AIRO Group Holdings, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, and good morning, everyone.

Welcome to the AIRO Group Holdings, Inc. second quarter 2026 earnings call. We appreciate you joining us today and look forward to sharing an update on our progress and performance. With me on the call are Dr. Charanjit Kathuria, our Executive Chairman, Captain Joseph Burns, our Chief Executive Officer, and Dr. Mariya Pylypiv, our Chief Financial Officer. Today's call will include forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to AIRO's 2026 outlook. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent management's beliefs and assumptions only as of the date made.

Information on factors that could affect the company's financial results is included in the company's most recent annual report on Form 10-K and other filings with the SEC from time to time. In addition to our prepared remarks, our earnings press release, SEC filings, and a replay of today's call can be found on our investor relations website at investor.theairogroup.com. We have also posted our earnings presentation on the investor relations section of our website. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalent is available in our earnings release.

Additionally, we plan to discuss drone segment backlog, a definition of which can be found in our earnings release. We will also discuss our cash balance as of July 31, 2026, which is a preliminary estimate based on information available to us as of the date of this presentation. Additional information on this metric can be found in the earnings presentation on our investor relations website. With that, I will turn it over to our Executive Chairman, Dr. Charanjit Kathuria.

Thanks, Jack, and thank you all for joining us today. AIRO delivered a strong second quarter that was marked by revenue outperformance against expectations, driven by solid execution within our drone segment. Gross margins improved to 64%, and we swung to a small operating profit for the quarter, a big improvement from the loss we saw in the same period last year. Looking ahead, and as Mariya will discuss in her section, we are reiterating full-year revenue growth guidance of 15%-25%, and she will detail some additional thoughts to think through the rest of the year. On top of this, total drone backlog grew roughly 9% from last quarter to approximately $163 million. On the strategic front, it was also a busy quarter. The RQ-35 drone achieved Blue UAS certification, which opens up meaningful new opportunities in U.S. defense procurement.

We also unveiled our new RQ-70 long-range ISR platform. Development continues on the JC250 and the JX250 cargo and ISR drone variants, and costs there are coming in below expectations, with the first flight still on track for later this year. We remain squarely focused on the unmanned drone market. Second quarter was a solid quarter of execution, and we expect that momentum to continue as we scale manufacturing, diversify our revenue base, and stay disciplined on cost, all while continuing to invest in AIRO's next phase of growth. With that, let me turn it over to Joe to discuss our strategy and the operational highlights.

Joe? Thank you, Charanjit, and thank you all for joining us on today's earnings call.

I am happy to report second quarter results that exceeded expectations, finishing out a strong first half of the year. Our second quarter results were marked by on-time drone deliveries plus multiple announcements. These recent developments highlight our execution on strategy, but we are not done here. While second quarter top-line results marked sequential growth versus our 1Q performance, this demonstrates the variable nature of our business. Still, second quarter results topped expectations, and we are reiterating our full-year guidance ranges we previously provided. Mariya will walk through the financial details later in the call. Now let me provide some updates on our portfolio and strategic positioning at AIRO. We have a solid, growing portfolio of products and services.

We remain focused on the overall drone market, whether it be through new product developments or through partnerships and inorganic opportunities. We are actively working to reduce quarterly variability by expanding our international and domestic revenue base. One such milestone on our product side, and one that I'm especially pleased to highlight, is that our RQ-35 drone is now officially Blue UAS certified. With this approval, the RQ-35 is recognized by the Department of Defense as a secure, compliant unmanned aircraft system eligible for government and defense procurement under NDAA requirements. As most of you know, Blue UAS streamlines access to the DOD and federal procurement channels, accelerating our ability to compete for and secure U.S. defense contracts, which we expect will support AIRO's long-term revenue growth across domestic and international markets.

We believe the Blue UAS milestone is a testament to the RQ-35 from its embedded technology, use cases, and performance on the battlefield. The RQ-35 and our recently unveiled RQ-70 continue to set our technology apart from the rest of the pack. The RQ-35 is battle-tested, having been deployed in the Ukraine conflict, and the platform is extremely quiet, hand-launched, and purpose-built for ISR missions. It has demonstrated real resilience even against electronic warfare and in GPS and GNSS-denied environments. With up to 50 kilometers of range and 150 minutes of flight time, it delivers extended time on target, plus quick frontline serviceability with a smart battery for reliable performance. The RQ-35 platform also offers onboard AI with edge computing, which enables real-time identification and classification of enemy assets and threats while strengthening navigation, situational awareness, and mission execution. This drives faster, more informed decisions in the field.

As a note, edge computing brings our flying servers closer to the battle, allowing us to significantly speed up and improve target recognition and decision speed. This reduces the already jammed bandwidth required by other competitors' systems. Our goal is to embed AI across all of our product and service offerings at AIRO. The RQ-70 is our newest platform, built on years of RQ-35 battle data and leveraging our existing manufacturing and NDAA supply chain. We are already engaged with multiple defense customers on future deployment. It offers configuration flexibility between standard, long-range, and VTOL configurations and includes a modular design that lets it serve as a standalone ISR drone for NATO and allied customers. Our RQ-70 is built for up to 8 hours of endurance, 100 kilometers of range, and resilience in GPS-denied environments. We are reaffirming expected production start in January 2027.

Capabilities such as these further set AIRO apart with strong customer validation to date. We are building on that momentum with new initiatives and will continue to provide updates in the quarters ahead. On the product side, we are making great progress developing our cargo and ISR drone variants, the JC-250 and JX-250. We have been strategically evaluating and selecting suppliers for the vehicle, and we are reaffirming our expectation for the first flight later this year. I am also happy to report that AIRO-specific costs for development are running below our internal expectations by low double-digit percent. There are a few driving factors. First, because the cargo and ISR variants share a common foundation, we are developing them at a fraction of the cost of their passenger counterpart. Second, we have made real progress in supply chain negotiations, which is lowering our input costs.

Third, we are realizing synergies across the platform faster than we had modeled. Finally, our R&D team has been executing efficiently, which is keeping development costs disciplined. Taken together, these factors are giving us confidence in the cost trajectory of this program. While still in the early innings, all the developments that I mentioned represent our efforts in diversifying our product portfolio and stabilizing revenue variability over time. On the avionics and electronics side of our portfolio, AIRO delivered largely flat revenue quarter-over-quarter as demand for our avionics products remained stable and consistent with the prior quarter. Despite the static growth year to date, we are actively advancing next-generation sensor and navigation solutions, which were on display at the EAA AirVenture Oshkosh in Oshkosh in late July. We received solid feedback at the trade show with customers highlighting our product reliability and functionality.