Red Cat Stock Drops Pre-Market On Q2 Earnings Miss, CFO Resignation: Retail Divided
By Stocktwits Inc | First Published Dec 17, 2024, 7:55 PM ISTThe 24% year-over-year revenue decline was attributed to Red Cat’s decision to halt Teal 2 drone production and shift focus to the Black Widow model.
Red Cat Holdings Inc., a U.S.-based drone maker, saw its shares tumble as much as 14% in premarket trading on Tuesday following disappointing second-quarter earnings and the unexpected resignation of Chief Financial Officer (CFO) Leah Lunger.
Lunger, who cited family reasons for her departure, confirmed during the earnings call that the company has already begun interviewing candidates to replace her.
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CEO Jeffrey Thompson emphasized that despite the setback, Red Cat remains focused on its long-term strategic goals.
For the quarter ending Oct. 31, the company reported revenue of $1.53 million, significantly below analysts’ estimates of $4.13 million.
Losses were reported at $0.18 per share—double what analysts had forecast.
The 24% year-over-year revenue decline was attributed to Red Cat’s decision to halt Teal 2 drone production and shift focus to the Black Widow model, which recently secured the U.S. Army’s Short Range Reconnaissance (SRR) Program of Record contract.
“While we are still selling the Teal 2, our manufacturing and sales efforts have shifted dramatically toward preparing for mass production of the Black Widow in 2025,” Lunger said during the call, explaining that the company is prioritizing long-term growth over short-term revenue.
Despite near-term challenges, Red Cat increased its fiscal guidance, projecting revenue in the range of $80 million to $120 million to include SRR-related revenue.
The company also touted its collaboration with Palantir Technologies, which is expected to boost margins through high-value software integrations, though revenue from this partnership has yet to be factored into its outlook.
CEO Thompson underscored the significance of the Palantir deal, describing it as “high-margin software” that would complement the hardware offerings.
According to an ongoing poll on Stocktwits, most retail investors feel similarly, anticipating the Palantir deal to give the company a “game-changing advantage. "
In addition, Red Cat completed the acquisition of FlightWave during the quarter, adding the Edge 130 drone to its portfolio. This diversified lineup, coupled with strategic contracts, is expected to drive gross margins up to 50% in the coming years under full-scale production, according to the company.
Red Cat ended the quarter with $5.7 million in cash and accounts receivable and has since secured an additional $6 million in financing. It expects another $3 million in January from the Army.
The company also plans to apply for a federal loan of up to $150 million under the Office of Strategic Capital, with an application decision expected by March 2025.
“We are evaluating our long-term cash needs to ensure we raise as little money as possible, while steadily building toward profitability,” said Thompson.
Additionally, Red Cat announced it will change its fiscal year-end from April 30 to December 31, aligning its financial reporting with calendar years.
“We will be probably having an Analyst Day in New York in early January,” said Thompson addressing when additional updates will be provided.
The drone stock has surged in 2024 with gains of 1,129% year-to-date.
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