We'll go ahead and get started. My name is Clarke Jeffries. I lead up 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. Yeah. 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 when no one knew what FPV was. I ended up kind of consolidating a bunch of small FPV companies, Rotor Riot, Fat Shark, which is now all part of Unusual Machines, another company I'm a co-founder. But was looking to put all this great tech in the drone industry together using a public vehicle, and I think we've done seven acquisitions so far. 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. I was literally the most hated man in FPV for many, many years. We got it onto the Nasdaq in 2021, then the war broke out and the whole world has realized how important. 80% of all activity in Ukraine is from FPV drones. It is the most prominent munition, and you need an ISR drone to do that, which we make the Black Widow. Then we recently, in the last year and a half, have gotten into USVs, which we also think is very, very important considering 70% of the globe is wet. Yeah, absolutely. You have got a portfolio that spans the FPV space, quadcopter, hybrid VTOL, USV. 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 are talking about procurement motions and gaps and needs within the department. Let's talk about Black Widow. Yeah. That is 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 SRR program, and what led them to selecting Red Cat? 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 do not understand this, but SRR was formed because of the first drone use in Syria. Yep. 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. We got down-selected with the original five, then Teledyne FLIR bowed out because they did not want to compete against their customers. Then it went down to three. Then it went down to two. It was just us and Vantage. Then somehow Skydio got back in. We have no idea. Then it was finally just down to us and Skydio, and we do a thing called IOT&E. I will just be very blunt. We crushed them going head to head in Project Convergence, and we got a letter a month later. Yeah. When you think about those requirements and how it has progressed, like where are we at in the sophistication of them knowing that, "Well, we want this to be ISR, but it also has got to be doing dual mission. It has got to be doing strikes some of the time." How sophisticated is the procurement motion at this point in time? Just so that we are aware of level setting, where autonomous systems and something like SRR is today. Yeah. This has been kind of a big subject recently from some other FPV companies, but we did not go by the requirements. We have been testing against EW in Ukraine. GPS-denied was not even part of the requirements for SRR. If you just went to the requirements document, you were going to give a soldier a product that was not going to work. Yeah. You are putting this thing in his rucksack, sending him to war, and he could probably die because the product does not work. That is still going on. The evolution of what we have 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 the 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. We are looking, we are integrated because we sell FPV. We have been doing it forever. We sell an ISR drone that is very, very capable. What we have done recently, we have a team that is sole responsible is to make sure that we never give a WarF ighter a product that does not work in Ukraine. Yeah. 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. We've recently just got back from over 20 days of flying on the front. We don't go to ranges. We actually go to the front lines. We had the most unbelievable flight times. We integrated with some other technologies that I can't really talk about that can get the drone back. We were 14 km in the front lines, 22 mi away from the actual Russian border. We lost the bird connectivity. The Ukrainians turned the web off our controller and just waited. The technology that we're using there right now, it flew back by itself without any communications. Wow. They saw the bird, turned it back on, and we recovered the bird. Yeah. I mean, that's the tech over there right now. We've been integrating with Ukrainians. The new version of our drone is called the Hellcat, which is based on all the new stuff that we've been doing to the. It's based on the Black Widow, but the Ukrainians helped us develop this new Hellcat that works in battlefields. We're actually live in four theaters. Yeah. It's something we talked about earlier in the year about the big differentiator being something that's battle proven or something that's reliable because there have been so many new entrants to this space. Yep. 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. Yep. 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. Yep. What are you seeing from outside of Ukraine, Japan, Philippines, Taiwan? 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 SRR 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 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 km off of Taiwan. Yeah. We are looking at ways to change that area so that it can utilize a lot of the tech that we are using in Ukraine right now. When everything gets jammed, our stuff will work. Our boats will work, our birds will work. A lot of stuff was not working in the first few weeks of the Strait of Hormuz. The boats, the USVs were not working, Orca drones were not working, and there was some tech that fixed all that, and then they were able to actually function in that environment. We want to make sure when we look at all those markets that, you show them stuff that actually works from lessons learned in Ukraine. There is a lot of USV activity there. There are so many islands. We have been working with General Lombardo in Korea, who just got promoted. Other than Ukraine and Europe right now, we are probably doing almost as much right now from Japan all the way down. 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? Certainly Ukraine is a unique theater. Yeah. We have already seen some differences in Iran. Yeah. INDOPACOM I think is a huge question mark for a lot of people. Yep. What will rise to the top? To the extent that you have an opinion there, what do you think will shake out? Well, we've brought some expertise on in INDOPACOM. We're working with General Flynn, who ran it from 2021- 2024. He's telling us exactly what you would need to protect that area. You got to use a lot of small, smart weapons. If you listen to Alex Karp, even 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. You can't just have 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. They're different sizes. Yeah. 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 from miles away, which we've been very successful proving to the Navy over the last few months. Some people don't like golf analogies if they don't like golf, but you don't get up on the first tee and take out your putter, right? You take out a driver. 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. The same things with the boats, right? If you've got a massive fleet out there, you have reconnaissance, you need logistics. 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. You just really have to look at this. Logistics is how wars are won. We're really concentrating on that and how to get stuff into theater. We're also looking at the UUV 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. 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. Yep. Or swarming, where you kind of imagine if you're looking outside of the bubble of Ukraine. Yep. 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. Right. Over the long term. What do you think is going to be the big kind of magic bullet to getting this equipment in the 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 think 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. Yeah. It is already public knowledge that we integrated into Lattice. We also integrate with Palantir. We are actually looking at an exercise with Palantir right now with our USVs. You have to integrate with the other players because we are all on the same team. If your stuff does not work with everybody else's stuff, your stuff is kind of useless. If you look at being able to work with other common control layers, we just partnered with Havoc. I think they are here as a private company. Yeah. They are up in Rhode Island. We work with a lot of different folks. We work with a lot of different. We have some anti-Shahed stuff. We have missiles, but they use Echodyne, which seems like everyone is going that way, so you can have no need for terminal guidance on the actual interceptor, which saves $8,000 per flight. You have to integrate with all these people because we cannot invent all that stuff ourselves. Yeah. You got to be able to have the common control layer, whether it is Lattice or Palantir or someone else. You got to be able to play nice with that so they can direct that entire theater with maybe our couple hundred boats, their ships, their birds, bigger birds, Group 3 birds, all interacting together and knowing. If you look at some of the lessons they are learning, like in Ukraine now, you ever hear of 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. H aving that plane of glass where everybody knows what is going on is crucial for INDOPACOM. It is going to be such a massive area. K nowing where everything is is super important. Yeah. The mention of the software layer is super important. Obviously, we are getting to next generation C2. Yeah. 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. Yeah. 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 base investment to build a domestic industry. It is still early. We have not gotten full production awards. But we are 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, then the kind of next step. Yeah. P retty interesting. Drone dominance one, the first Gauntlet was the first one. I'll just leave it at that. Yeah. 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. He went completely the 180 of where he was supposed to go. But the second Gauntlet they did was very professional. They learned super quick. It was 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. You're proving that you can't deliver in months for just 1,200 drones or 2,500 drones. If we win Gauntlet II, we'll deliver in about a week. Yeah. And try to get those extra drones that you get for delivering early. W e 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. Well, Drone Dominance began the program just thinking FPV drones just go around and look around and fly, and look around for targets. That's not how it works. Yeah. They have to have an ISR drone that tells, like in Ukraine, it's mostly DJI, which we're trying to replace right now. They go through 350,000 a year of DJI's drones, and they tell the FPV drones where the target is because the FPV drone's battery is very short. I f they go out and look around, their battery's going to die and the kinetic's going to go off. Yeah. They wait till 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. Drone Dominance wasn't doing any of that. They were just like, "F ly around with FPV." Yeah. Which is never going to happen in the battlefield. I think they've quickly learned that that's not the case. Then we just spent a full day flying with, what do they call? VAMPIRE. Yeah. They are massive bombers, and they're blowing 20 W out. It was difficult to fly next to them, but we figured it out, and we spent a whole day flying with VAMPIRE, bomber drones. Bomber drones are so important over there. I can see why the 2.5, they went to a bomber drone. It's a need. Yeah. Because FPVs are small loads. Based on what you are saying, where even there are some vendors out there that are struggling to meet diminished delivery requirements. How are you feeling about the requirements in 2025 and beyond, where we are 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 are just not prepared to have the full compliance of. Yeah. Domestic components? Where do you sit today in terms of being able to achieve that? When we won SRR, we had to go through a production-ready milestone where they actually, I think we got a check for $300,000 for meeting that milestone for the SRR Program. Since then, for Drone Dominance, they come out and see your stuff, make sure you can produce. 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? A lot of people have not gone through that process, and they are just like, "N o, 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 Just go look at the leaderboard, all of you. Drone Dominance Leaderboard, you'll see half of them still haven't delivered, or if they have delivered, it was this week. Well, let's maybe transition to USVs and Blue Ops. 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 USVs, what we've learned so far from similar learnings from Ukraine, maybe early learnings from Hormuz. Yeah. State of the Union on USVs before diving into Blue Ops. I think everyone was really excited about USVs in a very limited space, like Black Sea is, it's not an ocean. You don't have Sea State 4 or 5. But they did take out 25%-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 saw 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 supercarrier. All of a sudden, there's a lot of USV companies. We're seeing most of them build it, all Silicon Valley guys building for requirements. We've 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 Hinckley Yachts for 100 years. They became one of the largest boat makers in World War II. They made 500 wooden boats that mines couldn't attach to. Anyway, he had boats he was working on. He said, "I'll make these boats for you any day. It's my dream job." He's an ex-software guy. He never got into the boating industry because he wanted to not be under the guise of, "Y ou're just a Hinckley kid." He just has been running with it. If you come to our Valdosta Day on 21st, actually the town's going to be called, and the whole state of Georgia on the 21st is going to be Blue Ops Day. If you see our factory, you'll 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 don't need weeks to prepare. 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. Maybe we'll just talk about the specific products 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. The most successful boat ever in USVs is the MAGURA V5. It's a 15 m boat, and that's taken out the most targets ever. We have a 15 m 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 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. O ur boat way up here actually have stabilizers. They cost a lot of money to put on a boat. They can't afford them over there. W e have a V5 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 V7, it's a Swiss Army Knife. We can do missiles, we can do torpedoes. We have the ACS Bullfrog that Trump always talks about with taking down Shaheds and FPV drones. We now have the Echodyne radar, so we can do all the missiles. The interceptors all use Echodyne's system. All that on one little boat that's 28 ft 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 loads. Yeah. We still go the same distance. 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, it's so interesting based off of what we've seen already in the development of the USV space and that side. Maybe just curious on what you think will be the procurement trend or trajectory there, similar to the question around the INDOPACOM region looking at UAS. Are the Gulf States going to start seriously thinking about this? Yeah. 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. I think a lot of people didn't pay attention to what's going on in Ukraine and the Black Sea. W hen 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 present the V7s, and they like the fact that we have integrated drones already on there, and it can do interceptors. Also, in South America, there's a ton of activity going down there. They can't afford a traditional navy like we have, but we could build a navy for some of these countries for $100 million that would be better than most traditional three or four big ships. Yeah. There's a lot of activity down in South America. I already talked about from Japan down to Taiwan. There's a ton of activity going on everywhere. I think the catalyst was the Strait of Hormuz 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-w ater 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. W e've seen some things in headlines where a USV or a UUV will pop up next to a real naval asset of. Yep. Adversary, and it's sort of like, "N o." We're going to start having these assets be very close to each other and have interactions. Do you think the Navy's 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. I'll just be very frank, 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's 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. Yeah. Last question from 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 sq ft for the Blue Ops business. Yep. And then also, as 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? Yeah. That request is coming every single day. I had a long call yesterday for a place in the INDOPACOM region. People want to maybe buy a couple of hundred boats from us, then partner with someone locally, and then start building there. We have a great relationship in Taiwan. Actually, Hinckley Yachts has been building yachts with a firm in Taiwan since 1978. W e already have a really good partner there, but a lot of countries want to get some immediately and then start working on a partnership to build in-country. We've also got a way to ship 20 V7s in one 20 ft 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, obviously, the defense industry has had industrial workshare agreements for the mega-billion. Yeah. If you're going to share the IP for a multi-billion dollar defense contract, industrial workshares. But autonomous systems, 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 going to view it, and so it's something to very much watch. 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 Red Cat business? We're working on our USV division. I think once you start seeing sales come out of that, then it can become a massive year for USVs. We're also integrating, and on top of that, we have our people working there, and the DJI are getting harder to get. Yeah. Do you think that'll be a direct arrangement rather than an FMS kind of arrangement? Yeah. Requests still received and give to the Ukrainians right now. Yeah. Well, Jeff, thank you very much for making it to Nashville.