Red Cat Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Red Cat Holdings Fiscal Third Quarter 2022 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through June 17th, 2022. I would now like to turn the call over to Mr. Scott Gordon, President of CoreIR, the company's investor relations firm. Please go ahead, sir.

Thank you, Vaishnavi. And good afternoon, everyone, and thank you for joining us for the Red Cat Holdings Fiscal Third Quarter 2022 Financial Results and Corporate Update Conference Call. Joining us today from Red Cat Holdings are Jeff Thompson, Chief Executive Officer of Red Cat Holdings, and Joseph Hernon, Chief Financial Officer. During this call, management will be making forward-looking statements, including statements that address REDCAT's expectations for future performance or operational results, particularly. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in REDCAT's most recently filed periodic reports on Form 10-K and Form 10-Q and REDCAT's press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time-sensitive information that is accurate only as of today, March 17, 2022. Except as required by law, REDCAT disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Jeff Thompson, Chief Executive Officer. Jeff, please go ahead.

Thanks, Scott. Thanks for joining our third quarter 2022 earnings call. First, I would like to thank all the employees at Fat Shark, Rotor Riot, Skypersonic, and Teal Drones. They have all worked hard to get their businesses on a path to scale and grow. And we expect different contributions at different timelines to grow revenues over the next three or four quarters. Again, good work, team. Batshark has new products coming. Batshark will be playing a key role in the infrastructure inspection space. Rotor Riot continues to grow. and build an audience. And their annual event, Rampage, which hopefully I get to this year, is sold out. Next, let's talk about Teal Drones, and I'm sure there's going to be a lot of activity around this from the recent weeks. But let me start with some housekeeping. The number one question we get is supply chain. We have just under 4,000 chipsets to build just under 4,000 Golden Eagles, which would equate to over 50 million in revenue. I want to start by talking about Ukraine demand for drones before we dive into SRR Tranche 2 contract award that we received this week. Since last Thursday, we have been slammed with inbound inquiries from many countries looking for thousands of drones not made by the Chinese to deliver to Ukraine. We have been working through all hours of the night, all weekends, every hour to respond to these proposals. And we hope to have something soon in the near future to report on this as it just started development last week. From various sources, We expect large and continued demand for drones in the teal category, basically that teal-style drone, in Ukraine. And for obvious reasons, they're not looking for Chinese drones. This is already creating a giant demand vacuum, not just in Ukraine but across all segments like police and first responders, because everything from every manufacturer that exists today or is being built is now being sold. So regardless if the drones are sold to Ukraine or sold to the police, we expect this massive demand spike to outstrip the potential supply from all non-Chinese alternatives for at least the next 12 months. We are working as aggressively as possible to scale up production because of this. Let's move on to Teal Drones SRR contract. Teal Drones was awarded a prototype contract for SRR which is Small Range Reconnaissance Tronch 2. This contract award was for $1.5 million. Teal was one of two who received the Tronch 2 contract. Let's get some details on the SRR program. I get a lot of questions about it. Tronch 1 had five contracts awarded for prototypes. Teal was one of those five contracts. This was two years ago. There was one tranche one production award for $100 million. There's been some confusion about that because it just came out in February, even though it was awarded two years ago, mostly because of COVID. Tranche two has two prototype contracts, and we will be competing for the tranche two production contract, very similar to what happened in tranche one. Each tranche has a production contract. So we are pretty happy about this. We're very proud to be one of two chosen. And this is pretty exciting news. This is going to be a long-term relationship with the Army. But with those statistics, I think we have at least a 50-50 chance for the production contract. But anyway, I'm looking forward to your questions, and I'm sure there will be a bunch. There's a lot going on in the world right now. And with that, I'm going to hand it over to Joseph Hernon.

Thanks, Jeff, and to everyone for joining the call today. I will now provide a review of our financial results for our fiscal third quarter, which ended on January 31st, 2022. Revenues during the quarter totaled almost $2 million, which were flat with the second quarter, the previous quarter, and down approximately 13% compared to the third quarter of fiscal 2021. During the 2021 period, we had just closed the Fat Shark acquisition, and we benefited from a new product launch by Fat Shark, which drove revenues at that time unusually high. However, year-to-date, our revenues for the nine months ended in fiscal 2022 increased 64% compared to the nine months ended January 31st, 2021, reflecting contributions from all of our acquired subsidiaries. I think our year-to-date revenue growth is a much better measure of how we're gaining traction across all of our subsidiaries as drone technology becomes more and more pervasive and more visible in our lives. During the quarter, much of our focus, as Jeff touched upon, was on building out the TEAL organization and preparing TEAL for the multitude of revenue opportunities that are emerging. During the quarter, we doubled the size of the TEAL facilities, both to increase its manufacturing output capabilities as well as to house its workforce which has doubled in size since we acquired Teal. While this strategy adversely impacted short-term revenues, we strongly believe that it better positions us to take advantage of much larger and more durable long-term sales opportunities. Operating expenses totaled $3.5 million in the third quarter, compared to $1.7 million in the third quarter of last year. This represents an effective doubling of our operating expenses and can be attributed to the closing of both the Skypersonic and Teal acquisitions, as well as the significant investments that were made in Teal since we acquired them back at the end of August. This past quarter, we also continued to build out our own internal sales and marketing team, which is, as Jeff touched upon, already starting to gain some impressive traction. Our net loss for the three and nine months ended in the fiscal quarter, January 31st, totaled $2.6 million and $6.9 million, respectively. As both Jeff and I have noted, we've been making a lot of capital investments in TEAL, both in its facilities and its people, to take advantage of what we see as significant commercial opportunities for the Golden Eagle. Despite this increased spending, we remain in a very strong financial position. We closed the quarter with almost 56 million in cash and marketable securities. As I just mentioned, our loss in the most recent quarter, excluding stock-based comp, which is a non-cash charge, was less than 2.5 million. So if you compare the 56 million in the bank to the 2.5 million in the most recent basic cash burns, you can very quickly see that we're in a great position to execute on our growth initiatives. We're really excited about finishing strong in 2022 and our outlook for fiscal 2023, which begins on May 1st. I will now turn the call over to the operator for questions.

Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ashok Kumar with Think Equity. Please go ahead.

Good afternoon. Thank you. Just some operational questions. In terms of the revenue contributions for the January quarter, could you please highlight the Fat Shark and Teal contribution? And then as it applies to gross margins and as you continue to see operational improvements, And supply chain improvements, you know, at what time frame do you see gross margins hit normalized levels and during what time frame? And the last operational question would be, you know, cash burn, about $4 million a quarter. Do you see that sustained at current levels? And then looking forward, Jeff, could you also highlight, you know, congratulations on the T2 production, not production, I think prototype contract, What is the timeline for the production award? And the same question would apply to the T1 program as well. Thank you.

Sure. There's a lot of questions in there, but let me do my best to try to write them down as you were saying them. So the last cue, just to be very frank, we had a lot less fat shark revenue in the quarter, mostly because they're at the end of one product cycle going into a new product cycle. And when that happens, it's very similar to the iPhone. No one likes to buy iPhones in August when the new iPhone is coming out in September. So we expect the revenue to come back up in that phase. For the teal contribution, it basically was not that significant because there's only four weeks available for them to be in that. And the What's interesting is we knew about ourselves being down-selected in, I think it was even November. So as we started looking at how to scale, and then I think it was reconfirmed in December. So we knew we were down-selected. We were glad that it never got out until we were able to release it this week. So we knew that we were going to have to start scaling. So we did a lot of extra work to the production line to – get the production capabilities capable of meeting all the things that we're seeing on the demand cycle. And we're pretty lucky that we did that because now with the Ukraine situation, we're going to be able to fulfill drones that almost no other companies can fulfill. And to go to the gross margins, the teal drone margins are about 40%. as they start to ramp and scale, we can get a couple of points here and there as we're getting some better pricing on our supply chain. But we are very happy where we think their margins will be. And the cash burn, I mean, we mostly have teal. Let me back up a little bit. Our burn before we acquired teal was about $1.4 million for the last 12 months. Most of the burn has been coming because we've got a fully loaded company with a product that's just about to launch but has not launched yet. So we will see once these orders start coming in and now they're producing drones, I don't think you'll see that burn level go on much longer. It'll come down. And as Joe mentioned, we have many, many quarters of money in the bank. I don't know if you want to add anything to that, Joseph.

Yeah, I would say that – Yeah, we don't have a full quarter of all the employees we've hired for TEAL and a full quarter of all the additional overhead expenses associated with, you know, doubling, you know, the facilities for TEAL. But the additional incremental cost of a full quarter is not going to be a lot. So this quarter largely reflects it. And it is a little bit of a step back because, you know, any time that you double manufacturing capacity and, you know, that comes with a commensurate increase in fixed overhead costs, and that makes the hurdle a little bit higher. But, you know, we gave it a lot of thought, and, you know, we see the opportunities. We see drones finally becoming, you know, mainstream. And, you know, it's amazing to watch on CNBC in the morning, and you'll hear a couple times – across the conversations, whether it's a CEO of a business or just, you know, the, you know, the panelists, Kramer or whoever it might be mentioning drones. So I think we made a very thoughtful additional increase in, you know, our spending for Teal. And, you know, that might have some short-term margin impact, but, Certainly, over the long term, it's going to increase our margin capability and our margin dollars just through increase.

All right. Well, just to clarify, you know, Jeff and Joe, the T2, is that going to be all or nothing? Or you had mentioned, you know, the odds of winning are 50-50, right? So I was wondering, could you just clarify, you know, the outcome there, please?

Yeah. So all we have to go by is the, our previous experience from tranche one. So one of, uh, there was five awards for tranche one prototypes and then the production award, um, fields didn't have production yet. Uh, so, uh, the production award went to another company, uh, for $100 million. And that was over two years ago. And it confused a lot of people because it didn't come out until February. because they never got the deal signed once COVID hit. But they did get a $100 million production contract. And to be frank, before that, no one thought that Tranche 1 was going to be that significant. And the SRR program is a pretty large program. So Tranche 2, we would expect, you know, the same type of numbers to be in the production award. So there's two companies that were put into Tranche 2. So we think we have a pretty good chance now that we have one of the, you know, premier world-class drone facilities being made right here in the U.S. And so we think we have a relatively great chance. And the timeframe on – with government entities, I'm not going to put a timeframe. On tranche one, they did their demonstration, and they got the award within six to eight weeks. We did tranche two September 14th. and didn't hear anything until November into December for Tranche 2 award. The good news is this environment has accelerated everybody's desire to get drones in everyone's hands, whether it's the program for SRs to put a drone in every rucksack for every soldier. So I think you'll see this accelerate, but I'll never put a time frame on it. on a government contract award, production contract, too.

And also, given your success, you know, with the domestic defense supply chain, I was wondering, would you be able to translate that into any of the NATO members as well, or what are the options there?

Yeah, so, you know, the team, our guys, Jeff Hitchcock and his team have been doing a great job. They were over in meeting with all these NATO countries right before the war broke out. And they actually extended their stay once the war did break out. There's a lot of activity with the NATO countries. Some of the countries that we're talking to right now that want to get drones to Ukraine are from those meetings. And we've been filling out proposals all weekend to get contracts signed for these folks to buy our drones. We're dealing with Ukraine and Almost every country in that region wants drones right away. We're dealing with the U.S., so it's a pretty high-pressure, go-fast-for-government, at least, situation for us to be selling these drones. We've literally just had meetings on how we can double, triple, and quadruple our production if it's possible. It always comes down to chipset, but But we have almost 4,000 drones worth of chips to get through right away while we ramp our scale to meet this, you know, this additional new demand.

Got it. Again, thank you very much and congratulations.

Thank you.

The next question comes from Priyam Rajan with Bank Equity. Please go ahead.

That's Priyanka Rajan from Think Equity. How is Skypersonic and NASA collaboration going? And is there a way to quantify its impact on REDCap's top line in the short to medium timeframe?

Yes, so the good news is they just started work on the Mars simulation. We are not only supplying them with aerial drones for the Mars simulation with remote piloting, but we're also doing the rovers for them, and we've supplied them a Skypersonic rover that has the remote piloting software from Skypersonic. We think that that capability and some of the other things that they're doing in Italy right now for inspections – is starting to progress. But the Skypersonic team, their drone systems are a little bit behind Teal in maturity, but ramping up nicely. And they also are well-suited for any inspections from the infrastructure bill. There's almost $280 billion earmarked for all of that. So they are – It won't be for 9 to 12 months, but they are well positioned to be able to capture some of the infrastructure spending for sewers, bridges, all the things that need to be inspected before they can be fixed.

Great. Thank you.

As a reminder, if you have a question, please press star, then 1 to be joined into the queue. Our next question comes from Kevin Deedy with HC Bing Wright. Please go ahead.

Hey, Jeff, Joe, thanks for having me on the call. Oh, thanks for joining us.

Joe, you kind of brushed over the sequential comparison from October. Could you just sort of dig in on that? It's sort of flattish. I guess sort of the – yeah, sorry, go ahead.

I'll give you another aspect of it.

Yeah, so let me start with this, Kevin. You know, Kiel could have been better, but, you know, We decided that it made more sense long-term to focus on expanding. You know, we basically doubled the amount of space we had for teal. So we took our – I don't want to say we took our eye off. We made a thoughtful decision that we wanted to ramp up our manufacturing capacity at the expense of short-term sales. As Jeff noted, you know, Fat Shock is unfortunately – you know, in a sense, I mean, of course, we're going to come out with better technology, but they're kind of caught on the, uh, you know, the, the downside of, uh, their most popular products life cycle. Um, Skypersonic is, you know, getting there, but really isn't generating a lot of revenue at this point. And, um, actually, uh, Rotor Riot had its best quarter, um, since we acquired the company and almost reached breakeven this quarter. So Roto Riot was a real surprise for us. You know, we don't look at that subsidiary as, you know, really capturing the market's attention, but it's a really good marketing and visibility platform for us. So that's kind of what happened this quarter compared to last quarter.

Okay. So I guess sort of the, maybe the 20,000 foot sort of strategic question is a balance between consumer focus and enterprise slash military. Jeff, could you just sort of take us, take a step back and sort of walk us through how you're addressing those markets? Absolutely. So we've actually, as we we've announced previously, we broke the, the company into those actually two different departments. One is our consumer division. The other is the commercial enterprise. And, and, you know, now defense is seems to be ramping up most dramatically for us. So on the consumer side, you have fat shark and you have road arrived. And as Joseph mentioned, we're arrived and doing great. They're growing. They've got some, some, some great things that they've been doing, but, Even them just at breakeven is a great asset for us because people launch all their products. They go to Rotor Riot to sponsor episodes to launch any new drone product. Our biggest competitor in the Chinese drone market is DJI, and they've sponsored many, many episodes on Rotor Riot to launch their product. So we think it's a very valuable company because of its marketing power, to the early adopters in the drone industry, which are typically working in the drone industry as commercial operators. Fat Shark is the leader in the goggles space for FPV. If anyone saw Drone Racing League recently on TV, all those pilots are using Fat Shark goggles. And as Joseph mentioned, we're right at the end of their last product cycle going into this brand-new product cycle, which you'll be hearing more about us, uh, soon, but some really exciting stuff coming. So that's kind of, those two companies have grouped together and, uh, on the, on the consumer side, on the commercial and enterprise side, we have Skype or Sonic in steel, but in Skype or Sonic, um, it's really focused on, uh, the inspection space. We've done some, some great preliminary trials in, uh, In Italy, we actually work with Leonardo, the defense contractor there. We're hoping to start seeing some, you know, contracts that actually contribute and will start making a difference in our queues very soon. But their big focus is the infrastructure bill that went through, and they have an expertise. It's not a sexy business or a sexy word, but we are really good at inspecting sewers, which are very difficult to inspect, and there's over 3 million miles of sewer that need to be fixed in the infrastructure bill. So that's kind of where the commercial side and the inspection side that Skypersonic is solving for us and solving for the entire industry. There's only one other, you know, real competitor in that space, and they actually use a Chinese drone. So even on people like General Motors, who we've worked with in the past, they do not want to use Chinese-made drones in their factories. So, again, Made in USA continues to be something that's very important, even if it's not military or DOD. And then, obviously, we have teal drones, which we are investing a lot. We have, you know, you can see it on our balance sheet, all the chipsets that we bought. We are basically now, we are poised to grow like crazy. The plant's ready to go. We've got a great plan in place. We're now thinking of how do we accelerate construction? Do we add a second, third shift? Do we simultaneously start building another production line right next to it because we have the room. We have our focus right now, which has been for quite some time. We're keeping our heads down and getting our manufacturing capability to be able to put out thousands of drones a month. We've got to get from where we are now to thousands of drones per month, and that's our focus, and everyone's doing a great job on it.

So... Regarding, you know, the short-range reconnaissance Tronch 2, granted you're in there, is Tronch 1 sealed, signed, and done?

Yes, actually. Tronch 1, it was over two years ago. Keel was awarded $3.1 million for the first prototype, which is basically going from no bird, no drone, to making a brand-new bird. So the... original prototype was higher. And again, there was five prototypes awarded. And that was basically to all the blue UAS folks. And then one tranche, one production contract was awarded. That's typically that there's only going to be one tranche to production award, but yeah, tranche one's gone signed, sealed and delivered and a competitor got that deal. Right. Okay.

Can you share a little insight on, I guess the military demand that you're seeing visa V international events of late.

Yeah. I mean, we, um, we have been getting inquiries from direct phone calls, uh, into our biz dev team. We, uh, that resulted from our almost three week tour in the NATO countries that we visited. Um, we've been, uh, I've had people find my number on LinkedIn to call me from different departments of state, ex-ambassadors. We've had over almost 15 inbound inquiries from not all different countries, three or four sometimes from the same country, but the demand is just kind of overwhelming that everyone's realizing that no one wants to use Chinese drones to help over in Ukraine. I think what happened was at first people thought they could use these consumer drones from the Chinese manufacturer, and then they found out that your position could be known because you're trying to let it be known. So everyone just stopped using the Chinese consumer drones. So we've heard demand could be thousands and thousands of drones that need to be built immediately. And is that to the spec that you've met sort of through your –

Tranche one development?

Yeah, so the Golden Eagle one is the it's actually the bird that we demonstrated on September 14th for Tranche two, but it's accepted by the DOD. We are yeah, we were accepted in Blue UAS one and we were accepted as it didn't make news, but we're also have the Blue UAS 2.0 Blue UAS credentials also. So a lot of the NATO countries accept our DOD approval to not have to run their own process to go through their approval and they'll just buy our drones.

Okay, so the big question is just sort of timing and revenue rec. Can you speak to that a little bit?

I think, I mean, we don't have anything to announce yet. As soon as we get some signed POs, you know, we're not giving these birds away. We're selling them. And As soon as we have POs, almost everyone of the ones that we're talking about are all material contracts if we can get them signed. So you'll probably be hearing about that soon. The DOD stuff is steady throughout the year, so it's not going to be a huge spike for teal. But, you know, I pretty much think every drone that we can make will be sold over the next 12 months and going forward. The demand is there. Thanks, Jeff. Appreciate the insight. Thanks, Kevin. Thanks for joining the call.

The next question comes from Scott Michael, a private investor. Please go ahead.

Thank you for taking my call. A quick question just for clarity purposes. I'm trying to understand... how the tranche system works. I know that we've been accepted for tranche two. That's for development. Are we marketing for a contract within tranche two or does that lead us to the third tranche? And if so, is there a demonstration of a developed product and when would that be?

Yes. So we, we were, um, you have to, you know, we, we, you have to go and demonstrate your drone for crunch one. And that was two years ago, plus actually, and five prototype deals were awarded and one production deal. So that's kind of, that's how it is through each front. There's only going to be three tranches. There's prototype and production awards. Tranche two, there was almost 36 people at in September 14th, last September. And two people were awarded prototype contracts after demonstrating, their drone, their small reconnaissance drone. So it's us and one other player. Now we're competing for the Tranche 2 production contract, which just like Tranche 1's contract was a $100 million contract, $20 million in the first year. And that's already awarded. Tranche 2, we are looking to compete in now that we have one manufacturing facility that we think is one of the best in the country. So we're competing for Tronch 2 production right now. In the meantime, there's all sorts of milestones for this new prototype to get the drone to do all the things that the SRR contract wants. New features, different things that they want the drone to be capable of. It actually has more capability than than the original prototypes from tranche one and tranche two. So as we hit these milestones throughout the year, that gets us to the tranche three award, which is kind of probably the biggest award of the three tranches, where you are now the drone for every rucksack in the Army.

Is there an amount? Is there an amount for the Tronch 2 production that we are aware of, and is there a timeframe for the Tronch 3 presentation?

They do not have the Tronch 3 presentation announced yet. Tronch 2, we do not know the numbers. We actually didn't even know what the number for Tronch 1 is. We can only go by some of the rumors that the entire program is about a $500 million program. program. We don't know if that number is accurate. They don't let us have those details. But when Tronch 1 came out at $100 million, we were all, even though we didn't win it, everybody in the industry was pleased knowing that it's actually a real contract. It has some real dollars behind it. We expect, but we have no idea, that Tronch 2 production contract will be at least $100 million, if not larger. But we expect it to be at least $100 million. That's just us guessing from what we saw happen in tranche one.

Thank you very much.

I appreciate it. Thank you. Thanks for joining.

The next question is a follow-up from Ashok Kumar. Please go ahead.

Thank you. Just a follow-up question, Jeff and Joe. To clarify, on the production side, it indicated you have current capacity of 2,000 a month and with the potential to double that capacity at the same facility. And a related question, it indicated you have a good solid source for chips. To clarify, these off-the-shelf chips, are they a bespoke product? And what functionality does this chip provide?

Yes. So on the chip set right now, we are we have just a little bit under 4,000 chipsets to produce almost 4,000 Golden Eagles. So we are, you know, that's pretty good stock for us right now. But if we start to get some of these contracts, then we're going to have to adjust. And we're waiting for some of the things that are happening over the next week or two to figure out if we have to get another order in for chipsets and really start to go at bigger numbers.

Are these Catalan products, are they –

There's 550 items that go into the Golden Eagle. I don't know exactly how many ships that go into it. Our main ship comes from Qualcomm. The other item that we really... I wouldn't say we have concern. We just want to make sure that we get ahead of it is the Flora camera. I mean, one of the other reasons that we are getting so much inquiries on the Golden Eagle is its capability to do thermal. It's not just a consumer drone. So we can actually do thermal, which everyone, I mean, police and first responders love that, but specifically over in Ukraine, they would love to have thousands of teal Golden Eagles with thermal right now. It would really help what they're doing.

Are these all fabbed at TSMC, you know, through Qualcomm?

I don't have the exact. You know, if we had Dr. Evans on with us, he could give you every detail of that or George Matus. I don't want to misspeak and quote the wrong piece of equipment.

And one last question is, in terms of timeline for this, T2, from start of the program to being two of the finalists, Was that a two-year process, or I just want to clarify the timeline for that.

Well, the timeframe, like I said, they don't put on a website, here's tranche one, here's tranche two, here's tranche three. They have you go through the process of each tranche and then tell you when the next tranche begins is what we've seen. There was, I mean, There was significant delay. The award for the $100 million production contract didn't get awarded until February of this year, and it was awarded. It was well known that they received that two years ago. That was mostly COVID-related, and now we don't see the delays from COVID anymore, and crunch two demonstration was September 14th. So we – We expect things to start to accelerate just also because COVID is not getting in the middle of this process anymore. And the fact of the existing environment seems to be accelerating. Everyone's budget that we've talked to has gone up for groans. So everyone's accelerating their requests for groans. So we're just trying to scale as quickly as we can.

Got it. Again, thank you very much and all the best. And then on your cloud program, right, so that continues in parallel, right? The web program? Yeah, the cloud software developer. Yes. Okay. Thank you. Absolutely. Yep.

This concludes the question and answer session of the call. I will now return the call to Mr. Jeff Thompson for closing remarks.

thanks folks thanks for hanging out on this call i'm glad we got a lot of questions there's a lot of confusion out there between the different tranches and how it works uh we're uh really working hard right now to just to scale our production uh we believe that not just us but every drone that's made in the us right now is going to be sold uh so we are just ramping ramping ramping and focusing on production So we thank you for your support, and you stay tuned. You're sure to be hearing from us soon. Thanks.

Thank you, everyone, for taking the time today to join the call and for your ongoing support. You may now disconnect.