Red Cat Holdings, Inc.

So much greetings and welcome to the Red Cat quarterly earnings. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anki Hira, Investor Relations. Thank you, Anki. You may begin.

Good afternoon and welcome to Red Cat's first quarter 2026 earnings conference call. Joining us are Red Cat CEO Jeff Thompson, COO Chris Erickson, and CFO Christian Morrison. Please note that certain information discussed on the call today will include forward-looking statements for future events at Red Cat's business strategy and future financial and operating performance, including Red Cat's target revenue. These forward-looking statements are only predictions and are subject to risk, uncertainties, and assumptions that are difficult to predict and may cause actual results to differ materially from those stated or implied by those statements. Certain of these risks, uncertainties, and assumptions are discussed in REDCAT's SEC filings, including its most recent annual report on Form 10-K and other SEC filings. These forward-looking statements reflect management's beliefs, estimates, and predictions as of the date of this live broadcast, May 7, 2026, and REDCAT undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Finally, I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at ir.redcatholdings.com. With that, I'll now turn the call over to Jeff.

Thank you, Nkit. Good afternoon, and thank you for joining RedCat's Q1 2026 earnings call. Secretary Hegseth last week at a hearing on the Hill announced that Defense Autonomous Warfare Group, DOG, will have a $54 billion budget for drones, drone dominance, and counter. But also said it would be closer to $74 billion. Ann added that announcing a new unified command that would add to this $74 billion and is made in USA only. This is 2027 funding, which is only 4.5 months away. On top of this good news, the DOW has stated they intend to spend the 2025 $156 billion reconciliation bill related to defense in fiscal 2026. It's not going to go over three years now. Only $30 billion has been obligated through April. Fiscal 2026 also ends in 4.5 months. The funding has finally been turned on in a big way for 2026 and is magnitudes higher for 2027, specifically for UAVs and USVs. These are great tailwinds, so let's get started. I am pleased to report we delivered record quarterly revenue of $15.5 million, representing an 849% increase compared to the same period last year, This is remarkable growth considering the government shutdown at the end of last year. I'm going to review our opportunity pipelines that tie into our target revenue with our multi-domain family of systems. We'll start with FANG and drone dominance, then FlightWave Triken, of course, the Keel Black Widow, and then finally the Blue Ops fleet. Then Chris Erickson will review operations. Then Chris Morrison will review financials, and then we will take your questions. So let's start with FANG and drone dominance. We are gearing up for Gauntlet 2 in August. We have been working with the DDP and believe this will be a much smoother and realistic competition. FPV drones, which are called shooters, need a sensor to complete the sensor-shooter kill chains. We believe we are the only made in USA company with a blueless approvals sensor black widow successfully deployed in Ukraine and other theaters. We believe that 350,000 FPV drones would need between 10,000 and 17,000 black widows, depending on ratios of sensors to shooters. Red cat is integrating our targeting from the black window widow into Fang and other FTD partners. This gives us tighter integration into the kill chain and a competitive advantage. FlightWave. Our first demo tricons are being delivered in a few weeks. The features on this new version are stunning. The demand for the Edge 130 has always been significant, but as you know, it is too fragile for warfighters. We will be updating the suite in the upcoming months but believe this can be a winning drone in sweeps this year. On to the Black Widow. We could spend an hour on what we've been doing with the Black Widow. The Black Widow is currently in three theaters. Word spreads fast when you have a combat-proven capability and the scale to produce them. This led to an invite to the Pentagon to share lessons learned as a successful platform in the most contested battlefield in the world. Most importantly, we want to bring these capabilities back to the U.S. warfighter. The Black Widow is EW proven and capable, proven in GPS-denied battlefields, flight time of 52 plus minutes, and over 10 kilometer range. These features I've positioned the Black Widow with a large opportunity pipeline for 2026. This pipeline consists of the U.S. Army, with our final LRIP contract soon, and the OTA, Marines, Air Force, drone dominance, Ukraine, Japan, Philippines, and Taiwan. We currently have the supply chain and inventory to build $220 million worth of Black Widow's and can step on the gas if needed. As we reported last quarter, the Ukraine opportunity could be for over 100,000 black widows. We are completing the final integrations actually this week and hope to have them tested next month in theater. Let's talk about the Blue Ops fleet. The Valdosta factory is operational. We have started 3D printing the 5-meter boat We have approximately 145 fiberglass hulls to be built this year, and we will have approximately 100 3D printed boats. That's a potential of approximately $150 million in USB sales this year. The Variant 7 has received a lot of attention recently, with President Trump talking about the machine gun that is mounted on the Variant 7. The machine gun is made in USA by our partners, ACS. This combination is very powerful. The Strait of Hormuz has been a great example of the need for this type of weapon system. Our team is in the region now by invitation, and we believe we will be a very valuable partner in the Arabian Peninsula. We've also been invited to Indo-Pakon next month, and we'll be participating in the RFP for the 1,300 U.S. fees in Taiwan, which will be awarded first quarter next year. Look forward to your questions, and we'll hand it over to Chris.

Thank you, Jeff. Good afternoon, everyone. Our operational performance in Q1 2026 reflects the strength of our execution capabilities and our ability to scale efficiently in response to unprecedented demand. We achieved remarkable operational metrics by supporting the $15.5 million in quarterly revenue while simultaneously improving our gross margin to 13%. The increase in margin is a testament to our operational discipline and process optimization while significantly scaling our manufacturing footprint more than 500% year over year. We expect our margins to continue to improve through 2026, moving us closer to our ultimate target gross margin of 30%. Now, as a point of emphasis, please note our current manufacturing footprint is specifically designed for growth and efficiency and can support well over a billion dollars of annual revenue between our UAVs and USVs. The operational landscape has evolved dramatically with customers demanding faster delivery cycles and enhanced performance specifications. We've responded by investing strategically in our supply chain resilience and manufacturing capacity, enabling us to meet accelerated delivery timelines while maintaining the rigorous quality standards essential for military applications. Our inventory and prepaid inventory position of 62.7 million demonstrates our proactive approach to securing critical components and positioning ourselves for continued growth and acceleration. During the quarter, we successfully navigated several operational challenges, including supply chain complexities associated with specialized drone components and temporary disruption caused by the federal government shutdown. We address these challenges through diversified supplier relationships, strategic inventory positioning, and enhanced production planning. Our team's agility in adapting to these conditions while maintaining delivery commitments underscores the robustness of our operational framework. We are committed to continuous innovation and next-generation platform development. These investments have yielded significant product enhancements across our drone portfolio with particular focus on extending flight endurance, improving payload capacity, and enhancing autonomous navigation capabilities. Our engineering teams have successfully integrated advanced sensor technologies and improved communication systems that provide superior situational awareness for operators in the field. The Black Widow platform continues to set industry benchmarks with its exceptional reliability and versatility in diverse operational environments. Recent enhancements include upgraded imaging systems with enhanced low light performance, extended battery life providing up to 52 minutes of flight time, and improved weather resistance capabilities that enable operations in challenging conditions. Also, just this past month, the Black Widow became the first Group 1 UAS device to successfully integrate with Anduril's Lattice platform. And we have integrated the Black Widow with SignLink, Ukraine's battle-proven, satellite-free, GPS-denied positioning network system. The SignLink integration completes the development phase, and birds will be delivered to Ukraine at the beginning of June for validation testing and the final step to start replacing hundreds of thousands of Chinese-made drones in Ukraine. These improvements directly address customer feedback, operational requirements, and strengthening our competitive advantage and customer satisfaction levels. Our newly acquired APM Swarm robotics capabilities represent a quantum leap in coordinated unmanned operations, enabling multiple drones to operate autonomously as a unified system. This technology provides unprecedented tactical advantages, allowing for complex mission profiles including coordinated surveillance, area coverage, and synchronized data collection that would be impossible with individual isolated devices. Red Cat's unique value proposition lies in our integrated ecosystem approach, combining best-in-class hardware with sophisticated software solutions and comprehensive support services. Our platform delivers a unified client experience from initial deployment through ongoing operations, with intuitive control interfaces, real-time data analytics, and seamless integration with existing military command and control systems. This holistic approach reduces training requirements, accelerates deployment timelines, and maximizes operational effectiveness, creating substantial value for our customers while building long-term partnership relationships that drive recurring revenue opportunities. With that being said, I'll now turn the call over to Christian to discuss our financial results.

Thank you, Chris. I'm pleased to present REDCAT's financial performance for the first quarter of 2026, which demonstrates steady improvements strong operational leverage, and the scalability of our business model. For the first quarter of 2026, revenue was $15.5 million, representing an increase of 849% from $1.6 million in the prior year period. This performance was primarily driven by continued drone deliveries under our U.S. Army Short-Range Reconnaissance Program, deliveries of our Black Widow drones to a European NATO ally, and deliveries of FlightWave Edge-130 drones These deliveries reflect increased order volumes, enhanced manufacturing capacity, and an expanding geographic footprint, coupled with diversified product offerings. We believe these results validate the strength of our core business as we move into a significantly larger phase of growth. Our gross margin performance was also impressive, improving from negative in Q1 2025 to positive 12.7% in Q1 2026. This improvement in the positive territory reflects the operational leverage inherent in our business model, improved manufacturing efficiencies, and better cost management as we scale our production volumes. The positive gross margin improvement marks a significant inflection point, demonstrating our ability to generate profitable revenue growth. Our strategic investments in future growth were substantial during the quarters. Operating expenses increased to $29.3 million, driven by investments in personnel and infrastructure to support the scaling and volumes required to achieve the significant revenue growth we expect in 2026 and beyond. We continue to focus on research and development expenses, which increased to $8.0 million during the quarter, reflecting our commitment to innovation and next-generation platform development. These investments are critical. to maintaining our technological leadership and expanding our addressable market opportunities across military, government, and commercial applications. Capital expenditures totaled $6.8 million during the quarter, which primarily included manufacturing equipment and facility improvements at our Blue Ops USB division in Georgia and other company-wide infrastructure to support our production scaling requirements. Our balance sheet strength and liquidity position provides a solid foundation for executing our growth strategy and capitalizing on the significant opportunities ahead. As of March 31, 2026, we maintained exceptional liquidity with net working capital of $190.6 million. This representing a robust current ratio that ensures our ability to meet operational obligations and invest in growth initiatives without financial constraints. Our cash position of $131.9 million reflects our strategic deployment of capital to support rapid business expansion and inventory positioning for anticipated contract fulfillment. The substantial inventory and prepaid inventory balance of $62.7 million represents a strategic investment in securing critical components and positioning ourselves for accelerated delivery capabilities. This inventory build reflects our proactive supply chain management and confidence in our contract pipeline, ensuring that we can meet customer delivery requirements in an environment of strong demand while mitigating potential supply chain constraints. Looking ahead, we are confident in our ability to deliver strong financial performance for the remainder of 2026. Our target annual revenue for the short to medium term is expected to be between $150 million and $180 million, representing significant growth compared to 2025. As revenues materialize over time, we expect gross margins to approach 30%. Several key factors are driving our target revenue. First, the resolution of the federal government shutdown has cleared the path for accelerated contract execution and payment processing, eliminating some temporary headwinds. Second, our strategic inventory positioning ensures we can meet aggressive delivery timelines without supply chain delays. Third, our Blue Ops division is trending ahead of schedule in its production capabilities of USBs with increasing demand signals. In addition, our recent acquisition of APM Swarm Robotics and our pending Quaze Technologies acquisition expand our addressable market and enhance our competitive differentiation in high-value segments. It is important to note that we expect increased revenues as we anticipate our Blue Ops and Flightwave divisions will begin to provide meaningful revenue contributions. The timing of our short-range reconnaissance program deliveries, combined with the letter of request from the Armed Forces of Ukraine and our ever-growing international contracts that include NATO and Indo-PACOM allies and other opportunities in the Middle East represents significant growth opportunities. Market conditions remain exceptionally favorable, with global defense spending continuing to prioritize unmanned systems and our ability to continue to unlock substantial international opportunities. The increasing urgency around drone technology adoption, demonstrated by accelerated procurement cycles, supports our expectation of continued strong demand through 2026 and beyond. And with that, we're now happy to answer your questions. Operator, will you please open the line for Q&A?

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please click on the raise hand icon, and I can give you permission to unmute your line. One moment, please, while we poll for your questions. Our first questions come from the line of Mike Lattimore with Northland Securities. Please proceed with your questions.

All right, excellent. Thanks very much.

All right.

Can you hear me? Yeah. You went blank for a little while.

All right. Thanks. Great. Yeah, so maybe just a little clarification on the guidance. You got into a certain range, you know, very strong growth relative to, He says short to medium term range. Can you just sort of clarify what that means a little bit?

Yeah, so our target revenue of 150 to 180 is, you know, it says it right there, annual. So short to medium term. So we are, you know, we've spent, you know, the last almost eight months in Ukraine, you know, working on the Black Widow to get it to where it is. It's very interesting information. because we're one of the only people that are doing this. Everyone says they're not going to use stuff in the Army or any of these contracts in the U.S. unless it works in Ukraine. If you look at our competitors, specifically in this range of drone, they're making crap that hasn't changed in two years. Our drone changes every three weeks. So, with that, we have been able to build an amazing opportunity pipeline for just the teal. It's close to, like, 700 million. So... Now that the funding has been unleashed, we are ready to perform. We have everything we need to start shipping. We are proven. Everyone likes the equipment. Everyone likes what we're doing. We're also – we just got – I don't know if you saw the announcement by the Air Force about the F-35s working with the Black Widow, displaying our screens there. So that target revenue of $150,000 to $180,000, we are very comfortable with, considering the, again, the opportunity pipeline just for the teal Black Widow is almost $700 million.

That's correct. And then, Jeff, you gave some numbers on the production volumes for the USV this year. Can you just mention those again? I didn't quite get them. What's the, is that going to go into inventory? Is that to support programs? Or is that, like, Maybe a little more clarity on that.

Yeah, so the, you know, as you know, Blue Ops did not exist seven months ago, eight months ago now. And a lot of you on this call have been to our location during, you know, Innovation Day. And that location is filled with potential customers every week now from every branch, from every agency. We got invited to an exercise recently. I can't talk about it, but we are crushing it. And the demand and the opportunity for blue ops is massive. As I mentioned, we were invited to the region of the Strait. That wasn't us. We were invited by some very important people. But we do have some hard constraints when you're building boats. They're much bigger and larger boats. than what Mitch is building for the teal Black Widow. I mean, Mitch could turn it up from $220 million to $500 million very rapidly and very easily. He's going to be building $221 million no matter what this year. But with the boats, because we only had one mold, now we have two molds, we're limited by molds and tooling to make boats. So We can't make the tooling go any quicker. They're hard to make, and they take time. So our first year, we're making more than we said earlier. We're going to make 145 fiberglass hulls. So that – and we believe they're all going out the door. And then on top of that, we just started printing this week the 5-meter, more kamikaze style hulls. 5 meter 3D printed boats now you notice that I said that's about 245 boats all together but I only said it's only 40 million probably if we sell all those plastic boats and about 90 million if we sell all of the fiberglass boats this year so we can sell plastic 3D printed 5 meter kamikaze boats very inexpensively and with still great margins Now, as Christian talked about earlier, as we, you know, the TLQ went from negative 10 to 10 to 20, then to 30% gross margins. We believe we can replicate that with the Black Widow, but that gross margin that we're trying to get to in Q4, you know, trying to close in on that 30%, would change dramatically if we sell more boats. If we sell all these boats, you know, that margin would go up. And we haven't put anything in from any of the software from Palantir, which is still moving along. We actually have another meeting with them tomorrow. People are now starting to want to look at visual navigation. As we're in multiple theaters, we're getting a lot of interesting demands for that software.

Got it, guys. Great. And then just last on the – You talked about the FANG opportunity, drone dominance, and the need for the Black Widow and better sensors in that program. If they bought these Black Widows for the drone dominance program, would that come through the funding for drone dominance, or would that be a separate allocation?

Well, this has been a discussion with all the people that are involved there, and we've been trying to help them. So, I think drone dominance is about a billion dollars, if I'm correct. So... If you're going to buy 350,000 FPV drones, they're useless without a sensor. I mean, the way they're used, and we're in theater every single day, is a drone like the Mavic 3 typically from DJI finds the targets and then tells the FPV drones where to go. They don't just go out and search for them because they have horrible cameras in their analog. It's like driving through snow. The way they're used in the Ukraine has a sensor, which is an ISR drone similar to the Black Widow, and we're hoping to replace all of them. So if you buy 350,000 drones and don't have a sensor, those 350,000 FPV drones are actually useless. So people are starting to get that. So they're going to start having ways to have a sensor shooter in the gauntlet. So if you look at different ratios, we did a low ratio, we did a medium ratio, we didn't even do a high ratio, and that's 10,000 to 17,000 Black Widow-style drones. You can't get around that. If it's not us, it's got to be someone else. And, by the way, our competitors, their drones, they don't work. They're crap. They haven't changed them since 2024. We change ours every, you know, three weeks. You know, they're a requirements document. That's what they do. They go to requirements and they build crappy drones. And, you know, sorry, I digress.

Got it. That makes sense. Very good. Well, that covers it for me right now. Appreciate it.

Thanks, Mike.

Thank you.

Thank you so much. Our next questions come from the line of Austin Bowling with Needham. Please proceed with your questions.

Can you guys hear me? Yes.

Yeah, I can hear you now, Austin.

Hey, guys, thanks for taking the question. This first one, just want to go back to kind of like the new updated guidance. I think historically you guys have provided some like granularity on like what's Black Widow, FlightWave, USV. Would love any additional color of how we should be thinking about the different buckets driving this outlook.

Well, that's a great question. So as I was mentioning in our Opportunity Pipeline, we've got – I'll give you some – I'm not going to give exact numbers for each customer, but, you know, with the Army, you've got LRIP, which we're, you know, working on our final contract for that, so that will finally be over with. And then we go into OTA, which we've been simultaneously negotiating, but it's very linear with them. We also have other branches in the armed services that are, to be frank, some of them are bigger than SRR. The SRR is such an antiquated program, it really hasn't kept up with the numbers compared to other branches that are now getting their funding and looking for ways for their soldiers to get products that actually work in battlefields. Drone dominance is another bucket. I'm just talking Black Widow right now, Austin, for your models. Drone dominance is also, we believe, is going to be a pretty good bucket for us for the end of this year and into 2027. We've got Israel is going to be a part of this. The Air Force, which they put out their own announcement about the Black Widow, working with the F-35s. We don't know how big that's going to be. I think there's about 500 of those. And then Ukraine, we didn't even put Ukraine fully into our opportunities pipeline because the opportunities pipeline would go from like $700 million to $2 billion. immediately so we're we're giving some caution around ukraine until we get through next month but that is that has actually been our focus ukraine you know if you own a business and everyone's asking hey what ota ota ota i'm like did you guys not listen to the last call we could replace hundreds of thousands of drones in the ukraine and they want them and they need them and they're going we talk to them every week uh that should be the focus and uh To be frank, the Army probably won't make it into the top three of customers on revenue this year, even though they're going to be a great staple and a great platform. So Ukraine's another bucket. Japan, we announced recently, they're continuing to buy. And then we have an incredible trip to Taiwan, Korea, and Japan next month, and we'll hopefully be able to update the street on some of those adventures. So that's just the bucket list. for Black Widow for your modeling, okay? When you go into Blue Ops, we are physically limited by the amount of boats we're going to make of about 245 boats made this year, which is phenomenal. And going into 27, we hope to get to that 650 to 1,000 at least production numbers that we can get to. So Blue Ops, If you've capped it at, you know, it's mostly V7s, but there are going to be some V5s. We're making V5s and V7s with the 3D printing. So we can use that to listen to customer feedback as we're doing that. But that one kind of has a cap unlike, you know, Mitch McConnell, the president of Teal, can step on the gas from that 221 that he's building this year in a month and change dramatically how many drones we can deliver. And then FlightWave, we still have that pinned at around $40 million in production this year, the second half of the year. So, you know, if you put all those – you put all just the production that we can do, that we're going to do no matter what, it's $388 million in 2026.

Okay. That's super helpful. And I guess kind of like going down the P&L, how should – it might be a better question for Christian – How should we be thinking about kind of op-backs throughout the year on a quarterly basis? Is what you guys did on an absolute a pretty good run rate? How should we be thinking about that?

Yeah, that's going to go up a little bit in the back half of the year. It just naturally has to. But, yeah, it's within the realm. I'd probably flex it up maybe 15%, 20% for the back half of the year.

Okay, awesome. Well, thank you guys for the questions. Yeah, you bet.

Thank you so much. Our next questions are going to come from the line of Brian Dobson. Brian, with Clear Street, please proceed with your questions.

Hey, thanks so much. Thanks for taking my questions. Yeah, welcome, Brian. Yeah, thanks. So how important is the integration of Andral's Lattice into your weapons systems? You mentioned that Black Widow is now in the system. Do you believe that's going to be a gold standard for Pentagon procurement?

Well, I can take that because I've been involved pretty deeply with that. Thanks for the question, Brian. Nice to finally meet you. So there was notice yesterday throughout the Army that we got that if you're not integrated into Lattice, you're not working with the Army is kind of the message. I just paraphrased that. It's not the exact wording. And the event that we were at a few weeks ago, we were the only people there from the SOR program that had integrated and has actually integrated into Lattice, as Chris Harrison mentioned earlier. So, yeah, I believe that if you're not integrated into Lattice, you're going to have some problems, you know, Going forward, you're going to get forced to do it no matter what.

Yeah, very good. And then I guess just shifting gears a little bit. So on Blue Ops, unmanned surface vessels, relatively new domain for the company. Maybe you could just give a little bit of color on what you see as the opportunity there over the next two or three years and how you view demand evolving not only from the United States but from our allies when compared with, call it, air system demand.

Yeah, so the bottom line is Blue Ops could probably surpass all of the UAVs next year. The demand, you know, let's face it, 70% of the world is, you know, water, and we can launch our other products from this, but the market is massive, and there's not a lot of quality players. We started as boat builders, and what we're seeing a lot, and I can't give any details, But we've been in a lot of situations where our competitors' boats are failing and ours are actually prevailing. Because we started as boat builders and we build sturdy boats that can get smashed around and are very high quality. And now you put your tech stack on it. But if they can't handle the ocean, the ocean eats everything. So there's nothing it doesn't want to eat. So you have to make your boats super, super reliable, specifically when they're going as fast as ours go. And when they have the capabilities that ours have, a human couldn't stand on that boat. They would get sick or get hurt doing the turns and the speeds that we're doing it. Now, add the payloads, which makes us super unique, is, you know, we're talking about the president talking about these machine guns from ACS. They are great anti-FPV and anti-Shaheed, you know, killers. So this is a very sought-after – combat weapon system right now all over the globe. And, you know, we are, we're over there now. And it's very important for us. We think that our allies will be buying a lot of USVs. And we came out of this, the interesting part is Drones had never been mass manufactured in the United States. The boat industry has been going on for hundreds of years, and we got the best boat builders, we believe, in the world. So we started with high, high, high quality. and based on a third-generation product that's already been in theaters. So we had kind of a head start, which put us at the front of the line, and now we're competing and we're proving everyone that we do have what we believe is the best USB out there. Now we can do different sizes. We went from whiteboard to floating in the water by December with our first boat. Now we can compress that down with 3D printing to weeks. We can try new models. And now our mold capability, we can actually start making our own molds in the next few months. So we won't have to rely on people to make our tooling. We'll make our own tooling. So the opportunity for the USVs is massive. But it also helps create a combined, you know, we can put our Black Widows on there. We can put the Triken on there. You know, we've partnered with ACS. There's so many payloads that want to be on our boat right now. We are getting massive traction there. with the Variant 7 right now.

Yeah, that's great. And correct me if I'm wrong, I think some of your boat builders came from Hinkley Yachts. So, slightly different application, but impressive maritime heritage. So, just one final one for me. You made some exciting tuck-ins during the quarter. You know, how do you see these benefiting the broader platform? How are you thinking about M&A going forward, right, in terms of your desire to either develop tech in-house or go out and buy it?

We've kind of been doing both because we built Blue Offs, as you know, and thank you for noticing that we've got one of the best Premier families and we're working with Hodgson Yachts as our prototype shop, another Premier boat builder. But we developed that entire tech stack in-house. There's other things that we will acquire. We want to have a lot of vertical integration so that we own the entire boat, we own the entire drone, all of these things. We do a little bit of both. So now that we have APM to be able to do our swarming, everyone keeps talking about swarming, but no one can do it reliably. So we're pretty excited about APM. None of the APM's revenue is in our target revenue. Nothing from Quaze is in there. So, you know, we're excited to show our swarming capabilities because now it's starting to show up in all the requirements across the DOW. So we are very happy that we're bolting that on. We can also swarm our boats with their technology.

Thank you very much. Thank you so much. Our next questions come from the line of John Hickman with Lattenberg Thaumen. Please proceed with your questions.

Hello. Can you hear me? Yes. We got you, John. Hey, I'm kind of brand new to this story, but a lot of the other questioners have been very helpful. Could you elaborate a little bit on what the shutdown cost you?

We don't have any details on that, but just the delays alone You know, people are, you know, even though during a continuing resolution year, you're usually allowed to use the amount up to your previous budget. But for the entire SR program, it was only $70 million. So that's not much for them to be able to say, hey, we got money to push around. And we ended up getting $40 million out of that, you know, once the shutdown was complete. So it's just delays. I don't think that it's going to cost us total. I think it's just got pushed out a month or two. Just like everyone else that's in the defense industry, we are all feeling the spigot turn on the last couple of weeks. The money's loosened up. There's a ton of it coming. All of that $130 billion from the – you know, that they released for defense is going to be spent, it has to be spent now if they're going to do it for fiscal 26 by the end of September. And then the budget, which was hundreds of millions of dollars, is now $74 billion with whatever they're going to add on with unified command for drones, counter drones, USBs, and drone dominance. So the drone, which starts October 1, just a few, you know, four months away. So now that we have budgeting on time, like the year before we didn't have a budget. At least this year we have a budget. And next year we have a massive budget. So I don't think there will be delays, but you can never tell with government. So we are hoping it stays smooth. And the numbers are so large, you have to be able to produce. And we can produce. So we're pretty excited about that. But we don't see it as a loss. We just see it got moved to the right in the timeline.

Okay, so I know you were ranting earlier about competition. Yeah. Is there a competitor you're worried about or respect?

Yeah, I would say more so in the boat space because, I mean, we went in a down selection process, and, you know, there was a clear winner. Those are the Army's words, not ours. And if you don't change your bird at all, if it's a two-year-old bird – that's not going to make it, so that doesn't really scare me. We're in the front. We're ankle to ankle with the Ukrainian warfighters, you know, at the zero line, and we're changing our birds all the time. We have some great, great team that's doing that for REDCAT, and we're continuing it. We're already in three theaters now because of this method of showing our products to people is let's go to the front line and do that. So our product changes every three weeks right now. It's probably going to go down in a week or days. We have an office in Ukraine now, and we're going to be hiring some local coders. So we're going to be going really fast with the Black Widow, and our competitors are going really slow. In the boats, there are some people that have been around for a long time, like Kraken. So I'm not going to say the same types of things about them. Then there's, well, obviously, Saronic. I think they moved up to the bigger boats, but we haven't really seen them in theater yet with us, so they're probably a good company. Then you've got Black Sea, which makes the Gark, which when we were at Portugal, I don't think they won anything there, but I'm not sure about them. But what you will see, I think, in the boat industry, you're going to see you're going to see us do really well by our performance as a boat builder. And then what's very, very unique, which I've said it a million times about the Edge LM30 and now the Triken, it does stuff that no other drone does, and it had huge amounts of demand, but we did not want to put a bad taste in people's mouths and ship them these drones and they break in a couple of weeks. Actually, we brought them to the Ukraine with our new radio systems in them just to test them. They loved our fixed wing solution, but the The bird barely lasted a full day. So that bird is probably the most unique with competitive advantage than our other products.

One question about the sensor you make for your drones. Do you make that sensor yourself, or is that outsourced?

Well, sensor is just kind of a term for sensor shooter. The sensor is the Black Widow drone. Let me back up, because a lot of people do not understand – how this works with FPV drones. They've never been to Ukraine. They've never worked with these people. They have these teams that have a bunch of FPV drones with them, and they don't go out and just search for targets. They have an ISR drone. Typically right now it's DGI Mavics, which we're hoping to replace. They go through 350,000 of those DGI Mavics in Ukraine right now. So the Mavics go out and find the tanks or the mortars or the human beings, and they tell the FPV guys where to go. Sometimes it's literally verbally. It's that primitive, but it's very effective. Eighty percent of the deaths are from FPV. So in drone dominance, if they get by 350,000 FPV drones, they're kind of useless. Actually, they're absolutely useless. They're analog cameras, and they're very hard to see. So you need a sensor. It's just a term. It's not like an actual sensor that senses stuff. The Black Widow has a bunch of sensors that gets it out there, in contested environments, and finds the bad guys and tells the FDD guys, the shooter, you know, what to go kill. So it's basically a sniper rifle. You would never use a sniper rifle without a scope. We're the scope, they're the sniper rifle.

And that's all done electronically. It doesn't, no human intervention there.

For, well, lots of times in Ukraine, because these are DGI drones, they're not going to interface with anything else. You can't call DGI and say, hey, Can you make our FPV drones integrate for targeting? With us, we will. We will do that. We're doing it right now for drone dominance. So we believe that the drone dominance program is going to need significant amounts of sensors, which are ISR drones, if not the Black Widow, it's going to have to be some ISR drone.

Okay. Well, thank you. Appreciate it. I'll be in touch later, okay? Great. Thank you, John. Thank you.

Thank you so much. This does conclude today's question and answer session. I would now like to hand the call back over to Jeff Thompson for any closing remarks.

Great. Thanks for coming. We are super excited about this year. It's going to be, as you've seen with our target revenue, it's going to be a great year. And I want to thank a lot of people. We've got a team of people going around the globe working with these warfighters. We're in three theaters right now because of that. And that feedback gets back to our factories. And I want to thank all the factory workers. In Teal at Salt Lake City, you guys are doing amazing jobs. We're getting orders, and we ship them the next day because we have so much production. And the same with Valdosta, which I can't wait to get back up there hopefully next week. That factory is going to be exciting when people get to see it. We're having a big ribbon-cutting there. Everyone is really crushing it in our factories across the globe. The factory is the weapon, and look forward to seeing you folks next quarter. Thank you so much.

That does conclude today's teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of your day.