New Horizon Aircraft Ltd. (HOVR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the New Horizon Aircraft Fiscal Third Quarter 2022 (sic) [ 2026 ] Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded and will be available for replay on the company's website at www.horizonaircraft.com later today. I would now like to turn the call over to Matt Chesler. Matt, please go ahead.

Thank you, operator, and good morning, everyone. Joining me today on the call are Horizon Aircraft's CEO, Brandon Robinson; and the company's CFO, Brian Merker. Before we get started, I'd like to remind you that we will be making forward-looking statements during today's call. These statements involve risks and uncertainties that may cause actual results to differ materially. For more information about these risks and uncertainties, please refer to the Risk Factors section of our annual report on Form 10-K for the fiscal year ended May 31, 2025, and filed on August 22, 2025, as well as the Form 10-Q filed with the SEC today, all with the Securities and Exchange Commission and under the company's profile on SEDAR+ in Canada as well as other documents filed by New Horizon Aircraft and the SEC under the company's profile on SEDAR+ in Canada from time to time. Any forward-looking statements we make are based on assumptions as of today. We undertake no obligation to update these statements as a result of new information or future events. Now I would like to turn over the call to our CEO, Brandon Robinson, for his prepared remarks. Brandon, please go ahead.

Thanks, Matt. Good morning, everyone, and thank you for joining us today. I'll start off by saying that we believe the advanced air mobility sector continues to grow in a very constructive way. What began as a concept-driven phase just a few short years ago for many companies is now shifting towards practical execution where real-world performance, certification pathways and economic viability are becoming the defining factors for long-term success. At Horizon Aircraft, we've always taken a pragmatic approach to this market. Our focus remains on building an aircraft that solves real operational challenges. We are building an aircraft for operators that will offer meaningful improvements in cost, performance, reliability and safety across a number of missions. That laser focus on developing an operational tough, high-performance aircraft continues to guide our progress on the Cavorite X7. So a little bit about technical progress and developmental road map. So from a developmental standpoint, our primary focus is now on the continued design and production of our full-scale aircraft prototype, very exciting. Our intentions remain to complete the full-scale aircraft by the end of the year, which is the single most important engineering milestone for the company over the next 9 months. This will position us to begin ground testing and ultimately flight testing in early 2027. Our hybrid electric architecture that we incorporated into our aircraft from the very beginning continues to be a key differentiator. By combining a turbine-based power system with electric propulsion, we have the best of both worlds. We're able to deliver a level of performance, safety and operational flexibility that we believe is not achievable at regional distances over 100 miles with pure electric aircraft in this space. So the hybrid electric core power system, the X7 will have the ability to operate independently of any ground charging infrastructure. So no need for any lagging vertiport construction to hold back initial operations. While airborne and after landing, the aircraft will be able to recharge itself, adding to safety. We also plan on pursuing full IFR capabilities, so flight into clouds and also flight into known icing certification, capabilities that are essential for many commercial and defense applications and unlikely for almost any of the other eVTOL concepts. In addition, a leading independent audit firm has also verified that the Cavorite X7 is expected to deliver up to 75% lower operating costs measured on a per mile basis versus both conventional helicopters and some advanced air mobility aircraft being produced by our peers, all while offering superior speed, range, safety and payload capacity. So on to partnerships. In recent months, we've made some really meaningful progress in furthering key strategic partnerships. We contracted the production of our fuselage structure to RAMPF Group, an international manufacturing company with over 900 employees that specializes in advanced composites. This marks a very significant shift into the production of our full-scale aircraft, something extremely exciting to report. In parallel, we have contracted production of our wings to North Aircraft Industries. Their world-class expertise in precision aerostructures and complex wing structures, in particular, support both performance optimization and production readiness as we move closer to full-scale assembly later this year. We also recently announced a key collaboration with Mitsubishi Heavy Industries Regional Jet Aviation Group, MHIRJ for short, a company that brings decades of experience in aircraft development, certification and support stemming from its history with the CRJ regional jet program. This collaboration brings highly specialized engineering support to the Cavorite X7 program, particularly in the area of flight test instrumentation, which will be critical as we move towards our flight test program in early 2027. These strategic collaborations significantly strengthen our technical road map and is a very meaningful step forward in developmental capability, technical progress and sophistication of our program. And of course, as we continue to be actively engaged in discussions with several additional potential strategic partners to join New Horizon Aircraft's mission and vision. We are encouraged by a significant level of interest with a range of companies that include the best across aerospace and defense and manufacturing sectors. These discussions are ongoing, and we remain disciplined in pursuing opportunities that align with long-term shareholder value. As for our financial position and capital runway, Brian will shortly explain this in more detail. Our financial performance demonstrates that we remain disciplined and focused on capital efficiency. We ended the third quarter with approximately $20 million in cash, providing us with working capital runway in excess of 12 months based on our current operating plan. Importantly, our development strategy is intentionally structured to be significantly more capital efficient than many of our peers. By focusing on a hybrid architecture, levering (sic) [ leveraging ] strategic partnerships, and by not implementing an air taxi service strategy, so being an OEM versus an operator, we are able to advance the program without a level of capital intensity typically associated with the all-electric eVTOL development in this space. In addition, with the requirements of the Canadian federal government to increase its spending to defense of up to 5% of GDP, or an increase of approximately $15 billion to $20 billion each year, we continue to pursue nondilutive sources of funding similar to the $10.4 million INSAT grants we previously announced. We expect those types of opportunities to remain an important part of our broader funding strategy going forward. We also have very significant government tailwinds that are building. So if we take a step back from our near-term objective of building the Cavorite X7 prototype, we are seeing increasingly supportive regulatory and policy developments for the advanced air mobility sector. In Canada, as I just alluded to, the recently announced defense industrial strategy outlines a substantial increase in long-term defense spending with a clear focus on innovation and next-generation technologies just like ours. We believe this creates a multiyear tailwind for companies like Horizon Aircraft, particularly given the dual-use nature of our platform across both commercial and defense applications. In the United States, recent developments from the Department of Transportation and the FAA around the advancement of eVTOL integration pilot program represent another important step forward. Government support at this level helps accelerate the path forward towards integration of eVTOL aircraft into national airspace systems and ultimately supports broader adoption across the industry. So taken together, these developments reinforce our view that the regulatory environment is moving in the right direction and that our timing is perfect, very well aligned with the broader industry tailwinds. With that said, I'd like to now pass it over to our CFO, Brian Merker, to discuss the financials in more detail. So Brian, over to you.

Great. Thanks, Brandon, and good morning, everyone. On the financial side, we closed the quarter with $20 million of cash, continuing with our healthy liquidity and longer-term working capital availability. We always strive to be patient and careful with our fundraising activity. Using a combination of our at-the-market program, nondilutive grants and warrant exercises, we have raised $25 million at an average price of $2.03 per share thus far into the year. This has put us in a position to focus on our engineering progress and the development of important partnerships as we plan for the manufacturing phase of our business. These Q3 financial results reflect our continued investment in aircraft design, build and planned certification. More specifically, total operating expenses were $7.6 million for the quarter, up from $3.6 million in the same period last year. Notably, admin costs were largely flat with our spend on aircraft development costs up from $0.4 million a year ago to $4.3 million in the current period. Similarly, on a year-to-date basis, operating costs nearly doubled to $19 million from $10 million this time last year, again, with admin costs relatively flat, while our aircraft development costs increased from $1.2 million to $9.6 million. These aircraft development costs are directly related to people, components and tooling connected to building our full-scale aircraft that we expect to complete by the end of 2026. On the liquidity side, cash used in operations totaled $12 million for the 9-month period ending Feb 28, which was higher as compared to the same period in the prior year, driven by our amplified investment in building our full-scale aircraft. Looking ahead, we're anticipating our cash from operations to remain consistent or modestly increase as compared to the current fiscal '26 quarterly run rate through to the completion of our full-scale demonstrator aircraft. As Brandon noted, during the quarter, we engaged a well-recognized independent audit firm to conduct a comprehensive Cavorite X7 operating cost evaluation. This analysis focused on taking our aircraft performance, notably speed, range and payload, and apply the cost to operate the machine to arrive at a reliable economic model for future customers. We believe as we begin to target aircraft buyers over the next year, that this evaluation will provide the substantive corroboration customers need to commit to the Cavorite X7. In particular, the $0.97 cost per available seat mile is materially favorable as compared to our peers in the AAM space, who are publicizing a $3 to $5 operating cost per seat mile range, as well as comparable legacy helicopters that have costs in the $4 to $7 per seat mile range. As a result, our aircraft is expected to deliver up to 75% lower operating cost versus other all-electric advanced air mobility aircraft being produced by our peers and versus conventional helicopters, all while offering the superior speed, range and payload capacity that we've been talking about. We do expect these significant operating cost efficiencies will resonate with aircraft operators. These are not incremental improvements. They are meaningful product differentiators that we believe will be critical as the industry moves towards commercialization. Finally, as we look ahead, our focus remains on disciplined execution, advancing our full-scale aircraft flight program, furthering our certification efforts and preparing our customers for commercial flight ops prior to 2030. With our strong liquidity, proven technology and outstanding talent, I'm eagerly anticipating these developments over the next several quarters. That concludes my prepared remarks. And now I'll pass the call back to Brandon.

Thanks very much, Brian. In closing, we are very encouraged by the progress that we are making. We are advancing towards a clearly defined and highly meaningful milestone, the completion of our full-scale prototype by the end of the year. At the same time, we are expanding our team, deepening our partner ecosystem and continuing to engage with potential strategic partners that could further accelerate our path forward. More broadly, we believe that the industry is beginning to converge around the realities of what it takes to build a commercially viable aircraft. With safety being one of our top priorities alongside performance, economics and operational flexibility, we believe our hybrid electric and fan and wing architecture positions us very well on all 3 fronts. This is truly an exciting time for Horizon Aircraft. Our team is growing, our momentum is building, and we truly believe that we are focused on executing against the milestones that we believe will create long-term value for our shareholders. So that concludes our prepared remarks. And I'd like now to pass the call back to the operator to begin the Q&A session.

[Operator Instructions] Our first question is coming from Dick Ryan of Oak Ridge Financial.

Great. Congratulations, guys, on the continued progress you're making. Brandon, just a question. I mean, you've ticked off a couple of key collaborations, partnerships. I'm wondering if you could kind of give us just a high level of what should we be expecting next? I mean what are key collaborations that you need to check off over the next 6 to 9 months as you get ready for early '27? I mean are we talking electronics, more in manufacturing, power distribution? Can you give us maybe just a rough road map of what we should be expecting?

Well, I'll say for those who don't know, the Canadian advanced aerospace ecosystem is pretty substantial. So we're one of the few countries in the world that has full design, production certification capability, companies like Bombardier and Bombardier Defense, Mitsubishi Heavy Industries, like we talked about, CAE. There are a lot of really vibrant and significant capabilities up here in Canada. And that trickles down into supply chain realities as well. So a lot of really interesting -- you're talking a lot about power electronics, et cetera, et cetera. Those are a lot of supply chain questions. The great thing about 2026 is, through the excellent work of a lot of the other companies, a lot of these technologies are advancing quite well. And so we get to use some of these advanced technologies and the partnerships that offer these advanced technologies. So we can't announce anything, of course, but it would be silly if we weren't talking to the Bombardiers and the Bombardier Defenses and other Mitsubishi parts of their company, it's a very large company, to build out capacity for engineering and production primarily. We have a lot of extremely rich talent inside the company. But like I said, we're surrounded by an awesome ecosystem that can support all aspects of development, engineering, production, and certification.

Great. So you mentioned, down the road, one of the key differentiators would be the ability to fly into known icing conditions. When would that testing kind of kick in? What's kind of the timing of that?

So this bears emphasis, right? So there are only a handful of helicopters and there won't be any VTOLs, I don't think that will be able to be certified for flight into cloud, let alone flight into known icing. Any sort of open rotor technology is extremely difficult to get certification where ice can build up on the main rotor system and then shed into the other blades. There's only, like I said, a handful of helicopters in the world that can do this. So this makes us very unique. So if people can take a look at one of our latest press releases, the INSAT grant for up to $10.4 million takes a look at anti-icing technologies. So we had planned from the beginning to incorporate anti-icing and deicing technologies across the aircraft, the main propeller, the aircraft intake, all of the main wings and the canards. So from the very beginning, this aircraft is designed really, really tough to be able to fly in IFR conditions in clouds and in icing. Now to test it, we happen to have the ACE Climatic Wind Tunnel next door to us. So think of wind tunnel where you can drop the temperatures down to minus 40 degrees, add precipitation, see how it sticks to the aircraft. And through our grant, we're testing all sorts of icephobic coatings, electrothermal coatings on the wings and, of course, with the turbine engine on board, we have bleed air, warm bleed air to use conventional deicing that just typical commercial aircraft use now. So a lot of different layers, a lot of possibilities and a great place to test to make this machine really tough.

And our next question is coming from Josh Sullivan of JonesTrading.

On flight testing in '27, can you just walk us through roughly on the schedule ground testing to flight? And then when might you start adding additional aircraft? Or how long are you looking to test the first aircraft to kind of inform the design improvements on any subsequent aircraft for certification?

Yes. So I've talked about this before. It would make sense for us to initially -- okay, so the ground testing is the first thing you do. So you get the aircraft assembled, you start doing the basic ground testing, and then it will turn into high-speed taxi testing, bunny hops down the runway. And it would make sense for us to have 2 aircraft. Again, I've spoken about this before. We haven't made any official announcements. Maybe one is a conventional aircraft with all the hardware in the wings, but properly mass balance where we could test it in a very conventional way, while we concurrently test like a VTOL version of the aircraft and doing hover testing and then slowly move towards transition. And then you approach the transition phase from both ends of the spectrum, the high-speed spectrum and the low-speed spectrum, and that really doubles up the efficiency of any flight test program. As for the milestones, we haven't announced exactly what the flight test milestones are, but we have announced that we want to be through flight testing and certification and have aircraft rollout prior to 2030 or in and around 2030. So that can allow people to kind of construct a time line of flight testing in their minds, if that makes any sense.

Sure. And then just one on the X7s projected operating study costs that you guys did. The assumptions on passenger load, range, maintenance, where do you feel you're most differentiated? I think the overall cost is fantastic, but on the individual metrics versus other AAM, just where would you highlight?

Well, essentially, to summarize it, it comes down to the fact that, okay, against helicopters, we'll take those first. We're about 20% to 30% cheaper to operate per hour. But in that hour, we go 1.8x to 2x further with our speed as a helicopter in a much more efficient fashion. So those 2 things multiply together to create a situation where on a per mile basis, so if you're just moving critical goods and people around the planet, which about half the helicopter fleet does in the world, then that's very compelling. And like I said, it's been audited by KPMG. So versus helicopters, it's pretty simple. The aircraft is much more slick on route. It's faster and it has lower operating cost per unit hour. Helicopters are expensive to maintain. Their per hour maintenance costs are pretty significant, a lot of single point of failure type of stuff, the main rotor system, if anything goes wrong. And it's going to be the same for eVTOL. So I think there's a lot of optimism with the all-electric folks in terms of their maintenance costs with the complex rotating mechanisms and the concordant (sic) [ concomitant ] maintenance on the rotor systems and the battery costs. But essentially, versus our peers, we simply travel much further in a much more efficient way. The fuel source that we have on board is 40x more energy dense. And that translates directly into economics. You add on our efficiency en route and essentially our very low drag configuration where we're just flying like a normal aircraft using normal commercial routes in the sky. That's kind of our secret sauce right there. Insurance companies love the fact that we fly around 98% of the time, just like a normal aircraft that they know how to insure. And they see the VTOL portion of the aircraft as just another additional layer of safety over and above what a traditional commercial aircraft might have. So on the insurance side, that helps. Again, on the speed and the maintenance side, that really helps. And we don't need any infrastructure. So we can land anywhere. We don't need to pay these hefty fees at a vertiport when we land to take advantage of their high power charging infrastructure. So again, our aircraft being hybrid electric, it can recharge itself. And then finally, we have significantly less batteries on board. Now regardless of what the other companies tell you, these batteries are very expensive in some of their machines. I can't get into the details. I know a little bit too much as an ex-military guy with competitive intelligence sort of baked into me, but these are very expensive battery packs. They're going to be changed out more often than people think, and we have significantly less batteries on board. So that's combined with a simplified structure compared to the rest of the folks and lower maintenance costs overall. It all kind of combines into a -- stacks up together to produce kind of a very compelling cost comparison. So that's where all the numbers kind of come from at a high level. And we can take you through under NDA, of course, the detailed KPMG audited reports.

And our next question is coming from Brian Lantier of Zacks Small-Cap Research.

Gentlemen, I was wondering -- you've been really active on the conference circuit. I was wondering if you could -- if you've received any particular feedback from industries or operators that has helped shape the redesign that you announced about a month ago.

Yes. So what we have received from feedback, it's a great question, Brian, thank you, is that they appreciate our approach. So when we talk to operators, even the initially skeptical ones that have fleets of helicopters that are operating, the more they talk to us, the more their heads start to nod and go, wow, like you guys have really thought this through. Like my father has been building airplanes since he is 14 years old. I've been flying them since I was 3 years old. We live the operational realities of fixing these aircraft in remote locations, keeping the maintenance repair and overhaul costs low, keeping things simple as possible, really designing an airplane that is laser-focused on the operators. So the feedback is almost universally positive. And then when they see how it operates and the potential economic advantages. So again, a mining company I was talking to, they had a fleet of like 15 helicopters just moving stuff around the North without infrastructure to land. So that's a very expensive thing to do. Our aircraft could immediately drop their costs very, very significantly. And oh, by the way, get a mine set up much quicker because it's moving around a lot faster than typical helicopters. Yes, a much more serviceable way. So it's quite compelling when you talk to these operators. Like I said, even the initially skeptical ones, where by the end, the feedback is almost universally positive. Now pertaining to the OML changes, that is just us making the airplane better. So we saw an opportunity through testing on the canards, for example. We were able to lose an entire canard side. And so we didn't need the dual redundancy of having 2 fans per canard, so we can go down to 1 and make the aircraft faster, slicker and more stable. And I remind everyone that each one of those motors has -- each one of those fan units has 2 electric motors in it for redundancy. And so should the worst happen and the entire canard fail, it is still able to hover just fine. And so its robustness was a little higher than we realized during our flight testing of the large-scale prototype. And so we were able to make the design just a little more efficient. So dropped one fan from each wing to make 5 fans in each wing and make the canard a little more efficient as well. And so it's slicker, faster and just as safe as before.