AIRO Group Holdings, Inc. Common Stock Q4 FY2025 earnings call

• 2025 was a defining year for AeroGroup with progress operationally, strategically, and financially. • Completed first RQ-35 intelligence, surveillance, and reconnaissance drones produced to full operational standard at U.S. manufacturing facility. • On track to receive Blue US certification in first half of 2026. • Skywatch awarded $4.5 million program to develop counter electronic warfare technology. • Scaled manufacturing capability and operational efficiency, modernized Stovering facility in Denmark. • Opened sales hub in Singapore, added sales hub in UK. • Training division awarded $1.9 million contract, made progress in modifying aircraft. • Aspen Avionics performed well with development and OEM orders.

For 2025 full year, revenue was $90.9 million. Drone segment was the primary driver, representing approximately 87% of total revenue. Fourth quarter revenue was $48.3 million. Full-year gross profit was $54.4 million with a gross margin of 59.9%. Training business was awarded a $1.9 million contract and made progress in modifying aircraft. Aspen Avionics advanced development, secured OEM orders, and expanded foreign military engagement.

• Expect full year 2026 revenue growth of 15% to 25% year over year. • Guidance does not include two joint ventures announced in second half of 2025 with Nordron and Bullitt, but they are expected to be additive to financials in 2026. • Quarterly performance can vary based on delivery timing, customer acceptance, and program execution. • Backlog of approximately $150 million with significant portion expected to convert to revenue over next 12 months. • Investments in scaling business may have near-term impact on margins but are intentional for long-term growth.

• May experience reduction to drone segment backlog and or significant order cancellations due to various factors including delivery delays and production disruptions. • Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements.

Q: As we think about the strategy change on air mobility, estimate about 15 million of RD in 26 and 10 million in 27 related to human rated portion of that project. Is it fair to assume both of those line items of specific investment roll off And then if that's fair, can you perhaps talk about kind of how you think about the profitability of the business in 26 relative to that tailwind?

A: Maria said we're going to reduce our capital expenditure because we're not developing a passenger evital we're focusing on the multi-role multi-lift cargo joint vehicle so it is fair to say that capital expenditure is going to drop off and going Going forward, it'll add meaningful revenues post-2027.

Q: In terms of the line of sight for kind of the next set of orders, can you maybe talk about kind of how you see the mix of customer demand between U.S. international and then how is the team kind of treating about or how is the team thinking about accounting treatments? It sounds like we're getting a more crystallized definition of backlog. is it fair to assume that when we see essentially orders from U.S. or orders from international, we'll see those recognized as firm backlog?

A: Joe said our backlog today is approximately $150 million, and we have really good visibility on a meaningful portion of that converting to revenue over the next 12 months. Our contracts tend to be large and program-based, as you know, so backlog growth and conversion can be nonlinear from quarter to quarter. Demand today remains primarily international while the U.S. pipeline continues to build. From an accounting perspective, revenue is recognized upon delivery with a customer acceptance, which can create normal quarterly variability. And if we talk about other things of certification that will help with this model, with respect to blue UAS, certification is helpful, but not necessarily the primary driver of our near-true revenue outlook. We're estimating to finish up that blue certification mid-year, as we've talked about before and as planned.

Q: Another one on drone backlog. You know, it seems like there's some unfilled definitive orders and then there's some in backlog that is kind of undefinitive. Could you even provide more color as to what the mix exactly is?

A: Joe said we have significantly strong visibility into our backlog, as we've described. So very comfortable that, in fact, we've gone so far as to produce massive numbers of airframes in anticipation of this actual backlog that we've discussed. So, to answer your question, you know, the backlog was based. We did a bottoms up approach, looking at all our customers. And NATO orders, so over the next 12 months, the team is very comfortable on the 150Million firm backlog going forward.

Q: Your current backlog seems to, you know, last year through 2026. I mean, when do you expect orders to step up to the point where we can be confident and gross into 27 and beyond?

A: Joe said it's a continuing process, right? As we get in further and further into the year and we get orders from various NATO countries, that continues to substantiate itself, the actual product itself, the RQ35, that's the primary drive for this, really continues to outperform in the battlefield. So we continue to see growth and acceptance across that pipeline. So as we get further and further into the year and certainly into 2027, we'll release further guidance as to the growth of the product. But so far, it looks like it's a very, very, very stable and solid growth platform. And the only thing, we expect also meaningful growth as our joint ventures continue to mature. And Joe can talk to you about delivery of our hybrid and what we've done in our Phoenix facility. Joe said we have got the certified or the facility up and running now in Phoenix. We've produced multiple drones already, as we talked about just a little bit ago. So it's exciting times for that. We are ready to produce a significant number of drones out of Phoenix and are filling the pipeline with DOD, DOW types of orthotics and currently in process and doing flight demos to support all of that.

Q: You previously said, I mean, to your point, you were talking about the Phoenix facility, and you previously said the 26 outlet doesn't assume any U.S. sales. Is that still kind of the case? And if so, I mean, just how much upside could we see to 15% to 25% growth if we see any orders coming earlier than that?

A: Maria said in terms of guidance, again, the guidance is primarily on NATO backlogs that we currently have and any meaningful upside we will be releasing throughout the year when we see water coming from the U.S. And to specifically address the U.S. output, our Phoenix facility is up and operational. It's progressing in line with our plan. Our target capacity on that, by the way, is to produce up to 100 units per month. So that's a significant growth for us. Current production is focused on demos and trials and business development. And we'll scale production line with our demand and our contract visibility, particularly to U.S. and DOW customers.

Q: Just back to the full year 2026 revenue growth outlook. So the 15 to 25%. Maybe just a finer point on the individual pieces within that. And how much of the 150 backlog are you expecting to ship this year, so within 26, as part of that outlook for drones?

A: Maria said we expect, as we're giving guidance for the backlog, we expect a significant portion of it to convert in the next 12 months. And the reason our guidance is below the backlog is just to give us an arrow of margin if it shifts to the other quarters of the 2027. And Maria added, the key drivers are drone profitability. That's still 87% of our revenues today.

Q: Shifting to the US pipeline that you indicated was seeing pretty good momentum. Is there any way to dimension or quantify the level of activity relative to maybe 150 that you're seeing within the US pipeline? Is it a magnitude of that? Is it a small fraction? Any color would be helpful.

A: Joe said in terms of 2026 as he mentioned we did not provide any guidance for the u.s sales however we expect that we'll be able to ramp up in the future where you north america sales will be a significant portion of overall drone sales So just to qualify a little bit, we do put that all in perspective of filling the pipeline. So we have, as he mentioned just a bit ago, dramatically increased our sales and BD team specifically for the U.S. marketplace. currently participating in trials. We're excited to get in and we do expect to see some activity in the near future with the U.S. With continued growth, as we all know, the U.S. marketplace is massive and we plan on being a major player in that market.

Q: Quick follow up on some of the JV structure and what the contribution could look like this year. I understand it's not contemplated within the framework. in the outlook, but what are you thinking in terms of the financial impact this year, potentially, both on the cost side and the revenue side?

A: Maria said I think what you're seeing, especially in the current conflicts, first person view, drones or kinetic drones are becoming very important. And with Nordron, we have battlefield proven drones. And as you can see from the Middle East conflict, interceptor drones are becoming more and more important. Even if you look at yesterday's Wall Street Journal article, they don't want to spend the millions of dollars. So we're very well positioned along with our ISR. our Q hedron drones in terms of, as Maria pointed out, we haven't included potential revenue from those two joint ventures as we're now currently looking at, you know, developing the pipeline and where they can be bid. Joe and Maria added our joint ventures are contemplated as close to a 50-50 type of a relationship. So with all sales and contributions from the various conflicts around the planets, we'll roll into the joint venture. So it's all accretive to what we've already provided for guidance. And anything we do out of those between now and the end of this year certainly will add to the bottom line as well.