Q3 2025 AIRO Group Holdings Inc Earnings Call
Speaker #1: Thank you for standing by. My name is Jeannie, and I will be
Speaker #1: your conference operator today. At this time, I would like to welcome everyone to the AIRO Third Quarter 2025 Earnings welcome. Call. All lines have been placed on mute to prevent any background noise.
Speaker #1: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad.
Speaker #1: If you would like to withdraw your question, press star one again. Thank you for calling. I would now like to turn the call over to Dan Johnson, Executive President of Investor Relations.
Speaker #1: You may begin.
Speaker #2: Welcome to AIRO Group Holdings Thank you, Operator, and good morning, everyone. Incorporated, Third Quarter appreciate you joining us today and look forward to 2025 Earnings Call.
Speaker #2: Sharing an update on our progress and performance. With me on the call are Dr. Chiranjeev Kathuria, our Executive Chairman; Captain Joe Burns, our Chief Executive Officer; and Dr. Maria Pilipiv, our Chief Financial Officer.
Speaker #2: Replay information for today's call can be found in our earnings press release issued earlier this morning. Today's call will include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to estimates performance metrics, including and forecasts of financial and statements regarding AIRO's joint venture with Nord Drone Group, and fourth quarter and full year 2025 expected results, proposed joint venture with BULLET, including the goals of and opportunities for each joint venture and the ability to consummate the joint ventures on the terms described herein or at all, and the timing thereof, the timing and the development of CEW capabilities, AIRO's plans for a manufacturing and engineering development facility, expectations concerning expanded Canadian operations, future products and developments, the intended use of proceeds from AIRO's follow-on opportunity of AIRO's products and offering, the market acceptance and services, and other statements that are not historical fact.
Speaker #2: remarks, our earnings press release, In addition to our prepared SEC filings, and a replay of today's call can be found on our Investor Relations website at investor.theairogroup.com.
Speaker #2: Forward-looking statements involve known and results, performance, or achievements to be unknown risks and uncertainties that may cause our actual implied by the forward-looking statements.
Speaker #2: Statements represent our management's beliefs and assumptions only. Forward-looking as of the date made. Information on factors that could affect the company's financial results is included in its filings with the SEC from time to time, including the section titled "Risk Factors" in the company's final prospectus filed with the SEC on June 16, 2025, and the company's upcoming quarterly report on Form 10-Q for the quarter ended September 30, 2025.
Speaker #2: In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.
Speaker #2: GAAP and non-GAAP financial measures reconciliations, along with a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalent, are available in our earnings release.
Speaker #2: With that, I'll turn the call over to our Executive Chairman, Dr. Chiranjeev.
Speaker #3: Thank
Speaker #3: you, Dan, and thank you all for Kathuria. joining us. I'm pleased to join you all today as we review our progress during the third quarter.
Speaker #3: share as we executed several initiatives during the We have lots to quarter. Including two new joint ventures with Nord Drone and BULLET, completing a follow-on offering, and orders across our four key verticals.
Speaker #3: me briefly Before turning to our results, let reintroduce AIRO Group. an integrated aerospace We built and defense platform positioned at the intersection of mobility, security, and training.
Speaker #3: Our mission is to deliver advance the future of dual-use technologies that flight across four synergistic segments. Drones, fully GPS-denied, unmanned aerial systems for defense and autonomous, commercial ISR missions.
Speaker #3: Including our battle-tested RQ-35 Hedron platform, now deployed across NATO forces. Avionics, through Aspen Avionics, a 20-year heritage business with over 14,000 systems delivered, providing flight displays, sensors, and integration solutions used in both manned and unmanned aircraft.
Speaker #3: Training, elite military and commercial flight training through our coastal defense brand. A trusted DoD contractor under the $5.7 billion CAF cash IDIQ program. Electric air mobility, led by John Air Mobility, developing next-generation eVTOL and hybrid cargo drone platforms leveraging our patented slow rotor compound technology.
Speaker #3: across nine facilities in the AIRO operates US, Canada, and Europe, with ISO 9001 and AS 9100 certifications and the ability to serve NATO customers directly.
Speaker #3: Our business share R&D, avionics integration, and manufacturing and infrastructure create a meaningful advantages as we scale. During the cost and speed quarter, AIRO announced two important strategic partnerships aimed at expanding our unmanned systems portfolio and manufacturing scale.
Speaker #3: First, we signed a joint venture agreement with Nord Drone to focus on accelerating the deployment of combat-proven UAS across the U.S., Ukraine, and NATO markets.
Speaker #3: Under the terms of the JV agreement, AIRO will contribute manufacturing oversight, R&D, and government procurement expertise, while Nord Drone brings proprietary technology production facilities and established defense relationships.
Speaker #3: Nord Drone currently produces 4,000 drones per month with the capacity to scale to 25,000 units and its systems are already active in the frontline operation.
Speaker #3: This collaboration will integrate Nord Drone's high-volume battlefield-tested platforms with AIRO's RQ-35 Hedron and broader unmanned portfolio. Significantly broadening our reach and accelerating our ability to meet allied operational needs.
Speaker #3: The consummation of the joint venture is subject to a number of closing conditions. We also signed a letter with BULLET, a Ukrainian developer of high-speed unmanned interceptor systems.
Speaker #3: The proposed 50/50 joint venture will produce and deploy BULLET's six-wing turbojet UAV technology across the US and NATO defense markets and Ukraine. The interceptor platform achieves speeds up hour and offers a to 300 miles an 200-kilometer range and supports payloads from 2.5 to 9 kilograms.
Speaker #3: Making it one of the fastest and most adaptable unmanned aerial defense systems available today. The capacity in both the US and Ukraine venture will expand production accelerate R&D on next-generation interceptor and strike variants and pursue qualified contracts with the US Department of Defense NATO and allied ministries.
Speaker #3: Non-binding and subject to the execution of a definitive joint venture agreement, the LOI reinforces AIRO's platform as a leading integrator of combat-proven, high-performance unmanned technologies. This initiative extends our collaboration across both tactical ISR and aerial defense applications, advancing our mission to deliver next-generation solutions for the U.S. and allied forces worldwide.
Speaker #3: With strong momentum across each segment, a $200 million plus booking pipeline and expanded demand in both defense and advanced air mobility markets AIRO is well positioned for substantial growth and long-term value hand the call over to creation.
Speaker #3: our CEO, Joe Burtz.
Speaker #2: Chironjeev. It's a pleasure to be with you all today. Let me walk you through the progress in each
Speaker #2: of our core businesses. Our drone business continues to With that, I'll demonstrate strong momentum, supported by Thank you, rising defense budgets and growing demand for autonomous ISR platforms.
Speaker #2: During the quarter, we launched the AI-capable full-stack version of our RQ-35 Hedron, extending our leadership in GPS-denied and AI-enabled operations across Ukraine and NATO markets.
Speaker #2: Additionally, Skywatch, together with the University of Aalborg and a third partner, has been awarded $4.5 million to develop counter-electronic warfare technology for integration into Skywatch UAS platforms.
Speaker #2: With development starting in Q1 2026 and the first demonstrator expected in Q2 or Q3 of 2026, we have also advanced several initiatives to scale production and expand our global reach.
Speaker #2: In Denmark, Skywatch has completed the modernization of its Stovring facility in Q4, which will meaningfully increase capacity and operational efficiency. Our Phoenix facility continues to advance in the U.S., particularly towards U.S. drone manufacturing in the RQ-35 Hedron.
Speaker #2: We expect the facility to be online as planned with the first RQ-35 Hedron drones assembled there by the end of this year. The support continued international growth we opened a sales hub in Singapore to serve the Asia-Pacific region.
Speaker #2: Initiated new trial programs across both the Asia-Pacific region and the EU and expanded our local presence in Ukraine to remain close to end users and evolving battlefield needs.
Speaker #2: Additionally, Skywatch achieves CMMC cybersecurity certification, an important milestone for future US defense programs. And launched a multi-year R&D initiative to double its engineering team by 2026.
Speaker #2: Ensuring continued innovation in high-end UAV systems. And finally, we are progressing and on track to receiving Blue UAS certification for RQ-35 Hedron drones in the first half of 2026.
Speaker #2: Our training division delivered another solid quarter, executing over $1.7 million in task orders for the Naval Special Warfare and the United States Air Force.
Speaker #2: Supporting joint ground and air training missions, we are nearly complete modifying our S-211 aircraft, which are almost flight-ready for upcoming contracts. We have also begun modification of our L-39 aircraft to support live ordnance training missions targeted to begin by year-end.
Speaker #2: Importantly, we have submitted a source of thought response for the next Naval Special Warfare contract projected at approximately $20 million for over five years.
Speaker #2: These efforts reinforce Coastal Defense's position as a trusted provider of specialized military flight training for the U.S. and allied nations. At Jaunt, we've made significant progress in advancing our next-generation cargo drone and the eVTOL programs.
Speaker #2: We publicly unveiled our medium lift cargo drone at EAA Air Venture at Oshkosh. Designed for 200 to 500-pound payloads and a range exceeding 200 miles, and announced that there is strong interest from commercial and defense stakeholders.
Speaker #2: We also expanded into Quebec's YMX Innovation Zone, enabling real-world testing, certification, and collaboration with local regulators. Jaunt was selected as a partner on the Makata program with TALIS Canada and Vertico Mobility to advance and detect-and-avoid technologies for UAV and eVTOL operations.
Speaker #2: We continue working closely with Transport Canada and NAV Canada to enable VVLOS operations and have completed key supplier sections for propulsion, battery, and flight control systems.
Speaker #2: Engineering activities ramping up in the fourth quarter as we prepare for the initial VVLOS flight testing in the YMX ecosystem. Additionally, Jaunt is pursuing Canadian support including grants reimbursements and tax incentives of which roughly 30% is already committed and the balance remains subject to additional program Aspen Avionics continues to invest in new products and the uptick in general aviation flying supports approvals.
Speaker #2: continued retrofit activity. During the quarter, we began development of the next-generation NextNav Max 2 program now funded and targeted availability in late of 2026.
Speaker #2: Aspen secured a multi-year OEM purchase order from established OEM and an additional order from foreign Air Force. We are also working with an international aircraft integrator that has placed a large order for displays and batteries with all deliveries expected by year-end.
Speaker #2: These wins highlight Aspen's strong OEM relationships and growing international presence in both civil and defense markets. With that, I'll turn the call over to Maria to walk through with the financials.
Speaker #3: Thank you, Joe. And good morning, everyone. As of November 14th, we have already booked 24.5 million dollars of fourth quarter revenue in drone segment.
Speaker #3: Reflecting shipments that shifted out of the third quarter. For the third quarter of 2025, revenue was 6.3 million compared to 23.7 million, and the prior year period.
Speaker #3: Our customer requested a capability upgrade on a short notice on the RQ-35 Hedron to meet evolving operational needs. We paused, planned Q3 shipments to implement the change, and retrofitted completed units.
Speaker #3: Approximately 20 million of Q3 shipments shifted as a result. The retrofit work increases revenue per unit and does not change the underlying contract scope beyond the configuration update.
Speaker #3: Gross profit for the quarter was $2.8 million, with a gross margin of 44%, compared to $16.3 million and 68.7% in the prior year period.
Speaker #3: Margin reflects product mix and shipment timing. Training delivered higher margins due to increased ground target vehicle programs. Avionic margins were stable on the lower volume.
Speaker #3: Drone margin was affected by a pause and retrofit work ahead of fourth quarter deliveries. Year-to-date gross margin was 58.1% driven by lower proportion of drone revenue in the mix.
Speaker #3: EBITDA loss was 5.7 million and improvement from 23.1 million loss in the prior year quarter. Adjusted EBITDA loss was 8 million compared to a positive 10.9 million in the prior year quarter.
Speaker #3: The movement reflects the revenue timing described above, and higher public company costs as we scale. We recorded a net loss of 8 million compared to a net loss of 30.3 million in Q3 of 2024.
Speaker #3: On the segment basis, our defense drone solution continued to advance with cutting-edge technologies, ensuring that end users maintain a decisive technological advantage in operational environments.
Speaker #3: Aligning our products with those rapid updates is a core strength and a key differentiator for AIRO Group. Occasionally, component replacements and integration of new technologies can shift certain deliveries from one quarter to the next.
Speaker #3: This timing adjustment does not reflect any change in underlying demand or our confidence in future performance. Customer requirement remains strong and we are fully committed to meeting them.
Speaker #3: We are actively collaborating across our internal teams: supply chain partners and end users to maintain agility and responsiveness. Our focus remains on delivering best-in-class technology while strengthening our ability to adapt quickly to evolving mission needs.
Speaker #3: As of end of Q3, we have over 190 million dollars in bookings in progress to be delivered in 2025 and 2026. For training, we recorded growth from ground target vehicle programs and increased activity from IDA Q contract.
Speaker #3: For avionics, we experienced lower revenue as we deliberately sequenced R&D and commercialization activities to prioritize drone production over prior periods. Turning to cash flow and liquidity, as of September 30, 2025, we had $83.7 million in cash and cash equivalents.
Speaker #3: During the quarter, we successfully completed a follow-on offering raising 89.4 million in gross proceeds. This significantly straightened our balance sheet and provides substantial resources for gross investments across all four operating segments, and to pursue opportunistic acquisitions of complementary businesses' products, services, or technologies.
Speaker #3: As we noted earlier, third-quarter revenue was impacted by timing, primarily related to customer requests to incorporate additional technological capabilities into a drone platform.
Speaker #3: This required sourcing new components on short notice, which created sourcing issues within the quarter. The company is actively working to source additional supply and has implemented multiple sources for key components.
Speaker #3: Importantly, those timing-related effects did not result in lost demand, and we expect the associated revenue to convert as component availability improves. Given those factors, we expect full-year 2025 revenue to exceed 2024 revenue of $86.9 million.
Speaker #3: This outlook reflects AIRO's organic operations and does not include potential contributions from our recently announced joint ventures with Nordoron or Bullet, which remains subject to financial agreements and regulatory approvals.
Speaker #3: In summary, while near-term timing and supply chain dynamics influence the quarter, the fundamentals of our business remain strong. Our diversified platform, growing order pipeline, and expanding production capacity give us confidence that we are well positioned for continued growth into 2026 and beyond.
Speaker #3: With that, operator, we are ready for questions.
Speaker #2: At this time, I would like to remind everyone that in order to ask a question, please press star, then the number one on your telephone keypad.
Speaker #2: We do ask you to limit your questions to one and one follow-up. And your first question comes from the line of Colin Canfield with Cantor.
Speaker #2: Please go ahead.
Speaker #3: Thank you for the question. Maybe if we could just talk through kind of the 200 million dollars orders in progress and when we expect to see that materialize and backlog.
Speaker #3: And then if you could talk about how you expect the building blocks of revenue to shake out for next year, specifically for drones. Thank you.
Speaker #4: Thanks, Colin. Joe, maybe if you want to start, followed by Maria.
Speaker #5: Sorry, sure. Thanks, Colin. Appreciate the question. You know, our current visibility for orders for the remainder of this year and for 2026 is still solid.
Speaker #5: That's the number that we've talked about, and that's $200 million.
Speaker #5: Maria? Yeah.
Speaker #6: So thank you, Joe. Thank you, Colin. So, Colin, right now, as of Q3, we have about more than 190, close to 200, as Joe mentioned, when we look across the divisions.
Speaker #6: And those orders are to be delivered in the next 18 months. We recently expanded our BD and sales efforts, specifically focusing on Asia Pacific as well as North America.
Speaker #6: And that's where you will see a lot of ramp-up and focus. In terms of the building blocks, in our cash, we are very strategically positioned right now on expansion and growth.
Speaker #6: As we discussed previously, we are focusing on spending on our R&D for drones, continuously modifying and improving our technologies. In our avionics, we are focusing on the delivery of new products. In our training, we are expanding investments into new equipment that will allow us to qualify for more programs.
Speaker #6: And with our air mobility, we are funding R&D, but we recently got confirmation that 30% of the government support is confirmed. We will be hearing more on funding that we are expecting from the.
Speaker #6: quarters. And this is Joe, if
Speaker #3: I could add one more building block, Colin. It's that we did open our Phoenix facility in North Phoenix, and that will be for the production of AS9100 types of materials, such as drones and avionics.
Speaker #3: So that has been officially
Speaker #3: So that has been officially opened. Got it.
Speaker #5: And then maybe in terms of the air mobility R&D, if you could just quantify the level of R&D spend you're targeting this year in air mobility and how you think about that progressing into next year.
Speaker #5: And then maybe talk about what sort of progress the team has made around government officials exploring that capability as a military or municipal capability and when we might expect initial study contracts for the air mobility platform.
Speaker #5: Thank
Speaker #5: You. Maria, do you want to start? No, go ahead, Maria.
Speaker #4: off?
Speaker #5: please.
Speaker #6: So in terms
Speaker #6: of our work in Canada, just to level set, we anticipate that approximately 17% of funding will be coming from AIRO internal funds. Then about 30 to 40%, it will be customer-supported, customer advances, and remainder will be government funding.
Speaker #6: As I mentioned, previously, we have confirmation that 30% of the government funding is already confirmed, and we are moving forward with next stages. And it's per mile delivery.
Speaker #6: And we expect to receive next approvals in the next quarters. In terms of quantifying received a very positive discussion with the government officials. And a lot of support for our efforts and dual usage of it, in our work, we have the cargo drones.
Speaker #4: Joe?
Speaker #6: Joe, back to you.
Speaker #5: Sure. We talked a little bit about the government municipal or military actively engaged and funded by the Quebec government currently in developing a corridor for Montreal to the First Nation communities.
Speaker #5: That's a capability, and I could say that JOT is a very, very key project among our projects. The cargo drone is being developed with massive investment. Our cargo EVTOL, the Canadian government has just announced military funding, which we will certainly apply for.
Speaker #5: So we're excited to continue our strong partnership for dual use, though, and as you've seen, with Canada in the YMX zone specifically.
Speaker #4: And the only thing, Colin, you know, I would add, in terms of the Phoenix facility, we continue to progress towards U.S. road manufacturing.
Speaker #4: Particularly, RQ35. And we expect that facility to be online as planned with the first RQ35 drones assembled, thereby the end of the
Speaker #4: year. Yeah.
Speaker #5: And part of that, the key is the actual blue U.S. certification program, which will allow us to further bid into more U.S. military programs. That program has shifted quite a bit over the years, and we are confident in its current state.
Speaker #5: We understand the last few months, but we're fairly confident we plan on being U.S. certified in the first half of 2026 for our initial drone run.
Speaker #7: Your next question comes from the line of Brett Lindsay with Mizuho. Please go ahead.
Speaker #5: Hey, good morning, all. Thanks for all the details. Wanted to follow up on the blue certification. So you noted the first half 26, but perhaps just a finer point on that manufacturing expansion to scale.
Speaker #5: What do you see as the unit production per month as you ramp those facilities? And then, have you taken any inbound orders from the DOD at this point, or is it still contingent upon this blue cert?
Speaker #4: Joe?
Speaker #5: Yes. So clearly, the production rate will continue to grow. I mean, we're going to run our first prototypes this year up to six, to understand the process and everything we need to do to get them up and running.
Speaker #5: ultimately we can support at least a third of the volume of what we are currently manufacturing in But we feel it Denmark, throughout 2026.
Speaker #5: And I'm sorry, Brett, I forgot your second half of your question.
Speaker #3: Yeah, just have you taken any inbound orders from the DOD at this point, or is it really contingent upon that blue certification first?
Speaker #5: It is contingent upon blue certification at this time. However, there are some prototype systems that we are in delivery or discussion with the DOD that we really can't talk about at this point.
Speaker #3: Okay, understood. And then maybe just shifting over to the NORD Drone Group joint venture, can you talk a little bit about the economics of the JV?
Speaker #3: What's the incremental capital required to fund the entity? And then how did the profit your partner economics structure between you and
Speaker #3: there? So I can
Speaker #4: start. So basically, just to give you an overall, it's accelerating to deployment of the combat-proven UAS across US, Ukraine, and the NATO markets. Under the terms of the JV agreement, AIRO will contribute manufacturing oversight, R&D, and government procurement experience.
Speaker #4: NORD Drone will bring its proprietary technology that's producing 4,000 drones a month that can scale up to 25,000 drones. And these systems are already active in the front line.
Speaker #4: So, in terms of the economics, it's a 50/50 joint venture. As we scale up in Ukraine, AIRO will receive 50% of the economics of the revenue and profit.
Speaker #4: And also, as NATO and the US DOD want to stockpile these FPV-proven drones, we'll also share in 50% of the revenues and profits. So for us, it's a substantial joint venture that allows us to scale both in Ukraine and the US DOD and
Speaker #7: Your next
Speaker #7: question comes from the line of Andre Madrid with BTIG. Please go NATO.
Speaker #3: Yep. Good morning. Want to circle back to blue UAS. Seems like you kind of noted to it, but pushed out a little bit after we had thought that it was going to maybe get pulled to the left a little bit.
Speaker #3: Can you maybe talk about what exactly those hurdles are? I would have thought that with a lot of the favorable rulings and commentary coming out of the Pentagon that there would have been everything that maybe could have pulled this more forward as opposed to pushing it back.
Speaker #3: So I'm just curious what happened there.
Speaker #5: Well, multiple factors, and this is Joe, by the way, Andre. Good morning. So multiple factors. One, we had a everybody on the phone is aware of that absolutely stopped any progress in this particular area.
Speaker #5: The second is that a lot of announcements were made about Blue UAS changing. However, the process of Blue UAS changing was not defined yet. So we are now at the point where those processes are being defined.
Speaker #5: We are working with a large industry trade group to be in the middle of the hopper, but we are just now getting the requirements that we need to actually do it.
Speaker #5: So we've kind of been in a sit-and-wait mode, continuing to develop our internal processes and build out our infrastructure to be ready for this.
Speaker #5: And we're now just starting to see some of the situations and requirements that we need to actually certify by. And I put an analog on.
Speaker #5: If you're going to certify an aircraft with the FAA, and you don't have the certification standards in hand, it's pretty hard to say, "I'm going to go ahead and move this thing to the left." We were expecting those, but obviously, for all the reasons I just said, we don't have the actual parameters in hand yet, but they're starting to come out.
Speaker #5: And the trade groups that we're working with are very strong with this. So we're very confident now in our path
Speaker #5: forward. That's really
Speaker #3: You. I guess on that point, you did note the expansion of the helpful Joe. Thank you, Danish facility. Could you maybe explain where monthly production of the RQ-35 is at now with that expansion?
Speaker #3: Or maybe just what percent increase that
Speaker #3: provides? Maria, do you have that number in front of
Speaker #1: Brad, just don't say a 'you?' question. Currently, the expansion of the facility will allow us to deliver our current bookings and progress. As I mentioned earlier, we have over $190 million in bookings and progress to be delivered from Q3 to next year and through 2026.
Speaker #1: So that allows us to be able to deliver them on time and without any issues.
Speaker #7: This now concludes our question-and-answer session. I would like to turn the call over to Joe Burns, Chief Executive Officer, for closing remarks.
Speaker #5: Thank you, everybody. Appreciate your time and listening today. It's been a fun and challenging quarter for us, just coming out of the IPO. We are extensively in the process now of creating internal processes and really building a very solid foundation for the future.
Speaker #5: We have an excellent order book. We had a few challenges around timing on some orders due to customer requirements in the wartime environment. But we have met all those, and are really excited about the future, meeting our expectations for the total year.
Speaker #5: And then a fairly significant expansion into 2026. Thank you again for your time, everybody. And we appreciate all the questions and answers.