This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only. Earnings Call, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk_0: ladies and gentlemen thank you for standing by good afternoon and welcome to the right cat holdings fiscal second quarter two thousand and twenty two financial results and corporate update conference call as his time all participants are in a listen only mode should you need assistance please signal a conference specialist by pressing the start he followed by zero after today's presentation they'll be an opportunity to ask questions to ask the question he may press star than one on your touched on phone to withdraw your questions please press start sense to participants of this call advice that the audio to a conference call it seems 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 cause through march twentieth two thousand and twenty two i would now like turn the call over just got gordon president of core i are the company's investor relations firm please go ahead
spk_1: thank you i always good afternoon everyone in thank you for joining us for the red cat holdings crystal skull second quarter twenty twenty two financial results for corporate up the conference call joining us today from red cat holding for geoff thompson chief executive officer of my cat links just opponents chief financial officer during this call managers will be making forward looking statements including statement for address red cat expectations for future performance or operational results forward looking statements evolve risk 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 read cats most recently filed periodic reports from can create content q and red cats press release that accompanies this call particularly cautionary states in phoenix the concept of this call contains time sensitive information that is accurate only as today summer twentieth twenty twenty one except as required by law red cat disclaims any obligation to publicly update or revise any information to reflect events circumstances and occur after this call it is now my pleasure to turn the call of reject can't two chief executive officer officer just please guy right thank you scott i'll get up usually and thank you all for joining our fiscal second quarter twenty twenty two call webcast also joining me today is joseph in our chief financial officer
spk_2: i'm you tweeted many milestones a cute you
spk_1: yeah awarded a nasa contract we close the children's acquisition we have brought on t hires references to dolphin and sales and opened the us manufacturing facility in salt lake city
spk_2: i will start in review or can see the companies run arrives at shark that shark is continually develop it's it's digital system called shocked by a shark bite is a high quality low latency hi def t v which means first person view system
spk_1: we're now seeing approximately fifty percent conversions from analog to digital we expect that the adnan mention to the twenty twenty two calendar year revenue
spk_2: we're also seeing crossover opportunities in commercial and military use cases i'm not sure to road riot run riot produces weekly drawing media and as an online store weekend byproducts seen on the weekly you tube shows right continues to grow and has over two hundred and thirty five thousand subscribers we're happy to report to been able to get most of our run right supply chain issues six that were causing us to be out of stock on popular items
spk_1: we've that the store to gain new users as run right becomes a one stop store for ready to fly at pg drones and has reliable inventory national talk about skype or sonic skype or sonic has a drone plants and the combined artificial intelligence software with the camera sensors of the sky after inspection the lady
spk_2: they also have a more palin capabilities which breaks the one drone one pilot drone problem it's capability was crucial in getting the five year nasa contract we announced in september
spk_1: nasa's crew will conduct simulated spacewalks
spk_2: and operations by remote nice guy for sonic drones and rovers in a simulated martian environment skype or sonics real time transoceanic remote piling on this drive piling on both the drones and the rover
spk_1: we believe site software and hartford platform would benefit also from this recent infrastructure bill that was passed
spk_2: there are millions of miles of sewer the will need inspections and hundreds of thousands of bridges that when the inspection
spk_1: we expect skype or sonic to have an exciting twenty twenty two
spk_2: let's dive into our news acquisition she'll drones ill drones is still to complete a drone platform we believe is one of the most capable drones in it's category i recently toward the new facility and was able to see the golden eagle fly simulated missions
spk_1: it's performance was incredible it quiet it's stable and reliable we recently announced the opening of the manufacturing facility and approximately thirteen thousand square feet we have since decided to double the size of the manufacturing to twenty six thousand square feet the new production lines will be able to produce thousands of drones a month
spk_2: we have invested in machinery robot it's inventory can meet existing and expected contract awards
spk_1: before we talk about contracts would like like to talk about the recent events in the us
spk_2: dj i was put on a department of commerce and telus last december the us government least a chinese companies including draw manufacture dj eye on the investment block list the house has a bipartisan bill any existing government fleets of chinese drones
spk_1: the senate had a similar bipartisan bill and we expect both to pass
spk_2: this is still a great opportunity to fill began with made in usa drones by getting all federal dollars from chinese drones is open public safety and first responders as a new category for the golden eagle these new bills could also ground thousands of chinese strong that will require immediate replacement for made in usa drones analysis about as are most of the questions i get from investors is basically about the short range reconnaissance tried to yes or our contractors to put a drone in every rucksacks fields killed round is almost two years into this process we have nothing new to report an update on dusters as soon as we hear back from the army i love him the call over the joseph hernan are cfl
spk_3: thanks jeff and to everyone for joining the call today i will now provide a review of our financial results for a second fiscal quarter which ended on october thirty first twenty twenty one
spk_1: revenues during the quarter totaled almost one point nine million representing a new quarterly record for the company
spk_2: this represented an increase of more than three hundred percent
spk_3: compared to the second quarter of last year
spk_2: in an increase of thirty three percent compared to our first fiscal our first quarter of this fiscal year
spk_3: we expect to with what continued sequential revenue growth selling forward gross margin as a percent of revenues was eight percent during the second fiscal quarter compared to seven percent in the first fiscal quarter in nineteen percent during the same the second quarter of last year the lower gross margins that we have been experiencing in the first half and fiscal twenty to reflect higher product and shipping costs as we have been impacted like many businesses they covered nineteen we expect gross margins to improve going forward
spk_2: especially as we begin to scale up manufacturing at our newly opened in expanded facility for children's in salt lake city
spk_3: operating expenses totaled two point nine million in the second fiscal quarter compared to one point eight million in the first fiscal quarter and five hundred thousand and the second quarter of last fiscal year
spk_2: this increase compared to the second quarter last year reflects the acquisitions the fat shark hypersonic in teal
spk_1: all of which were acquired subsequent to are reporting results for the second fiscal quarter of last year a sequential the three increase excuse me
spk_3: compared to our first this the corner
spk_1: related to the acquisition of field rounds
spk_3: which closed early in the second quarter in represents our largest acquisition today net loss for the second quarter totaled approximately two point seven million compared to one point six million in the first fiscal quarter and seven hundred thousand and the second fiscal quarter we ended the second fiscal quarter with almost sixteen million in cash and investment
spk_2: for the first six months of our just parent fiscal year
spk_3: ending on october thirty first
spk_2: or year to date net loss adjusted for non cash expenses
spk_3: such as stock based compensation was three million meaning that our current cash balance provided approximately twenty times coverage of that net loss
spk_1: the the first six months of this fiscal year i think that really demonstrates that when a really good financial position
spk_2: execute an aggro finish it is over the bouncer the fiscal year
spk_3: i will not turn the call over the operator for question
spk_0: we will now be darned the question and answer session if you wish to chance today's call you will need to press star than the number one on your telephone keypad if your question has been answered and you wish to try a request to make you fell by pressing stars than two if you are using speaker phone please take up your handset before entering your have a speaking on the costs one moment please for the first question in our first question today i come from kevin dealing with h t w
spk_4: i just drove thanks for taking my call progress on numbers
spk_2: hi i'm i'm thinking most of the one nine was generated by feel that is that the right way to think about it ah yes i've got i got joseph yeah what i will i would i was dumb just echo that short states and just made a i think at this point cabin in the the
spk_3: looking back on a second fiscal quarter on certainly
spk_2: he until made you know an immediate impact you know on our revenues that
spk_1: it wasn't even a full quarter yes for the company and you know our our job done a comet median the out with going forward seth
spk_2: yeah kevin there was your they did contribute but i think you got is significantly start contribute as we head into the next calendar year as we mentioned in our press release which back then you start jamming about the a million dollars martha starting around january or we've got to actually move up as we get into further down the year i'm a and here we're getting off attractions what continuing to work with the is our contract from the government hoping to land some of those soon like were also actually already out there our is deb team is and fly around the globe don't you other nato countries in you're pitching the golden eagle and during demonstrations sure the military
spk_1: a countries and we'll get some retraction there so we were going to have a you're starting early next year we're going to have some pretty aggressive revenue growth are coming from the that the teal acquisition
spk_3: can we do we looked at it from another perspective jeff what would you estimate that dj eyes revenue run rate was in their sales to us customers
spk_4: where they now been exceeded
spk_2: yesterday or i i haven't been able to find any recent numbers because the basically been thrown out of any government and enterprise capability right now i'm so they are i wouldn't have those numbers and own would share them with us to we your we believe there's you know hundreds of millions of dollars of a potential revenue from dg i not being allowed to be part of government funding anymore whether it's know we have some fleet center in public safety there are over a thousand problems that are actually did ya drones currently which we know if some of these girls get past where he can no longer flyer existing fleet that are chinese made are you can't we knew anything you can't buy anything new budget to ground the existing fleet it could be out thousands of rounds per for department in obviously the military isn't doing anything with chinese drones but does he know those contracts are also very large so he received it there's yeah this this vacuum that from the dj idea and now the all the chinese strong stance are really going to drive drive things hopefully close as close close to the golden eagle than than anyone else he would you sign up as evil and regime manufacture competitors that's a great question i know that on the consumer side you know of the five that are allowed that are ya in the us or our program scotty i was probably the biggest threat but i think that some with arm more military style bird the golden eagle the new manufacturing facility the we just set up is really gonna give us the capabilities to meet those large contract but out there for competitors i would say there's only ask idea that we would have to worry about
spk_4: so a grain of salt lake city but my understanding was you were trying to build our facilities in pr am i thinking about that incorrectly and then why salt lake city
spk_2: yeah so the teal retail team is all there are no the manufacturing is gonna be in salt lake city we've just moved into new facility that i was at two weeks ago they're moving from basically preproduction to actually a real assembly platform where they can actually get better yield see that better a liability and again from the activity that we have ah on the sale side now we've actually opted to double the size of our factory just just two weeks ago when do you suspect you'll be sure at full factory utilization
spk_1: well i'm a me that the factory can can put out thousands of rounds a month so for us to get there that's gonna take a while but yeah we're we're we're excited to get to to three hundred rounds a month over the next
spk_5: twelve months
spk_2: the fact that deaths were not going to be stopping their leave will be the as our contracts are getting awarded late next year dad we have other a big opportunity so we're we're going to be building it's facilities quickly as we can we've been buying up a ton of inventory with getting everything you need you to get up to you know thousands of rounds per month
spk_1: which you know and the make the cost about fourteen thousand four hundred dollars if you look at the gs a website so it can be some pretty significant ramp in capability and in revenue
spk_3: well congratulations jeff joe thanks for take my questions
spk_0: they can
spk_6: our next question from scott michael a private investor
spk_7: thank you i don't know if i can be heard
spk_8: can your nose or
spk_2: okay thank you do you have congratulations on the building by the way is there a timeframe for the completion of the up third grade in the teal production building i while we we we we just started building is in september and started producing browns and we closed in september and right away we got we got into the new facility or a and started building the production and south the a manufacturing capabilities are the in use the news site the me right next to the existing site is a we just signed so that's gonna take some while we we we can get to thousands of rounds and existing location
spk_9: but we are already planning to really bring capacity way up
spk_8: okay
spk_6: thank you secondly the
spk_10: timeframe for the fat shark developments on the digital system
spk_2: is there a timeframe for that as well as that this guy for sonic infrastructure attempts it's or i'll start with us the the last question for so the as you all know the infrastructure budgets just get past this fall
spk_1: no one's expecting significant awards to happen to love these men next year so on the for actual infrastructure official infrastructure contracts for stack sonic we don't we don't think would say anything until mid next year they are also
spk_2: doing a ton of worth also around the globe not just not just children by meet with them working with a ram college i know we we just finished a large training attend a training period for the aramco are drone purchases if they've made worse continue to work for gm on the on respecting their sites in helping them with inventory are in part thing lots are using our artificial intelligence and ah there's our we continue to you get other wins and we're starting to see not just the teal drones are made in usa is important
spk_6: large large companies do not wanna awards or inspection contracts to but chinese made inspection drones so are made in usa sky copper also gives us some great opportunities for here now inspection revenue which you will continue to see
spk_11: the hopefully we can do you see more wins like we did with nasa or in normal piloting capability gives us a huge advantage and were also made in usa so is there i think you'll the season steady growth out of a skype or sonic and then we don't know what's gonna happen once you start seen infrastructure dollars it
spk_2: okay thank you enough that shark good development of the digital system is your timeframe for that get will they they have versions of it now it's continue to be improved and him
spk_1: continue to get that are features and kids and he gets updates on system is is is amazing is very low latency much much lower latency then easy chinese competitor scoble set for as t v so yeah we're we're other selling now and we're starting to finally see
spk_2: the as i mentioned in my remarks were starting to see people switch from the analog platforms to the digital platforms are so that's that's that's a great
spk_6: stage because he of that the analog systems work on the are goggles are very well made for the last one time so people don't really have to replace them all sides but now that we're seeing about fifty percent of those people coming on board are using our switch to digital and hopefully we can see that conversion rate go up then
spk_12: the hd system will continue to get traction
spk_2: throughout the year
spk_6: it to other questions if you don't mind
spk_1: as the chip issue been resolved that but before i feel and then secondly or lastly and i can't comment on the trying to status but can you at least reference if the government has not eliminated
spk_2: peel from the a consideration at this point absolutely not deal is not eliminated from the process
spk_6: continue to work with with them which is yeah we're pretty excited about but again we don't have anything
spk_4: to report their and i'm cyborgs your the questions i didn't have as chip out for production for deal last job
spk_1: conference i believe there was a an issue securing chips at a you only had six hundred am has that ship
spk_2: issue been resolved for manufacturing purposes a not completely for we are starting to see release in some ships coming in quicker than being had planned for
spk_1: one the bigger issues were having last
spk_2: call was the batteries which
spk_1: which
spk_2: where i got my torah and rummenigge want to change and year but people don't realize how many features the battery that we've we've designs that deal is designed they've got a music a hundred features in that smart battery it is an amazing piece of technology but we have that resolve and we are son the see some relief going into in a b the you know all of the supply chain constraints are not every single chipset is perfectly are available so we are team was actually very forward in end
spk_10: and i'm mostly allen evans are oh really pushed us to make sure we we ordered early to get in the front of the line
spk_2: bombs and that's worked out really well so we we don't think that will be constrained as words
spk_13: we're building up of our monthly of build capability of we think that there will be fight and we'll get through this ship shortage
spk_0: okay thank you very much
spk_1: thank you thanks to the questions
spk_2: i got question comes from
spk_1: in the private investors
spk_14: oh and this is then if you can hear me okay congratulations on the growth in revenue and
spk_1: and now productivity from to return most of my questions have been answered but i have one left to given the supply chains have been released and and were a lot of proactive activity that per year as fries
spk_2: no getting those ready to produce more to jones definitely in revenue stream by now
spk_1: on my own a question losses so what are we doing with these on sixty million plus to what a significant amount of cash equivalents
spk_2: to continue to grow into murray investment for the short term or long term since next year
spk_1: yeah that's a great question guess so
spk_2: bob
spk_11: first call me back up a little bit so if we get one of the large
spk_2: government contracts
spk_1: or it could see for tens of millions of dollars if not fifty or one hundred million dollars over five years of drones orders which means we up we would need to put a good chunk of capital to work that's the reason we raise deeply the money in july is to have the capital to be a
spk_2: there are a lot of factory the can handle the the seattle requests for a large contract from could actually build what we are quoting and then you build a have the actual capitals it's a pile of parts to to to kill such a large order were also just at the beginning of building our enterprise sales team and and you know we're we're not fully employed we don't have all the employees that we're looking to get we're we're hiring we had about ten ah tires that we're looking just for teal henin the sales team fry has five or six people the next year they will be filling in with a high quality or goes down and sale folks as will be investing in our our our sales and marketing and manufacturing ah customer service all the things that we're gonna need to be all of supply these large government contracts with good service damn fucking other nations
spk_0: august and the with my next question ago the new acquisition be the plan to make us more competitive second me this field
spk_1: yeah most of the and eighty we're looking at right now as i mentioned in the last call is mostly software driven it would that would help with your platform thank you very much
spk_3: rating thanks for your questions
spk_1: this concludes our question and answer session i'd like to turn the call back of it is just nonsense any closing remarks
spk_0: great thanks i just want to thank all the employees at red cat
Disclaimer