Drone Tech Co. Makes New Revenue Record

Red Cat Holdings Inc. (RCAT:NASDAQ) posted its best quarter in Q3 fiscal year 2024 (FY24), exceeding guidance by 16% and generating record revenue, it announced in a news release. This company integrates robotic hardware and software into drone technology for military, government, and commercial operations.

"Red Cat is on a growth trajectory," Dr. Ashok Kumar, an analyst at ThinkEquity, wrote in a research report.

In the release, Puerto Rico-based Red Cat presented its financial and operational highlights from the most recent quarter, which ended January 31, 2024.

For Q3 FY24, the third consecutive quarter of double-digit, sequential growth, revenue was US$5.8 million (US$5.8M). This reflects increases of 250% year over year and 49% quarter over quarter.

At the quarter's end, Red Cat had a total cash and accounts receivable balance of US$12M and a funded order backlog valued at US$5.1M.

Subsequent to Q3 FY24, in February, the sale of Red Cat's consumer segment to Unusual Machines Inc. (UMAC:NYSE) closed. From this, Red Cat received 4.25M Unusual Machines shares, US$1M in cash, and a US$2M note payable to it.

Recent Operational Accomplishments

Since its Q2 FY24 reporting, Red Cat has accomplished a lot, it noted in the release. It made progress expanding into the Middle East and Latin America. In February, it showcased its Teal 2 drone system at the World Defense Show in Saudi Arabia.

The company partnered with Primordial Labs to integrate artificial intelligence (AI)-driven voice control technology into its drone platforms.

Red Cat and the rest of the drone industry worked to get the American Security Drone Act passed by the U.S. Congress. To go into effect in December 2025, this law bans the U.S. government from using federal funds to purchase and from using drones made or containing certain components made in China, Russia, Iran, and North Korea, according to UAV Coach.

Red Cat was recognized in two ways during Q3 FY24. The state of Utah, where the company's drone production facility is located, awarded Red Cat a US$750,000 manufacturing modernization grant. The facility in Salt Lake City is in full mass production mode.

"We are now demonstrating that we can build tens of thousands of drones yearly," CEO and President Jeffrey Thompson said in a March conference call.

Also, the U.S. Army selected Red Cat as a finalist for its Short Range Reconnaissance (SRR) program, another potential revenue opportunity for the company, noted Thompson. For SRR, Red Cat is developing a small unmanned aircraft system (SUAS) prototype for delivery in May 2024. The winner, to be announced by September 2024, will be awarded a contract for the delivery of about 12,000 drones.

Most recently, in March, Red Cat added another member to its board of directors, retired four-star Army General Paul Edward Funk II.

Pursuing Several Opportunities

Red Cat's Teal 2 drone, developed to "Dominate the Night" and debuted this fiscal year, is doing well, Thompson noted. This SUAS is outfitted with ultra-high-resolution thermal imaging and is modular, rugged, secure, and easy to fly. Military, public safety, and government entities use the Teal 2 for intelligence, surveillance, and reconnaissance. The company is now incorporating into Teal 2 Primordial Labs' Anura interface, allowing voice control capability and radio software features so they may be flown in electronic warfare environments.

"Bringing the Teal 2 drone to market was a significant milestone and the first drone to focus on nighttime operations," the CEO said.

"We believe that our gross margins with any purchase of one of these software solutions could be approximately 65%-plus and if the above customer chooses two or more software features mentioned above, we believe could approach 85% gross margins," purported Thompson.

Another revenue opportunity for Red Cat is the Pentagon's Replicator initiative. The U.S. Department of Defense's goal, Thompson said, is to get thousands of low-cost, autonomous drones to the warfighter in 18−24 months and has allotted a US$1B budget for this.

"The core objective is largely to counter China's growing military strength by overwhelming adversaries with what might be considered more expendable drones," according to a March article on The Drone Girl.

Drone Markets Are Expanding

The global military drone market is projected to reach US$17.96B in value by 2033, up from US$10.93B in 2023, according to a GlobalData January 2024 report. This reflects a total increase of 64% or a compound annual growth rate of 5.1%.

The rapidly growing loitering munitions, or suicide drones, segment will drive overall demand for the military drone market along with Ukraine and Israel's recent experiences in using various types of unmanned aerial vehicles in their conflicts.

The suicide drone segment, according to the report, will see growth from the adoption of AI, the use of swarm technology, and increased modularity and sensor capabilities.

As for the global commercial drone market, Statista forecasts it will grow another 36% by 2028 to US$38.2B in value from US$28.08B last year.

The Catalyst: More Revenue Growth

For revenue in the next quarter, Q4 FY24, to end April 30, 2024, Red Cat indicated its target is US$7M.

"If we meet our Q4 guidance," Thompson said, "we will have gone from zero Q2 FY24 revenue from a product that did not exist last fiscal year to US$18.5M in the Teal 2's first year."

At least two analysts are bullish on Red Cat.

ThinkEquity Analyst Kumar rated Red Cat a Buy last month. His target price on the drone tech firm implies a 604% return for investors.

Technical Analyst Clive Maund noted last year the stock was at a good point for adding to positions and he was staying long in it. Then, the share price was US$1.12, and now it is even lower.

Ownership and Share Structure

According to Red Cat, 37.27% of the stock is held by management and insiders. Reuters notes that CEO Thompson owns 16.52%, CEO of Fat Shark RC Vision Systems Gregory Ralph French has 6.49%, COO Allan Thomas Evans has 1.82%, and Director Nicholas Liuzza has 1.32%.

Institutional investors have 9.01%. The Vanguard Group Inc. has 1.75%, and Pelion Venture Partners has 1.21%, Reuters reported.

The rest is in retail. 

The company's market cap is US$53.13M, and its 52-week trading range is US$53−1.47 per share.

Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Red Cat Holdings Inc.
2. Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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