Volatus Aerospace Inc. ($FLT)

Welcome to the Volatus Aerospace Earnings Call. I am Danielle Gagne, Head of Global Trading Strategy and Business Development for Volatus Aerospace and the moderator for this call. Before we get started, just a reminder that we welcome your questions, and we'll be having a Q&A session at the end of the pres. [Operator Instructions] If we are unable to answer your questions today, we'll be happy to connect with you after the program. This presentation will be recorded and made available on our investor website within 24 hours. I would also like to take a moment to point out that certain information set forth in this presentation contains forward-looking information, including future-oriented financial information and financial outlook, and actual results may differ materially. The risks, uncertainties and other factors that could influence actual results are described in the presentation, in the press release and in our MD&A filed with Canadian regulators. This presentation also contains non-IFRS measures, which are also outlined in the presentation. There is a full disclosure on Page 2 of this presentation, which we encourage you to read and can be found on Volatus' investor website at investor.volatusaerospace.com. The company considers the earnings call part of its routine disclosure to educate investors on information contained in the quarterly results and related MD&A. If you have any questions, please feel free to contact us and the Vilatus Aerospace IR team at [email protected]. Now that, that is done, it is an honor to introduce Glen Lynch, CEO; and Abhinav Singhvi, CFO of Volatus Aerospace.

Thank you, Danielle, and thank you, everyone, for joining us this evening. Q1 2026 represented an important operational and strategic advancement period for Volatus. During the quarter, we continued executing across several key priorities, including activation of our MINERVA manufacturing strategy, expansion of our proprietary autonomy and software platforms, the launch of our SKYDRA counter-UAS simulation and planning software, continued defense market positioning, advancement of multiple NATO and sovereign capability initiatives and the activation of our U.S. operating base in Tulsa, Oklahoma for the American oil and gas industry. While reported revenue for the quarter was broadly consistent year-over-year, we believe the quarter should be viewed in the context of temporary delivery timing impacts affecting certain defense-related programs rather than as a reflection of underlying demand. Importantly, those contracts remain active. Deliveries have now begun transitioning in Q2, and management expects to continue or continues to expect strong growth through the balance of fiscal 2026. I'll now turn the call over to our CFO, Abhinav Singhvi, to review the quarter in more detail. Abhi?

Thank you, Glen. For Q1 2026, Volatus reported revenue of approximately $5.6 million, broadly consistent with the first quarter of the previous year. Gross margin improved to 35%, representing the strongest first quarter gross margin performance in the company's history as a consolidated entity. Working capital remained stable at approximately $36 million. We also exited the quarter with approximately $32 million in cash. Overall, the quarter reflected stable underlying demand, continued operational discipline and deliberate investment supporting our defense, manufacturing and autonomy growth strategy. Q1 revenue was impacted by temporary supply chain disruptions affecting the timing of deliveries associated with certain defense-related programs. This included a portion of the previously disclosed NATO allied ISR cleaning systems contract. These timing impacts were primarily associated with evolving geopolitical conditions and cross-border supply chain availability earlier in the quarter. Importantly, the contracts remain active. Customer relationships remain strong, and we do not anticipate any reduction in contract value or the scope. Delivery activities associated with these programs have already begun and are transitioning into Q2 as supply chain conditions have normalized. We believe it is important to emphasize that this was fundamentally a timing issue affecting the revenue recognition, not a weakening of underlying demand or execution capability. Management, therefore, continues to expect meaningful revenue growth through the balance of fiscal year 2026. One of the most important operational highlights for the quarter was the continued margin expansion. Despite relatively flat revenue, gross margin improved from 32% to 35%. This reflected improved service mix, operational efficiency and disciplined direct cost management. At the same time, Q1 represented a concentrated period of strategic investment. These investments included defense business development, engineering and technical hiring, both on the hardware and the software side, manufacturing activation, platform commercialization and continued advancement of V-Cortex AI and Condor XL program. Management views these expenditures are delivered growth stage investments designed to support the long-term scaling across defense, sovereign manufacturing, autonomy and software commercialization initiatives. This slide highlights the EBITDA and the detailed understanding of our cost structure. So I'll take a moment walking everyone through the -- what's driving the cost structure in Q1 because the IFRS net loss figure viewed in isolation does not fully reflect management -- how management is operating and scaling the business. Net loss for Q1 was $6.6 million compared to $4.3 million in the same quarter last year. To better understand the operational performance, we adjusted several noncash and nonoperating items. This included depreciation and amortization, interest, share-based compensation, certain onetime expense and R&D were also excluded. The R&D reflects the direct investment into V-Cortex AI, Condor XL and also the software layer. Initiatives management views as long-term capability creation supporting the future revenue growth and expansion of its revenue pillars into the software segment. After these adjustments, adjusted EBITDA loss for Q1 was $3.1 million compared to approximately $2 million in 2025 of Q1. The year-over-year variance of approximately $1.2 million was concentrated in 4 categories, each directly tied to our growth strategy. First was marketing and branding investments of -- there was an increase of approximately 353,000, primarily associated with defense sector positioning, transitioning to a major exchange and strategic market visibility initiative. Importantly, there were milestone-driven expenditures, not a new operating run rate. Second was travel and engagement costs increased by approximately $200,000. The reflection of direct engagement with NATO aligned procurement officials and stakeholders across the geographies. Thirdly, the external partner costs increased by almost $0.5 million, included specialized legal, technical business development and certification costs included as we scale into the defense segment. Lastly, the personnel cost increased by approximately $300,000, which was concentrated around technical and engineering hire and defense-related roles directly supporting the program execution and long-term capability expansion. More importantly, we believe that company's path towards adjusted EBITDA improvement right now is driven by primarily revenue growth. The $4.5 million of NATO ISR tranche has transitioned from Q1 to Q2 into delivery and the NATO RPAS training programs and contracts, including the multiyear contract announced in April, collectively provide revenue visibility that has not been reflected in Q1. We believe that expected EBITDA performance to improve progressively as the programs convert into recognizable revenue through the balance of 2026. This slide basically highlights the overall capital deployment strategy and the balance sheet strength of the organization. The cash deployment during the quarter was primarily associated with activation of our Mirabel facility, which Glen will highlight more deeply, engineering and platform development, production readiness, inventory preparedness and also strategic growth initiatives aligned with the defense and autonomy road map. Importantly, working capital remains stable and the company remains in compliance with all applicable debt covenants. We also strengthened the company's institutional capital market profile during the quarter through graduation to TSX and continued simplification of our capital structure. Overall, we believe the company remains well positioned from a liquidity and capital flexibility perspective. With that, I will turn the call back to Glen.

Thanks, Abhi. So strategically, Q1 represented a significant advancement period for the company. We continued expanding our position across defense, Obviously, that's highly topical and a huge focus for me personally at the moment. Infrastructure, manufacturing, another major area for us. Autonomy was a major investment area and a major area of progress and mission systems integration. Key developments during the quarter included the launch of our SKYDRA, counter-UAS simulation platform, continued NATO aligned program execution, expansion of our multinational Defense Advisory Board. We now have 3 generals on that board, Canadian Major General, one U.S. and one U.K., all with NATO and NORAD experience and chaired by General Leslie, the former Head of the Canadian Army. Activation of the Mirabel manufacturing strategy, which we'll talk about a little bit and continued advancement of our proprietary autonomy portfolio, which is core to our go-forward technology strategy. At the same time, Canada's defense industrial strategy created a major structural tailwind for all Canadian controlled aerospace and autonomous systems providers. We believe that Volatus is increasingly positioned at the intersection of operations, manufacturing, software, training and autonomy infrastructure. One of the most important milestones during the quarter was the continued activation of the Mirabel and integration strategy at the Mirabel Airport in Quebec. The facility, which now just to put it in perspective, Monday was the 11th week that the facility has actually been in our full possession. And it's now supporting initial manufacturing systems integration, testing operational systems that are aligned with our long-term sovereign strategy. But importantly, only 10 weeks after taking possession of the facility, we completed the first production unit for our Sentinel dock system, which will be delivered to a customer within the next 2 weeks. So that's the first of 7 planned lines that will ramp up over the next few weeks and a major area of focus for the company. I guess I should say, over the next few months for the ramp-up of those lines. That will bring our facility to approximately 40% to 50% capacity in terms of space, operating still at a single shift. So a lot of capacity growth in the facility. That milestone represents an important operational proof point as we transition from manufacturing strategy into manufacturing execution. The Mirabel strategy is intended to support scalable RPAS or drone production, Canadian sovereign capability, which is, of course, key for the defense industrial strategy, allied export opportunities and long-term autonomous systems development. During the quarter, we continued advancing our proprietary platform and software portfolio. As I mentioned, SKYDRA was officially launched as our first SaaS-based counter-UAS operational planning and simulation platform, establishing an important recurring software revenue opportunity. We also continued to advance our V100 ISR platform strategy. The tooling and initial parts for the airframe are in production now. The Condor XL heavy lift platform is moving along with the introduction of the new flight control system. And our V-Cortex AI autonomy architecture has made significant progress and will be showcased somewhat at our Defense event coming up in the next 2 weeks. So V-Cortex is particularly important strategically because it represents underlying autonomy and mission systems framework that supports multiple platform families across our ecosystem and other ecosystems because at the end of the day, this is a platform-agnostic multi-domain autonomy operating system that will continue to grow and evolve progressively. To give you an idea, the development cycle right now on the new features for the autonomy architecture basically take between 8 and 12 weeks to complete. So the things that we're talking about are rolling out in almost near time, we're talking about developments in 2026. So collectively, these initiatives represent and reinforce our transition towards a more integrated aerospace and autonomy systems platform that combines all of our manufacturing, autonomy, operations, software and mission systems integration. So the launch of Canada's defense industrial strategy represents a significant long-term opportunity for Canadian controlled aerospace and autonomous system providers. So the framework provides sovereign capability, domestic manufacturing, allied interoperability and deployment readiness. We believe that the BOREALIS aligns strongly with that framework through Canadian manufacturing capability. That's what we're standing up at Mirabel, proprietary autonomy systems that are being stood up under the direction right now of our CTO, NATO-aligned operational experience, our advisory board and our current training and equipment contracts and our training infrastructure led by our own Danielle Gagne and then our growing multinational advisory platform. So we continue to position the company to participate in what we believe will become a multiyear defense and sovereign capability investment cycle that will occur across not just Canada, but also other allied jurisdictions. Looking ahead, management remains confident in the company's outlook for fiscal 2026. The key priorities through the balance of the year include execution of the existing defense and NATO line programs, continued commercialization of SKYDRA, our V-Cortex autonomy operating system, scaling our manufacturing capability at Mirabel, advancing our proprietary platform development and continued expansion across infrastructure, energy and autonomous operation markets, particularly in that case, being driven by our expansion into the U.S. market in oil and gas with our Tulsa, Oklahoma facility. Importantly, the Q2 defense-related deliveries, the $4.5 million that we expected to deliver in Q1 that have shifted out of Q1 have already begun deliveries, and we're expecting those to be delivered fully in Q2 because of the nature of those deliveries, they have no impact on our capacity to deliver on the balance of our plans. So we believe the investments and operational milestones achieved during the Q1 position Volatus for the next phase of growth, particularly as governments and commercial operations increasingly prioritize sovereign autonomous capabilities, operational readiness, scalable deployment infrastructure and integrated aerospace systems. So before we move over to questions, I want to talk for a minute about our push towards autonomy and the introduction of our adaptable, scalable manufacturing system. So these are our key developments for the company. I think we've undercommunicated them in the past, and we've made some significant developments and progress over the course of Q1 and into Q2. A key part here is that being able to meet the demands of Canada's Arctic certainly requires airframes. And everybody gets excited about the airframes. We're quite excited to have our official opening we're expecting in June at the facility where we'll be showcasing some of those larger systems. And for those that are attending, several of our larger drone systems will be on display. But the key point is it's actually the autonomy system, which is, for all intents and purposes, the brain and nervous system for the robots, which are the drones that actually make the difference. We believe as we prepare, particularly for the Arctic, the Arctic is about not just the technology of the airframe itself and being able to deal with the cold and environmental conditions, but some of the unique challenges in the Arctic that lead us to believe that we go from a possibility, a remote possibility of losing command and control link in Southern airspace to an environment where more frequent loss of command and control link caused by communication issues and Arctic-related things are going to rely more heavily on the air vehicle's ability not just to operate itself, but to autonomously complete missions in circumstances like that. It's a very -- the north is a very unsettled area. I mean the communities are far apart and small communities at large. So it's an area we have a lot of capability to actually provide services but that assumes that the drones are able to operate or at least be capable of operating entirely with a human outside of the loop. What's even more significant is this is being designed, as I mentioned earlier, as a multi-domain, meaning air, land and sea, multi-domain autonomy system that's platform agnostic, which means it can operate on a ground vehicle, on a subsea remotely operated vehicle, an air vehicle, including different types, helicopters, multi-rotor systems and fixing airplanes. So we believe it's going to be a core part of our technology moving forward and in fact, will be central to all of our drone systems. This technology will be deployed on all of the platforms and then over time, be made available as an autonomy-as-a-service type of activity. The second thing that I want to talk about is our manufacturing strategy. And I'm sure that in the questions, we're going to have questions about when we expect defense orders to happen and so on. And I want to address some of that right upfront. So a thing to understand that we've learned from Ukraine is drone technologies, drones, drone technologies, all of the autonomous technologies, they evolve an extraordinary rate. No longer are we caught into the aerospace days of multiyear programs and platforms that are frozen in design for 10 years at a time. Now we have technology that iterates at the rate of 30 to 90 days. So I want you to think about that for a minute. That means that if a government was to stockpile these vehicles, that it's very possible that if they were stockpiled for any length of time that their effectiveness could be somewhat compromised. So that creates a really unique demand on manufacturing. So the way we look at it, manufacturing has to be able to accomplish 3 things: To meet the stated interest of the Commander of the Army, they need to flood the Army with drones so that our soldiers can actually perfect their operating techniques. In Ukraine, for example, we talk about the technologies. But the truth of the matter is one of the things that makes Ukraine unique is not so much the technologies, which certainly iterate at an incredible rate with extraordinarily resourceful people. but the operators. So think of the drone like the hammer and they've got extraordinary carpenters. So we need to get drones into the hands of our soldiers so that they can perfect their concept of operations and their doctrine. But then ultimately, the period where we hopefully have minimal conflict, you've got somewhat of a low rate production. But the Army Commander's statement to me was very clear. The idea, his perfect world is to be able to -- I'm going to use makeup numbers here just for illustration only. We need to be able to order 10,000 drones to be able to equip our forces. And then at the push of a button, we have to be able to create 10,000 a month. And really, that's in a scalable, adaptable framework because presumably, there's multiple types of drones that have to be produced and the quantities of a type would be dependent on the environment that they're required. So that means that manufacturing itself has to become a strategic capability. And it's a huge reason that Volatus is really leaning hard into this activity because under the leadership of our Executive Vice President, Luke Masse, who's got extensive manufacturing experience and the team that he's developing there, we're actually preparing for just that. So low-volume production on our larger systems, which are, let's call them, semi-attributable or somewhat long-term platforms, and then rapid manufacturing and rapid scalability for our smaller attributable systems or the consumable items that oftentimes get abandoned on the battlefield, even the soldiers, right? They use them to take a peak and then sometimes they're busy and those drones are no longer there. So those are some key considerations, but there's one more. Iteration has to be almost real time. So those that follow us on social media will find that we're posting a fair number of job applications these days. We're looking for people that want to get involved in a very exciting environment to continuously iterate. The concept is that we don't want to respond to change from threat actors. We want to be in a position to actually be the change makers. And realistically, by the way, that was a quote from our Chief Technology Officer. That's what drives him every single day. The next part of that, though, is as you integrate changes in times of conflict, we need to be able to iterate in near real time, which means feedback from the field or from the operations or commercial operations for that matter, has to feed into engineering and changes have to be incorporated into production in almost near real time, which actually means training has to adapt at the same pace. It might be as simple as notices to go out to the operators or changes in our training system depending on what the change is, which is largely why our moderator today, who heads up our global training strategy, Danielle, is actually relocating from Portland, Maine up to the facility in Mirabel so that she can be closer to where those change happen. So we consider this initiative to be very, very key in terms of creating this advanced scalable adaptable, scalable manufacturing system. And as many of you that are familiar with our efforts and our lobby activities recently know, we're spending an awful lot of time advocating at federal levels on multiple areas of the government, not just the military, but the strategic funding organizations and the bureaucracy and the ministries themselves. So the concept, which is really a shared risk concept with the government is being well received. Now when will we see orders from that? I think we're back to many of the dollar values you'll see invested in the Canadian industry this year will be more not from the $80 billion demand signal for procurement, but more from the $6 billion that are being allocated for investment into building defense capabilities. And I want to stress the point that Canada has underinvested in our military for 3 decades. That means because Canada and bought 70% of our defense procurement from somewhere other than Canada. The reality is the investment in our defense industry is critically important for our sovereignty. It's also important for our economic independence. This is not -- as I was in the United States this week, somebody asked me if I felt that the policy was anti-American, I don't believe that at all. As a matter of fact, I think this is exactly what the U.S. administration was looking for when it comes to the defense community. That's distributed capability where sovereign nations can share the burden of producing mass quantities during times of instability. And basically, if you do the math, the investment in Canada in the past, we bought 30% in Canada and 70% from somewhere else. we're about to flip that. So the government has mandated 70% in Canada, which means 30% is somewhere else. And if you look at the increase in defense spending, the amount we'll be spending with other nations, predominantly the United States, expectedly, will be similar to what we've done in the past. The difference is the growth will occur in the Canadian market, which means we're employing Canadian workers, paying Canadian tax, buying Canadian homes, impacting our own GDP. And even from a defense standpoint, an increase in GDP because of how defense spending is committed for NATO means an increase in defense spending. So I know I've carried that a little bit long, but I'm going to pass that back to Danielle now, and we'll open the line for questions.

Thank you, Glen. I think that sets the stage up nicely for several questions to follow on. So in regards to how quickly the field of drones counter drone measures develop in Ukraine, we are seeing time of technical development being measured in weeks. What is your plan for to scale your company to get ahead of the competition in regards to developing construction drones and counter drone measures at scale while also consistently updating and upgrading the software of your merchandise. How do you intend to develop and secure your business supply chain to maintain ability to meet customer demand?

It's tough to not acknowledge supply chain. There's a lot to unpack in that question. I'm going to start out with the last easiest one to remember. But if you look at it, we had $4.5 million of committed orders for Q1 of this year. And to be quite candid, the challenge was the delivery of batteries. So we had a supply chain problem, which has now been resolved. But nonetheless, it's a supply chain problem that we had no capability to resolve in a rapid way. Now fortunately, that's -- we're not the only people that have faced that challenge. It's been hugely disruptive, particularly in the United States. Companies are like, for example, unusual machines is stepping up to the plate and building as fast as they can to offset that in the United States. And we're working very hard with our partners in Canada and also investigating potential requirements to invest in supply chain ourselves, where we can't actually secure a relationship with a trusted partner, a supply chain partner in Canada, then we would look towards next potentially investing in that capability ourselves. And of course, the next part of that falls under the build partner buy framework, which is partnering with our allied partners. There are some things that we think will happen over the next little while that will actually give more clarity as to where those investments need to happen. But I think a key part to identify here is there's a lot of moving pieces. We're attending -- as a matter of fact, Abhi was a guest speaker today at Dentons had a defense finance event. We were also at a Policy Insights Forum event last week on defense finance. So we're actively engaged with everybody from the Defense Investment Agency to the DSRB, the Defense and Security Resilience Bank with BDC, EDC and the various IRAP, ISE and all of the CD, basically, all of the agencies, which are now coming together to create the capital stack that's necessary to move forward. A lot of this is being driven by -- if you listen to, for example, BDC, they refer to their primary shareholder and the mandate of their primary shareholder, which is Canadian government, which is the investment in defense and defense capabilities. So there's a lot of money being made available, some of it through interest-free loans, through nondilutive financing grants and other programs. And this is -- it's impossible to tell everybody exactly how this map fits together because it's evolving in real time. Last week, we learned that the Defense Investment Agency. There was a thought leadership piece that we put out that basically described the fact that the DIA is currently operating under PSPC, which is basically the federal government procurement, but legislation is now progressing through government, which will actually have that step out stand-alone and some additional legislation that's going to allow them to eliminate a lot of the bureaucracy and move faster. But the reality is that hasn't happened yet. They are managing programs as the DIA, but they're doing it within the PSPC framework in Ottawa. So it's getting better because people are focused on it and the government's drive is to get this done. And I think at this moment in time, most Canadians drive is to get this done because we're not just talking about our defense of the Arctic and our contributions to NATO, but our economic independence as well. So that's actually how we're approaching it. In terms of the manufacturing, when we raised the capital before Christmas, this was actually part of our plan, right? We went out and we raised, I believe, $26 million, thanks to Abhi's hard work. And with that, that positioned us so that we could move forward and be ahead of the rest of the world on the manufacturing capabilities. And we've been continuously -- I mean, we've had the government actually tour our facilities several times in the last 2 months as we progress. There's a lot of interest in what we're doing. We're certainly feeling strong support, and I expect that, that will continue. But in terms of defense procurement, what you're going to see happen in the near term is investment in the defense industry, the industrial development in Canada for the defense industry. And the second thing of that will be basically government procuring small quantity systems to try them because remember, Canada is not in a situation where we have to deploy the equipment immediately. So they go back through, they have to qualify the equipment to make sure that the investments are sound and doing what responsible governments need to do or more responsible defense organizations. So I think you're going to see that you'll see progress this year for sure. A lot of the orders we expect to continue developing will likely still be for product that's sold outside of Canada to other NATO nations, while Canada continues to develop its capability and invest in our infrastructure here. I think you're going to start seeing more orders possibly late this year, but likely the Canadian orders will start drifting into 2027. And that would be my best guess to be clear, because nobody knows for sure. There's a lot of moving pieces. Everybody is moving in a positive direction. There's an enormous amount of energy in the finance communities. If you look at the DSRB now being stationed in Canada, a notable point there, every Canadian major bank signed on. So we have things happening in Canada. This is an incredible time, probably once in a generation. Could I answer that one?

Sure, Glen. That was very well done. Moving out of the defense space, we have a question that said, have you started the execution on the multiyear agreement with one of the largest utility energy companies. This is announcement we had. What is -- and can you provide any additional information about size, scope of that particular opportunity?

So size and scope, we can't actually do that yet because it's progressively let with -- basically as the work packages come out of the come out of the customer, we execute on those work packages. And to be honest with you, it's -- I'm going to stick my neck out here and tell you that the work packages are being executed in the province of Ontario. So there you go. And have we started? Yes, we have. Do we know what the total revenue will be this year? We do not. The activities have actually begun, I think, within the last probably, I'm going to say, 4 or 5 weeks, which is not really all that surprising given that the snow just left the ground and many of these activities are -- they require something less than frigid temperatures and 2 feet of snow.

The winter won't quit. What can we expect for the next quarters, this one for you. Do you expect to be adjusted EBITDA positive fiscal year 2026? And if not, why?

So as we move through the balance of 2026, we expect the next few quarters to reflect a materially different operating profile than Q1. A number of defense ISR-related activities and deliveries that have shifted out of Q1 have already started to deliver in Q2. We expect the entire $4.5 million to get delivered in Q2 right now. We have already started delivering since April. And of course, from the margin perspective, as the product margin -- as the product portfolio changes, the margin profile will also change. On adjusted EBITDA basis, we generally don't formally guide to a specific time line to full year adjusted EBITDA. But what I would say is 2026 remains a year where we are scaling and investing heavily around R&D, manufacturing and building the autonomy layer right now. Some of those investments were visible in Q1. They will be visible in the upcoming quarter as well. But as the revenue has started to scale starting Q2, I think the adjusted EBITDA profile will be much more different and improved compared to what we have seen in Q1.

If I can just introduce something, Danielle. One of the key things to think about right now, the defense industrial strategy is quite new, obviously. We're into it for a few months, and things are moving very, very quickly. So it's an environment that requires agility agility in terms of our investment, our product development and so on. Volatus' positioning right now, I'm going to be so bold as to tell you that our goal is to be named one of the Canadian champions, particularly in the area of autonomy and remotely piloted aircraft systems. We are working very hard to do that because we believe that this is a once-in-a-generation opportunity to dramatically improve the competitive position of the company and our scale, not just within the Canadian market. And one of the things I want to make clear is we don't view this as a solely Canadian initiative. The challenge with export to NATO nations is if the Canadian government doesn't buy from a Canadian company, why would Germany buy from a Canadian company. As Canada invests in the defense industry, makes investments in companies directly or indirectly and moves forward with their plan, it becomes easier and easier to represent your technologies to foreign governments, which is, in fact, or allied nations, I guess, I should say, which is particularly important because that's also one of the goals of the defense industrial strategy. So we're following that multipronged approach. But quite frankly, our focus right now is on seizing the opportunity, and it's moving as fast as we can possibly do. I also want to tell you, I am -- I think we, as a company, need to do a better job communicating, particularly with a lot of the developments in our technology. We have to do a better job communicating with our stakeholders, with our investors, with my partners, all of our shareholders. I'm a large shareholder, so they're my partners, everybody listening here. But here's what I will say. We hired a new Vice President of Corporate Affairs and Strategic Positioning, Christina Davis, who has an extensive background in the defense community, including with some major prime contractors. And one of the things that she's driving us towards now is more efficient communications. So for those that want to be kept up to date regularly with our technology updates and a little bit more live from quarterly updates or you will notice that our press release volumes will start to decline a little bit because I think as we transition into a more mature company, we want to make sure that our press releases are always meaningful. That doesn't mean that we want to communicate less. What it means is we need to communicate differently. And if you haven't signed up on our Investor Relations page, please go to our Investor Relations page on our website. Forgive us some of you that where we've integrated more than one of the companies we bought, you may be getting more than one e-mail. All you need to do is respond to that, and we'll clean it up immediately. But in the meantime, our goal over the next few months is to transition into a more proactive communication posture with our stakeholders that are interested in receiving it and make sure that our use of print media and digital media is other than LinkedIn, for example, and the other social media channels is more tightly disciplined. And the goal is to make sure that when we make an announcement that it doesn't get lost in the noise. So again, not communicating less. As a matter of fact, it could quite very well be communicating more, but communicating differently. So I encourage anyone that wants to get those updates to go to our website and sign up as well., it's a major initiative for her, and I fully support it.

Speaking of updates on all of the technologies that we are getting involved in. There are a number of questions revolving around our partnership with Sentinel. Where are we with the Mirabel facility? And will there be an opening? And where are we on our V-Series and when is flight testing scheduled to start?

All great questions. So first, we'll start with the facility. Frankly, we had hoped to publish the date right now for the opening. And to be honest with you, it has nothing to do with the facility. It has to do with the minister that we've invited to open the facility and coordinating around the parliament getting out for the summer basically. So it's probably going to be somewhere between the 19th and the 22nd of June. We will put that out in that newsletter. And -- but in the meantime, getting back to the first part of that activity, I want to talk about the Sentinel R&D. So Sentinel is a really interesting company. We're quite excited to work with them. They have the Interceptor platform is what we partnered on. It's a great technology. What they were lacking was the ability to scale manufacturing and more importantly, immediately. I mean, ultimately, they'll build out their capability. But their long-term strategy is producing composite parts. That's their real claim to fame. As a matter of fact, they are producing the tooling for the V100 series aircraft right now. They'll be producing the first parts for those aircraft. And we are expecting to have an aircraft, if not fully assembled, near assembled by the time we open the facility in June. We have a retail display unit right now, which was one of the original aircraft that we chose not to put back into a test program. Our goal is to introduce the test program on the V100, that will happen kind of summertime. If I have my way a little sooner, if the timing gods have their way, maybe it will be a little later in the summer, but our goal is to be flying the aircraft this summer. And the V200 will go right in -- follow right behind that. The goal is to kind of introduce them one platform at a time kind of in 3-month divisions between the 3 primary platforms as we ramp them up. But the -- we're hoping to showcase that at the facility opening and frankly, we'll make sure that we communicate the progress on all of those platforms as we move forward with our new e-mail distribution, our electronic updates. The other thing I do want to mention is the Sentinel R&D. We have, I believe, 10 airframes in our facility right now. So the Sentinel dock production line is now at a slow rate. We're stabilizing the rate on that production. The Recon platform, we're waiting for the initial parts order to arrive from the supply chain, and we're expecting that, that production line will be the second one that starts ramping up. And it should be in early-stage production by the time we open the facility. So those are happening pretty quickly.

Can you also speak to SKYDRA? A gentleman, Greg has asked, I appreciate it's too early to talk about commercial traction, but can you expand a little on the platform, how it's differentiated and any client feedback that you've received so far?

So I'm going to make this one really good because the person that can probably answer that the best is our Head of Global Training Strategy. So Danielle, do you want to take that question?

Sure. So this platform is -- wait to put me on the spot. This platform this platform, it sits in a different space than some of the other counter UAS platforms where they're working on in the field introdiction or in the field detection of drones that are either clueless, careless, criminal combatant. And where we're focused on is actually setting up the skill set, the knowledge base and the testing scenarios that individual groups need to be able to run in order to understand how -- when a real scenario comes along, how they're going to respond how they're going to enact their response and how to develop real policy around what they're going to respond. Not everyone can respond in the same way. Not everyone can -- not every scenario needs to be -- it has the same reaction. So this helps to understand the sky where people are located and to be able to table game that scenario multiple times over so that they can understand exactly how they're going to respond in various situations. Hopefully, that was a good answer, but I can certainly expand. You did well, but you missed the opportunity to plug your training program, which is...

Yes. Yes. So we have -- one of the things that's interesting in Canada is in Canada right now, we have a detect and report environment. It's actually not legal to interrupt or interfere with an aircraft in flight and even small drones, they are considered aircraft. So the only 2 bodies that can do that legally currently are the Royal Canadian Mounted Police and the Canadian Armed Forces. There's a regulatory shift that's happening that's going to create a different environment where our trusted partners can actually introduce that service. And Volatus has a seminar series that's coming up, I believe, in June that you can probably access through our website that Danielle's team have been putting together. We're pretty excited about that. It will help people understand what's happening there.

That will be on June 11. It's counter-UAS. I can share that link if you are interested. Also, please reach out to us, and we can get you into that program. Okay. Next question. So you hired the Germany-based Investor Relations and capital markets firm. Can you please provide some color around this contract?

Yes, I can share. So the engagement is part of our broader effort to continue the expanding Volatus institutional visibility and capital market presence following the graduation to Europe, particularly Germany, has historically been an important market in terms of aerospace, defense and advanced autonomous technology, including the existing shareholder base and the trading presence in transfer listing. So it's not just an IR strategy, but also an outreach strategy in terms of developing more business and finding as Canada become part of the SAFE, working more closely with NATO and NATO allies. And that's the reason we have partnered with the IR firm in Germany.

Great. Can you please provide an update on the BOREALIS project?

I actually can't, Danielle, because unfortunately, that's being managed under Rob Walker, and I probably should have got an update prior to this call, but I did not. So if the person that posed the question wants to bounce us an e-mail on that, I'd be happy to make sure that we get a response for that quickly.

That can be at [email protected] or [email protected]. So cash declined by approximately $9.4 million this quarter. What run rate of cash burn should we expect for Q2 through Q4 2026? And does Q1 reflect a onetime peak in investment, TSX graduation marketing, et cetera? Or is this a new structural level?

I would caution against simply annualizing the Q1 cash movement as the quarter included a combination of working capital timing impacts. For example, we made early investment in fulfilling the order for the $4.5 million defense contract, but the contract has shifted to Q2, but the cash started getting consuming in Q1. There were several strategic investment initiatives as well, which are not repeated in nature on a quarter-on-quarter basis that were made in Q1. TSX graduation happened. We started expand and work more closely with NATO officials and allies and into defense positioning. So those business development activity also happened in Q1, including the higher R&D spend across V-Cortex, Condor XL and also the development of our Counter U.S. software system. So I would say it's a one-off quarter where we made CapEx investment in working capital and R&D. From a forward-looking standpoint, we do expect operating cash utilization to improve relative to Q1. That said, we do expect 2026 to remain an active year of investment, particularly around defense infrastructure because when we look at the defense contract, defense contracts generally follow infrastructure establishment, capability and capacity buildup and not the other way around. So we have to make those cautious investments now so that the procurement cycle aligns with those investments. We cannot make this investment after we get procurement cycle because it generally doesn't work that way. So it's a one-off quarter, and we do expect the position to change on quarter-on-quarter.

I'll add a couple of things to that, Danielle. One of the things that we've done, it ties in with our -- with the German firm that was questioned earlier. It ties in with the hiring of a new Vice President to look after communications, improve our communications and strategic positioning. It includes our -- we've hired a position to deal with nondilutive financing and strategic partnering with government departments and so on. We've also engaged 2 different IR firms, one of them very much focused on government and the political apparatus and the bureaucracy and the other one focused specifically on defense, David Pratt & Associates is focused on defense. Barrick Hill is very much focused on the government connections. Those investments right now are all associated with my original comment where we are working hard to position the company as a Canadian industrial champion. And we are -- it's every -- no holds bar, everything we can do to do that. The other thing I want to say is the strategy, there's a number of things that have happened on our capital markets hygiene that we've touched on it. We didn't talk about it in our presentation, but it was there. We filed a $250 million base shelf, which allows us flexibility in the future. We did that after raising capital. So we had capital on our balance sheet. We felt it was the most appropriate time to do it, positioning for requirements before we had them. As many of you know, we had working capital constraints previously. And realistically, defense spending could go much faster than most people expect. So the graduation to the Toronto Stock Exchange, the introduction of the base shelf, the Investor Relations outreach. It's really an outreach campaign, as Abhi mentioned. I'll give you an example. We've been spending time continuously in institutional non-deal-related visits to promote the company, tell our story so that institutions become more aware of the company. And of course, if they get interested in positioning in defense, which many institutions are doing right now, it's our hope that they'll buy in the market, and that will help support it. But a lot of this positioning is literally creating optionality for the company.

And can we expand a little bit more on the question? Can we expect margins to continue this trend over the next few quarters? Or how can we think about the margin trajectory moving forward?

Do you want me to touch that or are you going to take it?

I can take it. We've been very encouraged with the Q1 margin performance of the company, given how it has expanded given the soft quarter. However, the 35% margin is a continued progress towards improving the quality of services segment, but also because of the mix of the business. Going forward, we do expect margin to fluctuate quarter-on-quarter basis, depending more on the revenue composition, equipment sales versus higher-margin services training and as the software kicks in as well. So equipment heavy quarters can naturally compress some part of the margin. which are also being compensated with add-on defense program sustainment revenue and software as we are launching them, which by default have much higher margin profile compared to even services.

Are you active in any M&A opportunities that you can share?

We have done 20 M&As in the past, at least to say we would not do any more. We are active in M&A. There are different files we keep exploring. The key aspect is being commercial or in defense segment, we are looking at very strategic opportunities that not just bring us additional geographic access or access to better technology, but also are accretive that comes with revenue, EBITDA profile, government contracts and new relationship with the customers. So those are the typical criteria with which we are going after the M&A opportunities. As of this point, the opportunities are still at the nascent stage. And as we progress, we'll make necessary disclosures from the market.

So when is the stock consolidation expected to happen and at what ratio?

I'll take that one. And Danielle, I'm going to ask -- I know we're coming up on an hour, but we've got a lot of questions. I think they're meaningful. If people need to drop off, please send us your questions. Abhi, you have any objection if we extend for another 15 minutes. Okay. I think we should extend it, Danielle. And that way, we can go through that. So the question was about stock consolidation. Again, the key word I'm going to use there is optionality. Abby has crafted a very careful capital market strategy. For those that don't know, when you look at our capital markets activities over the last 2 years, People have said, why did you do so many raises? Well, what I'd like to point out is we did small raises, the next raise was higher, the next raise was higher, the next raise was higher, and it actually contributed to improving the company's cash position. At the same time, it actually helped with our stock price. It's been very strategic leading right up to our last raise, which was at $0.60 with no warrants, a very clean transaction. And what we said we were going to do at that point was create optionality. So do we have a need to consolidate the stock tomorrow other than the very fact that it always comes up in discussions, are we looking at it? I'd love to never answer that question again. But no, we don't actually have to do that. But on the TSX, the benefit of having a stock price up over, I believe, the number is $3 -- it means it opens the stock to index inclusion, ETF and also potentially margin accounts. So again, we've got reasonable liquidity right now, and we can always be better. But at the end of the day, it creates optionality. So what we wanted to do is, again, do it while the market was not going to respond badly. They know our cash reserves are adequate if -- but it puts us in a position to do that. So do we have a target to do it right now? There's no set date. It will be done if and when at a time our Board of Directors determines that it's in the best interest of the company to do it. And one point that I want to make for anybody that talks about this, Volatus has a unique cap table. We still have 21% of the company held by insiders. I'm one of the bigger stock shareholders. And remember, anything that happens to the company affects me disproportionately. So the thoughts when we make decisions on these things, they're very considered. We're doing our -- as a fiduciary, we make decisions that are in the best interest of the company, but the best interest of the company, in this particular case, we're all shareholders. I mean every employee in Volatus Aerospace that's a full-time employee is, in fact, a shareholder in the company. And so these decisions will be taken at the right time. And it's literally been considered institutional hygiene.

So how likely is the implementation of the reverse split, assuming it is approved at the shareholder meeting?

So I mean, at some point, we have a broad cap table. And if you remember, our cap table was driven initially to a large level by the reverse merger we did with Drone Delivery Canada, where they had north of 250 million shares. Volatus was about 135 million, but it was a merger of equals, which resulted in a share count of well over 0.5 million, I think, 550 million shares after that. Arguably, if I had it to do all over again, maybe you'd sit back and look at it and say we should have done a consolidation at that point. We didn't. It's likely that we will do one day, but it will likely be centered around some kind of a catalyst that makes sense. What you don't want to do, we are not bound on TSX for having a $1 stock price. We would certainly strive to achieve our analyst expectations, which would put the stock price at $1 or north. north of $1. But at the end of the day, we're not forced into doing anything. So again, is it likely to happen? I won't say no. But I can tell you at this moment in time, there certainly isn't a date in the calendar to do that nor for that matter, we need to get by our general meeting, our AGM before the Board even is granted that authority to be able to make that decision.

And can you walk us through the procurement sales cycle of government defense contracts, key phases, time lines from initial engagement to actual revenues? And are you seeing that these time lines compress given the urgency with government currently? Or do you anticipate it compressing? And is there any differences between Europe versus Canada?

So I can't comment as much on Europe. We're actually selling more product in other parts of the world than we are in Canada right now, but that has to do with the maturity of the procurement systems and where we are. I don't think anybody can accurately lay out a time line. So I'm going to give you our perspective on what we're seeing. The Defense Investment Agency is, in fact, I had an opportunity to speak directly with the CEO, Doug Guzman, and he made the point that Defense Investment Agency and Defense Procurement Agency are basically the same thing, right? So they will be, once they're stood up on their own, the procurement agency for the Canadian military. How quickly will that happen? I know that their stakeholder, the Canadian government, the Prime Minister and cabinet have mandated this to happen as fast as possible. And given the current status of the government, it's reasonable to assume things will move quickly. But they need some enabling legislation like reducing the $100 million floor, also providing some reduction in the bureaucracy to allow ministerial approval when it's in the nation's best interest. My personal feeling, and this is based on an awful lot of meetings in Ottawa that are being generated by our government relations firms is that they are moving quickly. And many of those changes are most definitely this year. And my hope -- and I say hope because I can't tell you that this has credibility beyond my feeling from the feedback we're getting is that many of these changes will happen in the next few months. It could be into the fall, but I know that the government -- the Prime Minister has put a huge urgency on it, and we need it as Canadians. So I do think you're going to start seeing, first of all, a lot more investment. We're seeing that now. There are actually challenges out. You have much more engagement with IRAP and CED and other government agencies that are there to execute on the Prime Minister's direction. We've had opportunity to speak to all of the major banks, and we're talking at the level of CEO for BDC, these people are becoming available sometimes in roundtables and more intimate settings where we get a chance to actually talk about it. So things are moving quickly. But in terms of when do we expect orders back to the original point I mentioned earlier this year, I think we may see some traction in 2026, but I think you'll see more material traction in 2027. And we are expecting that the DSRB will be online by then, which is also going to reinforce the available capital for a lot of these procurement activities.

Can you give us an update on the Condor XL's commercialization and launch for sale? And will that be manufactured in Canada?

So the Condor -- remember, the Condor is a platform that was developed off of a piloted aircraft. And there's a few of those being done right now. Robinson helicopters, we run a fleet of those. They're actually working on autonomy programs on helicopters like that. Those are much more expensive platforms. We're obviously monitoring those closely. But I think there will likely be a variant of that platform that's manufactured in Canada. A lot of that will depend on the demand signals that we see out of KASA and through some of the facility tours that we have going right now. We expect that aircraft to fly sometime in the next few months. They're actually installing all of the flight control software and the autopilot systems in the first test article, and we have 2 aircraft, one that will be on display in and one that will be on display in our manufacturing facility as well. So ultimately, we do expect to have demand. It has a place. We've seen demand for the machine, but it will likely be an iteration of that one that has a higher level of Canadian content.

What is the status on the potential NASDAQ IPO and estimated time line?

So believe, we get asked that question often. The reality is NASDAQ is a continuous point because, of course, there's increased U.S. liquidity. Access to capital is far greater there. There's a whole bunch of arguments for that. It's also, just to give you an idea, more than $1 million a year an increase in our D&O insurance. And of course, if we don't handle it correctly, it's not necessarily a positive event. You can end up being orphaned and playing defense. So the last thing, we have something going on in Canada that hasn't happened before. Canadian institutions that have traditionally pension funds and so on that have invested heavily outside of Canada before are now taking a really serious look at Canada because we now have a long-term industrial strategy that's also got the priorities named, the funds allocated and approved through the budget and a buy Canadian priority. So that's creating a lot of emphasis. So it's not one of those things going to NASDAQ is always one of those things, boy, that might be really good, but it could not be really good. Again, optionality. We get set so that we have the ability to move like that. We do keep ourselves in front of U.S. institutions, but there's an awful lot going on right here in Canada right now.

So we have -- a lot of the questions have been answered around a number of these. They often stick with very similar topics. So have you promoted your ISR service to any North American as?

We continuously promote it. So we have a very, very large sales team based in Canada, the United States and the U.K. From an ISR standpoint, yes, we have. We have made unsolicited proposals right from the very beginning of the -- of some of the geopolitical tensions in North America for border surveillance activities. We're actively involved in training the Canadian Rangers. As a matter of fact, for those that follow us on LinkedIn, you probably saw Matt Johnson conducting a 3-week training program with the University of Jamaica down in Jamaica. He got home for 3 days and headed for Yellowknife. So a lot going on in that space right now. But again, a lot of what's going on is part of the government reconfiguring itself. The Canadian military is engaged through programs like Minerva, where we have monthly meetings, on-site meetings, sometimes more frequently than that, where we have active engagement where we're -- the defense community, the Army is helping us understand their challenge and in fact, helping them define their problem statement to some degree and then also working towards helping them define the solutions that they think that they need. So that's ongoing. It's moving very quickly. This is not a slow process. It's not a traditional made in Canada, will it won it. I think people in general are now starting to have real faith that this is happening, including inside of the cap. It's no longer just a process. Things are moving. And -- but again, timing is tough because everything is new. This has never happened before. This entire geopolitical shift has never happened. It's a once-in-a-generation thing, and we're living it in real time.

When you look at your -- the V fleet drones that you're looking to manufacture, who -- what is the customer profile for that? Who will be your first customers?

So I think on the V100, we'll likely be our own first customer because we have opportunities to deploy that in long linear inspections, of which we do about 1.7 million kilometers a year of just pipeline. So on that one, being able to put that technology into service and prove it out makes that actually even easier to sell. The V200 and V300 platforms, they're part of a -- we have an internal project called Polar Bear, which is our catchall for all things Arctic dealing with all of the technical and operational challenges associated with the Arctic. Both of those aircraft are powered by heavy fuel engines. So they are closest to being Arctic capable. Our objective right now is to position them for deployment in the Arctic. That said, we have got active interest from other allied governments that are closely monitoring what we're doing. I think we'll be able to start seeing more visibility as the flight test program launches, but there's a lot of interest in the platforms right now.

I don't think I've missed any of the other questions. So if I've missed your question and you are looking to get an answer, please feel free to e-mail us at Investor Relations. volatusaerospace.com. I'm going to wrap this call up with just a quick roundtable as I always do, Abhi. And Glen, can -- we've talked a lot about different things. What are some last thoughts you'd like to leave everyone with?

So I'll start because that's what generally happens. So from a -- the key point is from the strategic point of view, we believe that Volatus today is significantly more institutionally positioned than it was ever and especially than it was 6 months ago. with sovereign manufacturing capabilities, proprietary platforms being built around defense, recurring software opportunities, growing defense exposure and a capital structure with the exchange profile aligned very well with the growth profile of the company. We remain focused on disciplined execution, improving and expanding the margins and converting our pipeline and backlog that we have been building on a sustainable revenue growth basis throughout 2026.

For me, I'm going to hit 2 points, Danielle. One, all I had talked about today was defense. But it's important for people to remember that defense still represents about 25% of the Lattice business. Our primary business remains in the industrial commercial space. Basically, if I had to sum it up on an elevator, pipeline, power line, pipeline, power line and defense would probably be the biggest drivers of our revenues. So we're a company that operates on 2 parallel growth engines. Our foundational growth engine is commercial. That's power utilities infrastructure, public safety, for example. And our growth is layered on top of that in the defense area. A lot of the aircraft, if you imagine from a dual-use standpoint, we talk about an aircraft that's capable of flying 10,000 kilometers of border, it's capable of doing 10,000 kilometers of pipeline. It's a matter, it's when we're dealing with them in an ISR environment, particularly, it's collecting data. So data is -- it's what we do with the data that's different, not necessarily the concept of operations. So I think one thing is particularly focused around the fact we are a dual-use company. And despite the fact we're talking about defense, understand that our focus -- well, my focus is very heavy on defense right now because it's our -- it's the newest area. There's a lot of moving parts. Our company continues to focus on growth in the civil industrial side. So that's a key point. The second thing I'd like to say is this is a transformational moment for Canada. This is a time that the Canadians at large need to get behind this defense industrial strategy. We are doing everything we possibly can to become the recognized or one of the recognized Canadian champions. We think we're very well positioned for that. And we're certainly working over time to get recognition at the government and CAF level. But I do want to say that, that doesn't diminish our significance in terms of our growth in international markets. Canada is our industrial anchor and the global markets are our scale. So that's an important point, and that's what I would leave with everybody. Thank you all for your ongoing support of Volatus Aerospace. I hope we've been able to answer questions. I'm very grateful for the -- well, almost 100 people that remained online way past time, and thanks for your ongoing support.

Thank you. And just a reminder that everything will be available online within 24 hours. So if you missed any part of this, feel free to check back there to catch this recording. Thank you, everyone.

Thanks. Bye.