Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the Red Cat Holdings Fiscal 2022 Year-End Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypads. To withdraw your questions, you may press star and two. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through October 27, 2022.
I would now like to turn the call over to Scott Gordon, President of CORE IR, the company's investor relations firm. Sir, please go ahead.
Thank you, Jamie. Good afternoon, everyone, and thank you for joining us for the Red Cat Holdings Fiscal 2022 year-end financial results and corporate update conference call. Joining us today from Red Cat Holdings are Jeff Thompson, Chief Executive Officer of Red Cat Holdings, and Joseph Hernon, Chief Financial Officer. During this call, management will be making forward-looking statements, including statements that address Red Cat's expectations for future performance or operational results, particularly. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Red Cat's most recently filed periodic reports on Form 10-K and Form 10-Q, and Red Cat's press release that accompanies this call, particularly the cautionary statements in it.
The content of this call contains time-sensitive information that is accurate only as of today, July 27, 2022. Except as required by law, Red Cat disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Jeff Thompson, Chief Executive Officer. Jeff, please go ahead.
Great. Thanks. Thanks everyone for joining the 2022 year-end results for Red Cat. It's been an incredible year, and we have spent a lot of time and energy putting the company in the right spot at the right time in the drone industry. The press release has some great highlights of each subsidiary, but I wanna add a few brief comments for each team. Rotor Riot, which was our first acquisition, and over the last year under Drew Camden, has started to grow organically and is having its best quarter in the history of Rotor Riot. I wanna say thanks, Drew, and thanks, Stacy. Fat Shark. The new product refresh of the Fat Shark Dominator launched in Q1, 2023. It is getting great reviews and is also off to a great start. Thank you, Mr. French. It was a huge undertaking. Skypersonic.
The team at Skypersonic has been very busy in Europe. They have been perfecting the remote piloting from thousands of miles away, and the NASA contract has also been going very well with drones and actual rovers. We expect Skypersonic to improve each quarter and be very important as infrastructure dollars start to come to the market. Teal Drones. Lots of progress with Teal Drones over the last 12 months. They were 12 people with no factory. Now 50 employees with a full working production line. Supply chain is still tricky, but we made some decisions a year ago, basically this month, that are now bearing fruit. Thanks, Dr. Evans. This has enabled Teal Drones to have a predictable delivery system for the DoD and equivalent organizations in NATO countries. The Teal Drones production line is in full swing and producing high-quality drones.
We expect to go into mass production in the fall, and when mass production starts, it will also have a new camera payload that customers have been begging for. This, again, will allow predictable drone delivery with large numbers of drones each month. This has been Red Cat's goal for the last 12 months to get to mass production. Our sales team at Teal has been all over the U.S. and Europe demoing the Golden Eagle 4-Ship almost every week. Most recently, as in last week, was at Leonardo, the defense contractor in Italy. Let me talk about the FourShip product in case you are not familiar with it. The 4-Ship is a software platform that controls four Teal Golden Eagle drones that can be flown by one pilot. This enables a full 360 degrees of situational awareness.
We can also stay in the air, theoretically, forever by having drones replace themselves in the formation when the batteries get low. The 4-Ship solves many drone issues, but let me just focus on two big issues. Number one, battery life. This is the biggest issue for drones. Almost everybody knows this. Being able to keep our drones in the air indefinitely until the mission is complete is an industry first. DJI, the banned Chinese drone manufacturer that has been around for 15+ years, does not have the solution. 1-to-1 pilot ratio is number two. Four drones can do the work faster and better than a single drone, and being able to control them with one pilot instead of four is also a game changer. The biggest cost center for any aviation program is always the pilots.
I can go on for another hour talking about things we have done with Teal Drones, but I promise to be brief and get to questions. Some housekeeping before we move on to Joseph comments. We'll be reporting Q1 in early September. I'm sure many of today's questions will be about Q1. The quarter's not done, and we'll talk about the first quarter, the very first full quarter with Teal Golden Eagles and shipments of the Dominator goggles in September. I also wanna thank the finance team for getting our year-end, which is the toughest, finance that we have to file, done a couple days early. Thank you, Leah and Steve. With that, I'm gonna hand it over to Joseph Hernon.
Mr. Hernon, this is the conference operator. Is it possible that your phone is on mute?
Yep. Thank you. Thank you, Jeff, and to everyone for joining the call. I will now provide a review of our financial results for the fiscal year, which ended on April 30, 2022. Revenues totaled $6.4 million in fiscal 2022, representing 29% growth compared to fiscal 2021. Q4 revenues were impacted by the global supply chain issues that have affected many companies. In our case, some initial shipments of the Dominator, Fat Shark's new digital goggles, were pushed into Q1 of fiscal 2023. Looking forward, we are confident that we will again deliver strong revenue growth in fiscal 2023. Our operating loss for fiscal 2022 increased to $13 million, compared to almost $5 million for fiscal 2021.
This increase was expected and primarily related to the two acquisitions that we completed in fiscal 2022, namely Skypersonic and Teal Drones. As Jeff noted, since acquiring Teal last August, we have invested significantly in building out the Teal organization, in preparing it for the multitude of revenue opportunities that are emerging. We doubled the size of its facilities, both to increase its manufacturing output and to house its rapidly expanding workforce. While this strategy impacted our fiscal 2022 operating results, we strongly believe that it better positions us to take advantage of much larger and more durable long-term sales opportunities in fiscal 2023 and beyond. Other income in fiscal 2022 was income of $1.3 million compared to other expense of $8.4 million in fiscal 2021.
For both years, the majority of the net amount related to derivative features that were embedded in convertible notes and warrants that we issued in fiscal 2021. These derivative expenses and income are both non-cash charges or revenue that are highly correlated to changes in our stock price. On a positive note, all of the notes have been converted into common stock and approximately 25% of the warrants have been exercised. As a result, future amounts related to these derivative features are expected to be moderate. In total, our net loss for fiscal 2022 totaled approximately $11.7 million, compared to $13.2 million for fiscal 2021, representing a decrease of 11%. Cash used in operations totaled $8.9 million in fiscal 2022, compared to $1.6 million in fiscal 2021.
As previously noted, we have completed two acquisitions in fiscal 2022, and we have been making significant capital commitments in Teal, both in its facilities and its people, to take advantage of significant commercial opportunities. Finally, in response to the supply chain issues, including the availability of the chips we need, we increased our inventory balances, including deposits on inventory from approximately $840,000 at the beginning of the year to $5.6 million at the end of fiscal 2022. This was an important use of our cash burn during fiscal 2022. Despite these important uses of cash, we ended the year in a very strong financial position.
We have reported almost $49 million in cash and marketable securities and less than $2 million in debt. That leaves us in a strong financial position to execute on our growth initiatives in fiscal 2023. I will now turn the call over to the operator.
Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press star and then the number one on your telephones. If your question has been addressed and you wish to withdraw your request, you may do so by pressing star and two. If you are using a speaker phone, we do ask that you please pick up your handset prior to entering the numbers to ensure the best sound quality. Once again, that is star and then one to join the question queue. We will pause for just a moment for the first question. Our first question today comes from Ashok Kumar from ThinkEquity. Please go ahead with your question.
Great. Thank you. A three-part question. First, is Teal Drones shipping in your first fiscal quarter? The second part is the new Fat Shark goggles also shipping with expected revenue in fiscal Q1. The last part is, have you had any follow-up orders in Ukraine? Thank you very much.
Thanks, Ashok. Thanks for being on the call today. Yeah, those are great questions. You know, it's always difficult when you're doing your year-end. I hate year-end because it's kind of already old news. You know, March and April were so long ago for us as we're preparing to build our production line. Yeah, starting in April, we started some small amounts of production, but have ramped up significantly for Q1, May, June and July. I know we have a weird year, so I'll make sure that I clarify our Q. The Golden Eagle was shipping in all three months of the first quarter, which ends in a few days.
The Dominator, as Joseph mentioned, was supposed to be out a little bit earlier than it was, but we did run into a few glitches in supply chain. It did eventually ship, and the Dominator has been shipping also in Q1 and it's got a really great response, and is also selling really well. Then the question I think was Ukraine. Yes, we did have the initial order from one of the NATO countries. And yes, we have had additional drones being shipped to the Ukraine.
Just the Fat Shark goggles, please. Update on in terms of expected revenue.
Well, you never know with a brand new product refresh. It all depends on first you got to worry about what the reviews are like. The reviews for the first week were confusing, but in the second week, I mean, as people got the goggles in their hands, the reviews have been really good. You know, Fat Shark usually does well before we bought them. You know, basically when we bought them, the whole idea was to switch to a digital platform over a year ago. That was the entire idea is to invest and get a digital goggles out. We finally got these goggles out in pretty much record time going against DJI. The new goggles is getting great reviews.
It's done very well sales-wise, but they usually do $7 million-$10 million before we bought them per year.
Great. Thank you. All the best.
Great. Thanks, Ashok.
Our next question comes from Scott Michael, who is a private investor. Please go with your question.
Thank you for taking my call. How do we look on chip supplies? Do we have a resource or a source for those in the future?
As I mentioned in my comments, it was a year ago in July, where we put our first large order in to be able to make sure that once we completed the acquisition of Teal Drones, that we would have enough chipsets to build every Golden Eagle that we would want to. As I've mentioned previously, we had already committed in delivery already is 3,700 chipsets. That'll yield about 3,500 drones. We have that already, and we've also started putting orders in for next year for the next rev of the Golden Eagle with the better payload, and then as we go into calendar 2023. We're looking good right now in chipsets. I don't wanna jinx us.
As I've mentioned before, the supply chain is still a little tricky, but it is getting better.
Any chance that you can tell us, is the order in jeopardy, or are we looking at a solid commitment?
No.
for next year?
We're set. Those are committed and we're fine. Those chipsets are. They're here.
Okay. Thank you. Can you tell us the amounts?
I did. $3,730.
Oh, okay.
We're not g-
Yeah.
Yeah, we're not gonna get a full yield. It's not gonna be 100% yield. It'll be about 3,500 drones that those chipsets can deliver.
Okay. Thank you very much. Appreciate it.
Our next question comes from Greg Imbruce from Lore Capital. Please go with your question.
Yes, good afternoon. Thanks for taking my call. Do you have any guidance that you're providing, for fiscal year?
No. We are, you know, there's a couple things. One is our factory just was basically put into production in April. We're kind of in what we call pre-production into September. Then when we break and go to mass production, we'll have some improvements in a new camera that's going into the Golden Eagle. There's gonna be kind of a switchover and some improvements in the production line that we've been seeing with pre-production. We'll have a small short break in the early fall to switch from pre-production to mass production. Once we start mass production and we have, you know, the large quantities that we're gonna be able to build every month, and we get a couple quarters under our belt and supply chain starts to ease, it'll be much easier for us to give forward guidance.
We've never given forward guidance yet as a company. Once you start, you can't stop.
Yeah, I understand.
the supply chain. Yeah. Until supply chain is eased, we will not be giving out forward guidance.
Okay. Fair enough. What month or quarter, fiscal quarter do you think you'll be at mass production? Is that October timeframe?
Yeah. We expect to
November?
Hopefully get it done in late, actually late September into October to go into mass production.
Okay.
Correct.
Okay. All right. You have $1 in cash per share. I know you're acquisitive, and just what's the mindset in terms of cash and stock on M&A going forward with such a large cash component?
Yeah. We've built out kind of what we look at as our hardware platform. Now that we're starting to scale the production, we've now looked to add software to our platform to increase the margins. When we announce the 4-Ship, that is a software platform that we partnered with a company called Autonodyne. That's gonna increase our margins as we bring software partners into the mix to develop on top of the Golden Eagle platform. Now that we have a platform and it has, it's an open platform compared to our peers, which is a closed platform in the U.S. manufacturing, we expect to have a lot of developers starting to develop on top of our platform.
We are looking to acquire high quality software companies that make our Golden Eagle and Skypersonic drone better.
I see. Just what's the target in terms of use of cash and mix on any acquisitions and-
Yeah. It's if you-
Go ahead.
If you look at it, we've looked at, you know, everyone's like, "Well, you got a lot of cash. Why don't you do a buyback?" Buybacks are scary when you don't know if there's ever capital available, if we get a huge order from the government, or if we win Tranche 2, which is for tens of thousands of drones and hundreds of millions dollars worth of revenue. We wanna have the capital in the bank instead of doing things like buybacks.
You can use debt for that, right?
Yes.
You can finance the government contract.
Where I'm going is, there's everyone knows that most of the startups in the drone industry right now are VC-backed and are gonna be-
Right
starving for cash. We've already seen a lot of inbound people wanting to get bought by Red Cat. Our deal flow is pretty high right now. But they have to-
Yeah, that was my next question, whether you're seeing distress in that market.
Yeah. Well, everyone needs.
For opportunities.
To partner because no one's getting around. We have to look at our stock has got cut since we did our financing at $4.50. We have to make sure that our relative market cap to their acquisition price reflects the downturn in private companies. Private companies were still holding on.
Sure
till about three months ago. Now private companies' private valuations are coming way down dramatically. As they're starved for cash, I think you'll. I don't wanna say we'll be opportunistic, but there's gonna be plenty of opportunities for us to grab some drone companies. You know, we wanna be careful using stock because where we are right now, we prefer to, you know, get a couple quarters under our belt where people will see the results from the, you know, the production that we've been doing over the last quarter, and people will see the growth and hopefully bring the stock price back up to use stock.
It's if we use up some cash for an acquisition. It's almost like we're doing a buyback if the company's worth it and they could drive value for the on top of the Golden Eagle platform.
Right. No, I'm happy to hear that. What are you looking at or have you considered adding any autonomous drones? Is that an area that you're interested in?
Well, yeah, the 4-Ship platform.
Have looked at?
with Autonodyne has autonomous capabilities.
Oh, it does? Okay.
Yes.
What is that? What is the description of it?
The product is called the 4-Ship, which I talked about in our comments. It's on our website.
Okay. It's autonomous.
It-
I didn't realize that.
Yeah. It's autonomous. Well, it does a lot. The technology is pretty incredible. We've done a lot of demos for a lot of the military and other assets. Like, if there's a target they want us to show, we use intent, and we tell the drones where to go. They go surround that target. If it's a target, they're looking inward. If they have to go protect somebody, they'll, well, here's an asset, go protect it. The drones will circle that asset, and they'll be looking outward. If you need to do a wall, we have a wall formation. All of that is au-
Autonomous.
Okay. Terrific. You don't currently have an ATM out, do you?
No, we don't. The only thing we have out there is we have $40 million left on our $100 million shelf. As we said in the comments before, we are, we have plenty of cash. We do not need to do an offering.
Right. Last question, and I'll pass it on, is do you provide any CapEx budget for the fiscal year?
We have not. It's with the supply chain and the opportunities are continuing to increase in the space, you know, because of Ukraine and because of just almost every budget has increased in everyone's military across Europe and the U.S. We don't know what the market's gonna be like over the next six to 12 months because it's growing pretty rapidly. We have not put out any CapEx projections yet.
Our next question comes from Dr. Mark Hulscher from Miller Street Trading. Please go ahead with your question.
Hello. I'm glad to be on the call with you. I have three or four little tidbits. Number one, on the Nasdaq listing issue, was the only issue the annual meeting that you are now gonna have in September? Was there any other issues that they had lined out?
No, that was the only issue. The only reason we ran into that issue was we literally went public on the last day of fiscal 2021. Under the Nasdaq rule, we were supposed to have our annual meeting within 12 months after that. What was strange about that is it would have positioned us to have the annual meeting before we had completed our fiscal year. We just elected to be proactive and, you know, schedule the meeting in September. Nasdaq was fine with our plan, and that was the only issue.
Okay, great. On the notes I have here, when you mentioned on 5/17, the GM business that you had done for them, inspecting, I think it was structure or facilities for GM. You listed on news on 6/28 the overseas inspection that had been done, virtually, of course, with the assistance of on-site members of your team, I'm sure, as well. I never saw any revenue numbers or contracts mentioned. Were those paid or were those prototype experiences for you and the other companies? Do you have any contracts going forward with those companies that you did that work for?
If they were material contracts, we would release the information, obviously, but they were contracted work, but we did not release those numbers.
On the Teal side, I just have one question. On the orders that you are getting, where are your buyers coming from? Are they retail? Are they commercial? Are they agricultural? Where are you getting most of your interest from?
None of those. They are almost 100% defense-related.
Defense. Okay. That's really the end of my questions. I appreciate you giving me the floor.
Great. Thank you.
Okay.
Our next question comes from John Reasons, who is a private investor. Please go ahead with your question.
When you talk about the Autonodyne development product for the 4-Ship, is that something that Teal or Red Cat owns outright, or is that something that has been licensed from them?
That's a great question. We have a licensed partnership with Autonodyne that's worked out very well for us to not only use it for the 4-Ship, but to also use it for our single, dual, and tri-based capabilities. Yes, it's a partnership with Autonodyne.
is it exclusive that no other company will be able to use that? Or is that we, like, have a 90-day or a short term on that?
I'm not gonna go into contract negotiations on a.
Okay.
Public conference call.
Okay. Fair.
It's a great contract for Red Cat and for Autonodyne.
Okay. All right. That's fair. All right. Thank you.
Once again, if you would like to ask a question, please press star and one. Our next question comes from Curtis Stange from ATB Financial. Please go ahead with your question. Mr. Stange, is it possible your phone is on mute? Once again, if you would like to ask a question, please press star and one. We do have Mr. Stange back in the question queue. Mr. Stange, please proceed with your question.
Hello?
Mr. Stang, you can proceed with your question.
Hello? Hello?
I don't think his phone's working.
Gentlemen, with that, I will turn the floor back over to you for any closing comments.
Great. Thank you, folks. Thanks again for being on the call. We are excited for 2023, and we'll be updating investors on Q1 at the H.C. Wainwright Conference in the first half of September. I also wanna thank the biz dev team, Mr. Hitchcock, Lance, Brian, Mike, Miguel. They have been demoing the Golden Eagle 4-Ship all over the globe, and I look forward to seeing you guys next week in Fort Bragg. Thanks again, everyone. Thanks for joining. Good night.
Ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for joining. You may now disconnect your lines.