Earnings call transcript Q3 2023

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Operator

Ladies and gentlemen, thank you for standing by. Good morning, and welcome to the Red Cat Holdings Fiscal 2023 Third Quarter Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

playback are being the Internet broadcast also recorded call conference of and this being is call live for of advised audio that this is Participants purposes. over the call A webcast after end the of be XXXX. approximately through X, one the June will call replay hour available the of

the now company's Please firm. Investor turn to Gordon, call would I to President Scott Relations go over like of the ahead. CoreIR,

Scott Gordon

XXXX everyone. morning, Red you, you quarter joining us and Good the update fiscal Thank on call. Cat Holdings corporate for Thank third results financial Kate. conference

Thompson, Joining Executive Financial Red us today Cat from and Holdings Chief are Hernon, Jeff Chief Joseph Officer; Officer.

this expectations During including Cat’s for statements future forward-looking performance results. be management call, or making Red statements that address operational will

may from differ results Forward-looking statements cause involve actual those risks materially that to and statements. factors other

call information contains time-sensitive X, accompanies update call, about only periodic recently March most risk and revise in press please publicly Red The it. refer Red XX-K, XX-Q today, risks, cautionary filed in required described obligation to content this these Except information events Form this or to Cat’s any occur is reflect that after that any this as disclaims of law, XXXX. factors as particularly that by For or the the statements accurate to Cat’s circumstances in Red information reports Cat of Form on more call. release

to Executive Jeff It is Chief over ahead. to now Thompson, call pleasure Jeff, the please my Officer. turn go

Jeff Thompson

quite just year prepared have a brief call. going my I'm our we Great. remarks email Thank questions. conference you. was I to Welcome XXXX few third earnings fiscal quarter to as keep told,

very month division. the status the the of sale I'll with this expected its or let's start consumer some is and So the has way, shed Machines have And the a later housekeeping to results proxy of on IPO and of would get out this Unusual proxy the we quorum And closing those cause now soon. voting of the early vote now deal. -- April. that has the

non-dilutive the As allow will and sale core a raise cash state-of-the art factory reminder, Salt of factory. complete us go. be ready responders. Red customers: a on the It We to first consumer for to now City focus is Lake our division grown event and will and military The have the Cat.

We produce and to per drone have X only XX month. camera have the with payload. completing drones Teal just in chips now of The job the thousands new make has of team thousands drones, months. we're Teal an We capacity to new incredible this the done producing

or and switch talk SRR, Tranche Let's of about X gears program Short record. Range Reconnaissance,

of previously but will size months. As receive Tranche has awards these the X from We new the features do into the to couple X. should not we been And know I X. happen in Army pushed include Tranche funds more mentioned, into yet, next Tranche the of

additional by Border for X. only is We Teal up there's Border year very for the on Border orders significant a shipment few in our made from the a first the weeks production this Patrol. Patrol. new believe are This was XX the started calendar feedback and We Next after systems opportunity encouraged mid-January. to Patrol

hoping inspection a Research project division I One Innovation drone compact Business we systems Skypersonic, out. Skypersonic, indoor Small for now. Navy significant or opportunities to has two and it, coming am On our call And is mentioned. a for where aerial SBIR, another the spaces. tomorrow, being I is Navy program program SBIR, to through just this The X. perfectly, Skycopter we're small actually and March Skypersonic. into get is This as elevated submitted matches and

that grant has is $XXX soon pass already the Act. is million This the for bipartisan second and House. Drone passed the is Grant The to Infrastructure expected Inspection a Senate

be to believe also are well positioned We we of part grant. this

that governments Torino, last from to different is previous This we In of introduce call are successful Torino, least am office is Italy. one to large of response We contractor. great trip more introductions weeks were the team [BOD] We campus. co-located were from a Leonardo where a Teal and very it's small the products. countries. getting X drone I Leonardo defense defense and and to doing myself fighters. organization a Skypersonic need goals two only of have week, Diana presenters. this the operators in had been Italian is one is we development The meeting. And this we invited the is, So great the been believe at and (ph) two and business NATO to five companies

new able also to initial contract source sell defense to finally, to I country the the positioned and became in Red we drones. sole warfighters the to countries. detail log that a Q&A. be be be we awarded Teal certified in jam we believe will and to for a included opportunities orders X in received little to more European these their also We the are get European catalog, address of to Cat in the identified bit breaking hundreds Ukrainian well have And

Lake I state over to build drones. summary, City, of a with before the completed hand to call Joseph, new of the In factory in thousands chip art have we Salt supplies

We'll couple this and in mostly recently, next military, have best first in great the to class development more from of new the responders. weeks. response yesterday, drone in come the have We market, as in on

material And and history our the drones outdoor sales, We in months have exciting and be products. six expect we indoor next our customers. military for to new company most our partnerships months the drones with six

your to to over that, to forward call hand going with the questions. Look Joseph. I'm So

Joseph Hernon

call and of will joining our quarter Jeff, a everyone results XXXX. our provide you, XX, January ended review today. fiscal now to I Thank the for financial on through which

XXXX. quarters and XXXX, our the of manufacturing facility compared margin a first we fiscal than fiscal increased second have as basis for Lake million $X of on at quarters in Gross three exceeded more the expanded challenged Salt to scale XX% to remained City. Revenues in date year refine continue to and three

processes. efficiency We our manufacturing to of improve product and margins shipments improve gross we increase forward assembly the expect as going and

Operating expenses compared costs prior Teal its nonrecurring quarter decreased quarter, quarter, and have with the of of to XX% manufacturing as in facility the subsided. the second the headcount the associated the expansion third level almost

expect cost to balance We fiscal of year and operating stabilize for end the the of through the XXXX.

than size totaled is from the Net for prior quarter compared tripling We of out more decrease approximately Teal, investments. fiscal million $XX third the ended loss fiscal as third than its doubling and a third a doubling build quarter to fiscal well in a directly the X% in quarter of per the facility at share, the headcount. prior $X.XX related significant million representing and the to $X.X more increase the quarter of That year. and the as or with cash manufacturing

chips, and addition, In finished Teal. product in including $X production we materials, for have raw drones million in invested

calendar this orders looking expect manufacturing sales inventory we trained, over XXXX. been of and expansion built in completed, We a expanding and sales and At of has repeat is been investment to support pipeline point, has the balance are the force over yield forward building new strong Teal the year. balance facility to this and our sales the and

questions. will I over operator the now the for turn call to

Operator

Michael, from a First Investor. question go Please Instructions] Private ahead. is [Operator Scott

Unidentified Participant

number for chips of Thank in reserve? you Hi. clarify that my we you taking the call. have Can

Jeff Thompson

since of hasn't X,XXX ago we're initial Which changed number Well, almost sets yield. two we chip to approximately with not put now. you a over Yeah. in -- XXX% going order the years the give

those end that scrap. produce could You're it, and make But X,XXX we going think we to have up some X,XXX drones. -- don't between

Unidentified Participant

we Should Okay. that orders Do for exceeds any you. Thank we a chips? production get capability? source this have large

Jeff Thompson

Yes. form. mean, Well, large But not any yet orders people chain watching or that at times. going I certain get the It's way, perfect certain shape that put news is the know everyone they're by supply shipments to understands, better. in

drones, the at X,XXX high continue able shift, You in as if supply on capacities X,XXX line then. give for next big us it now, second about the factory you'll another more thousand A, not we get But to, we item X, be -- we're key we having get X then and fully day to add about the first for orders -- drones running door. an us, get you'll shift, right concerned drones get getting order it's more a the for

We so. have room do to the

So top of We've on are there invested own factory the offices, now. flying now the all all sitting the people that's engineers of inventory. we a and area that in work, and their now. have actually They're

we're reconstruction is basically, because So, all now while you're was of construction, in a doing over. like, difficult kind in do of that middle the house to stuff living

that And large the we to so, capability will we receive. any meet orders have

Unidentified Participant

Okay. Thank you. Two questions. more

suggesting until I that or would X it next this testing size news have there the and that combined of and I Was X because may the correctly, incorrectly. Is be to of we there that soldier of X is To was state If year. award, You read posted year. should article day couple suggest in the to end or that have that referenced being Tranche this the was award you that me beginning of year and or the regarding fall that pertaining read the will not into accurate? army the an Tranche in would other that months. said that it your next are tranche be

Jeff Thompson

Yes.

What that, in contract typically referring that of which that's flew company every flew get to there talked and heads team, for won ago. about the article. up But on was, contract not We And X, in flew where what a a that, usually think, team, engineering a they the industry win was the they Teal each I the the originally close started team not X alpha the is three product. they that. X almost So as report And Tranche demo we our day. is, I anyone you can we did contract, prototype years I Tranche Very drone alpha to actually first knows saw that and in drones what production but prototype flawlessly contract. a same has did was proud three had production could as the the -- We basically the was January test, a which day, tranche great that for I initial tranches get day. case.

And that. Tranche us won contract -- start pushed And and there. so which going they Tranche prototype X of into Tranche which a was X, X, awarded after then they three there's was that to had

been money receive nine get X. -- months have to Tranche which everyone's year, that Tranche about six X, a to typically for going for the So would you in to

that So the of probably couple next award in months. will happen

Unidentified Participant

one split and Skypersonic? entity? Vantage is that is that I simply going there award And that be Excellent. believe possibility up is Is will a among it be that awarded three there which to the to possibility

Jeff Thompson

going it's be believe it's it's don't you, but to want -- entity, and not We I correct to it’s one Skypersonic, actually Skydio.

Unidentified Participant

No, I'm -- sorry that. about sorry

Jeff Thompson

That's Yeah. okay.

did I Skydio, but don't got they $XXX point know two So recently or saw, if a million for financing something they billion you valuation. --

And believe industry. But That's just that here the someone's think one for makes going really us of X, military. on got alarm And up. they that well we our considering solely look I customers and the inexpensive in deal right position with. Tranche an we we're positioned focus the

reconnaissance mostly missile they're of purpose tools help has first doing with nature. that stuff sole for now, things some and think guidance make but and sure consumers to the is I responder warfighter our and the to

to I do. that want well are companies positioned even other don't the do Something to think or

Unidentified Participant

to have The time. the our that we of your DoD product? ups country interest DoD appreciate in four going on potential any off NATO I or question, been Or any to trip contracts, have signed wait not the do NATO so NATO off terms in final interest we're One for have on sign to we Excellent. sales?

Jeff Thompson

No.

we all like, the drones the NATO for proper all We hope. the what sold have for, paperwork that we original countries. We in

get through all things ITAR all all regulations and squared So the we are away. someone of orders them, those

that So us nothing in aspect. hold up will that

Unidentified Participant

you Thank for your Excellent. time.

Jeff Thompson

you. Thank

Operator

[Operator Instructions] CoreIR questions the pre Scott? This to concludes management. of I to submitted the question-and-answer call return read Scott participants. Gordon will from now session from call

Scott Gordon

questions thought address for few this a you Thanks recently would investors Jeff, be to again, Kate. forum received a good and from we them.

initial kind shipment just the have the Patrol? expect you I'll So to to ask XX Border more these an update following drones the Border them? in Patrol Do of sales Do of sequence. on contract you

Jeff Thompson

And did These order, month. tens we sometimes first flying great border hours They a let these fly by drones. users. of We're getting are them, and They which of shipped program. some learned about with are in every air to force. January. think, the these know folks, some out fly, getting agents receive just there guys super of these lot Yeah. start from that, thousands themselves They're we've I one is this heroes. feedback in the after we Well, me the

they So cameras that products we're make Border address But thermal up them. of very can sure them meetings no sure service. to so market gathered is, specifically are happy in they that make that have to in one our XXX there's typically help have from need XXX can give always on Patrol what stay we've sneaks service, about to to them, that other drones XXX or from the and drones

I these think addressable up XXX in that could is drones. months, option of Patrol saying So not the they've believe we're been the drones next that market flying. replace for to XXX couple that getting the that's -- to for older drone but be total Border an We're close possibly order we

Scott Gordon

NATO from some. you on other to obviously, I you but you Ukraine with trip little success that Any can do and recent a countries? Europe? touched Ukraine I NATO think countries, to to over amplify. your anything Switching bit, or other shared share you have mean, Excellent. maybe

Jeff Thompson

Yeah. It's up little me a well, bit. back -- let

have for years. defense most happening companies record are already been sales place with of So that programs that have the in of are other

dollars’ One done things frankly, hundreds and did, would have good and like, would of have millions have sold drones With record. be, long of switch as that with record (ph) they've that, party But Ukraine don't of been If place. in a of for [indiscernible] invasion. of payload. payload birds nature the [SMS] in programming the sales worth (ph) the as them of programs already don't we our blade have term [Puma] we some we

Tranche, drones Ukrainian to be they people So that of since through the X, we yet get don't into program to record have -- have to be the have of army. creative

found want the if we get of very had that what the steps operators right in had to those to on the want. line the a use some They want we've a article So to now done end missions people drones [indiscernible] great out, great right high The detection. XX% at or would at thermal plus drone are can night, that fly of XX% plus horrible, using which to night. all them which are are -- have they're done missions ones allow front

could that's them to, magnificent. We camera, XX the we And XX is So an FYI, give enable they megapixel, our our EO have fly it that actually want megapixel daytime that a I night. our updates them from just software to tools also just camera could think, made all improvement. went great

operation also. daytime the is incredible So

we the this, over of new once drones anyway, then we're have that's think the part people that checks can But have $XXX the to we get over that the write it thousands then can existing information the been the want and this to tell million drones. take And information they're you that DC. and we be need need -- $X capital, recently, of going in the even We DC, close. to the then to billion. we And can that actually to to aid drones they from first, in to people going get have people they really

know works. now We've been we here have results we very it, it over soon. to working So on and some hope how

Scott Gordon

Switching gears.

So meet to do this Cat to question contract? need needs, financing a will addresses Red financing

Jeff Thompson

a know great don't And And Army over consumer that do probably -- revenue -- to team margin Cat remind the they is give goggle to a some things that is already as just share A, there, actually actually Machines, But out very we that's shareholders the something right to IPO. we're growing do to [indiscernible] receive also [indiscernible] then going division X. of Tranche you see a there the of XXX% we'll people: And significant we're going anyway. to So ownership there. size rapidly the Red have Unusual the going cash. sale of produce company leading just

will. and help think that's they're successful only I going IPO, Red it. think And we happy they very be So of to And I'll be Cat. to a have part to going

and focus that excited going on they we think focus that responders. help So need divisions their have but the two so And to require us they thrive. can military that'll to we're can they get so first pretty are IPO, them and I

And way the sales, even bring runway sales, additional now. and sales. [firm] capital I So without investments new even that's that's chipsets between all those made start building sales, going And to those the bit of we that quite revenue. that (ph) years all now focus the have we capital, on things, a in will down are though to think, with we've factory, just producing ready of

couple first going for going of five to is runway is orders, As up we XX significant go years. get that up

need there's right financing of So no now.

Scott Gordon

The live the in last question was Q&A. addressed

concludes questions submitted. that our So

So closing remarks. thank I'll you. Operator, over call back Jeff for to the turn

Jeff Thompson

We've I sat Thanks all everybody Thanks. now flying This drones great for going a the it lot artillery been great. in dev of they fields want job. doing Well, what for know go thank and a freezing team, been I to light work. and our hours joining. off. We off hard employees. through. doing buffs to would Everyone's

So a to state and of completed work. I we have everybody to hard now my all Salt And new art just of kind fact my the want remarks, just for in summary the going because restate thank Lake I'm City.

thousands build to of chips of tons have We drones.

response. is drone Our now class getting best in the a great

responders have military. We to some coming few with get the new legs And its starting in over is weeks. the first next will news Skypersonic

things of joining to be That's coming for you. call. all with just here I So I'm excited your And of very the thanks exciting opportunity, have. lots lots And way.

Operator

presentation. today's attending concluded. has Thank for conference The now you

disconnect. may now You

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