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Red Cat Holdings, Inc. (RYTM) Q3 2023 Earnings Call Transcript

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Rhythm Pharmaceuticals, Inc. (RYTM) Q3 2023 Earnings Conference Call March 7, 2023 8:30 AM ET

Company Participants

Scott Gordon - CoreIR Investor Relations

Jeff Thompson - Chief Executive Officer

Joseph Hernon - Chief Financial Officer

Conference Call Participants

Operator

Ladies and gentlemen, convey you for opinionated by. Good morning, and invited to nan Red Cat Holdings Fiscal 2023 Third Quarter Financial Results and Corporate Update Conference Call. At this time, each participants are successful a listen-only mode. [Operator Instructions] After today's presentation, location will beryllium an opportunity to inquire questions. [Operator Instructions]

Participants of this telephone are advised that nan audio of this convention telephone is being broadcast unrecorded complete nan Internet and is besides being recorded for playback purposes. A webcast replay of nan telephone will beryllium disposable astir 1 hr aft nan extremity of nan telephone done June 7, 2023.

I would now for illustration to move nan telephone complete to Scott Gordon, President of CoreIR, nan company's Investor Relations firm. Please spell ahead.

Scott Gordon

Thank you, Kate. Good morning, everyone. Thank you for joining america connected nan Red Cat Holdings fiscal 2023 3rd 4th financial results and firm update convention call.

Joining america coming from Red Cat Holdings are Jeff Thompson, Chief Executive Officer; and Joseph Hernon, Chief Financial Officer.

During this call, guidance will beryllium making forward-looking statements including statements that reside Red Cat’s expectations for early capacity aliases operational results. Forward-looking statements impact risks and different factors that whitethorn origin existent results to disagree materially from those statements. For much accusation astir these risks, please mention to nan consequence factors described successful Red Cat’s astir precocious revenge periodic reports connected Form 10-K, Form 10-Q and successful Red Cat’s property merchandise that accompanies this call, peculiarly nan cautionary statements successful it. The contented of this telephone contains time-sensitive accusation that is meticulous only arsenic of today, March 7, 2023. Except arsenic required by law, Red Cat disclaims immoderate responsibility to publically update aliases revise immoderate accusation to bespeak events aliases circumstances that hap aft this call.

It is now my pleasance to move nan telephone over to Jeff Thompson, Chief Executive Officer. Jeff, please spell ahead.

Jeff Thompson

Great. Thank you. Welcome to our fiscal twelvemonth 2023 3rd 4th net convention call. I'm going to support my prepared remarks little arsenic I was conscionable told, we person rather a fewer email questions. So let's get immoderate housekeeping retired of nan way, and I'll commencement pinch nan position of nan waste of nan user division. Unusual Machines is expected to person its IPO later this period aliases early April. And that would origin nan closing of this deal. And nan proxy now has -- nan voting proxy now has a quorum and we shed those results connected nan ballot very soon.

As a reminder, nan waste of nan user section will beryllium non-dilutive arena and will raise rate for Red Cat. It let america to attraction connected our halfway customers: nan subject and first responders. The Salt Lake City mill is complete and fresh to go. We now person a state-of-the creation grown factory. We person chips to make thousands of drones, and we're only producing nan caller Teal 2 drone pinch nan caller camera payload. The Teal squad has done an unthinkable occupation completing this successful conscionable 12 months. We now person nan capacity to nutrient thousands of drones per month.

Let's move gears and talk astir Tranche 2 aliases Short Range Reconnaissance, SRR, programme of record. As I antecedently mentioned, Tranche 3 has been pushed into Tranche 2. And we will person much costs from nan Army to see these caller features into Tranche 2. We do not cognize nan size of nan awards yet, but should hap successful nan adjacent mates of months.

Next up is Border Patrol. We made our first shipment to nan Border Patrol for 54 systems successful mid-January. This was only a fewer weeks aft accumulation started connected nan caller Teal 2. We judge there's a important opportunity for further orders this almanac twelvemonth and are very encouraged by nan feedback from nan Border Patrol.

On to Skypersonic, wherever I americium now. Skypersonic, our indoor drone section has 2 important opportunities coming out. One is simply a Navy SBIR, we telephone it, aliases Small Business Innovation Research task for compact aerial inspection systems and for elevated and mini spaces. This is simply a Navy SBIR, arsenic I conscionable mentioned. The programme matches nan Skycopter perfectly, and this is being really submitted tomorrow, March 8. And we're hoping to get into different programme done Skypersonic.

The 2nd is nan Drone Infrastructure Inspection Grant Act. This is simply a bipartisan assistance for $100 cardinal that is expected to walk nan Senate soon and has already passed nan House. We besides judge we are good positioned to beryllium portion of this grant.

So I americium doing this telephone from Torino, Italy. This is wherever Skypersonic agency is, and we are co-located successful nan Leonardo campus. Leonardo is simply a ample Italian defense contractor. In Torino, past week, we were invited to nan Diana NATO [BOD] (ph) meeting. And 1 of nan goals of this statement is to present mini companies to governments that request defense products. We had awesome introductions and we were only 1 of 2 presenters. The erstwhile 2 weeks myself and nan business improvement squad person been to astatine slightest 5 different countries. We judge it's been a very successful travel and nan Teal 2 drone is getting a awesome consequence from operators and much fighters.

We besides received first orders and we judge we are good positioned to beryllium awarded a sole root statement for hundreds of drones. Red Cat besides became certified successful nan European state to beryllium included successful their defense catalog, breaking nan log jam to beryllium capable to waste to these European countries. And finally, we person identified opportunities to get nan caller Teal 2 to nan Ukrainian warfighters and I will reside that successful a small spot much item successful nan Q&A.

In summary, earlier I manus nan telephone complete to Joseph, we person completed a caller authorities of nan creation mill successful Salt Lake City, pinch spot supplies to build thousands of drones. We person nan champion successful people drone successful awesome consequence from nan market, mostly military, and recently, arsenic successful yesterday, first responders. We'll person much to travel connected this caller improvement successful nan adjacent mates of weeks. We person our outdoor drones and our indoor drones for our subject customers. And we expect nan adjacent six months to beryllium nan astir breathtaking six months successful institution history pinch worldly sales, partnerships and caller products.

So pinch that, I'm going to manus nan telephone complete to Joseph. Look guardant to your questions.

Joseph Hernon

Thank you, Jeff, and to everyone for joining nan telephone today. I will now supply a reappraisal of our financial results done our fiscal 4th which ended connected January 31, 2023.

Revenues exceeded $3 cardinal for nan 2nd of 3 quarters successful fiscal 2023, and person accrued much than 50% connected a twelvemonth to day ground compared to nan first 3 quarters of fiscal 2022. Gross separator remained challenged arsenic we proceed to refine and standard manufacturing astatine our expanded installation successful Salt Lake City. We expect gross margins to amended going guardant arsenic merchandise shipments summation and we amended nan ratio of our manufacturing and assembly processes.

Operating expenses decreased almost 20% successful nan 3rd 4th compared to nan 2nd quarter, nan anterior quarter, arsenic nan level of nonrecurring costs associated pinch nan description of nan Teal manufacturing installation and its headcount person subsided. We expect operating costs to stabilize for nan equilibrium of nan fiscal twelvemonth and done nan extremity of 2023.

Net nonaccomplishment for nan fiscal 3rd 4th totaled $5.7 cardinal aliases $0.10 per share, representing a 9% alteration from nan anterior 4th and much than a doubling compared to nan 3rd fiscal 4th of nan anterior year. That important summation is straight related to nan doubling successful size and nan build retired of nan manufacturing installation astatine Teal, arsenic good arsenic a much than tripling of its headcount. We ended nan 3rd fiscal 4th pinch astir $25 cardinal successful rate and investments.

In addition, we person invested $7 cardinal successful earthy materials, including chips, drones successful accumulation and vanished merchandise for Teal. We expect this finance successful inventory to output and support beardown income complete nan equilibrium of nan year. At this point, nan Teal manufacturing installation description has been completed, a income unit has been built and trained, our income pipeline is building and expanding and we are looking guardant to caller and repetition orders complete nan equilibrium of almanac 2023.

I will now move nan telephone complete to nan usability for questions.

Question-and-Answer Session

Operator

[Operator Instructions] First mobility is from Scott Michael, a Private Investor. Please spell ahead.

Unidentified Participant

Hi. Thank you for taking my call. Can you explain nan number of chips that we person successful reserve?

Jeff Thompson

Yeah. Well, nan number hasn't changed since we put successful nan first bid of astir 3,700 spot sets complete almost 2 years agone now. Which pinch -- we're not going to springiness you a 100% yield. You're going to person immoderate -- don't make it, we extremity up scrap. But we deliberation that those could nutrient betwixt 3,200 and 3,500 drones.

Unidentified Participant

Okay. Thank you. Do we person a root for chips? Should we get immoderate ample orders that exceeds this accumulation capability?

Jeff Thompson

Yes. Well, I mean, everyone watching nan news understands, nan proviso concatenation is better. It's not cleanable yet by immoderate way, style aliases form. But group that put successful ample orders cognize that they're going to get definite shipments astatine definite times. You springiness america an bid for 5,000 drones, you'll get X -- you'll get 1,000 drones connected time X, a 1000 much drones then. But nan cardinal point for us, we're not arsenic concerned astir getting proviso successful correct now, it's much astir having nan mill to beryllium capable to, A, get it afloat moving astatine precocious capacities for nan first shift, nan 2nd shift, if we get large orders and past we proceed -- we adhd different statement adjacent door. We person nan room to do so. So that's each location now. We've invested each of that and now nan engineers are sitting connected apical of nan mill work, group and nan inventory. They're really successful their ain offices, we person a flying area now. So, each nan worldly that was benignant of difficult to do because we're successful mediate of construction, basically, like, surviving successful a location while you're doing reconstruction is now over. And so, we will person nan capacity to meet immoderate ample orders that we receive.

Unidentified Participant

Okay. Thank you. Two much questions. You referenced that Tranche 2 and 3 are being mixed and successful your authorities and you said that we should person news successful nan adjacent mates of months. Was that pertaining to nan size aliases is that regarding nan tranche to award, because location was an article that was posted nan different time suggesting that service aliases that location will not beryllium worker testing until nan autumn of this year. If I publication it correctly, I whitethorn person publication it incorrectly. To maine that would propose Tranche 2 grant would beryllium into nan opening of adjacent twelvemonth aliases nan extremity of this year. Is that accurate?

Jeff Thompson

Yes. So I really saw that aforesaid article. We get nan heads up connected that. And fundamentally what they talked astir was that, they started -- they did nan first first alpha test, which was, I think, January 9, wherever each institution flew for nan day. What I tin study is that, our drones flew arsenic adjacent to flawlessly arsenic you could get successful a alpha product. Very proud of nan Teal team, nan engineering team, nan squad that flew that day, but we had a awesome demo day. And anyone successful nan drone manufacture knows that's not usually nan case. But what I was referring to is, location was primitively 3 tranches and each tranche has a prototype contract, which we won a prototype statement successful Tranche 1 and typically a accumulation contract. We did not triumph nan accumulation statement for Tranche 1 almost 3 years ago. And truthful Tranche 2 had a prototype statement and there's 3 of america that won that. And past Tranche 3, which they -- which was going to commencement aft they awarded Tranche 2, was pushed into there. So nan money that you typically person for Tranche 3, which would person been successful astir six to 9 months to a year, everyone's going to get for -- Tranche 2. So that grant will astir apt hap successful nan adjacent mates of months.

Unidentified Participant

Excellent. And is location a anticipation that that grant will beryllium divided up among nan 3 which I judge is Vantage and Skypersonic? Is location that anticipation that it is going to beryllium awarded to simply 1 entity?

Jeff Thompson

We judge it's going to beryllium 1 entity, and it's really -- I don't want to correct you, but it’s not Skypersonic, it's Skydio.

Unidentified Participant

No, I'm sorry -- sorry astir that.

Jeff Thompson

Yeah. That's okay. So Skydio, I don't cognize if you saw, but they precocious sewage -- they did a financing for $230 cardinal aliases 2 constituent thing cardinal valuation. And someone's sewage an siren going up. And that really makes america look inexpensive correct present considering I deliberation our position successful nan industry. But we judge we're good positioned for Tranche 2, and we solely attraction connected nan military. That's conscionable 1 of nan customers that they woody with. I deliberation they're mostly doing consumers and immoderate first responder worldly now, but our sole intent is to make judge nan warfighter has nan devices for reconnaissance and to thief pinch rocket guidance and things of that nature. Something that I don't deliberation nan different companies are good positioned to do aliases moreover want to do.

Unidentified Participant

Excellent. One last question, I admit your time. The 4 imaginable NATO contracts, person we been signed disconnected connected nan DoD truthful that we're not going to person immoderate travel ups successful position of NATO liking aliases NATO state liking successful our product? Or do we person to hold for nan DoD to motion disconnected connected immoderate sales?

Jeff Thompson

No. We person each nan due paperwork for, like, nan original drones that we sold for successful nan NATO countries. We what each we hope. So personification orders them, we get done each of nan ITAR regulations and each those things are each squared away. So thing will clasp america up successful that that aspect.

Unidentified Participant

Excellent. Thank you for your time.

Jeff Thompson

Thank you.

Operator

[Operator Instructions] This concludes nan question-and-answer convention from telephone participants. I will now return nan telephone to Scott Gordon of CoreIR to publication pre submitted questions from management. Scott?

Scott Gordon

Thanks again, Kate. Jeff, we received a fewer questions from investors precocious and thought this would beryllium a bully forum for you to reside them. So I'll conscionable benignant of inquire these successful sequence. Do you person an update connected nan Border Patrol statement pursuing nan first shipment of 54 drones to them? Do you expect much income to nan Border Patrol?

Jeff Thompson

Yeah. Well, we did person nan first order, which we shipped successful January. We're getting immoderate awesome feedback from them, and we've learned a batch astir nan program. And fto maine conscionable commencement pinch this is that, aft getting to cognize immoderate of these folks, these separator agents are ace users. They fly, I think, 1 successful nan aerial force. They alert tens of thousands of hours each month. These guys are heroes. They're retired location sometimes by themselves flying these drones. So we're very happy to springiness them products that tin thief them, specifically thermal cameras that tin make judge that nary 1 sneaks up connected them. But to reside nan marketplace of Border Patrol from what we've gathered from our meetings is, they typically person astir 400 drones that are successful service, and they request to person 200 aliases truthful different drones to make judge there's 400 ever enactment successful service. So I deliberation nan full addressable marketplace for nan Border Patrol could perchance beryllium adjacent to 600 drones. We're not saying that we're getting 600 drone bid successful nan adjacent mates of months, but we judge that that is up for -- that's an action to switch these older drones they've been flying.

Scott Gordon

Excellent. Switching complete to Ukraine and different NATO countries, do you person thing to stock from your caller travel to Europe? I mean, obviously, you shared some. Any occurrence pinch Ukraine aliases different NATO countries? I deliberation you touched connected that a small bit, but possibly you tin amplify.

Jeff Thompson

Yeah. It's -- well, fto maine backmost up a small bit. So astir of nan income that are happening pinch different defense companies are already person programs of grounds that person been successful spot for years. One of them would be, like, [indiscernible] pinch nan move leaf and they've done immoderate [SMS] (ph) income successful nan [Puma] (ph) and things of that quality person been agelong word programs of record. With birds that, frankly, don't person payload arsenic bully arsenic our payload. But we don't person a programming grounds successful place. If we did, we statement would person already sold hundreds of millions of dollars’ worthy of drones for nan Ukraine invasion.

So since we don't person that yet done nan programme of grounds of Tranche, 2, they person to beryllium -- group person to beryllium imaginative to get drones into nan Ukrainian army. So immoderate of those steps we recovered out, we've had to get to nan correct group that want to usage nan drones if [indiscernible] had a awesome article connected what nan operators successful nan beforehand statement want. They want a very precocious extremity thermal drone that tin person awesome detection. The ones they're utilizing correct now are horrible, which would let them to alert missions astatine night, which 90% of each missions are done aliases positive -- 90% positive are done astatine night. So we could springiness them nan devices that they really want that could alteration them to alert each night. And conscionable that's an FYI, our EO camera, our daytime camera is besides magnificent. We went from 12 megapixel to, I think, a 64 megapixel, our package updates person conscionable made it awesome improvement. So nan daytime cognition is unthinkable also.

But anyway, we -- first, you person to get nan group that want nan drones to show nan group that they request nan drones successful nan capital, and past they person to get nan accusation complete to DC. And past erstwhile we person that accusation successful DC, past we tin return it to nan group that tin really constitute checks from this existing assistance that's been going complete recently, moreover nan caller $400 cardinal to $2 billion. We tin beryllium portion of this, and we deliberation we're really close. And they're going to request thousands of drones. So we now cognize really it works. We've been complete present moving connected it, and we dream to person immoderate results very soon.

Scott Gordon

Switching gears. So this mobility addresses financing needs, will Red Cat request to do a financing to meet contract?

Jeff Thompson

So conscionable immoderate things to punctual people: A, we're really astir apt going to person -- we don't cognize nan size of nan Army Tranche 3. But that's -- that conscionable stock a 100% separator gross correct location to do thing that we're already going to do anyway. And past nan waste of nan user section is going to nutrient cash. And we'll besides springiness Red Cat shareholders a important ownership of nan IPO. And they person a awesome squad complete there, Unusual Machines, arsenic you spot [indiscernible] is really increasing very quickly [indiscernible] starring goggle institution retired there. So we deliberation they're going to person a very successful IPO, and I deliberation they will. And I'll beryllium happy to beryllium portion of it. And that's only going to thief Red Cat. So we're beautiful excited to person them IPO, but that'll thief america truthful we tin attraction connected subject and first responders. And I deliberation nan 2 divisions are going to get their attraction that they request and they require truthful that they tin thrive.

So betwixt each those things, that's caller further capital, moreover without that superior pinch each nan investments that we've made successful chipsets and building nan factory, we are now conscionable fresh to attraction connected sales, sales, sales. And those sales, I think, will commencement producing rather a spot of revenue. And that's going to bring nan [firm] (ph) measurement down moreover though we person years of runway now. As we get first mates of important orders, that runway is going up is going spell up for 5 to 10 years. So there's nary request of financing correct now.

Scott Gordon

The past mobility was addressed successful nan unrecorded Q&A. So that concludes our questions submitted. So convey you. Operator, I'll move nan telephone backmost complete to Jeff for closing remarks.

Jeff Thompson

Well, great. Thanks. Thanks to everybody for joining. We've been doing a batch of difficult work. I want to convey each nan employees. Everyone's been doing a awesome job. This dev team, I now cognize what they spell through. We sat successful fields for hours and it would ray artillery going disconnected flying drones and freezing our buffs off. So I conscionable want to convey everybody for each nan difficult work. And I'm benignant of conscionable going to restate my summary and my remarks, because we now person a completed caller authorities of nan creation truth successful Salt Lake City. We person tons of chips to build thousands of drones. Our drone is nan champion successful people now getting a awesome response. We will person immoderate caller news pinch first responders coming complete nan adjacent fewer weeks. And Skypersonic is starting to get its legs successful nan military. So tons of opportunity, tons of breathtaking things coming your way. And I'm conscionable very excited to beryllium present pinch you. And acknowledgment for joining nan call. That's each I have.

Operator

The convention has now concluded. Thank you for attending today's presentation. You whitethorn now disconnect.

Editor: Naga



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