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spk_0: ladies and gentlemen thank you for standing by good morning and welcome to the red cat holdings fiscal twenty twenty three third quarter financial results and corporate at the conference call at this time all participants are in a listen only mild should you need assistance please ignore conference bachelor by pressing the starkey followed by zero after today's press and asian there will be an opportunity to ask questions to ask a question you may press star than one on your telephone keep had to withdraw your question please press star than two participants of this collar advise that the audio of this conference call it 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 seventh twenty twenty three i would not like to turn the call over to scott gordon president of core i are the company's investor relations firm please go ahead
spk_1: thank you can lead to more you want
spk_0: thank you for joining us on the renter holdings fiscal two thousand twenty three per quarter financial results and corporate of the conference call joining us today from that shareholdings or geoff thompson chief executive officer just atlantic chief financial officer during this call management will be making statements colluding statements that address red cat expectations for future performance or operation was off for your statements and risks and other factors that may cause actual results to differ materially from the stuff
spk_2: for more information about these refs please refer to the risk factors described and red cats most recently valkyrie other ports on for turn case can queue and and read cats press release that accompanies first call particularly the cautionary pill
spk_0: the content of was call contains time sensitive information that is accurate only as of today march seven twenty twenty three except as required by law they're trapped 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 call over the jeff japan in chief executive officer just please go ahead
spk_3: brace thank you
spk_2: welcome to our fiscal year two thousand twenty three three quarter earnings conference call i'm going to keep my prepared remarks brief is i was just told we have quite a few email questions
spk_3: the we're looking at them housekeeping either way
spk_2: and i'll start with the status of the sale of the consumer division unusual machines or is expected to have it's ip oh man this month or early three four
spk_0: ah in that was because the closing of the steel
spk_2: in the proxies now has the voting proxy now has one don't share those results on the road
spk_4: or soon
spk_2: as a reminder the sale of the consumer division will be non deluded a dead animal raise cash for red cat and allow us to focus on our core customers the military and first responders
spk_0: the salt lake city factory is complete
spk_3: in ready to go
spk_0: we now have stated the are grown zachary
spk_2: we have shifted to make thousands of rounds
spk_3: and we only producing the new tool to drown with the new camera payload
spk_2: the t of he has done an incredible job i'm playing the suggest twelve months we now have the capacity to produce thousands of rounds per month
spk_0: a switch gears and and talk about trying to or short range reconnaissance as our our
spk_5: program of record
spk_2: as i previously mentioned tranched three has been pushed into trying to
spk_3: and we will receive more funds from the army to include these new features changing french to
spk_2: you know know the size of the award yet
spk_0: what should happen in the next couple of months
spk_3: next up is the border patrol
spk_2: the mirror first shipment to the border patrol for fifty four systems in mid january this is only a few weeks after production started on new jobs you we believe there's a significant opportunity for disorders this calendar year and a very encouraged by the see that from the border patrol
spk_3: i'll just hypersonic where i am now pepper sonic or indoor drawn to make him has to significant opportunities coming up
spk_2: one is a navy ciber we call it or a small business and they should research project for contact aerial inspection systems and for elevated and small spaces this is a navy super as i just mentioned
spk_0: the program matches the guy potter perfectly innocent actually semitic tomorrow march eighth
spk_2: the were often get into another program to step aside the second is the drone infrastructure inspection grant fact this is a bipartisan grant for one hundred million dollars to fund is expected to pass the senate soon
spk_6: it is already passed the house
spk_2: we also believe we are well positioned to be part of this grant though i'm doing this call from reno italy this is where status on his office is and we're college complicated and the leonardo campus
spk_0: leonardo was a large italian defense contractor
spk_3: it's real last week we were invited to the diana nato biagi meeting
spk_7: a one of the goals of this organization
spk_2: is to introduce small companies to governments that need defense products we had great introduction to the only one or two presenters
spk_3: the previous two weeks myself in the business it all the team have been to a least five different countries we believe it's been a very successful trip and a teal to drone is getting a great response from operators and more fighters
spk_2: he also received initial worse in we believe we are well positioned
spk_0: to be emotionally seoul south contract sole source contract for hundreds of drones red cat also became certified in the european country to be included in their defense catalog breaking the law to be of sell to these european countries
spk_2: finally we have identified opportunities to get a new tells you to ukrainian warfighters maryland dress that a little bit more detail in the queue and a somebody for i hear the call over to joseph we have completed a new steve the art factory in salt lake city wood chips the ties to build thousands of drones we are the best in class round is getting great response from the market mostly military and recently as and yesterday
spk_6: first responders
spk_2: we'll have more to come on the seem did all the next couple of weeks
spk_0: we have our outdoor drones in our into drones for a military customers and we that the next six months to be the most exciting six months in company history with material sales partnerships
spk_6: in new products
spk_0: oh that on one hand the call the joseph support your questions
spk_3: thank you jeff and to everyone for joining the call today
spk_0: i will now provide a review of our financial results through our fiscal quarter which ended on january thirty first twenty twenty three
spk_5: revenues exceeded three million for the second of three quarters in fiscal twenty twenty three and have increased more than fifty percent on a year to the year to day basis
spk_2: compared to the first recorded a fiscal twenty twenty two
spk_7: gross margin remain challenge as we continue to refine in scale manufacturing and or expanded facility
spk_8: in salt lake city
spk_2: we expect gross margins to improve going forward as product shipments increase in we improve the efficiency of i mean you factoring in assembly processes
spk_7: operating expenses decreased almost twenty percent in the third quarter compared to the second quarter the prior quarter as the level of nonrecurring costs associated with the expansion of the tail manufacturing facility
spk_8: and it's head count have subsided
spk_3: we set operating costs to stabilize but about for the fiscal year in through the end of twenty twenty three
spk_5: net loss for the fiscal third quarter voted five point seven million for ten cents per share
spk_2: representing and nine percent decrease in the prior quarter
spk_3: in more than a doubling compared to the third fiscal quarter of the prior year that's significant increase is directly related to the
spk_5: doubling in size and the build out of the manufacturing facility it feel as well as i'm more than tripling of it's head count
spk_3: we ended the third fiscal quarter with approximately twenty five million in cash and investments
spk_5: in addition we have invested seven million dollars in raw materials including chips
spk_7: drones and production and finished product but feel
spk_5: we expect it's an investment newman tory
spk_0: q yield are in support strong sales over the balance of the year
spk_3: at this point the tail manufacturing facility expansion has been completed
spk_0: a sales forces and built in trained
spk_5: our sailed pipeline is building and expanding
spk_3: and we're looking forward to new and repeat orders over the ballot the calendar twenty twenty three
spk_2: i will now turned the call over to the operator for questions
spk_0: ladies and gentlemen if you wish to ask a question on today call you want interpret star that the number on your telethon if your question has answered any wish to withdraw your requests you may do so by pressing to if you're using a speaker phone please take off your handset before entering your request and speaking on the car one moment please for the first question the first question is how scott michael a private investor please go ahead i think it's taking my clock i can you clarify the number of trips that we have in reserve
spk_2: yeah well on the number hasn't changed since the we we put in the initial water at approximately thirty seven hundred chipsets
spk_0: over it almost two years ago now or which weird you're not going to give you one hundred percent the you don't have some the time don't don't don't make it me and of scrap but ducks we we dated those could produce between thirty two hundred and thirty five hundred rounds
spk_2: okay thank you do we have a source for chips should we get any large orders or that exceeds this production of capability get all mean everyone says is watching the news understands the the supply chain is better
spk_0: not perfectly fine way shape or form
spk_2: by two people that put in large orders know it didn't get certain shipments at certain times he was your for five thousand rounds you get x amount you get thousand rounds on day act a thousand more drones then but don't the the key item for us we're not as concerned about getting supply in right now is gets more about having the factory to be able to a in of get it fully running it high capacities for the first shift in the second shift if we get take orders and then continued we had an ally next door we have the one
spk_9: the do so
spk_2: so that's all there now i always invested all all of that are now the engineers up sitting on top of the factory workers party people and for the inventory their actually on offices are we have a fly mary now so all the stuff he was kind of a difficult to do because we're in the middle of construction basic like living in a house why you're doing a reconstruction is now over and so we will have the capability to me
spk_4: any large orders and we receive
spk_2: okay thank you have to more questions you worm you reference that tranche two and three or been combined and in your state he said that we should have news in the sex and the next couple of months without returning to the size or is that regarding the tries to award because it was an article that was posted the other day suggesting that the army or that they will not be a soldier testing until the fall of this year if i read it correctly made bread and incorrectly to me that would suggest trying to award would be into the beginning of next year or the end of this year is an accurate yeah so i actually saw the same article we we get we as a heads up on that basically what they talked about
spk_0: was it they start they did the first initial alpha test
spk_3: which was i think january ninth
spk_2: where our each company flew for the day
spk_0: when i can report is that are or drones flu is closer flawlessly is you could get any alpha product are very proud of the yeah the seal team engineering team getting the flu that day but yeah we had a great demo day and anyone in the drone and she knows does not
spk_7: usually the case
spk_3: flights what i was referring to is
spk_0: there was originally three charges and every time she has a prototype contract which we want to for her contract in france one and typically of production contract we did not win the production contract for crunch one almost three years ago
spk_3: and so tried to had a prototype contract and there's three of us that the one that and still cares and then trash three which the which was in the star after they were found to was pushed into their so the money the typically receive the crunched three which would have done in about six to nine months to me
spk_0: yeah
spk_2: ah everyone's gonna get for twenty two so that that award will probably happen next couple of months
spk_0: excellent and is a possibility that that award will be split up among youth the three which i believe advantage and that skype or sonic is there that possibility of you can be awarded to simply one entity
spk_2: we we believe it's gonna be one entity or and it's actually it's search i don't want to you but it's not get sonic it's cardio
spk_3: the answer to my we had a press yes yeah that's okay so scared skibo i don't know if you saw that they recently got
spk_10: we did a financing for hundred thirty million or two to three point seven billion valuation
spk_7: and up
spk_0: someone's got an alarm going off and ah
spk_3: feel
spk_0: that really makes us look inexpensive right here are considering i think our position in the industry
spk_3: and i add butter we believe well positioned for trash you and i'll be solely focused on the military that's just oh one of the customers if they deal with i think the most a doing consumers and
spk_6: some first responder stuff now but our sole purpose is to mission warfighter has the tools for reconnaissance and to help
spk_2: weird missile guidance and things of that nature
spk_11: here's something i don't think the other companies of opposition to do or even wanna do
spk_0: excellent one final question i appreciate your time
spk_2: the for potential nato contracts have we been signed off on the o d so that we're not going to have any trip up in terms of
spk_0: nato interest or nato country interest in our product to do we have to wait for the deal to sign off on any any sales know we we have all the proper paperwork for like the original drones are we one many countries when he would i saw the hope so southern waters them get through all of the i tar regulations and other things are offered a away so nothing will hold a southern that that aspect
spk_12: actually pay tv peter
spk_0: thank you again again if you have a question please press star than one
spk_2: this concludes the question and answer session from car participants i will now return a call to scott gordon a core i are to read free submitted questions for management scott
spk_0: sexuality
spk_3: ah jeffrey received a few questions from investors recently and thought this would be a good form for you to address them ah so i just kind of as vision sequence do you have an update on the border patrol contract following the initial ship in a fifty four grounds to them do expect more sales to the border patrol
spk_2: yeah well arms yeah we did receive the first order which we we shipped in your in january
spk_5: you know where we're getting some great feedback from then on you know and work look we've learned a lot about the program
spk_0: and we just start with death is that term asked to get his know some folks do these border agents are super years as they fly i think for in the air force
spk_2: the five tens of thousands of hours every month
spk_0: these as a heroes see out there sometimes with them by themselves
spk_2: line is ground so i was very happy to give them products or can help them are specifically thermal cameras they can make sure that no one sneaks up on them of for to address the eat the market on border patrol from from what we've gathered summer movies as they can typically have about four hundred rounds the center in service and the they need to have to or two hundred or so other drones to make sure this four hundred all seen service i think the total total russell market for the the for could possibly be are close to six hundred rounds
spk_1: i was saying that we're getting six hundred drone order you know
spk_3: next couple of months but ah
spk_2: we believe that that is up up for it that's an option to replace easels also drones even fine it's own
spk_0: switching over to be crane and other nato countries do you have anything to share from your recent trip to europe i mean odyssey shared some or any success with ukraine or other nato countries have he touched on that a little bit better made you can empathize
spk_13: yeah his only back off a little bit so most of the cells that are happening with other kinds a defense companies are already have programs of lack of them in a place for years
spk_0: you know one of them would be like aerovironment with a switchblade and they've done some fms sales and the pool mine things of that nature of and long term programs of record
spk_6: we are with with birds it frankly don't have a payload as good as or payload
spk_3: the we don't have a programmer record in place if we did we partied would have already sold hundreds of millions of dollars was the grounds for the ukraine
spk_0: invasion
spk_2: so since we don't have that yet to the program of record of crunch to
spk_0: but they have to be people have to be creative to get drones into the ukrainian army so some of those stats
spk_2: we we found out we've had to get to the way people that want to use drones is anarchy read them from so bossy journal have it
spk_0: great article on was the operation the farm i want they want be very high end storm will drown
spk_2: decades have great detection ones are using right now are horrible
spk_3: which would allow them to fly missions that night which ninety percent of all missions are done on one plus ninety percent loss or done at night so we could give them the tools that they actually want the could enable them to fly all night was just have enough i i r e o cameron or daytime camera is also magnificent we went to montreal mega pixel forty six the for meditech so our software updates it's just need it
spk_0: great improvement of the daytime operation is it was incredible also
spk_3: but anyway we first you have to get people to walk the drones to tell people that they need the drones as is in
spk_1: in the capital and then they have to get the information over to d c and then once we have that information in d c than you can take you to the people who can actually write checks from this existing
spk_14: as a the still going over recently even the new four hundred billion two billion
spk_1: we can be part of this and we think we're really close and you know they're going to need thousand the drones so
spk_2: we now know how it works nice and
spk_6: the over here you're working on it and we ought to have some results very soon
spk_2: switching gears show this question address trying to gauge will read cat need to do with financing to me
spk_0: three contracts
spk_2: have shown up and so
spk_7: just some things to remind people a plant were actually part of a receiver going on the size of the army corps three
spk_2: but that's just that's just pure hundred percent margin revenue right there
spk_3: or to do something that we are going to do anyway
spk_2: or and in the sale or the consumer division
spk_0: is gonna produce cash
spk_2: or and will also give red cat shareholders significant ownership of the i feel and your that a great team over there it's unusual machine sir energy see what little i've actually grown very rapidly saturates to meeting goggle company out there so we think they're gonna was very successful ip and a nice i think they will and i'll be happy to be part of it and
spk_0: that's that's only going to help read guess so we're we're pretty excited you
spk_2: had the my pr with that i gotta help us we can focus on the military and first responders in i think the two divisions are going to get their focus it they need may require so they can thrive dolph between all thing is that new new additional capital legal without their capital ah with all your data of we've made in chipsets wow and building factory we are now just wanted it to focus on sales fails sales are and does sales i think will start from producing quite the revenue and or that's gonna bring the one way down even though we have years of our runway now as we skipped first couple significant orders that runways
spk_7: gonna go out for me i'm five ten years so there's no need of financing right now
spk_0: on the last question was addressed in the bomb in like you in a show that concludes our question it's all signals so thank you operator of turn to call back over to chapter close your mouth oh great faith a story every for joining
spk_2: we've we've been doing a lot a lot of hard work i want to thank all the employees ambulance been doing a great job is that team i now know if they go through stat in fields for hours and with like artillery going off
spk_6: flying drones and freezing our butts off so i wanna of thank everybody for all the hard work and encourage them to restate my summary in my remarks in of because we we now have a complete his you scale the artefact in salt lake city we have tons of chips to build dams the drones are drone is the dancing class now
spk_0: getting a greek spots are we have will have some new news and first responders coming over the next few weeks
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