Red Cat Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the REDCAT Holdings Fiscal 2025 First Quarter 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 and then one on your telephone keypad. To withdraw your question, please press star then 2. 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 December 22, 2024. Joining us today from Red Cat Holdings are Jeff Thompson, Chief Executive Officer, and Leah Lunger, Chief Financial Officer. During this call, management will make 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 results on Form 10-K and in REDCAT's press release that accompanies this call. particularly the cautionary statements in it. The contents of this call contain time-sensitive information that is accurate only as of today, September 23rd, 2024. 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.

Thank you, and welcome, everyone. to our first quarter fiscal year 2025 earnings conference call. We'll begin with some housekeeping items, followed by the exciting launch of our new product line, the Family of Systems. Leah will then provide a detailed review of our financial results. Afterward, I'll share our expectations and goals for the calendar year 2025. Finally, Leah and I will be available to answer any questions you may have. So let's start with housekeeping. I am pleased to announce that following requests from our lawyers, auditors, analysts, board members, and many shareholders, we will be switching to a calendar year starting January 2025. Our guidance will also align with calendar year for 2025. Leah will provide more details on the mechanics of this transition. I'm pleased to report another record quarter for Q1 with approximately $2.8 million in revenue, a 59% year-over-year increase. However, the real highlight of Q1 is that we delivered the final prototypes to the Army for IoT and E. IoT and E stands for initial operational tests and evaluation. This process is used primarily in the military and defense sectors to assess whether a system or product is operationally effective and suitable for its intended use before it goes into full-rate production. We successfully delivered approximately 40 systems to the Army and built TEAL-3 units for demos and partner integrations. Within weeks, the TL3 proved to be an immediate success. Our management, engineering, and manufacturing teams quickly developed a plan to scale production for 2025. Over the past four months, our engineering and manufacturing teams have been retooling and preparing for high volume production. We are also implementing quality management systems to meet scaling requirements and achieve AS9100 certification in 2025. A common question from investors is whether we can meet the demand of an SRR contract or other large-scale contracts. The answer now is a resounding yes. The pause in manufacturing in Teal 2 and building our Army prototypes impacted TL2 sales in two ways. First, we couldn't produce and sell TL2 units while we're tooling our factory. And second, once customers learned about the TL3, some chose to wait for its release. This is similar to how no one buys a new Apple iPhone in August. We believe these strategies have been successful as evidenced by our record backlog of 13 million. More details on backlog during our guidance update. In Q1, we launched the REDCAT family of systems, expanding from one product to three. This diversification enhances our product range and revenue streams, which we believe reduces investment risk. The past five months have been incredibly busy as we scaled engineering, scaled manufacturing, expanded our product offerings. We are no longer a one-product company. Let's move on to products in REDCAT's family of systems. REDCAT's family of ISR and precision strike drones will provide the industry with an alternative to conventional ISR strike systems on the market that are high-cost and non-retrievable. REDCAT's sensor-to-shooter S2S system for identifying targets with optional precision strike capabilities is differentiated from other systems with its low-cost portable drones. The objective of this new family of systems is to meet the increasingly urgent need of the Pentagon's initiatives for swarms of low-cost, attributable ISR and surgical strike drones deployable in air, land, and sea environments. REDCAT's new family of low-cost and portable unmanned ISR and precision lethal strike systems include three aircraft with complementary capabilities in a common ground control system, such as the Android Tactical Assault Kit, otherwise known as ATAC, for multi-vehicle command and control. These three systems are the Edge 130 Blue, currently the Teal 2, and last but not least, Fang, our new FPV drone. The Edge 130 Blue, a hybrid VTOL system, can be assembled and then hand-launched or ground-launched in just one minute by a single user to capture high-accuracy aerial imagery with long-range autonomy. Weighing only 1,200 grams, The Edge 130 has flown two hours in forward flight mode, which is the longest flight time of approved Blue UAS drones. Teal 2, everybody already knows about this drone. We've been selling it for over 18 months. And then finally, Fang, an FPV drone that will add surgical strike capabilities. Warfighters can combine and deploy these FPV drones with lethal payloads and ISR drones based on the mission profile for seek and destroy capabilities. Since we just closed on FlightWave, I want to spend some time on the Edge 130 Blue. The Edge 130 Blue is a unique product in the drone space. It is a VTOL, vertical takeoff and landing, fixed wing airplane that is portable and fits in a warfighter's rucksack. It has the longest flight time on the Blue UAS cleared list, Demand for the Edge 130 has been much better than expected since we announced the LOI. I will talk about the significant contract wins when I discuss our guidance after Leah's comments. I want to congratulate the FlightWave team on this engineering model. Now for the elephant in the room, short-range reconnaissance, SRR. The last few years, we have received our down selection for SLR prototype contracts in September. The final production contract award has been scheduled for down selection in September 2024 for almost two years. In late August, at the Pathfinder Conference in Huntsville, Alabama, the Army mentioned during a speech that SLR had a clear winner. We are hoping to have an update from the Army for this call but that is not the case. This is why we do not include SOR in our full-year guidance for 2025 or any guidance. We worked very hard to give the Army a product that meets and exceeds their requirements. We hope to hear back in the next few weeks. I will now hand the call to Leah, after which we will talk about our guidance.

Thank you, Jeff. Hello everyone and thank you for joining the call this afternoon. Today I will be reviewing the highlights of our first quarter of fiscal 2025. Revenue for the first quarter of fiscal 2025 totaled $2.8 million compared to $1.7 million for the first quarter of the prior year. This represents year-over-year growth of 59%. Growth margin for the quarter was negative 17% of revenue. This was entirely due to the final delivery of prototypes for the SRR Trunch 2 program and was not related to product sales. We do not expect to have negative margins again in the future. In spite of this, we are thrilled to have completed this engineering effort and excitedly await an announcement on whether we will be down-selected for a production contract under the short-range reconnaissance program. Cash used in operations for the first quarter of fiscal 25 was $2.3 million. This represents a decrease of $4.6 million, or 66%, compared to the same quarter in the prior fiscal year, and remained flat sequentially. We continue to prioritize efforts to control costs without limiting growth. We ended the quarter with $7.7 million in cash and just closed a debt deal securing an additional $8 million in financing. Looking to the future, we have been preparing manufacturing of our latest product, which we're calling the TL3 for right now. We expect to produce this drone for several years, which will allow us to steadily increase margins over time. As we have said in the past, we anticipate product margins to reach up to 50% under mass production. Overall, we remain optimistic about the future of Redcat and our ability to provide products that meet the needs of the warfighter. This is especially true with our new family of systems, which includes the FlightWave Edge 130 Blue, the TL2, eventually TL3, and Fang. Additionally, we believe this multi-system strategy will lower investment risk through product diversification. As Jeff mentioned, we're also going to be changing our fiscal year end from April 30th to December 31st, beginning December 31st, 2024. What this means from a reporting standpoint is that we will report quarter two results for the three months ended October 31st, 2024 in accordance with the current fiscal year. Then we will file a transition report 10-K for the eight months ended December 31st, 2024. After that, all future filings will be based on a calendar year. I'm now going to turn it back over to Jeff to provide guidance for the upcoming calendar year 2025 before we take questions.