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All right, we'll go ahead and get started. Well, my name is Clark Jeffries. I'm lead of defense tech research here at Piper Sandler. Happy to be joined by Jeff Thompson, chairman and CEO of Red Cat. Thank you for joining us. Thanks for having me. Well, let's give a primer for anyone in the room who might not be familiar. How did Red Cat come to be, and how do you serve the defense industry today? Yeah, Red Cat was founded in 2016, actually, as I started getting into the FPV space and no one knew what FPV was. And I ended up kind of consolidating a bunch of small FPV companies, Rotor Riot, Fat Shark, which is now all part of Unusual Machines. I'm another company. I'm a co-founder. But I was looking to put all this great tech in the drone industry together under using a public vehicle. And I think we've done seven acquisitions so far. And then in the middle of all this, which is very interesting, I was probably the most hated person in the FPV community in the mid-teens because I was looking at these things, doing things with defense and or police and first responders. And that whole community was totally anti. So I was literally the most hated man in FPV for many, many years. And then we got it onto the NASDAQ in 2021. And then the war broke out and the whole world has realized how important, you know, 80% of all activity in Ukraine is from FPV drones. So it is the most prominent munitions. and you need an ISR drone to do that, which we make the Black Widow. And then we recently, in the last year and a half, have gotten into USVs, which we also think is very, very important considering, you know, 70% of the globe is wet. Yeah, absolutely. So, yeah, you've got a portfolio that spans this sort of FPV space, quadcopter, sort of hybrid VTOL, USV, so like boat to air, multi-domain autonomous systems. Well, then maybe let's just go through some product lines because I think, obviously, when we talk about the defense industry, we're talking about procurement motions and gaps in needs within the department. So let's talk about Black Widow. That's the flagship drone program in terms of breaking into the defense sector and winning the short-range reconnaissance program. Where was the Army at when they were looking at the SSR program and what led them to selecting REDCAT? They were obviously looking at Ukraine, trying to learn as quickly as possible. What were the obvious gaps that they were trying to procure? Yeah, a lot of people don't understand this, but SRR was formed because of the first drone use in Syria. And these cheap drones can be used to come after soldiers, and the requirements are very old. They were from like 2018 or 2019, pre-war. so we got down selected with the original five then uh then fleer teledyne bowed out because they didn't want to compete against their customers uh then it went down to three then it went to two it was just us and vantage and then somehow skydio got back in we have no idea um and then it was down then it's finally just down to us and skydio and uh we do a thing called IOT&E, and I'll just be very blunt, we crushed them going head-to-head and we got a letter a month later. Well, I mean, when you think about those requirements and how it's progressed, where are we at in the sophistication of them knowing that we want this to be ISR, but it also has got to be doing dual mission, it's got to do strikes some of the time. How sophisticated is the procurement motion at this point in time just so that we're aware of level setting where autonomous systems and something like SSR is today? Yeah, we, you know, and this has been kind of a big subject recently from some other FPV companies, but we didn't go by the requirements. We've been testing against EW in Ukraine. You know, GPS denied wasn't even part of the requirements for SR. So if you just went to the requirements document, you were going to give a soldier a product that was not going to work. So you're putting this thing in his rucksack, sending him to war, and he could probably die because the product doesn't work. And that's still going on. So the evolution of what we've been doing with SRR, which is a very sophisticated bird, we can help helicopters find targets that we interact with the helicopter. We can interact with FPV drones to tell it, not just say, hey, go over there and look for it. It would be like, here, we can tell you exactly where it is and push that to the FPV drone. So we're integrated because we sell FPV forever. We sell ISR drones. It's very, very capable. But what we've done recently, we have a team that's responsible is to make sure that we never give a warfighter a product that doesn't work in Ukraine. And I can tell you right now there's a lot of products they're buying right now that do not work, and we see them all the time. um so we've um recently just got back from uh you know over 20 days of flying on the front we don't go to ranges we actually go to the front lines and uh we've had we had the most unbelievable you know flight times we integrated with some other technologies that i can't really talk about that can get the drone back we we were 14 kilometers in on in the front line 22 miles away from the actual russian border we lost the bird connectivity the the the ukrainian turn the turn the web off our controller and just waited and the technology that we're using there right now it flew back by itself without any communications then they saw the bird turned it back on we recovered the bird i mean that's that's the tech over there right now and we've just we've been integrating with ukrainians the new version of our drone is called the hellcat uh which is based on all the the the new stuff that we've been doing to the it's based on the black widow but the ukrainian's helped us develop this new Hellcat that works in battlefields. We're actually live in the fourth year. Yeah, and it's something we talked about earlier in the year about the big differentiator being something that's battle-proven or something that is reliable because there have been so many new entrants to this space that there's clearly matching to spec or chasing a commercial opportunity but it's not quite technology that's ready for deployment and obviously EW or very denied environments was a big filtering event for the UAS space in the first few years of the war. Let's talk about Hellcat and Black Widow in terms of the international opportunities, given that you just mentioned that. What are you seeing from, you know, outside of Ukraine, you know. Japan, Philippines, Taiwan, you know, where are those countries in terms of their procurement process? Do you think that they'll be in a position where Black Widow or a similar SSR requirement will be an obvious near-term opportunity. Just what are you seeing on the ground in terms of their procurement process? Yeah, we've been in Korea, Philippines, Taiwan, Japan for the last four or five months. We're there right now. We've got a team there right Now working with JMOD. And I didn't know because I'm a typical American with bad geography, but Japan goes down to almost 60 kilometers off of Taiwan. So we're looking at ways to change that area so that it can utilize a lot of the tech that we're using in Ukraine right now. So when everything gets jammed, our stuff will work. Our boats will work, our birds will work A lot of stuff wasn't working in the first few weeks of the Strait of Hormuz. The boats, the USVs weren't working, Orca drones weren't looking, and there was some tech that fixed all that, and then they were able to actually function in that environment. So we want to make sure when we look at all those markets that, A, show them stuff that actually works from lessons learned in Ukraine. There's a lot of USV activity there. There's so many islands. We've been working with General Lombardo in Korea, who just got promoted. So other than Ukraine and Europe right now, we're probably doing almost as much right now from Japan all the way down. Yeah. Just to put on your kind of military strategist hat for a second, how do you think that those theaters might be different in their procurement desires? I mean, certainly, Ukraine is a unique theater. We've already seen some differences in Iran. Indo-PACOM, I think, is a huge question mark for a lot of people on what will rise to the top. Just, to the extent that you have an opinion there, what do you, what We're working with General Flynn, who ran it from 2021 to 2024. He's telling us exactly what you would need to protect that area. So you've got to use a lot of small, smart weapons. If you listen to Alex Karp, Elon Musk, small, smart weapons that are fully attributable in mass. Everyone used to talk about mass, but in the old days mass in the art of war was humans. Now it's robots. So you can't just have like 100 boats to cover that area. You need thousands, if not tens of thousands. And we're not going to be able to build them all. And they're different sizes. So to do certain things, like to protect a fleet, you maybe want 50 boats that are like ours that can do kamikaze, ISR. We can spot objects miles away, which we've been very successful proving to the Navy over the last few months. So you have to have – some people don't like golf, and if they don't like golf, but like you don't get up on the first tee and take out your putter, right? You take out a driver. So drones are very similar to that. You've got bomber drones, FPV drones, ISR drones that tell the FPV where to go. They all have to be able to work together. And the same things with the boats, right, if you've got a massive fleet up there, you have reconnaissance. You need logistics, and we have a whole new team of stuff coming out just purely for logistics, for refueling. If you look at how we won the midway, it was logistics. It wasn't just we had a lot of different carriers that they didn't know we had. So you just really have to look at the logistics of how wars were won. So we're really concentrating on that and how to get stuff in the theater. We're also looking at UUB space right now because that's going to play a big part for cat and mouse over there. But it is a massive opportunity. Yeah. And anything that you would say is most interesting from a technology perspective that will better allow UAS or autonomous systems to integrate within the force structure? I think something that I'm looking at are like launched effects or swarming where you kind of imagine if you're looking outside of the bubble of Ukraine, where it's a lot of trenches and people on sticks. The U.S. military is probably not going to want to interact with UAS in that way over the long term. So what do you think is going to be the big kind of magic bullet to sort of getting this equipment in the sort of overall force structure, multi-service adoption? Is it the one-to-many swarming? Is it integrating in launch platforms with launch effects? What do you thing will be most important? It is integration, and a lot of companies just want to sell their whole family of systems and not talk to other people. It's already public knowledge that we integrated into Lattice. We also integrate with Palantir. We're actually looking at an exercise with Palatir right now with our USVs. So you have to integrate with the other players because we're all on the same team. So if your stuff doesn't work with everybody else's stuff, your stuff is kind of useless. So if you look at, you know, being able to work with other common control layers, we just partner with Havoc. I think they're here as a private company. They're up in Rhode Island. And so we work with a lot of different folks. We work with the, a lot different, like we have some anti-Shaheed stuff. We have missiles, but they use Ecodynes, which seems like everyone's going that way. So you can have no, no need for terminal guidance on the, on the actual, you know, interceptor, which saves eight, eight grand per flight. So you have to integrate with all these people because we can't invent all that stuff ourselves. And then you've got to be able to have the common control there, whether it's Lattice or Palantir or someone else. You've got be able play nice with that so they can direct that entire theater with, you know, maybe our couple hundred boats, their ships, their birds, bigger birds, you now, group three birds, all interacting together and knowing, like, if you look at some of the lessons they're learning, like in Ukraine, you ever hear the big wall, the delta wall? every single drone in the battle is on that wall and they know everything about it right to when it actually takes out a target. So having that plane of glass where everybody knows what's going on is crucial for Indo-PACOM's going to be such a massive area. So knowing everything is going to make it super important. Yeah, the mention of the software layer is super important and obviously we're getting to next generation C2 and these things that might be moving people from screens and raw footage or people on sticks to a lot more of a living, breathing pane of glass for assets, especially as we multiply the sensors. Maybe we could pivot to drone dominance and the outside of the normal procurement mechanism or a one-off OTA, this industrial-based investment to build a domestic industry. You know, it's still early. We haven't gotten full production awards, but we're in step 2.5. Any big learnings or takeaways from the process, even just maybe your view on what announcements have come out of the government in terms of the industrial base, what needs to happen from here after we get to the awards and then the kind of next step? Pretty interesting. Drone Dominance 1, the first gauntlet, was the first one. I'll just leave it at that. We didn't do so great. We had a soldier that had flown on a simulator for three hours, and he was to fly one of our missions. That's the way it was set up. He went the wrong direction. It was completely the 180 of where he was supposed to go. But the second gauntlets they did were very professional. They learned super quick. It was like nine days long. We delivered our drones days early, which was supposed to matter. We worked with two different partners for kinetics. I think we were the only ones that actually showed up with two different partners that they suggested. But what baffles me is the first award, half those guys on that leaderboard have not delivered. They should be thrown off. It's like you haven't delivered. I mean, you're proving that you can't deliver in months for just 1,200 drones or $500 drones. I mean, if we win Gantt 2, we'll deliver in about a week. Yeah. And try to get those extra drones that you get for delivering early. So, we have them on the shelf. We build them not just for the U.S., we build them for all over. Yeah. Were you surprised by things like the 2.5 where we're going to do bomber platforms? Are any of these SKUs surprising to you that they're being encapsulated in the gauntlet so far? No, I think Well, the drone dominance began the program just thinking FPV drones just go around and fly and look around for targets. That's not how it works. They have to have an ISR drone that tells, like, in Ukraine, it's mostly DJIs, which we're trying to replace right now. They go through 350,000 a year of DJI drones. And they tell the FPV drone where the target is because the FPB drone's battery is very short. So if they go out and look, they're going to see a target. If they go around, their battery is going to die and the kinetics are going to go off. So they wait until they see a target, and once the ISR drone sees the target, he tells the FPV pilot where it is, and they guide him to it so they can get right to that. And drone dominance wasn't doing any of that. They were just like, oh, fly around with FPV, which is never going to happen in a battlefield. So I think they've quickly learned that that's not the case. And then we just spent a full day flying with, what are they called? Oh, vampires. Yeah. They are massive bombers, and they're blowing 20 watts out. And it was difficult to fly next to them, but we figured it out, and we spent a whole day flying with Vampire's bomber drones. Bomber drones are so important over there. I can see why that 2.5, they went to a bomber drone. It's a need. Because FDVs are small loads. And even, you know, based on what you're saying, where, like, even there are some vendors out there that are struggling to meet diminished delivery requirements, you know how are you feeling about the the requirements in in two and beyond where we're talking about full domestic supply chain of components how much of that is going to be a filtering event you think for these vendors where they're just not prepared to have the full compliance yeah domestic components um and then where do you sit today in terms of you know being able to achieve when we want sr we had to go through a production ready milestone where they actually i think we got a check for 300 grand for meeting that milestone for the sr program And then since then, for drone dominance, they come out and see your stuff, make sure you can produce. And we've actually, the Navy just came out to see our factory in Valdosta for our boats for the same exact reason. Can we meet the production requirements if they give us a big order? So a lot of people have not gone through that process, and they're just like, oh, no, we can make a bunch of FPVs. We'll just hire a bunch Of people. It's like, if you win the contract and you don't have the scale to do it at that point in time, you're never going to meet the, I mean, just go look at the leaderboard, all of you. Drone dominance leaderboard. you'll see like half of them still haven't delivered or if they have delivered, it was this week. Yeah. Well, let's maybe transition to USVs and Blue Ops. I mean, we were talking a little bit beforehand. What does the pipeline look like for USVS and maybe just give a background on the State of the Union for US Vs, what we've learned so far from similar learnings from Ukraine, maybe early learnings for Hormuz, like State of Union on USV's before diving into Blue OPS. Yeah, I think everyone was really excited about USVs in a very limited space. Like, Black Sea is, like, it's not an ocean. You don't have sea state four or five. But they did take out 25% to 30% of the Russian fleet, which has been stuck in the northeast corner of the Black Sea for nine months. They won't move. And then we get to our first USV against USV the other day, made history. But people have started to realize, gosh, these small, smart boats can do a lot of damage to a superpower. there's a lot of usv companies um we're seeing most of them all silicon valley guys building for requirements we got a cool tech stack and then they try to build a boat and the ocean eats everything we did the opposite i went and met an old friend of mine i've known for 25 years his family's been building hinkley boats since for 100 years uh they became one of the largest boat makers in world war ii they made 500 wooden boats uh that uh mines couldn't attach to but But anyway, he had no idea what he was working on. He said, I'll make these boats for you any day. It's my dream job. And he's an ex-software guy. He never got into the boating industry because he wanted to not be under the guise of all yours, the Hinkley. And he just has been running with it. If you come to our Valdo's today on the 21st, it's going to actually, the town's going to be called Valdo. And the whole city of Georgia on the 24th is going to be blue ops day but factory you see our quality is so much higher i'll go against any company anyone want to meet us in the ocean that's an open challenge we'll meet you any day we'd love to we we're doing really good in our exercises against other competitors i'm not going to say names but we've won every exercise we've went to yeah and then maybe we'll just talk about the specific products and and sort of the functional categories that you see them going into Variant 7, but is there anything on the horizon? Let's just talk about specifically your carve-out with what you're doing today in terms of form factor. Yeah, so the most successful boat ever in USVs is the Magura V5. It's a 15-meter boat, and that's taken out the most targets ever. We have a 15‑meter boat that we designed from scratch. It can capsize and come back, and we just really over-engineered it a little bit here because the Navy uses it different than, you know, Ukraine. Those things maybe last a day. The Navy might practice with it for three or four years and then finally field it into a battle. So we're all the way up here. We actually have stabilizers. They cost a lot of money to put on a boat. They can't afford them over there. So we have a V-5 version. We haven't named it yet, but we have our first few coming off the line right now, and they're mostly just kinetic kamikaze. The V-7 is a, you know, it's a Swiss Army knife. We can do missiles. We can use torpedoes. We have the ACS machine gun that Trump always talks about with taking down Shahids and FPV drones. We now have the Echodyne radar, so we can do all the missiles, the interceptors, all use Echodynes system. So all that on one little boat that's 28 feet long. It's faster than everyone else. I won't actually talk about our competitors. We're twice the speed of Saronic with twice the load, and we still go the same distance. So if you want to go fast and have a boat that's maneuverable, ours is by far a leader. Yeah. Before I transition, any questions from the room? All right. Well, you know, it's so interesting based off of what we've seen already in the development of the USB space and that side. maybe I'm just curious on what you think will be the procurement trend or trajectory there similar to the question around Indo-PACOM regions looking at UAS. Are the Gulf states going to start seriously thinking about this? I mean there are obviously some nations that might have not considered it even a year ago and are now faced with very significant economic incentives to maybe have an unmanned surface vessel fleet. Yeah, there's a lot changing. And I think a lot of people didn't pay attention to what's going on in Ukraine and the Black Sea, but when the Strait of Hormuz happened, everyone realized they're at a disadvantage. We've been to a few places over there recently, requested to come, presented EV7s, and they liked the fact that we have integrated drones already on there and can do interceptors. So also the South America, there's a ton of activity going down there. They can't afford a traditional Navy like we have. But, you know, we could build the Navy for some of these countries for, you know, $100 million that would be better than most traditional three or four big ships, right? Yeah. There's a lot of activity down in South America. I mean, I already talked about from Japan down to Taiwan. There's an amount of activity. There's, there, there. There's there's, you've got a ton, you're going to have a ton of activity, you'll have a lot going on everywhere. I think the catalyst was Australia saying, wow, if you've got a waterway and you're not ready for that, you're in trouble. Do you think it will take longer for the Blue Water Navy to really adopt this procurement change, given that drones don't compete with the Air Force necessarily? No. There's a little bit of a category separation there, but we've seen some things in headlines where a USV or a UUV will pop up next to a real naval asset of an adversary, and it's sort of like, oh, no, we're going to start having these assets be very, very close to each other and have interactions. Do you think the Navy is ready for the sort of philosophical change required to maybe instead of orient around number of boats in the water, go after a long tail of autonomous systems? I've got to be careful because we're hoping them to be one of our biggest customers here. But I'll just be very frank. You know, the admirals like ships. Yeah. They like big ships to command around, and the new way of doing it, no one believed that FPV was going to be the most successful munition in a massive war, and it is. I don't think the Navy is there yet on are we going to have thousands of these small boats mentally. I think everyone in the Department of War thinks that we should be doing that, but I don' t know if they' re connected yet. Well, then, last question for me around just capacity expansion. obviously an enormous amount of capacity expansion has come on for the business over the last 12 months maybe just if you could share major initiatives that you're planning to do across the business you talked about over 100,000 square feet for the Blue Ops business and then also if you think about serving these international allies how important do you think it's going to be for the ecosystem to have in-nation production that request is coming every single day. I had a long call yesterday for a place in the Indo-Pacific region. People want to maybe buy a couple hundred boats from us, then partner with someone locally, and then start building there. We have a great relationship in Taiwan. Actually, Hinkley Yachts has been building yachts with a firm in Taiwan since 1978. So we already have a really good partner there. But a lot of countries want us to get some immediately and then work on a partnership to build in-country. We've also got a way to ship 20 V7s in one 20-foot container. And it's basically 3D-printed hulls. We have the 3D printer in theater, and we can ship 20 engines, 20 wiring harnesses, everything, and then all the pellets in one container and get that to theater, and they can just start building them there. Yeah, that's fantastic. Yeah, it's a super fascinating question because, I mean, obviously, the defense industry has had industrial work share agreements for like the mega billion you know if you're going to do a you know share the IP for a multi-billion dollar defense contract industrial work shares but autonomous systems you know we're in this interesting new frontier where we don't quite know how much localized production they're going to absorb how strategic they're gonna view it and so it's something to very much watch you know last thing before we wrap it up most exciting thing that you would want investors to pay attention to over the next 12 months on the REDCap business? We're getting a lot of sales from the USV division. Once you start seeing sales come out of that, it's going to be a massive year for USVs. But we're also getting a ton of sales. And on top of that... We have a lot more people working there. And... The DJIs are getting harder to get. Yeah. And you think that'll be a directed arrangement rather than an FMS kind of arrangement? There's a request to be received and give to Ukrainians right now. Yeah. Well, Jeff, thank you very much for making it to Nashville. Thank you.