Elroy Air, Inc. (CMII) Earnings Call Transcript & Summary

Thank you all for joining today's webcast to discuss the merger of Elroy Air and Inflection Point Acquisition Corp VII. I'm joined today by Mike Blitzer, CEO of Inflection Point; Dave Merrill, Founder and Executive Chairman of Elroy Air; and Elroy Air's CEO, Andrew Clare. Now before we begin, I'd like to remind everyone that our remarks today, including the question-and-answer session, contain forward-looking statements. These include statements about the proposed transaction, the expected timing and benefits of the transaction and the future financial and operating performance of the combined company. Forward-looking statements are based on our current expectations and assumptions as of today and are subject to risks and uncertainties that could cause actual results to differ materially. We undertake no obligation to update them, except as required by law. For a discussion of the risks that could affect our business and the proposed transaction, please refer to the materials filed and to be filed with the SEC, including the registration statement on Form S-4 and the related proxy statement prospectus to be filed to the SEC. These materials will be available on the SEC's website at www.sec.gov. The announcement press release and investor presentation will also be available at elroyair.com. Now with that, I'd like to turn the call over to Dave.

Thanks, [indiscernible]. A little bit about me. I'm an engineer, technology executive and start-up founder with a background in aerial robotics and human computer interaction. Back in 2014, the company that I spun out of my PhD work at MIT was acquired by 3D Robotics, which was an early U.S. drone company developing systems for aerial video and photography and software to make aerial imagery useful for construction, engineering and mining. So I spent a couple of years building small drones as part of that team that launched 3DR Solo, and then I shifted to work on technology scouting and capability prototyping. And it became abundantly clear to me that scaled autonomous flight and drone delivery, in particular, would be the next big logistics revolution. Today, critical cargo moves slowly by truck and ship and depends on roads, runways and ports that frequently don't exist where the cargo is needed. When it moves by air, it requires a crewed aircraft with people on board, which adds cost and puts lives at risk. That model is expensive and inflexible and in contested or disaster environments, it carries real danger. Autonomous heavy cargo drone delivery addresses each of these constraints. And I founded Elroy Air with a vision to pioneer the next era of autonomous aerial logistics with the mission to revolutionize express shipping. And I recognized an unmet need for a U.S. drone developer that could operate differently than the status quo in the aerospace industry and the opportunity to redefine autonomous aerial cargo transport with a drone platform that delivers simple, modular, long-range aerial cargo transport. The result of our work is Chaparral. An advanced autonomous hybrid-electric heavy cargo eVTOL drone, which is designed to move and deliver critical cargo for defense, commercial and rapid response markets. A little bit about the platform. Chaparral carries upwards of 500 pounds of cargo and has a maximum range of 450 miles. Because it takes off and lands vertically, it operates without needing runways or airports. Its hybrid electric powertrain delivers that range with rapid refueling and has no requirement for charging infrastructure. And this is an aircraft that flies autonomously without a pilot on board and its modular pods can be reconfigured in minutes to carry different payloads across different missions. Today, we take a giant step forward in realizing our vision as we merge with Inflection Point Acquisition Corp VII, enabling Elroy Air to become a publicly traded company. Through this transaction, we are accelerating production timelines at Chaparral and will gain access to the public markets and significant additional capital. This gives us an unparalleled ability to scale quickly and meet our rising commercial and defense demand. We're working closely with Mike Litter on this transaction, who is a deeply experienced investor in this space. And in Andrew Clare, we have a highly capable CEO leading a proven team of technical experts and strong operators. I'll now turn it over to Mike to discuss the transaction in further detail.

Thanks, Dave. We're very excited to be announcing this partnership with Elroy Air. Across 7 transactions, Inflection Point has become the leading financial sponsor of companies defining national security and critical infrastructure. We specifically invest in and work closely with thesis-led public-ready companies with an attractive return profile, including recent transactions, Intuitive Machines, USA Rare Earth, Quantum Space and Merlin Labs. Elroy Air continues the focus. The company is at the intersection of 2 massive secular shifts, the modernization of defense technology and the automation of the global supply chain. The cargo logistics market is a large $420 billion global total addressable market across the defense, commercial and rapid response segments. And the area where Elroy Air operates, middle mile logistics is critical and underserved with few credible autonomous cargo platform competitors. Elroy has established a highly defensible flywheel across both defense and commercial markets through a combination of proprietary autonomous aviation technology and recurring software licensing fees as well as parts and accessories revenues. All of these factors have resonated with investors, and we're pleased to be anchoring a PIPE totaling $165 million with leading institutional and strategic investors. This PIPE is expected to fully fund commercial scale production of the Chaparral with Kratos Defense & Security Solutions, the drone's exclusive U.S. manufacturing partner. Additionally, part of this PIPE will fund concurrently with this announcement, in order to accelerate growth and capacity initiatives beginning now. This will allow Elroy to begin to capitalize on its $5 billion order pipeline of more than 1,000 vehicles from leading customers across the defense, national security and logistics markets. Lastly, Elroy has formed a world-class leadership team, ready to disrupt and profitably scale within this market. And this starts with Elroy's Founder and Chairman, Dave Merrill; and CEO, Andrew Clare, 2 visionary leaders in this space. With that, I will now turn it over to Andrew to discuss where Elroy is headed.

Thanks, Mike, and thank you to everyone who joined us today for this important milestone. A little about myself. I received a PhD from MIT in Aeronautics and Astronautics, focused on drone technology development and have worked in aerospace and mobility for over 20 years. Most recently, I served as Chief Technology Officer of Nuro, a leading autonomous driving technology company and earlier led the Model X vehicle program at Tesla. Dave described where this industry is heading. I want to focus on the traction that tells us that we're already on that path and where it takes the company from here. Our position is supported by our track record. Chaparral has been validated through rigorous U.S. Army and U.S. Marine Corps testing as well as Japan Ground Self-Defense Force, where Chaparral passed a battery of 22 test items assessing readiness for interisland logistics. We have flown our full-scale aircraft for more than 2.5 years. And in 2025, we completed our first autonomous point A to B cargo delivery. We are already seeing significant demand. We have a deep commercial pipeline of more than 1,000 units from customers and partners, including, but not limited to, FedEx, the Bristow Group, the Barq Group and SLI, all incremental for more than $3.5 billion of identified defense opportunities. We see further opportunities to be unlocked across defense, commercial and rapid response over the coming years. Our company has a very strong technology moat, focused on our autonomy software and our patented hybrid electric system. We're very proud of our 18 filed patents, but our technology moat is based on the mature flight proven system we've been developing and hardening for nearly 10 years. But this is not just about our tech. It's also important to understand the economics of this platform at scale. We are not solely selling aircraft. Every Chaparral we deliver generates recurring revenue across its operating lines with multi-mission capable pods, maintenance royalties and autonomy software subscription to ensure our partners get continuous capability upgrades. Over its lifetime, a single aircraft is expected to generate more recurring revenue than upfront sales revenue. The U.S. has made drone dominance a national strategic priority, and that priority is only meaningful if American industry can actually deliver on it at scale. We intend to do just that. Elroy Air was the only OEM with a purpose-built heavy payload drone selected by the White House and the Department of Transportation for the FAA's eVTOL integration pilot program, known as the eIPP. This program was created to accelerate safe advanced air mobility integration through real-world revenue-generating operations. We're proud to have this opportunity to define the federal standard for uncrewed heavy payload logistics. Looking ahead, our priorities are straightforward. With this additional capital and our access to the public markets, we will accelerate our production time lines, deepen our customer engagements and scale Chaparral aircraft with partners across domestic and global markets. Elroy Air will continue to lead this category and define this market.

Thanks, Andrew. Now let's transition. We've been talking to a lot of current and prospective investors these last few months. We thought it would be helpful for the investment community and others following our story for us to boil down the perspective we've been hearing into a couple of key questions or themes. First, we've been asked, why now? Why is this the right time for Elroy Air to enter the public markets?

With the capital raised from this transaction, Elroy Air will be ideally positioned to meet the rising demand for Chaparral. We all know that autonomous flight is the next great logistics revolution, and Elroy Air intends to lead it. The U.S. has made drone dominance a national strategic priority and logistics is a foundational Department of war priority, specifically identified as of the 6 critical technology areas for modernization. So as we work to help set the standard for heavy cargo drones in the National Airspace System with the eIPP, we're already seeing the FAA move quickly to enable autonomous cargo operations at scale. So this transaction and why now? It ensures we can meet this moment by rapidly scaling production for U.S. and allied forces and commercial markets alike. We're incredibly excited to partner with Inflection Point, a firm with a track record of successfully scaling high-impact technology companies in order to satisfy significant market demand.

Thanks, Andrew. What is your competitive advantage? And how durable is the moat as competitors enter the space?

That's a great question. When people ask me what sets Elroy Air apart? And frankly, if you remember only 3 things from this call, remember that Elroy Air is focused on cargo, is autonomous and it is hybrid electric. And those are 3 contrarian bets that we made nearly 6 years ago that have proven out to be the right bet. There are many other players in this space going after the passenger market. We are not. We are focused exclusively on cargo because we believe that is the right way to scale this technology rapidly. There are also many other players in the space who are focused on piloted aircraft with pilots on board. We are [indiscernible] there is no pilot on board. There's no special infrastructure required for our aircraft, and it enables one-to-many monitoring on the ground that will unlock transformative economics. And while there are many others out there focused on battery electric aircraft, we chose to focus on hybrid electric nearly 6 years ago. And in fact, we were the very first company to ever fly a turbo hybrid electric aircraft in 2023.[indiscernible]

What is the urgent need for an aircraft like Chaparral in this defense market?

I'll speak up on that one. Very soon after starting Elroy Air, I found myself in Pentagon to meet with the marine who had just come back from Afghanistan, and he was looking for drone solutions to address the problem of dangerous resupply missions. He had seen firsthand the risks of running resupply by ground and by air. And so the possibility of running these missions with an autonomous delivery drone was incredibly appealing. Why put lives at risk delivering beans, batteries and bullets for sustainment when an autonomous aircraft could do the job with nobody on board, no lives at risk. At Elroy Air, we were so early in the company trajectory that we hadn't built the Chaparral aircraft yet. So I showed him a sketch of what we are planning to develop and talked him through it, and he looked at it and said, yes, if I had that, I would take it back with me when I ship back out to Afghanistan next month, and that system would save lives. And I got to say that conversation was a lightbulb moment for me. It made me realize that we were really on to something that would support the national interest and that could keep our service members out of harm's way for routine resupply activities. After that conversation in the Pentagon, discussions around the same time frame with humanitarian aid organizations and commercial shippers like FedEx confirmed what I had heard in the Pentagon. An autonomous delivery drone that can carry a few hundred pounds and go a few hundred miles without relying on charging infrastructure or runways would be a game changer for critical logistics. So early days, we got to work building just that.

Let me build on what Dave said there because there is a really urgent need that we hear every day from our partners across the Department of war and over the last 25 years, we've lost far too many of our brave soldiers and airmen in warfare, but these soldiers were simply on logistics runs, whether they were driving a Humvee or flying in a helicopter because logistics is the backbone of every military operation. So the value prop to the DOW is very simple, keep our soldiers out of harm's way by delivering critical cargo where it needs to go autonomously. Now beyond cargo, we're seeing an incredible demand for moving energy around to support military mission readiness. Our DOW customers are not going to install chargers in the battlefield. So our bet on hybrid electric is exactly what the military needs, just fuel up and fly. Now we were recently invited to demonstrate this capability at a U.S. Army base, where Chaparral conducted an autonomous flight, landed and then provided 50 kilowatts of spare power to ground equipment to the military from our patented hybrid electric system. And the same power can supply a variety of multi-mission pods in flight, serving missions ranging from counter UAS to ISR to serving as a drone mothership for fleets of small drones.

Andrew, how do you intend to grow and scale the company? And can you do this fast enough to meet the evolving and increasingly pressing needs of this space?

Yes, that's exactly what this transaction is about. The new capital that we're raising here allows us to accelerate our production timelines and meet rising demand from both commercial and defense markets. We already have a 5-year strategic manufacturing agreement with Kratos Defense and Security Solutions for the U.S. market. This means that we're building here in the U.S. We are creating jobs here in the U.S. And it means that we are not financing factories or building a production workforce from 0. We're plugging into an experienced scaled aerospace manufacturer already producing thousands of uncrewed aircraft. What going public gives us is the capital to fund that ramp on an accelerated time line for the market.

Thank you, Andrew, Dave, Mike. Now that concludes today's presentation. We hope it was informative, and we thank you for joining us. We look forward to speaking with you again soon.