XTI Aerospace, Inc. Common Stock

Good afternoon, and welcome to the XTI Aerospace first quarter 2026 earnings call. Joining us today from XTI Aerospace are Scott Pomeroy, Chief Executive Officer, Brooke Turk, Chief Financial Officer, and Jeremy Schneiderman, CEO of Drone Nerds. Before we begin, please note that certain statements made during today's call may be considered forward-looking statements within the meeting of federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Additional information regarding these risks and uncertainties can be found in the company's filings with the Securities and Exchange Commission. The forward-looking statements made today speak only as of today, and the company undertakes no obligation to update these statements except as required by law. In addition, during this call, we will make reference to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures are available on the Investor Relations section of our website. Earlier today, the company posted its earnings news release, slide presentation, and prepared remarks to the investor relations section of its website. Today's session will be conducted as a live video-based earnings call. Scott Pomeroy, Brooke Turk, and Jeremy Schneiderman will be responding to questions from participants. The discussion today will focus on first quarter 2026 results. I will now turn the call over to Scott Pomeroy. Mr. Pomeroy, you may begin.

Great Thank you. Thanks everybody for joining us here this afternoon. Um, it's great to have you here as the moderator just pointed out. We did file earlier today. The along with the 10 Q, the earnings release. Uh, as well as the script as with last quarter. Our objective with that is really to avoid having to spend time on this call reading through the script and maximizing the time that we have to answer questions. So we hope that continues to be an effective mechanism and platform for you, and we'll continue to do that. We've gotten good feedback that it's helpful to carve out the time just for Q&A, so we intend to do that. Really, since the acquisition in November last year, we've continued the transformational journey of XTI. And we are now a revenue-generating unmanned systems platform. We're focused on operational execution, on margin improvement, and cash flow discipline. The first quarter of 2026 marks the first quarter that we've had the full operating performance of DroneNerds in our results. And we believe that we've demonstrated meaningful progress in reducing costs, improving operational alignment, and lowering our cash burn. That will continue throughout the balance of the year, but we're off to a good start. Based on our current operating plan, we continue to expect to achieve positive and growing cash flow from operations. throughout the balance of the year, starting in the third quarter as revenue scales and operating efficiencies improve. During the quarter, we continue to see broad-based demand across enterprise and government markets. That includes areas such as public safety, infrastructure, utilities, agriculture, education, surveying, mining, and energy customers. We also continue to benefit from the growing industry demand for NDAA compliant and domestically aligned drone solutions, as customers are increasingly focused on secure supply chains and regulatory compliance. Jeremy can provide more color on that as we continue with our conversation here today. Our enterprise B2B pipeline strengthened throughout the quarter, and the momentum has continued into the second quarter. Based on the current operating plan, we continue to expect full year 2026 revenue of approximately 160 million or greater with projected gross margins of between 19 and 21% and EBITDA margins of between 9 and 10%. We ended the quarter with about 15.2 million in unrestricted cash and cash equivalents, along with some substantial liquidity available under our asset-based lending arrangement. As we move through the remainder of 26, our priorities remain clear. It's about improving margins, strengthening liquidity, reducing cash burn, and continuing to build long-term shareholder value through disciplined execution. With that, let me turn it back over to the moderator.

Thank you. At this time, we will now open the floor for questions. If you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form. Our first question is a written submission. Our question is, how should investors think about the difference between average EBITDA generation during the second half of 2026 versus the EBITDA run rate the company expects to exit the year with?

Yeah, great question. So as you know, we guided to second half of between two and three million of positive cash flow. I think the real key point there to keep in mind is that the that the quarter to quarter performance is not flat. We expect revenue and EBITDA to continue to grow throughout the second half of the year and cost efficiencies and initiatives to continue to take effect. So you can't really take the guidance of the full entire second half and extrapolate that into an average monthly or average quarter performance. The strength of the cash flows continues to grow as the year progresses. So it's really, we're looking to a solid fourth quarter and end of fourth quarter as being much more reflective of what our ongoing run rate will be.

next question is a written submission our question is how should investors think about the seasonality and quarterly revenue cadence during 2026. jeremy why don't you take that one absolutely well first thank you everybody for joining us today uh to tell you a little bit historically about drone nerds you know first quarter has always traditionally been one of our slower quarters and we always see an eventual ramp up into the fourth quarter for multiple reasons. You have procurement cycles, you have seasonality in agriculture, public safety has different budget timelines. But historically, if you look at our business, fourth quarter is always our strongest quarter with that ramp up into fourth quarter. If you were to compare Q1 2026 versus Q1 2025, you'd have to really look a little bit deeper into what happened in Q1 2025. We had major supply constraints in the fourth quarter of 2024, where we saw some of those sales move over into Q1 2025. So if you were to look comparatively over the two, it really wouldn't be true indicative of what normal business would look like.

So Q1 was a little bit overstated, Jeremy, of 25, and Q4 understated. Correct. That demand delay. Absolutely. Absolutely.

Next question is a written submission. Our question is, DroneNerds is the largest US enterprise drone distributor with 100 million plus in 2024 revenue. Third-party research from Grandview, Drone Industry Insights, and Fortune Business Insights sizes the U.S. commercial drone market in roughly the $6 to $8 billion range today, growing double digits. With strong policy tailwinds from Executive Order 14307, FCC foreign UAS action, and DOW drone dominance, that implies drone nerds hold roughly 1 to 1.5% share of the multi-billion dollar high fragmented market. As the number one domestic player, how do you size the U.S. enterprise drone distribution and services TAM and how fragmented is the long tail behind you?

Jeremy, maybe touch on that and then we could also weigh in. Absolutely.

So we see the U.S. enterprise drone distribution and services TAM as a multibillion dollar range. With our position at over $100 million in revenue and being the number one domestic player in the market, we see a market where the tail is about 100 plus regional resellers, mostly that sub $5 million range with very little infrastructure to deliver really robust solutions that we provide. So we see that as a very opportunistic consolidation opportunity for us. Our position in the market is we're set up for success to capture it.

The follow-up. Given that fragmentation, the policy environment, and strategic capital, how should investors think about Drone Nerd's runway to consolidate share organically and through tuck-in M&A over the next 24 to 36 months?

Well, I think there's a couple of ways that we should be looking at that. Obviously, as Jeremy just outlined, those being the largest by orders of magnitude domestically here in the U.S., with really no close second player, it sets the market up strategically for interesting consolidation opportunities. And so we will look to capitalize on that. It also suggests that that with some internal investment, we can compete organically and take share. So if I look at the broad base of this industry that's growing by any mechanism or by any forecast you want to look at, it's growing at 20% plus. So you've got a business that's going to grow at 20% plus just by keeping holding share. And then our ability to continue to consolidate and take share should add fuel to that growth rate over time. So we think these opportunities trade our direction. We'll be opportunistic in looking at that. We don't need to go out and consolidate 100 companies. There are a handful that make good sense for us to consider. The rest of them, it's a competitive dynamic. It's also a potential for margin expansion as well as you eliminate some of those additional players that are in the market. So we look at the entire landscape as it being ripe for consolidation, growth, and margin expansion.

The next question comes from Robert Barrow. Robert, please unmute your line and ask your question. Robert, you may now unmute your line and ask your question. All right, we're going to move to our next question. Our next question comes from Matthew Galenko with the Maxim Group. Matthew, please unmute your line and ask your question.

Hey, good afternoon. Thanks for taking my question. I was hoping you could maybe touch on what your visibility into the next nine months, 12 months is for Revenue for Drone Nerds and sort of how do you build that forecast? Thank you.

Jeremy, maybe touch on that just a little bit as you look at your pipeline and your forward-looking elements of it and maybe a generalization. We haven't we haven't given quarterly guidance. We've just given annual. But, you know, we've talked about the first quarter being the low watermark, the fourth quarter being the high watermark of the year. But maybe just some general commentary on that.

Yeah. Great question. You know, really, it's about how are we going to execute to hit the 160 million number that we've put out there? You know, what we do really, really well is serve the enterprise market. You know, we've increased our revenue year over year with very strategic investments, focusing on that segment of our business. What we've done this year and we've just started to implement is increase our enterprise direct sales channel with investments into our sales team. We've made strategic investments into marketing, specifically into those verticals. And with deep focus on specific verticals like public safety, agriculture, these are the verticals that we're really starting to see that hockey stick growth. And we know we need to be in the center of that. With the recent FCC regulations that have passed, we've seen an uptick for NDA compliant products. We're well positioned to serve that market because if you look at kind of what we do, we're kind of the centerpiece for manufacturers to get to customers. With the NDA solutions, there's a much more complicated full suite of solutions to sell that. We're making a heavy effort into making sure that we are capitalizing in that marketplace. We're starting to see, as Scott mentioned, our pipeline is growing. larger than it was year over year, which is a good indication of what sales are gonna be. We're gonna continue to make those investments into those programs that's gonna continue that shift into our highest margin segment of our business.

Our next question is a written submission. Our question is, why does management believe drone nerds is differentiated versus a traditional drone reseller?

Jeremy, I'm going to keep coming to you. I think that's a good one for you to touch on.

Great question. So we don't think of ourselves as a reseller, and I don't think the market does either, right? A typical reseller is one that would just move boxes. We look at us as we're a platform between manufacturers and the enterprise customer. And it comes down to four different things that are kind of like our secret sauce, right? Our scale, where we are in our scale, the guy that's just a reseller moving simple box, they don't have the plethora of inventory and the portfolio of products that we have. They don't have the repair infrastructure, the training capacity, really what it takes to scale up the largest programs in the United States. A reseller is really good at selling one or two boxes, but if you want to stand up a large program, There's a lot more to it than just buying the drone. You know, having the right selection of products to serve enterprises is one of our keys. You know, we've got I always say we have the largest toolbox in the industry to sell a full solution. You have to have the right hardware, the right software, the right sensor, ultimately the right service to stand behind it. to stand up the large programs. So we don't see ourselves as your traditional reseller. We are much more sophisticated and pretty unmatched in the industry because of our scale.

Our next question is a written submission. Our question is, what gives management confidence that XTI can achieve positive cash flow in quarter three, 2026?

Brooke, maybe you can take that one.

All right. Hi, everyone. Good to see everybody. Yeah, so we are at a really important inflection point at the company this year. As you saw, we've been steadily decreasing our cash burn as we reflected in our EBITDA results. We came down from a negative $10 million EBITDA in Q4 2025 to down to negative five in, uh, at the end of Q1, 2026. So, uh, we continue to, um, ramp our revenue. It'll continue to ramp throughout the rest of the year. We're expanding our margin, uh, for the rest of the year. And then we're continuing to tighten our belts and cut additional costs. So what you're gonna see is the lines are gonna cross. And so as we continue to ramp up revenue and costs come down, you're gonna see that starting to reflect in our Q3 and Q4 results.

Our next question is a written submission. Our question is, what progress has the company made on liquidity and balance sheet stability?

That sounds like a Brooke question, Brooke. Sure does. Sure, yeah. So we ended the quarter with about $15.2 million in cash and cash equivalents. As you know, we stood up a $20 million ADL with J.P. Morgan in Q1 last of which we had drawn by the end of the quarter about $4.8 million down. And then that left us with a little over $8 million in borrowing base still to borrow against, so still strong liquidity available to us. So we guided that we'll, in the year, add around $15 to $17 million in cash. So we feel like the balance sheet is very stable this year.

Our next question is a written submission. What gives management confidence that XCI can achieve positive cash flow in quarter three, 2026? Excuse me. We already asked that question. I think we just asked. Our next question is. This is a good time, I think, to prompt the audience. If anybody wants to raise their hand for a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When is your turn, you will receive a message on your screen from the host allowing you to talk. You will then hear your name called. Please accept, unmute your audio, and ask your question. We'll wait another moment to allow the queue to form. Okay. Our next question comes from Robert Barrow. Robert, please unmute your line and ask your question.

Guys, how you doing? And girls, I'm sorry. Go ahead. Is there... drone well we've all invested what we can because we trust the company and we trust what you guys are doing and biggest question is um besides the u.s government military are you working with other countries also with drones yeah jeremy if you touch on that i think it's a good question great question um we do uh provide other parts of the world uh drones we have um

A strategic partnership in Colombia where we provide into Colombia, the Latin Latam market is a significant market for us as well. And we've also supported Poland with technology as well as Israel. So we are a global company.

Yeah, good. All right. Thank you.

Our next question comes from Matthew Galenko. Matthew, please unmute your line and ask your question.

Hey, Matt. Matthew. Hey, thanks for taking my follow up. Maybe I guess looking a little bit past this year and into when it gets a little bit more complex to deliver NDAA and kind of qualified domestic source products. How do you see that affecting your gross margin and kind of EBITDA margin over time? And should we expect to see some of the incremental value that you deliver in the margin? And what time frame should we be thinking about for that?

Why don't you start that, Jeremy, and then I'll pile on a little bit.

So I would say we're already selling NDAA products and Blue UAS products today. We have been since the Blue UAS program has started. So I think it's only going to get better. I don't think it's going to get more difficult. I think your question mentioned it's going to get more complicated. I think it's actually going to get easier in the future as our partners, our OEMs that are providing this technology continue to scale up.

And what I'd probably add to that, Matt, is as that scale occurs, the margin profile is better for us with those newer NDAA compliant sellers, OEMs. So we expect the mix to work in our favor. But also, I think your question also implied the notion of some of these other services that we provide, and the enhancement of those services tends to drive margin up as well, which we would agree. Right now, the services tends to be quite a low percentage of our overall mix. Uh, and so, as we see more in the area of repair, maintenance, training, et cetera, some of the, the areas that Jeremy, uh, talk to, uh, we would expect margin to expand. So. You know, the question behind the question is, what do we believe about margins over time? And, you know, this is a business that can see a fairly, as a percentage, a fairly significant increase from where we are today. You know, it's not infinite, but, you know, we can see better than the 19 to 21 that we've guided to. We would expect that to be higher in future years.

As a final reminder, if you would like to ask a question, please click on the raise hand button which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk and then you will hear your name called. Please accept, unmute your audio and ask your question. We will wait for one moment to allow the queue to form. Our final question will be a follow up from Robert Barrow. Robert, please unmute your line and ask your question.

Yeah. When it gets to $10 a share, can I get a, uh, a vest like yours?

You know, I, I'd probably get you a vest sooner than that, Robert, for, um, I, I, I'm not going to be greedy. I won't wait until $10.

I just figured I had a little lightheartedness to the whole thing.

Yeah, no, thank you very much. Thank you. Yeah. And, uh, Uh, as as the last question, uh, you know, I do want to, uh, again, reiterate our, our gratitude for you, uh, spending time with us, uh, here again, uh, this afternoon. Uh, hopefully the, uh, you know, the information is, uh, substantive. It's on point. Uh, it's clarifying. Our objective is to be transparent and forthcoming with both our performance, our current performance and our anticipated performance with the business. Our focus, again, as a business is really on the Drone Nerds platform. Our unmanned systems platform, we think we're extremely well positioned as a company. Many of you may have heard my use of the predicate of Amazon. And I know it's a bold statement, but I think it's absolutely appropriate. The Drone Nerds is the Amazon of the drone industry and the commercial and enterprise space. And what does that mean at the end of the day? Well, what that means is we understand all the demand signals that are out there. We know why people are buying. We know what they're buying. We know what matters. We know what configurations matter to them. And then that kind of insight, evidence through the data, gives us almost infinite ability to maneuver in the future, whether that's in the area of manufacturing or that's in the area of really expanding ourselves into government work. But none of that is possible if we don't have our base solid and solidified. So right now, our focus is squarely on ensuring that Drone Nerds is optimized fully. And we will be opportunistic in other areas. We will limit any kind of spending that we're doing right now on anything other than Drone Nerds. And we'll just simply allow the market to evolve around us as we enjoy the fruits of the labor here with drone nerds. And we continue to see revenue growth, margin expansion, cash flow improvement. And once you have that base solidified, there's a number of things you can do with the business. But until that's, you know, until your house is in order, you can't, you know, you can't. And we're, you know, we're in the process of coming off of a longstanding development, design and development business. We had to focus on radical cost reduction. We're continuing that in through the second quarter as we realign our cost structure for the business that we are today. You'll see that in the numbers as each quarter progresses. And And we anticipate, you know, very productive, very significant things for the company in the future. So thank you all for your support, for your continued interest in us. And, you know, we just invite all of you to keep taking a look at us, holding us accountable, and we'll keep bringing you the information. So thanks. Appreciate it. And we will talk to everyone either on the road or next quarter.

includes today's call. Thank you for joining us. You may now disconnect.