All right. We're 4:30, so I'm going to say good afternoon, everyone. Thank you for joining us. Welcome to today's webinar on Volatus' agreement to acquire 100% of Lithuanian-based AISPECO. Before we begin, a quick reminder that we welcome your questions throughout the session. Simply click on the Q&A button at the bottom of your webinar screen to submit a question at any time. We'll do our best to address as many questions as possible during today's session. If we don't get to yours, we'd be happy to follow up with you afterwards. I'd 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 that 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 documents filed with the Canadian regulators. This presentation also contains non-IFRS measures, which are outlined in the presentation. There's a full disclosure that can be found on the Volatus investor website at investor.volatusaerospace.com. If you have any questions, please feel free to contact the Volatus Aerospace IR team at investorrelations@volatusaerospace.com. With that behind us, I'm going to welcome everybody again, and thank you for joining Avi and I this afternoon. Yesterday, we announced an agreement to acquire Lithuania-based AISPECO. It's a Lithuanian technology company that fits directly into our strategy. Ultimately, the technology is an intelligence force multiplier. This transaction is about moving Volatus further up the value chain by bringing together the aircraft, the sensors, the software, and the data that our customers depend on.
It creates several new ways for Volatus to grow. About the transaction, we've signed an agreement to acquire 100% of the company. The base consideration is $10.5 million , including $3 million in cash and $7.5 million approximately in Volatus shares. There's also an earn-out of up to $2.5 million tied to milestones over the next three years. We like this structure because it aligns the teams around building the business. A reminder, closing still remains subject to the required conditions and approvals. AISPECO is based in Lithuania. Since its founding in 2020, the team has developed a meaningful international business with products used for mapping, infrastructure, inspection, and surveillance. It's got customers across North America, Latin America, Europe, Asia, and Australia, and established relationships with leading sensor manufacturers.
Just as importantly, the founders and key leadership are remaining with the business, so we're acquiring both the technology and the people that know how to advance it. Having a Lithuanian base adds engineering and manufacturing capability in the E.U. and a NATO member country that's located in close proximity to Canada's largest current overseas military mission in Lithuania. This is deployment under Operation Reassurance, and it forms the core of NATO's deterrence and defense posture in Central and Eastern Europe against potential adversaries. This complements our operations in Canada and creates an opportunity for the strong support of our troops in Lithuania. If you've heard me speak about Volatus before, I generally describe the company as one enterprise with two growth engines supported by a single common operating platform. AISPECO fits in the same model with two related markets served by one underlying technology platform.
First, utilities, pipelines, mapping companies, and infrastructure, and secondly, defense and security. The same core electronics, sensor architecture, and software supporting different configurations. That gives us an efficient foundation for innovation and market expansion. The product portfolio is a major reason we're excited. The portfolio is a complete range of products that incorporate key differentiators, including patented stabilization, targeting and tracking, scanning capability that increases the swath by 30% to 35%, and the ability to fuse multiple sensors, in the case of our largest installation, carrying up to nine sensors simultaneously. We also have the ability to record the data and process either onboard through HELIUX CORE or store and process the information offline. Lastly, their proprietary software aggregates the data into a single display for a holistic presentation supporting faster decision-making. Together, these are more than individual products. They form a common technology architecture.
Here's what makes the technology different. The customer can configure a pod with compatible sensors for the mission. Stabilization helps collect useful data while the aircraft is moving. Onboard compute supports faster review and processing, and remote control allows specialist operators to work from the ground where conditions permit, and in fact, potentially allows a single operator on the ground to operate more than one sensor pod simultaneously. The result is flexibility. Operators can do more with their aircraft, adapt as requirements change, and simplify how they collect intelligence. A practical advantage is how easily a payload concept can move between missions. Different aircraft, different missions, same technology. The module architecture reduces the need to build a separate system for every task. Ultimately, this improves utilization. It makes specialized missions efficient and cost-effective. This fits directly with our core commercial business. We understand utility corridors, pipeline patrols, and geospatial mapping.
AISPECO adds equipment that make these missions more capable. Customers have reported meaningful improvements in specific applications, including fewer flight miles and faster targeted inspections. Those results show the kind of value that better sensors and smarter workflows can create. Our opportunity is to bring that capability to a broader customer base. Remote operations is another way to create value. AISPECO has developed the ability to control compatible payloads from the ground. Volatus brings operating experience and an established operations control center. Together, we see the potential for managed sensor service. The aircraft can fly the mission while a specialist controls the payload remotely. That can expand access to expertise, create new service opportunities. From my perspective, it's an attractive extension of capabilities we already have. Defense and security are equally important parts of this story.
AISPECO has sold one system already to a North American defense prime for terrain data collection. This is an important reference point. The same technology has reference for border monitoring and maritime awareness. We also see a compelling application in wildfire response, where thermal and optical imaging can help teams understand changing conditions. These markets all value timely, reliable intelligence, which is exactly the business we're building. Our defense strategy is to start with a proven commercial technology base and adapt it to customer needs. That can include different sensors, communication, and secure data handling. Over time, it may also include larger uncrewed aircraft and other defense platforms. Military certification will be treated, at least, as a separate development step. But the attraction is that we're not already starting from zero. We're building on products, software, and engineering that are already in use. AISPECO also strengthens our international footprint.
Lithuania is a NATO and European Union member. That complements our Canadian operation. It brings us closer to European customers and partners and supports our ambition to serve allied markets. We believe that this combination of Canadian operational scale and European sensor expertise can be a real differentiator. This is where the strategic pieces come together. Volatus has crewed and uncrewed aircraft, RPAS or drones, mission planning, flight operations, and data services. AISPECO adds proprietary pods, sensor controls, onboard computing, and mission software. After closing, we expect to connect those layers more closely. Instead of coordinating several vendors, a customer can work with one organization across every stage of the mission. That is simpler for the customer and gives us more opportunities to create value. Now I would like to talk for a minute about a developing technology, the HELIUX ATOM. This is an important bridge to our drone strategy.
ATOM is being developed as a lightweight LIDAR and high-resolution imaging payload for drones and mobile mapping. It is designed to work within the broader AISPECO software environment. For Volatus, that means the potential to extend the same sensor expertise from crewed aircraft onto our uncrewed platforms. It creates a path forward with more meaningful, capable mapping missions with a common technology foundation. The specifications that are shown here are preliminary, but the direction is particularly exciting. The transaction also changes how we participate in the economics of a mission. Today, Volatus earns revenue by operating an aircraft and delivering data and intelligence solutions. With AISPECO following closing, we expect to participate also in the hardware and software layer as well. We can learn directly from missions and feed that experience back into product development, which creates a closer connection between engineering and the customer.
It is how ultimately we intend to build a stronger, more integrated business over time. We also see several opportunities to create value from the combination. One is using AISPECO systems across more of our own existing operations. Another is introducing its products to our pipeline, utility, and infrastructure relationships. A third is expanding access to European customers and allied markets. Management has estimated an annual cost and direct synergies of CAD 1.4 million-CAD 2.6 million by year two. We have also identified CAD 7 million-CAD 12 million of incremental revenue and addressable market opportunities. These are separate forward-looking estimates, definitely not represented as contracted sales or additions to our financial outlook. But what really matters strategically is that the opportunities come from businesses and customer relations we already understand. The standalone AISPECO outlook also illustrates the scale of the opportunity.
We have attempted to be conservative by projecting approximately CAD 10 million in fiscal 2027 revenue, with an Adjusted EBITDA margin of 8%-12%. In actual fact, with the management of AISPECO, we have established three-year earning targets that are well above that. Those tie into the earn-outs that we have put in place for the team. It is also important to note that they have approximately CAD 5 million in contracted backlog and approximately, in Canadian dollars, CAD 35 million of unfactored sales pipeline. The outlook excludes the proposed synergies and uncontracted defense programs. It depends on the assumptions and risks that are disclosed or outlined in our disclosure. But we see this as a useful picture of the business we intend to build on, and which is the reason we are raising it rather than a guarantee of results. Let me close with the bigger picture.
We believe AISPECO is a strong strategic fit for Volatus. It brings real products, talented engineers, established customers, and proprietary technology. It strengthens our commercial offering. It creates new pathways in defense, remote operations, and drones, and it moves us closer to being a fully integrated aerial intelligence company. We are excited about the opportunity ahead, and we look forward to building it with the AISPECO team after closing. Thank you, and at this point, we welcome your questions. Abhi, over to you.
Yep. Thanks, Glen. We have series of questions coming in. First question is: As it relates to the CAD 7 million-CAD 12 million of addressable market opportunity, can you provide more insights on what that exactly means? I can take that on question. It is mostly coming in from the synergies we have estimated of CAD 7 million-CAD 12 million. That is not an addressable opportunity. That is just purely the revenue synergies we expect to come in because of this transaction, in addition to the cost synergies of between CAD 1.4 million-CAD 2.6 million. This CAD 7 million-CAD 12 million of revenue synergies are, one, coming in from operations in the U.S. pipeline and utility access. AISPECO historically has sold pods to the customers and never been operated them. Volatus has always acquired pods from different vendors and operated.
This expands our market in terms of the value chain where we stand. Instead of just being an operator, we also control the technology stack. Second is the access to the European market, in oil and gas and utility space, where Volatus does not exist and AISPECO has a stronger foothold. Those two combined basically gives us a rough estimate of CAD 7 million-CAD 12 million of revenue synergies for us today. The second question is: One of the elements of the purchase of AISPECO is flight controller. You already have V-Cortex AI. Please enlighten us why this is important and how it integrates.
That is a great question. I will take that one, Abhi.
Yeah.
First of all, the flight controller we are talking about, it is a flight computer that ultimately synchronizes all of the sensors that are on board the pod to within nanoseconds. That is all about processing and managing the sensors themselves. The V-Cortex product that Volatus has developed and continues to be developing is actually an autonomy stack for unmanned systems. It is particularly important to recognize that they are two different things. One of them is about operating the sensors, the other one is about operating the aircraft and the mission. After closing, we expect that we have got some long-term opportunities in integrating the AISPECO technologies with the autonomy stack and V-Cortex, and ultimately carrying that even one step further into our [Valkyrie] and [AEERS] platforms to ultimately put together a fully integrated mission solution for RPAS.
Bear in mind that while AISPECO is developing and has deployed commercially products for the RPAS or drone space, their primary business to date has focused around the piloted aircraft and helicopters. I think this is an example. I am really glad for the question because it is a very good example on where the technologies between AISPECO and Volatus ultimately pull together into something that is more comprehensive and an entire end-to-end solution.
The next is: Is the $2.5 million earn-out contingent on revenue synergies in addition to cost synergies? I can take that one, Glen. The answer is yes to both. It is contingent on revenue synergies, and as Glen mentioned, we have given an outlook of $10 million to be generated in 2027. The reality is the earn-out related to revenue synergies is much higher than the outlook. We are being very conservative in the outlook. Second, there are six different or unique earn-out criteria and milestones that have been laid down, and those are all related to the business development, technological development, and also the integrated business execution. The next question is: Do you expect or does the AISPECO product offering help us win near-term opportunities in any of the DDI streams?
I will take that one. Before I start on that one, Abhi, I would like to add something to the previous question on the earn-out.
Sure.
One of the key things that I like about earn-out strategies is basically, sellers always want to sell on the future opportunity of the business, what they see coming. Buyers want to buy on the historic norms, right? What's the business already done? The beauty of an earn-out is it allows us to enjoy the benefits of both. The guaranteed cost to the company is based on the historic performance of the business, but the upside of achieving their goals actually is shared equally then between the management of the company that's ultimately established the goals, and all of the shareholders now in the combined organizations. A key point to understand here is it's in our best interest to collectively support the company to achieve its revenue goals, because at the end of the day, when the founders of that business achieve their earn-outs, it means that everybody won.
It means that the company has experienced the growth that we had set out to achieve. The sellers, the management of the existing company, have actually achieved their goals, and of course, the hope is that the market recognizes the overall performance of the company, and that the benefits are shared with all of our shareholders. So think about it this way. It's not a matter that we combine the revenues to achieve the earn-out. The earn-outs are specific to the performance of the company. What we do is we combine the horsepower of the company to ensure that that company will maximize the opportunity for it to meet its earn-out goals. It's a win-win situation, and frankly, that's our objective. The question on DDI is a very good one. This technology, this is now Canadian-controlled technology. It's based in Lithuania. That's where the skill set is.
We have the ability to manufacture that IP in Canada. We have the ability to manufacture it in Lithuania, or excuse me, in Lithuania, which is exactly the same capabilities we have with our drones now. We can build Canadian technology at our manufacturing facility in Mirabel, along with the pods. We can equally build the drones that ultimately the Canadian military may need to support our troops in Lithuania. So it gives us an expanded presence with an allied nation. Because the IP is Canadian-controlled, even though that it's domiciled and developed by a team inside of one of our allied partners, ultimately, we do believe it'll help us with our bids in the DDI proposals in Canadian buy procurement. The big issue to say right now is, this transaction will still take a few days before we get across the regulatory steps required to close the transaction.
At this moment, we can't really comment on any of the RFPs that are out there, because at the moment, this would be a partner transaction, whereas in a few days from now, we expect that it would actually be Volatus Aerospace IP. So that's how that works.
I think there were some follow-up questions, Glen, you answered them, which are basically, will any of the production of AISPECO products be completed at Mirabel facility? Are there any expected cost synergies or margin improvement? And the follow-up on that same is, will the products be even repaired or can be repaired at Mirabel facility?
Our strategy with the business is to do what's absolutely best for the global Volatus Aerospace interests. Remember, one of the challenges being a public company is even internally, we're not able to disclose all of this transaction before it's actually announced publicly. At the end of the day, the people now that we need to explore cost synergies, where we can actually develop supply chains, better supply chains, and so on, that hard work begins immediately. But the truth of the matter is what we expect is that for North American business, we'll be able to support the North American business out of Canada, out of North America, and continue to build the product development and the manufacturing for Europe and other parts of the world in Lithuania.
Our objective is ultimately to position the company to be able to support multiple markets to the best benefit of our customers.
Perfect. Next question is, will this technology assist in wildfire support line of business?
Yeah, that's a great question. I think as most of the long-term Volatus investors know, we've been working very hard to introduce what we're calling a Wildfire Shield and Rapid Response Service. We're promoting it actively with the federal government, with several provincial governments. Elections and certain things have actually challenged our timeline on that of late, particularly, for example, in Quebec and ultimately, some of the considerations going on in Alberta. But we continue to move this forward. Really, what AISPECO does is it helps us on the intelligence layer. The concept being when we can aggregate optical and thermal imaging and process that data more quickly, it helps provide better, faster intelligence to the people that need to make the decisions on wildfire. So it most definitely supports our efforts in wildfire. We see that as being another strategic benefit.
The next is, could you talk about the current free cash flow profile of AISPECO, and the potential for free cash flow generation profile once the outlook numbers are achieved? Could you talk about the maximum capacity in terms of annualized revenue under the current facility, and what kind of annualized CapEx is expected? I'll take that, Glen. The free cash flow profile of the company is approximately between EUR 7-EUR 7.5 million . So I would say around CAD 10 million CAD 12 million . That's when the free cash flow breakeven happens. The CapEx is pretty lean, actually. Currently, the only CapEx that is expected is once we hit EUR 7 million of capacity, it will be investment on the CNC, so that's approximately $160,000. So it's pretty cash, CapEx-light operations today.
In terms of the maximum capacity, based on the current facility we have, is approximately EUR 20 million . And we don't expect getting addition facilities or expansion to be a challenge because the capacity will be divided. Some of the capacity we'll be bringing in Canada and with a second base being Lithuania as well. Next question is, could you speak to the cross-sellability of the technology into the defense pipeline and existing defense customer?
I'm reluctant to say too much there because, at this moment in time, the defense segment is a fairly new segment for AISPECO. We have had opportunity to socialize the capabilities right now with public safety and defense, but it's been very early stages because we weren't able to announce that until today. The reality is think about the original description of the technology. It's an intelligence force multiplier. So anything that requires intelligence ultimately is something that benefits from the Pod technologies, which includes ISR. So we most definitely see, our expectations are that this will have significant opportunity in the defense and public safety fields, but it's early days, obviously. Our efforts begin now in continuing to cross-sell and socialize this with our defense customers.
The next is there an idea of how this acquisition will impact the overall gross margin mix? It is an assumption that there would be an upward bias, but how do the margins compare to Volatus roughly? I can take that, Glen. We will not disclose the AISPECO specific gross margin for competitive reasons, but the overall blended gross margin of the company will increase because AISPECO sells Pods and at the same time also has a software and support revenue attached to them, which by default have a higher gross margin. Overall, on the blended gross margin, we expect that on every incremental revenue that flows in from AISPECO, the blended gross margin for combined Volatus will be higher than what we have initially estimated. The next question is, what are the closing conditions?
One of the major closing conditions we had was the Competition Council approval from Lithuania. That was the longest getting item of almost 30- 45 days. We undertook that process before signing of the definitive agreement. We already have that approval today. The remaining closing conditions are more customary and TSX approval, which we expect to happen in the next, I would say, in the coming days or weeks in front of us. We do expect that we will be able to close this transaction in the month of October itself. The next question is, can you confirm if AISPECO runs on NVIDIA chips and whether NVIDIA chips are the industry standard for onboard compute? Glen, I had that response discussed with Mantas, the CEO of AISPECO. AISPECO runs on NVIDIA Jetson Thor chips, and the industry standard are actually Intel, mostly.
AISPECO basically runs on NVIDIA and Intel. It has the option to run on both. We use, for a higher compute power, more NVIDIA Jetson Thor chips right now. I think that is pretty much, I would say we have answered almost all the questions in front of us, and we are also end of our time. If there are any more questions, please feel free to send your questions to investorrelations@volatusaerospace.com. We will be more than happy to get back to you on the responses pretty fairly quickly. The presentation has already been posted on the website, volatusaerospace.com/presentation. I think that concludes the end of the presentation. Thank you so much for your time and interest in Volatus.
Thanks, everybody.