Q2 2026 AIRO Group Holdings Inc Earnings Call
Speaker #1: Thank you for standing by. My name is Jonathan, and I will be your conference moderator today. At this time, I would like to welcome everyone to the AIRO Q2 2026 earnings call.
Speaker #1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question, please press *1 to raise your hand.
Speaker #1: To withdraw your question, press *1 again. Thank you. I would now like to turn the call over to Jack Snaeft, investor relations at AIRO.
Speaker #1: Please go ahead.
Speaker #2: Thank you, operator, and good morning, everyone. Welcome to the AIRO Group Holdings, Inc., Q2 2026 earnings call. We appreciate you joining us today and look forward to sharing an update on our progress and performance.
Speaker #2: With me on the call are Dr. Chiranjeev Pitharia, our Executive Chairman; Captain Joseph Burns, our Chief Executive Officer; and Dr. Maria Pilipov, our Chief Financial Officer.
Speaker #2: 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 AIRO's 2026 outlook.
Speaker #2: Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements.
Speaker #2: Forward-looking statements represent management's beliefs and assumptions only as of the date made. Information on factors that could affect the company's financial results is included in the company's most recent annual report on Form 10-K and other filings with the SEC from time to time.
Speaker #2: In addition to our prepared remarks, our earnings press release, SEC filings, and a replay of today's call can be found on our investor relations website at investor.theaerogroup.com.
Speaker #2: We have also posted our earnings presentation on the Investor Relations section of our website. In addition, during today's call, we will discuss non-GAAP financial measures.
Speaker #2: 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: Reconciliations between GAAP and non-GAAP financial measures and the discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalent is available in our earnings release.
Speaker #2: Additionally, we plan to discuss the drone segment backlog, a definition of which can be found in our earnings release. We will also discuss our cash balance as of July 31, 2026, which is a preliminary estimate based on information available to us as of the date of this presentation.
Speaker #2: Additional information on this metric can be found in the earnings presentation on our investor relations website. With that, I will turn it over to our Executive Chairman, Dr. Chiranjeev Pitharia.
Speaker #3: Thanks, Jack. And thank you all for joining us today. AIRO delivered a strong Q2 that was marked by revenue outperformance against expectations, driven by solid execution within our drone segment.
Speaker #3: Gross margins improved to 64%, and we swung to a small quarter. A big improvement from the loss we saw in the same period last year.
Speaker #3: Looking ahead, and as Maria will discuss in her section, we are reiterating full-year revenue growth guidance of 15% to 25%. She will also detail some additional thoughts to consider for the rest of the year.
Speaker #3: On top of this, total drone backlog grew roughly 9% from last Q2 to approximately $163 million. On the strategic front, it was also a busy quarter.
Speaker #3: The RQ35 drone achieved Blue UAS certification, which opens up meaningful new opportunities in U.S. defense procurement. We also unveiled our new RQ70 long-range ISR platform.
Speaker #3: Development continues on the JX250 cargo, and ISR drone variants. And costs there are coming in below expectations. With the first flight still on track for later this year.
Speaker #3: We remain squarely focused on the unmanned drone market. Q2 was a solid Q2 of execution, and we expect that momentum to continue as we scale manufacturing, diversify our revenue base, and stay disciplined on cost.
Speaker #3: All while continuing to invest in AIRO's next phase of growth. With that, let me turn it over to Joe to discuss our strategy and the operational highlights.
Speaker #3: Joe?
Speaker #4: Thank you, Chiranjeev, and thank you all for joining us on today's earnings call. I am happy to report Q2 results that exceeded expectations, finishing out a strong first half of the year.
Speaker #4: Our Q2 results were marked by on-time drone deliveries, plus multiple announcements. These recent developments highlight our execution on strategy, but we are not done here.
Speaker #4: While Q2 top-line results marked sequential growth versus our Q1 performance, this demonstrates the variable nature of our business. Still, Q2 results topped expectations, and we are reiterating the full-year guidance ranges we previously provided.
Speaker #4: Maria will walk through the financial details later in the call. Now, let me provide some updates on our portfolio and strategic positioning at AIRO.
Speaker #4: We have solid, growing portfolio of products and services. We remain focused on the overall drone market, whether it be through new product developments or through partnerships and inorganic opportunities.
Speaker #4: We are actively working to reduce quarterly variability by expanding our international and domestic revenue base. One such milestone on our product side, and one that I'm especially pleased to highlight, is that our RQ-35 drone is now officially Blue UAS certified.
Speaker #4: With this approval, the RQ35 is recognized by the Department of War as a secure, compliant unmanned aircraft system, eligible for government and defense procurement under NDAA requirements.
Speaker #4: As most of you know, blue UAS streamlines access to the DOW and federal procurement channels. Accelerating our ability to compete for and secure U.S.
Speaker #4: defense contracts, which we expect will support AIRO's long-term revenue growth across domestic and international markets. We believe the Blue UAS milestone is a testament to the RQ35, from its embedded technology, use cases, and performance on the battlefield.
Speaker #4: The RQ35 and now our recently unveiled RQ70 continue to set our technology apart from the rest of the pack. The RQ35 is battle-tested, having been deployed in the Ukraine conflict and the platform is extremely quiet and launched and purpose-built for ISR missions.
Speaker #4: It has demonstrated real resilience even against electronic warfare and in GPS and GNSS denied environments. With up to 50 kilometers of range, and 150 minutes of flight time, it delivers extended time on target, plus quick front-line serviceability with a smart battery for reliable performance.
Speaker #4: The RQ35 platform also offers onboard AI with edge computing, which enables real-time identification and classification of enemy assets and threats, while strengthening navigation, situational awareness, and mission execution.
Speaker #4: This drives faster, more informed decisions in the field. As a note, edge computing brings our flying servers closer to the battle, allowing us to significantly speed up and improve target recognition and decision speed.
Speaker #4: This reduces the already jammed bandwidth required by other competitors' systems. Our goal is to embed AI across all of our product and service offerings at AIRO.
Speaker #4: The RQ70 is our newest platform, built on years of RQ35 battle data and leveraging our existing manufacturing and NDAA supply chain. We are already engaged with multiple defense customers on future deployment.
Speaker #4: It offers configuration flexibility between standard, long-range, and VTOL configurations, and includes a modular design that lets it serve as a standalone ISR drone for NATO and allied customers.
Speaker #4: Our RQ70 is built for up to 8 hours of endurance, 100 kilometers of range, and resilience in GPS denied environments. We are reaffirming expected production start in January 2027.
Speaker #4: Capabilities such as these further set AIRO apart, with strong customer validation to date. We are building on that momentum with new initiatives and will continue to provide updates in the quarters ahead.
Speaker #4: On the product side, we're making great progress developing our cargo and ISR drone variants, the JC250 and JX250. We have been strategically evaluating and selecting suppliers for the vehicle, and we are reaffirming our expectation for the first flight later this year.
Speaker #4: I am also happy to report that AIRO-specific costs for development are running below our internal expectations, by a low double-digit percent. There are a few driving factors.
Speaker #4: First, because the cargo and ISR variants share a common foundation, we are developing them at a fraction of the cost of their passenger counterpart.
Speaker #4: Second, we have made real progress in supply chain negotiations which has lowered our input costs. Third, we are realizing synergies across the platform faster than we had modeled.
Speaker #4: And finally, our R&D team has been executing efficiently, which is keeping development costs disciplined. Taken together, these factors are giving us confidence in the cost trajectory of this program.
Speaker #4: While still in the early innings, all the developments that I mentioned represent our efforts in diversifying our product portfolio and stabilizing revenue variability over time.
Speaker #4: On the avionics and electronics side of our portfolio, AIRO delivered largely flat revenue quarter over quarter as demand for our avionics products remained stable and consistent with the prior quarter.
Speaker #4: Despite the static growth year to date, we are actively advancing next-generation sensor and navigation solutions which run display at the EAA AIRO Show in Oshkosh in late July.
Speaker #4: We received solid feedback at the trade show, with customers highlighting our product reliability and functionality. Avionics continues to play a critical and strategic role within our broader company profile.
Speaker #4: With our avionics and ramping U.S. drone operations now consolidated under one roof in Phoenix, we expect synergies here to begin bearing fruit in the coming quarters.
Speaker #4: These dynamics are part of what reinforces AIRO's long-term competitive advantage. Over time, we expect to bring more avionics systems in-house across our unmanned platforms, streamlining operations, reducing supply chain complexity, and ultimately strengthening our gross margin profile.
Speaker #4: Lastly, on the services side, we are continuing to evaluate strategic alternatives for training, and we expect to have an update on that direction by the end of the year.
Speaker #4: We believe the training segment remains a valuable asset with significant long-term opportunity, although the segment is capital-intensive and often requires meaningful ongoing investment.
Speaker #4: Recall, while underlying demand persists within this segment, performance here has been below expectations. This is driven by the fact that the task orders coming out of the U.S.
Speaker #4: Government opportunities are not currently within the strengths of AIRO. We believe this narrative will shift over time, and we are investing in and strengthening our training assets to pursue upcoming long-term close air support training opportunities.
Speaker #4: That said, we are exploring all possible avenues for the business, but our focus remains on unmanned systems. Overall, we are encouraged by the momentum generated across our portfolio during the second quarter.
Speaker #4: From achieving blue UAS certification for the RQ35 and advancing customer engagement around our new RQ70 platform, to progressing development of our cargo and ISR drone variants, and positioning our avionics business for future synergies, we continue to execute on our strategy of expanding capabilities diversifying revenue streams and embedding AI across our offerings.
Speaker #4: While there are still work ahead, we believe these milestones reinforce the strength of our technology and market position and we look forward to building on this momentum in the quarters to come.
Speaker #4: We remain disciplined on our capital initiatives. We continue to evaluate inorganic opportunities carefully focusing on acquisitions that would be accretive in the near term and that strategically enhance our product portfolio namely for drones, avionics, and electronics.
Speaker #4: We also see M&A as having the potential to play an important role in reducing AIRO's quarterly revenue variability over time. As I have discussed in the past, our balance sheet gives us real flexibility to act when the right opportunity comes along.
Speaker #4: And selective M&A will continue to play a vital role in how we endeavor to maximize long-term shareholder value. With the multiple drone deliveries in Q2, and given the timing of these drone deliveries at quarter end, our cash balance as of July 31st, 2026 was approximately $56 million significantly strengthening AIRO's balance sheet.
Speaker #4: In closing, the initiatives, discipline, and efforts we have employed to date bolster our strategy of delivering mission-ready ISR systems that can be reduced, upgraded, and supported at scale.
Speaker #4: I am also grateful for the colleagues beside me today and for every employee who makes this company what it is. Our leadership team brings extensive industry experience to the table and as we continue to add key personnel, we are further strengthening our competitive position in the market.
Speaker #4: With that, I will turn it over to Maria, who will walk you through the financial results in more detail. Maria?
Speaker #2: Thank you, Joe, and good morning, everyone. For the second quarter of 2026, revenue was $43.2 million, compared to $24.6 million in the second quarter of 2025.
Speaker #2: This represents growth of nearly 76% year over year. Revenue for the quarter was ahead of expectations, driven by outperformance against expectations in our drone segment, partially offset by underperformance in avionics and training.
Speaker #2: Gross profit for the quarter was $27.7 million, representing a gross margin of 64%. Compared to a gross profit of $15 million, and gross margin of 61% versus the same period last year.
Speaker #2: The improvement in gross margins both sequentially and year over year was also driven by a product mix shift back towards drone products, consistent with expectations.
Speaker #2: Recall, our first quarter margins were impacted by upgrade revenue, negatively impacting margins. Operating income for the quarter was $1.7 million, versus negative $19.7 million in the second quarter of 2025.
Speaker #2: This year-over-year improvement is a result of higher revenue, improved gross margins, and a pure-related cost incurred in the prior year period.
Speaker #2: We remain disciplined on costs while continuing to invest selectively in the infrastructure needed to support our growth. Our second quarter net loss was $2 million, versus net income of $5.9 million in the second quarter of 2025.
Speaker #2: Second quarter 2026 EBITDA was $5.1 million compared to $18.9 million in the prior year period. On the adjusted basis, EBITDA was $6.8 million up from $4.7 million in the second quarter 2025.
Speaker #2: As Joe mentioned, on the cost side for our JC250 and JX250 platform, I am happy to report that development costs are tracking below our internal expectations.
Speaker #2: The shared foundation between our cargo and ISR variants means we are developing them at a fraction of the cost of the passenger version. And we are realizing savings beyond our original projections by roughly low double digit percentage.
Speaker #2: We retain flexibility to adjust our spending pace up or down as conditions warrant. Right now though, we believe the right path forward is delivered efficient investment to put the required infrastructure in place to support our next phase of growth.
Speaker #2: Turning to cash flow and liquidity, as of June 30th, 2026, we had $25.9 million in cash on the balance sheet, with $6.8 million in debt.
Speaker #2: Accounts receivable were higher than usual at quarter end, driven by multiple drone deliveries late in the quarter. As of July 31, we had approximately $56 million of cash, primarily reflecting the subsequent collection of international drone receivables outstanding at quarter end.
Speaker #2: This strengthened our liquidity position and provides us with continued flexibility to execute against our strategic priorities. As of June 30th, 2026, we had roughly $163 million in drone backlog.
Speaker #2: We expect the majority of this backlog to convert to revenue within the next 12 months. We will be updating our backlog to include US opportunities and ongoing pursuits in the coming quarters.
Speaker #2: We expect this will meaningfully increase the total backlog as those orders are incorporated. We define backlog as orders we reasonably expect to convert to revenue over the next 12 months.
Speaker #2: While this metric provides visibility into near-term demand, our broader pipeline continues to expand, underscoring the long-term demand trends we have discussed throughout today's call.
Speaker #2: Based on our current visibility, we are reiterating our full year revenue growth guidance of 15 to 25% year over year. Let me provide some additional context on the expected cadence for the remainder of the year.
Speaker #2: First, one material drone delivery originally expected in the third quarter was completed in the second quarter. As a result, first half revenue represented approximately 50% of our current full year expectations.
Speaker #2: Second, reflecting the pull forward, we currently expect second half revenue to be in line with a modestly above first half revenue. Within the second half, we expect third quarter revenue to decline sequentially from second quarter followed by stronger first quarter.
Speaker #2: We currently expect first quarter revenue to be modestly above second quarter. Third, given the international nature of our business, foreign exchange remains a factor in our outlook.
Speaker #2: We now anticipate greater effects headwinds in the second half, with an incremental revenue impact of few million dollars compared with our prior incorporated that impact into our outlook and remain confident in our full year guidance range.
Speaker #2: We continue to expect modest gross margin compression versus 2025, with full year gross margin broadly in line with first half levels. Turning to profitability, we continue to expect full year 2026 adjusted EBITDA in the negative mid to high tens millions, with the quarterly cadence expected to broadly follow revenue.
Speaker #2: In closing, our strategy remains focused on three priorities: diversifying our revenue base, scaling manufacturing, and accelerating new product introductions. As those products ramp up and make up a larger share of revenue, we expect that to reduce quarterly volatility and strengthen backlog growth over time.
Speaker #2: Specifically, with the introduction of the RQ70, the first delivery of Zentra camera suit and the JC and JX250 coming online late next year, we expect to begin seeing the benefits of that revenue stability next year, with continued improvements in the quarter and years that follow.
Speaker #2: That progress is exactly why fiscal year 26 is a year of accelerated investment for us. As I have said before, we are still early in our growth phase, and we intend to invest accordingly, while staying disciplined on costs and preserving flexibility to adjust our cost structure as needed.
Speaker #2: That balance supports our confidence in AIRO's long-term growth trajectory. With that, operator, we are ready for questions.
Speaker #1: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand.
Speaker #1: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimal sound quality.
Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Colin Canfield from Cantor Fitzgerald.
Speaker #1: Your line is now open. Please go ahead.
Speaker #3: Hey, thank you for the question. Maybe if we could start on drone order trends. If you can parse out the mix of US and international drone orders for RQ35, discuss the milestones that you need to see to essentially increase the backlog, the comment you made on materially increasing backlog, and basically what milestones does it take to recognize that backlog increase?
Speaker #3: And then, if you could also talk about early customer interest for RQ70. Thank you.
Speaker #2: Hi, Colin. Thank you for your question. So, I'll start. Our $163 million backlog represents our international drone backlog and does not currently include any U.S. backlog.
Speaker #2: We expect that the majority of that backlog will convert into revenue over the next 12 months. So naturally, there's a portion of that expensed into 2027.
Speaker #2: In terms of the U.S., we have responded to a number of RFQs and continue to see a growing pipeline of opportunities. As those opportunities convert into orders, and we expect them to be able to convert into backlog, it will provide additional visibility for the U.S. backlog, which will incrementally add to the $163 million backlog we are currently reporting today.
Speaker #2: As far as additional products being included, it's mostly composed of RQ35. There's a very small percentage of RQ70 being added to this number right now.
Speaker #4: And this is Joe. Good morning, Colin. If I could follow on with that—some of the milestones, obviously key milestones for us, were the Blue UAS certification, which will allow us into the US market.
Speaker #4: So that was a big one. The RQ70 announcement and launch of that product are also a big milestone to enhance our expansion of our margin profile.
Speaker #4: You also mentioned, or asked a question about, early customer interest in the RQ70. It's been very strong because it does fill a gap in that high-end ISR market—that long-duration flight, ease of operations, and low costs.
Speaker #4: So we feel very, very strong about the RQ70 filling in that in the interest category as well.
Speaker #3: Got it. Thank you for that. Maybe we could talk about the free cash flow building blocks, and the level of investment related to the defense transport platform.
Speaker #3: If you could just kind of walk through how you think about the investment on that program and reflecting down and perhaps maybe kind of how you think about that relative to the company's ability to generate free cash flow.
Speaker #3: Thank you.
Speaker #2: Thank you, Colin. So I'll start in my and then I'll let Joe add anything I missed. So in terms of free cash flow, we are very comfortable right now with our liquidity position.
Speaker #2: And it's closely tracking our internal expectations. The biggest factor for the quarter was timing. As we were building inventory to support deliveries and those deliveries occurred, at the end of the quarter, significant portion of receivables converted into cash.
Speaker #2: And as I mentioned earlier, as of July 31st, our cash and cash equivalents were approximately $56 million. In terms of investments for the air mobility, our costs have been reduced, which AIRO is very comfortable with.
Speaker #2: Right now, they're running in a low double digits below initial expectations. And while we have not provided the size of the investments we are still tracking on time.
Speaker #2: And overall, because we shifted our focus to ISR and cargo drones, it significantly reduced our expected developmental costs compared to the passenger platform. Which obviously provides significant upside for our liquidity and, if we think about going forward to free cash flow, we anticipate there to be a shift into positive cash flow in 2027 and beyond.
Speaker #3: That's great. Thank you.
Speaker #4: And to expand on the JX250 and the JC250, our ISR and cargo variants of that large cargo transport we've talked about in the past, about eVTOL.
Speaker #4: This is an EV toll aircraft, but it's different than what we had previously discussed in the passenger realm. We don't carry passengers on this.
Speaker #4: It's basically a large cargo drone—very long duration, hybrid. So, we think there is a new and growing market for this type of transport. If you think about combat operations, the ability to resupply, get critical medical information to and from, etc.
Speaker #4: So for us, it's a real opportunity to jump into somewhat of a new market. You're starting to see that obviously in this industry as well.
Speaker #3: Thank you.
Speaker #1: As a reminder, if you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again.
Speaker #1: Your next question comes from the line of Andre Madrid from US Bancorp BTIG. Your line is now open. Please go ahead.
Speaker #3: Yep. Thanks, team. Good morning. I was wondering if you could provide us an update on where you're at with Nord and Bullet, those JVs.
Speaker #4: Sure. This is Joe and good question, Andre. So as you probably know, at this point, there are some significant order issues or significant issues with the Ukrainian government's permitting process.
Speaker #4: In their current battle condition, the government there has pretty much stopped all licensing of aircraft coming into the US or technology transfers. We are still working there very well, and we're working extensively with both counsel over there and local counsel to get these permits.
Speaker #4: But that said, the partnerships and JVs like these are a really compelling route for us. And I want to make it clear that we're not dependent on any one of them for growth.
Speaker #4: The partnership of JVs will expand our access to multiple markets and help accelerate our growth plans. And we're currently evaluating additional partnerships as well in this particular market.
Speaker #4: In those specifically for drone dominance. So we're excited about other opportunities. It's really opened our eyes as to what's available, what the markets look like for us.
Speaker #4: And with the ability for our certification routes, we're excited about participating in these things moving forward.
Speaker #3: That's really helpful. And then, maybe pivoting to Training for a bit. I know you guys had mentioned last quarter your decision to pursue strategic alternatives, or consider strategic alternatives, there.
Speaker #3: I mean, is there any update that you can provide us to maybe how that's tracking and when the decision might be made?
Speaker #4: Sure. We're planning to have decisions by year-end. We're making a lot of discussions around it. As we mentioned before, we're actively evaluating a range of strategic options.
Speaker #4: And our intent in disclosing this is to be transparent with the market, while really our core focus right now is on drone and avionics operations.
Speaker #4: And we see limited synergies between training segment and our core business, which is important while we're evaluating the long-term strategic fit. Training is expensive.
Speaker #4: We have made a significant investment so far, but we're still excited about the opportunities in this particular business. But as always, drones are our main focus and that's where we want to look at focusing most of our capital.
Speaker #3: Yep, that's really helpful, Joe. I appreciate it. I'll leave it there. Thanks.
Speaker #4: Thank you.
Speaker #1: There are no further questions. We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.
