Red Cat Holdings Inc.'s (RCAT:NASDAQ) updated third quarter for 2024's fiscal year shows that the company's Teal 2 is doing well in the marketplace, according to Think Equity analyst Dr. Ashok Kumar in a February 20 research note.
The company disclosed initial revenue figures for the three-month period, which ended on January 31, 2024, which represents the third fiscal quarter of 2024. Revenue for those months totaled around US$5.8 million. Additionally, the value of confirmed future orders and contracts currently stands at approximately US$5.1 million. For the following fiscal quarter, ending April 30, 2024, revenue estimates come to about US$7 million, based on current projections. Kumar noted that Red Cat is perceiving regained positive momentum after spending 12 months focused on business development and building relationships in NATO member nations and Saudi Arabia.
Finalist for Army's Drone Program
Kumar stated that Red Cat was chosen as one of the final contenders for the U.S. Army's Short Range Reconnaissance Tranche 2 drone program. Separately, an unspecified U.S. federal government agency placed orders with Red Cat for 344 drones amounting to around US$5.2 million total.
He also reported that Red Cat also secured a contract with U.S. Customs and Border Protection for 106 of its Teal 2 drone systems. In addition, Red Cat's drones received Remote ID certification from the Federal Aviation Administration to operate legally in U.S. airspace.
"Teal2 sUAS is now available through the federal government’s GSA Advantage. Red Cat continues its global expansion by entering Latin America," Kumar said.
IPO With Unusual Machines
Red Cat also shared that Unusual Machines bought two subsidiaries, Rotor Riot and Fat Shark, from the company for a total price of US$20 million. The payment was structured as US$1 million in cash upfront, a US$2 million promissory note from Unusual Machines to Red Cat promising future payment, and US$17 million worth of Unusual Machines stock, which at the current valuation equals 4,250,000 shares. After finalizing this acquisition deal, Red Cat will hold a 48.66% ownership stake in Unusual Machines based on the outstanding common shares of Unusual Machines.
Midterm Revenue and Catalysts
For the upcoming fourth quarter financial period, the projected revenue goal is US$7 million. Achieving that quarterly target would amount to an annual revenue pace of US$28 million within only nine months of introducing the Teal 2 drone system to market. Looking even further ahead to the 2025 fiscal year, current forecasts have estimated annual revenue of US$35 million based on current business performance and expected further expansion.
"We forecast total revenues to grow from US$9.9 million in fiscal 2023 to US$35.0 million in fiscal 2025. Over the same period, we expect operating income to improve from US$27 million to US$9 million," Kumar wrote.
Kumar pointed out that some primary catalysts for the rest of 2024 will be to increase revenue, improve gross profit margins, and keep operating expenses under control. With the recent influx of capital from an initial public offering with Unusual Machines that raised US$1 million, Kumar believes that the company now has the necessary funding to work toward achieving those key objectives over the course of the next year.
With this, Kumar gave Red Cat Holdings Inc. a Buy rating with a US$5 target price.
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Disclosures for Think Equity, Red Cat Holdings Inc., February 20, 2024
Analyst Certification The analyst, Ashok Kumar, responsible for the preparation of this research report attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers; and (2) that no part of the research analyst’s compensation was, is, or will be directly related to the specific recommendations or views in this research report.
Financial Interests The analyst, Ashok Kumar, has no financial interest in the debt or equity securities of the subject company of this report. Further, no member of his household has any financial interest in the securities of the subject company. Neither the analyst, nor any member of his household, is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is the subject of this research report. The analyst has not received compensation from the subject company. The CEO of ThinkEquity, LLC., owns shares in the company. At the time of this research report, the analyst does not know, or have reason to know, of any other material conflict of interest.
Company Specific Disclosures ThinkEquity, LLC is a member of FINRA and SIPC. ThinkEquity, LLC or an affiliate has a client relationship with and has received compensation from this subject company Red Cat Holdings, Inc. in the last 12 months.
ThinkEquity, LLC ThinkEquity, LLC is a member of FINRA and SIPC. ThinkEquity expects to receive or intends to seek investment banking business from the subject company in the next three months. ThinkEquity does not make a market in the securities of the subject company of this report at the time of publication. ThinkEquity does not hold a beneficial ownership of more than 1% or more of any class of common equity securities of the subject company. This report is for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of an offer to buy any security. While the information contained in this report has been obtained from sources believed to be reliable, we have not independently verified the information and we do not represent or guarantee that the report is accurate or complete and it should not be relied upon as such. Any references or citations to, or excerpts from, third-party information or data sources (including, but not limited to, Bloomberg and Capital IQ) do not and are not intended to provide financial or investment advice and are not to be relied upon by anyone as providing financial or investment advice. Based on public information available to us, prices and opinions expressed in this report reflect judgments as of the date hereof and are subject to change without notice. The securities covered by or mentioned in this report involve substantial risk and should generally be purchased only by investors able to accept such risk. This research report and the securities mentioned herein, some of which may not be registered under the Securities Act of 1933, are intended only for Qualified Institutional Buyers (QIBs), as defined under Rule 144A. Any opinions expressed assume that this type of investment is suitable for the investor.
