Good morning, everyone, and thank you for joining our fifth Fireside Chat of our Drone Track, we're calling it. We're lucky to have the CEO and founder of Red Cat, Jeff Thompson. And so just to kind of get things started, Jeff, could you just give us a brief overview of Red Cat and just kind of giving us an explanation of your product portfolio and key end markets?
Sure. Well, thanks for having us, by the way. It's been a great couple of days, so my name's Jeff Thompson, founder and CEO of Red Cat, and Red Cat makes weapons systems for the Department of War, and more specifically for the war fighter. We currently have kind of like three different divisions right now. One is the Black Widow, which makes mostly right now drones for the army, and more specifically again for the SRR program of record. We also have recently, about a year and a half ago, we bought a company called FlightWave, which has a lot of different attributes compared to the short-range reconnaissance drone. It's called the Edge 130, soon to be called the Tricon, very unique bird. It's a vertical takeoff and landing bird. It's got the longest flight time on the Blue UAS list.
It's the fastest drone on the Blue UAS list. We are redoing this drone to be a little bit more ruggedized and to make sure it's EW capable in real battlefields. And we'll continue to have that long range that everybody wants. And then last but not least, we just launched basically a startup inside of the company called Blue Ops, where we're making small boats, or USVs, if you want to use the fancy terms. They are a range of different hulls and sizes from five meters up to 11 meters. The five-meter is just purely a kamikaze boat. If you've been looking at the news or seeing Twitter, or you've seen the Russian Navy be depleted by over 25% from these types of boats. And we have a Made in USA version that we think is going to be very successful.
Not only would it be good to have as an option an INDOPACOM , but this also opens up the entire globe to Red Cat. With our drones only being launched from land, we only get 20-something% of the globe, and now we'll have 100% of the globe. So those are the three buckets of different products that we use to help the war fighter.
So before we get to some recent news that you announced yesterday, defense tech is on fire right now. A lot of people entering the market, and especially in drones and autonomy. What would you think differentiates Red Cat?
The thing that differentiates anybody right now is the factory. The factory is the weapon. Being able to manufacture anything at scale is the biggest moat you're going to have in this industry. Anyone can make prototypes. There's a million prototype shops out there. Everyone bids for a lot of these proposals for the Department of War or ministries of defense across the globe. But can you actually manufacture these drones at scale? And we've been at it for a long time. We've doubled the size of the factory in Salt Lake City, which makes the Black Widow twice now in the last year. We've doubled the size of FlightWave. We moved into a brand new factory, brought an expert in that used to actually work on Switchblade 600s at AV.
He came in immediately for the FlightWave factory and said, "If you're trying to get to 1,000 drones a month for the FlightWave Edge 130, this place won't do it." So he said, "Let's move into a bigger place." And then we just moved into 160,000 sq ft in Georgia to build our boats. That factory was run by another company, another boat company. It was making about 850 boats previously to us taking over this new factory, which we hope to have the first few boats come off the line in late March, early April. We just got our first couple of deliveries of our first boats in December. So we're pretty darn excited about how quickly from August prototypes to December floating boats, splashing boats has been pretty incredible.
Okay, and we're going to get to that boat opportunity because I think it's a big opportunity that's flying under the radar, but before that.
You mean floating under the radar.
Or floating under the radar, yes. Yesterday, you guys had some positive news. You guys positively pre-announced the Q4 quarter came in better than consensus and your previous expectations. Anything specific you wanted to call out in Q4 that kind of drove the upside?
Yeah, it's pretty interesting because in Q2 we did $3 million in revenue. In Q4 we did $25 million in revenue. That's pretty impressive growth. But it's really one product, one customer right now, and that's just the army. And so we got the LRIP contract, and we announced that in November for $35 million. We're going to be probably delivering all of that a couple of months early. So if you deliver early, you also get extra revenue for that. So it ups the margins. So we're pretty excited. Everything we've delivered pretty much has been early. So I'd say it's a pretty impressive quarter, but it's just a start. It's like literally it's one product, one customer.
That one product, one customer is going to continue into Q1 throughout the year as we go from LRIP into the full OTA contract for full rate production, which we hope will be sometime in Q1. I'm not going to make any predictions on contracts this year. That's my New Year's resolution.
Hey, I get it, and I would say too, like LRIP is just the appetizer. The full course is coming. Is there anything to just kind of help, and maybe it'd be helpful to kind of going over what SRR2 is, like the program, and what's the potential size that this could be?
Sure. So I'll give you the full background since he says we have to fill up 35 minutes here. So the SRR program was launched in like 2019, started with 37 companies, then it went down to five, then it went down to four, then it went down to three, and then it went down to two. And each program, like SRR, MRR, and LRR, which I think you just had AV on here before, it's in the LRR space, each of them will have two vendors. That's by design by the army. We are the only one of the three that's in production. So once you get the final down selection, which we got a year ago, September, you then go into. Typically the process is always the same. You go into a low rate initial production contract, and then you go into a full rate production contract.
So to back into even more ways to give you some framework, the budget for SRR last year was only $80 million. Actually, for the entire PMUAS was $80 million, and we got $40 million of it. So that was pretty good for the company. Now, if you look at the budget currently, it's not signed yet, it's approximately $803 million for that category this year for the same group. So again, LRR and MRR are not in production yet. So we don't know what that means to us, but we're hoping to get a good chunk of that.
Yeah. Yeah, no, massive opportunity. And the thing that's nice though, it's like this SRR2 isn't the only drone program that's going on and you guys are exposed to. So there's significant demand emerging across the DOW as this unmanned supercycle accelerates. For example, the billion-dollar drone dominance program. Maybe talk how you guys are positioned to that, as well as maybe other programs that should be on investors' radar.
Yeah. So there's Drone Dominance. Well, if you look at all the things that happened really with the new administration, the budget went from $80 million for small drones up to $800 million. The big beautiful bill has $1.5 billion there. And then I think they're pulling some of that out for Drone Dominance and the Gauntlet and all of that. So we submitted to the Gauntlet for phase one on time. They had to extend it because most people did not submit on time. So I think that's a good sign for us of what we're going up against. We're pretty confident about phase one. I think there's 25 people that are inviting, and it's going to get selected down to 12. And then I think it's 12 the second time, or I forget the tranches of all four tranches. But we're pretty excited about that.
But that's not the only program. There's also the Marines have a program of record for PBAS/FPV drones. Now, something that a lot of people don't understand is that this Drone Dominance program for all of these one-way kinetic drones, they are all completely useless if they don't have something like the Black Widow to be the sensor. So if you've ever been to Ukraine and seen this in person, I have. You typically have, they're mostly Mavics over there right now, Mavic 3s, and they'll have about three Mavics on this team, backups. But they go out and they find the targets because the FPV drones, which we're talking about here in Drone Dominance, have analog cameras. So it's like driving through snow. They don't have long-range capabilities to see.
So they need another drone that has better cameras and range to find the target and that sensor, and then you bring the shooter in and you kill the target. So every so many drones for Drone Dominance is going to require something like a Black Widow or the Black Widow.
This is just U.S., but the whole globe is going through their own defense renaissance. You got NATO moving from 2%- 5% of GDP. How is Red Cat positioned outside of the U.S.?
Yeah. So yeah, even Japan has a defense budget, right? And they're moving into the drone space very rapidly. Everyone is. So when we look at the Black Widow and we deliver these drones to the army and they eventually end up two in a rucksack of a war fighter, we want to make sure those things work. So we build our products not just for U.S. We actually test in Ukraine to make sure they work for a war fighter. So once you have that stamp that your stuff works in a real battlefield, that's very crucial. And that's actually how we got a three-year lead in the USV, in the boat division.
But in the Black Widow, we are spending a lot of time and energy to be able to deliver a drone that we know works, that would work in any battlefield out there, specifically the Ukraine front right now, for anyone that wants to buy the Black Widow. It's not just U.S.-based.
Are there any, because like NATO seems like a big opportunity, like is there any near-term contract opportunities there? Because it's been brought up as that seems like a lucrative potential market.
There's a lot of things that you see. We call them requirements drones and actually drones that work. There's a lot of RFPs in Europe that we've actually participated in, and then they'll just buy a very inexpensive drone. I'm not going to mention the cheap other country drone that they typically buy that everybody knows does not work in EW and would not be something if you were a soldier, you wouldn't want to carry that drone. We call those RFP requirements buys. If you just pass the requirements, the program manager just buys it, whatever's the cheapest drone that they can get away with buying. That's not what we want to do. There are lots of opportunities, specifically in the war zones. You have Ukraine, you have Israel.
There's a lot of opportunity in NATO, but you want to make sure that you're delivering a drone that's actually going to work.
Okay, and you touched on this in the beginning because I do agree with you. It's how you're going to differentiate production capacity. Could you talk to how where you guys are today and what you guys hope to be at the end of this year, whether it's amount of drones per month and maybe between Black Widow and the Trikon that's coming?
Yeah. A lot of people ask the capacity question. How much production can we do? What's your supply chain? That's a lot of the common questions I've gotten with a lot of people in this room. Our capacity is even, we can do 1,000 drones today. We pretty much are doing 1,000 drones a day of Black Widows. And we'll stockpile them if we have to because we know someone will buy them. The budget is so massive. The traditional annual bill for the military, $1 trillion, has to be spent by 2026. The big beautiful bill does not expire until 2029. So you have these different expiration dates. But when they get the money, they have to spend it. So we're going to build as many drones as we can. And we have plenty of capacity.
We could do 5,000 drones a month if we had the demand for just Black Widows. Same thing with the Edge 130, soon to be Trikon, which we hope to start selling the newer version in August. We're doing some testing on that drone in some unique places also, and then we have the boat factory, which again, used to do 850 boats a year before we took the factory over. Now that boat was a lake boat company. They had upholstery, they had bathrooms, they had sound systems, they needed gel coats, really fancy paints, and all this other stuff. Ours are painted gray. We don't have upholstery. We don't have teak, so we think we can push out a lot more than 850 boats a year if we needed to. The first boats will be coming off the line, like I said earlier, end of March, early April.
Okay. Well, and hey, and let's talk about boats. Because I think it's a massive unmanned boat opportunity in this unmanned space. If you look at the one big beautiful bill and the fiscal 2026 defense budget, there's about $5 billion allocated. It's actually the biggest allocation across all these technologies. This ranges from smaller boats, medium size, maybe some large boats. So where are you guys positioned specifically in this emerging USV category?
Yeah. We're positioned in the stuff that's actually working right now, not what some animal wants to command. So sorry, I'm probably getting in trouble for saying that. But everything has moved towards smaller, smarter weapons. We have quickly seen that a bunch of kamikaze five-meter boats can take out one of the most advanced navies in the world, the Russian fleet. It's been sitting in the northeast pocket of the Black Sea. It hasn't moved in nine months because of a country that doesn't even have a navy, because they're using small boats like the ones we're building very successfully. They've taken out jets with these boats. They've taken out helicopters. So these things are, we believe they are the future. We believe we got a three-year lead because our technology's baked in these environments from day one.
And we got some of the best boat builders in the world, literally in the world, that are making our boats. So we think we're in the, just like everyone's switching to smaller drones, everyone's switching to smaller boats. So you do not want to run into 500 of our boats in INDOPACOM, Taiwan Strait, which we're all trying to make a hellscape. We can get out in front of the carrier fleet. We can put counter drone technology. When we have our innovation day, you'll see our counter drone on the front of our Variant 7 with a 50 cal on it. So we put a bunch of these things. We can protect fleets. We can put EW on these things. Our payloads are endless that we can put on these things.
And then if all else fails, we can also fill these things with kinetics to use them as kamikaze after they completed another mission, depending on what your budgets are for your mission.
So because there's several companies now going after this USV market, what do you think's really the differentiation that's going to separate you guys? I know you guys brought on some very strong talent to lead this. Maybe talk through that and.
Yeah. This came up recently with the Navy. We are taking a completely different tack than the groups that are getting into the USV space. It's typically we're coming in, we're boat builders. Like I said, we've got our prototype shop's been around for 200 years. It makes some of the most technically advanced boats ever made. Some of the largest billionaires in the world that want tech boats, they go to this manufacturer that's been around for 200 years. They make our prototypes. And then I brought in Barry Hinckley and his brother-in-law who come from Hinckley Yachts. And they've been making boats for 100 years. They became the largest boat maker in World War II by making wooden boats for World War II. The wooden boats wouldn't, the mines wouldn't stick to the wooden boats. So they literally became the largest boat builder during World War II.
Fast forward though, they also invented the joystick and the jet propulsion systems on boats so they could be in nine inches of water, which is very important to go over nets that are connected to mines that are surrounding all these things. So we start as a boat builder and make quality hulls that we know are going to be handling Sea State four and five. They've been doing this for a long time. So the boat part for them, they keep telling me how easy it is to make the boat. But then we got to put the tech stack on there, which we have. And then what really differentiates us is we're making it a modular platform. You need a 50 cal on the front, you can put it on there. You want to put an EW, you can put it on there.
You want to put a swarm of our Black Widows or Edge 130s, you can put it on there. Do you want to put surface-to-air missiles on there? We've got those grooves for the launchers. Do you want to put torpedoes on there? You can. And in some of these configs, we can put almost all of them on the same boat. So it'd be a pretty scary thing coming at you in all of the capabilities off something that costs $750,000 to start.
Yeah. Well, and that was going to be my next question because it sounds like hopefully back half of this year, higher volumes, and you're going to have multiple variants of this solution. So you'll maybe walk through the different actual variants you'll have and what maybe the price points might look like there to kind of do the math for these investors on the opportunity longer term.
Yeah, sure. So the current hull that we're making right now is the Variant 7. It's about almost an eight-meter boat. And that has a base of $750,000. If you just get the base model, it can come down a little bit if you get volumes. But there's configurations where it would cost close to $1.5 million, depending on what they want on it from us or payloads they want to do themselves. So that's kind of a variable there. Then we have the five-meter, which is going to be pretty much purely kamikaze. That'll be a little less expensive. We haven't published those prices yet. And we're going to be going all the way up with a couple in between up to a Variant 11.
It's going to be an 11-meter boat that's going to have a lot of different capabilities logistically, lander capabilities, carrying other payloads that we could use for river crossings. It's just going to be a very flexible platform, and you can have all of these in your fleet. You could have the logistics boats, the kamikaze boats, the V7, V8s. It's just the combination that we have for all these missions is, and/or we can make a boat if the Navy says we want something that does this. We can get a prototype to a production hull in three to four months, which is kind of unheard of in the industry.
Then though, we'd just love to touch on M&A and kind of growth strategy going forward. You guys have done a good job of developing stuff organically, but also buying stuff inorganically. So how should investors think about that over the next few years?
Yeah. So we have been pretty acquisitive. We typically do two or three deals a year. We'll continue to look at technology across the globe where it's actually working in real battlefields and maybe bring stuff back to the U.S. to be made in the USA. There's some really cool companies in the U.S. we're always looking at. We're always looking at four or five different possibilities. We're also really looking at long term over the next two or three years to be completely fully integrated so that we are doing a lot more of the products ourselves. So we have complete control over it. We have complete control of the supply chain. If you look all the way from cameras and then all the way down to motors, all those types of things, you want it all locally sourced in the USA.
Then there's a lot of payloads companies out there that could fit on our boats or things that could be deployed from our boats, whether it's torpedoes or ground rovers, things of that nature. But yeah, we'll continue to be pretty acquisitive if it makes sense or if it brings a new feature to ours. Some of the stuff we're looking at would be a feature on all three of our divisions. So really integrated.
And on that, because it's complementary to the drone portfolio, but counter UAS or counter unmanned is a massive opportunity. You guys don't have an organic product yet of that, but it seems like it could be very complementary. How do you guys view about that market?
You're going to see a counter product on the front of the boat at the innovation day at the end of next month. So you'll get to see it live. It's a little scary. There's not real bullets, don't worry. But we are looking at a lot of different counter. And a lot of the counter that we see successful in real battlefields is always kinetic.
Now, is that payload you're talking about something you've developed organically or?
No, we're working with a partner on that right now.
Okay.
Yeah.
Okay. Want to just pause there and see if there's any questions in the group? No questions?
Just on the boat, can you just talk about the supply chain in that? How different from drone, how developed it is for that?
On the USVs and the boats?
Yes.
Yeah. So it's interesting because it's probably more developed than even the Black Widow because we've got people that have been doing this forever. So we're basically just finishing our tooling, which will allow us to now pump out a lot of boats per week. We'll have the full tooling kits in March or possibly, worst case, early April. And that ramps up the amount of boats we can make dramatically from our prototype tooling system that we have. So the boats are very simple. If you're a boat builder, which they keep telling me because I'm not a boat builder, but they are, this is a very simple boat. We have a hull that we designed and made and have all the molds to do so. And we have a top deck.
On the top deck, it has some different configurations for different latches so you can put different stuff on it. Very simple. Then we put a diesel engine in it that sips gasoline. We either have a jet propulsion system or we'll have a prop system. It's autonomous. It needs some comms. Almost everybody's using Starlink. You have backup comms, which give you your autonomy links. You have some radar. You have some cameras, a lot of cameras. We're going to be the first USV to have full 360-degree view. There's some other sensors. There's a lot of magic that we're doing that nobody else is doing because we have boat builders designing these things. I think it's almost mature. But supply chain and expertise is actually on the boat side right now. The drone industry was destroyed.
There were no drone manufacturers ever in the United States that ever manufactured at scale. We all got destroyed in 2017, 2018 by DJI. So to make U.S. manufacturing, we all have to start from scratch. You couldn't go to Detroit and say, "I want a robot that makes drones like you can with cars." You have to make up all of these robots or these automated systems yourself, make a prototype, and then find a person to make that prototype into a production system to automate some of the Black Widow line. So there's only two real manufacturers for small drones in the United States. It's us and a company called Skydio. No one else can actually supply anything with any scale.
So on the boat topic, because companies, there's other players in the space that are more focused on larger, bigger autonomous boats. You guys are starting on the smaller end. Why is that? And maybe kind of conceptually, how do you view kind of expanding beyond that Variant 11? Are you guys going to go more upstream? Why or why not?
No, probably not. There's a huge difference between below 60 feet and above 60 feet. But let's just stick with what we know works right now in the last couple of years. Now, when you look at drones, everyone's like, "Oh, those are trench warfare. We're not going to have trench warfare with drones in INDOPAM ," right? But you still have to take over land. But you'll still need drones to do that type of trench warfare to take land over as you work your way through the islands. But what we saw in the Black Sea, other than the Black Sea is only Sea State two or three, our hulls are going to be capable of Sea State 4 and 5. Other than that, we have seen it really play out what it's going to happen when you're going up against massive ships that are worth billions of dollars.
And what we found out is that these smaller boats that are all under 10 meters were very successful. So we're going to focus on what works and what's been proven in the last couple of years. And then once you get over 60 feet, even if you're in recreational boating, that expertise is completely different. And when you go into 100, 150 foot and you're going to make it autonomous, anyone that knows the boat industry at all, something that sits in salt water with engines, good luck making it autonomous. You typically need many engineers just to keep the thing alive when it's not going to war. So I think the large ships, which A, are easy to see, easy to find, easy to kill, are going to be interesting for us not to go after.
Well, and I think just like the surface vehicle is just one element of the maritime. We can go underwater, which is a massive opportunity. So how do you guys plan to play in that segment?
Yeah, we're hoping to partner with a bunch of people that are making the UUVs right now. There's some companies up in Rhode Island that are doing some great stuff. We've had a lot of requests for people to put their stuff on our boats. So from some of the biggest primes all the way down to startups. So we'll lean on them unless we see a tech that we might want and may possibly do an acquisition in that space.
Okay. Okay. Well, and I think too what's unique about that's going to benefit players like you. There's just this whole shift with how the Department of War is buying. They want to not necessarily move away from the traditional primes, but they want to create it more competitive to then get a more cost-effective solution. So what are you seeing behind the scenes with how procurement is evolving that's going to benefit players like Red Cat and others that are in this next-gen kind of defense tech leaders?
There is always going to be a delay from the announcements that we see from Secretary Hegseth that get into the actual procurement models. But all the acronyms there. So having the PM offices and then switching to PEOs, I think they switched it to. A lot of that stuff actually happened really quickly. People saw that announcement and thought it wasn't going to happen, and it happened really quick. But some of these things are going to take a year or two to get into the cogs of these massive organizations in the Department of War. But I think an advantage that's going to be for Red Cat, we're iterating the Black Widow every week from feedback we're getting from real proven areas. We're going to do that with every one of our products.
The boat that we are. We got a three-year head start because it came from that environment. It didn't come from a VC-backed spreadsheet and a couple of slides and then a bunch of renderings. It came from actual wartime use, and we're going to continue to iterate that, and sometimes you have to iterate stuff because it doesn't work in three weeks after you've deployed it, so you're going to have to iterate quickly, and we're in that game. We can handle that. We're small enough so we can still iterate quickly, and it doesn't take six weeks of meetings before we decide to iterate. We can decide one day to do that, so I think we're going to fit the new procurement methodology better than most.
Okay. Okay. Well, and then it's the third product that you guys haven't, or you really haven't touched on yet, but it's directly related to the Drone Dominance. It's not just your Black Widow, but you guys have a FANG. Maybe kind of go over kind of that product and how that might be positioned in some of these higher volume attractive programs we're seeing.
Yeah, we see FANG is a must-have product. Everyone's going to have FPV. But FPV is useless without Black Widows, right, or an ISR drone to go with it. We're actually going to be packaging the sensor shooter together with the Black Widow and the FANG so they're more integrated than other than just helping guide the FPV pilot find it using your words. We're going to try to use tech to glue them together that's specific to our systems. But we're pretty excited about the FANG. We partner with actually Unusual Machines to do that. For all disclosures, I'm actually a co-founder of UMAC and on the board also. But I was just at their motor factory on Friday. It's unbelievable compared to the ones I've seen in China. So I think we're well positioned with FANG and having that partnership with them.
But more importantly, our sensor shooter would be so much more integrated than most because most people just make FPV drones. I mean, it's hard to make a Black Widow with all the tech that you need on there to be that reliable and that robust and to have all the GPS denied, EW denied, all that stuff you have to have if you're going to be successful with an FPV drone.
Okay. Any last questions? Well, before, Jeff, I just want to hand it back to you. Any other thoughts that you just want the audience to take away from what they should be looking for or any last thoughts?
I hope they're not last thoughts.
Hope they're not last thoughts.
But we're having an innovation day. I think keep your eye out for that and sign up for it. We've already got a lot of robust inward-bound demand. So it's going to be limited seats, but you're going to actually be able to see swarming boats and swarming drones at the same time, all products that we make. And so that's going to be a pretty exciting event. And instead of just seeing it on our website, you'll actually be able to see it. There's diesel involved. You'll smell it. And it's going to be a pretty wild demonstration. So we're really excited about that. I'll just preempt it. So a lot of people are like, "You haven't given any guidance for 2026." We're not heading into guidance yet.
We want to have contracts in hand, not speculate anything about any of these contracts to give some wide goalposts, at least to start to help you guys make your models. We're pretty excited about how much is in this budget this year compared to last year. There's billions, and there was $80 million last year. So I think we're going to have a great year on top line as we just proved in Q4. Basically, we did $40 million in revenue in a quarter and a half. So you can do the math going forward, and we expect that to continue into 2026. And now with the budget supposedly going from $1 trillion- $1.5 trillion, we think that our roadmap is going to get more robust and revenue is going to be more robust every quarter.
Awesome. All right. Well, Jeff, thank you so much for your time. Thank you, everyone.
Great. Thanks.