AIRO Group Holdings, Inc. Common Stock (AIRO) Earnings

Management highlights

### Strategic Shift & Portfolio Optimization - The company is executing a deliberate strategic repositioning to become a focused pure-play drone company, targeting the most significant immediate and long-term growth opportunities in the sector - Strategic alternatives are being evaluated for the asset-heavy training business to align the full portfolio with Arrow's capital allocation and long-term growth vision, while CDI remains a valuable asset with underlying demand - The company maintains a strong, minimal-debt balance sheet, and follows a disciplined capital allocation framework that prioritizes high-return investments in core drone/avionics growth; at current valuations, share repurchases are viewed as an attractive use of capital, and management will evaluate accretive inorganic acquisitions that enhance core platforms ### New Product Development - Three new drone platforms have recently been launched to broaden the company's addressable market: the RQ70 (complementary to the core RQ35 Hedron platform with extended range, higher payload, upgraded sensors, and competitive pricing), and the JC-250/JX-250 (which offer over 1,000 miles of range and 16 hours of endurance in ISR configuration, leveraging patented slow rotor technology) - First flights for the JC-250/JX-250 are targeted for late 2026, with commercial launch and operational readiness expected in 2027 - AI integration is a core differentiator and product priority: AI is already embedded in the sold RQ35 Hedron, enabling real-time threat identification, improved navigation, situational awareness, and autonomy even in GPS-denied environments, with full fleet AI rollout planned - Aspen Avionics is advancing next-generation sensor and navigation solutions to maintain market leadership, with deepened integration into Arrow's drone platforms expected to create operational synergies, reduce supply chain complexity, and improve long-term gross margins ### Operational Milestones & Infrastructure - Arrow reaffirms its target to receive Blue UAS certification in Q2 2026, a critical milestone that will open the large U.S. Department of Defense market and enable rapid scaling of domestic U.S. production - The company has completed full assembly of RQ35 Hedron drones at its new U.S. manufacturing facility in Phoenix, Arizona, supporting its Made in America expansion strategy - Manufacturing capacity has been scaled in Denmark and the U.S., and business development investment has been increased to expand the domestic and international revenue base and reduce inherent quarterly revenue variability - As of March 31, 2026, the company held $54.2 million in cash with minimal outstanding debt

Guidance

- Management reiterates its full-year 2026 revenue growth guidance of 15% to 25% year-over-year, and notes that Q1 2026 performance is expected to be the low watermark for both top and bottom line results for the year, with management seeing a strong opportunity to outperform the guided range - The full-year 2026 adjusted EBITDA guidance is initiated at a loss in the negative mid to high teens million dollar range, with the majority of the full-year loss expected to occur in the first half of 2026 - Revenue is expected to split 40% in the first half and 60% in the second half of 2026, with Q3 2026 expected to be sequentially lower than Q2 2026, aligned with the expected timing of large drone order deliveries; a record fourth quarter 2026 is projected - Full-year 2026 gross margins are expected to see low single-digit percentage point compression compared to FY2025, driven entirely by Q1 2026's mix shift toward lower-margin drone upgrades - Increased 2026 investments in scaling operations (R&D, sales and marketing) will be partially offset by a year-over-year decrease in general and administrative costs - For 2027, management expects revenue growth to outpace the 2026 projected growth rate, with U.S. demand expected to be a key driver of outperformance

Segment performance

Company-wide total revenue for Q1 2026 was $8.9 million, down from $11.8 million in Q1 2025. Gross profit was $2.4 million (26.6% margin), compared to $6.9 million (58.8% margin) in the prior year quarter; gross margin compression was driven by a Q1 mix shift toward lower-margin drone upgrades. Operating loss was $17.2 million (vs. $3.1 million in Q1 2025), net loss was $15.5 million (vs. $2 million in Q1 2025), and adjusted EBITDA was negative $12.8 million (vs. near break even in Q1 2025), with losses reflecting planned post-IPO growth investments and product mix dynamics. 1. Drone Segment: Total drone backlog exceeded $150 million as of April 30, 2026, stable from the prior quarter, with the majority expected to convert to revenue within 12 months. Backlog excludes unreported U.S. DoD orders, which will add upside once Blue UAS certification is obtained. Q1 revenue was driven by drone upgrades, which created temporary margin pressure, with full system deliveries expected to lead revenue for the rest of 2026. 2. Avionics Segment (Aspen): Revenue was in line with internal Q1 expectations. Segment margins were impacted by temporary upgrade-related pricing programs and timing of operating expenses, which do not change the company's positive long-term outlook for the business. Consistent demand for Aspen's sensor and GPS offerings is supported by a solid pipeline of multi-year OEM agreements, and the segment retains a critical strategic role via synergies with the drone business. 3. Training Segment (CDI): Performance was in line with expectations, with inherent quarterly variability characteristic of the segment. Underlying demand for training services exists, but recent available task orders have not been favorable to CDI. The segment is asset-heavy relative to Arrow's core growth priorities.

Risks & headwinds

- The company's business model has inherent quarterly revenue lumpiness and variability, driven by the large, country-specific order dynamic of NATO business and occasional supply chain timing impacts, though management notes these variations typically normalize within the calendar year and do not affect full-year performance - Blue UAS certification and associated U.S. DoD market access remain pending, so upside from U.S. orders is not yet included in current backlog or guidance - The training segment's current available task orders are not favorable to the business, and its asset-heavy model creates a strategic misalignment with the company's current growth priorities - The company's stock price is viewed by management as disconnected from the underlying business value, which may impact equity capital access if needed

Analyst Q&A

• Q: What is the latest status of the Bullitt and Nord joint ventures, including closing timelines and expected future financial contributions?

  A: Regulatory approvals for the two JVs are still being finalized, though terms are largely agreed and progress is good, with the company targeting a timely closing. JVs are strategically valuable because they expand Arrow's access to international markets beyond its existing footprint, and the company continues to evaluate additional aligned partnership opportunities. No financial contribution estimates were provided, with updates to come once closing is complete. ---

• Q: Can you provide quantitative details on the size and composition of your current drone sales pipeline beyond the reported 12-month backlog?

  A: The $150 million reported backlog only includes out-of-U.S. Skywatch drone orders expected to convert to revenue within 12 months, and intentionally excludes growing backlog for U.S. orders and newly launched products to maintain conservatism. The full pipeline is expanding monthly across geographies and customer segments, with substantial unreported upside from future U.S. sales after Blue UAS certification. ---

• Q: What is Arrow's position on the Drone Dominance program, and are you planning to bid on future phases of the procurement?

  A: Arrow is currently participating as a subcontractor in the refined Drone Dominance bidding process. The company has full U.S. manufacturing capability, can deliver fully NDAA-compliant (no Chinese component) airframes, and is developing additional internal airframe designs to enhance its production capacity. Management expects additional phases of the Drone Dominance program to be released in the near term, and Arrow is positioned to participate.