revenue was up in Q3 of its fiscal year 2023 (Q3 FY23), and with its recent operational developments, the trend is expected to continue through FY24, reported ThinkEquity analyst Dr. Ashok Kumar in a March 20 company update.
The Puerto Rico-based military technology company offers investors attractive potential returns and is Buy rated.
A possible upside is reflected in the difference between Red Cat's current price, US$1.07 per share, and ThinkEquity's target price on the company, US$5 per share.
Summary of Financials
Kumar reviewed Red Cat's financials for Q3 FY23, which ended on January 31, 2023.
Revenue was US$3.1 million ($3.1M), up from US$1.5M from the previous quarter. Revenue for the first three quarters of FY23 was 50% higher than revenue for the same three months of the previous fiscal year.
Gross margin "remained challenged," Kumar wrote, but is expected "to improve as product shipments increase and the company improves the efficiency of manufacturing and assembly processes."
Operating expenses in Q3 FY23 were down 20% quarter over quarter, thanks to the elimination of certain nonrecurring costs associated with the manufacturing facility expansion.
"We expect operating expenses to stabilize for the balance of the fiscal year and through the end of [calendar year] 2023," Kumar commented.
Red Cat's net loss for Q3 FY23 was US$5.7M, a 9% decrease from the prior quarter. However, it was up significantly over Q3 FY22's US$2.5M net loss due to the expansions of its plant and headcount.
At the end of Q3 FY23, the company had about US$25M in cash and investments.
Looking forward, ThinkEquity expects Red Cat's revenue and operating income to increase. The investment bank estimates revenue will reach US$11.9M in FY23 and then more than triple to US$37M in FY24. Also, it projects an increase in operating income during that same period to ($2M) from ($19M).
"Revenue drivers include the infrastructure opportunity, current and future contracts with the [U.S.] Border Patrol and the Short Range Reconnaissance program," added Kumar.
Positioned for Success
Kumar pointed out several factors that nicely set up Red Cat to realize ThinkEquity's revenue estimates.
For one, the unmanned aerial vehicle maker finished building out its state-of-the-art facility in Salt Lake City, Utah, and invested US$7M in raw materials, drones in production, and more, which, Kumar wrote, "should support strong sales over 2023."
Red Cat's current inventory of chips is big enough to build thousands of drones, and the company has the capacity to manufacture this many in a month. Now, with a developed and trained salesforce in place, Red Cat is continuing to build its sales pipeline.
Further, "the company has a best-in-class drone that is getting positive response from the target markets: military and first responders," noted Kumar. Red Cat "should benefit from new and repeat orders over calendar 2023."
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Disclosures for Think Equity, Red Cat Holdings Inc., March 20, 2023
Analyst Certification: The analyst, Ashok Kumar, responsible for the preparation of this research report attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers; and (2) that no part of the research analyst’s compensation was, is, or will be directly related to the specific recommendations or views in this research report.
Financial Interests: The analyst, Ashok Kumar, has no financial interest in the debt or equity securities of the subject company of this report. Further, no member of his household has any financial interest in the securities of the subject company. Neither the analyst, nor any member of his household, is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is the subject of this research report. The analyst has not received compensation from the subject company. The CEO of ThinkEquity, LLC., owns shares in the company. At the time of this research report, the analyst does not know, or have reason to know, of any other material conflict of interest.
Company Specific Disclosures: ThinkEquity, LLC is a member of FINRA and SIPC. ThinkEquity, LLC or an affiliate has a client relationship with and has received compensation from this subject company Red Cat Holdings, Inc. in the last 12 months.
ThinkEquity, LLC: ThinkEquity, LLC is a member of FINRA and SIPC. ThinkEquity expects to receive or intends to seek investment banking business from the subject company in the next three months. ThinkEquity does not make a market in the securities of the subject company of this report at the time of publication. ThinkEquity does not hold a beneficial ownership of more than 1% or more of any class of common equity securities of the subject company. This report is for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of an offer to buy any security. While the information contained in this report has been obtained from sources believed to be reliable, we have not independently verified the information and we do not represent or guarantee that the report is accurate or complete and it should not be relied upon as such. Any references or citations to, or excerpts from, third-party information or data sources (including, but not limited to, Bloomberg and Capital IQ) do not and are not intended to provide financial or investment advice and are not to be relied upon by anyone as providing financial or investment advice. Based on public information available to us, prices and opinions expressed in this report reflect judgments as of the date hereof and are subject to change without notice.
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