Merlin, Inc. Common Stock 2026 Q2 Earnings Call

Good afternoon, and welcome to Merlin's quarterly earnings call for the quarter ended June 30, 2026. Joining me on the call today are Matt George, Merlin's Founder and CEO, and Ryan Carrithers, our CFO. Momentarily, Matt will kick things off with a review of our recent achievements and a brief overview of Merlin and our objectives. He will then spend some time detailing the value proposition of the Merlin Pilot and the market opportunity that we believe it represents. Matt will be referencing a number of industry and market statistics throughout his commentary. Reference sourcing material for these comments can be found in the appendix section of the investor presentation deck intended to accompany today's call. That deck can be found at investors.merlinlabs.com. Ryan will then take you through the financial results, our balance sheet position, and our financial expectations.

Finally, Matt will have a few closing remarks before we start the Q&A session. Now, before we begin, a reminder that today's discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties, and other factors that could cause our actual results, performance, or achievements to differ materially from what is expected or implied. Those factors include, among others, regulatory approval timelines, competitive dynamics, capital availability, technology development, and broader market conditions. For a complete discussion of risk factors, please see our most recent filings with the SEC. We undertake no obligation to update any forward-looking statements except as required by law. Today's discussion will also reference adjusted EBITDA, which is a non-GAAP financial measure.

A reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP measure, is included in the earnings release available on the investors relation section of our website at investors.merlinlabs.com. With that, I'll hand the call over to Matt.

Matt? Thanks, Brian, and thank you all for joining us today for Merlin's second quarter 2026 earnings call.

Before I hand things over to Ryan to walk you through the financials in detail, I want to spend some time talking to the results we've achieved, where we are as a business, and where we're going. We finished the quarter with $183.9 million in cash equivalents, and short-term investments, and importantly, no debt. As Ryan will detail momentarily, we believe our balance sheet strength is one of our strongest advantages today because it allows us to continue hitting the milestones necessary to capture the opportunity I am about to describe. When we last spoke in May, we laid out a number of ways to measure our progress.

We talked about key areas of focus in the near term, progress on our C-130J contract, building a go-to-market network for civil cargo, and advancing civil certification of our core AI processes and technology. In Q2, we delivered major milestones in all three categories. Early in the quarter, we announced completion of the critical design review, or CDR, with our lead customer on the C-130J, moving us closer to deployment across the fleet. At Farnborough last month, we announced that Israel Aerospace Industries, or IAI, and Merlin signed a non-binding MOU to advance the development, integration, and certification of AI-powered autonomy for commercial cargo aircraft. This expands our partner ecosystem and puts us on the path to serve approximately 2,400 aircraft in the global civil cargo market.

Just last week, we announced the achievement of stage of involvement, or SOI 3, with the Civil Aviation Authority of New Zealand under a bilateral aviation safety agreement with the Federal Aviation Administration here in the United States. Civil certification would be the first step towards opening up a global commercial market of more than 20,000 addressable aircraft for Merlin. These are the three areas of measurement with meaningful progress in all three. Double-clicking on each one of those milestones. First, completion of the CDR on the C-130J program. This is a real proof point of the compounding advantages we described last quarter, and it's exactly the kind of milestone we told you to watch for. The program's next milestone will be related to the integration work on the initial C-130J.

Since completing CDR, we've been working with our customer and subcontractors to define the scope and timeline for future integration, ground testing, and flight testing. Next is our collaboration with IAI, one of aviation's largest providers of freight conversions. Merlin and IAI are working together to advance the development, integration, and certification of AI-powered autonomy for commercial cargo aircraft. This will be a phased engagement, including engineering collaboration, joint market exploration, regulatory preparation, and initial platform selection to lay the groundwork for a definitive commercial agreement and a structured path towards civil certification. Together with our previously announced collaboration with World Star Aviation, Merlin is systematically building the go-to-market engine for the adoption of autonomy by the global civil cargo market. Most recently, we announced the completion of SOI 3 with the Civil Aviation Authority of New Zealand in coordination with the Federal Aviation Administration under their bilateral aviation safety framework.

Two critical components of the Merlin Pilot autonomy platform, the flight control computer and the automated communication system software, have been tested and verified against their requirements. To our knowledge, this is a first for large aircraft autonomy. Achieving SOI 3 represents an important certification milestone, demonstrating that our verification processes, testing evidence, traceability, and engineering controls are sufficiently mature to support certification. Separately, Merlin successfully concluded an important certification issue paper with the Civil Aviation Authority of New Zealand addressing the use of AI and ML-based natural language processing with the Merlin Pilot, enabling voice-based interaction with air traffic control. This additional milestone establishes the regulator's requirement and an agreed path for demonstrating compliance for this novel capability. This reduces a key area of regulatory uncertainty and represents meaningful progress towards the introduction of AI into certified aviation, not only benefiting Merlin, but the industry as a whole.

Each of these milestones tackles an independent challenge across commercial, technology, and certification, and that diversity is what makes them so important. Together, we believe these milestones represent meaningful evidence and progress towards our mission to build a certifiable autonomous core that is capable of safely and reliably flying any aircraft for any use case and monetizing the Merlin Pilot. As we look to the future, I want to underscore the opportunities we see ahead. For the past 100 years, aviation has been built around human pilots. In the United States alone, more than $45 billion is spent each year to keep our pilots flying. We believe the next 100 years of aviation will be built around autonomy, and we currently sit at the inflection point of adoption.

Merlin is building what we believe will be the operating system of record for the next century of aviation, physical AI for the sky. Our commercial traction, the technology progress, and the certification milestones are all steps on that path. On last quarter's earnings call, we talked about the distinction between the Merlin Pilot and our products, like Condor, and I want to make sure the distinction is well understood. The Merlin Pilot is the core, it's the brain. It's the certifiable AI system designed to adapt any airframe and any mission and becomes more capable with each adaptation. Our products are created when we take that core brain and combine it with a specific airframe, mission, and customer. Everything starts with and scales from the same continuously improving core, the Merlin Pilot. Let's talk about what this combination actually delivers to a market need.

We call it integrated autonomy that combines two things, flight autonomy with mission autonomy. Flight autonomy is what most people think of first. It's the aviate, navigate, communicate capabilities of most flying aircraft today. It means taking off, flying the airplane, communicating with air traffic control, and landing, all without the need for human intervention. Mission autonomy is different, but just as important. It's everything the aircraft needs to do to accomplish the job it was meant to do. The tasking, sensing, and decision-making specific to a cargo run, surveillance mission, or tactical resupply. We are building both. There are companies focusing on one or the other, but we believe our approach, one core brain, the Merlin Pilot, performing integrated autonomy, has the potential to improve and reduce deployment costs with each airframe we adapt to, compared to bespoke one-off systems where capabilities don't compound.

I also want to be really clear about the landscape we are addressing, what this is, and just as importantly, what it is not. Today, we are targeting larger fixed-wing aircraft. We see opportunity in both crewed and uncrewed aircraft and, importantly, in existing inventory. The airplanes are already flying today. We are building the brain that will fly today's aircraft for decades to come and one that is also capable of flying the fleets of the future. Let's quantify the opportunity. While we plan to generate revenue by adapting and integrating the Merlin Pilot onto airframes, the business model is centered on a recurring revenue license fee for the Merlin Pilot. That license fee is designed to be value-based, depending on the use case, complexity, and needs of our customer.