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

Good morning, everyone. How are you? Welcome to West Palm Beach. My name is Stan Nowak. I am the Vice President of Marketing for Red Cat Holdings. Some of you I know, some of you I'm seeing for the first time. But again, welcome to Palm Beach. I do wanted to give a shout out to Barry Hinckley and the Blue Ops team. We're here in their new facility for our Maritime division. Let's give it up for Barry Hinckley and the team, who not only are hosting, but put together really this amazing experience you guys are going to witness today. This is also our very first Red Cat Innovation Day. So I just want to give it up for that. Thank you. You guys are going to get really truly an exclusive peek not only into our growth strategy and our business, but Phase 2 of today. You guys will see an amazing demonstration, both drone and unmanned surface vessel. I want to thank all of you, our in-person attendees. Thank you, investors, analysts, partners for traveling vast distances to get here. We really appreciate you being here. Thank you to those who are tuning in online as well. We do have a live stream webcast of this. So thank you all of you for tuning in. Really, we truly appreciate your continued interest in Red Cat and our growth. Today, it's all about innovation, integration, execution and where we're headed. So really, throughout the day, we are very open. We're going to have interactions between yourselves and our senior leadership throughout the day. There's going to be many moments to ask questions. First off, we're going to start with Jeff Thompson, who's going to go over our company overview. Let's get the disclosure statement out of the way for a couple of seconds. All right. We're done with that. Okay. Today's agenda, again, we're going to have each of our senior leadership come up and do a presentation on each of their respective areas. We will then have a Q&A session. So a lot of you in person will be able to ask questions. But at the end, if you can't get to your question then, we will have many interactions throughout the day. There is going to be a shuttle bus ride, then all of us will then go to an off-site location to view the live demonstration. And so there will be also interactions on the bus as well. We'll provide refreshments throughout the day and make you guys as most comfortable as possible. Again, any questions you guys have throughout the day, we'll make ourselves available. If you need anything, for those in-house, restrooms, there are outside, just some housekeeping items there. So here's the team is going to be presenting today. Again, starting with Jeff Thompson, who's going to do just a brief company overview. We'll then move to our Chief Operating Officer, Chris Ericson, who will discuss operational scale, manufacturing expansion and positioning our company to meet accelerating demand, followed by our Chief Revenue Officer, Geoff Hitchcock, who will provide some insights into our pipeline and customer engagement. We'll be followed by Barry Hinckley, President of Blue Ops, who will talk about our unmanned surface vessels and maritime strategy. And we will end the presentation with our Chief Financial Officer, Christian Morrison, who will talk about our financial strategy and capital allocation priorities. Once that's done, we'll go into the Q&A. You guys can ask questions, we'll have about 30 minutes for that. And then after that, we'll all get on a shuttle bus offsite and go view the demo this afternoon. We'll give you guys a briefing on the mission that we're going to be doing. We are going to be immersing all of you into a true mission today. And so you guys get to learn really how these missions unfold and the why behind them. So without further ado, I'd like to bring up to stage CEO, Jeff Thompson.

It's always tough to go after him. He's very elegant and polished and I'm a little rough around the edges. So I'm going to try to go through this presentation. I'm going to be very brief and then these guys are going to explain the key points that I do. I'm going to try to get through my presentation without pissing our lawyers off too much. So 2026 is basically a massive revenue growth year for us. So just to put it in context, in 2025, we had one customer, one line item in the appropriations, and that was $7 million to $8 million from the Army for the PMUAS office, which has 3 groups in it, LRR, MRR and SRR. We are the SRR company. There's another one that's involved in that also. And then there's MRR, which isn't in production yet. We're in a production contract. And there's LRR, the large birds that is also not in a production contract. So out of that $78 million, Red Cat actually secured $40 million. It would have been $45 million if we had some birds on the shelf, but we didn't. So that's a pretty high percentage. So if you fast forward to 2026 and we actually don't have a long continuing resolution this year. We actually have a budget -- so almost $500 million. And that same considering that we're in the only company that's in a production contract, I saw something in the print or in the [indiscernible] book that they're going to buy 107 vehicles and I haven't been able to find any information about LRR. So -- but my focus is on SRR. So we think we're going to have a really good year in 2026. In 2027, the budget is going to go from $1 trillion to $1.5 trillion. So these budgets are not going to go down. They're going to continue to go up. So when we talk about revenue this year is going to be the focus of really ramping a massive revenue growth year for us. And it's not only going to be one customer, one product this year. The Air Force used to be our largest customer until probably 6 months ago. We've got a lot of other places. Now that the Black Widow is getting some great accolades out there. We believe that we're going to have a great year with the Black Widow, but not just one customer. So that's pretty exciting. We already actually have new customers already. We just announced our first INDOPACOM contract, which is just a start there for us. It's supposed to grow pretty rapidly there. But 2027, I'm not going to go in order here on these. 2027 is our focus will be path to profitability. But yes, it will still be massive growth each year as the budgets, not only at the U.S. is growing dramatically, but so are all the MODs across, even Japan has a budget now. So we're basically building the Empire State Building this year, and then we're going to start charging rent next year for profitability. So how do we get there? Well, everyone always ask us, are you going to be able to make them? Can you -- you don't have enough production, you not enough space, this and that. We have spent the whole year building factories to be able to handle this revenue growth. We've been able to do 1,000 drones a month at Teal for a long time, but we haven't had the demand, and we expect to get that demand this year. So we've built out a brand-new factory in [ Terrence ] for the Edge 130. So the Edge 130 can start contributing no more, one drone, one customer, one product, one customer. We expanded Salt Lake City, which Chris is going to go into some great detail on how many drones that thing can pump out now. And then we also have [ here ], which is kind of more of a showroom laboratory. And we have Valdosta, which is 155,000 square feet to be able to build a lot of boats. So we have the capacity to hit these large revenue numbers that we're going to be talking about. So just more housekeeping is we're not going to be giving our own guidance today. This is not a numbers day. This is Innovation Day, but we report in about 19 days. We'll be giving you a lot more detail on where we expect the year to go at the end of next month. Well, March 18, I think we're right around there is when we're reporting. So 2026 revenue growth, 2027 revenue growth, 2027 focus on profitability. We have the capacity now. We believe we don't have to build any new factories for at least a year, unless some new features or something else comes on. So now let's focus on new capabilities. So when we -- new capabilities, I think of that, I think of Blue Ops. A year ago, when we started looking at doing Blue Ops or doing a maritime division, the Black Widow and the Edge 130 can only launch from about 30% of the globe, less than 1/3. When we bring Blue Ops online, which didn't exist really until we just started in August. We already got boats floating in December. That's a new capability. It gives us an entire 100% of the globe to launch from. So that's a new capability that's a must-have. And then you look at the most important thing that we kept hearing from the administration telling us, hey, you need counter -- you have to have counter. Give a shout out to ACS and Mike Raya, CEO. They're our counter. You're going to see that live. They do some crazy stuff. Actually, I just saw a video and -- it's out there on X, I'm not giving anything away. FPV drone going about 100 miles an hour and they shot it down like 3 or 4 shots. It was incredible. So their counter is working and it's here now, and you'll see one of them mounted on the front when you get out to the lake. So we're looking for capabilities all the time, swarming. We've got [ Joshua from Apiam ] right over there, another shout out. You're going to see their swarming technology. And by the way, almost all swarming technologies I've ever seen were kind of hoses, people just driving them in the background or they didn't work or they're trying to make them work. Their stuff works. I'm not going to say how it works, but it's a unique way they do it, and you're going to see reliable swarming today, which really doesn't exist across a lot of places. So we're going to keep looking at these new capabilities, but basically capabilities that the war fighter tells us to do, not what some engineers, I'm not going to sell any engineers here because I'm an engineer, but we need to use them as our capability. We need to use the war fighter as a capability. And I can tell you something that kind of pisses me off about capabilities is there's a lot of products that are being sold to the United States that don't work in a battlefield. I can tell you right now, the Variant 7, we know it works in the battlefield. The Black Widow, we know it works in the battlefield. And more recently, with our incredible team. I'm not going to let you know about them yet. Even the Edge 130, we know works in a battlefield. So our family [indiscernible] FANG obviously works in the battlefield. So we -- that's the most important thing for us. We don't want to just sell you stuff because it meets the requirements. I know that would make a lot of people in Wall Street happy, but that's not what we're going to do. So as we continue to give new capabilities, those capabilities are always going to line up with the war fighter and stuff that actually works. And then we're acquisitive, but we're not crazy acquisitive like every other week. We are very targeted at our acquisitions that continue to fill in our capabilities. You'll see one maybe acquisition a quarter, sometimes 2, then maybe sometimes none if we think that we've got a family of systems and weapon systems that are actually going to work for the war fighter. So I was going to be really brief because these guys are going to actually tell you how it works and then the guys are really doing. I want to give them a shout out to them, Shout out to all the teams that have made this happen. Oh wait, we can't forget. What about our hockey teams? USA, 2 gold medals from our hockey teams. I'm psyched about that. So I'm going to get off the stage now and let Chris take over.

All right. Thanks, everyone. I got this nice picture of me from 20 years ago. So if you face or seal as a surprise, -- sorry about that. Focus this past year. This company has -- I mean, we have grown awesomely over this past year. From a start-up company, I've only been here now 11 months, I think, yes, right about 11 months now. And from when I started to where we're at now, the team has really matured and grown. And this is part of what I wanted to talk about today is just talk about what we've been doing this past year. The biggest focuses that we have is starting -- going from a scrappy little startup. We've got the great mines. We've got the engineers. We've got the great determination as we've seen. And you guys will see this demonstration today, how much has been accomplished in such a short period of time. But at the same time, what do our customers want? Our customers want quantity, they want quality and they want a stable partner, right? They want a company that's going to be around in 2 years from now to be able to support the drones that are out there to support the systems that we have. They want to make sure that they're still getting the software upgrades that they need because we want to make sure that at the pace that technology advances and moves that we are still relevant months, years from now. And part of that manufacturing. The #1 question I got when I was in Christian's role last year was, well, how much can you produce? What can you really punch through that factory? I'm actually going to walk you through all 3 factories here in just a minute and talk about what the capacity of each of those factor is. Quality. As a start-up company, kind of the last things you're thinking about sometimes are the higher-level operating functions, so the quality side of things, the compliance, security of your systems, financial reporting, some of those things because you're just focused on getting that drone done, getting it right and getting it out there, those are some of the things that you put to the side. But now as we mature as a company, that's what we're working on. This line here, maturity of people, processes and tools. We have to make sure that we've got the structure in place to support this growth, to support the maturity that we need. Some of the things that we've talked about in the past on the corporate side of things, we've moved up with our auditors. We now have a Big 4 auditor. We've got SOX compliance coming up in the future that's important to a lot of our investor base to understand what's happening in there. We're now working with the military, making sure that we're compliant with all the regulations with our imports, exports as well as our own security systems becoming CMMC compliant. There's a lot of this infrastructure that we're building up on the corporate side. Let's go. Okay. Talk about these facilities a little bit and I'll give you a little bit more insight on what's happening. What you'll see in the picture on here up on the left side, let me step out of the way here. On the left side over here, this is Suite 2 and 3 in Salt Lake City, what we've been operating at last year. This right side is Suite 2, you've got the inventory racking and you've got the production side of things here. And Suite 3, we've got all of manufacturing -- or sorry, engineering on Suite 3. What we've done now is we've expanded this. We've leased up the suite -- 2 suites next to it, so Suite 4 and half of Suite 5. What's going to happen is all of this engineering is now moving over to Suite 4. We've changed the configuration. You can see a little bit of inefficiencies with the configuration here. We're actually expanding that up so we can house another 30 to 40 engineers over in Suite 4 on top of what we already have. Now you're looking at the production over here. With this production, this is 3,500 square feet. And this 3,500 square feet, which we've been producing in, we can produce 50 drones a day, 50 drones a day. That's 1,000 drones a month and 3,500 square feet in with only 1 shift, a single shift. Right now, that shift starts up at 6 in the morning. They get done about 2:30, 3:00 in the afternoon and they're out. We have now hired up shift leads to open up a second shift when we deem that necessary. Now what happens with this expansion, all of the engineers are now moving over to Suite 4. Suite 5 is more of the corporate side. So the corporate where we used to have 2 guys in IT. Now we've got 7, 8 guys. We used to have 2 people in HR. We've been expanding that. Now we have an internal audit team. Finance is expanding. That corporate suite is now in Suite 4 and 5. We will actually have a ribbon-cutting ceremony in the next couple of months as we open up these new facilities. Now that pushes over. Now this is empty space. Inventory racking, we're improving that to make sure that we can go more vertical with the racking to take on the throughput that we have. Manufacturing is going to move over here. We can actually triple the size of our manufacturing floor with this move. And so you start thinking through those numbers, right, 1,000 drones a month with what we currently have. Now if you double up a second shift, 2,000 a month, now you triple that space, 6,000 a month. We have been poising ourselves and making sure that we can hit the quantities that are needed when these floodgates open up. And that's right now what we're prepared to do. We've been tightening up all of our supply chain, making sure that we can shorten up the supply chain as much as possible. A lot of times, we hear, hey, what's that supply chain look like? Are you dependent on one vendor or not? Everything is NDA compliant. We moved everything out of China. Now that we've broken through the threshold of production, now everything is in expansion mode, 2 to 3 vendors for every component that we've got, making sure that as that ramps up, we can be there for it. Let's see -- okay. And by the way, going back one more thing, the very bottom thing. I get asked this question a lot. Well, what about FPV drones? One thing I want to make sure everyone understands that a Black Widow drone, our ISR or SRR drone is a very technical, very technologically advanced drone. It is a little bit harder to produce. These numbers I'm telling you right now are for that Black Widow drone. When we talk about FPVs, FPVs are a lot easier to build. We can build -- and this is actually a very conservative note, 4 FPV drones and the time that it takes for us to make 1 Black Widow drone. So now you start to think about the FPV side, these drones, we can produce a lot more than just 1,000 on that single shift in that small little square foot print area, at least 4,000 a month, we could really push those through in that area. FlightWave capacity. FlightWave has outgrown their facility. They outgrew their -- we moved into a new place, I think, January, February last year. And within 6 months, we had already outgrown that place that we had. We moved to a new facility in Torrance, California, 51,000 square feet. That for the Edge 130 production, right now, it's a nice open space. You can see in the picture here, make sure I don't stand in front of everyone's view. The picture here, you can see a lot of space that's in there. We can produce 125 drones per month on a single shift using just 1/3 of that facility. That other 2/3 expansion, just like we can do with Salt Lake City, expand to more Edge 130s or the Tricon when the Tricon is completed later this year, expansion there. But also FlightWave is a great location in Los Angeles. As we work closer with our partners, we talk about vertical integration, some of our partnerships later, we can also do expansions here. If we need to bring some more work over from teal, we can do teal work down here. If we want to work more vertically with the components, we can also start doing some plastic injected moldings. There's a lot more manufacturing on the going vertical that we can also do in California, close to many of our partners out there. And Blue Ops, making sure that everyone understands, everyone knows, this is not the manufacturing plant for Blue Ops, right? This is our special R&D facility. We do have this place in Valdosta, Georgia, 155,000 square feet. When you walk into this place, when I walk into this place, it blows my mind how big it is. Every corner I turn, there is a massive new bay ready to facilitate more operations. Previous owners, previous users of this facility, we're taking out about, let's say, 60 boats a month. You can think about that, 60 ski boats a month. These ski boats have also a lot of human accommodations. I'm looking at the wording here because it was just changed to make sure I use proper boat terminology. But lack of human accommodations, right? So galleys, heads, entertainment system burst, we don't need any of that. There's none of this stuff going into these boats. Therefore, a lot of what took a lot of time to make those boats, we're going to crunch that time down, and we can produce a lot more than 60 boats a month once we hit full production next year -- this next year, I shouldn't say next year, this next year. We're hitting full production here very shortly as tools get delivered. I don't want to take all the thunder, but tools get delivered this here in the middle of March, production is ramping up, which is just a huge amazing story you guys. And Jeff mentioned it here, but to have something starting from ideation in the middle of last year to actually having hired on folks within the group and to start to expand and already have something that's running that you're going to see out there on the lake is just a huge accomplishment from the team here at Blue Ops and shows a lot of the grit and determination that they have. Love these guys. Let's see. Strategic partnerships. Now also make sure there's so much more I want to talk about, guys, corporate infrastructure, everything that we've been doing, the value chain, the R&D processes that we've built out, delivering products. But need to cut this short, strategic partners, you're going to see a couple of things going on today. Great job with ACS, also with APM. APM is running the swarms today with the drones that you'll see swarming together in coordination with each other. APM with our system that's on the front of the ball that we've talked about that you get to see out there, just amazing technology, amazing partners that we have. But this is also something you'll hear a lot about modular open systems architecture, thank you that we want to build. We are not going to be the greatest and the smartest in every single thing possible, right? There are a lot of people out there that can do things better. We want to make sure that we grow, and we can all grow together as multiple companies as partners. And that's where we want to make sure that we find the experts out there and integrate with those technologies and bring those into our system to make sure that we've got the best possible system and solution for those war fighters out there today because we do not want to limit the war fighters capabilities because of just what's in Chris' head or just what's in this corporate team's head. We want to make sure that we utilize all the resources that we have across all the partnerships. And so just listing off a whole bunch here about different technologies and capabilities that we're looking at to integrate and have integrated and we will continue to integrate over this next year. All right. Enough of hearing from me. I want to turn the time over to Geoff, our Head of Sales.

Okay. Thanks for coming. A little bit about me. I'm the guy that you rarely see. I don't particularly like doing things like this. But they tell me that I'm good at it once again on my role, so I'll try to make it enlightening for you guys. Some about me, retired Air Force special operator ran around on ground, dropping bombs, shooting guns, had a lot of fun doing that, got into UAVs. So I was actually a UAV instructor in 1999. Yes, I've been doing a little bit, right? Spent 16.5 years at AeroVironment. They were the market leader, jumped out of that, hopped into this about 4 years ago. And I can tell you right now, from my 20-odd years in this space, I've never seen anything as dynamic as it is right now across all platforms, right? -- boats, drones, UUVs, doesn't matter. We're moving at the speed of heat. And a lot of that is coming from very, very small scrappy companies like us. We're getting out of scrappy now and get a little more mainstream, but we're working with all those partners that Chris was talking about because they are the experts in their field. And that montage video you saw, half of that stuff were companies that were on that list that he just showed you, right? So the entry to get in is if you're talking to the same people we're talking to and they're liking your stuff and we're liking your stuff, then we'll play with you. We'll play with anybody, right? Because one company cannot do it all, okay? So that's just kind of tee it up. Who do we sell to? Everybody. -- who do we serve? -- everybody. The mission sets, regardless of platform, my opinion, they're the same, whether it's a floating platform or a flying platform or underwater platform, you want to send a thing out to do a thing and make a decision on what you wanted to do after that, right? So we're getting into the boat world now, the USVs, we're still in the drone world heavy with hybrid VTOLs, FPVs and Black Widows, right, serving our ISR customers. Stand over here where you guys can read that, right? INDOPACOM, all the theaters we're serving and some are going to be faster than others. South America is always going to be a little bit of slow not that they're not good people, but they don't have a whole lot of money. We're focusing on that, keeping that on [indiscernible] , but we're looking at the Middle East, INDOPACOM, okay? A little bit on that. We have all the OGAs we're playing with, 3-letter agencies, those who shall remain nameless, and we're making strides to backfill into DFR, drones' first responders because the ban of DJI has left everybody kind of hanging, right? So we have road maps to provide a low-cost platform at some point in a box more than likely that we'll be offering for DFR applications. Focus is still on defense, but everything we're doing in defense can be pivoted to dual use, okay? Okay. What is feeding the pipe right now? That's the short-range reconnaissance program. I call that -- we say Black Widow up here, but there's -- the difference is the configuration for the Army for SRR is 2 air vehicles and 1 ground control station, right? So it is technically the [ RQ28B ] system for the short-range reconnaissance program, which includes Black Widows and a web controller, okay? So we've got that going on right now. We started with 37 companies, got cut down to 10, got cut down to 5, got cut down to us, okay? So that was a 3-year process doing different generations and phases of R&D on those. Right now, as of last week, drone dominance, there's 2 programs out there, and they're kind of matched together now. They talked about purpose-built attritable drones, PBAS, okay? And then they talked about -- let me get over on this side now, so you can see. And then they're talking about this drone dominance program. They've matched them together, okay? The first tranche, everybody proposed, they've down selected to 25 companies. We are one of those 25. We flew last week. The other 12 companies flew last week, 12 companies are flying or finished up flying this week. We're waiting for a down select. They're going to pick 12. 12 of those are going to get an order for 2,500 systems. And then there's a pot of 6,000 systems for those that deliver early. So the system that we have there is our 10-inch FPV, and we are already building those 2,500 in anticipation of so we can get a bite at that 6,000 apple that's for those who deliver early, okay? So back to Chris' point on scalability, 4:1 FPV to drone or to FPVs, Black Widow's FPVs 4:1. And then Asia Pacific, we -- let me say this, we were not particularly pleased with the press release that we had to put out, but you have to understand that there are going to be press releases that you can't really get any information out of. And it's not because of us, it's because Chinese banning things in Pacific -- Asia Pacific is a real thing. So they will want to remain cagey and not give much information out other than their INDOPACOM [indiscernible] period, right? So don't get upset when you don't have a whole lot of information to go off of. That's not us, that's them, and that's just kind of a recurring thing in the business. Sometimes we'll be able to tell you everything, sometimes we're not going to be able to tell you much, okay? INDOPACOM is taking off, both on the boat side, partners that want to work with us across several different nations -- production capacity is the thing we discussed with some of them, but all that stuff we're working through, but this is what is feeding all the stuff that they're doing with the expansion, okay, and setting us up for the next stage. Okay. Upcoming opportunities. There's a lot on this slide, so I'll start over here. Maritime operations. My opinion, USVs are kind of where drones were at 20 years ago. It's still open, wide open. There's been a couple of attempts and a couple of failures, and then we're coming on to the block. The difference between us and everybody else, anybody else on the planet, and if you guys can come up with a company that has this, all we can't. But right now, our portfolio with boats and flying ISR and flying Kinetic, we are the only enterprise that offers that. And we are the only other enterprise that has that list of 20 other companies that we're playing with for their unique specialties, swarming, guns, that big missile there is from U vision. That's a $1 billion program for the Army program of record, and we're going to be putting that on this to do some testing, right? So we're picking winners, avoiding losers, and we're getting ready to meet the need, right? So a lot of work going into the maritime stuff, operations and organic, having that organic to your enterprise is key right now. A lot of companies are never going to think about this, but we're ahead of the game on that. Sensor to shooter, same thing. You got your sensor, the boat could be a sensor, Black Widow could be a sensor, and then you have the activity you want to take on that, which is your FPV kinetic or boat kinetic or missiles off of boat kinetic, right? Having all that operating in the same ecospace gives us a competitive advantage over their folks. Adoption and a treatable warfare low cost, right? Everybody is looking for low cost. Sometimes it's not going to be so low cost because your average guy, it's like FPV. I was just talking about it this morning. Right now, they have a very low price point. They want it for like $1,000 or less. 2 years from now, that thing is probably going to be $8,000 because they're going to have a good idea, and that good idea is going to cost more money right? But it's just kind of the evolution of things. They're starting out at [ $100,000 ] but they're going to want IR cameras, add another $3,000, they're going to want some software and compute and [indiscernible] , and that thing will continue to scale up and grow as they start to prove that out across the [indiscernible] and the Marine Corps. Modular systems, open architecture, right, the modularity of Black Widow. That's the only platform in this space, that if you break an arm, guy in the field replaces it. If you break the gimbal assembly, the guy in the field replaces it. The only time it comes back to us is for open heart surgery, right? Nobody else is doing that. And for them to be able to do that, that's a total redesign and call that 3 years from now, right? So we're like 3 years ahead on the most of stuff. Same thing on the boats, your base platform so much more room for activities on boats, by the way, super stoke. What do you want to put on it? How much of it do you want to put on it, more gas, more stuff, more guns, more missiles, more drones. We'll configure it any way you want. Just tell us what you want, right? So we're having a lot of those discussions happened yesterday. We got some stuff we're going to be following up on, which is pretty exciting and we'll talk about when that comes to fruition. And then allied modernization programs. Back to that INDOPACOM sales, right? China said 2027 for Taiwan. A lot of people in INDOPACOM, a lot of countries that INDOPACOM are like, oh, we've only got a year left. So their budgets are opening up significantly. And it's a little bit of us chasing and a whole lot of people calling us, which is a really interesting position, right? Everybody on the drone side, everybody right now is making drone -- large programmatic decisions. They've been flying drones for a couple of years. Now they're down selecting for their 3-year programs, right? And they're probably going to iterate and get a new platform over 3 years because technology is moving so fast. What you have now is going to be archaic 3 years from now based on the tech, right? So that's talking a little bit about that. And then lastly. They wanted me to talk to you about the government contracting. Some of you may understand it. Some of them you may think you understand it. And then there's those that truly do understand it, right? So I'm not doing any mansplaining up here, but know that we don't control much of that, okay? Government fiscal year runs from 1 October to 30 September. Program of record is dollars that are for acquisition of major programs. Short-range reconnaissance program. That is a program of record. That is an acquisition pot of money. And then you have O&M money, which is what the brigades have, their operating budget is O&M dollars, okay? So when we talk about program of record Black Widow, that's just one pot of money, what's coming out of Huntsville. We also have bites at now at O&M money where Brigade Commander DOW706, Kernel can now sign and buy whatever he wants with his money if he wants to, that's O&M dollars. So we're chasing O&M money, and we're chasing program money, and we're chasing RDT&E money, which is also a different color of money. So there's 3 avenues for money across all the services. For the boats, we're chasing RDT&E and we're chasing programmatic dollars, okay? So that's the attack. We want them to pay us for what we're already doing, and we want to buy a lot with their program dollars. Continued resolutions. If the budget is -- okay, for 20 years or more, we've never had a budget on 1 October for the Department of War. Ever. There's always some level of Continuing Resolution. And then occasionally, there's a government shutdown. Well, we've had both. We had a government shutdown, nobody came to work, and we had a Continuing Resolution and now they finally got their budgets about 1.5 weeks ago, and they're sorting all that stuff out. So when we say SRR money is coming, it's coming, but we have very little control of the when. We can target it down to about a month, which right now looks like sometime in March, we'll get the program dollars from the Army, whatever they're looking to buy for this following year. So units and program offices get their money February, March, April, depending on how long CRs run. And then they got to spend all of that before 30 September, and that's where we go into sweeps. Sweeps happening -- sweeps are basically spare dollars. If you are a unit or an organization and you have not spent your money, then they're going to take that money and they're going to give it to somebody who could spend it. And you're not going to get that much -- you're not going to get the same amount the next year. So we call that sweeps. Everybody's taking care of business up to a certain point, probably by the end of May, early June, and then they start looking at their spare dollars. Because they know they've got to get all of that on contract before 30 September. So that's what we call the sweep cycle. And that's when we're out showing all of our stuff. People are making decisions. I've got a couple of extra million dollars blah, blah, blah. We have no idea what those dollars look like until sweeps. But sweeps are a thing that we chase. So you'll see stuff in our Q3 where we're booking stuff that will be delivered in Q4 kind of thing end of year, right? So that's kind of the cycle of how things work. Last one programs versus O&M dollars, talked about that. The $500 million, that's what's in the line item for item sUAS in Huntsville, the $1.5 billion, that's what's in the procurement line item for USVs. So those are the 2 pots that we're going to be chasing this year. And again, they just got their money. So good things are going to happen this year. You just got to be a little patient, it never happens on our time line, unfortunately. And everything changes with the phone call, up and down. Questions -- or actually no questions until the end. Okay. Barry?

Wow, thank you all for being here. This is our big debut for Blue Ops. As Jeff said, and -- and Chris and Geoff Hitchcock, we didn't exist a year ago today. We did not exist as a company. We started talking about doing this in May, and then we formed the company in August. And here, we have a boat. And I'll tell you a little bit about this journey. But I'm going to -- I'll remind you of a quote here or introduce you to a quote that I heard about 3 weeks ago in Washington, D.C., when we were lucky enough to meet with Congressman, Trent Kelly. And he said two things to me. I'll tell you the second thing in a second, which is equally as awesome, but he said, "Barry, we need affordable open architecture and the ability to produce at scale". And I said, you have found your company, because that's what we do. And that's what I tell our end users all the time. We are focused on building boats. I am a boat builder, my team are boat builders and technologists. We build affordable, reliable and durable boats over and over again. And you're looking at the end product here, which is only an idea in August, and we began production in October, and we launched the boat in December, we began autonomizing it in January, and you will see that boat and those boats perform up in the lake today. I'll tell you the other thing he said, which is kind of interesting in parting and it's stuck with me every single day. He said, "Barry, be kind. It doesn't cost you anything". I think about that every day. Next slide. So let's talk about some capabilities. The boat you're looking at here, the Variance 7 is -- we can go through it, but it's 7.8 meters long. It will do 800 nautical miles at 40 knots. We can extend the tanks. That boat has a payload capacity of 1,800 pounds forward of the mid-section. We don't really envision any payloads weighing more than 1,000. So that means we can have extended fuel. And I was talking to a retired admiral the other day, and I said, admiral, how much is enough endurance? He said, all of it. And I said, what do you mean by all of it? He said, my job is to make sure I put my men and women out of harm's way. So the farther away these things can go more out of harm's way we are. So we can add extended range capability with hundreds of pounds of more fuel, extending this to over 1,000 miles at 40 knots. And of course, if you slow the boats down, they sip fuel. At 5 or 6 knots, it burns a gallon an hour. That boat carries 317 gallons of fuel as it is with extended range as more, you can do the math. When I talk about the boat, we talk about -- I use the iPhone metaphor a little bit. Our job is to build a really stable product that has the basics. And I had the first iPhone that came out in 2010, at least I thought it was the first, it wasn't the first but it was certainly my first. And it did the basics. And if I wanted some special stuff, I went to the very limited App Store and the App Store grew over the years. That's the way we treat our boat. It is a really stable, reliable platform, and then we allow our end users and we collaborate with them. Sometimes we find customers, I mean, collaborators like ACS over here or sometimes they bring them to us. But we deliver a reliable platform. Because it doesn't matter how good your technology is, if you can't get it to where it needs to be to do its job. Whether that's launching a UAV, whether that's launching a precision munition. Just as you know, these are fake, they are Hollywood style, but they're an imitation of what a precision munition made by our partner would be. So we are the platform and we deliver the ability to deliver capabilities. And that's the power of USV because as Jeff Thompson said in his introduction, the world is 3/4 of water. And we will get important things to where they need to be over the water with long range reliably. You'll all get a copy of this, I think. So you can follow up on these -- and in the Q&A, you can drill down on any of these features and functionalities. Next slide. Obviously, I talked about integration, flexible deployment. The end user drives a lot of what we need -- what they need and we can easily adapt because once again, we are an open platform, right? So the ability to play well with others is a great way to say it. And at the end of the day, we are boat builders. Our goal is to build boats -- high-quality boats at scale. And let's talk about experience matters. I know that's a broad statement, but I'm going to kind of bring some context into it here a little bit. I'm a third generation boat builder. So we're in our 98th year as a family building boats. And we are a young family of boat builders compared to our partners, Hudson. The Hudson Shipbuilders, Tim Hodgson is back here. They have been doing it for 210 years. They are the longest continuously family-operated boat builders in the United States of America. So they've got 5 generations. We've got 3. That's the experience we bring to that boat. That's why we're able to turn that boat around a beautiful boat that performs well in 5.5 months. The other thing about the experience matters is there was so much happening in Eastern Europe that was redefining not only the battlefield but boat building. When a country with no Navy pushed back a country with one of the largest navies in the world using what they call COTS, consumer off-the-shelf boats, I said I need to learn. I'd already been working with the Red Cat team for a while at this point in time. I went to Ukraine in July. And I began learning and watching and learning. I went back. Then I went to Portugal, where a lot of USV experimentation happens from Eastern European nations and NATO allies. I spent 5 weeks there. And then I went back in late September to Ukraine and then I went back to November, and I'm going in 2 weeks. And what do I do when I go there? I learn. And one thing about the boats that are built over there is they're built to last 6 months because they're mostly one-way trips. That boat is built to last at least 5 years and get beat on by men and women sailors over and over again until it takes its final trip. That's a -- so we learn and then we bring to America and we build to American multigenerational shipbuilding standards. That's the game we're playing, and that's why experience matters. We can go into the autonomy and all that stuff in more detail. You'll see it function this afternoon. And I'm going to pass it off to Christian Morrison, our CFO. Hopefully, that was a good overview of what we're doing here at Blue Ops. And when we go to Q&A, I'd be glad to answer any questions.

All right. All right. Well, hopefully, we didn't have to twist your arm too bad to get you down to sunny Florida. I'm glad some of you that made it from the Northeast, okay. But truly, we're honored to have you here today. It really means a lot to us as a company and to have you here and get up close and personal with our products and our product portfolio. We really appreciate it. It means a lot. Jeff had mentioned it earlier, our call is scheduled for March 18, aftermarket and where we'll be covering 2025, and we'll give some glimpses into 2026. So please forgive me for some generalities today instead of specifics. It's by design. Okay, there's 3 areas in which the company is focusing its capital resources, of course, human capital, PP&E, operations facilities, and then we are always looking for strategic partnerships. I want to spend some time talking a little bit more about the human capital side of things. We nearly doubled our headcount in 2025. For everything you would imagine that it would take to mature company sales, ops, engineers, Galore, finance, HR, IT. We spent a lot of the company's money just building up and maturing the company. As far as 2026 goes, our focus will be building out the Blue Ops division. We have further heads to hire for the Blue Ops division. We have some incremental engineers that we're going to hire and then we will start to level off as we look towards the future. For facilities, and I know Chris mentioned it, but I want to level set for everybody. This building that we're in is 11,000 square feet, including the front office lobby. So just to visually picture what Chris had mentioned earlier, in Salt Lake City, our headquarters, it's about 4x the size with much higher ceilings. In L.A., where FlightWave is, it's about 5x the size. Again, but configure different. In Valdosta, Georgia, it's 155,000 square feet. And it sounds like a big number, it's huge. If you took this building and you put it side by side, and you stretch it all the way out to the road that you came in on, there's still extra space. That's how large that facility is. It's a lot of money, but then we are also investing in capacity that will exceed what we're capable of. So we can meet any demand, and we are anticipating some big demand in 2026. Strategic investment opportunities, like everybody mentioned, we're always looking for partners to complement our technology. Our focus will be technology. Our focus will be vertical integration. If something makes sense, that take us horizontally, we'll take a look at it. And I do want to give a shout out to some of you in this room. You've been very helpful with some of the leads for companies that we should check out, and so please keep them coming. I really appreciate it. I know Jeff Thompson does as well. For 2026, revenue is going to be a great year for us. Like just to echo what Jeff Thompson talked about in the PM UAS number, it's $426 million. That's one customer, one product. In addition, the Pentagon talked to Congress and told them they're going to spend $1.5 billion in USVs. That's not including drone dominance, the opportunities are out there. We just need to seize the opportunity. We absolutely have the production capability to meet any demand that comes our way. As we look forward to 2026, what our primary use of cash is going to be is we need to build inventory. We need to make sure that our working capital -- that we invest in our working capital and make sure that we have plenty of inventory to meet demand. That will be our primary use of cash in 2026. We need to further build out the facilities. We still have a lot more money to spend to make sure that Blue Ops can produce the way that we know it can. Same in FlightWave. And let's not take for granted the complex environment that we're in, part of doing businesses. We have to invest in our IT and infrastructure to make sure that we are CMMC compliant. There's a lot of cyber risk that we need to make sure that we mitigate so we don't harm ourselves in the future. It's a tremendous amount of spending on the company that we just have to do. I'm excited about where we're going. From a finance guy's perspective, I do have to reiterate that what you will see today is really cool. Today is not about the numbers. Today, it's all about the technology. You will see 8 drones swarming controlled by 1 person. You will see -- I can't even do it justice, but the machine gun on the front, we'll be shooting some blanks autonomously at the Red team, the bad drone in the sky. It's really cool. And I hope all of you take the opportunity to talk to our presidents, get to know the tech, see it, ask questions. Please. This is a really unique opportunity. And I'm aware of -- I'm not aware of any other company doing what we're doing. So we're really excited. We're excited about 2026 and where it's going. And with that, I will end it and we'll turn it back to Stan for some Q&A. Thanks.

Thank you so much, everyone. Let's keep it up for our senior leadership team. I'm going to ask actually all of our team members to bring your chairs up on stage. We'll go into the Q&A portion of our day. We will have two folks from our actually Investor Relations firm, Solebury here to hand out mics. So I would ask if you do have a question, raise your hand and we will get a microphone over to you just so we can capture it.

This is an impressive setup here for sure. Congrats on all that. Michael Latimore the Northland Capital. On the USV, there's a lot of missiles and drones and all sorts of things you can put on it. Can you just talk about the pricing? What's the base price? How much margin do you get on every upsell? Or do you get any margin upsell? Just like how does the pricing work on sort of a fully loaded boat?

Alright, Michael, going there right away. All right. We're not here to give up margins on Blue Ops, our newest division. It is a very high-margin product, I will say. The price point is out there already. It's about $700,000 per basis config. That's not with those missiles, that's not with Allen controls counter or this massive explosion unit over here from Univision. So that's the base without any volume. And I don't know, Barry, if you want to hang -- you've been building boats forever?

Yes. It's -- everything you said is correct. To me, it's an efficient boat to build once you figure out how to build it. As Chris said earlier, without all the human accommodation, you can get efficient.

In terms of the opportunity for your USV, you've talked about INDOPACOM, but I guess, maybe what is the most low-hanging fruit here? Is it the Navy? Is it some country in the Asia Pacific region? What would be the sort of the lower-hanging fruit for the USV business?

Yes. Well, I'll just say, obviously, with the $5 billion in one budget, there's $1.5 billion in other budgets for USVs now, right here and now. I'll just say yesterday's Customer Day, we did not want you animals from Wall Street mixing with our customers. But it was a very successful day and all the people that you think would be a customer. Barry has been doing a great job meeting with everyone going on with Pentagon all the time. But INDOPACOM, I mean, that is just a massive opportunity for this team. And do you want to relay any of the feedback you're getting. Maybe from an Admiral sitting in your boat, we won't say his name.

People are incredibly excited because of the affordable way that we can address 3/4 of the world's surface. The U.S. has tens of thousands of miles of coastline. South America has hundreds and hundreds of thousands. INDOPACOM has Island after Island. Logistically not putting humans in harm's way, but moving things around, whether they're kinetic or resupply. People are incredibly excited around the world about the capability of small USVs..

Austin Bohlig with Needham. Maybe a question for second Geoff. Going back to your comment about kind of walking through like the procurement process and like the $1.5 billion available for USV. There was news earlier this week about how it sounds like the Pentagon wants to like just go on a spending surge of that $150 million that was in the OBB. Could you maybe walk through like where is that $1.5 billion coming from? Is it that? And like, how does that accelerated time line maybe benefit you guys?

Yes. And thanks for the question, Austin. That is part of the $1.5 billion, right? So just kind of tag on to the last question a little bit, right? Getting into the U.S. Navy market is going to be the biggest heaviest lift from a technological perspective. Everybody else on the globe is going to benefit from what we learned from the Navy, right? So we can meet the Navy specs as we start gleaning what those specs are, that's going to help everybody else in the globe when it starts acquisition for INDOPACOM specifically. To your point, there's going to be a lot of RDT&E money, right? There's platforms out there that are different than maybe underperforming. There's -- yes, we're in a really good place. From my knowledge of the USV market, we're in a really good place and a really good position with the Navy right now. We're talking to all the right people. They're going through a reorg as we speak to program executive offices, right? Our PAEs that they're setting up. So they're collapsing all of these individual acquisition entities under a larger umbrella kind of reconfiguring. So they're starting to figure it out, right? But we are participating in a lot of R&D experimentation exercises. We have one coming up at [indiscernible] that's happening in July. We're going to be out there doing that. We're bringing a whole bunch of tech out there, drones and boats and missiles for that event. And we're going to learn a lot, right? The guys we had here yesterday, we're just pulling what the requirements are. What is giving us a specific advantage is kind of our newness, right? We're a clean slate. If customers are asking for something that is different for people that are already in production. It's kind of like the modularity on Black Widow, right? Nobody else has detachable arms. If they want detachable arm, they got to do a clean sheet redesign for detachable arms. That's kind of where we're at in the boat space right now, right? So I think that is a distinct advantage that we have so much more room for activities. To find out what people want to put on these things, maybe specifically first. Others will benefit from it, NATO and INDOPACOM. But I think that's actually giving us an edge. Because we are open kimono, because we'll play with anybody, because we'll do anything you ask us to do, because we can do that. We can iterate and spin very quickly across the entire enterprise. Does that kind of answer your question?

Mike Legg from Ladenburg Thalmann. As you build out your manufacturing, can you talk about supply chain and any constraints you may see the bottlenecks?

Well, I'm going to hand that one over to him, but he's been working really hard to make sure there is no combination there. But also, I want to congratulate Austin, you just had a brand-new baby. Chris, do you want to take that?

I can take this. Supply chain, right? Supply chain is a huge focus right now on Sky Foundry. The Sky Foundry is an initiative that kicked off a few months ago and really trying to understand, hey, where is the supply chain out? What are things coming from? Because if you take it all the way down to the very basic on the mineral side of things, they're coming from all over the world, specifically a lot from Asia, right? And so there's this small buildup that comes up. What we've been doing is we've been focusing very closely, first of all, initially, it's just to pass the SNF test to make sure we're NDA compliant. Nothing can be coming out of enemy territory. So making sure that we're cutting off of the China supplies and the sanctions. Unfortunately, we got all that taken care of before sanctions hit us moving in that direction. Now we're also looking at what's being -- and this same thing with Sky Foundry. What's being produced here in the United States or what's not being produced here in the United States? Where are we lacking it? Batteries is something that we look very closely at because a lot of the batteries, right? A lot of battery production. You go on to Amazon, you type in there, the batteries that you're looking for, everything is coming from Asia. And how do we find those right partners that are here in the United States? Fortunately, we found some great partners here in the U.S. that have been able to quickly ramp up. We've gone through many different vendors to really identify the correct ones that can give us the right pricing, the right quality, the right speed of iteration. Right at the -- very initially last year, at the beginning of last year as we were looking at these batteries, it was very hard to find a company that could take a new battery for us, iterate that and pump that out in full production within a few months. We now found those partners that can do that for us. We then look into Motors. Motors is another one. Once again, online, you look up, all the motors are coming out of Asia. We found some great partners here in the United States that have been able to produce motors for us. And we now have people -- a lot of people that have noticed this in other, I should say, partner countries around the world that have noticed this lack of motor production and have also started to come to us to help supply these to us. Fortunately, now we fixed these other areas. So I guess, supply chain is a loaded question because you go all the way to the components that are getting built in and also supply chain time lines for us. How are we dealing with the time lines. There are some components as we've looked at it. It took 9 months of lead time to get to us because initially as our engineers were thinking about just getting it done and not necessarily thinking about the cost of the components or the time line to get those components in, We've now been able to take a step back, analyze these components and make some slight adjustments saying, hey, these chips are a rare chip that it takes 6 months to get these chips into our drones. Hey, here's a more common chip that can do the exact same thing. There's better capabilities on these chips. Let's move that up. Hey, we've just cut out 3 months of that 9-month lead time. We've now started to prepurchase at a smaller percentage of the dollar amounts, prepurchase those longer lead time items to make sure that we can insert those into the supply chain. Now we're operating at, at least 6 of -- the longest lead time items are now at 6 months. Technically 9 months, but because we prepurchased, we brought that down to 6 months, and we're now adjusting to say, hey, what's this ramp going to look like in the near future? How can we cut that down further? Right now, we can have a significant increase in our production and the supply chain beyond what I've talked about today within 3 months to make sure that as that ramps up, we're able to fulfill because we believe that we do have the -- we're on the forefront of this, right? We have the leadership. We have the lead on this, and we do not want to lose that lead. And so we're making sure that we are adequately structuring ourselves to keep that lead even if there's a massive spike, we can take on that massive spike.

And then Jeff, you mentioned that you're the only battlefield tested one out there, the market is growing substantially in '26 over '25, and you're the only supplier. Can you talk about what you think might be a competitor response as the market gets larger?

Well, there's a lot of things that the big primes don't do, they're not going to do the things that we will do to make sure that our product actually is just not fitting requirements, it actually works in a battlefield. And we're not the only ones to do it. There's other people that do in other cross products, but our team has been very forward deployed, making sure that our stuff works. This thing was designed from the beginning, and I think Ralph is already out there. So you'll get to meet Ralph later on today. He's a superstar. But he's a pioneer pre-Ukraine which is almost everything is based on his tech. So we're pretty fortunate to have that. So we know what's going on in Blue Ops. The Black Widow. We know that works in the battlefield, and we're going to be giving you some details in a month or 2 about that. And the same thing with just recently the Edge 130. We kind of had a Frankendoodle, and we know that works now, too. So we're very satisfied that our stuff works in battlefields. Because if it doesn't, it's useless, it's basically a brick in your rucksack. We won't do that. We won't give that to the war fighter where we know that our competitors, I'm not going to say names, but we know their stuff doesn't work there at all.

And just one last question. Barry, the fuel economy seems great on that boat. I mean, you're getting close to 4-plus miles a gallon. Can you talk about how you get that?

Well that all depends on sea, weight, sea state payload. So it varies from one to probably 12, 15. Depends. It's a diesel engine. So it's math. As a matter of fact, I'll have our partners, Laborde and Steyr, they're built in Austria. We chose that engine because the Navy has been using that engine for over a decade. It's proven. They're set up to repair it. And it's a great piece of technology. But what I'll -- instead of answering that randomly, I'll actually have you send the whole years and years of real-world engine efficiency and testing. But once again, it varies on how fast you're going, what the sea state is and how much weight you're carrying. But it's an incredibly efficient whole shape. You'll see it move today. It hardly makes any wake, and that's the design of 5 plus 3 generations of boat building. That got us there, and that's a big part of the efficiency, too.

Amit Dayal from H.C. Wainwright. My question is around the stability of the specs from the customer side. Do you have some good visibility around that? Or do you need to be in a position to sort of manage quickly evolving specs? And how do you sort of deal with that?

We're kind of going in reverse a little bit on that because if you let the program offices do the requirements, they're going to add requirements constantly. Just because, oh, we want this, we want this. We were getting add-ons in July for a drone that we had to deliver 2 weeks later and they didn't care. They just added a different thing that we had to do differently. So that is -- hopefully that's changing where they -- if you listen to the administration which we are hoping people start listening to that, they want you to get things speed and volume, speed and volume. And that's basically get it 85% done, then we'll figure it out together to make it work properly on a battlefield. Well, that's not getting down to the people doing the requirements yet. They'll add as many requirements because you have to do it no matter what if you want their business. So on a different note, we're actually saying, when you actually go to these battlefields, they're like, we don't need any of that, rip that off, rip that off. All this stuff is never going to be used. It's kind of like Mike Tyson, it's like everyone's got a plan until you get punched in the face. So there's -- we want to make sure our stuff works. And then we'll always go and make sure we have the requirements. It's usually software that's add-ons and it does all this stuff. But we also want to sit and go, hey, by the way, if you want to use something that works without all that garbage put on top of it, we have that too.

I don't know if I can add on for a second. Yes, it's a little bit of a carrot and stick thing, right? I mean SRR, we designed it to the Army requirements. Those requirements were 5 years old, 5 years old, right? So we continued to -- the carrot as we talk to the Army and said, hey, we got this new thing. We're adding to Black Widow. The stick is, are you telling me you're not going to give that to every army brigade and we're going to be selling it to Germany, the latest and greatest tech, and we're not going to have it here? Okay. So we continue to iterate at the speed of heat, right? So when the next 4 year-old requirement comes out, we'll be light years ahead of that, right? So we're going to continue to iterate all the time. And if the Army accepts it, great, but if not, we're still going with it, because everybody else wants it, right? We're not going to stop because the Army says they may or may not be interested in a specific tech, 1 of those 15 companies we talked about, right? We're going to offer ala carte menus, all summer none, let us know what you want, we'll bolt it on and get it out to you. And we're going to just continue to iterate because it's iterate or die. Take a week off, you've done in this space. So we're going to try to stay what, 18, 24 months ahead of any of that.

That's right. And I'll jump in. That's a crucial reason for our office in Eastern Europe right now, right? The testing that we're doing out there because we want to stop being reactive, having someone else tell us hey, here are the specs, here's what you need to build into it, then us build that up. We need to take that leadership position. We need to understand what those specs are before everyone else understands it and build those into it. We want to lead that definition, because if we don't, then we're always going to be chasing something, we're always going to be delayed a little bit. But if we can take those learnings from the front, immediately integrate those in, then we're dictating, hey, here's the specs you want. Stop telling us these things that the guys in college and university thought up in their heads. This is actually what's needed out there, and we want to take that leadership.

Josh Sullivan, Jones Trading. What do you think about the longer-term product portfolio map? We look at the size of this boat, what are you thinking longer term? It's an Innovation Day. So if you're going to drill the dream, and we're talking about that old conversations about 24 months technology, but 5 decades, or 5 generations of boat building capacity, we think, Bluewater or something along those lines? Just curious what you guys are thinking longer term?

I want to give a quote before he starts because he's changed my entire mind just a few months ago. People that can build -- I don't know if I'm saying it wrong, can build 60 below is a completely different technology than 60 above. So the expertise is completely different. And some people can do one and they can do it, not almost anybody can do both. So ever since then, I'm like, we got to stay below 60.

Yes. There's a reason Caterpillar doesn't make cars. They're different animals. In the sub-60 foot boat market, even sub-40 is different 60, there's some connection there. But below 60 feet and then above 60 feet, certainly above 100, they're completely different animals. And my father always told me, pick one thing and do it really, really well. Our goal is to be the dominant small U.S. builder in the world, full stop. So product pipeline, we already have 2 more boats in design that we'll be rolling out as soon that design complete and we can move into production. And that won't be -- that's just the beginning. I would imagine we'll have a pretty complete portfolio of hall shapes to match the sea state admission requirements of NATO navies around the world.

And then maybe if I think about Arca, broadly speaking, what are those core technologies on the technology road map that you guys want to dominate today as we get through these bigger orders that are coming in the next 2 years? But longer term, what do you see as those core technologies that you're really focusing on right now?

Well, you're -- you've seen a lot about it today, and this is not a factory, but the factory is the weapon. So mass in the old days in the art of war used to be considered people. And now mass is robots. So we got to be able to produce millions of robots to go against millions of robots because our adversaries are going to be doing the same thing. So as we -- to be able to have more control over that, we want to do it. You'll see us looking at a lot of more vertical integration so that we control almost the entire -- almost -- goal is to get close to supplying the entire supply chain and doing a lot more of the stuff ourselves through vertical integration. Not just in the Black Widow or the Tricon or -- and Blue Ops. So we want to make sure that we can control all those things so that if something new is -- or I mean, the speed of war is crazy right now. 3 weeks is a long time. I mean, it used to be 30 years before they would change how they do stuff. There's still stuff that's a 30-year-old technology in the U.S. So we want to be able to be super quick, iterate quickly or even if there's a whole new category, which -- bomb boats didn't exist until a couple of years ago. It wasn't even a thing. And now with 30 of these coming after a multibillion-dollar ship, they don't know what to do. So we just want to remain flexible, have the capability and just learn how to take something from scratch, build it, sell a lot of them, make it profitable. New thing comes up that's in the robotic world. I mean that's a floating robot. We have flying robots. That's a gun robot that Allen controls. We've got -- I think the crucial thing is once you have all these robots, is how to control them with just a few people? Because it's useless. Like FPV is a great market, right? But every FPV drone needs a person that does not scale well right now. And another thing that people don't understand about FPV and robots is that FPV is useless without a Black Widow. You need all these FPVs, everyone really excited about right now, 340,000 and drone dominance. They're useless because they have old analog cameras because they're quick enough. They can only see up to 100 feet. And if you've been -- I've been to a training facility in Ukraine and you got ISR drones, which we would love to replace. And then we got a FPV drones, the ISR drones like a Black Widow, tell them where to go. So all of these things, we got to get rid of more humans. FPV, if it's one-to-one the most expensive part. Those drones cost $2,200? No, they don't, because you got a human on every single one, the human for any aircraft ever, even small airplane, the human is the most expensive part. So -- per hour. So we got to look forward there to get more humans out of the loop.

Yes. You're going to see a fundamental shift, right, with the maturity of swarming and you're going to see that today, right? So you're going to see one person flying 8 drones today and you're going to have 3 guys driving 3 boats. 2, 3 weeks from now, you're going to have 1 guy driving those 3 boats and flying those 8 drones. And then you start having the conversation about sea and air launch effects, right? There's different missions out there, which is different than the Ukraine mission. Lots of C4, send 30 and hit a ship. No, we're going to want a jam. We're going to want to SNF, we're going to want to look at stuff, we're going to want other effects, both air and sea, right? So going back to the most conversation, right? Swarming is a catalyst from where everything else is going to come from. If you have a specific classified payload you want to put on it to do a thing. Okay. We can have 10 boats doing that. We can have 40 boats doing this. We can have 5 boats doing that. We could have 20 doing this, you can have 100 FPVs doing this. And all ones doing it. And then you got to reduce a cognitive workload, right? I started this stuff, and it was 2 operators for 1 bird at our environment. 1 guy on a tough boat computer 20 years ago, 1 guy in a tough boat computer and another guy on the sticks. Now we've got 1 guy flying 8 and making them do a dance for you today, right? And they can do way more than that, but it gets really expensive to do that test for us to fly 100. But we could fly 100. But I don't know that I want to pull that out of inventory to do that, right? So we're giving you a SNF and it becomes overwhelming. And if you saw a 100 drones take offline around 1 guy doing it all, you'd lose your mind. It's hard to get your head wrapped around seeing something that large, right? So you're just like you kind of go starry eyed and you can't really think about how to employ all of them. So it's gradual steps. The demonstrations will get bigger. The capability is going to continue to escalate and we're going to start bolting other stuff on, hey, can you do this, this and this? Yes, we can do that. Give us your payloads. Give us your cameras, give us whatever it is you want. And we'll bolt it into one of these things, and we'll link it all together in a common operating picture. I think that's the string you were kind of trying to pull, right? Yes, everything comes off swarming. You get that perfected, then you get out everything else to it.

Is it already ready? Or are you still working on building that software or [indiscernible]?

Swarming. You're going to see it today. It's ready. There's a question right here.

Josh Bennett with Weatherbie Capital. So USVs, really impressive what you've done in a year. And so it's kind of...

5.5 months. Who's counting?

So you did it in 5.5 months. My question is like, again, Hinckley, I know the name, obviously, so a history of boat building, so that helps a ton. But what keeps competition from doing the same? And -- or anyone else wants to just say, you know what, we've got a lot of money. We've got a the other family you mentioned, that's also the book building family. We want to replicate what you did. What is it that keeps them from doing the same thing in 4 months now and having a competing boat? Maybe that's okay. Maybe it's someone you partner with, but just curious to know you've done an incredible thing in a short amount of time as a team, how do you now keep the competition from doing the same thing?

Humility. I can't wait to hear this. So you're asking me to predict the future, which, of course, is unpredictable. So that's -- well, I'm on boat builder. I can tell you that they're going to be hard-pressed to find the experience that we've assembled, but they certainly could. And I guess that's -- you have to say it's a possibility. But as long as we keep humble and keep reminding ourselves every day that we are boat builders -- and I'll tell you one of our -- I spoke to a former employee of a large competitor, and he was -- I think he said he was the 18th employee of a very early adopter competitor. And he said, when they pulled them all into a room and they said, we're going to build boats. They're just not going to be boats. We never think we're not building boats. And we know how to build those. And we do that were run over again. So of course, a competitor could shift to mind that, but most of our competitors have said, okay, we have a great piece of technology. Oh, by the way, we need to build a boat to put it on. We started with the concept of we need the best, most reliable, durable boat and then we're going to put the technology on. It's just a completely inverted mindset that I have witnessed.

Who are the others that you see that are trying to do it? And who are you watching that could be partners? Or are you watching the good competitors? Just we don't have the space well.

I recommend Google. I mean I -- we're friendly with the usual suspects. You can do a quick Google search or go to some of the USV pages, you'll see them all. They're friendly. I was at REPMUS for 5 weeks, which is the big showdown stands for robotic, experimentation, prototyping for maritime unmanned systems at Troia, Portugal every year. Portuguese sponsored NATO event and all the usual suspects are there, and we all get to know each other, and I have respect for all of them, and I wish them all the best.

Great again, really impressive what you've done. To the CFO so that you're not left alone, and I won't ask specifics. But I heard SOX compliance in the working and then also, obviously, compliance with the various military specs. Can you just give us any sense of timing in terms of when you think you'll be SOX-compliant? And when do you think you'll meet the [indiscernible] what is the right certifications?

Yes, I'll start on the SOX side. So we have to be compliant January 1, 2027. We have a team. We're already going through the whole process right now. We'll be telling our audit committee meeting on -- or we'll be holding our Audit Committee meeting on March 12, where we're going to lay out to the Audit Committee, our entire plan. So we're on how we're going to be SOX compliant and integrate that and make sure that we can meet all of the requirements starting January 1, 2027. I didn't think I'd give that question right on. And I'll kick it to Chris on CMMC.

Yes, CMMC compliance. So full compliance, there's a range of compliance has happened, right? We've already done our pre-assessments. We've already started building out our tech stacks. Actually, all the tech stacks are now built out rolling in. We are doing our first initial audits, or kind of our fake draft audit in April. And then we'll be fully compliant by the middle of the summer. I think our goal target is September, but we're well on track to hit it beginning to middle to the beginning of the summer time.

Ned Morgan with BTIG. I was just wondering if you guys could talk some more about your strategy of strategic partnerships as opposed to M&A.

Do you want to take that?

Yes. I'll be very frank. We look at a lot of our strategic partnerships as an M&A road map. You'll see us partner with companies for years on end. And then lots of times, we'll -- as we gel, we like to fold them in. A perfect example is I tried to buy Fatshark for 5 years in a row, and we finally got them in there. And that was before everyone knew anything about for the FPV, before FPV was the most successful weapon in the Ukraine. So it's getting to know lots of times, start-ups. Its their baby. They don't want to become corporate. I don't think we're very corporate at least I know I'm not. So they don't want to have that culture change in that. But if you partner with someone for 2 or 3 years, like all the guys that were in these rooms, making these boats work in the last few weeks, killing themselves together, other companies, not just ours, our employees. When you work side-by-side like that, you really get a feel of the type of people you want to work with. I mean, it's always people you're going to have to work with, but I think our road map for M&A comes from our strategic partnerships. And a lot of the strategic partnerships are really actually kind of not forced on us, but the army will say, hey, this piece of technology works really good. We're looking at these guys. You should get them on the Black Window. And we call them and say, hey, let's talk about that. So that's kind of an organic way to have the Army and the Navy be our own sales force for what we should have on these for features. And then when you look at the -- I look at what's going on in these out of the battlefields and we got -- we have to pull from that. When we were at AUSA, every person we talked to from the army is like, if your stuff doesn't work in Ukraine, we don't want it. And I'm like, well, I know you buy a lot of stuff that doesn't work. But we are -- that's the way we're trying to look at the strategies. We're not going to see everything, but we have the platforms now to do that.

Just one more. How do you guys think -- moving forward, long-term strategy of Red Cat , how are you prioritizing the program like SRR versus more attributable cheaper drones in the drone dominance program?

Drone dominance is just -- we -- look, right now, they're going to be great margin. We just went last week, and I think we did pretty well, but you never know. But at first, those are going to be great margin at the beginning. And then the price comes down, the price comes down. Let's say, it becomes a loss leader, it's ammunition. You have to have it. You can't not offer FPV. But more importantly, FPV is useless without the Black Widow. So we are actually one of the only companies that showed up and said, hey, you want us to do sensor shooter? No one else has a Black Widow that the army has already accepted in the program of record. So that's a key thing. FPV's been on. I've been in FPVs since 2015. So I know the industry very well, but it's a very difficult business model because of the volumes. And once it gets down to low margins because of the prices people are going to want, it becomes a tougher business model. So we'll always -- probably always have it. things will evolve with FPV, but it's also going to be relying on -- we can put FPVs on that. We can put FPV on all the other new holes that we're coming up with. We actually are working on a very complex launching system off of these units that you'll be hearing about soon for Black Windows and other drones coming out of these things. So the FPV business model is difficult, but it's basically a bullet. You don't have a bullet, you can't kill anybody.

It's Craig Irwin from ROTH. Wanted to ask about capacity, right, both for FPV and Black Widow. So you showed us a schematic on your facility, tripling the floor space in production. But you also mentioned that you're only working one shift there. Is there a reason you're only at one shift? Can you go to 24-hour production after you triple the floor space? I mean is this really a 1 to 10x facility if we see that kind of surge out of the buying entities right now? It seems like you could be facing down a situation where that capacity could be needed. And then if you could also talk a little bit about the labor requirements. How technical are the labor requirements that you need to put in place this greater manufacturing capacity. Is there an extended learning period for these employees to come online efficiently? And what are you doing to prepare?

So sorry, can you repeat the first half of that question one more time?

So your Utah facility, right? How fungible is the production between the different drones. And you're tripling your floor space, right? You've got on one base -- not one base, but one series of base, one pod that runs 1 shift. And you have plans you shared to triple that. Is there a reason you only run 8 hours? And then, is that really a 10x facility if you 24 hours?

The -- okay, so I'll kind of reverse answer the questions a little bit. So 10x the facility. Not necessarily because after you start hitting like -- if you start hitting a third shift, you're going to start losing a lot of efficiencies in there, right? And also the inventory coming in and inventory flowing through, you're going to start losing quite a bit. Now if you ask me right now, from 1 shift to 2 shift, there's not -- there's no inefficiencies. We would definitely double the capacity right there. Doubling up the floor space, we're still going to be pretty good on that area. Now I also want to correct that right now, the plan is not to expand the facility immediately. We do not need that expansion and to triple the size. Now we already have leased the space. We're already moving the manufacturing from the yellow area into the new empty space. And we're going to expand a few areas also for FPV. So that's the current plan, but we have the capacity or capabilities to expand further. Now if you ask me what it takes and this gets into the second question as well. The manufacturing process, unfortunately, we've got some great manufacturing engineers at our facility. There's not so much a technical capability, but it's a mind tech capability that we're looking for our guys on the manufacturing floor. Guys who are open to communicate, hey, I think it would be faster to do something this way. Hey, I'm having trouble putting these together. The manufacturing engineers that we have are designing new tools and tool sets to be able to replicate quality checks faster. To replicate the production to make it easier, so you don't have to determine how much do you have to torque each of the crews. These guys have made the manufacturing process very simple. Our partners with -- partnership with Palantir, our MES systems that we're using have really been able to enable us to not necessarily need a very, very technical person on the manufacturing floor. In fact, as we release these requisitions for hiring. We're getting hundreds and hundreds of applications where we're able to really define the mindset and the type of people and the energy that they have to bring into the factory forward. We've got great workers on our factory forward that are enabling us to do this. So if we then said, take what I just said, hey, we need to hire a second shift or third shift. We've got those folks that were able to easily bring on to quickly onboard them through the manufacturing process to scale up quickly.

One thing I want to add to that before we go on because everyone keeps asking the same question on the production in this net. A 1,000 drones a month what we have right now is $30 million a month with 1 shift, okay? So we did $40 million last year, right? So if you double that shift, you're doing $60 million a month with just one product. So people lose that everyone just talks about, they want to hear about tens of thousands a month. But we can -- like you said, if we do 2 shifts on 3 different lines, I mean we're doing hundreds of millions a month.

So in the context of one of our global -- trying to find a politically correct word, but another global player making 10,000 drones a month, right? There clearly is interest in having that kind of capacity. Is that something you aspire to serve?

Well, we -- I mean looks to be like China, our enemy, I'll say it. Russia, our enemy, we're banned from China. So -- they are -- they're making in 3million to 4 million a year. Russia is making 3 million to 4 million a year. Ukraine is making 3 million to 4 million a year. We have to get there. And if I really don't care about people's political views, but this administration has actually kicked it into gear to do so. We're still going to go faster, I think, and that's not just being selfish as a business owner that makes them. But if our adversaries are making 4 million a year, we've got a kicking in the gear. And we're ready to do that. We have the -- I mean we just need to the many startups that are getting to this industry now, but they do go through the valley of death. So we have to overcome that value of depth with orders. And we can't just say, hey, they're making 4 million. We want to make 4 million too. someone's got to pay for them. And that's -- we're getting there with that type of a mindset from this administration and Pete Hegseth, Department of War.

Last question, if I may. That's actually a fantastic segue. So M&A, right, most of the private companies out there will be capacity starved, capital starved. And have a limited expertise set. It seems that even though valuations are improving for successful companies like yours, a lot of the private companies out there could have a very strong desire to be acquired, right? They could even really release their potential to the market. How broad is this ecosystem that you're seriously considering right now? There is a little bit of a land grab going on and tremendous visibility on spending out of buying customers. How active do you -- you said 1 quarter or maybe 2 a quarter. Is there a potential for that to accelerate? And will these be bigger acquisitions, smaller acquisitions. If you could just give us more color.

All of the above. One of the things that someone asked me the other day, I forgot what interview was, but they were talking about innovation. Is it all coming from China? Is it all coming from China. I was like, no, it's all coming from Ukraine. The innovation is pouring out of their. And as -- when they're enabled, or someone's enable to export their technology, there's going to be massive opportunities there for some great technology. It still has to be made in U.S.A. There's a lot of great companies in other countries, still have to come here to be made in the U.S.A. Otherwise, people aren't going to -- the U.S. is not going to buy it. There'll be a few strays that would take too long, and they'll do it but they typically want it made in U.S.A. You got at least have an arm or a partner that's a majority owner. So there's a lot of innovation coming out in the Ukraine. To the early part of your question, there's a lot of great companies that -- I mean, they just run out of money. Teal was out of money. It was about to go out of the business. Unfortunately, they had gotten through the first phases of SRR down select. We came in and we actually built a factory, showed some expertise, got rid of the people that didn't know how to do it and built a great factory, and now we're one of the best drone-makers in the U.S. And we think we're as good as the Chinese strong manufacturers, which had a 16-year lead and to be more on that in just a couple of months. And FlightWave, which Sean Webb, who's back there, I don't -- he's sitting now. We stole him from AV. He used to make the switch blades. He came in and FlightWave, they run out of money and they had some great tech. They are the longest flying fixed wing or any drone on the Blue UAS list. So you get these guys with these head starts and then they run out of money because it's a little easier right now, and it's always waves when you're public, you have access to the capital. So we'll be opportunistic with those situations. But I think there's going to be a lot of innovation come out of Ukraine once they have an export path.

We have time for one last question.

Alex Latimore with Northland Capital. I just have one question here. Can you frame the new Department of War marketplace opportunity? Is this a new revenue stream? Is this the procurement cycles? Anything to do with sweeps maybe there?

Yes, absolutely, right. So the marketplace, remember, I talked about procurement dollars versus O&M dollars. That's where O&M dollars go. So Brigade Commander can go there. It's like GSA catalog. Everything that is blue listed, they could be Army PM UAS office, the program office controls who gets in. We've already sent our stuff in. We're kind of the first -- we're going to be the beta testers of that. And basically, that's where Brigade Commander or company commanders or any it's got a government credit card and wants to buy a thing, go buy a drone off that site. So infancy stages right now. We're in the middle of the beta testing of that. I think they're going to have the ability to start using it in the next month or 2, but it's going to continue to get refined through the rest of the summer. But that's basically where any DOW unit with money can go there to buy a thing. Because if you think about the SRR program, the what, 55 brigades active in guard, and then you have a program of record SRR, well, they're not fielding golf, somebody is at the bottom of that list that needs drones now and are willing to spend their O&M dollars for it. That's where they go to the marketplace to buy those.

What does it look like to market on that marketplace? Is it kind of a word-of-mouth game? Like how do you get to your...

No, it's like a GSA catalog, right? You've got pictures of your stuff, you got to descriptions of you stuff and you have a price of your stuff and then you have quantity discounts on your stuff. So it's just like the GSA catalog specific to drones and to DOW.

And Alex, yes, think of it as like a poor man's Amazon. I mean just not get -- we were flattered when they wanted to participate, hey, you're the first customer that can see and look what do you think, and they're asking for our feedback. We're on the side chatting like garbage Amazon. Like it's pretty interesting I think it's a new way of thinking about it.

They're great [indiscernible] you should buy drones on it.

I think we'll have a huge head start over our competition. I do think it will be increase. But knowing the government is going to take a while before it's up.

We love the government also.

Yes. They're great. The best.

All right. That concludes our Q&A portion. Let's give it up for our leadership team. I would ask the leadership actually to step out and you can take your chairs. We do actually just have some closing remarks from Jeff Thompson, our CEO.

Thanks. I have closing remarks. You didn't tell me about that. What you're seeing is basically Red Cat Holdings as a holding company, right? And we -- our whole idea is to give entrepreneurs like Barrett Hinckley and Sandy Spalding, great entrepreneurs. And we were all saying, hey, I need some help. Can you find some friends to build the boat? And they said, we'd love to build these boats for you. And that was, I think, in July at lunch right down the street. FlightWave, same thing. Teal same thing. We give them the resources. We don't want to break up their culture. We don't want to make people move. So it's a very interesting model compared to other folks. We have a holding company. If we find a company in XYZ city, we're not going to uproot all their families. So we keep the culture, we keep the speed, and we take all the minutia off the top at all startups, including myself, hate doing HR, 401(k) plans, payroll, all the taxes, auditors, all that stuff is a pain in the neck. But what we see is we keep the cultures of those local start-ups as they mature and have access to capital. And it's -- I mean I can't even believe this building was empty and the same thing at Teal. Every time I go to Teal, its like, right now, they're kind of rack-and-stack they're going to be using bunk beds pretty soon. But the growth has been fantastic. The biz dev teams all over the globe all the time. We're getting great feedback from all of our stuff. But this is going to be an epic year for us because of the growth. I mean $40 million from like, I don't know what it was the year before. I don't want to think about those days, to where we're going this year is going to be so compelling. And then obviously, 2027 is going to be massive also. But then we start to work our way into profitability. It's just a normal path. But we're glad that you came here for the ride. We know why you're here. And if we perform all the stuff that you do, you'll do well. So thanks for coming. That's it.

Thank you so much, Jeff Thompson. We are about to make our way to the shows. We're going to close just with a little glimpse of what you guys [indiscernible].