Red Cat Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2025

There are 6 speakers on the call.

Operator

Please note this event is being recorded. During this call, management will be making forward looking statements, including statements that address Redcat's expectations for future performance or operational results.

Operator

Forward looking statements involve risks and other factors that 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 reports on Form 10 ks T, 10 Q and in the Redcat's press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time sensitive information that is accurate only as of today, 05/14/2025. 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. I would now like to turn the conference over to Chris Erickson, CFO.

Operator

Please go ahead.

Speaker 1

Thank you very much, and welcome, and good afternoon, everyone. Super excited to have everyone join today. This is Chris Erickson, CFO of RedCap, and with us on the call as well as Jeff Thompson, our CEO. I know most folks on the call want to hear more from Jeff on this morning's announcement, which has been super exciting, but I'm first going to take my two minutes of fame to give you a few key financial highlights for the quarter. First, I'm excited to share the Black Widow manufacturing started this month to begin deliveries to the Army in June.

Speaker 1

We currently have a non SRR backlog of $10,000,000 for Black Widow and H-130s to start delivering in June. As far as our guidance goes, we are reiterating our 2025 annual revenue guidance of 80,000,000 to $120,000,000 Also, please note that consistent with previous communications, we also reiterate that the bulk of this revenue will be recognized in the latter half of twenty twenty five. We ended the quarter with $9,000,000 in cash and receivables, which was immediately bolstered with the $30,000,000 capital raise in April. This liquidity has given us strength and ability to expand our manufacturing to meet the significant ramp in deliveries in the second half of twenty twenty five. We are currently expanding our FlyWave manufacturing facility in California to produce beyond 150 drones per month, and we have started discussions to expand our Black Widow production to an additional manufacturing facility outside of Utah to take us beyond our 600 plus drones per month.

Speaker 1

Now with that being said, I want to turn the time over to Jeff to add his commentary and give us more details on the new USB division. Jeff,

Speaker 2

for joining the call, and thanks, Chris. I'm also going to be brief as we have received a ton of questions all day, so I want to get to them in the Q and A. I'm going to start with Flightwave, then Black Widow and SR, and then finally, our exciting SUV news from this morning. So Flightwave, we have good news and bad news, and Chris touched on this. We continue to have very strong demand for the Edge 130.

Speaker 2

John Webb, our new President, is doing a great job scaling. But to get to that 150 drones per month by the end of the year, we'll run out of space. 150 drones per month is approximately $81,000,000 in annual run rate. So instead of moving in six months, we are ripping off the Band Aid now and moving into a larger facility, same landlords with no penalties or paying two rents. We have brought a lot of expertise and process improvements along with product improvements and more reliable production.

Speaker 2

Flightwave is going to be a world class production facility. I want to thank the team out there. They're doing a great job. Let's move to the Black Widow. We have similar news with the Black Widow production.

Speaker 2

We are also seeing strong demand that is not SR related and we are going to be starting a second geographical location in California to give us more capacity and redundancy. And with the possible large plus ups in the new budget, we want to be prepared. SRR. We know that everyone is waiting on this contract to be signed, so are we. Internally, the contracts are called TD1, TD2 and TD3.

Speaker 2

TD1 is the one that we signed in late March. TD2 is a contract for UVC, which is universal controller, And we've got some great news and results coming in the next few weeks on this incredible project. CD3 is what most people refer to as LRIP. We have not received the final contract yet, but I did actually sign some paperwork that was last night that was connected to TD3 LRIP. So we're hoping to see this soon.

Speaker 2

We also right before I got on the call, so I'm changing my script that I had twenty minutes ago, started seeing parts of the LRIP contract or TD3 come across the portal. We haven't had a chance to review anything. It might just be the services side of the contract. But we expect to have this contract any day now, if not tonight or tomorrow morning. And as soon as we know, we will let you hear.

Speaker 2

We are probably going to let the Army announce first, and then we will follow-up with a more detailed release. We're also hearing, like reported in The Wall Street Journal, that there is a large plus upcoming out of the $150,000,000,000 And there was a $3,100,000,000 announcement today from the House Armed Services Committee for unmanned vessel production. Let's talk about unmanned vessels. Our new Maritime division. So we've been working on this new platform for a long time, and I want to thank Brett Melakovich for his travel and diligence.

Speaker 2

We are building this in a different way than our competitors. USVs are boats. Boats are hard to build and scale, specifically if you don't have years of experience. We are partnering with some of the best boat builders in the world. And boats need propulsion and need jet propulsion to avoid props getting stuck in netting surrounding the ships.

Speaker 2

We have expertise on our team that started the jet boat craze. So we started this from the boat side, not from the tech side. We are also going to have a boatyard now in Florida that will build these boats and they will be made in USA. On the tech stack, we are fortunate to partner with the best solution that is used every day in a war zone and is used very successfully and has destroyed more assets than any other company or probably any Navy in fact. We are not announcing our partner's name for competitive reasons and for security reasons.

Speaker 2

We will have a product later this year that is made in USA with the most proven tech stack in the industry and a boatyard cranking out these USVs every month. And with that, I want to open it up to questions.

Operator

We will now begin the question and answer session. The first question today comes from Ashok Kumar with ThinkEquity. Please go ahead.

Speaker 3

The first question on revenue guidance and visibility. What are the key milestones or contracts that you must materialize in the coming quarters to reach this goal? And two is the Maritime Autonomy and the USV launch with entry into the unmanned service vessel market. What is the expected revenue contribution from the segment for 2025? And how do you assess the competitive landscape and the company's differentiation in the maritime autonomy?

Speaker 3

And any update on Mirasol two thousand inclusion?

Speaker 2

Sure. Well, hold on. Writing these down here, Ashok. Thanks for all those questions. So I'll start with the last one.

Speaker 2

We don't get officially notified, but we are for the Russell two thousand, but we are significantly above the lower goalposts that were from last year. So we're expecting to be part of that reconstitution at the end of this month. So we're pretty excited about that. On the competition space in the USVs, there's not many people building USVs of this size that have factories that are ready to start building boats, don't have a boat shipyard. And frankly, the competitors have kind of gone from basically a Silicon Valley model where they get a ton of money.

Speaker 2

They've never built a boat before. They put a bunch of folks on their board and basically try to start from scratch. We're kind of doing the opposite of that. We're going with some of the best boat builders in the world. We have a way to get into the boat manufacturing very inexpensively.

Speaker 2

So we expect to have a productive boatyard in Florida by the end of Q3. I don't think there's going to be significant revenue in 2025 from this, although we we have had a lot of partners call us today that want to use their products on our boat, whether it's missiles, we're putting our own drones on these. We were fortunate that we also have a drone company that has flying drones. These are just floating drones. So we can actually combining our swarms on top of these USBs is going to be a very powerful and very useful product set for helping in choke points in the Indo Paycom region.

Speaker 2

So we think we're in a really good spot for places like INDOPACOM. So that's where we think we're going to shine, having this type of range and having drones that are now gone through a five year process and were actually down selected for the Army. So we have a good combination. So and I don't remember the other question, but if you want to ask one more, we'll move on.

Speaker 3

Got it. And just the margin improvement in Palantir partnership, Jeff, how soon do you expect to realize tangible cost reductions and margin improvement from deployment of Palantir's warp speed manufacturing OS? And then in terms of factory utilization at Long Beach, what is the current and target monthly production capacity? And how does this align with the anticipated auto flow for the rest of the year?

Speaker 2

Yes. So as we mentioned, our goal was to get to approximately 150 drones per month for Flightwave by the end of this year. I'm hoping we still get there. We'll have plenty of room to do so, which will give us a pretty dramatic run rate going into 2026. But as also, as Chris has just mentioned, we are now producing FIGHTWAVES every month.

Speaker 2

We're now producing Black Widows every month. We've gone a few quarters now with fully loaded cost basis with no revenue, and that changes starting now, which is great. So we don't have factory utilization yet to give you. But like I mentioned in my prepared comments, there is about $1,000,000,000 plus up we're hearing all over the hill in the last week or so that's going to be going towards the UAS group. So we're pretty excited about that.

Speaker 2

And the best way to prepare for that is to have drones that you can ship right away. So that is the goal is to ramp up production, have geographical diversity and to ramp the Black Widow as drastically as possible because in recent meetings with SRR leadership, they told us very, very frankly saying, as soon as we field LRIP, we are going to go big. And that lines up with what they said in The Wall Street Journal recently that the Army is going to go big for small drones and small weapons, like we're constantly hearing where Doge is heading and where the headset sec def is heading. So I think we're in a great spot.

Speaker 3

Got it. One last question, Jeff, is just the key milestones or contracts that must materialize in the coming quarters to reach your annual guidance and just the liquidity or the cash burn, right, with the 30,000,000 raised post quarter, right, and the operating cash outflow of 16,000,000 right, question any color on the liquidity there at the current bond rate?

Speaker 2

Yes. We're I mean, we did just raise $30,000,000 And as Chris said, that we ended the quarter before that with $9,000,000 So we are very well financed right now. We're very excited about that. Now we're just worrying about building drones, and we are. So I think we're again, financially, we're in a great spot right now.

Speaker 3

The

Operator

next question comes from Glenn Mattson with Ladenburg.

Speaker 4

Yes. Hi. Thanks for taking the question. Just quickly, first on the color and the language sounds like the year is going be even more back end loaded than we had previously thought. Can you just talk about there's a good amount of inventory.

Speaker 4

The inventory has risen a bit and you had some backlog coming into this year. So can you just talk about why you're adjusting these the capacity that you have and making expansions there. But can you talk about what you can do in the meantime in terms of generating revenue in, say, in Q2 and your thoughts around that?

Speaker 2

Yes. So we I mean, the whole goal was we would have been producing Black Widow sooner and using that inventory, if we had a final version from our partners. And we didn't get that until the very I think the March 27. There's no way we're going to be building drones that weren't up to the request from our biggest customer, our soon to be biggest customer. So that's why we had to wait until this quarter to start building.

Speaker 2

So you'll start seeing that we are still obviously, we've got plenty of money to get the inventory in. We don't have long lead times for anything anymore. I think our longest lead time now is six to eight weeks, which we plan for. So you'll start seeing that go down, but we'll also just continuing now that we're going to start ramping both production lines. We'll have some hiccups with Flightwave switching into a new place, but it's right down the street.

Speaker 2

It's about zero five mile away. So that's not going to be a big hiccup, but we'll be able to lay out the factory perfectly before we move. And it's going to be a beautiful facility. It's going to be able to scale very quickly. On the Black Widow side, we're just adding a location.

Speaker 2

So we're not going to disrupt the Black Widow production going forward as we start making deliveries to the SRR program of record next month. So I don't if I answered the question. Go ahead.

Speaker 4

Yes. No, no, it's very helpful. I just wondered if there's some finished goods that are in inventory that you could ship against the backlog that you came into the year with, maybe a slight waiver or something. Just curious if there's any of that going on as well.

Speaker 2

I'm still not sure I understand your question.

Speaker 4

I thought in my opinion, I thought there was like a 13,000,000 or $15,000,000 backlog coming into the year for Black for I'm sorry, for Flightwave stuff mostly. So I was just thinking if you could ship against that backlog with some finished goods. Yes.

Speaker 2

Did actually deliver some of those. We some of that was delivered with the Australian deal that we received in some of even a little bit of it last year out of Flightwave and some of it in February. So that has brought down some of the backlog. But the Flightwave, I think, will end up going up in backlog against with the Flightwave because it's now that we have drones to fly and demo, we will be able to get out there. We are a tremendous amount of demand to see this bird fly, And we're just getting them in the hands of our sales team now, now that we've got some production runs under our belt and the sales team can actually get drones to go demo.

Speaker 2

So we have brought some of that down from 13% to, as Chris mentioned, 10%.

Speaker 4

Great. Moving on to the surface vessel program. So I'm not clear, are you going to are you partnering with the shipbuilder? Or are you going to own a shipyard? And how does that work?

Speaker 4

And I'm just also thinking about the President signing a directive on shipbuilding in The U. S. And if there's maybe some federal support or just some directive by the federal government for this kind of activity.

Speaker 2

Yes. We have even before the announcement today, we have been meeting with the correct people that are behind all of that in the administration. And there's as I mentioned today, there was just a $3,100,000,000 unmanned vessel that came out of the Armed Services Committee. There's the executive order for bringing shipbuilding to The United States is something we're directly responding to, and we're getting great support from this administration. So I think that to back in the other question, we are going to own a boatyard in Florida.

Speaker 2

We are getting with the partnerships that we're doing are helping us with some of the prototypes that we're building to build the moles, to build the plugs, to build the top. I mean the top of this vessel is kind of like a stealth bomber has special curves and I mean angles that deflect the radar. These things are fast so they can get to the enemy. And before they even know it's coming, we have specific radar pain on these things. They're very complex vessels, but they're just boats.

Speaker 2

And you got to build a hull first. And so we will have a boatyard building these hulls and putting all the propulsion systems in there. And we have some of the best folks in the space to do that.

Speaker 4

Great. Super helpful. Very exciting. My last one for me is, can you just give a do you have a are you comfortable sharing an estimate for what CapEx would be this year with all these plans going on?

Speaker 2

We don't have it for this call. We will we're digging in right now and building out this bill of materials that we need for this new USB, all of the cameras, the satellite communications, the magic that we're partnering with that goes into this box, the artificial intelligence and all of the stuff that makes us such a lethal vessel is not mapped out in the bill of materials to the factory yet, but we'll have we'll be able to get that information to you probably for the next call.

Speaker 4

Great. Okay. Thanks, Jeff, for answering all the questions and congrats on all the progress.

Speaker 2

Great. Thank you. The

Operator

next question comes from Mike Latimore with Northland Capital Markets. Please go ahead.

Speaker 5

All right, great. Thanks very much. Yes, on the USV partnership here, can you talk a little bit about the genesis of this partnership? Were you and this other company pursuing similar programs together? SRR win create more communications?

Speaker 5

Or just what was the genesis of this partnership?

Speaker 2

Yes. So I'll go way back. And we've been looking in certain regions to look at some of this technology that's proven that we know can that has actually been in combat. And we through Brett's relationships, we found the best in the world at this right now. And we've actually already we did apply for the CAMP project, which is the DIU project for UUVs and USVs.

Speaker 2

So we have already applied for I don't know if it's a program of record, but they're pretty large contracts. We are jointly going after these. And as everyone knows, if you're going to the DIU, it's going to be made in USA and NDA compliant. So that's what we're going to be doing. These boats are going be made in USA, they're going to be NDA compliant.

Speaker 2

But yes, we are pretty excited how fast we're running right now and getting into the market and the market is kind of coming to us. The phone calls I was getting today were crazy. So we're pretty excited that we're going to have this boat running right out of the box because we already know how it all works because it's working today. It worked yesterday. It's a very complete solution.

Speaker 2

These are not prototypes. These are going to be out of the box effective weapons.

Speaker 5

Got it. Got it. And would this be something that say Palantir would want to integrate with and use data on this just like they use with your drones too or?

Speaker 2

Yes. No, absolutely. That's something that with our partners, actually, we are not only on the tech side, but we're going to be also utilizing warp speed for this new factory in Florida. So these things are going to tie in greatly. And I think when we bring the software stack from Palantir along with this proven technology partner we have that I think we're going to have an incredible solution that's never been seen before.

Speaker 5

Got it. Got it. And then in terms of your non SRR business for the year, can you highlight who might be some of the more important customers kind of within that non SRR bucket this year?

Speaker 2

Yes. So we have existing customers we've had for years that we went up against in some bake offs with our competitors. If you look at Border Patrol has been a customer for years. And now think of this as 79,000 miles of United States coastline. We can monitor these coasts with these boats that are autonomous, do not need people, don't need to sleep, could be constantly monitoring the entire coast, could have Black Widows and or Edge 130s on their soon to be Tricans.

Speaker 2

So once they do spot something, they can send the drone towards them. They also there's a lot of different customers in the first responder space that would look at this. We've you've

Speaker 5

got

Speaker 2

Puerto Rico that's constantly battling smugglers between the islands into Puerto Rico. So there's a lot of use cases for non SRR capabilities. Again, NATO is still pushing along for us. We've actually there are actually some folks are in our office in Salt Lake this week. So there are lots of other customers besides SRR.

Speaker 2

And probably the revenue from non SRR to the second half will be at least equal to SRR, if not bigger.

Speaker 5

Got it. Got And just last one for me. In terms of the cash operating expense you had in the first quarter here, how should we think about that trending throughout the year?

Speaker 2

Yes. So I think I kind of mentioned it. We've been here before where we had when we were launching the TL2, we had negative 10% gross margins because we had a fully loaded factory and had zero revenue. And then as we've basically been in that pattern, that flight pattern the last two or three quarters. So we are now delivering drones from both Flightwave and from the Black Widow.

Speaker 2

So that's going to someone's driving. Someone's that's going to reduce the cash needs very rapidly and it will improve our margins also very rapidly. And like I said, we didn't even mention, I think Ashok asked it earlier, none of this guidance has any Palantir revenue in it. And to just give a little bit of details on the guidance because I had a bunch of questions about this over the last few weeks. Actually, people said, with the continuing resolution slowing down your contract award, which hopefully is tonight.

Speaker 2

But the should we change our guidance? And myself and Chris have been putting the modeling together. And it might look daunting to people on the outside, but the way we're looking at it is to meet the bottom end of the guidance is Flightwave does 25,000,000 and we're very 25,000,000 We're very comfortable with that, specifically with the way it's going to ramp. On the Black Widow side, now in this new geographical diverse location that we're getting up and running as quickly as possible, You look at the last two quarters, when you break up, I guess, what's left over is $55,000,000 right? So some of that will be taken up in Q2.

Speaker 2

And whatever is left, you can just split that between these two locations, Utah and California, and they can split that delivery. I don't think the problem is going to be demand in our contracts. I think it's going be delivery. So we have been really working on that. So you break up the last two quarters for the Black Widow, half will come from California, half will come from Utah or 60% Utah, forty % California.

Speaker 2

So we are still comfortable with our guidance.

Speaker 5

Got it. All right, great. Thanks. Best of luck.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Jeff Thompson for any closing remarks.

Speaker 2

Well, thanks, everyone. It's been very exciting times. We a lot, a lot of time in some boatyards. We are now going to have three product lines. We got two of them shipping now.

Speaker 2

So we're very excited about this. And as we were getting updates during the call, we're very confident of getting or finally getting, as we call it, TD3 contract or as the rest of the world knows it as LRIP. And as I mentioned earlier in the call, we are going to have the Army announce it first and then you'll be hearing about it in detail from us. So this has been a big week. We were hoping we got that announcement before today, but it looks like it's very close.

Speaker 2

And everyone just have a great night.

Operator

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

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Red Cat Q1 2025
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