Good afternoon and welcome to Red Cat's first quarter 2026 earnings conference call. Joining us are Red Cat CEO, Jeffrey Thompson; COO, Christian Ericson; and CFO, Christian Morrison.

Please note that certain information discussed on the call today will include forward-looking statements for future events and Red Cat's business strategy and future financial and operating performance, including Red Cat's target revenue. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict and may cause actual results to differ materially from those stated or implied by those statements.

Certain of these risks, uncertainties, and assumptions are discussed in Red Cat's SEC filings, including its most recent annual report on Form 10-K and other SEC filings. These forward-looking statements reflect management's beliefs, estimates, and predictions as of the date of this live broadcast, May 7th, 2026, and Red Cat undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

Finally, I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at ir.redcatholdings.com. With that, I'll now turn the call over to Jeff.

Thank you, Ankit. Good afternoon and thank you for joining Red Cat's Q1 2026 earnings call.

Secretary Hegseth last week at a hearing on the Hill announced that Defense Autonomous Warfare Group, DAWG, will have a $54 billion budget for drones, drone dominance, and counter, but also said it would be closer to $74 billion, and added that announcing a new unified command that would add to this $74 billion and is made in USA only. This is 2027 funding, which is only 4.5 months away.

On top of this good news, the DOW has stated they intend to spend the 2025 $156 billion reconciliation bill related to defense in fiscal 2026. It's not going to go over three years now.

Only $30 billion has been obligated through April. Fiscal 2026 also ends in 4.5 months.

The funding has finally been turned on in a big way for 2026, and is magnitudes higher for 2027, specifically for UAVs and USVs. These are great tailwinds, let's get started.

I am pleased to report we delivered record quarterly revenue of $15.5 million, representing an 849% increase compared to the same period last year. This is remarkable growth considering the government shutdown at the end of last year.

I'm going to review our opportunity pipelines that tie into our target revenue with our multi-domain family of systems. We'll start with Fang and drone dominance, then FlightWave Tricon, of course, the Teal Black Widow, and then finally, the Blue Ops fleet.

Then Christian Ericson will review operations, then Christian Morrison will review financials, and then we will take your questions. Let's start with Fang and drone dominance.

We are gearing up for Gauntlet 2 in August. We have been working with the DDP and believe this will be a much smoother and realistic competition.

FPV drones, which are called shooters, need a sensor to complete the sensor-shooter kill chain. We believe we are the only made-in-USA company with a Blue sUAS-approved sensor, Black Widow, successfully deployed in Ukraine and other theaters.

We believe that 350,000 FPV drones would need between 10,000 and 17,000 Black Widows depending on ratios of sensors to shooters. Red Cat is integrating our targeting from the Black Widow into Fang and other FPV partners.

This gives us tighter integration to the kill chain and a competitive advantage. FlightWave, our first demo Tricons are being delivered in a few weeks.

The features on this new version are stunning. The demand for the Edge 130 has always been significant, but as it is too fragile for warfighters.

We'll be updating the street in the upcoming months, but believe this can be a winning drone in sweeps this year. On to the Black Widow.

We can spend an hour on what we've been doing with the Black Widow. The Black Widow is currently in three theaters.

Word spreads fast when you have a combat-proven capability and the scale to produce them. This led to an invite to the Pentagon to share lessons learned as a successful platform in the most contested battlefield in the world.

Most importantly, we want to bring these capabilities back to the US warfighter. The Black Widow is EW proven and capable, proven in GPS-denied battlefields, flight time of 52-plus minutes, and over 10-kilometer range.

These features have positioned the Black Widow with a large opportunity pipeline for 2026. This pipeline consists of the US Army with our final LRIP contract soon and the OTA, Marines, Air Force, Drone Dominance, Ukraine, Japan, Philippines, and Taiwan.

We currently have the supply chain and inventory to build $220 million worth of Black Widows and can step on the gas if needed. As we reported last quarter, the Ukraine opportunity could be for over 100,000 Black Widows.

We are completing the final integrations actually this week, and hope to have them tested next month in theater. Let's talk about the Blue Ops fleet.

The Valdosta factory is operational. We have started 3D printing the 5-meter boat.

We have approximately 145 fiberglass hulls to be built this year, and we will have approximately 100 3D-printed boats. That's a potential of approximately $150 million in USV sales this year.

The Variant 7 has received a lot of attention recently, with President Trump talking about the machine gun that is mounted on the Variant 7. The machine gun is made in USA by our partners ACS.

This combination is very powerful. The Strait of Hormuz has been a great example of the need for this type of weapon system.

Our team is in the region now by invitation, and we believe we will be a very valuable partner in the Arabian Peninsula. We have also been invited to INDOPACOM next month and will be participating in the RFP for the 1,300 USVs in Taiwan, which will be awarded first quarter next year.

Look forward to your questions, and we'll hand it over to Chris.

Thank you, Jeff. Good afternoon, everyone.

Our operational performance in Q1 2026 reflects the strength of our execution capabilities and our ability to scale efficiently in response to unprecedented demand. We achieved remarkable operational metrics by supporting the $15.5 million in quarterly revenue whilst simultaneously improving our gross margin to 13%.

The increase in margin is a testament to our operational discipline and process optimization, while significantly scaling our manufacturing footprint more than 500% year-over-year. We expect our margins to continue to improve through 2026, moving us closer to our ultimate target gross margin of 30%.

Now as a point of emphasis, please note, our current manufacturing footprint is specifically designed for growth and efficiency and can support well over a $1 billion of annual revenue between our UAVs and USVs. The operational landscape has evolved dramatically with customers demanding faster delivery cycles and enhanced performance specifications.

We've responded by investing strategically in our supply chain resilience and manufacturing capacity, enabling us to meet accelerated delivery timelines while maintaining the rigorous quality standards essential for military applications. Our inventory and prepaid inventory position of $62.7 million demonstrates our proactive approach to securing critical components and positioning ourselves for continued growth and acceleration.

During the quarter, we successfully navigated several operational challenges, including supply chain complexities associated with specialized drone components and temporary disruption caused by the federal government shutdown. We addressed these challenges through diversified supplier relationships, strategic inventory positioning, and enhanced production planning.

Our team's agility in adapting to these conditions while maintaining delivery commitments underscores the robustness of our operational framework. We're committed to continuous innovation and next-generation platform development.

These investments have yielded significant product enhancements across our drone portfolio with particular focus on extending flight endurance, improving payload capacity, and enhancing autonomous navigation capabilities. Our engineering teams have successfully integrated advanced sensor technologies and improved communication systems that provide superior situational awareness for operators in the field.

The Black Widow platform continues to set industry benchmarks with its exceptional reliability and versatility in diverse operational environments. Recent enhancements include upgraded imaging systems with enhanced low-light performance, extended battery life providing up to 52 minutes of flight time, and improved weather resistance capabilities that enable operations in challenging conditions.

Also, just this past month, the Black Widow became the first Group 1 UAS device to successfully integrate with Anduril's Lattice platform. We have integrated the Black Widow with SineLink, Ukraine's battle-proven, satellite-free, GPS-denied positioning network system.

The SineLink integration completes the development phase, and birds will be delivered to Ukraine at the beginning of June for validation testing and the final step to start replacing hundreds of thousands of Chinese-made drones in Ukraine. These improvements directly address customer feedback, operational requirements, and strengthening our competitive advantage and customer satisfaction levels.

Our newly acquired APIM swarm robotics capabilities represent a quantum leap in coordinated unmanned operations, enabling multiple drones to operate autonomously as a unified system. This technology provides unprecedented tactical advantages, allowing for complex mission profiles, including coordinated surveillance, area coverage, and synchronized data collection that would be impossible with individual isolated devices.

Red Cat's unique value proposition lies in our integrated ecosystem approach, combining best-in-class hardware with sophisticated software solutions and comprehensive support services. Our platform delivers a unified client experience from initial deployment through ongoing operations, with intuitive control interfaces, real-time data analytics, and seamless integration with existing military command and control systems.

This holistic approach reduces training requirements, accelerates deployment timelines, and maximizes operational effectiveness, creating substantial value for our customers while building long-term partnership relationships that drive recurring revenue opportunities. With that being said, I'll now turn the call over to Christian to discuss our financial results.

Thank you, Chris. I'm pleased to present Red Cat's financial performance for the first quarter of 2026, which demonstrates steady improvements, strong operational leverage, and the scalability of our business model.

For the first quarter of 2026, revenue was $15.5 million, representing an increase of 849% from $1.6 million in the prior year period. This performance was primarily driven by continued drone deliveries under our US Army Short Range Reconnaissance program, deliveries of our Black Widow drones to a European NATO ally, and deliveries of FlightWave Edge 130 drones.

These deliveries reflect increased order volumes, enhanced manufacturing capacity, and an expanding geographic footprint coupled with diversified product offerings. We believe these results validate the strength of our core business as we move into a significantly larger phase of growth.

Our gross margin performance was also impressive, improving from negative in Q1 2025 to positive 12.7% in Q1 2026. This improvement into positive territory reflects the operational leverage inherent in our business model, improved manufacturing efficiencies, and better cost management as we scale our production volumes.

The positive gross margin improvement marks a significant inflection point, demonstrating our ability to generate profitable revenue growth. Our strategic investments in future growth were substantial during the quarter.

Operating expenses increased to $29.3 million, driven by investments in personnel and infrastructure to support the scaling and volumes required to achieve the significant revenue growth we expect in 2026 and beyond. We continue to focus on research and development expenses, which increased to $8.0 million during the quarter, reflecting our commitment to innovation and next-generation platform development.

These investments are critical to maintaining our technological leadership and expanding our addressable market opportunities across military, government, and commercial applications. Capital expenditures totaled $6.8 million during the quarter, which primarily included manufacturing equipment and facility improvements at our Blue Ops USV division in Georgia, and other company-wide infrastructure to support our production scaling requirements.

Our balance sheet strength and liquidity position provides a solid foundation for executing our growth strategy and capitalizing on the significant opportunities ahead. As of March 31st, 2026, we maintained exceptional liquidity with net working capital of $190.6 million.

This representing a robust current ratio that ensures our ability to meet operational obligations and invest in growth initiatives without financial constraints. Our cash position of $131.9 million reflects our strategic deployment of capital to support rapid business expansion and inventory positioning for anticipated contract fulfillment.

The substantial inventory and prepaid inventory balance of $62.7 million represents a strategic investment in securing critical components and positioning ourselves for accelerated delivery capabilities. This inventory build reflects our proactive supply chain management and confidence in our contract pipeline, ensuring that we can meet customer delivery requirements in an environment of strong demand while mitigating potential supply chain constraints.

Looking ahead, we are confident in our ability to deliver strong financial performance for the remainder of 2026. Our target annual revenue for the short to medium term is expected to be between $150 million and $180 million, representing significant growth compared to 2025.

As revenues materialize over time, we expect gross margins to approach 30%. Several key factors are driving our target revenue.

First, the resolution of the federal government shutdown has cleared the path for accelerated contract execution and payment processing, eliminating some temporary headwinds. Second, our strategic inventory positioning ensures we can meet aggressive delivery timelines without supply chain delays.

Third, our Blue Ops division is treading ahead of schedule in its production capabilities of USVs with increasing demand signals. In addition, our recent acquisition of APIM Swarm Robotics and our pending Quaze Technologies acquisition expand our addressable market and enhance our competitive differentiation in high-value segments.

It is important to note that we expect increased revenues as we anticipate our Blue Ops and FlightWave divisions will begin to provide meaningful revenue contributions. The timing of our Short Range Reconnaissance program deliveries combined with the letter of request from the Armed Forces of Ukraine and our ever-growing international contracts that include NATO and INDOPACOM allies and other opportunities in the Middle East represents significant growth opportunities.

Market conditions remain exceptionally favorable, with global defense spending continuing to prioritize unmanned systems and our ability to continue to unlock substantial international opportunities. The increasing urgency around drone technology adoption, demonstrated by accelerated procurement cycles, supports our expectation of continued strong demand through 2026 and beyond.

With that, we're now happy to answer your questions. Operator, will you please open the line for Q&A?

All right, excellent. Thanks very much.

All right. Can you hear me?

Yes.

Hear you now. You went blank for a little while.

All right, thanks. Great.

Maybe just a little clarification on the guidance. You guided to a certain range, very very strong growth relative to '25.

You said short to medium-term range. Can you just sort of clarify what that means a little bit?

Our target revenue of $150 to $180 [million?] is, it says it right there, annual, short to medium-term.

We've spent the last almost 8 months in Ukraine working on the Black Widow to get it to where it is. It's very interesting because we're one of the only people that are doing this.

Everyone says they're not going to use stuff in the army or any other of these contracts in the US unless it works in Ukraine. If you look at our competitors, specifically in this range of drone, they're making crap that hasn't changed in two years.

Our drone changes every 3 weeks. With that, we have been able to build an amazing opportunity pipeline.

For just the Teal is close to $700 million. Now that the funding has been unleashed, we are ready to perform.

We have everything we need to start shipping. We are proven.

Everyone likes the equipment. Everyone likes what we're doing.

We just got, I don't know if you saw the announcement by the Air Force about the F-35s working with the Black Widow, displaying our screens there. That target revenue of $150 to $180 [million?]

, we are very comfortable with, considering the opportunity pipeline just for the Teal Black Widow is almost $700 million. Right.

Got it. Nice.

Then Jeff, you gave some numbers on the production volumes for the USV this year. Can you just mention those again?

I didn't quite get them fast enough. Is that going to go into any inventory?

Is that to support programs, or is that maybe a little more clarity on that?

As Blue Ops did not exist and 7 months ago, 8 months ago now. A lot of you on this call have been to our location during Innovation Day.

That location is filled with potential customers every week now, from every branch, from every agency. We got invited to an exercise recently.

I can't talk about it, but we are crushing it. The demand and the opportunity for Blue Ops is massive.

As I mentioned, we were invited to the region of the Strait. That wasn't us.

We were invited by some very important people. We do have some hard constraints when you're building boats.

They're much bigger and larger than what Mitch is building for the Teal Black Widow. Mitch could turn it up from $220 million to $500 million very rapidly and very easily.

He's going to be building $221 million no matter what this year. With the boats, because we only had one mold, now we have two molds.

We're limited by molds and tooling to make boats. We can't make the tooling go any quicker.

They're hard to make and they take time. Our first year we're making more than we said earlier.

We're going to make 145 fiberglass hulls. We believe they're all going out the door.

Then on top of that, we just started printing this week the 5-meter, more kamikaze-style 5-meter 3D-printed boats. Now, you notice that I said that's about 245 boats altogether, but I only said it's only $40 million probably if we sell all those plastic boats and about $90 million if we sell all of the fiberglass boats this year.

We can sell the plastic 3D-printed 5-meter kamikaze boats very inexpensively and with still great margins. Now as Christian talked about earlier, the Teal 2 went from -10% to 10% to 20% and then to 30% gross margins.

We believe we can replicate that with the Black Widow, but that gross margin that we're trying to get to in Q4 to try to close in on that 30% would change dramatically if we sell more boats. If we sell all these boats, that margin would go up.

We haven't put anything in from any of the software from Palantir, which is still moving along. We actually have another meeting with them tomorrow.

People are now starting to want to look at visual navigation. As we're in multiple theaters, we're getting a lot of interesting demands for that software.

Got it. Great.

Then just last, you talked about the Fang opportunity, Drone Dominance, and the need for the Black Widow and better sensors in that program. If they bought these Black Widows for the Drone Dominance program, would that come through the funding for Drone Dominance, or that would be a separate allocation?

This has been a discussion with all of the people that are involved there, and we've been trying to help them. If I think what Drone Dominance is about $1 billion if I'm correct.

If you're going to buy 350,000 FPV drones, they're useless without a sensor, which the way they're used, and we're in theater every single day, is a drone like the Mavic 3 typically from DJI finds the targets and then tells the FPV drones where to go. They don't just go out and search for them because they have horrible cameras and they're analog.

It's like driving through snow. The way they're used in the Ukraine has a sensor, which is an ISR drone similar to the Black Widow, and we're hoping to replace all of them.

If you buy 350,000 drones and don't have a sensor, those 350,000 FPV drones are actually useless. People are starting to get that, they're going to start having ways to have a sensor-shooter in the gauntlet.

If you look at different ratios, we did a low ratio, we did a medium ratio, we didn't even do a high ratio, and that's 10,000 to 17,000 Black Widow-style drones. You can't get around that.

If it's not us, it's got to be someone else. By the way, our competitors, their drones, they don't work.

They're crap. They haven't changed them since 2024.

We change ours every 3 weeks. They're a requirements document.

That's what they do. They go to requirements and they build crappy drones, and I digress.

Got it. No, that makes sense.

Very good. That covers it for me right now.

Appreciate it.

Great. Thanks, Mike.

Thank you.

Can you guys hear me?

We can hear you now, Austin.

Hey, guys, thanks for taking the question. Just first one, just want to go back to kind of the new updated guidance.

I think historically you guys have provided some granularity on what's Black Widow, FlightWave, USV. Would love any additional color of how we should be thinking about the different buckets driving this outlook,

yeah. That's a great question.

As I was mentioning in our opportunity pipeline, I'm not going to give exact numbers for each customer, but with the Army, you got LRIP, which we're working on our final contract for that, so that'll finally be over with. Then we go into OTA, which we've been simultaneously negotiating, but it's very linear with them.

We also have other branches in the armed services that are to be frank, some of them are bigger than SRR. The SRR is such an antiquated program, it's really hasn't kept up with the numbers compared to other branches that are now getting their funding and looking for ways for their soldiers to get products that actually work in battlefields.

Drone Dominance is another bucket. I'm just talking Black Widow right now, Austin, for your models.

Drone Dominance is also we believe is going to be a pretty good bucket for us for the end of this year and into 2027. We've got Israel is going to be a part of this.

The Air Force, which they put out their own announcement about the Black Widow working with the F-35s. We don't know how big that's going to be.

I think there's about 500 of those. Then Ukraine, we didn't even put Ukraine fully into our opportunity pipeline because the opportunity pipeline would go from $700 million to $2 billion immediately.

We're giving some caution around Ukraine until we get through next month, but that has actually been our focus. Ukraine, if you own a business and everyone's asking, "Hey, what OTA, OTA, OTA?"

I'm like, did you guys not listen to the last call? We could replace hundreds of thousands of drones in the Ukraine and they want them and they need them and we talk to them every week.

That should be the focus. To be frank, the Army probably won't make it into the top three of customers on revenue this year, even though they're going to be a great staple and a great platform.

Ukraine's another bucket. Japan we announced recently.

They're continuing to buy. Then we have an incredible trip to Taiwan, Korea, and Japan next month, and we'll be hopefully be able to update the street on some of those adventures.

That's just the bucket for Black Widow for your modeling, okay? When you go into Blue Ops, we are physically limited by the amount of boats we're going to make of about 245 boats made this year, which is phenomenal.

Going into '27, we hope to get to that 6 650 to 1,000 at least production numbers that we can get to. Blue Ops, it's mostly V7s, but there are going to be some V5s.

We're making V5s and V7s with the 3D printing, we can use that to listen to customer feedback as we're doing that. That one kind of has a cap unlike Mitch McConnell, the president of Teal, can step on the gas from that 221 that he's building this year in a month, and change dramatically how many drones we can deliver.

Then FlightWave, we still have that pinned at around $40 million in production this year in the second half of the year. If you put all that just the production that we're going to do no matter what, it's $388 million in 2026.

Okay. That's super helpful.

I guess kind of going down the P&L, and it might be a better question for Christian, how should we be thinking about kind of opex throughout the year on a quarterly basis? Is what you guys did a pretty good run rate?

How should we be thinking about that?

That's going to go up a little bit in the back half of the year. It just naturally has to.

It's within the realm. I'd probably flex it up maybe 15%, 20% for the back half of the year.

Awesome. Thank you guys for the questions.

You bet.

Hey, thanks so much. Thanks for taking my questions.

You're welcome, Brian.

Thanks. How important is the integration of Anduril's Lattice into your weapon systems?

You mentioned that Black Widow is now in the system. Do you believe that's going to be a gold standard for Pentagon procurement?

I can take that cause I've been involved pretty deeply with that. Thanks for the question, Brian.

Nice to finally meet you. There was a notice yesterday throughout the Army that we got that if you're not integrated into Lattice, you're not working with the Army was kind of the message.

I just paraphrased that. It's not the exact wording.

The event that we were at a few weeks ago, we were the only people there from the SRR program that has actually integrated into Lattice as Chris Ericson mentioned earlier. I believe that if you're not integrated into Lattice, you're going to have some problems going forward.

You're going to get forced to do it no matter what.

Very good. Then I guess just shifting gears a little bit.

On Blue Ops, unmanned surface vessels, relatively new domain for the company, maybe you could just give a little bit of color on what you see as the opportunity there over the next two or three years and how you view demand evolving not only from the United States, but from our allies when compared with call it air system demand?

The bottom line is Blue Ops could probably surpass all of the UAVs next year. The demand, let's face it, 70% of the world is water.

We can launch our other products from this, but the market is massive. There's not a lot of quality players.

We started as boat builders and what we're seeing a lot, and I can't give any details, but we've been in a lot of situations where our competitors' boats are failing and ours are actually prevailing. Because we started as boat builders and we built sturdy boats that can get smashed around and are very high quality.

Then you put your tech stack on it. If they can't handle the ocean, the ocean eats everything.

There's nothing it doesn't want to eat. You have to make your boats super super reliable, specifically when they're going as fast as ours go, and when they have the capabilities that ours have.

A human couldn't stand on that boat. They would get sick or get hurt doing the turns and the speeds that we're doing it.

Now add the payloads, which makes us super unique, is the president talking about these machine guns from ACS. They are great anti-FPV and anti-Shahed killers.

This is a very sought-after combat weapon system right now all over the globe. We're over there now.

It's very important for us. We think that our allies will be buying a lot of USVs, and we came out of this.

The interesting part is drones had never been mass-manufactured in the United States. The boat industry has been going on for hundreds of years, and we got the best boat builders, we believe, in the world.

We started with high, high, high quality and based on a third-generation product that's already been in theaters. We had a kind of a head start, which put us at the front of the line.

Now we're competing and we're proving everyone that we do have what we believe is the best USV out there. Now we can do different sizes.

We went from white board to floating in the water by December with our first boat. Now we can compress that down with 3D printing to weeks.

We can try new models. Now our mold capability, we can actually start making our own molds in the next few months, we won't have to rely on people that make our tooling.

We'll make our own tooling. The opportunity for the USVs is massive.

We can put our Black Widows on there, we can put the Tricon on there. We've partnered with ACS.

There's so many payloads that want to be on our boat right now. We are getting massive traction with the Variant 7 right now.

That's great. Correct me if I'm wrong, I think some of your boat builders came from Hinckley Yachts, slightly different application, but impressive maritime heritage.

Just one final one for me. You made some exciting tuck-ins during the quarter.

How do you see these benefiting the broader platform? How are you thinking about M&A going forward, right, in terms of your desire to either develop tech in-house or go out and buy it?

We've kind of been doing both, cuz we built Blue Ops, as and thank you for noticing that we got one of the best premier families, and we're working with Hodgdon Yachts as our prototype shop, another premier boat builder. We developed that entire tech stack in-house.

There's other things that we will acquire. We want to have a lot of vertical integration so that we own the entire boat, we own the entire drone, all of these things.

We do a little bit of both. Now that we have APIM to be able to do our swarming, Everyone keeps talking about swarming, but no one can do it reliably.

We're pretty excited about APIM. None of APIM's revenue is in our target revenue.

Nothing from Quaze is in there. We're excited to show our swarming capabilities cuz now it's starting to show up in all the requirements across the DOD DOW.

We are very happy that we're bolting that on. We can also swarm our boats with their technology.

Thank you very much.

Hello, can you hear me?

Yes. We got you, John.

Hey, I'm kind of brand new to this story, but a lot of the other questioners have been very helpful. Could you elaborate a little bit on what this shutdown cost you?

We don't have any details on that, but just the delays alone, even though during a continuing resolution year, you're usually allowed to use the amount up to your previous budget. For the entire SRR program, it was only $70 million.

That's not much for them to be able to say, "Hey, we got money to push around." We ended up getting $40 million out of that once the shutdown was complete.

It's just delays. I don't think that it's going to cost us total.

I think it's just got pushed out a month or two. We're just like everyone else that's in the defense industry, we are all feeling the spigot turn on the last couple of weeks.

The money's loosened up. There's a ton of it coming.

All of that $130 billion that they released for defense has to be spent now if they're going to do it for fiscal '26 by the end of September. Then the budget, which was hundreds of millions of dollars, is now $74 billion with whatever they're going to add on with unified command for drones, counter drones, USVs, and drone dominance.

Which starts October 1, just a few 4 months away. Now that we have budgeting on time, like the year before we didn't have a budget, at least this year we have a budget, and next year we have a massive budget.

I don't think there'll be delays, but you can never tell with government. We're hoping it stays smooth, and the numbers are so so large, you have to be able to produce.

We can produce, we're pretty excited about that. We don't see it as a loss, we just see it got moved to the right in timeline.

Okay. I know you were ranting earlier about competition.

Yep.

Is there a competitor you're worried about, or respect?

I would say more so in the boat space, cuz we went in a down-selection process and there was a clear winner. Those are the Army's words, not ours.

If you don't change your bird at all, if it's two-year-old bird, that's not going to make it, so that doesn't really scare me. Where we're in the front, we're ankle-to-ankle with the Ukrainian warfighters at the zero line, and we're changing our birds all the time.

We have some great great team that's doing that for Red Cat, and we're continuing. We're already in three theaters now because of this method of showing our products to people is let's go to the front line and do that.

Our product changes every three 3 weeks right now. It's probably going to go down to a week or days.

We have an office in Ukraine now and we're going to be hiring some local coders, we're going to be going really fast with the Black Widow, and our competitors are going really slow. In the boats, there's some people that have been around for a long time like Kraken.

I'm not going to say the same types of things about them. Then there's well obviously, Saronic.

I think they moved up to the bigger boats, but we haven't really seen them in theater yet with us, they're probably a good company. Then you've got BlackSea, which makes the GARK, which when we were at Portugal, I don't think they won anything there, but I'm not sure about them.

What you will see I think in the boat industry, you're going to see us do really well by our performance as a boat builder. Then what's very very unique, which I've said it a million times about the Edge 130 and now the Tricon, it does stuff that no other drone does, and it had a huge amounts of demand, but we did not want to put a bad taste in people's mouths and ship them these drones and they break in a couple of weeks.

Actually, we brought them to the Ukraine with our new radio systems in them just to test them. They loved our fixed-wing solution, but the bird barely lasted a full day.

That bird is probably the most unique with competitive advantage than our other products. Then

one question about the sensor you make for your drones. Do you make that sensor yourself, or is that outsourced?

Sensor's just kind of a term for sensor-shooter. The sensor is the Black Widow drone.

Let me back up, cause a lot of people do not understand how this works with FPV drones. They've never been to Ukraine, they never worked with these people.

When they have these teams that have a bunch of FPV drones with them, and they don't go out and just search for targets, they have an ISR drone. Typically right now, it's DJI Mavics, which we're hoping to replace.

They go through 350,000 of those DJI Mavics in Ukraine right now. The Mavics go out and find the tanks or the mortars or the human beings, and they tell the FPV guys where to go.

Sometimes it's literally verbally. It's that primitive, but it's very effective.

80% of the deaths are from FPV. In Drone Dominance, if they just buy 350,000 FPV drones, they're kind of useless.

Actually, they're absolutely useless. They're analog cameras and they're very hard to see.

You need a sensor, it's just a term. It's not like an actual sensor that senses stuff.

The Black Widow has a bunch of sensors that gets it out there in contested environments and finds the bad guys and tell the FPV guys, the shooter, what to go kill. It's basically a sniper rifle.

You would never use a sniper rifle without a scope. We're the scope, they're the sniper rifle.

That's all done electronically? No human intervention there?

Lots of times in Ukraine, because these are DJI drones, they're not going to interface with anything else. You can't call DJI and say, "Hey, can you make our FPV drones integrate for targeting?"

With us, we will. We will do that.

We're doing it right now for Drone Dominance. We believe that the Drone Dominance program is going to need significant amounts of sensors, which are ISR drones.

If not the Black Widow, it's going to have to be some ISR drone.

Okay. Thank you.

Appreciate it. I'll be in touch later, okay?

Great. Sounds good, John.

Thank you.

Great. Thanks for coming.

We are super excited about this year. It's going to be, as you've seen with our target revenue, it's going to be a great year.

I want to thank a lot of people. We've got a team of people going around the globe working with these warfighters.

We're in three theaters right now because of that, and that feedback gets back to our factories. I want to thank all the factory workers in Teal at Salt Lake City.

You guys are doing amazing jobs. We're getting orders and we ship them the next day cause we have so much production.

The same with Valdosta, which I can't wait to get back up there hopefully next week. That factory is going to be exciting when people get to see it.

We're having a big ribbon cutting there. Everyone is really crushing it in our factories across the globe.

The factory is the weapon, and look forward to seeing you folks next quarter. Thank you