Red Cat (RCAT) 18 Mar 242024 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the Red Cat Holdings Fiscal 2024 Third Quarter Financial Results and Corporate Update Conference Call. [Operator Instructions] 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 June 18, 2024.

Joining us today from Red Cat Holdings are Jeff Thompson, Chief Executive Officer; and Leah Lunger, Interim Chief Financial Officer.

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

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

as these and information refer please after statements obligation in release of contains Cat's Form Executive XX, in XX-Q to about this factors periodic ahead. reports my pleasure that call. It as to or recently the information press Except any or call, law, cautionary Cat's and go update events required any in is over most is For of Chief revise filed risk now by particularly accompanies on described this today, Thompson, March risks, turn to Jeff publicly to Officer. information more time-sensitive to the Red disclaims occur accurate Red call please content that Form the this XX-K Cat it. The Jeff, reflect Red call that XXXX. circumstances

you. review fiscal after Third Leah Call. will Earnings Conference recent results. financial review year will performance which, everyone, our first Thank Quarter I achievements, our Lunger XXXX QX to our Welcome, and

comfortable small choice the federal well countries. Bringing of Teal X XX airframe We as the were the achieving of by significantly reliable built With information dominate milestone and and other The the the Teal outlook airframe. guidance about look to on airframe results an was operations. this finishing Next, X X of quarter increase be will I agencies to focus X organic always with will we new Teal record the provide the was XXXX, to year us for customers, our allowed customers Teal are for the revenue The onto fiscal put able has source our the traction an becoming has once over the to nighttime we airframe offer companies X open Teal been best market exceeded with XX%, to software the to and will a our to growth. your am with on exceptional, gross and that getting our our and drone drone as ever pleased quarter that iPhone third to remainder business integrating questions. I NATO want felt year again quarter first airframe, take significant we forward then another that Teal X partnerships our capitalize and This software margins. DoD the apps. to similar and night. is to believe model on software report UAS the

current about software announced our Let's partners. talk

U.S. of We and real by time, object development detection nighttime drone tracking will the gross program drones this are integrating Teledyne Teledyne in software purchase artificial on operations. our approximately increase our technology We and believe autonomous who daytime margins next-generation customers for XX%. feature our short-range intelligence Prism during both SRR, under platform AI record. reconnaissance, onto FLIR's platform Prism Army's provides classification,

Labs, approximately We software This environments. next-generation electronic drone will the that also drone into autonomous Primordial increase and are for Teal and feature platform. operators drones with X will allow also fly language to control Teal our Labs' Primordial Red be which X future of or warfare EW integrating interface our will bring command voice AI-driven control incorporated features leverage margins to products actions Teal enable where radio environments it Cat's and Anura swarms drones. drones natural recently in and to by announced partnership will the technology onto XX%. We

AeroVironment.

a Teal X single Tomahawk enables asset operator and software awareness, product, allowing and multi-ship This now multi-domain four XXX-degree to with to follow powers AeroVironment. Ship capabilities with asset situational protect capabilities. integrated This an fly Robotics, formations. and/or surveil fully which to of the drones the simultaneously are swarm We targets part Four other

have rapid at intelligence blending vision, giving edge, XD mapping that and tactical intuitive integrated edge insight. computing intelligence We intelligence Reveal state-of-the-art maps near computer with real delivers the warfighter Technology's also artificial software technologies, and in time the XD real-time artificial fully

designed We entities real-time world on purchase and AI of and soldier-worn if have to through approximately or tactical any They infrastructure at seamlessly; of that margins partner, all margins. readiness, Athena customer our the have tactical detecting edge; the awareness soldier one advanced hands-off fully approach could life insights integrated identifying of gross data. tracking, AI. with our software space situational of gross XX% spatial mentioned AI-powered believe could above, detections more these chooses features visualization pattern we above software We of with solutions be believe and temporal plus XX% operate two

and call, previous of a the SRR In Initiative opportunities our I growth. revenue organic, Record. discussed Replicator driving They Program are three

launched the QX as that believe such market $X.X sequential share is $X.XX feet-on-the-street growth. QX million, Traditional start first small QX Teal get We growth. sequential X $X.XX growth. we execute. the most quarterly was drone continue cash the can revenue drone. XXXX. without Let's of brand-new XXX% great large million, category. quarterly was to difficult a We organic SRR, flow even records any in revenue in to as XX% for programs a to revenue million, we quarter organic defense with was breakeven get QX

they team development the as Our a of tell and year this done great me "international." be will job has business

Department the a strategic military Let's move by to buildup. United Replicator the on countering Initiative Initiative. aimed Replicator China's The States at of Defense is effort

move The These the the across deliver thousands systems initiative. the seeks to relatively initiative very progress. their key help look bureaucratic to attritable low-cost to are XX China. The We trying autonomous quickly, to and messy. Here parts The to new of military points domains The large it XX objective. process. DIU is systems moving has Replicator capabilities to the and about something which of within Pentagon designed applaud many growing the are multiple address outsiders are DoD Initiative Replicator a months. may

ship XX-drone Cat mount and hive capability is an and a Red on Our being portable TEAL. to to able unique swarm

folks We connected are X to believe perfect have the mission for DoD SRR and at the DIU, we the the solution and Replicator drone Teal goals. our and stayed the new

And last but as not least, let's known Record, talk Short about Program the of Reconnaissance otherwise Range SRR.

has So to Board, on General what start and General addition knows have and Paul an our let our we to Funk Directors. believe me newest Board Funk requires. with joined our honor it's of he warfighter the II

reconnaissance role our operational portable lethality manned As reduce small, press aircraft an in systems and increase enhance to risk we close in unmanned play success. to release, increasingly mentioned critical

sothality Just to only Red that enhance the two success. company remind finalists operational Cat that to everyone SRR use is [ for will the ] of

The capabilities final delivery that nighttime with continuously a system that requirements; QX of XXXX. can a two prototypes the tranche the for expected is factory drones features; the final well of drone a and drone can source, brand-new upgraded meet production we the take-all believe requests; a operations; Army's with open production requirements; drone be a that $XXX that cost third-party on that Army's meets it is factory. Army's May leads use XXXX. first the X,XXX winner ago XX,XXX that are is by we meets million positioned to More complete would The City September mode. The a award So when and guidance. We our for drones. drones the Lake to in goals, for first contract production was selection talk Salt full facility the their with drone is is mission designed mass drones. years which The in approximately for production warfighter in

We as facilities, and to shifts now we X.X processes. running meet production people to are goals invest continue in

of of can build We yearly. that are now drones demonstrating we tens thousands

to very about switch This the $X let's impressive in we prototypes from zero satisfy the to million, talk X's up, guidance have million us QX finish April product our run final putting QX almost gone X year. Teal prototype last is approximately annual will fiscal year a May. considering to we must guidance meet to not Teal Army $XX.X rate. If $XX SRR from guidance. did guidance, in production the QX that in And revenue at exist million a delivery first is also we

hand will Leah. over I call that, With to the

Jeff. you, Thank

to thrilled of quarter, growth our in the congratulate fiscal our we've XX% mentioned. totaling are guided by sequential long-term accomplishment. our manufacturing and confident run million a on we record and revenues is I a million. remain revenue and as guidance this of which approximately fourth Jeff third rate quarter significant $X.X growth a Once $XX represents report fiscal more basis have continued development quarter in to business again, annualized outlook. reached teams again year-over-year want our and This exceeded We XXXX, for XXX% as to XX%, than

this Gross a totaled sequential increase basis, anticipate approximately time will XX%. margin from revenue. steadily of decrease total for gross a the We third million and represents a for several or $X.X over variability more reasons. fluctuations quarter-to-quarter. This margin of quarter On of year-over-year occurs XX% despite improve than XX% percentage

for required deliverable. contract the Army Reconnaissance Range Short effort and the material by First, with vary

we as emphasis of gradually possible feedback other costs provide from lower to cost relationships, and anticipate we've to of to time, building best which Over Second, real generous prioritized well. been can ultimately have life since quality order goods Because to able we product. sold. gross with in customer leverage of on in are service, this the we margin product customer components applications variations cause our iterate warranty warranty, relative

full the drone. the quarter the completion of this manufacturing first of Third, year marks X Teal

been share. to During has our this primary market time, capture on revenue focus growing

improvements However, work as we drive flow which in will toward are cash expected margin, also imperative breakeven. operational to gross efficiencies implementing be we

XX% margin full We to gross expect year and XX%. between end our

exclusive that of gross production we of Jeff. we XX% as reach discussed margins add-ons However, capacity can believe software previously by scales

quarter, used loss totaled decrease of both a $X.X million the represent in the operating consecutive $X.X for third which quarter. operations totaled and cash million, During third

to Record As and improvement, we revenues of the research steady the SRR costs by are grow development we as committed anticipation Program controlling further winning of award. in and evidenced

receivable completed of In provided needed to XXXX. accounts operating our over $XX.X objectives XXXX, has and million. runway a raise, capital strategic during we January as XX, balances achieve which totaled calendar cash combined Our December,

focus payment of closed even as Machines, we segment. Overall, us divestiture on remain $X success $X million million note to about company. month, of The Consumer this sale completion future Unusual our the the the a enable Last we optimistic as enterprise will of segment our intently included more which cash well the to receivable. of interest-bearing a

delays our have required the pleased to We funding are Army and engineering latest finalized the funding prototypes, despite very DoD. within contract, securing deliver amendment complete the to to

we are calendar this later well year. in As one program, of the believe only Reconnaissance an two positioned Range Army's award Tranche receive Short finalists we X to

of attritable is across The including Revenues several budget internationally. domestically $X is expand expected we customer on small program, thousands UAS. billion systems, as over grow Replicator our as which to fielding to tranches, well focused continue base as include

now XX have sold customers our will over for in operator We now the different over turn to call the questions. products to countries. I

[Operator Instructions] question from Our Kumar first Ashok with ThinkEquity. comes

Funk, results First, questions. Three congratulations operational appointment on Four-Star and of to the your Board. the General, the Paul

that Can When is to well this prepared contract give you on you the on can commented positioned you some get remarks. And third on expect you increase is, question color next months? Second us calls. expect mentioned common over question theme we why can international Replicator, three you in expand to on opportunity, -- the that's the you're First is some margins? opportunity? And for your announcements? them last had XX the do last a been your

Well, Ashok. first first day, hot getting your Thanks, question. the you're Leah,

on to margin So it going question. Leah over the to I'm hand

Thank, Sounds Jeff. good.

as mentioned XX So next in I do call, over expect to improve the the months. I margins

our will working engineering by some the there variability a of expect we Army. manufacturing are effort be handful complete quarter, that especially we're we early But Although for aspects there on. as

expect would to able related on pricing very margins. margins scrap that to due items the increase, improving toward production and to... as as some naturally margins. We're which on as also believe working improve we expect volumes improve we're working robust allocation. would grow onetime X% revenues, we which had also with had a to volumes. improve we'll volumes we We've production increased receive our labor warranty increase which overhead margins We costs. far so order of our yields, program because materials scrap historically we're better well improve rate, We've the would Plus, that And a

kind But of we're is beginning the in go this. it I'm -- have we mentioned, programs Leah, jump lots from that's competitors we years. And just because our be at me it folks, she very the dealing for we that reason these five share on Yes. generous Leah the programs one to generous warranty you warranty on large when -- with a let as upsets warranties are program trying to and the on have very mostly. of we're frank, program. market a time And that converting gain do

us made the field. sure people back these make we've get So drones in And be find the as sometimes not that market it's sent decision issue, get fixed to out to pilot support warranty and actually we fixed well. our if stuff and we they and was still very we're immediately, worked that we the error, operator their share, can't it but basically, building

which pretty some warranty Leah what with to margin. does had nonrecurring and mentioned, continue will with is all the also We that -- say, GAAP generosity, items expect aggressive that go I'll for seep the other into of down engineering we've we're program, been that SRR the

a we'll then increase is and quarters that XX% on the margins hopefully selling to we the pushing can also So get start and lot that thing -- be the next increase of couple mark. margins And everything, levers that our of dramatically. software over have we next of to we top

I so that yes, problem Replicator, announcements. So And going to question be that with no was one's making the is Replicator? -- Replicator second your think is

to the swarm. our want. So DoD And we're that and drone battery it's having product out Street Red The called capability, are our product with our we that supplying on using swarm only our perch big But first swarm to other frustrate demonstrate capabilities, companies we of and with first. probably a and hours Four We the going continue that X recently the demonstrated Cat with DIU but and -- commercial the overcoming the drones. that company swarm stare came they're Ship. products the -- for limitations, small utilizing not

we're that swarm believe positioned I way we the is capabilities. have So well

Initiative, a fit the It's We that. for have swarms. small I than attritable perfect can't more drone really Replicator and say

third... I your think

international? the And the question, last on

Yes.

So the lot to for of a -- RFPs working our are on And than months. more large bizdev team SRR. than frank, XX has than XX more them been be larger

of Some could yet. RFPs and soon be largest supposed are to contracts these our pop

we've of be years these later So to almost some year, are done last over the two winners on RFPs, this the announced work spring. set

for some So well, tested to doing so later this the international. fantastic X we've Teal expect announcements is make and we year do

Michael question The [ ]. comes from next Scott

Can you hear me?

you. hear We can

chip status on What's acquisition? the the chip or production

Do supply chain? as you in mean

Yes.

over We've been months. X for fine supply with chain

We are yes. --

So it's is about, I mean I'm supply anymore. thought that daily something chain sheet concerned always but not on my

Okay. That's good to know.

right Are is have? You the shifts with we more said Currently, we in X.X Or a will anticipated awards to at hopeful shifts are to we current How realm? have have production able at we employ the shifts? that now. backlog. looking we accommodate

think, close almost they plenty talking chips, have were I what and about we the we No, bought that of core years to is ago, you're X,XXX. two

We not to are going be...

terms sorry, in production. no. of I'm shifts. our No, Shifts

said? you shifts, X.X have You

Yes.

have we X.X. -- As I

we've We've around and -- So start X. half. we X, got we basically, a end got a at around shift and

increased We're our we to handle full according our can increased just we've going by second not to We're demand. there a expand customers. the just shifts factory our adjust yet. to to But needs shift. So capabilities production our

Okay.

anticipate out you able quickly, the is So that being correct? knock backlog to

to continue that and Well, revenue we the in have these huge with been sell we increases news every doing quarter, is good more.

customers will too best continue of to our and like So worlds. timeframes meet we the have to kind to production the get of not But want. the both high our we increase that backlog

If it in they customers need they to and it production get in need days. sure increase our XX need sure make days, we'll they XX, we're XXX, in it going XXX. make get we'll XX. in If it So XX get if they

our So have customers. to we adjust to

pre-submitted This concludes remarks. the I back our conference and question-and-answer to over session. would for to turn like Thompson closing Jeff questions

have Great. Leah, do Thank They're -- I'm assuming here. not let I'm more me you. Call in. Chorus Hold you on, coming the on sorry. them?

[indiscernible] to first Jeff, read like me you the one? would

when profitability, what get or question think combination? you Jeff, what is, we the could margin do to first or revenue

the today. Well, hand keep Okay. seat to one going that in to I'll you. Leah, being hot Great. you're

Yes. Great.

So we'd hope of based to, $XX quarterly quarterly million $X.X gross margins, if expenses at million, reach we expect approximately then operating current we on to revenue. reach in about XX% our profitability as

continue is you several Okay. to look at you've The next mentioned expect to Do acquisitions? partnerships.

Yes, get that's another bit. good question, we and quite asked a that

so we then would definitely As you friends. fine build of of we're we our do our down getting partnerships we contracts. acquisitions. all again. past, partners. it software see, dilutive, and start now, done basically but you've and But you year, maybe cusp here, is would so of we've now, with partnering right the right partnerships. growing But a a our And rapidly be acquisitions of not We next continuing where lot with us game-changing on think at In seen right with to we revenue are do relationships looking some the are acquisitions large do lot

stay when to which great the So the the then bird, SRR finalize Teal be next-generation making will on we're new bird. SRR, focused and going X the we

So we're tight going little hold to bit. a for

be mean is Machines, final the the closed The market? sale that Unusual question you've will does back now this going you to not to

question. that's -- a was No, just That new one. a that's great

some I'll Leah actually, of that. yes, some So on give after let final that, that -- review then and comments I'll

Yes, for sure.

in we Machines, to $X as date to the So full in I cash X% received years. mentioned the interest cash monthly on at $X payable payable Unusual note the well and due a of is The million after after interest-bearing closing as payment maturity the sale principal X.X note is a previously, Cat. million the as sale payment the Red with

X million, to to want payable $X -- which will ] capital. within be Jeff, would of for up which working that deals months comment an Red that good another offering we closing working complete the expect have, we is Usually closing to do over either opportunity funding in these capital, we closing X UMAC? in note, currently determination to complete stock is that that that working types for becomes we cash be that expect of and are $X finalizing date be Cat. and note However, full, you just we us. And do the million, you the if to on the in around added on payable not the [ of with own to or

Yes.

own also million X.XX We shares.

UMAC are to we made that we going probably dividend, Red But shareholders. Board, to decision keep, would of But we continue sort buyer We raise us raise and existing had to do stock. if money. to that block some things ways other a there's a shares of non-dilutive never as haven't for that yet remaining hurt Cat they sell nature, a any or --

we've not SRR if and upfront. you beat that as chunk an -- continuing our to going to with or award a a So we're ramp, believe we we revenue those frank, Xx the row of are of get all. With very now. down, see to prove award, money market that in getting -- started come And at costs can our give back you we the revenue and guidance to be a all ramp Replicator

process our out So and market. our we of is the modeling thought are

So we're about pretty excited that.

for remarks. Jeff turn would our it session. Thompson to to back concludes any over I question-and-answer this closing like And

thanks, Well, Dave. Thanks, everybody. Great.

to drones that capabilities start position NATO customer. soon. Teal We also we are proud Drones the to supply to and warfighter. to the military, expect honored help to States in We're them United traction have we are to incredible allies we ready are a a asymmetric mentioned and great and have tools give getting as our willing in and believe that

reads: able resilience EW full SRR, AI forever. with assets. to changed Military developed using close [ Journal's effects link warfare what with environments, battlefield Our including language Ukraine demonstrated in ] what developed. operation Swarms technology, expensive Change kinetic drones of with Are Street artificial and detection being the can military and The to Balance human what's have Drone has the fully enables Wall for GPS-denied to drones navigation intelligence, chain. Small Power, deliver About small with will natural object describing recognition do visual-based kill The AI, assist to ultimately navigation, stack headline basically recent be Teal data has Drones decision-making

XXXX again, we good Cat, The and calendar second for are going pivotal of success. Thanks set Red half is night. be up to and for

The conference presentation. attending you today's now for has concluded. Thank

You may now disconnect.