Red Cat Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Redcat Holdings Fiscal 2023 Year-End 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 October 27, 2023. I now would like to turn the conference over to Joey De La Jose, Vice President of CoreIR, the company's investor relations firm. Please go ahead, sir.

Thank you, Keith. Good afternoon, everyone, and thank you for joining us for the REDCAT Holdings Fiscal 2023 Year-End Financial Results and Business Update Conference Call. Joining us today from REDCAT Holdings are Jeff Thompson, Chief Executive Officer, 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. 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 in 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, July 27, 2023. 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?

Thank you, Joey. Good afternoon, and thank you all for joining our fiscal 2023 year-end call. and webcast. Also joining me today is Joseph Hernon, our chief financial officer. First, some housekeeping. I'm sorry to report that Mary Beth Long has resigned as a board member. She will be available to the company in an advisory capacity, but she is working on foreign affairs that are very important to the country. We wish her well. It's been an honor to have her on our board even for this short period of time. I would like to highlight the transformation our company started in the last year that will set us up for success in 2024. First, I would like to remind everyone that this is the first year that we separated our enterprise and our consumer segments. We did this as part of a strategic shift to focus on building out our capabilities at Teal Drones. The results are a brand-new Teal 2 drone and a larger engineering team that is no longer building drones and creating the new prototype for the SRR, Short Range Reconnaissance, program of record. I'm paraphrasing from a YouTube video called The Future of War. If you're not winning these multibillion-dollar programs of record, you're just another company building a cog in the machine and winning scraps and small buys, a prototype shop. The key is to get a program of record. So let's talk about the SRR program of record. We still do not know the size of the award for the now combined tranche two and three. Here's the information we do have. Tranche one production award was for $100 million for approximately 1,000 drones. Tranche two and three, is for approximately 12,000 drones and has been extended to almost 10 years. There is usually a three-year replacement cycle in programs of this size. The Ukraine has demonstrated this importance of Group 1 drones like the SRR program, and we will believe this will be a significant program of record. We are well positioned as one of the three competitors in the Army's short-range reconnaissance program, SRR. There has been a delay in the award cycle as the program has been made larger through the combination of Tranche 2 and Tranche 3, which I just discussed. We recently announced a new SRR contract of $1.2 million as the additional award for the extra work. We are confident that our offering will be put us in a favorable position for this program of record. We also believe that the market is much larger than just SRR, which is for the Army. We are being told that the Air Force, Navy, and Marines are likely to want to have similar capabilities. Back to the TL2, the drone that we will be selling for the next two years. Timing on our approval by the GSA, And the blue UAS, I'm sorry to stop for one second here, but someone needs to mute. There's a lot of background noise. Thank you. Timing on our approval by the GSA and the blue UAS could not have been better. When you consider government sales, it is important to remember that the government fiscal year ends on September 30th. And many budgets are use it or lose it. They hate giving the money back. For that reason, we expect seasonality in our sales cycle with our biggest wins coming in August and September. For instance, the Border Patrol order for over 1 million we shipped in January for the bake-off was finalized on September 29th, 2022. We believe we are well positioned to compete for a large portion of the business available between now and the end of September, what we call sweeps. We anticipate this will create backlog that will stabilize our revenue for a large portion of fiscal year 2024. But orders are only as good as the capacity to fulfill them. Our 10K shows our sizable investment in both production capacity and inventory. And now this machine is building drones and revenue. We have seen drone competitors in the U.S. that have not been able to ship orders they've received. Because of this, one of the first questions we get when we are dealing with the Ukraine is how many can you make and when can you ship them? On that note, we recently completed our shipment of 200 FPV drones to the Ukraine. And I'm happy to say we no longer have 3,700 chipsets and that our production line is constantly producing TL2s when we are shipping them out the door. As part of the strategic focus on programs of record, we decided to sell our consumer segment. We approved this initial agreement with Unusual Machines last November, and we will continue to work toward closing the sale. In the short term, this will raise REDCAT $3 to $5 million of non-diluted capital. We believe our shareholders should continue to indirectly benefit from the sale of the consumer business. It's healthy, it's growing, and the team is great. And we believe it will be a successful IPO onto New York Stock Exchange in early September. Fiscal year 2023 was a year of change and investment. 2024 will be a year of TL2 production, sales, and revenue, and possibly the first and largest program of record in the Group 1 drone category. And with that, I will hand it off to Joseph Hernon.