Research Report

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 US5.1 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.