Red Cat Holdings, Inc. (RCAT) Earnings Call Transcript & Summary

[Audio Gap] aircraft systems beyond visual line of sight, also known as BVLOS, aimed at integrating unmanned aircraft systems into the national airspace. These executive orders and the FAA [indiscernible] rulemaking, combined with Golden Dome announced in May and the recent plus up from Senate appropriations for small UAS are creating a massive tailwind and opportunity for all drone and boat manufacturers in the defense space. We believe that our 3 divisions, FlightWave, Teal Drones and our Maritime division will be able to assist the administration's goal to dominate drone in the USV space globally. I'm going to start with FlightWave, then Black Widow and SRR and then finally, our new Maritime division, which [indiscernible] our products together. FlightWave, The Edge 130 is now in production, following significant upgrades and the implementation of advanced manufacturing methodologies. These enhancements position the platform strongly for both short-range and medium-range operations. Recently, we've conducted some successful flights for various departments of defense groups and are starting to secure orders, including foreign military sales. Looking ahead, we anticipate releasing [indiscernible] variant by year-end, featuring upgraded radios and improved camera system and enhanced visual navigation capabilities. Black Widow. We are finally on with our Black Widow holding pattern. The Black Widow is in production, and we will be making our first delivery under contract this month to the Army after signing TD 3/LRIP at the end of July. I want to thank the U.S. Army and specifically the soldier feedback we received. The soldier feedback has turned the Black Widow into the best-in-class. 45-plus minutes of flight time. we've actually flown 52 recently and then also furthers our range. We will surely get lots of questions tonight on Black Widow, so I'm going to move on to the Maritime division. Our new Maritime division. We have built an incredible team to build our Maritime division. They have a long history of boat building. Details will be announced next week, and you won't be disappointed. The total addressable market for USVs is much larger than SUAS, but having a boat that can be fit with our swarm capability is building an entire new market for Red Cat's Black Widow and Edge 130. We have a proven tech stack with multiple kills and thousands of operational hours in actual combat and master boat builders. I'm going to leave it at that detail is coming next week on the Maritime division. With that, I'm going to hand it over to Chris, our CFO.

All right. Thank you, Jeff. As you might imagine, the recent events have gotten us really excited here for the future of Red Cat. Anticipation is really high, and there is an immense amount of activity and coordination happening across all of our facilities. Financially speaking, Q2 has been an excellent positioning quarter for us. As we have mentioned before, our revenues will be a 2025 second half story. This also means that Q2 was important to prepare for the massive ramp into Q3 revenues and the execution of our new Maritime division. We are now there. We have successfully positioned ourselves with a strong $66 million cash balance and a $16 million inventory buildup to deliver results in the second half of 2025. Now despite increasing our headcount recently to meet future demands, we have successfully controlled nonlabor operating costs to keep a steady and efficient cash burn. I know this question comes a lot with many of you. Our cash used in operating activities for the second quarter of 2025 was $12.9 million compared to first quarter of 2025 at $15.9 million, a decrease of $3 million in cash used for operating activities. Though when excluding working capital changes or in other words, excluding the changes in operating assets and liabilities, our adjusted cash used for operating activities remained flat at $10 million per quarter in Q1 and Q2 of 2025. The future is looking really bright for Red Cat, and I'm going to turn time over to Brendan, our Senior VP of Regulatory and Government Affairs for a more thorough discussion on what we see coming in the near future.

Thanks, Chris. And to echo your sentiment, very exciting time to be here at Red Cat. Our government affairs positioning is exceptionally strong. We're operating in a political climate that not only recognizes the urgent need to modernize U.S. military procurement, but is actively moving to rebuild the American defense industrial base. Over the past 3 years, Red Cat Holdings has cultivated deep, productive relationships in Washington that are now translating into tangible opportunities for our customers and our shareholders. From a funding standpoint, the momentum is clear. In its FY '26 budget justification, the U.S. Army requested approximately $148.85 million for procurement of 2,290 short-range reconnaissance systems, plus roughly $70 million for ongoing operations and maintenance. In the Senate Appropriations Committee's preliminary draft language for fiscal year 2026, the committee recommends roughly $617.13 million for SRR small unmanned aircraft systems, procurement and maintenance. This represents an increase of over 400% compared to the Army's original request. While this draft is subject to change during the legislative process, we believe it's a powerful indicator of the congressional intent and a substantial growth catalyst for our SRR program line. In parallel, we are in advanced discussions with the Department of Defense's Office of Strategic Capital regarding a nondilutive funding request of nearly $50 million. This capital would accelerate automation of our production lines, enabling us to scale output rapidly and capture margin expansion as demand ramps. Additionally, regulatory shifts are also poised to reshape the market in our favor. Section 1709 of the fiscal year 2025 National Defense Authorization Act will, by default, place DJI on the FCC's covered list no later than December 23, 2025, unless a national security determination is made earlier, which would ban them earlier. This would effectively ban new imports of DJI drones into the U.S. Given DJI's more than 90% share of the non-DoD drone market, we anticipate significant displacement demand in dual-use sectors like public safety and industrial infrastructure, representing at least $957 million in annual revenue opportunity based on the latest available import data. Moreover, as Jeff mentioned, the FAA's new Part 108 rulemaking for beyond visual line of sight establishes a standardized, scalable framework for complex drone operations, which unlock cost-efficient, less labor-intensive missions across critical industries. While these projections remain contingent on pending government actions and are, of course, subject to change, we believe the convergence of increased appropriations, favorable regulation and targeted capital investment creates an extraordinary near-term opportunity and a foundation for compounding growth in the years ahead. We're confident in our strategy and our market position and our ability to translate these macro tailwinds into lasting shareholder value. Exciting times. And with that, I'll give it back to Stan for our next segment.

Yes. Thank you, Brendan. And for those of you up there, there might have been a glitch at the beginning of the Zoom. I just want to reiterate that we are recording this town hall, and we will make it available. Forward-looking statement we'll have on screen, and we're about to go into our Q&A. And Jeff Thompson is actually going to lead us off in that Q&A.

Jeff, just real quick, a lot of people are asking about tariffs. Have tariffs impacted any of our supply chain at all?

Had to get off mute there. We have not seen any meaningful tariff complications yet. Basically, most everything -- our biggest items all come from the U.S. So we have not seen any tariff -- anything material at all yet.

Great. Another question that came in is, can you give us a stat on Palantir's VNA visual navigation solution and how it relates to Black Widow?

Yes. We're pretty excited. We've got -- we're very far down the path, and we're ready to start implementing a commercial product -- we're -- it's going to be between $12,000 and $15,000 per drone depending on volumes. So if you even just looked at what's in the 2026 JBook for those 2,200 systems, that would be an additional $58 million in revenue just for adding software to our existing platform at basically 100% margin. Now remember, we do a revenue share with Palantir. And even for the 690 systems for LRIP that we just got is it's also an additional $16 million to the 2025 budget. So that's pretty exciting to add that. And just to be frank, you got to go with a software solution. The MCode stuff cost about $15,000 actually, and it doesn't really work well. So we're hoping that everybody will vide to get visual navigation software platform.

So speaking of Black Widow, again, another question that came in. What is the next steps for starting to deploy Black Widow to the Army?

Yes, we've already done the training. We just -- we are sending -- well, Chris can talk more about this. He's right next to it, and he showed me a lot of piles of drones heading out to the U.S. Army this week. And how many did we make on Saturday, Monday?

Saturday was 32 on Monday, it was 56. So...

Yes, we're getting there. So I'm sure we're going to get a lot of questions on how we're going to hit our guidance with last Q, but this is not a last Q story. We've been in a holding pattern with Black Widow waiting for the Army to say, yes, this is a final version. And we actually got changes as close as 4 weeks ago. Never mind the March 27 stuff that expanded our range and battery life. So for us to get the contract done at the end of last month and to be shipping this month is pretty darn exciting. And with those run rates, we can easily do 1,000 grows a month of just Black Widow. So since this has already been hit upon, we believe we can still hit our at least the lower end of our $80 million to $120 million guidance, just -- mostly with the Black Widow.

Great. This next one actually, I'm going to hand over to Brendan. Brendan, you've identified international defense, public safety and civilian markets as incremental growth vectors. How are you prioritizing these segments? And what specific go-to-market strategies or partnerships are in place to ensure Red Cat can capture this upside without diluting focus on your core U.S. defense business?

Of course. Thanks, Stan. So the thing that I'd like to highlight is there's 2 things to really envision here. Number one is that there's a lot of overlap between our defense offerings and our civilian industrial and public safety offerings. Our goal is to use the acceleration of capital into the defense market to create the infrastructure to then build our civilian market offerings. So 80% of what we use in the defense space today is already applicable to the civilian sector. We're still a defense-focused company, but we're accelerating that civilian business as DJI gets kicked out to back fill that $900 million of demand that we expect.

Great. And actually, speaking of DJI, with DJI potentially restricted from the U.S. market as early as the end of 2025, what specific steps are you taking to position Red Cat as a default replacement supplier in both defense adjacent and civilian channels? And then the follow-up question from there is how quickly could you scale production to meet a surge in displaced demand without impacting delivery schedules on existing contracts?

Of course, and rapidly. We're able to do 1,000 drones a month today. We have requirements that we've developed specifically for the civilian market. Those are in process to create a civilian version of Black Widow, which will be entering the market relatively soon. So we're very excited about that prospect. We believe that will drive significant revenue, and we believe that will provide significant value with the civilian version of the Black Widow once DJI is kicked out.

Yes. And just to add to that, with the addition of our -- we're not even really utilizing the new space that Chris and his team have gotten right next door to Teal that's attached to the building, the center location that's in California for Black Widows. So we'll be able to meet that need. No problem. It's kind of -- we got the chicken and the egg here. We need the orders first and then can make as many drones as people need.

Jeff, maybe this is over to you and Chris. Someone just mentioned TL 2, which is our legacy aircraft to Black Widow. And they said in an article that it was back in production. Can you shed a little bit more light on that one?

Yes. So the goal was to shuttle the Teal 2 as Black Widow was coming on. And then we had a lot of requests for the Teal 2 start to come in. We want to save at least a few hundred for our partners aat Sentien because they're based on Teal 2 but now switching to the Black Widow, which is our swarm platform is incredible. But -- and then we got some other from the INDOPACOM region, people that wanted a cheaper drone that's almost the same exact operating system as Black Widow. And there were some pretty significant numbers behind those people wanting the Teal 2 again. So it doesn't hurt us to keep the Teal 2 going as a less expensive option.

With the -- with now the procurement to the Army, what is the international focus going to look like, you think, in the future? That's another question that came up.

Yes. Well, international has changed quite dramatically just in the last month. There was a negotiation for the NATO to buy $700 billion worth of U.S. Defense products in the recent tariff negotiations and all that big mixture. And we believe that there's going to be quite a few companies that are going to benefit. And even before that, we've been going to a lot of different RFPs. We just had a fly off this weekend that went very well with one of the major NATO countries. We are very well positioned there. Our time is best-in-class now. And we've got a mature platform. And there's actually -- we're pretty excited about having the Maritime division for that $700 billion. If you look at a lot of the coastals there are all water, right? If you look on the whole side of Iran and all these different places, there's lots of places that would be able to use our Maritime division product.

Another question that came in actually specific to our Maritime business is -- do we have any worries that we're maybe scaling too fast can you maybe shed some light in the actual scaling aspect of our business?

Well, to be in the boat business, you have to know how to scale. Most boat businesses, if you look at the recreational space, they don't do so well. A lot of them go out of business to have a particular product that you can stamp out thousands of times for the DoD is a welcome surprise in the boating industry. And we have some of the best master boat builders out there, they know how to make stuff at scale. Their companies, they came from have been in World War I and World War II became one of the largest boat builders in World War II. So you got to know how to scale. You got to have the right product. And we believe we do have the right product for any maritime solution based on our partner for the tech stack, which is they're in live combat today, they were yesterday, will be tomorrow. They're proven. They've got thousands of hours of operational experience in combat with these boats or USVs. Also, you got to remember the Army has more boats, small boats. They have more boats in period than the Navy. So a lot of people don't know that. So there's a very big TAM that we're going after. We're basically the best tech stack out there and some of the best boat builders in the world.

Great. Thanks, Jeff. Speaking of TAM, let's go back over to Brendan. Given that your TAM estimate is intentionally conservative. Can you walk us through the key milestones, regulatory, contractual or technological that would prompt you to revise that figure upward. And how you would allocate additional capital to scale into those opportunities ahead of competitors?

Yes, of course. One thing to focus on is that BB loss is really going to change the game. I've been in the drone industry on the civilian side for about a decade. The labor ratio of flying within visual line of sight is really, really expensive because you've got to have a visual observers. Oftentimes, you have to daisy-chain visual observers to have 1, 2, 3, 4. The fact that a drone will now be able to fly miles down to power line is going to create much more adoption in the high-end, civilian, industrial and public safety sector. So we expect that $957 million to grow pretty significantly there. As we compare that to our defense business, both domestically and international, we'll make capital allocation decisions about that Jeff can probably speak to. From my perspective, however, the physical requirements of the drone are so similar that both drones are going to come off the same production line. In the same way that you have different trim levels of a car or a truck coming off the same production. We'll have defense specialized versions, we'll have civilian specialized versions with slightly different features, but the fundamental architecture of the drone is going to be very, very similar. That allows us to drive scale, that allows us to increase our margins and capture more of that addressable market.

Can I just add to that, Stan, so we basically ignored a lot of the first responders and the enterprise drone business because it's very difficult. The business model is very difficult when you go to a $25,000 drone and they've got a $3,000 drone that's subsidized by the CCP. So that dog is not going to hunt. But once they're gone, and we get some scale from the DoD. This new dominance of drones from the administration, our prices are going to come down as we get some scale to meet the needs. And we expect at the beginning, there's going to be a lot of grants given to people to make that conversion from Chinese to American Made, so we can get the scale that needs to be done to get the prices where they need to have it.

Great. Actually, it's a good question going into the next one. It's more of a clarification question that somebody has. When it comes to us saying we can produce up to around 1,000 drones a month or more building to order. Would you say that, that just as for Teal Drones or is that across the board, including FlightWave? How would you kind of differentiate the two?

No, that's just Teal. What's interesting is most of the stuff we're talking about is just only Black Widow revenue. We're not even -- the our book division with our USVs, those things are going to cost anywhere from $500,000 up to $1.5 million. So -- and the capability that we have which we give in more detail is to be able to build hundreds a year, if not thousands. And we're setting ourselves up for scale with that. So you combine that, you can put our drones on there. So it is -- again, we just -- we keep talking about the in reverse here. You got to get the orders first to ramp it up.

From an R&D perspective, would you say that Red Cat is working on some R&D projects that cannot be disclosed public?

Yes, sure. Let's just talk about stuff. We're not going to disclose to the public. No, we're not going to release anything that we're doing in R&D for all our new products.

Great. Let's see. Just one here. actually, we are ramping up not only from a production perspective, but also from a workforce perspective. And Chris, maybe you can answer this question. A lot of people are asking about this idea of recruitment? And how are we actually ramping up? And when it comes to FlightWave, Teal across the board and being getting a bigger work for us. No, you're on mute, Chris.

So how we do it is right now, brute force. We've expanded our HR team, so we tripled our recruiting group as of a few weeks ago, I know that it's kind of been out there that I've posted how many we open requisitions we have and that number has gone up. And even though they are filling those positions now, that number seems to keep on going up, but it's strategic. We're looking at our global teams across all the different divisions. We're looking strategically at what they need to get us to the next stage and also looking at how we can utilize the Red Cat corporate kind of level to assist and use the talent across the different divisions to help us scale more quickly. So we're looking at that very strategically, but we are also looking at that as a fast ramp, especially on the Teal side of things.

Great, Chris. And would you say that -- just referring to another question here, would you say that we do have the back-end systems in place to really manage this dynamic growth period?

We have systems in place. Those systems are always continuously being improved and updated. And so we do have certain individuals that we have hired and are also hiring to help us to improve those systems to make sure that we can scale appropriately with everything else that's going on. But currently, as far as the near future, we are adequately addressing the systems perspective, but it is going to quickly dissipate, especially as we get into the USV division. So we are currently ramping those systems up and getting them upgraded.

And to be more specific, Stan, is up -- we're building a team right now that's just going to be solely focused on implementing work speed from Palantir. So that's going to help. That will go -- that will be across all our factories, the East Coast, West Coast, Salt Lake City. So that will be -- we're implementing it as we speak in the next few weeks.

Great. This one we hand back over to Brendan. This is a Part 108 question. I know something you're very interested in. Is there a strategy to open Black Widow Edge 130 in the BVLOS market?

There absolutely is. A couple of things to keep in mind. One, now that the rule has been published, it goes into effect. It goes into the notice of proposed rulemaking period. There will be a comment period, some of the rule may change. So we are actively tracking the changes to that rule. We've added those requirements to our program road map. Look, we realize this is the direction that drones are going. It has been since the BVLOS Aviation rule making committee was established. We've been tracking that for the past 4, 4.5 years. So we've built that into our product road map and when the rule is fully enacted and ready for utilization, our products are going to be prepared to comply with the Part 108 regulations.

Thanks, Brendan. Another question here about this idea of kind of U.S. and Ukraine and how Ukrane has rapid drone innovation. Jeff Thompson, how would you talk about Red Cat's rapid innovation when it comes to trying to get things to market, having the best-in-breed capabilities and those types of things.

Yes. You have to pay attention to the Ukraine. They have some of the best technology in the world. We want -- we had to go there a bunch of times to make sure that our EW platform with DuaLabs worked, which was exciting. We then -- the other big issue you have is GPS. We've got one of the best partners on the planet in defense called Palantir. It's going to dominate that space. You put those 2 things together and you got to be ready to continue to iterate because in 6 months, you'll need to do something else. Same thing with our -- it's a unique thing to have to talk about when you can't talk about it, but our boat division is going to have the latest and greatest and the best tech stack out there for autonomous surface vessels by far. So we're pretty excited about grabbing the best technology out there, the most proven technology out there. And we're hoping to be able to show people our newest production boats late this year.

Next question is more kind of an investor question. So what is the company doing to encourage institutional coverage of the company?

Well, that's good old-fashioned hard work. We've -- well, if you look at recently, BlackRock just became a 5.2% shareholder. We did our last raise with 2 massive shareholders that we've only talked to 2 people to raise that $50 million myself and Chris do a lot of non-deal road shows with a lot of great funds. So basically, it's all driven by your growth and then people start to pay attention and then you do the growth and then pay attention. But nothing is going to get you attention other than revenue growth. And we've been kind of head down for the last 2 or 3 quarters as I've been calling it a holding pattern. Please tell us this is the final version of the Black Widow, so we can get moving. But our institutional investors, you can see they're growing and growing every month.

Here's a future road map question. Does Red cat considered entering the unmanned ground vehicle market, any plans or aspirations to do so?

We get a lot of in my inquiries since we announced our Maritime division from a lot of different folks that would like to be part of Red Cat team. I've looked at 3 different companies that are doing that. It's very interesting to us, but too early for us to make any announcements.

Great. Thanks, Jeff. Back over to Brendan. What do you anticipate are the next steps with our ongoing process with the OSC?

Great question. So we actually just got out on the OSC as of this week, asking us for a second round of meetings regarding what we believe to be a Phase 2 submission. So the way the process works is there was a Phase 1 submission where we wrote a brief as to our capital request, the OSC comes back and reviews those, makes a down selection and we believe we are on track for that down selection based on the information that we have. To give you an idea of how competitive this is, the office of strategic capital at the time that it was funded and had the request generated was 800% oversubscribed, and we believe that we are down to a finalist selection point. We're feeling pretty confident about our application. But once we have that in with office of strategic capital in the next week or 2 here, we should have better information about where we sit.

By the way, that was a layup for him to answer because I ask him that question every single day.

This is true, Jeff.

Jeff, to a lot of those folks out there. I mean, when we come -- when we're talking about differentiators and our competition. What would you say are the top primary things that Red Cat does and that separates us really from our competition when working with the Army and other folks?

Yes, it's a great question. So if you look at the quad space, there's a lot of quad copters out there. So there's thousands of companies that make quads. What they do is they try to make -- the engineers come up with the features instead of listening to the war fighter. We listen to the war fighter. First thing they told us a few years ago for Teal 2 was make it work well at night. Second thing is it's got to be robust and they're going to break. So we made modular arms and other modular pieces. So now we have a modular architecture. It's got to be rugged, the Black Widow is a beast. It's got to have a long flight time. You just listen to the war fighter because that's what's crucial them. They don't want to be changing batteries every 15 minutes. They don't want their controller dying because it has a battery that's embedded, which is not a smart idea. So you can use any battery on our systems from your drone. So on the Black Widow, we listened, and that's why we got the down select from the war fighter. On FlightWave, they have -- they have a unique differentiator there is because it's a fixed wing, which gives you a lot more lift. It's already got 60 minutes plus flight time, which is the best in the Blue AS list. And it's also portable ways like 2.5 pounds, which is good for a rucksack doesn't weigh too much. It doesn't take 2 people to launch, but it has unusual flight time. It has the speed of a fixed wing, which is great for secret service, and then it actually can hover which a lot of fixed wings, cannot do. So that's a huge differentiator there. And then you look at USVs right now. A lot of people just say, "Oh, yes, on Silicon Valley, I can write code to do something anonymous." But are you a boat builder, can handle C-state 4 and 5. Can you -- do you know the difference between an Atlantic coastal boat and a Pacific INDOPACOM style boat that needs that handle C-state 4 and 5. Do you know how to do jet boats or are you going to use props, which are kind of useless. Some people don't even think about those things. So having basically master boat builders on your team and building a hull that can do everything that I just talked about and then having a tech stack from a mature location a huge differentiator. So for our USV, we're proven in battle, real combat every single day. Every day you wake up, we get more hours into the battle from our tech stack. So -- that's another differentiator for us. And you combine those all together because we can put FlightWave, Edge 130s on this thing. We have missile launchers off these things, so we can do stuff with Firestorm and Aero environment with their launchers, building a platform that can be integrated with other companies so that we can give the war fighter together what we want. So having that modular capability being basically an open platform, so we're integrated into the Tomahawk with AV, that gives us an advantage over people that are not. So there's a lot of different ways to differentiate just through how you do it.

Along those same lines, is there any stats that we can give on FANG development?

Yes. I mean we do a lot of our FANG development with UMAC, which everyone understands everyone already knows that. They keep getting new stuff on the Blue AS list and like every couple of weeks, they're doing a great job. So FANG is going to be a great offering for us, but it's never going to be a massive revenue driver for us because to produce the numbers that we're going to have to produce, it's going to -- the DoD is going to need 4 or 5 companies. So you're going to have to share that load of drones that are very inexpensive and it's very hard to generate lots of revenue with that. So -- but we will -- we have an offering. We have the Black Widow. We have the FlightWave system. We have a hive system, and we have boats now so that we can get way into country. We can get way out away from launch internally, which is been being done a lot in Ukraine. So there's a lot of different things we can do by combining all 3 of our platforms and partnering with other folks.

Great. Thanks, Jeff. This next question -- I'll just read it on July 24, there was a subcontract about $11 million for Teal Drones. Can you just share a little bit more details about that.

This is probably from one of those government sites. I don't follow that. So I have no idea what that's attached to.

Okay. That's good. Next question, actually, is something maybe even I can answer. They just want to -- a lot of people just want to know like how are all these trade shows that we're going to? And obviously, you guys -- everyone out there see me on LinkedIn and I'm all over the world. It's really hard to gauge ROI on trade shows, but I can tell you this, the litmus test for me is the amount of meetings that are usually set up before you go into a trade show. And in all honesty, our schedules are completely packed going into these next few shows. And I'll be leaving for Thailand tomorrow. So we have the Indo-Pacific Regular Warfare Symposium focused on INDOPACOM, already a packed schedule with interest from that area. We have commercial AV coming up. AUVSI Pathfinder as well as then DSEI in London and already for a show that's happening in September, our schedules are completely full with potential customer meetings. So I hope that answers your question when it comes to the trade shows. See we have more people answering stuff here. Here's an interesting one. I don't know who wants to take this. Has there been any progress in developing drones that use fiber optic lines to prevent interference with radio signals?

Well, we -- that's basically an FPV question. Most people are doing that are using FPV, and the rhode guys have been asked that a million times, and they can also do it.

You got another forward-looking question. Jeff, where do you see Red Cat this time next year?

That's really a great question. So it's -- well, some very interesting things, right? So all these J books, which people -- in January, said all this world we're dying, nothing is going to happen. We're not going to deliver. Now the new J book comes out and says it's going to be 2,200 systems instead of [ 250 ]. So you can either believe the old 1 or you got to believe the new one, are you going to believe both or you get -- or 1 is wrong and whatever, right? And then you look at the additional plus up to $617 million. Now again, all the stuff we're talking about is only Black Widow. So if the J book is correct, -- that's -- what is it, Brendan, $148 million, plus like $65 million for SRR.

Yes, $148 million plus $65 million and change, close to $70 million.

So I look at that as the kind of the bottom end if the J-Book is correct. And then the high end would be the 2,200 systems. And then if they get to order more because they just got a plus up from the Senate, I mean next year could be an extraordinary year in revenue. And now we're only talking Black Widow here. The Edge 130 is doing great. And like I talked about a lot of the unique stuff that it has capabilities. And when we start selling boats at $500,000 a wack and up, it's going to change our revenue stream dramatically. So I don't want to give out any number. We're going to update our guidance in December for next year. But it's going to be a lot different than what we've been talking about in the past. It will probably be massive.

Jeff, when it comes to our unmanned surface vessel business, I think a lot of people when we announced that we were heading into that domain, they're probably scratching their heads. They were probably like why where did this come from? Can you maybe give us a little light on this idea of integration in this study of all-domain operations and why we feel like it's a threat that actually was naturally there?

Yes. So before I get into drones, I knew a lot more about boats than I did about drones. And I know a lot of people in the industry for the last 25 years in my life, and you'll understand more of that next week. But the -- we've been looking at the USV space for quite some time. We actually to kind of throw you in the bus with me, Stan, you and I went and met with 1 of them after our investor meeting in New York City. They all kind of -- some people want to partner with us and things of that nature. But the USV space opens up. Most of the globe is water, right? So if we want to help defend the United States, we got a -- there's 79,000 miles of cost, we've got to help them. So combining our stuff with our boat capabilities, bringing experts in there -- our team -- our Maritime division just got back from the Ukraine last Friday night, and we had meetings all weekend. So we are -- we've been looking at it for quite some time. We found the right partners that came together almost all at the exact same time to have the -- what we believe is going to be the best solution by far for USVs in the United States with scale and capabilities to make them at scale. We're not talking tens and twenties. Well, like say, we're going to have demo boats, you be able to see our boats live across the United States, probably October, November.

And to that point, if I may, I would also say, consider where in the world the next geopolitical conflict is likely to be and what types of systems are going to lead that conflict. I think that demonstrates the value and importance of USVs.

Yes. Well said, guys. A lot of -- again, another set of questions. I'll kind of focus on kind of freight production for Black Widow. We've answered kind of LRIP questions. Is there anything we can say about full rate production?

Yes. Let me just start with this. The contract that we just signed, TD3, which is officially name we've been calling it LRIP, low rate initial production. That's all 2025 budget. So those systems are for 2025. For 2026, it looks like it's going to be pretty massive according to the J-Book, if it's correct. We can't -- until people announce the actual budget and we get it handed to us. But I think with [indiscernible] announcement and the executive order for the small drones, the executive order for shipbuilders in the United States. That's the only way we can put it in a bucket. So right now, that contract is for LRIP -- but we're not -- that's just what we called it initially, it's TD3. We expect to have -- we're just building as many drones as we can right now. So whether we have an order for it or not right now because everyone is coming out of the woodwork now that the Black Widow has finally been demoed over the last few weeks. It's flying longer than anybody. It's got longer range than anybody's quad. So all these things are getting around. We've had a lot of demonstrations not only with the Army, but with other branches. We've had some great fly offs in Europe already. So we are -- we're just going to keep going and making a lot of drones, get them orders, ship them.

I love it. Next up, again, this is kind of a forward-looking question. Obviously, we're going to be military is a bread and butter, Department of Defense, International, but what about consumer and enterprise drones. And then this is maybe going to go to Jeff first or then maybe Brendan, you can kind of follow up.

Yes. Like I said, the consumer drone space is very difficult. They're used to $500 toys and to try to get down to that, I don't think we're going to get there. But enterprise, they need a reliable drone that's capable, that has all the features that we have would make our drones very valuable. Because if you take a DJI drone if you drop it once, it's I mean they're plastic toys and they're grate for what they do, but they're going to fall apart. So if you're an enterprise play, you're going to want a drone that can fall out of the sky, maybe just replace the arm and get you back in the air, get you back in the fight. And then the first responders our drones fit perfectly with what they do.

Brendan, as a follow-up, what do you think about the you're getting into enterprise and how that deals with AAA within the United States.

Absolutely. And to follow up on Jeff's point, look, 40 years ago, GPS devices were so big that they had to be worn as a backpack. They cost hundreds of thousands of dollars in today's money. And now everywhere you go, the GPS technology is inescapable. You got one on your phone, you've got one in your watch, you've got one in your car. The reason the cost base is fundamentally changed is because of DoD investment. DoD launched the satellites under the NAVSTAR program in the '70s. They built the first GPS receiver devices that exist. And now there's this huge market for positioning that most of us couldn't live our lives without. That is the model. We're using the incredible capital engine of DoD to drive the development of drone solutions in enterprise, in industry and public safety that are not just going to be capability competitive with DJI, but at some point, are going to be price competitive with DJI. And DoD right now is how we get there while we develop that cost basis for the industrial sector.

Thanks, Brendan. Next up, Jeff and Chris, I think maybe you guys can both answer this. With the projected growth plans, are there any plans for additional debt or equity raise in the near future?

I'll start and then Chris can yell at me at whatever I say. So we have a very strong balance sheet right now. And as Brendan mentioned, we're -- it sounds like we're in the same phase of office of strategic capital, which is about a $50 million infusion. And our burn is basically where it is without the revenue starting yet. So as we're producing hundreds and thousands and thousands of drones per month, that burn is going to come down dramatically, and we have $66 million in the bank. So I think we're very well no need to do a debt offering or I mean our debt is going to be gone in a few months, so that will be gone. We're not doing that again. We have a strong balance sheet. So we do not see any need for a raise right now.

Great. Brendan, I'm going to hand this 1 over to you. It's an interesting question. So with [indiscernible] announcement, where does Replicator land in all of this? We don't really hear too much about it anymore.

Yes, that's a good question. Replicator was an initiative of the previous administration. And that should tell you -- just that statement alone should tell you something. But I'll say this. Look, the current administration really understands that we're -- that America is behind in the drone war. China is winning. What we know is China has expansion ambitions. And this administration understands that if we are going to protect our national manufacturing sovereignty. We have to start that with drones. We are seeing this administration make incredible investments not just in terms of the increase in the President's budget that we've seen year-over-year, not just in applying additional money to the Office of Strategic Capital. But Replicator was largely old money, old programs, programs of record that already existed, the shuffling money around to buy more drones from those programs. we're seeing this administration completely reimagine what it's going to take to rebuild the American defense industrial base. I believe that, that gives Red Cat tremendous opportunity because of our strong relationships inside of the administration. And frankly, what I would tell the investors watching this is look at our track record. We went from $69 million last year with a plus up to $148 million in the base case with a $617 million plus up. So I think that shows the strength of our positioning in the administration, how strongly Congress is aligned around this initiative and the ways in which that we'll be able to get some funding for our future products. They just might not call it Replicator.

Actually, Stan, just to answer your earlier question about when we -- when Replicator came out, gosh, it was almost -- at least 2 years ago, right? When we started -- that was when we started to dabble and explored the USV space, as we dug in and try to get meetings with the Replicator folks, which is nearly impossible, we actually got actually into this administration, people that ended up in this administration and we just kept seeing the USV space as very crucial, specifically for INDOPACOM, but also for the United States to be able to do both coasts. I mean I'm in Puerto Rico for a good portion of the year. I know guys from the customs and border patrol, they can't even come close to covering Puerto Rico. They could do it with like 20 of our boats, and they wouldn't have to put any people in harm's way. One of the guys from border patrol got shot a year ago. boarding another boat. So we could cover Hawaii. We can cover Puerto Rico, West Coast, East Coast, Alaska with our USVs and then you look at the Gulf of America where all the cartels are coming across. I mean there's so much need for the USV space. And then if you combine it with what we can do. We can put EW packages on modular packages. We have missile systems that are going on the Variant 7. We have our swarms going on our 11 meter. And then we have Kamikaze on our 5 meters. So we -- the Replicator kind of us thinking about water.

Jeff, 1 thing that's, I think, interesting I've kind of seen it in some of the questions here is there's obviously a similarity between our air assets and our unmanned service vessels and that these are carriers of capabilities. Can you just walk us through on this idea of Red Cat Features Initiative and why that's important to the development of these systems?

Yes. So the -- 1 of the crucial things if you look at some of the things that have happened in the Ukraine, they've taken USVs and they've taken down jets. They've taken down helicopters. They've taken out large naval assets. They basically got the Russians out of the Black Sea. So that capability, having a modular capability for our USVs, I know Aero environment has got a ton of things you could attach to our -- to one of our variants. I know that Firestorm, which is a company e have an investment in is doing great. They need a 9-foot launcher. We got that no problem. There's all sorts of different things we can put on that USV that can be useful for that mission. Now that this USV could be like, hey, listen, you can buy us USV you can put any of these attachments on it that you want to put on it. We're just going to give you a vehicle. Here's your iPhone, put whatever app you want on it. So we're pretty excited in -- the day we announced our USV division, we read a couple of conferences and people are just dying to put their stuff on our boats.

Outstanding. Back to SRR. Is there anything we talk about as far as additional milestones, contract length, those types of things, time frames?

We didn't even do a press release. We got this contract a couple of weeks ago. We're just putting our heads down and want to build a bunch of drones for them. We -- like I said, there's a lot of demand out there like before the headset video, a few days before that, we got an inbound from a DoD -- from someone in the DoD and said, we needed to speak to you in a couple of days. We need to know how many drones can you make? We like it's kind of an odd fire drill. So I mean Chris was involved in modeling a lot of this. And we basically said we can get you -- and we're just talking Black Widows here -- about 5,000 black widows a month to, as Chris put it, infinity, which you never hear CFO say that. So we were very perplexed why this request came in that way. And 2 days later, the headset video came out. So there's a lot going on there.

Jeff and Chris, do you see as our business expands and we do a lot more international. So do you see -- do you see Red Cat expanding globally outside of the United States? as far as facilities and support.

Of course, where are you going tomorrow, Thailand?

Thailand, yes.

Coming back with some POs Yes. No, we spent a lot of time and energy in a bunch of RFPs. We finally had a drone to do a couple of these in Europe the last few weeks. We didn't have any drones because we were waiting to get that kind of get off that holding pattern. Now when people see it, we crushed the flight time, we crushed the range. We're really showing up with a best-in-class drone now. We are hoping to get quite a bit of business from Europe. If you look at some of our peers, about half of their business comes from NATO. So we're hoping to get there.

And then, Jeff, another just kind of follow-up question when it comes to -- you mentioned training, I think, earlier in the conversation. How critical do you see training being as part of our business because that's something that's usually kind of an add-on that customers can buy into. How critical do you see that?

Well, for defense, as we've mentioned on a few of these calls, that's a whole different bucket of money that we get to do, spares, repairs and training all come out of this separate bucket, which I think Brendan told us that the $148 million and then there's what, $65 million for that, Brendan?

Yes, it's between $65 million and $70 million.

So that's a big number. And you got to have a lot of documentation. You have to train the trainer. It is crucial actually because if you just send your drones to someone and then they don't how to use them they're going to crash them and they're going to come back to you and say it's your fault. So to answer that question on a big, big picture, it's absolutely critical to do in-depth training so that they can take their weapon and use it properly.

Thanks, Jeff. Let's see -- we are nearing the end of our questions here. Jeff, I'm going to hand it back over to you, is there any other information you'd like to discuss.

No. I am so excited that we finally signed the contract. A lot of people thought we weren't in SRR for quite some time. But we're -- we didn't want to promote it. We just want to put our heads down, get that first shipment, which is going out very soon to the Army. We want to help the war fighter at the Army. The Army has been a great partner. We also -- what I think is crucial for us is to people to understand our business. We're not getting into a new space with USVs. We knew a lot about USVs for a long time. And I'll just say this. Stay tuned for next week. You're going to hear a lot about our USV Maritime division.

Great. Thanks so much for closing us out, Jeff. That brings us to the end of our town hall. Many thanks to our panelists, participants, attendees and those who submitted questions. Stay tuned for news of future town halls and our social media and press releases. And I'll have more news for you guys coming from Thailand next week, and have a wonderful rest of your day, everyone. Thanks so much.

Thank you, everyone.

Thanks, everybody.