Red Cat Holdings, Inc. Q2 FY2025 earnings call

• Leah Lunger resigned as CFO due to family reasons but is five months pregnant, with plans for interim support. - Partnership with Palantir for visual navigation and AI on the Black Widow drone, which will enhance battlefield capabilities. - Working with Doodle Labs for Electronic Warfare (EW) solutions to address GPS and EW challenges on the battlefield. - Acquisition of FlightWave to add the Edge 130 to the product mix. - Focus on Black Widow for the US Army's Short Range Reconnaissance Program of Record, aiming to increase margins over time. - Transitioning fiscal year end from April 30th to December 31st, beginning December 31st, 2024.

Year-to-date revenues totaled $4.3 million compared to $5.7 million for the same period last year, a 24% year-over-year decrease due to focusing on the Black Widow. Gross margin year-to-date was negative 12% of revenue compared to positive 25% in the same period last year. This was primarily due to final delivery of SRR Tranche 2 program prototypes and lower than planned production quantities of TL2. The company also closed the acquisition of FlightWave, adding the Edge 130 to its product mix, with expectations to reach up to 50% gross margins in the future under mass production.

• Updated guidance from $50 million to $55 million, with wide goalposts of $80 million to $120 million including SRR-related revenue. - LRIP (Low Rate Initial Production) starts in the first half of 2025, and full rate production starts in the second half of 2025. - Anticipates an Analyst Day in early January to provide more detail on contracts and firm up goalposts. - Hopes to demo Palantir software on the Black Widow to the public in two months, with the software ready for LRIP.

• Forward-looking statements involve risks and factors that may cause actual results to differ materially. - Uncertainty around foreign military sales and their impact on revenue. - Integration challenges with Palantir software and ensuring timely delivery of features. - Dependence on DoD contracts and the timing of budget allocations under continuing resolutions.

Q: Can you talk further about the relationship with Palantir, how much collaboration was done before, and integration timeline?

A: We've been working with Palantir since early September, hope to have initial testing complete in the next couple of months.

Q: Is there upside from Palantir built into the guidance?

A: Guidance includes SRR-related revenue, but specific Palantir software revenue details aren't finalized yet but will add to guidance.

Q: When do you think the FlightWave factory will be up and running?

A: Just starting to move in, hope to have a production line mapped out in about two months.

Q: Would you expand on revenue per drone with AI software from Palantir?

A: We don't have the per drone revenue number yet, but software has high margins compared to hardware.

Q: Have we seen movement on NATO and other EU contracts?

A: We are actively engaged with NATO countries, but timing of contracts isn't released yet; there's been $14.7 million in quotes over the last few weeks for various cases