall, Fiscal 24 has been a year of growth and accomplishment. We have successfully scaled revenues both domestically and internationally while controlling costs, and we look forward to continued revenue growth and improved profit margins in the upcoming year.

Speaker Change: Shortly after year-end, we completed our engineering efforts for the Army, having delivered final prototypes in April and May of 2024. We remain one of only two finalists in the SRR Tranche 2 program, and we believe we are well positioned to receive an award next month.

Leah Lunger: We remain one of only two finalists in the SRR Tranche 2 program, and we believe we are well-positioned to receive an award next month. On the call today, I referenced adjusted operating expenses, which is a non-GAAP financial measure. Adjusted operating expenses exclude non-cash items of impairment loss and stock-based compensation expense. The most directly comparable GAAP financial measure is operating expenses. Listeners can find operating expenses, as well as a quantitative reconciliation of the differences between adjusted operating expenses and operating expenses, on Red Cat's website, which is at redcat.red.

Unknown Executive: Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Red Cat holding fiscal 2024 annual financial results and corporate update conference call. As this time, all participants are in a listen only mode. Should you need assistance, please signal a conference specialist by crossing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask the question, you may cross star than one on your telephone keypad. To withdraw your question, please press star than two. Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes.

Leah Lunger: During the call today, I referenced adjusted operating expenses, which is a non-GAAP financial measure. Adjusted operating expenses exclude non-cash items of impairment loss and stock-based compensation expense. The most directly comparable gap financial measure is operating expenses. Listeners can find operating expenses as well as a quantitative reconciliation of the differences between adjusted operating expenses and operating expenses on Red Cat's website, which is at redcat.red.

Leah Lunger: The most directly comparable GAAP financial measure is operating expenses. Listeners can find operating expenses as well as a quantitative reconciliation of the differences between adjusted operating expenses and operating expenses on Red Cat's website, which is at redcat.red.

Unknown Executive: I will now turn the call over to the operator for questions. We will now begin the question and answer session. If you wish to ask a question on today's call, you will need to press star, then the number one on your telephone. If your question has been answered and you wish to withdraw your request, you may do so by pressing star, then two. If you are using a speaker phone, please pick up your handsets before entering your request and speaking on the call. One moment, please, for the first question.

Operator: I will now turn the call over to the operator for questions. We will now begin the question and answer session. If you wish to ask a question on today's call, you will need to press star, then the number one on your telephone. If your question has been answered and you wish to withdraw your request, you may do so by pressing star, then two, if you are using a speaker.

Operator: I will now turn the call over to the operator for questions.

Operator: We will now begin the question and answer session. If you wish to ask a question on today's call, you will need to press star, then the number one on your telephone. If your question has been answered and you wish to withdraw your request, you may do so by pressing star, then two. If you are using a speakerphone, please pick up your handset before entering your request and speaking on the call. One moment, please, for the first question.

Unknown Executive: A webcast replay of the call will be available approximately one hour after the end of the call through November 8, 2024.

Operator: We will now begin the question and answer session.

Operator: If you wish to ask a question on today's call, you will need to press star then the number 1 on your telephone.

Operator: If your question has been answered and you wish to withdraw your request, you may do so by pressing star, then two.

Operator: If you are using a speakerphone, please pick up your handset before entering your request and speaking on the call.

Operator: One moment, please, for the first question.

Speaker Change: Hello and welcome back to my channel.

Speaker Change: Thank you for watching, and I hope to see you again in the next video.

Unknown Executive: For more information about these risks, please refer to the risk factors described in Red Cat's most recently filed periodic reports on Form 10K, and in Red Cat's press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time-sensitive information that is on accurate only as of today, August 8, 2024, except as required by law, Red Cat describes any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

Operator: Unknown Executive, Jeffrey Thompson, Thompson, Thompson, Thompson, [inaudible]

Operator: www.ashokkumar.com

Speaker Change: Before we start with the questions, I just want to do a little bit of housekeeping. I know I'm seeing a very large list of questions already, so people don't waste the same question on this. Thank you. Thank you. Thank you.

Jeffrey Thompson: Before we start with the questions, I just want to do a little bit of housekeeping. I know we've got a, I'm seeing a very large list of questions already so people don't waste the same question on this. So for guidance, we will resume guidance next quarter. We are in the middle of sweeps for the next six weeks. We expect to hear on SLR down selection in the next few weeks. We hope to close FlightWave in the next week or two and believe they could add $10 to $20 million in revenue in calendar 2025. So we will be able to give guidance and resume with guidance once these data sets are resolved. So I wanted to get that out there before we took any questions. Thank you.

Unknown Executive: Before we start with the questions, I just want to do a little bit of housekeeping. I know we've got a lot of questions already. People don't waste the same question on this.

Unknown Executive: For guidance, we will resume guidance next quarter. We are in the middle of the week for the next six weeks. We expect to hear on SR down selection in the next few weeks. We hope to close Flightway from the next week or two and believe they could add 10 to 20 million in revenue in calendar 2025. We will be able to give and resume guidance once these data sets are resolved.

Jeffrey Thompson: So for guidance, we will resume guidance next quarter. We are in the middle of sweeps for the next six weeks.

Jeffrey Thompson: We expect to hear on SOR down selection in the next few weeks.

Jeffrey Thompson: We hope to close FlightWave in the next week or two and believe they could add $10 to $20 million in revenue in calendar 2025. So we will be able to give and resume with guidance once these data sets are resolved. So I wanted to get that out there before we took questions. Thank you.

Jeffrey Thompson: Leah will then take you through our financial results in greater detail, and then Leah and I will take your questions.

Unknown Executive: I want to get that out there before we took questions. Thank you.

Jeffrey Thompson: I am pleased to report record results for the quarter and a record-breaking fiscal year for Red Cat. First, for the full fiscal year, revenue increased 286 percent to a record 17.8 million compared to 4.6 million last fiscal year. Fourth quarter revenue rose to 6.4 million over 100 percent increase from the same period last year, and now a new top line quarter record. This is our fourth consecutive quarter of top line sequential growth averaging above 10 percent.

Unknown Executive: The first question today comes from Ashok Kumar with Bank equities. Please go ahead. Thank you. And the first question is, you mentioned you had 10 million in cash and receivables. Does that include the 4.4 million you just closed with UMAC?

Operator: The first question today comes from Ashok Kumar with Bank Equity. Please go ahead. Thank you.

Speaker Change: The first question today comes from Ashok Kumar with Bank Equity. Please go ahead. Thank you. A three-part question.

Ashok Kumar: Thank you. It's a three-part question. The first question is, you mentioned you had $10 million in cash and receivables. Does that include the... 4.4 million you just closed with UMAX? The second question is, you mentioned that some of the NATO programs of record, the POR, are larger than the U.S. Army POR. Can you give us... The last one is, have you received any demand for the FlightWave Edge 130 system? Thank you.

Ashok Kumar: The first question is, you had mentioned you had $10 million in cash and receivables. Does that include the $4.4 million you just closed with UMAC?

Ashok Kumar: The second question, as you mentioned, is that some of the NATO programs of record (POR) are larger than the US Army POR. Can you give us the magnitude? And the last one is, have you received any demand for the Flight Wave Edge 130 system? Thank you.

Ashok Kumar: The second question is, you had mentioned that some of the NATO programs of record, the POR, are larger than the U.S. Army POR. Can you give us a sense of that? Thank you, guys.

Jeffrey Thompson: The last four quarters were driven by feet on the street, organic sales revenue. No. None of this revenue was from a program of record production contracts or the Replicator Initiative. These record-breaking achievements were completed with a single product, the TL2. During this past fiscal year, global demand continued to surge for small, portable, autonomous systems, and Red Cat responded accordingly. We invested across the organization to strengthen our product portfolio and expand our manufacturing capacity to meet the evolving needs of our customers.

Ashok Kumar: The last one is, have you received any demand for the FlightWave Edge 130 system? Thank you.

Jeffrey Thompson: Great. Thanks, Ashok.

Jeffrey Thompson: Great. Thanks, Ashok. Actually, Leah, why don't you grab the first one and I'll grab the second and third. Yeah, I'd be happy to answer that. So

Leah Lunger: Actually, Leah, why don't you grab the first one, and I'll grab the second and third. Yeah, I'd be happy to answer that. So the 10.4 million in cash and accounts receivables was our balance as of April 30th. And we closed to the sale of our investment in unusual machines last month. So the 4.4 million dollars mentioned is in addition to cash and AR as of your end.

Jeffrey Thompson: Great. Thanks, Ashok. Actually, Leah, why don't you grab the first one and I'll grab the second and third.

Leah Lunger: Yeah, I'd be happy to answer that. So the $10.4 million in cash and accounts receivables was our balance as of April 30th, and we closed to the sale of our investment in Unusual Machines last month. So the $4.4 million mentioned is in addition to cash and AR as of year end.

Jeffrey Thompson: Go ahead, Jeff. Great. Thanks.

Jeffrey Thompson: Yeah, so the programs of record NATO are significant, and you can understand why with them being so close to the Ukraine war. So I'll just give an example of one of them in compared to SRR. SRR is about a little under 6,000 systems. It's still a very significant contract, but at least one of the programs of record NATO is for 25,000 systems at 4X. So they are pretty massive compared to the SRR Program of Record.

Jeffrey Thompson: The programs of record in NATO are significant and you can understand why with them being so close, to the Ukraine war. So I'll just give an example of one of them, and compare it to SOR.

Jeff: Okay, go ahead, Jeff.

Jeffrey Thompson: Great, thanks. Yeah, so the programs of record in NATO are significant and you can you can understand why with them being so close.

Jeffrey Thompson: to the Ukraine war. So I'll just give an example of one of them, and compare it to SOR. SOR is about a little under 6,000 systems.

Jeffrey Thompson: SOR is about a little under 6,000 systems. It's still a very significant contract, but at least one of the programs of record in NATO is for 25,000 systems; it's 4X. So they are pretty massive compared to the SOR program of records.

Jeffrey Thompson: It's still a very significant contract, but at least one of the programs of record in NATO is for 25,000 systems, it's 4X.

Jeffrey Thompson: So, they are pretty massive compared to the SOR program of record.

Jeffrey Thompson: And then, I think you mentioned demand for the flight, Edge 130. We've had a great response since we announced the LOI. A lot of our customers are on the cusp of knowing that we can actually build and meet the demand. It's a great system, you know. Trent and Mike have done a great job designing that system, and the employees there have made a very unique platform that can fly longer than any other vehicle in its size and range. We think it's a great replacement for the now-discontinued, you know, aero-environment Ravens. So, that's it. We have seen great demand signals for the Edge 130. Thanks. Thank you and all the best.

Jeffrey Thompson: And then I think you mentioned demand for the Flight Edge 130. We've got a great response since we announced the L.O.I. A lot of customers that want the cost, knowing that we can actually build and meet the demand. It's a great system. You know, Mike had done a great job designing that system, and the employees there have made a very unique platform that can fly longer than any other vehicle in its size and range. We think it's a great replacement for the now discontinued, you know, our environment Ravens. So that's we have seen great demand signals for the Edge 130.

Jeffrey Thompson: and then I think you mentioned demand for the flight Edge 130.

Jeffrey Thompson: The family of systems addresses a variety of mission sets for medium-range ISR, short range reconnaissance, and first-person view FPV precision strike capabilities, commanded and controlled from a singular tactical ground control system and optimized for GPS denied and other contested environments.

Jeffrey Thompson: We've got a great response.

Jeffrey Thompson: Since we announced the LOI, a lot of customers are on the cusp knowing that we can actually build and meet the demand. It's a great system.

Jeffrey Thompson: Mike had done a great job designing that system and the employees there have made a very unique.

Jeffrey Thompson: platform that can fly longer than any other vehicle in its size and range. We think it's a great replacement for the now discontinued, you know, aero environment Ravens. So that's...

Jeffrey Thompson: I will now discuss our recent acquisitions and partnerships. I will start with flightways. Our proposed acquisition of flightway aerospace brings medium to long-range ISR and high-resolution mapping capabilities to the Red Cat portfolio, through their flagship products, the Edge 130 Blue. With a range of 20 kilometers in extended flight endurance, the Edge 130 outperforms other drones in its class while maintaining a small portable form factor, which is critical to frontline warfighters. In the near future, the Edge 130 will complement the solutions of Red Cat's other subsidiary killed drones by performing joint-matched network-atonomic ISR missions in multiple domains, such as land, sea, and air.

Unknown Executive: Thanks. Thank you.

Jeffrey Thompson: Thank you and all the best.

Jeffrey Thompson: We have seen great demand signals for the Edge 130.

Glenn Mattson: The next question comes from Glenn Maxon with Vladimir Salman. Please go ahead. Hi, thanks for taking the question, and congrats on the quarter. On the, you know, there was a period of time where for you, you slower production in Q4 to get the TL3 out. So, you know, just generally asking about the production capacity and capabilities. So is that back up and running? Things don't have to do again.

Jeffrey Thompson: Thanks. Thank you and all the best.

Operator: The next question comes from Glenn Matson with Ladenburg Salmon. Please go ahead.

Speaker Change: The next question comes from Glenn Matson with Ladenburg-Salmon. Please go ahead.

Glenn Matson: Thanks for taking the question and congrats on the quarter. You know, there was a period of time where you lowered production in Q4 to get the TL3 out. So, you know, just generally asking about production capacity and capabilities. So is that back up and running, things going out the door again? And then when it comes to FlightWave and the acquisition, would you move that manufacturing into your existing facility? And just give us an update on how that all will play out, if you could.

Speaker Change: Yeah, thanks for taking the question, and congrats on the quarter.

Glenn Matson: There was a period of time where you lowered production in Q4 to get the TL3 out. So, you know, just generally asking about the production capacity and capabilities. So, is that back up and running, things going out the door again? And then when it comes to FlightWave and the acquisition,

Glenn Mattson: And then when it comes to Flight Wave and the acquisition. Would you move that manufacturing into your interexisting facility? And just give us an update on how that all will play out if you could. Thanks.

Glenn Matson: Would you move that manufacturing into your existing facility? And just give us an update on how that all will play out, if you could. Thanks.

Jeffrey Thompson: We also have an exclusive partnership with sentient robotics. The partnership between Red Cat and sentient robotics will enable Red Cat to provide warfighters with the ability for continuous uninterruptured reconnaissance on enemy targets with drone swarms. Teal drones, battlefield-tested drones, coupled with sentient sweet-handling capabilities, give warfighter tools and technology they have never had access to.

Jeffrey Thompson: Yes, well, thanks. Thanks, Glenn.

Jeffrey Thompson: Yes. Well, thanks. Thanks, Glenn. So, we are back in production. We're also, you know, in a pretty large hiring spree right now to scale production of the future teal drone that we actually submitted for the Army prototype. We are, you know, preparing for large-scale production and moving into TEAL. We're currently calling it TEAL 3.

Jeffrey Thompson: So the, we are back in production. We're also. You know, we are in a pretty large hiring screen right now to scale. Production of the future Teal Grown that we, it's the Grown that we actually submitted for the Army prototype. We are preparing for large scale production and moving into the Teal. We're calling it currently the Teal Parade. So we're back in production. We didn't almost take six weeks. You know, it was the pretty easy decision. Did we want to, you know, try to make guidance? Or do we want to spend the right amount of time building those prototypes to get to the Army to, you know, contract which were hundreds of millions?

Jeffrey Thompson: Thanks, Glenn. So we are back in production. We're also, you know, we are in a pretty large hiring spree right now to scale.

Jeffrey Thompson: production of the future teal drone that we, it's the drone that we actually submitted.

Jeffrey Thompson: for the Army prototype. We are...

Jeffrey Thompson: New technology is dramatically changing the nature of warfare, and we believe those who can integrate defensive and offensive assets across multiple domains and rapidly deploy those capabilities against adversarial targets will gain tactical superiority.

Jeffrey Thompson: So we're back in production. We did almost take six weeks. You know, it was a pretty easy decision.

Jeffrey Thompson: preparing for large-scale production and moving into the Teal, we're calling it currently the Teal 3. So we're back in production. We did almost take six weeks. You know, it was a pretty easy decision. Did we want to, you know...

Jeffrey Thompson: Did we want to, you know, try to make guidance, or did we want to spend the right amount of time building those prototypes to get to the Army to win, you know, a contract that's worth hundreds of millions? So obviously, we chose to make sure the prototypes were perfect and built a great bird, and the team did an exceptional job so that the new drone has been flying flawlessly. And then on the flight wave, once we close, we will probably be doing a simultaneous pass.

Jeffrey Thompson: This agreement with sentient is a major step toward the autonomous deployment in control of drone swarms and the capability to launch from small boats or ships.

Jeffrey Thompson: to try to make guidance, or do we want to?

Jeffrey Thompson: spend the right amount of time building those prototypes to get to the Army to win, you know, a contract that's worth hundreds of millions.

Jeffrey Thompson: So obviously we chose to make sure the prototypes were perfect and built a great bird. And the team did an exceptional job that the new Grown has been flying flawlessly. And then on the flight wave, once we close, we will probably, we'll be doing simultaneous paths. They've actually have a huge amount of demand right now, and we hope to be able to meet that demand for them. One by continuing to do the production they have in California and simultaneously, in parallel, building a production line in Salt Lake City. So we're, as you can see, we've been hiring quite a bit.

Jeffrey Thompson: Obviously, we chose to make sure the prototypes were perfect and built a great bird and the team did an exceptional job that the new drone has been flying flawlessly.

Jeffrey Thompson: This brings us to the Replicator Initiative, which seems to be focused on the Indo-Pacific region.

Jeffrey Thompson: And then on the flight wave, once we close, we will probably, we'll be doing a simultaneous pass.

Jeffrey Thompson: They actually have a huge amount of demand right now, and we hope to be able to meet that demand for them, won by continuing to do the production they have in California and simultaneously, in parallel, building a production line in Salt Lake City. So, as you can see, we've been hiring quite a bit. We're gearing up to do both those things I just talked about.

Jeffrey Thompson: For investors new to the Red Cat story, the Replicator Initiative is a program launched by the U.S. Department of Defense in that rapidly delivering advanced autonomous systems to the military. Now, it's in August 2023. The initiative focuses on creating and deploying thousands of all-domain, credible autonomous systems, or otherwise known as ADA2, within 18 to 24 months.

Jeffrey Thompson: they've actually have a huge amount of demand right now and we hope to be able to meet that demand for them.

Jeffrey Thompson: One by continuing to do the production they have in California and simultaneously in parallel building a production line in Salt Lake City. So, as you can see, we've been hiring quite a bit. We're gearing up to do both those things I just talked about.

Jeffrey Thompson: We're gearing up to do both those things I just talked about.

Jeffrey Thompson: Great. You just mentioned a number of 25 billion potentially for flight wave in 2025. Is that, you know, based on some awards you expect to win? You mentioned a lot about the family systems and the replicator program and how maybe you're more applicable to be to be able to get awards against that revenue source potential revenue source. So maybe just a little background that color that you said you gave that number. Thanks. Yeah, so the flight rate system, it, we go from having a one, you know, a one product company now into, you know, three drones, family assistants are all going to be working together to a single controller.

Jeffrey Thompson: Great. You just mentioned a number of $25 billion potentially for FlightWave in 2025. Based on some awards you expect to win, you mentioned a lot about the Family Assistance and the Replicator Program and how maybe you're more applicable to be able to get awards against that revenue source, potential revenue source. So maybe just a little background on that color you said you gave that number. Thanks.

Jeffrey Thompson: The Senate Appropriations Committee recently approved a defense spending bill for fiscal 2025 that would provide full funding for the Pentagon's high-profile autonomous systems initiatives known as Replicator, and lawmakers raised the possibility that even more money could be allotted for the effort. This DOG funding for drones is going to be the primary vehicle the U.S, government uses to kickstart domestic production. This budget plus the continuing resolution last year and other allocations will result in about 1.5 billion in funds for Replicator alone, going to drone manufacturers from now until September of 2025, that will be approximately 100 million per month.

Jeffrey Thompson: Great. You just mentioned a number of $25 billion potentially for FlightWave in 2025.

Jeffrey Thompson: You know, based on some awards you expect to win, you mentioned a lot about the Family of Systems and the Replicator Program and how maybe you're more applicable to be able to get awards against that.

Jeffrey Thompson: revenue source, potential revenue source. So maybe just a little background on that color that you said you gave that number. Thanks.

Jeffrey Thompson: Yes, so the FlightWave system, we go from having a one product company now to three drones, a family of systems that are all going to be working together with a single controller. So the FlightWave capability puts us into a completely different class of drone, even though it's still a Class 1 drone. It can compete against Class 2 drones with Class 1 pricing, and that's been responding very well.

Jeffrey Thompson: Yes, so the FlightWave system, we go from having a one product company now into three drones family of systems that are all going to be working together through a single controller.

Jeffrey Thompson: So the flight wave capability puts this into a completely kind of different class of drone, even though it's still a class one drone. It can do; it can compete against class two drones with class one pricing. And that's been resonating very well. And its unique capability in flight time. It's more than its predecessors, but this one is rough sack portable. You don't need two people to launch it. It's not seven feet. You don't have to stand up and throw it in the open field and get shot at. So we think there's a huge amount of demands for this unique product.

Jeffrey Thompson: We believe we are well positioned for future Replicator launches with our family of systems combined with our forming capabilities.

Jeffrey Thompson: So the flight wave capability puts us into a completely kind of different class of drone, even though it's still a Class 1 drone.

Jeffrey Thompson: It can compete against Class 2 drones with Class 1 pricing.

Jeffrey Thompson: Last but not least, let's discuss programs of record. Again, for the people near to the story, a program of record in the Department of Defense refers to an acquisition program that has been officially recognized and funded with the future year's defense program. This means the program has successfully passed to the necessary approval processes and is included in the DOD's budget planning. SR, the short range reconnaissance program, is a U.S. Army initiative designed to equip soldiers with small, rapidly deployable unmanned aircraft systems for reconnaissance and surveillance activities.

Jeffrey Thompson: And its unique capability in flight time that's more than its predecessors. But this one is rucksack portable. You don't need two people to launch it. It's not seven feet tall. You don't have to stand up and throw it in an open field and get shot at.

Jeffrey Thompson: And that's been resonating very well and it's unique capability in flight time that's more than

Jeffrey Thompson: It's predecessors, but this one is Rucksack Portable.

Jeffrey Thompson: You don't need two people to launch it, it's not seven feet, you don't have to stand up and throw it in an open field and get shot at. So, we think there's huge amounts of demand for this unique product.

Jeffrey Thompson: So we think there's a huge amount of demand for this unique product, and I think that the flight wave is going to fill a huge void with the capability, and the time frame, and the distances, and the speed. I think it's the fastest drone in the Blue Yoyets group, so we can get places very quickly, it can go very high, and it has a very long flight time. So we believe 10 to 20 is a very safe projection for the next calendar year 2025 for that product.

Jeffrey Thompson: And there, I think it's just a flight wave that's going to fill a huge void. The capability and the time frame and the distances are not in the speed. It's one of the, I think it's the fastest drone in the blue area that's group. So we can get places very quick. They can go very high, and it has very long flight time.

Jeffrey Thompson: and I think that the flight wave is going to fill a huge void. The capability and the time frame and the distances and the speed, I think it's the fastest drone in the Blue Yoyets group.

Jeffrey Thompson: so we can get places very quick, it can go very high, and it has very long flight time. So we believe 10 to 20 is a very safe projection for next calendar year 2025 for that product.

Unknown Executive: So we believe 10 to 20 were very safe projection for next calendar year, 2025 for that product. Great. Thanks.

Jeffrey Thompson: The primary goal is to enhance situational awareness and provide a tactical advantage at the platoon level. This program of record selection process has gone on for over five years. It started with 37 companies and is now down to Red Cat and one other company. The final test for the Army was in May. We had to deliver approximately 50 final prototype systems. The final down collection is scheduled for the end of next month, September 2024.

Glenn Matson: Great, thanks. And last one for me, you mentioned NATO, and I couldn't quite hear what you said. I thought you said down-selected for the next two months, and then I thought I heard you say awarded by the end of the year. Did I get both those right? And if not, maybe you could correct me?

Unknown Executive: And last one for me, you mentioned the NATO stuff and couldn't quite get quite here. I think you said down selected in the next two months. And then I thought you heard say awarded by the end of the years that did I get both those right and it's not maybe correct. Yeah, once you get down selected, then you work on production contracts. So yeah, you've got those timeframes correct. Great. Okay. Thanks. Congrats. And good luck.

Glenn Matson: Great, thanks. And last one for me, you mentioned the NATO...

Glenn Matson: stuff, and I couldn't quite hear what you said. I thought you said down-selected in the next two months, and then I thought you heard you say awarded by the end of the year. Did I get both those right? And if not, maybe you could correct me.

Jeffrey Thompson: Yeah, once you get downselected, then you work on production contracts. So yeah, you get those timeframes correct. Great. Okay. Thanks.

Jeffrey Thompson: When we believe this production contract will be in the hundreds of millions. Usually, when we talk about programs of record, they are U.S, based contracts. Red Cat is also in late stages for nail programs of record. We believe that they are also significantly larger than the US SLR program of Red Cat Holdings. These programs are expected in the next two months to have their down selection.

Jeffrey Thompson: Yeah, once you get downselected, then you work on production contracts. So, yes, you get those timeframes correct.

Glenn Matson: Great, okay, thanks, congrats, and good luck.

Carlo Corzine: Thank you. The next question comes from Carlo Corzine with Dawson, James, Securities. Please go ahead. Thank you.

Glenn Matson: Great. Okay. Thanks, congrats, and good luck.

Operator: The next question comes from Carlo Corzine with Dawson James Securities. Please go ahead.

Carlo Corzine: Thank you.

Operator: The next question comes from Carlo Corzine with Dawson James Securities. Please go ahead.

Carlo Corzine: Thank you. A great quarter, Jeff.

Carlo Corzine: Great quarter, Jeff. I want to kind of go back to the manufacturing capacity. I think the full capacity in Salt Lake was 300 at one time. And now we've got, I'd like to know how much to flight wave what their capacity is and where we are in the capacity there. One thing we had always talked about because of so many contracts you can't announce was the backlog; hopefully, on a monthly basis. And we haven't seen that log. I'd love to see that as you get contracts. You can't speak about.

Carlo Corzine: Thank you. Great quarter, Jeff.

Jeffrey Thompson: I want to kind of go back to manufacturing capacity. I think the full capacity in Salt Lake was 300 at one time. And now we've got – I'd like to know how much the flight wave is, what their capacity is, and where we're at in the capacity there. One thing we had always talked about because of so many contracts you can't announce was the backlog, hopefully on a monthly basis, and we haven't seen that a lot. I'd love to see that as you get contracts you can't speak about.

Jeffrey Thompson: I want to kind of go back to the manufacturing capacity. I think the full capacity in Salt Lake was 300.

Jeffrey Thompson: In summary, 2024 was a great year for the TIL2 with record revenues. We are steadily reducing cash firm while gaining market share. We expect 2025 revenue to be another record year in top line growth and scale. We expect a lightweight deal to close zoom at a significant revenue to the 2025 calendar year. We believe we are well-positioned for a short and age reconnaissance program of record win, worth hundreds of millions of dollars, and we hope to finalize NATO-based programs of record before the end of calendar of 2024.

Jeffrey Thompson: at one time, and now we've got, I'd like to know how much to FlightWave, what their capacity is, and where we're at in the capacity there.

Jeffrey Thompson: One thing we had always talked about, because of so many contracts you can't announce, was the backlog, hopefully a monthly basis, and we haven't seen that a lot. I'd love to see that as you get contracts you can't speak about.

Carlo Corzine: And last, the last was which one did you the lethal payload? Is that the new thing? I thought it would take like two years to get that kind of accreditation. Or did you buy by that? Do one of the acquisitions.

Carlo Corzine: And last was, which one gives you the lethal payload? Is that the new fang? I thought it would took like two years to get that kind of accreditation, or did you buy that through one of the acquisitions?

Jeffrey Thompson: Great, thanks, Carlo. So I'll try to go in reverse here.

Jeffrey Thompson: And last was, which one gives you the lethal payloads? Is that the new fang? I thought it took like two years to get that kind of accreditation, or did you buy that through one of the acquisitions? That's it.

Carlo Corzine: That's it.

Jeffrey Thompson: Great. Thanks, Carlo.

Jeffrey Thompson: So we don't actually make munitions that work on Fang, which is our FPV drone. And we're also working on kinetic capability for the TL3. So both of those birds will have strike capability. In the long term, we actually expect to look at, I mean, like next year, we're looking at having the Edge 130 be able to handle a kinetic payload also, which could be very compelling considering it would be the, it would be a much longer-lasting munition than even the Switchblade 300, which I think only has 12 minutes.

Jeffrey Thompson: So I'll try to go in reverse here. So we don't actually make munitions that work on Fang, which is our FDA drone. And we're also working on kinetic capability for the TL3. So both of those, both of those birds will have straight capability. And long term, we actually expect to look at. In long term, I mean, like next year, we were looking at having the Edge 130 be able to handle a kinetic payload also, which could be very compelling considering it would be the. It would be a much longer lasting order and remission than even the switch plate 300, which I think only has 12 minutes.

Speaker Change: Great, thanks Carlo. So I'll try to go in reverse here. So we don't actually make munitions that work on FANG, which is our FPV drone.

Leah Lunger: And with that, I will hand the call to Leah.

Leah Lunger: Thank you, Jess, and everyone for joining the call this evening. As Jess highlighted, fiscal 24 was an exceptional year marked by record revenues of 17.8 million compared to 4.6 million in fiscal 23. This represents growth of 286 percent. All four quarters of fiscal 24 brought record revenues sequentially. Quarter four revenues totaled 6.3 million compared to 1.1 million in the same quarter of the prior year, representing a 485 percent increase. Gross profit for fiscal 24 totaled 3.7 million or approximately 21 percent of total revenues compared to negative 18 percent in fiscal 23.

Jeffrey Thompson: And we're also working on kinetic capability for the TL3. So both of those birds will have strike capability. And long term, we actually expect to look at

Jeffrey Thompson: In long term, I mean like next year, we're looking at having the Edge 130 be able to handle a kinetic payload also, which could be very compelling considering it would be the

Jeffrey Thompson: It would be a much longer-lasting loader and munition than even the Switchblade 300, which I think only has 12 minutes.

Jeffrey Thompson: So there's but when we partner, we're able to basically drop almost anything from these, you know, these drop mechanisms. They can be kinetic, or they don't have to be kinetic, they could be supplies, they could be ammunition. So we don't have to get those approvals; the companies that are making the actual kinetic energy would have to get those approvals, which can take like two years.

Jeffrey Thompson: So there's, but when we partner, we're able to basically drop almost anything from these, you know, these drop mechanisms. They can be kinetic or they don't have to be kinetic. They could be supplies. They could be ammunition. So we don't have to get those approvals. The companies that are mating. The actual kinetic would have to get those approvals, which can take like two years. Okay, and the capacity. Yes. Yes, I mean, the solid facilities can easily do thousands of drones. Not easily. It's hard to do thousands of drones among. But we can get a thousand drones a month for the TL2 slash TL3.

Jeffrey Thompson: So, there's, but when we partner, we're able to basically drop

Jeffrey Thompson: Almost anything from these

Jeffrey Thompson: these drop mechanisms, they can be kinetic or they don't have to be kinetic. They could be supplies, they could be ammunition. So we don't have to get those approvals. The companies that are making the actual kinetic would have to get those approvals, which can take like two years.

Jeffrey Thompson: Okay, and the capacity at Salt Lake? Yeah, I mean, the Salt Lake facility can easily accommodate thousands of drones.

Jeffrey Thompson: Yeah, I mean, the Salt Lake facility can easily do thousands of drones, not easily, it's hard to do thousands of drones a month, but we can get to thousands of drones a month for the, you know, TL2 slash TL3, you know, based on getting the demand that we want from that. So we're preparing as you can see that we are preparing and getting ready for that type of scale immediately. And the flight wave capacity, we don't know yet.

Jeffrey Thompson: Okay, and the capacity at Salt Lake?

Jeffrey Thompson: Yeah, I mean the Salt Lake facility can easily do thousands of drones, not easily, it's hard to do thousands of drones a month.

Jeffrey Thompson: But we can get to thousands of drones a month for the, you know, Tl2 slash Tl3, you know, based on getting the demand that we want from that. So we're preparing as...

Jeffrey Thompson: You know, based on getting the demand that we want from that. So we're preparing, as you can see, that we are preparing and getting ready for that type of scale immediately. And the flight wave capacity. We don't know yet. We're hopefully closing in the next week or two. You know, we're going to ramp up their capacity dramatically. We're getting great demand signals on the Edge 130. It's a great bird. It's a great team.

Leah Lunger: This represents a decrease of approximately 600,000 or 3 percent. As a percentage of revenue adjusted operating expenses decreased from 391 percent of revenue in fiscal 23 to 98 percent of revenue in fiscal 24, which demonstrates our success in controlling costs while nearly quadrupling revenues. Our combined cash and accounts receivable balances as of April 30, 2024 totaled over 10 million dollars. Additionally, in July, we secured $4.4 million of non-diluted financing through the divestiture of our investment in unusual machines.

Jeffrey Thompson: You can see that we are preparing and getting ready for that type of scale immediately.

Jeffrey Thompson: and the flight wave capacity, we don't know yet. We're hopefully closing in the next week or two. You know, we're going to ramp up their capacity dramatically. We're getting great demand signals on the Edge 130. It's a great bird, it's a great team, but I don't have the answers on the flight wave yet.

Jeffrey Thompson: We're hopefully closing in the next week or two. You know, we're going to ramp up their capacity dramatically. We're getting great demand signals on the Edge 130. It's a great bird, it's a great team, but I don't have the answers on the flight wave yet.

Jeffrey Thompson: But we I don't have the answers on the flight rate yet.

Unknown Executive: Okay, thank you.

Speaker Change: Okay, thank you.

Leah Lunger: Closing this transaction eliminated our equity and method investment while providing additional funding for accomplishing our strategic objectives. We are pleased to report that our cash used in operations has decreased significantly on both a quarterly and annual basis. Cash used in operations for quarter-four of fiscal 24 was 2.3 million. This represents a decrease of 1.8 million or 43 percent sequentially and a decrease of 5.2 million or 69 percent compared to the same quarter in the prior fiscal year. On an annual basis, cash used in operations decreased by $6.6 million or 27% compared to fiscal 23.

Unknown Executive: As a reminder, if you would like to ask a question, please press stars and ones.

Operator: As a reminder, if you would like to ask a question, please press star, then 1. This concludes our question and answer session. I would like to turn the call back over to Jeff Thompson for any closing remarks.

Speaker Change: Thank you very much for watching this video, and I hope you enjoyed this video.

Operator: As a reminder, if you would like to ask a question, please press star then 1.

Unknown Executive: This concludes our question and answer session.

Jeffrey Thompson: I would like to turn the call back over to Jeff Thompson for any closing remarks. Great. Well, thanks for joining us tonight. I want to thank our investors and our employees. I want to thank the finance team for getting two years of audit done in three months. That is delivering an incredible prototype for the US Army. And I saw a very interesting quote from the CEO of Ryan Mattal today. It doesn't convert so well from German, but he said the Super Cycle. A long-term surge in defense spending is in full swing.

Operator: This concludes our question and answer session. I would like to turn the call back over to Jeff Thompson for any closing remarks.

Jeffrey Thompson: Great. Well, thanks for joining us tonight. I want to thank our investors and our employees. I want to thank the finance team for getting two years of audits done in three months. That was a heavy lift; the entire TEAL team for delivering an incredible prototype to the U.S. Army. And I saw a very interesting quote from the CEO of Rheinmetall today. It doesn't convert so well from German, but he said the super cycle, a long-term surge in defense spending, is in full swing.

Jeffrey Thompson: the entire Teal team for delivering an incredible prototype to the U.S. Army. And I saw a very interesting quote from the CEO of Rheinmetall today. It doesn't convert so well from German, but he said, the super cycle.

Speaker Change: A long-term surge in defense spending is in full swing.

Jeffrey Thompson: Now, I'll leave you with that.

Jeffrey Thompson: I'll leave you with that. Thanks and good night.

Unknown Executive: Thanks and good night.

Jeffrey Thompson: And I'll leave you with that. Thanks and good night.

Unknown Executive: The conference is now concluded. Thank you for attending today's presentation.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Unknown Executive: You may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Leah Lunger: During the call today, I referenced adjusted operating expenses, which is a non-gap financial measure. Adjusted operating expenses exclude non-cash items of impairment loss and stock-based compensation expense. The most directly comparable gap financial measure is operating expenses. Listeners can find operating expenses as well as a quantitative reconciliation of the differences between adjusted operating expenses and operating expenses on Red Cat's website, which is at redcat.red.

Unknown Executive: I will now turn the call over to the operator for questions. We will now begin the question and answer session. If you wish to ask a question on today's call, you will need to press star than the number one on your telephone. If your question has been answered and you wish to withdraw your request, you may do so by pressing star than two. If you are using a speaker phone, please pick up your handsets before entering your request and speaking on the call. One moment please for the first question.

Unknown Executive: Before we start with the questions, I just want to do a little bit of housekeeping. I know we've got a lot of questions already. People don't waste the same question on this. For guidance, we will resume guidance next quarter. We are in the middle of the week for the next six weeks. We expect to hear on SR down selection in the next few weeks. We hope to close flightway from the next week or two and believe they could add 10 to 20 million in revenue in calendar 2025. We will be able to give and resume guidance once these data sets are resolved.

Unknown Executive: I want to get that out there before we took questions. Thank you.

Ashok Kumar: The first question today comes from Ashok Kumar with bank equities. Please go ahead. Thank you, and the first question is, you mentioned you had 10 million in cash and receivables. Does that include the 4.4 million you just close with UMAC? The second question, as you mentioned, that some of the NATO programs of record POR are larger than the US Army POR, can you give us the magnitude? And the last one is, have you received any demand for the flight wave edge 130 system? Thank you. Great. Thanks, Ashok.

Leah Lunger: Actually, Leah, why don't you grab the first one and I'll grab the second and third.

Leah Lunger: Yeah, I'd be happy to answer that. So the 10.4 million in cash and accounts receivables was our balance as of April 30th. And we closed to the sale of our investment in unusual machines last month.

Jeffrey Thompson: So the 4.4 million dollars mentioned is in addition to cash and AR as of your end. Go ahead, Jeff. Great. Thanks. Yeah, so the programs of record NATO are significant and you can understand why with them being so close to the Ukraine war. So I'll just give an example of one of them in compared to SRR. SRR is about a little under 6,000 systems. It's still a very significant contract, but the at least one of the the programs of record NATO is for 25,000 systems at 4X.

Jeffrey Thompson: So they are pretty massive compared to the SRR program of record. And then I think you mentioned demand for the flight edge 130. We've got a great response since we announced the L.O.I. A lot of customers that want the cost knowing that we can actually build and meet the demand. It's a great system. You know, Mike had done a great job designing that system and the employees there have made a very unique platform that can fly longer than any other vehicle in its size and range. We think it's a great replacement for the now discontinued, you know, our environment ravens. So that's we have seen great demand signals for the edge 130. Thanks. Thank you.

Glenn Mattson: The next question comes from Glenn Maxon with Vladimir Salman. Please go ahead. Hi, thanks for taking the question and congrats on the quarter. On the, you know, there was a period of time where for you, you slower production in Q4 to get the TL3 out. So, you know, just generally asking about the production capacity and capabilities. So is that back up and running? Things don't have to do again. And then when it comes to flight wave and the acquisition. Would you move that manufacturing into your interexisting facility?

Jeffrey Thompson: And just give us an update on how that all will play out if you could. Thanks. Yes, well, thanks. Thanks, Glenn. So the, we are back in production. We're also. You know, we are in a pretty large hiring screen right now to scale. Production of the future Teal Grown that we, it's the Grown that we actually submitted for the Army prototype. We are preparing for large scale production and moving into the Teal.

Jeffrey Thompson: We're calling it currently the Teal Parade. So we're back in production. We didn't almost take six weeks. You know, it was the pretty easy decision. Did we want to, you know, try to make guidance? Or do we want to spend the right amount of time building those prototypes to get to the Army to, you know, contract which were hundreds of millions? So obviously we chose to make sure the prototypes were perfect and built a great bird.

Jeffrey Thompson: And the team did an exceptional job that the new Grown has been flying flawlessly. And then on the flight wave, once we close, we will probably, we'll be doing simultaneous paths. They've actually have a huge amount of demand right now, and we hope to be able to meet that demand for them. One by continuing to do the production they have in California and simultaneously in parallel building a production line in Salt Lake City. So we're, as you can see, we've been hiring quite a bit. We're gearing up to do both those things I just talked about. Great.

Jeffrey Thompson: You just mentioned a number of 25 billion potentially for flight wave in 2025. Is that, you know, based on some awards you expect to win? You mentioned a lot about the family systems and the replicator program and how maybe you're more applicable to be to be able to get awards against that revenue source potential revenue source.

Jeffrey Thompson: So maybe just a little background that color that you said you gave that number. Thanks. Yeah, so the flight rate system, it, we go from having a one, you know, a one product company now into, you know, three drones, family assistants are all going to be working together to a single controller. So the flight wave capability puts this into a completely kind of different class of drone, even though it's still a class one drone.

Jeffrey Thompson: It can do, it can compete against class two drones with class one pricing. And that's been resonating very well. And it's unique capability in flight time. It's more than its predecessors, but, but this one is rough sack portable. You don't need two people to launch it. It's not seven feet. You don't have to stand up and throw it in the open field and get shot at. So we think there's huge amount of demands for this unique product.

Jeffrey Thompson: So we believe 10 to 20 were very safe projection for next calendar year, 2025 for that product. Great. Thanks. And last one for me, you mentioned the NATO stuff and couldn't quite get quite here. I think you said down selected in the next two months. And then I thought you heard say awarded by the end of the years that did I get both those right and it's not maybe correct. Yeah, once you get down selected, then you work on production contracts. So yeah, you've got those timeframes correct. Great. Okay. Thanks. Congrats. And good luck. Thank you.

Carlo Corzine: The next question comes from Carlo Corzine with Dawson, James, Securities. Please go ahead. Thank you.

Carlo Corzine: Great quarter, Jeff. I want to kind of go back to the manufacturing capacity. I think the full capacity in Salt Lake was 300 at one time. And now we've got, I'd like to know how much to flight wave what their capacity is and where we are in the capacity there. One thing we had always talked about because of so many contracts you can't announce was the backlog, hopefully a monthly basis. And we haven't seen that log.

Carlo Corzine: I'd love to see that as you get contracts. You can't speak about. And last, the last was which one did you the lethal payload? Is that the new thing? I thought it would took like two years to get that kind of accreditation. Or did you buy by that? Do one of the acquisitions.

Jeffrey Thompson: That's it. Great. Thanks, Carlo. So I'll try to go in reverse here. So we don't actually make munitions that work on Fang, which is our FDA drone. And we're also working on kinetic capability for the TL3. So both of those, both of those birds will have straight capability. And long term, we actually expect to look at. In long term, I mean, like next year, we were looking at having the edge 130 be able to handle a kinetic payload also, which could be very compelling considering it would be the.

Jeffrey Thompson: It would be a much longer lasting order and remission than even the switch plate 300, which I think only has 12 minutes. So there's, but when we partner, we're able to basically drop almost anything from these, you know, these drop mechanisms, they can be kinetic or they don't have to be kinetic. They could be supplies. They could be ammunition. So we don't have to get those approvals. The companies that are mating.

Jeffrey Thompson: The actual kinetic would have to get those approvals, which can take like two years. Okay, and the capacity. Yes. Yes, I mean, the solid facilities can easily do thousands of drones. Not easily. It's hard to do thousands of drones among. But we can get a thousand drones a month for the TL2 slash TL3. You know, based on getting the demand that we want from that. So we're preparing as you can see that we are preparing and getting ready for that type of scale immediately.

Jeffrey Thompson: And the flight wave capacity. We don't know yet. We're hopefully closing in the next week or two. You know, we're going to ramp up their capacity dramatically. We're getting great demand signals on the edge 130. It's a great bird. It's a great team.

Unknown Executive: But we I don't have the answers on the flight rate yet. Okay, thank you. As a reminder, if you would like to ask a question, please press stars and ones.

Unknown Executive: This concludes our question and answer session.

Jeffrey Thompson: I would like to turn the call back over to Jeff Thompson for any closing remarks. Great. Well, thanks for joining us tonight.

Jeffrey Thompson: I want to thank our investors and our employees. I want to thank the finance team for getting two years of audit done in three months. That is delivering an incredible prototype for the US Army. And I saw a very interesting quote from the CEO of Ryan Mattal today. It doesn't convert so well from German, but he said the super cycle. A long term surge in defense spending is in full swing. Now, I'll leave you with that.

Unknown Executive: Thanks and good night. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Q4 2024 Red Cat Holdings Inc Earnings Call

Request a DemoDemo

RCAT

Red Cat Holdings

Earnings