Palladyne AI NASDAQ: PDYN reported second-quarter revenue of $5.8 million, a company record that rose 63% sequentially and 470% from a year earlier, as it cited growth across its precision manufacturing, avionics, engineering services and AI development activities.
The company reaffirmed its 2026 revenue guidance of $24 million to $27 million and said it expects full-year operating cash burn, including capital expenditures, of $32 million to $36 million. Management said it expects cash burn to decline in the second half as revenue and margins increase.
“The quarter showed progress in the areas that matter: revenue, contractually committed backlog, proving out our autonomy software with customers in the field, repeat component orders, and a much larger opportunity pipeline,” President and Chief Executive Officer Ben Wolff said on the company’s earnings call.
Backlog Rose as New Awards Reached About $13 Million
Palladyne ended June with $24.6 million in backlog, up 43% from the prior quarter. Wolff said the company booked roughly $13 million in new business during the quarter after accounting for revenue recognized. Chief Financial Officer Trevor Thatcher said Palladyne expects a majority of current backlog to convert into revenue over the next 12 to 18 months.
Thatcher said second-quarter product revenue was $2.7 million, primarily from precision manufacturing and the company’s BRAIN avionics product. Engineering services revenue totaled $1.9 million, while AI product-development contract revenue was $1.2 million and accelerated late in the quarter after government shutdown effects had suppressed first-quarter revenue.
Consolidated gross margin was about 29%, with cost of revenue totaling $4.1 million. Thatcher said the margin reflected manufacturing utilization below full capacity as well as setup costs and investments for programs whose revenue has not yet begun. The company expects the capacity it is carrying to support margins as program volume rises.
On backlog composition, Wolff said roughly half is associated with product sales, about 30% relates to software, and the remainder comes from engineering services. He cautioned that software-related revenue currently consists mainly of military trial and development contracts rather than high-volume software licenses.
Losses and Cash Burn Increased During Investment Period
Research and development expense increased to $4.3 million from $3.1 million a year earlier, reflecting investment in Gremlin-X and AI software. General and administrative expense rose to $8.1 million from $4.2 million, driven by acquisition-related headcount, hiring for new opportunities and stock-based compensation.
Stock-based compensation was $2.3 million, up from $1.1 million a year earlier, largely due to executive equity awards approved by shareholders in June. Thatcher said the expense will rise materially in the third quarter because only about one month of expense related to those awards was recognized in the second quarter.
Sales and marketing expense rose to $2.3 million from $1.3 million as Palladyne expanded business-development efforts in its aerospace and defense operation. Operating loss was $13.4 million, compared with an $8.1 million loss a year earlier. GAAP net loss totaled $12.3 million, or $0.27 per diluted share, compared with $7.5 million, or $0.20 per diluted share, a year earlier.
On a non-GAAP basis, net loss was $10.8 million, or $0.23 per diluted share, compared with a $6.4 million loss, or $0.17 per diluted share, in the prior-year period.
The company ended the quarter with $43.7 million in cash equivalents and marketable securities. Operating cash burn, defined as cash used in operations plus capital expenditures, was $11.1 million in the quarter, including $10.2 million of operating cash use and $900,000 of capital expenditures.
Palladyne received approximately $10.8 million in net proceeds from its at-the-market equity program during the quarter. During the first half, it raised $17.3 million through the program at an average share price of $6.84. As of June 30, it had about $24 million of remaining capacity under the program.
Defense Programs Highlight SwarmOS and Gremlin-X Progress
Wolff highlighted field exercises involving the company’s SwarmOS autonomy software and Gremlin-X drone. During the U.S. Army’s Ivy Mass exercise, soldiers from the 4th Infantry Division used SwarmOS to command a mixed group of surveillance drones and Palladyne’s Gremlin-X in what the company described as a contested environment. The company said a single Army operator controlled the group of unmanned aerial vehicles.
Palladyne also said SwarmOS and Gremlin-X received U.S. Army contracts under the Disruptive Applications Program. Following Ivy Mass, the company was informed that certain fiscal 2027 contract options would be exercised and that it had been invited to further exercises.
During the call, Wolff said the company’s performance at the PCC6 exercise showed that relatively inexperienced soldiers could manage multiple drones without having to micromanage each platform. He said Palladyne also tested its system under degraded communications conditions, integrated with Anduril’s Lattice platform, and shortened training time for users.
Gremlin-X advanced from technology readiness level 6 to level 7 during the quarter after five design iterations and field testing, according to Wolff. He said the platform has not yet been tested in live-fire, actual battlefield conditions.
- Palladyne received a follow-on BRAIN flight-computer order from a defense prime contractor covering more than 1,000 FC1 units and valued at about $2.3 million.
- The company signed a $4.2 million HANGTIME contract with the U.S. Air Force to extend its technology to integrate sensors from other domains, including space.
- Palladyne said it was among 14 companies invited to the Air Force’s Relentless Wolfpack Industry Day, where it proposed SwarmStrike, its low-cost mini cruise missile concept.
IAI Partnership and Commercial Automation Strategy
Palladyne’s June partnership with Israel Aerospace Industries gives it rights to Americanize, manufacture and integrate IAI’s HAROP, HARPY and Mini HARPY loitering munitions for the U.S. Department of War, according to management.
Wolff said Palladyne has engaged with roughly half of the U.S. government organizations it identified as potential customers and has encountered interest across those discussions. The company is developing a shortlist of available facilities that could support domestic manufacturing if government demand materializes.
Management said initial units could be available in about 18 months once a clear government demand signal emerges and domestic production work begins. Wolff said the company could outgrow its current manufacturing footprint depending on the volume requested by the government.
In its commercial and industrial business, Palladyne is focusing Palladyne IQ on difficult, repetitive or hazardous work, including surface preparation and corrosion treatment. The company’s robotic work at an Air Force logistics center received an additional $2.9 million award during the quarter, bringing the program’s total value to more than $10.6 million.
Palladyne is also shifting IQ and Pilot to a partner-led go-to-market model rather than attempting to sell and deploy every solution directly. Wolff said the company expects to share more about both products in coming quarters.
Looking ahead, Palladyne said it has submitted proposals for more than 20 Department of War funding programs with aggregate initial potential value in the several-hundred-million-dollar range. Management cautioned that timing and probabilities vary by program and that the company may not win the proposals.
About Palladyne AI (NASDAQ:PDYN)
Palladyne AI Corp., a software company, focuses on delivering software that enhances the utility and functionality of third-party stationary and mobile robotic systems in the United States. Its Artificial Intelligence (AI)/ Machine Learning (ML) software platform enables robots to observe, learn, reason, and act in structured and unstructured environments. The company's software platform enables robotic systems to perceive their environment and quickly adapt to changing circumstances by generalizing from their experience using dynamic real-time operations without extensive programming and with minimal robot training.
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