Red Cat Holdings, Inc. Common Stock 2026 Q2 Earnings Call

Good afternoon, welcome to Red Cat's second quarter 2026 earnings conference call. Joining us today are Red Cat's CEO, Jeff Thompson, COO, Chris Ericson, and CFO, Christian Morrison. Please note that certain information discussed on the call today will include forward-looking statements for our future events and Red Cat's business strategy and future financial and operating performance. 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 in 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, August 6th, 2026. Red Cat undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. In addition, our comments on the call today contain references to non-GAAP financial measures, such as adjusted EBITDA and key business metrics such as annual recurring revenue. Non-GAAP measures should be viewed in addition to, and not as an alternative for, the company's reported GAAP results. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measures, as well as definitions of the key business metrics referenced and management's reasons for including the non-GAAP measures and key business metrics referenced may be found in the press release.

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 Chris.

Thank you, Ankit. Good afternoon, everyone, and thank you for joining Red Cat's Q2 2026 earnings call. Operationally, the second quarter was an important quarter as we continued scaling production, expanding our family of systems, and building the infrastructure necessary to support Red Cat's next phase of growth. As Jeff will discuss in a bit, demand across our markets remains strong. My team's job is to ensure that we can deliver at scale while maintaining the speed, quality, and flexibility that our customers expect. We continue to improve operational metrics by supporting $20 million in quarterly revenue and improving gross margin to 16%. The most important operational achievement of the quarter was our continued progress scaling manufacturing capacity across the organization. We previously noted that our manufacturing footprint increased fivefold since 2024 to 260,000 sq ft.

During this past quarter, we added an additional 12,000 sq ft of manufacturing and engineering space in San Diego for APM operations. To be clear, square footage is critical, but not the sole focus and end all for capacity. We continue to focus on increasing throughput, improving efficiency, and strengthening supply chain resiliency. Throughout the quarter, we continued expanding production capabilities, increasing inventory availability, and investing in manufacturing processes that support better quality and higher delivery volumes across our product portfolio. We are seeing significant synergy gains through centrally driven collaboration across our multiple product platforms in areas of engineering, system integration, quality programs, and supply chain optimization. These efforts helped support continued deliveries across our autonomous platforms while positioning us for anticipated future demand. Importantly, this shows that we're not simply scaling capacity, we're building repeatable processes that enable us to consistently deliver as volumes grow.

That includes investments in manufacturing systems, quality control, supplier management, and operational analytics that improve visibility across the organization. As we continue to scale, maintaining quality and execution discipline remains a top priority. Operationally, we continue to make progress across several important programs. At Teal Drones, advancement to Gauntlet II of the Drone Dominance Program was an important milestone. While the program is still ongoing, moving forward in the process reinforces our confidence in the competitiveness of the platform and the capabilities of our engineering and production teams. We remain focused on execution and supporting the program requirements moving forward. We also continue to support growing international demand for secure American-made unmanned systems. Deliveries to international customers, including the Japan Ground Self-Defense Force, further demonstrate our ability to deploy and support our platforms globally while expanding Red Cat's international footprint.

One of the most exciting developments at Red Cat is the continued expansion of our family of systems. Our Black Widow platform continues gaining traction with customers that require secure, mission-ready, small unmanned aerial systems. At the same time, we introduced the Hellcat, which extends our ability to support international defense customers with a globally configurable platform derived from the proven Black Widow architecture. This creates additional opportunities to expand our addressable market while leveraging technologies and capabilities already proven in the field. Beyond aerial systems, we're also making meaningful progress in the maritime domain through Blue Ops. During the quarter, Blue Ops completed production validation testing of its V7 hulls and moved into mass production of the Variant 7 uncrewed surface vessel, a U.S.-built, mission-adaptable maritime autonomy platform designed for U.S. and allied defense missions.

The Variant 7 brings together domestic autonomy, command and control, communications and mission systems while supporting intelligence, surveillance and reconnaissance force protection, harbor and coastal security, contested logistics, and other payload-adaptable missions. This is an important part of how we are expanding Red Cat from an aerial systems provider into a broader all-domain autonomy platform. Recently, we have been selected to participate in the U.S. Office of Naval Research Global MACE 3 and MACE 4 operational experimentation events. These programs provide an opportunity to demonstrate advanced autonomous maritime capabilities alongside government and defense stakeholders and further validate the relevance of our Blue Ops and APM technologies in future naval operating concepts. We also continued validating the broader Blue Ops ecosystem in real-world maritime environments.

The recent Navy Services engagement further validates the demand we are seeing for scalable U.S.-built maritime autonomy and reinforces our confidence that Blue Ops is addressing a clear and urgent capability gap for naval customers. In May, we demonstrated the Blue Ops Variant 7 with Kaimetra during an exercise in Key West, Florida, highlighting resilient communications on the move for autonomous maritime operations for uncrewed surface vessels. Reliable connectivity is a critical enabler for operations at a distance, real-time data sharing, swarming, and coordinated missions in dynamic or contested environments. That event was another proof of point that the platform is not just a vessel but a part of the integrated maritime autonomy stack that can support the types of operational requirements naval customers are increasingly prioritizing. Another major operational focus has been integrating the technologies and capabilities we've acquired over the past several quarters, and I would start with swarm autonomy.

The Department of Defense's Swarm Forge initiative reflects clear direction of travel across the market. Customers want autonomous systems that can operate collaboratively, adapt in complex environments, and generate meaningful effects with fewer operators. The program is designed to accelerate AI-enabled robotic warfare through recurring Crucible events and move validated swarm packages, including mission software, coordination logic, and interfaces and tactics toward operational transition in 90 days or less. This is why our integration of APM is so strategically important. APM brings multi-agent autonomy and distributed control capabilities that can help enable coordinated operations across air, land, and sea. As customers increasingly focus on collaborative autonomous systems, we believe that swarming will be an important differentiator across the Red Cat family of systems. Our engineering teams are working to incorporate these capabilities into our future roadmap with the goal of supporting more coordinated, resilient, and operationally effective mission profiles.

Another important step forward during the quarter was our continued work demonstrating interoperability across leading autonomy platforms. During a recent joint demonstration with Anduril, our team showcased a multi-vendor find, fix, and finish workflow operating under a unified command and control architecture. The demonstration combined ISR provided by Black Widow autonomous mission orchestration through APM's Paradigm software and kinetic effects capabilities integrated through Anduril's ecosystem. We believe these demonstrations validate our family of system strategy and show how Red Cat technologies can integrate into a broader defense architectures while supporting increasingly sophisticated multi-domain missions. Equally important, these effects demonstrate that Red Cat can serve as a critical contributor within larger defense ecosystems, reinforcing the value of open, interoperable architectures that combine the best-of-breed technologies from multiple providers. From there, the next operational constraint is endurance, and that is where Quaze becomes highly complementary.

Quaze adds wireless power transfer capabilities that address one of the most significant remaining barriers to persistent autonomy, keeping systems powered in the field without manual battery swaps, precise alignment, or connector-based charging. Its platform is designed to support autonomous recharging across air, ground, and maritime environments, including vehicle-mounted systems, drone-in-a-box solutions, uncrewed surface vessels, fixed infrastructure, and underwater charging stations. While integration remains ongoing, we're encouraged by the opportunities this technology creates across multiple platforms. Together, APM and Quaze strengthen two foundational pillars of autonomy stack: coordination and endurance. Swarming helps autonomous systems work together more intelligently, while wireless power helps keep those systems operating longer with less operator burden. When combined with our aerial and maritime platforms, these technologies enhance our ability to deliver more complete mission-ready solutions for customers operating across increasingly complex environments. Our customers increasingly want interoperable systems that work together seamlessly.

They want common control interfaces. They want integrated data flows. They want a single partner that can support multiple mission requirements. That trend continues to accelerate as military organizations adopt multi-domain operating concepts and seek greater operational flexibility. Our approach is designed around those requirements. As we integrate new technologies, expand our portfolio, and continue building common architectures across the organization, we believe Red Cat becomes increasingly valuable to customers looking for comprehensive solutions rather than standalone products. Looking ahead, our operational priorities remain straightforward. First, continue scaling production and deliveries. Second, continue integrating newly acquired technologies into fielded capabilities. Third, maintain the agility and responsiveness that have become hallmarks of the company. We believe the operational foundation we have built over the past several years positions us to support future growth across air, land, and maritime autonomy, and we're excited about the opportunities ahead.