AIRO Group Holdings Inc

NASDAQ:AIRO

Q2-2025 Earnings Call

[Operator]

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to AIRO Q2 2025 Earnings Call. [Operator Instructions].

I would now like to turn the call over to Dan Johnson, Executive Vice President of Investor Relations. Please go ahead.

[Dan Johnson, executive]

Thank you, operator, and good morning, everyone. Welcome to AIRO Group Holdings, Inc. Second Quarter 2025 Earnings Call, our first as a publicly traded company, we appreciate you joining us today and look forward to sharing an update on our progress and performance.

With me on the call are Dr.Chirinjeev Kathuria, our Executive Chairman; Kevin Joe Burns, our Chief Executive Officer; and Dr. Mariya Pylypiv, our Chief Financial Officer. Replay information for today's call can be found in our earnings press release issued earlier this morning.

Today's call will include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and including, but not limited to, statements relating to estimates and forecasts of financial and performance metrics, the intended use of proceeds from AIRO's IPO the development expected capabilities, potential customers and regulatory approval of the John Cargo drone AIRO's operational landscape, demand for AIRO's systems and products AIRO's plans for a manufacturing and engineering development facility, expectations concerning future products and developments, the market acceptance and opportunity of AIRO's products and services and other statements that are not historical fact.

In addition to our prepared remarks, our earnings press release, SEC filings and a replay of today's call can be found on our Investor Relations website at investor.theairogroup.com.

Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent our management's beliefs and assumptions only as of the date made. Information on factors that could affect the company's financial results is included in its filings with the SEC from time to time, including the section titled Risk Factors in the company's final prospectus filed with the SEC on June 16, 2025, and the company's upcoming quarterly report on Form 10-Q for the quarter ended June 30, 2025.

In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalent is available in our earnings release.

With that, I'll turn the call over to our Executive Chairman, Dr.Chirinjeev Kathuria.

[Unknown Executive]

Thank you, Dan, and thank you all for joining us. Today marks an exciting milestone not just our first earnings call as a public company, but an opportunity to formally introduce arrow to the investment community and share the foundations of who we are. What we've built and where we're going. In a few minutes, Joe will share the progress from the quarter and more recently, and Mariya will cover our financials.

The first a little bit about AIRO Group. We built an integrated aerospace and defense platform to serve the future of mobility, security, and training across high-growth markets. Our mission is to deliver disruptive dual-use technologies through unmanned systems, pilot training, avionics, and electric mobility, segments that are individually compelling and collectively transformative. Our platform is structured around 4 synergistic business segments. Drone is delivering fully autonomous GPS-denied unmanned aerial systems for military and commercial ISR missions.

Avionics, a 20-year heritage business through Aspen Avionics, delivering over 14,000 systems with patented displays sensors and cockpit integration for both manned and unmanned aircraft. Training, elite military and commercial pilot training with the focus on close air support. ISR and adversary air missions. We are a trusted contractor under the DoD 5.7 billion CAS and Cash IDIQ.

Electric -- mobility, pioneering eVTOL and hybrid cargo drone solutions through our Joint Air Mobility brand. Using our patted slow rotor compound technology for safe efficient and scalable flight. We currently operate across 9 locations with over 151 employees, 61,000 square feet of operational space and maintain ISO 9001 and AS 9100 certifications.

We are strategically located to serve both U.S. and international defense markets, with headquarters in Albuquerque, New Mexico, and major operations in Denmark and Montreal, where we can deliver directly into NATO without navigating ITAR constraints, providing a structural advantage in cross-border logistics and responsiveness. This is a differentiated model. Our businesses aren't just adjacent, but deeply integrated sharing technologies, supply chains and operational capabilities. This creates a tangible advantage in cost structure, speed to market and platform development.

This interconnected structure enables several key advantages: one, shared R&D and manufacturing capabilities across drone and eVTOL platforms; two, cross-segment technology applications such as avionics, which are developed in-house and are being deployed across unmanned systems and advanced aircraft; three, training infrastructure that supports our own fleet and serves as a proving ground for next-gen platforms; and four, supply chain overlap and cost synergies, enhancing margin potential as we scale.

Across the board, our technologies are real, proven and deployed. Take our RQ-35 Heidrun, a beta-tested micro ISR drone with NATO grade capabilities with over 500 emissions per unit and operations in GPS tonight Heidrun trade environment, it has become a critical ISR asset for modern militaries backed by 200 million NATO aligned bookings in progress and AS 9100 certified facilities. This segment is scaling rapidly to meet global demand due to geopolitical events and increased defense spending.

In Avionics, our Aspen Avionics business provides the complete infrastructure for both manned and unmanned systems. With 20 years of flight heritage and strong OEM relationships, Aspen enhances safety and interoperability while supporting development of future military and civilian platforms.

Our training division is another major differentiator. With 10 years of sustained support to U.S. and allied defense contractors, including participation in the $5.7 billion Combat Air Force, commercial air service, IDIQ program. AIRO delivers elite close-air support and ISR training through our coastal defense brand. We operate fixed wing aircraft and modified systems from 2 dedicated U.S. training centers and maintain a top seeker facility clearance. An important barrier to entry that reinforces our trusted status.

Finally, in electric car mobility, we're advancing a hybrid drone and eVTOL strategy via our Jaunt Air Mobility subsidiary. Earlier this quarter, we unveiled a new middle mile cargo drone at EAA -- and expand it into Quebec's IMX Innovation Zone, a forward-leaning hub for advanced air mobility innovation.

With our patented slow rotor technology, our system combines the vertical lift of a helicopter with the cruise efficiency of a fixed wind aircraft. With this integrated platform, as our key to long-term value creation, where we're targeting a $315 billion total addressable market across all our business lines. We're already seeing robust adoption. Our 2024 revenues grew to $86.9 million, up from $43.3 million in 2023 and $17.1 million in 2022. We also have strong visibility with a $200 million-plus bookings in progress. Our recent IPO is the natural next step in our evolution, which enhances our financial flexibility, elevates our brand with global customers and positions us to accelerate execution across our pipeline.

Most importantly, it strengthens our ability to innovate, scale and deliver for our stakeholders. We are building AIRO for the long term. We have the right markets, the right model and the right team, and we're just getting started.

With that, I'll hand the call over to our CEO, Joe Burns.

[Joseph Burns, executive]

Thank you, Chirinjeev . It's a pleasure to be with you all today. I'd like to echo Chirinjeev's enthusiasm as this is a proud moment for the AIRO team, and I'm grateful to be speaking to you all today on our first earnings call as a public company.

AIRO had an excellent second quarter. We made important progress across all segments, advanced key strategic initiatives and strengthened our operational foundation as we entered life as a public company.

Let me walk you through the progress in each of our core businesses. Starting with drones, our flagship RQ-35 Heidrun platform continues to gain traction globally. This quarter, we announced a new U.S. manufacturing engineering facility to support domestic demand, enabled Blue AUS certification and fulfill by American requirements. The Heidrun has now been deployed in more than 500 missions, many in high-threat GPS and comms denied environments where it's electronic warfare resistance, extended range and Elite optics deliver outside battlefield value.

With strong interest from NATO Align Nations, this is a high-margin, high-growth business that we will look to expand further. We delivered over USD 75 million in drone-related revenue in 2024 and representing 167% growth and our backlog here remains robust.

We're also advancing our drones as a service model, offering ISR cargo and emergency response capabilities for enterprise and defense customers. In parallel, we're building out Airlink, a proprietary drone communication and data platform, which we view as a long-term infrastructure asset across autonomous flight operations.

In training, we recently completed a specialized 90-day naval special warfare deployment and continue to operate under multiple IDIQs with the U.S. Department of Defense. We deliver elite close air support in ISR training through our coastal defense brand using a fleet of NATO-certified aircraft and maintain a top secret facility clearance, a meaningful differentiator in this space that should not be overlooked. We're an active bidder on the USD 1.6 billion close air support segment of CAS Cash contract and have a reliable, low cost, high utilization model that makes us a compelling alternative to traditional adversary air providers. We believe the growth opportunity in training is not only durable, but accelerates our access to broader defense contracts and serves as a valuable R&D test bed across the platform.

In electric are mobility, when we unveiled a new medium looked cargo drone at EAA AirVenture OshKosh, capable of carrying 250 to 500 pounds over 200 miles. The subscale platform is built on our patented slowed rotor compound technology, providing the vertical lift of the helicopter and the cruise efficiency of a fixed-wing aircraft. The cargo platform is set for commercialization in 2027 and and we've already secured regulatory engagement and site access in Canada's YMX Innovation Zone, which offers a faster certification path on comparable programs in the United States. This cargo-first strategy derisks our road map to passenger EV -- all and opens use cases in military logistics, medical delivery and last mile air freight.

Finally, avionics continues to be the heartbeat of interoperability across AIRO. Aspen Avionics has delivered more than 14,000 systems to date and we're actively advancing development of next-generation displays, sensors and GPS solutions for both manned and unmanned aircraft. The open architecture of our systems and their proven integration of drones, training aircraft and future eVTOL platforms creates a feedback loop of innovation that is core to our strategy.

We're also pursuing upgrades that reduce installation costs and enhanced flight safety contributing to strong OEM and aftermarket demand. Aspen is an asset-light, cash-generative business with a long runway for margin expansion and category leadership. Taken together, these milestones reinforce what AIRO represents, operational execution, technological differentiation and a clear path to long-term growth.

As we look ahead, we are entering a period of strong momentum and rising demand across our core markets. NATO Defense spending is accelerating with a heightened focus on autonomy, ISR and rapid response capabilities. U.S. customers are seeking domestic solutions with field proven reliability and production flexibility and commercial and civil air mobility infrastructure is beginning to mature, particularly in areas where cargo delivery precedes passenger applications.

Let me dive a little deeper into this. NATO Defense budgets are expanding with an increasing share allocated to autonomous and unmanned systems. Only 23 of the 32 member countries currently meet the 2% GDP defense spend target, and there's a strong momentum to raise this to 3% or higher.

Meanwhile, the U.S. has pushed for a 5% targets from its allies. That shift alone creates a long-term multi-hundred billion dollar opportunity across our core verticals. Our addressable market is estimated at USD 315 billion, spanning ISR drones pilot training, avionics upgrades and air mobility solutions. And our platform is built not just to access that market, but to expand into it quickly, incredibly.

In 2024, we delivered USD 86.9 million in revenue, up from USD 43.3 million in 2023 and USD 17.1 million in 2022. That's 126% CAGR, driven by real adoption of our technology and disciplined execution across the business. We enter our public life with bookings in progress of exceeding USD 200 million supported by strong international defense demand and near-term U.S. opportunities.

We recently announced plans to expand our U.S. footprint by adding a new manufacturing and engineering development facility dedicated to producing our flagship drone product, the RQ-35 Heidrun. Here in the U.S., this new site will enable AIRO to scale production efficiently to compete for American-made defense and commercial opportunities and serve as a hub for future innovation in both commercial and military markets.

As part of our U.S. expansion plans, we are currently in the process of Blue AUS certification which will enable us to manufacture and sell the RQ-35 Heidrun to the Department of Defense. We conservatively estimate that the full process to take 6 months, but recent announcements by the Department of Fence expect to significantly expedite this time line. We've already completed the framework process and are near complete with the foundry and on-ramp stages. We anticipate obtaining certification as soon as this year, and our [ Eagle ] will begin selling our battle-proven drone platform to the U.S. military.

In the second half of 2025, our priorities are clear. Complete Blue AUS certification and expand U.S. drone production, convert backlog to revenue with continued program delivery, accelerate strategic partnerships, particularly in training and air mobility, maintain disciplined investment across research and development, manufacturing and certification and finally, to deliver on the promise of our public listing with consistent execution and transparency.

With that, I'll turn the call over to Mariya to walk through the financials.

[Mariya Pylypiv, executive]

Thank you, Joe, and good morning, everyone. For the second quarter of 2025, revenue was USD 24.6 million an increase of 151% compared to USD 9.8 million in the prior year period. Growth was driven by continued execution across our core segments, drone, training and avionics as we expand existing contracts and begin to scale -- work. Gross profit for the quarter was $15 million, up from $5.8 million last year. Gross margin was 61.2%, reflecting a favorable product mix and disciplined operational execution. We reported net income of $5.9 million compared to a net loss of $5.6 million in Q2 2024.

The second quarter EBITDA was USD 18.9 million and record for AIRO. Adjusted EBITDA was USD 4.7 million compared to USD 0.6 million in the prior year quarter. We continue to remain focused on execution as we invest in innovation, infrastructure and growth. On a segment basis, we continue to see significant revenue growth in rules driven by increasing interest for our RQ-35 Heidrun platform. Given recent announcements around attaining drill deployment, particularly in the U.S., we have strategically decided to focus capital on scaling our drone business, in response to growing market demand.

For training, we recorded high revenues due to a specific government contract related to ground term vehicles. We also believe there are opportunities to grow our training revenues by acquiring additional aircraft to conduct new programs. For Avionics, we experienced softer sales given the strategic decision to delay investments for in R&D and have products for the general aviation and multi-engine aircraft markets. while prioritizing resources towards our drone segment. However, we expect to renew investments in both our training and Avionics businesses.

Now that we have completed our initial public offering. Looking ahead, we expect positive momentum happen into the second half of this year due to increased defense spending globally, particularly to drones and drone-related technologies.

Turning to free cash flow and liquidity. We -- positive net income for Q2 2025, which was affected by noncash adjustments related to debt extinguishment and fair value adjustments of continued consideration and warrant liabilities. Free cash flow were also impacted by increases in working capital related to growing our business. As of June 30, 2025, we had USD 40.3 million cash and cash equivalents. Following our IPO, we have significantly reduced our total debt and have positioned our balance sheet to support continued execution and growth.

Finally, I want to briefly discuss the visibility we have across our growth and training businesses. which will contribute significant revenues in the years to come. As we have mentioned before, we have a line of tied to approximately $200 million of native bookings in progress will be converted into revenue over the next 18 months. Commercial agreements with individual NATO member countries, many of which we have strong relationships through demonstrating the high performance of our RQ-35 Heidrun. We continue to see strong demand for our growth platform and believe there are significant opportunities to grow our bookings. By expanding into uncertain markets, introducing new drone products and services and improving upon our existing platform.

On the trading side, we have been selected as 1 of 7 companies for the $5.7 billion IDMC contract to provide pilot training services for various branches of the U.S. Military. Specifically, we are focused on $1.7 billion of the contracts related to close air support services. Looking forward, we remain focused on scaling our operations converting our bookings to revenue and driving long-term shareholder value.

With that, I'll turn it back to Joe.

[Joseph Burns, executive]

Thank you, Maria. I want to leave it with a few closing thoughts. Arrow is a purpose-built company designed to drive innovation and support emerging markets. We're serving real customers and real road requirements in markets where reliability, performance and trust are nonnegotiable. We've built a platform that is both agile and scalable, and we're executing a strategy that combines near-term performance with long-term vision.

Our public debut marks the beginning of a new chapter. But our mission remains the same: to deliver the technologies, systems and training that define the future of aerospace and defense. Thank you again for joining us today, and we look forward to keeping you updated on our progress in the quarters ahead.

With that, operator, we are ready for questions.

[Operator]

[Operator Instructions]. Your first question comes from the line of Colin Canfield with Cantor.

[Colin Canfield, analyst]

Maybe going through the qualified Jaunt pipeline, but kind of talk about how you see demand shaping up in the U.S. versus Europe? I appreciate the Blue AUS certification commentary, but where do you think kind of demand signals are the strongest in terms of the next incremental order as we go forward?

[Unknown Executive]

Thanks, Colin. And maybe, Joe, if you want to take back.

[Joseph Burns, executive]

So demand signals to answer your second question first, highest demand has been, I think we've seen so far for small- and medium-class tactical -- primarily for ISR with intelligence surveillance for reconnaissance missions, particularly from the NATO expansion orders and other allied defense programs. Europe so far continues to lead to current revenue contributions, but the U.S. demand is accelerating. And we've sold our units to both Asia Pacific as well as North America.

But the pipeline does remain strong. We have active bookings across data customers, other European defense agencies and some new U.S. defense opportunities. We've seen incremental inbound interest from USA's following DoD's Slide 10 announcement about drones. And Europe continues to lead the current revenue. But as I mentioned, U.S. demand is accelerating. And we've also sold units into Asia Pacific as well as North America.

[Colin Canfield, analyst]

Got it. And then maybe focusing on avionics, if you could just talk a little bit about the growth engine there, specifically, maybe talking through kind of how we should think about the partnership with Joby as well as by extension of the relationship with L3Harris as we kind of think about not just selling into like scaling platforms, right, with the concept of doing more kind of like prime outsourcing type work as we get through the next kind of few years of growth.

[Joseph Burns, executive]

Sure. Our avionics growth is being driven by both the OEM integration. That is selling to brand-new manufacturing and new platforms as well as retro that we traditionally sold bulk of our equipment into retrofit programs. And we are, as you referenced, working with Joby Aviation, we had an announcement on that earlier this week that really positions us as a trusted outsourcing partner for mission-critical avionics systems, and it opens opportunities in harder defense and advanced air mobility markets as well beyond just the Joby positioning.

[Colin Canfield, analyst]

Got it. And then maybe, Mariya, if you could talk through the working capital building blocks through the year and kind of how we should think about the split of working capital consumption versus production in the next kind of 6 months?

[Mariya Pylypiv, executive]

So our working capital needs expected to increase in the second half of the year and just due to a higher cost receivable from around Q3 and Q4 for -- deliveries, and we will expect inventory buildup to support drone and avionics production for our new facility. The management of our accounts cables will be aligned with supply terms and cash inflow.

[Operator]

Your next question comes from the line of Andre Madrid with BTIG.

[Andre Madrid, analyst]

With the strong second quarter performance, I guess just how should we think about things trending through the balance of the year more broadly? Can you provide any outlook update or anything?

[Unknown Executive]

Sure. Andre, I think we can have maybe Joe and Ria, Joe gave on the earnings in his earnings call, what do you think are the priorities? And Joe, if you want to take that and then maybe follow up by Mariya but Joe, in general.

[Joseph Burns, executive]

Sure. I mean, we're going to be putting near-term CapEx, it's very targeted right now. And the largest of our investments are going to go to our new manufacturing facility, which is going to serve for U.S. drone manufacturing and U.S. engineering hub for that as well. We have other spend to directed to facility upgrades we're looking at new tooling for drone production and also sending money into our selective dollars into the training division. To really qualify for more and more of the IDIQ task orders and that would be aircraft that are NATO-certified and allow us to operate with more vigor into some of these IDIQs, most of the gross investment is still going to be reflected in R&D rather than large-scale assets. It allows us flexibility to scale to meet the backlog of demand. We're continuing to target investments in some core areas with drones, mid-sized models for DoD applications and then obviously to become Blue AUS certified to meet or to meet the compliance for that.

On the avionics side, we're going to spend -- invest into systems that really put us into higher end general aviation and multi-engine platforms. And we also, as referenced early, have secured a contract for a large eVTOL in the electric car mobility side, it's really about focusing on our cargo platform, our hybrid cargo drive, and that would be the development and certification of that. So those all kind of lead into -- hopefully, that answers some of your question, Andre.

[Andre Madrid, analyst]

Yes. And then I think, Mariya, did you want to maybe add on actual financial targets that we should kind of be thinking about? I mean...

[Mariya Pylypiv, executive]

Currently, we're not giving guidance in terms of the full market?

[Andre Madrid, analyst]

Yes, yes. No problem. And then I guess just using -- the build-out -- sorry for the feedback I got with the build-out at the Phoenix facility, I mean, how many drones do you reckon you could actually produce this year? And how are things progressing currently? And is there any possibility that Blue AUS certification might be able to pull to the left a bit?

[Joseph Burns, executive]

It's a great question. A lot of the Blue AUS certification depends on what sort of the new processes. I think everybody on the phone is aware, there was an announcement here about a month ago about revamping the whole process to streamline it. So there's always that possibility. We certainly would welcome any changes that could pull it into the left just a little bit.

But you mentioned the Phoenix facility, we just announced a 10-Q that we did secure a Phoenix facility to allow us the space. Our intention is to make that both an A S9100 facility that does take some time. We've done it before there other processes at our other facilities. But we will make out of A S9100, and it allows us to manufacture at least majority of the airframe for drone production in the United States so we could sell within the United States as well. This will help us with the compliance for U.S. mandates and further support all that Blue AUS.

So we have already started the Blue AUS process, and we are underway with sort of the framework around that and then bringing the manufacturing here should help us expand into that area quite a bit. So it depends on what the new compliance matrix looks like. We know what the old one is, and we think this one will be even a little bit more flexible than that.

[Unknown Executive]

And Andrew, just to give you a summary of what Joe and Mariya were talking about. I think you saw our results were better than expected. And a lot of that is driven by the geopolitical macro environment. that Joe spoke about with increase in NATO spending to 5% new executive order and the U.S. beginning to focus on building out their grown capabilities. And as you mentioned, our working up our facilities, increasing our manufacturing capabilities in the U.S. So I think we're very well positioned going forward to grow all the segments of our business.

I think our Q2 was -- our performance was better than expected based on the global geopolitical and macro aspects of where we are and our performance of our HQ-35 drone business. And now we're continuing to really build for the future. And as Joe mentioned, I know our priorities are also strategic partnerships for training and air mobility focusing on the John cargo.

[Andre Madrid, analyst]

Got it. Got it. Very helpful. And then one more really quick question, if I could just squeeze in. Can you just give an update on the exact number of nations that you are currently selling to or in the process of trying to work with?

[Joseph Burns, executive]

I'll start and then I'll let Mariya. But as mentioned earlier, we -- there are 32 NATO countries right now, and we are selling RQ-35 directly into those NATO countries. Approximately 20, 25 of them are upping their contribution level for their GDP into producing and acquiring more aircraft. We've got -- we've announced the public -- the public announcements about multiple countries already. I'm not sure the detail that we're allowed to get into because some of the stuff is classified. And once the governments release information, we certainly can talk about it and will have related, but there are multiple NATO countries that we're currently involved in. Mariya, do you want to talk about any more of that?

[Mariya Pylypiv, executive]

I will just add that outside of native countries, we are focusing on Asia Pacific. We already started selling there. as well as looking to North America. We've got an order from North America, and we are actively working on increasing the demand of the year, especially having a facility in U.S.

[Operator]

Your next question comes from the line of Colin Canfield with Cantor.

[Colin Canfield, analyst]

Just one quick follow-up. Maybe talk through -- you mentioned Avionics as a growth engine for the business. Maybe kind of talk through how you think about TNSS versus GPS and essentially how the team is participating or how the team thinks about all PNT as kind of a driver of both the OE side of that demand algorithm as well as the retrofit side of it?

[Joseph Burns, executive]

Yes, I'll fill that one. So GNSS, actually GPS is sort of the U.S. branded name run by the U.S. DoD for the original navigation technologies. GNSS is sort of the global award for GPS amongst other systems that are out there, [ Gallileo Baidu ], et cetera. So we have multi-constellation receiver set that can pretty much look at every NAV signal that's available. So we have a broadened horizon. It's a great question because as we see right now in the Ukraine conflict that in our operations there. The entire country of Ukraine is pretty much either jammed or spoofed from GPS. So alternative signals are really important. We have one of the few products that can actually navigate through that system that challenged environment without any real issues on our airframe.

So having that capability, and that is truly alternative PNT as we call it. So PNT stands for physician navigation and timing for those on the phone that weren't sure of that. But we're very, very engaged in that through high-level engagements with the U.S. government as well as for agencies. -- and have a technology that can receive multiple receiver sets. And as with anything that's chambers foot, the more satellites and constellations you look at, you have a better chance of getting a good solid signal in our current GPS receiver set is really a true GNS receiver set where it actually looks at multiple constellations. So we've got a fantastic product. We've proven in battle field deployments that we can fly through a lot of those types of environments. So really excited about the future in that because it is where we see all sorts of signaling going. So we're in a strong position to be able to build products that can really kind of look through all the noise and give you good navigation and timing signals.

[Colin Canfield, analyst]

Got it. Great color. Thank you.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.

[Joseph Burns, executive]

Thank you.