U.S. Drone Manufacturer Awarded $1.9 Million

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Red Cat Holdings Inc.'s (RCAT:NASDAQ) wholly owned subsidiary, FlightWave Aerospace Systems Corp., was awarded US$1.9 million ($1.9M) through the U.S. Air Force's Tactical Funding Increase (TACFI) program, noted a news release.

Newly acquired FlightWave designs and manufactures the Edge 130 Vertical Takeoff and Landing (VTOL) drone and payload cameras for the commercial, defense, security, and intelligence markets.

"This award will enable us to deliver next-generation performance in unmanned systems, providing our Air Force customers with a multi-role, highly autonomous VTOL platform capable of tackling the most demanding operations," FlightWave Co-founder and Chief Technology Officer Trent Lukaczyk said in the release.

The TACFI program, part of the U.S. Department of Defense's (DOD's) broader Small Business Innovation Research initiative, provides resources to accelerate the commercialization and deployment of innovative technologies for national security applications.

"The goal with this contract is to bring new capabilities for the Edge 130 to meet the evolving needs of the U.S. Air Force and position FlightWave for future larger contract awards," the release noted.

The Edge 130 VTOL tricopter is a commercial-use, military-grade unmanned aircraft system (UAS), approved for government use under the DOD's Blue UAS program. This asset, known for its hybrid fixed-wing and rotary design, delivers endurance, range and flexibility that are superior to traditional drone platforms.

California-based FlightWave will use the TACFI funds to enhance the Edge 130 VTOL UAS, specifically incorporate into it advanced autonomy features, longer endurance options, increased payload capacities and enhanced communication systems.

With these upgrades, the UAS is expected to carry out intelligence, surveillance, and reconnaissance (ISR) missions, operate more adeptly in contested environments, and support logistics in challenging terrains, according to the release. Ultimately, the enhancements will strengthen the material tactical advantage it already affords warfighters on the battlefield.

"The Edge 130 will become a formidable target and precision strike system for air, land, and sea environments," Thompson said.

Expanding Its Family of Systems

FlightWave's parent company, Red Cat Holdings, is a drone technology company integrating robotic hardware and software for military, government, and commercial operations. Based in Puerto Rico, Red Cat continues to expand its portfolio of low-cost, portable unmanned reconnaissance and precision lethal strike systems, the company said.

Red Cat's other wholly owned subsidiary is Teal Drones, whose products are the Teal 2 and FANG.

The Teal 2 is a small unmanned system offering the highest-resolution thermal imaging in its class. It is an alternative to the conventional ISR and strike systems on the market, which are costly and unretrievable, the company said. Teal 2 also is Blue UAS certified.

"The product is portable by rucksack and can give soldiers in the field situational awareness in the form of ISR as well as provide offensive capabilities in the form of loitering munitions delivery systems," reported Ladenburg Thalmann Analyst Glenn Mattson in a June 14 research report.

Red Cat's revenues "are growing exponentially" due to the Teal 2's success, Technical Analyst Clive Maund pointed out in a July 15 report.

FANG is the industry's first line of first-person view drones, optimized for military operations with precision strike capabilities and compliant with the National Defense Authorization Act.

Red Cat is the only public U.S. small defense drone manufacturer that can produce on a large scale, Maund pointed out, thanks to its facility in Utah.

Sector Growth Expected

Fixed-wing UAVs, like FlightWave's Edge 130, are ideal for operations requiring longer, high-speed, and more stable flights and for carrying heavy payloads, according to The Brainy Insights. As such, they are used mostly in long-distance missions like monitoring, mapping, and surveying.

Other uses are for agriculture, aerial remote sensing and product delivery. Increasing demand for this type of drone in various commercial applications is one contributor to growth of the fixed-wing VTOL UAV market worldwide, a Market and Markets report indicated.   

Another growth driver, one of the most significant, the market research firm wrote, is "the rise in the adoption of technologically advanced, runway-less, unmanned aerial military platforms by defense forces."

The global fixed-wing VTOL UAV market size is estimated to reach US$4.6 billion in value by 2030 from US$842M in 2022, reflecting a 23.7% compound annual growth rate.

In North America specifically, factors spurring the growth of this market are rising defense spending and ongoing military modernization programs in which new systems are being acquired and existing ones upgraded.

The advent of artificial intelligence, big data and other advanced surveillance systems will catalyze development of the fixed-wing VTOL UAV market, The Brainy Insights noted, by enhancing the operation and functioning of these drones.

The Catalyst: Product Enhancements

After upgrading the Edge 130 VTOL UAS to make it more capable in defense applications, FlightWave plans to demonstrate its enhanced capabilities, together with Air Force units, the release noted. The target date for this is early 2025.

This will strengthen FlightWave's commitment to supporting U.S. national security objectives while, at the same time, continuing to expand into the commercial sector.

Analyst: Bright Prospects for Manufacturers

Technical Analyst Maund rates Red Cat Strong Buy and recommends investors stay long in it.

"The drone industry is experiencing a period of massive growth as drones have become a key component of modern warfare," he wrote. "If we add to this that domestic production of drones in the U.S. is not just being encouraged but mandated for political and security reasons, then it is clear that the prospects for leading U.S. manufacturers of drones could scarcely be brighter."

Ladenburg Thalmann's Mattson also has a Buy rating on Red Cat plus a price target, implying a 36% upside from the stock's price at the time of his report. The company should benefit from increasing uses of small UAVs and from the U.S. governmental approvals given to its products, the analyst wrote in his initiation report.

Ownership and Share Structure

According to the company, 37.27% of the stock is held by management and insiders. Reuters notes that CEO Thompson owns 16.5%, and Director Nicholas Liuzza has 1.31%.

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$207.88M. Its 52-week trading range is US$0.525−US$3.27.