Red Cat Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Red Cat Holdings Fiscal First Quarter 2024 Financial Results and Corporate Update Conference Call. At this time, all participants are in 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 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 December 18, 2023. I would now like to turn the call over to Joey Delahousie, Vice President of Core IR, the company's investor relations firm. Please go ahead, sir.

Thank you, Sarah. Good afternoon, everyone. And thank you for joining us for the Red Cat Holdings Fiscal First Quarter 2024 Financial Results and Business Update Conference Call. Joining us today from Red Cat 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 REDCap'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 REDCap'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, September 19th, 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?

Thanks, Joey. Thank you. Welcome, everyone, to our fiscal year 2024 first quarter earnings conference call. I'll start by summarizing our recent performance and achievements, and then I will provide information related to our outlook for fiscal year 2024, after which Joseph will review our financial results, and then we will take your questions. I am pleased to report that the Teal 2 drone is getting a warm welcome as the most unique and capable nighttime drone in the Group 1 class. We announced the Teal 2 at the Army Aviation Association of America Conference on April 26th, a few days before our fiscal year end. The Teal drone's revenue for fiscal Q1 was $1.75 million. We cannot make a year-over-year comparison because the TL2 did not exist. But if you were a startup and launched a brand-new product and did almost $2 million in revenue in your first quarter, it would be considered a home run, specifically if there was follow-through, but more on that in our guidance update. And Joey and Joseph, can you make sure that your lines are muted? We're hearing some background noise. So we've got, we've met with a lot of investors recently, and a lot of them are new to the story. So I'm going to kind of back up and discuss some of the regulatory tailwinds that helped create the United States drone markets current status. So December, 2020 DJI, the largest drone manufacturer on the planet was put on the U S government's entity list in December, 2021, DJI was also put on the economic blacklist. Fast forward to July 2023, the American Securities Trone Act, ASDA, passed the Senate unanimously, and we expect it to be law in the next few months. August 2023, REDCATS Teal 2 receives remote ID certification from the FAA. This was a huge achievement The document's over 300 pages. Very difficult to get this certification from the FAA. Only a few of us have done it so far. It's so difficult that most companies could not pull it off, and they actually delayed the status and the requirement for six months. So what do all these regulatory tailwinds mean? Well, it means that the largest drone manufacturer in the world, whose number one market was the United States, can no longer, by law, be bought by anyone that receives federal dollars. It's not just the Department of Defense. It's local groups. It's fire departments. It's anyone that receives federal dollars. This has created a very large market and a very large vacuum for only us and one other manufacturer in the U.S. that can build a scale to fill. So this is a very unique opportunity that doesn't always happen. Now I'll move on into our revenue and investment tailwinds. I'm going to discuss the current organic revenue growth or immediate revenue. I'm going to then discuss the DOD newly announced and funded replicator initiative. We look at that as midterm revenue in the next three to six months. And then the short-range reconnaissance, SRR program of record, which is a 10-year program of record. And most people on this call are waiting for this to happen, but it is a very significant program. So let's start with our organic revenue and our backlog. Today, we reported for Q1 1.75 million in revenue. Our guidance for Q2 is 3 million, 71% sequential organic growth. Our guidance for Q3 is 5 million, 67% sequential growth on top of 71% sequential growth. This guidance is based on signed purchase orders, and we expect more in the next 11 days. 2.3 revenue of $5 million puts us at a $20 million run rate after selling the Teal 2 for just under five months. This is an amazing growth story, and we'd like to thank the entire Teal team for making it happen. So now let's move on to midterm revenue opportunities, which we believe are in the next three to six months. the Replicator Initiative. The Pentagon has unveiled a radical new strategy focused on fielding thousands of cheap, smart, and autonomous war drones across multiple domains within 18 to 24 months to counter China's military. According to the Wall Street Journal, Deputy Secretary of Defense Kathleen Hicks said the Department of Defense plans to develop AI systems intended to be small, smart, and cheap to counter threats from China and other countries. Overall, we're going to be delivering in the thousands, it said during Tuesday's interview. Last week, she announced our replicator initiative, the latest effort to overcome the production valley of death, beginning with the accelerating, the scaling of all domain attributable autonomous systems. So what does this mean? Tens of thousands of disposable drones need to be delivered to the warfighter in 18 months, which means orders most likely need to be delivered to these vendors in the next three to six months. We believe we are very well positioned or already in contact with this program. Now let's move on to long-term revenue opportunities. SRR, or short-range reconnaissance program of record. Just to review, or for new investors that are on the call, the SRR program of record started over three years ago and was originally set to have three tranches, tranche one, two, and three. Tranche one would have a prototype contract and a production contract. The same was supposed to happen to tranche two and then tranche three. We were awarded a tranche one prototype contract and were not awarded the production contract. That production contract a couple years ago was for $100 million for 1,083 drones. Tranche two was supposed to be awarded months ago, but the U.S. Army notified us last December and said they're putting tranche three into tranche two to accelerate to get the final product into the warfighters' hands. This was due mostly because of the Ukraine war and everyone's understanding how important small drones are. And actually, that's what also started the replicator initiative. So tranche two and three, which is now combined, which the next down selection, I believe, is at the end of December or early January if they announce the next down selection on time. We don't know what the actual contract amount is, But the $100 million was for 1,083 drones. The remaining amount on this contract is for 12,000 drones. I'm not doing linear math. I'm not saying that this is going to be a $1.2 billion award, but I'm saying it's going to be significant. And now with the constant need for thousands of drones, we don't know if this will be sized up because of the need for small drones. I will now hand the call over to Joseph. I look forward to your questions.