Red Cat Holdings, Inc. Q3 FY2025 earnings call

• Red Cat achieved record third quarter revenues of $9.6 million, up 200% from Q2 2025, with Q4 expected to be a significant portion of annual revenue.
• Expanded limited rate initial production Tranche 2 contract for Black Widow systems to $35.1 million.
• Launched Blue Ops, a new maritime division for uncrewed surface vessels.
• FANG FPV drone added to Blue UAS cleared list, and Black Widow system approved for NATO NSPA catalog.
• Strategic partnerships with Palantir and AeroVironment established, enabling deployment of FANG and Black Widow.
• Experienced 6-7 week delay in shipments due to change orders but adapted and continued shipping at volume.

Red Cat's third quarter 2025 showed record revenues of $9.6 million, up 200% from the second quarter. The drone and robotic solutions segment drove this growth, with the limited rate initial production Tranche 2 contract for Black Widow systems expanding to $35.1 million. The new maritime division, Blue Ops, focuses on uncrewed surface vessels with facilities established in Georgia, Maine, and Southeast Florida. Revenue contribution from drone and robotic solutions was significant, while Blue Ops is in the early stages of revenue generation.

• Lowered full-year 2025 revenue guidance to between $34.5 million to $37.5 million, due to revenue recognition delays from government contract changes.
• Q4 guidance is just below a $100 million annual run rate, with Q4 revenues expected to be between $20 million to $22 million, a 170% sequential increase.
• Expect to scale up drone output to 1,000 units a month by early 2026 and first deliveries of USVs in Q2 2026.

• Delays in revenue recognition due to government contract changes and shutdowns, which shifted expected revenue recognition by 6-7 weeks.
• Uncertainties in government budget approvals affecting timing of contracts and revenue recognition.

Q: Update on full rate production order and sizing?

A: Hoping to secure full rate production by end of year, but size unknown until budgets are approved; LRIP is closing in on $40 million for U.S. Army.

Q: Blue Ops boat opportunity, shipping timeline and revenue cadence?

A: First deliveries expected in Q2 2026; if 200 boats sold at low end, could be $150 million revenue; expect strong demand due to U.S. shipbuilding needs and partner's battle-proven tech.

Q: Revenue recognition delay impact, which products affected?

A: Delay was due to Army contract changes; primarily affected Black Widow production, but already delivering, with Q4 expected to have over 100% growth.

Q: Inventory increase, what's in it?

A: Majority is raw materials and parts for Black Widow; Blue Ops inventory will ramp up next quarter.

Q: Trichon UAV uptake and targeted programs?

A: Demand strong for Trichon, improved for reliability; targets various programs including border patrols, with robust demand despite initial Edge 130 challenges.

Q: Gross margin expectation in Q4 and future?

A: Expect Q4 margin around 10%, increasing to 20% by end of 2026 and aiming for 30-35% long term; previous ramping experience shows margins increase steadily with revenue growth.