Red Cat Holdings Inc.'s (RCAT:NASDAQ) CEO Jeff Thompson is a successful serial entrepreneur with a proven track record. He was drawn into the drone industry as a consultant and recognized the opportunity the industry's fragmentation had created in the United States. Jeff assembled a team, identified, and executed the acquisition of several top-tier hardware companies in the drone space. In addition, Jeff and his team have established and nurtured several strategic partnerships in the software side of the industry. These initiatives, in my view, make Red Cat Holdings a strong player to keep an eye on and put on your investment radar. Red Cat is on the right path and focused on achieving significant growth while bringing innovation to this young and rapidly expanding industry.
TEAL Drones, a subsidiary of Red Cat Holdings, is one of two companies left in contention to bid for a contract with the U.S. Army.
The company reported in March that "Teal Drones (Teal) has been selected by the Department of Defense's (DoD) Defense Innovation Unit (DIU) and U.S. Army to compete in the Short Range Reconnaissance Tranche 2 (SRR T2) Program of Record.
Teal was selected to develop a next-generation small unmanned aerial system (sUAS) designed for surveillance and reconnaissance (S&R) duties, with a focus on autonomous capability, for the U.S. Army. The ultimate goal of the SRR T2 program is to provide a small, rucksack portable sUAS that gives all Army platoons (20-50 soldiers) with situational awareness beyond the next terrain feature."
The field of bidders has been knocked down from 35, so making the final cut with just one competitor is an envious position. Having a 50/50 shot at winning the bid is what I would call pretty good odds. Take that from someone who lives in Las Vegas, where the house always has the odds tilted in its favor.
Jeff and his team chose to take a couple of calculated risks that may increase the odds in Red Cat’s favor. After a successful capital raise at $4.10 a share, the company is flush with cash. The team has put that capital to good use by doubling the size of its 13,000 sq. ft. manufacturing facility in Salt Lake City, Utah, to 26,000 square feet. The objective is to have the capacity to manufacture thousands of "Made in the U.S.A." drones per month. Jeff anticipates the manufacturing line process will be dialed in by September, making Red Cat the largest manufacturer of drones in the country.
One of Jeff's top executives made the bold call to stock up on chipsets and placed an order for 4,000, which are now sitting on the shelf. With all the current supply chain issues, this was an intelligent decision that will likely pay dividends. Both moves could play a key role in securing the Tranche 2 Army contract.
Another subsidiary of Red Cat Holdings, Skypersonics, has technology that allows drones to complete inspection services in locations where GPS is not available, and record and transmit data even when operated from thousands of miles away.
The company recently highlighted a two-year facility inspection program performed for General Motors.
"The full inspection program took over two years, including the initial planning and pilot training phases, while the inspection process across all 19 facilities required 14 months.
The program consisted of video recording of 50,000 cumulative feet of crane rails captured from 200+ flight hours by the Skycopter across all 19 facilities for subsequent analysis by structural engineers.
The Skycopter was piloted by General Motors personnel at all times following the completion of an initial pilot training program with Skypersonic.
Based on learnings from this initial inspection program, General Motors believes it can materially reduce the next round of crane rail inspections from 14 months for all 19 North American stamping facilities to six months.
Moreover, General Motors is evaluating the use of the Skycopter in other inspection applications across additional plants and facilities."
The Skycopter can be used to inspect any environment. In many cases, environments can be dangerous to the health of the workers performing these inspections in the past.
Critical infrastructures can be examined in a fraction of time with less human resources and out-of-pocket expense while significantly reducing the potential for injury and even death, in some instances, of employees.
The Skycopter can be used to inspect water and sewer systems, an environment that is often pitch black. Skypersonic can tweak the unique proprietary design of the Skycopter to include gas detectors and radiation detection.
Other potential inspection candidates include smokestacks, boilers, storage tanks, or any structure where there is limited and confined access. The Skycopter provides a viable, safer, and more efficient inspection solution.
Red Cat Continues to Innovate
Red Cat subsidiary Teal Drones, in close cooperation with Autonodyne LLC, has developed the 4-Ship Drone & Software Package
This new product offering has been referred to as a game-changer by many potential customers who have had a product demonstration and experienced first-hand the system's capabilities. After extensive research and development, Red Cat has produced multi-vehicle systems 4-Ship and 4-Ship+ for defense and government and the public safety markets.
Red Cat is the first commercial enterprise to bring a system like this to market. A single operator (pilot) can plan, launch, and execute missions with multiple drones in their control in minutes. This capability is integrated with Teal's Golden Eagle drone, the same drone being mass-produced entirely in the United States under the strict guidelines from the Department of Defense.
With all the geopolitical tensions that have surfaced because of Russia's inexplicable, heinous, ongoing assault to invade Ukraine, NATO and the surrounding countries of Ukraine have had a wake-up call to step up their defense spending, particularly in surveillance and the ability to collect real-time data to stay apprised of any critical developments that may require defensible action.
George Matus, founder and CEO of Teal, stated, "This early technological inflection point will redefine how drones are used across the defense and public safety markets, arguably increasing value by an order of magnitude."
The 4-Ship is a complete solution that provides operators with actionable information from multiple vehicles at the same time — including the display of four simultaneous video feeds—resulting in faster situational awareness and decision-making in today's complex environments. It also offers tremendous savings in manpower, the most expensive component of any drone operation, since four pilots are replaced by just one.
"With 4-Ship, we have successfully integrated the human/machine interface with an embedded autonomy engine that offers additional intelligence and surveillance capabilities from a single pilot and controller," said Steve Jacobson, CEO of Autonodyne LLC. "The ease of use and multitude of applications makes the 4-Ship a next-generation drone system."
"4-Ship represents truly disruptive technology that will alter the approach to intelligence, surveillance, and reconnaissance," added Jeff Thompson, Red Cat's CEO. "No longer are drone applications limited to a one-pilot/one-drone situation, drastically altering the potential missions for drones due to the ability of a single pilot to be able to control a team of drones. The 4-Ship already provides significant flexibility in applications, from security to agriculture to law enforcement, as well as the expected military applications, for which there is expressed interest."
Red Cat Holding's Inc. share price is in consolidation. It recently put in a double bottom formation at $1.50. A close above $2.40 would be a bullish sign, and a close below $1.50 would be bearish. The company features numerous potential catalysts and a low cash burn of just over $2 million a quarter that is likely to shrink as more production capacity comes online. It holds a healthy cash position of over $50 million with no near-term need to do a dilutive equity raise.
View the Alpha Wolf Trading exclusive follow-up interview with Red Cat CEO and founder Jeff Thompson here.
In my follow-up interview with Jeff, he spells out the reasoning behind a couple of SEC filings that Red Cat recently released. That should alleviate any concerns that current shareholders or potential investors may have. I do not think it is unreasonable to assume that the share price could rise back to a four-handle, where the offering was priced in April 2021—provided that some solid fundamental news comes to light over the next couple of quarters. Insiders, including Jeff, have consistently bought open market shares. The executives are currently in a blackout period preventing them from adding additional shares at this current price level, something Jeff specifically stated in my interview, and you can sense he is not happy about it.
I can't predict what the markets will do over the next few weeks. We may see real panic and have a capitulation-type move that temporarily depresses stock price levels even further. I would welcome that as an opportunity to add shares of $RCAT.
Tim Weintraut is the CEO of Alpha Wolf Trading, whose mission is to help new and struggling day traders, swing traders, and long-term investors achieve sustainable success. Tim started Alpha Wolf Trading to provide an extremely affordable service for anyone looking to take a balanced approach to the markets. He has been running Alpha Wolf for the last eight years and providing educational content through Blog | Alpha Wolf Trading and his Youtube channel, https://www.youtube.com/c/AlphaWolfTrading. For additional information, visit www.alphawolftrading.com.
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