Good day, and welcome to Palladyne AI's Strategic Update Conference Call and Webcast. Please be aware that this conference is being recorded. I will now hand the call over to Brian Siegel, Senior Managing Director of Hayden Investor Relations.

Thank you, operator. Today, I'm joined by Ben Wolff, Palladyne's AI's President and Chief Executive Officer; and Trevor Thatcher, Palladyne's Chief Financial Officer. On this call, Ben will discuss the details of the strategic transformation announced in this morning's press release, followed by a Q&A. Any forward-looking statements made during today's prepared remarks or in the question-and-answer session, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results in the future to differ materially from those discussed on today's call. These risks and uncertainties include, but are not limited to, specific risks and uncertainties disclosed in Palladyne AI's periodic SEC filings. The company assumes no obligation to update any forward-looking statements or to update the factors that may cause actual results to differ materially from those that are discussed on today's call. Please note that today's press release and this presentation will be available on the Investor Relations page of Palladyne AI's website. They have also been filed on Form 8-K with the SEC. Now I'd like to turn the call over to Ben to discuss this morning's exciting news in more detail.

Thank you, Brian. Good afternoon, and thanks for joining us. Today is a defining moment for Palladyne AI, an American company where artificial intelligence meets the physical world. We build embodied AI, systems that don't just analyze data but sense, decide, and act at the edge in real time. Our mission is to be America's first multiplier, whether for the Department of War or industrial customers. Today, I'll cover how the GuideTech and the Crucis companies acquisitions, which for the latter, I'll refer to as Crucis in today's presentation, and the launch of Palladyne Defense transform us into a fully integrated AI and defense technology company. Before we begin, a brief reminder. Today's presentation includes forward-looking statements that are subject to risks and uncertainties described in our SEC filings. With that said, let's begin the strategic review. Most people think of AI as something that happens in a data center, algorithms that analyze information and deliver insights. Embodied AI is different. It's intelligence that lives in the real world. Again, we enable physical systems that can sense, decide, and act at the edge in real time. That difference between intelligence that analyzes and intelligence that acts is where the next generation of capability will come from. The Department of War has made it clear, the future advantage lies not in analytics alone, but in autonomous systems capable of executing missions in complex contested environments. That is the world Palladyne is building for. Before this transformation, Palladyne AI was a pure-play embodied AI company, developing software that brings autonomy to the physical world. Our two core products, Palladyne IQ and Palladyne Pilot, form the foundation of that capability. Palladyne IQ powers robotics automation, enabling intelligent, adaptive operation for commercial and industrial robots. Pilot provides advanced autonomous cooperation for unmanned systems, currently aerial and in the future, unmanned ground, space, and maritime systems and will continue as one of our core commercial offerings. For defense and public safety, though, we've rebranded the pilot variant as SwarmOS, a specialized version designed for collaborative multi-agent missions and swarming behaviors. Together, IQ and Pilot extend our commercial reach, while SwarmOS positions Palladyne to lead in national security, one connected embodied AI ecosystem serving both domains. Palladyne's evolution has been defined by four major inflection points, each one building on the lessons of the past. We began with robotics, designing and building sophisticated machines. Then we moved into robotics plus software, embedding decision-making directly into those systems. In the third phase, we paused building hardware to focus exclusively on software, building the intelligence layer that could power any platform. Today, we enter our fourth inflection, one that unites artificial intelligence, aerospace design and American manufacturing into a single vertically integrated defense business. This is where Palladyne becomes more than just an AI company. We're redefining what it means to be a mid-tier defense technology company. With the closing of these acquisitions, we have formally launched Palladyne Defense, a new business focused on embodied AI for national security, including both defense and public safety missions. Palladyne Defense combines ethical autonomy, cost-effective mission capability, and precision-driven design, all produced in the United States. Every system we build follows one rule, human oversight by design while reducing human cognitive load and letting humans and machines each do what they do best. This is intelligence that protects autonomy that serves national interest with control, precision, and accountability. With the acquisitions of GuideTech and Crucis, we've evolved from a pure software innovator into a purpose-built vertically integrated defense technology business that is fully aligned with the priorities set by the White House and the Department of War over the past six months. We now bring AI intelligence, aerospace design and U.S. manufacturing together under one umbrella. For the Department of War, it means a partner that can design, prototype, and produce not just code. GuideTech contributes deep engineering talent and rapid iteration of an optimal aerospace platform design. Crucis adds certified expandable manufacturing capacity, supporting flagship programs like the F-35 and the Tomahawk. Together with SwarmOS, they formed Palladyne Defense, a new American force built on speed, intelligence and sovereignty. We're not just making moves in a vacuum. The world has fundamentally changed, and the Department of War is reshaping its priorities around three forces that directly align with what we build and that are driving demand for what we create. First, the Department of War's focus on cost per effect. It's no longer about the largest platform or the most complex platform. It's about maximum operational impact per dollar. Second, reshoring and sovereignty. The National Defense Industrial strategy calls for rebuilding American production and supply chain resilience. Crucis is part of that national resurgence, as a certified U.S. manufacturer already supporting legacy and next-generation programs. Third, AI and mission systems. AI is moving out of data centers and into real mission hardware, into systems that think, coordinate and act at the edge. Autonomy is no longer theoretical. It is becoming a core operational requirement. These forces define the new rules of readiness, and they create the exact demand environment Palladyne Defense is built for. So why does Palladyne Defense exist? Because the market has a structural gap that neither start-ups nor large primes are designed to fill. Start-ups innovate quickly, but they're too small often to scale production, certify systems or deliver sustained readiness. Large primes, on the other hand, can scale but they sometimes move too slowly to keep pace with emerging threats and rapid iteration requirements. The Department of War is asking for something new with its replicator initiative, an agile, vertically integrated American defense company that can design, build, and deliver advanced autonomous capabilities at speed and at scale. That's the gap Palladyne Defense is built to fill. We're the bridge between fast and small and big and bureaucratic. In short, we are the new mid-tier prime engineered for this era of embodied AI, rapid capability delivery and American production. Palladyne Defense is built around three core capabilities. First is SwarmOS, our embodied AI and autonomy core for defense and public safety missions. It brings the decision-making intelligence that autonomously coordinates unmanned systems in the field. Second is GuideTech, our aerospace design, avionics and precision low-cost attritable systems group. These are former prime contractor engineers who can take a new concept from digital model to working flight prototype in less than six months, a fraction of traditional timelines. Third is Crucis, a certified U.S. manufacturer with the ability to scale rapidly that is already supplying major defense programs like the F-16, the F-35, the Tomahawk, Harpoon, and the Bradley Tank. Individually, each is already assisting large primes and defense tech start-ups in meeting the evolving demands of the Department of War. Together, we believe one plus one plus one has the potential to equal ten as they form Palladyne Defense, one integrated stack, AI, engineering, components, and American production, which is exactly the structure the Department of War has been asking for. GuideTech is the aerospace engineering nucleus of Palladyne Defense. As I just mentioned, the company is composed of former prime contractor engineers, veterans of missile, space and unmanned programs who know how to design and iterate at speed. GuideTech is already supplying avionics and design support to multiple defense contractors, proving its value in the field today. For the Department of War, that speed and responsiveness align perfectly with modernization directives calling for faster prototyping and deployment across unmanned and autonomous systems. GuideTech isn't just fast. It's built around a continuous design process from concept to field. Designs move from simulation to prototype to flight test and into initial production, all within the same integrated team. That's how you close the gap between an idea on a whiteboard and a system on station. This process is critical to the Department of War's modernization initiatives, including the push for accelerated capability delivery under the replicator program and related autonomy efforts. Palladyne Defense now has the structure to answer that call with the AI BRAIN, the engineering muscle and the manufacturing backbone to move faster than most others. Let's start with BRAIN, our mission-grade avionics architecture. It delivers the performance of legacy flight computers at roughly one-tenth of the cost, which is ideal for attritable and autonomous systems. BRAIN isn't just a concept. It's already being built into tradable systems. The system is modular, programmable, and capable of full integration with SwarmOS so that the same AI decision-making driving our autonomy can also run natively inside the airframe. In short, BRAIN gives us the intelligence hardware that connects our AI to the real world. Next is Banshee, a low-cost reusable precision loitering munition that demonstrates how embodied AI can transform mission economics. Banshee isn't a hobby drone or a repurposed quadcopter. It's a purpose-built system engineered for tactical and strategic operations with the ability to deliver multiple effects similar to much larger platforms, but at a fraction of their costs. Our plan is to integrate SwarmOS and BRAIN into Banshee, allowing for coordinated swarming, target sharing, and precise execution. This design directly addresses the Department of War's modernization priorities, including cost per effect and scalable autonomous systems. Banshee signifies a transition from one-to-one weapon systems to one-to-many intelligent effects. Here’s a quick video illustrating a Banshee test where it is dropping ordinance in a specified target area. I believe that's the incorrect video. All right. So that provides a good overview of what the Banshee platform entails. Next, we will discuss the SwarmStrike platform. SwarmStrike elevates the same philosophy to a higher level of mission capability. It is a long-range intelligent loitering munition that extends cruise missile range at significantly lower costs. SwarmStrike is engineered to operate either individually or in teams, featuring onboard autonomy that permits self-coordination and adaptive targeting. It's an example of how our embodied AI and avionics technology scales from tactical systems to strategic assets while keeping costs and complexity down. This is the future the Department of War is seeking, with intelligent, adaptive systems that provide operational effects affordably and quickly. Here is a quick video of SwarmStrike's first flight test, showing that this is a tangible development, not just a concept or a presentation. SwarmStrike is not the only cruise scale loitering munition we are developing. GuideTech is advancing towards a near hypersonic long-range affordable mass strike vehicle for the U.S. Navy. GuideTech is more than just an acquisition; it is the core engineering and avionics expertise behind our defense components, and it also lays the groundwork for IntelliSwarm, the next-generation embodiment of our autonomy architecture. Here's how it evolves. SwarmOS, the defense and public safety variant of Pilot that integrates unique capabilities specifically required for national security applications. And when you combine SwarmOS with BRAIN, you get IntelliSwarm, a unified intelligent autonomy system that merges AI, sensors, and avionics into one cohesive operating layer. IntelliSwarm will be the connective tissue across our entire defense product line, the same AI that thinks, flies, and fights. Pilot, our commercial autonomy product, continues to serve applications and use cases that don't need the full capabilities of SwarmOS. The second pillar of Palladyne Defense is Crucis, our new manufacturing and fabrication business. Crucis is a certified U.S.-based manufacturer supplying major defense programs, including the F-16, F-35, Tomahawk, Harpoon, and Bradley. Among its customers are Lockheed, the Boeing Kratos teaming effort and more. It has a growing 18-month backlog exceeding $10 million and is expanding capacity to support both Palladyne Defense programs and external defense primes. Crucis is AS9100 certified and built for precision. For the Department of War, this acquisition aligns perfectly with the broader national strategy, reshoring production, securing supply chains, and ensuring that critical components are built in America. What makes Crucis so compelling isn't just what it builds today; it's what it can build tomorrow. The companies have the physical space, the workforce, and the tooling to expand rapidly from precision machining to full system integration. Together with the R&D and production space we have at Palladyne, we now have more than 100,000 square feet of production capacity. That means Palladyne will be able to take a concept from design to prototype to flight test to production and do it all in-house. It also means we can serve as a surge capacity provider for the Department of War, supporting modernization, readiness, and reshoring initiatives that demand flexible American-made manufacturing. In every sense, Crucis gives Palladyne the backbone to scale. Crucis is the piece that completes our loop, AI, engineering, and U.S. manufacturing under one umbrella. With Crucis, we have certified American production tied to programs like the F-35, F-16, Tomahawk, and Bradley, work that's already flowing through its facilities today. We'll also look at how we implement Palladyne IQ on the shop floor to drive higher throughput and quality so the factory becomes smarter as we scale. Strategically, this aligns directly with the Department of War's industrial base modernization efforts, reshoring capacity, building resilience, and reducing lead times with American suppliers. We're not waiting for others to build the future. We're building it here. This is the all-up picture. All the pieces you've just seen, SwarmOS, GuideTech, and Crucis will now operate as one Palladyne Defense business. In practice, that means we are a partner and supplier to large primes, not a challenger to their core franchises. We provide software, avionics, components, complete systems, and design capacity, which gives us multiple shots on goal across the value chain, and we only build proprietary systems when there is a clear capability gap. That model lines up directly with the Department of War's priorities, cost-effective autonomous capability that can be fielded quickly backed by an American industrial base. Financially, these transactions are disciplined, high leverage accretive transactions. For 2026, the combined acquisitions are expected to push consolidated Palladyne AI revenue to more than triple our 2024 revenue of about $8 million, with positive adjusted EBITDA contributions from the two acquisitions. Importantly, we are entering the next phase with a growing 18-month backlog of more than $10 million, including ongoing development contracts with the U.S. Air Force and the U.S. Navy. Total consideration paid in these two transactions is approximately $31 million, consisting of stock, cash, and assumed equipment and real estate debt, plus an earn-out over the next five years of up to an additional $25 million once revenues relating to GuideTech's products exceed $71 million. Assuming this hurdle is achieved, the payout will be more than worth it for Palladyne and our shareholders. In addition, we plan to invest $5 million over the next 12 to 18 months to take Banshee and SwarmStrike from TRL-6 to TRL-9. That investment is aimed at unlocking a much larger revenue opportunity while keeping our capital structure highly efficient. We've talked about the assets. Now let's talk about how the business will run. Coming out of these acquisitions, Palladyne AI now operates through two focused businesses that share one autonomy core. Palladyne Defense integrates SwarmOS, GuideTech, and the Crucis companies, giving us mission autonomy, aerospace design, new products, and U.S. manufacturing in a single stack. That lets us move from concept to prototype to production on timelines the Department of War is demanding. Palladyne Commercial continues to scale IQ and Pilot across manufacturing, logistics and aerospace. It remains a core business opportunity for us. The headline is simple. Defense is an expansion of our platform, not a substitution for our commercial business. Two focused businesses, both strategically important, both powered by the same autonomy engine. Here's how the structure looks formally. Palladyne AI manages strategy, capital, and our shared autonomy platform. Palladyne Defense combines SwarmOS, GuideTech, and Crucis to serve government, defense and public safety customers. Palladyne Commercial scales IQ and Pilot across industrial automation and logistics. One platform, two focused businesses, each with distinct customers and strengths. Before we wrap up, I want to come back to where I believe a lot of our long-term upside sits, which is in Palladyne IQ. IQ is our original AI platform and the foundation of our embodied AI ecosystem. It was built to orchestrate complex multi-robot environments. And from that work, we drive Pilot for unmanned systems. IQ delivers the intelligence layer for industrial and operational efficiency. Its focus is simple; enable robots and automated systems already working in manufacturing, logistics, and infrastructure to perceive, reason, and adapt instead of just repeating fixed preprogrammed motions. IQ is hardware-agnostic and enterprise-wide, so customers can standardize on one intelligence layer across many facilities and robot types. The business model is attractive, software licensing and services that can scale as customers add robots and lines. Before we talk about the road ahead, I want to anchor us in the fundamentals. We are executing from a strong financial foundation. For the quarter ended September 30, we closed with $57.1 million cash and equivalents and used about $6.3 million in operating cash. That discipline gives us the runway to integrate GuideTech and Crucis and advance our autonomy products. We also announced a new U.S. patent covering key elements of our embodied AI and autonomous coordination capabilities. This IP directly supports SwarmOS and reinforces our role in edge autonomy. In parallel, we are advancing existing programs and pursuing new development work. For example, we think we are well positioned for an upcoming Department of War contract award. In addition to our relationship with Red Cat, we also launched a collaboration with Draganfly that reflects the type of ecosystem engagement we expect to grow. Finally, we further strengthened our leadership bench, specifically for defense and national security priorities with the additions of retired Lieutenant General Twitty, who during his career, led roughly half of the U.S. Army to our Board; and Doug Dynes as President of Palladyne Defense, a former Presidential appointee and National Security Adviser to Senator Hatch, and retired Major General Lee Levy, former Commander of the Air Force Sustainment Center, who will serve as Vice Chairman of Palladyne Defense. All three of these men complement existing Board member, retired Admiral Olson, the first Navy Seal to attain a 3-star Admiral rank and among his other distinguished roles was Head of SOCOM. Overall, we remain on track for 2026 that we expect will see a significant uptick in customer engagement across our portfolio. Stepping back, our investment thesis rests on five pillars: technology leadership, a proven autonomy architecture built for embodied AI at operational scale. Vertical integration, AI software, avionics, systems engineering and U.S. manufacturing in one stack. Two growth engines, IQ in the commercial and industrial sectors and our vertically integrated defense-focused businesses. Financial strength with roughly $50 million in cash post-acquisitions, we have the runway to execute. And finally, strategic timing. Our structure and technology align directly with Department of War priorities for rapidly fielded cost-effective autonomous capability as evidenced by our ongoing contracts with the Air Force and the Navy. This slide visually presents the structure. On the left, we have Palladyne Defense, SwarmOS, BRAIN Avionics, Banshee, SwarmStrike, and the IntelliSwarm architecture that powers AI-enabled mission systems. On the right, we feature Palladyne Commercial, IQ and Pilot, which provide industrial autonomy for manufacturing, logistics, and infrastructure. Both sides share the same AI core, meaning that innovation on one side boosts development on the other. This is the benefit of having a single autonomy platform that serves two complementary markets. Before I conclude, I'll show you a brief video that helps illustrate our vision. In summary, I hope you come away from today's call with the understanding that Palladyne AI is now a fully integrated autonomy company serving national security customers through Palladyne Defense and industrial customers through Palladyne Commercial, all powered by embodied AI. Our technology is advanced. Our structure is aligned with the national security priorities, and our financial position gives us the runway to execute on near-term deployments. We're building an American company designed for this moment, one platform, two businesses, and a significant opportunity ahead of us. Palladyne AI, America's cross-domain force multiplier. Thank you. Operator, we can open the floor for questions.

Our first question comes from Brian Kinstlinger from Alliance Global Partners.

Congrats on your transactions. In terms of BRAIN hardware from GuideTech, how much of that revenue is commercial versus government? Do they go-to-market as a prime generally or a subcontractor? And then maybe can you quantify the sales cycle, including the design win phase?

Thank you for your question, Brian. Their customers are currently all in the defense sector. They have also made some inroads in the space arena, which presents significant opportunities, although not directly linked to the Department of War. Currently, BRAIN sales are focused on supplying other prime contractors who are integrating BRAIN into their aviation or aerospace platforms. To secure that business, it must be part of a design win that leads to the entire system being sold to a defense customer, such as the Department of War or one of the military services. That has been their focus for the last few years, and they have achieved some impressive traction in that area.

Great. And then prior to the GuideTech acquisition, did your drone partners have another third party they use for edge compute systems? And so now the value is the drone manufacturer can come to you with one solution as opposed to using a variety of suppliers?

So it is very common in the smaller drone space to have either NVIDIA or Qualcomm boards that are being used on those platforms. And today, our SwarmOS software is being implemented on both NVIDIA and Qualcomm boards. Depending on the size of the platform of the aviation or, I should say, aerospace platform, depending on what the mission capabilities are that are required, you might see the BRAIN being a supplement to an NVIDIA or Qualcomm board or in lieu of an NVIDIA or Qualcomm board. It just depends on what the mission requirements are. But yes, you can think of us as being a vendor now for that avionics or guidance a navigation system that gets put onto a new type of weapon system.

Great. And then is there anything you can share in terms of either installed base, the number of partners GuideTech has? Just any kind of information to help understand average deal size, how to think about their customer base?

I hope to be able to give you more details after the first quarter. We're not at a point today that we're prepared to start talking about all of those details, Brian. But I think after the first quarter, we'll have some more information for you.

In terms of Crucis, could you address how this alleviates manufacturing concerns that potential customers may have regarding your capability to scale large programs? Additionally, can you discuss the types of components they are currently manufacturing and who their main customers are? I believe you mentioned F-15 and some vehicles.

Yes, no problem. So whenever you talk about producing systems at scale, one of the concerns that potential customers have is, okay, great, you've got a good concept. Now can you actually execute on it? Can you produce it at scale because we're going to be a big customer. We want to buy a lot of these. We don't want to just buy a few. And that has always been a challenge for start-ups is to figure out how do you go from not just prototype and into first commercial article, but how do you scale it to volume, which is the kind of volume that the Department of War is going to look for. We decided to not try and reinvent the wheel, not try and go through all the aches and pains of scaling up manufacturing on our own, but to acquire two companies that were trusted and well proven, have been around for a long time, had adopted new innovative technologies to be able to have higher margins than the industry average and that could produce some of the most complex challenging parts and components that were needed by the aerospace industry. That is one of the things that I think start-ups and younger companies get criticized for is how are you really going to produce at scale. And so we decided to nip that in the bud in one fell swoop and be able to provide this consolidated vertically integrated package to our customers.

My last question is, can you talk about how opportunities with your two drone partners, Red Cat and Draganfly are tracking? I'm sure the government shutdown isn't helping, but maybe from a high level, talk about the procurement and the opportunities.

I believe both companies are achieving impressive results with opportunities in the Department of War and various services. We have been working with Red Cat for a longer period compared to Draganfly, which is a newer partnership. Draganfly offers airframes with different mission capabilities than Red Cat. We are excited about integrating our software, which enables collaboration between different manufacturers’ platforms, allowing for better communication and providing more information to the warfighter in the field. This is a capability that the Department of War frequently emphasizes. Our collaboration with Draganfly is still in its early stages since we just announced it a few weeks ago. We anticipate engaging with them similarly to how we've worked with Red Cat, by meeting with customers together, discussing the fundamental capabilities of the air platform, and demonstrating why it is top-tier for specific missions. We aim to educate the Department of War customer on the possibilities that our SwarmOS platform brings with collaborative autonomy. Securing a design win is important, but there is also the challenge of persuading the Department of War that investing additional resources for enhanced capabilities is worthwhile.

Our next question comes from Michael Latimore with Northland Capital Markets.

Congratulations on the transactions. Did you mention that a couple of the main customers for your acquisitions were the Air Force and the Navy, or are those the two primary end customers? I understand you sell to the primes, but do they ultimately fall into those two categories?

So we actually have direct contracts with the Air Force and with the Navy, where they are funding the development of capabilities that they want to deploy. So those are direct contracts. That's not where we're acting as a sub to somebody else.

Interesting. And then as you think about the kind of revenue composition here, are we going to see sort of one revenue line? Or are you going to have hardware, software services? Just trying to think about how that will look.

Yes, I expect we will be able to clearly articulate what component sales, what services, and what software sales.

And how quickly can you get SwarmOS kind of embedded into the GuideTech development cycle and product lines there?

It can't happen fast enough. Since we just closed the deal today, I can say it's not happening immediately, but based on our previous experiences with getting it onto the NVIDIA board and Qualcomm, it was just a couple of weeks. Our engineering team started discussing today how to make that happen. I haven't received an update on that conversation yet, but I believe it won't be overly difficult or time-consuming.

And then I think at the end there, you mentioned you're potentially expecting a Department of War contract award. I guess just what product category is that in? Or any more detail there?

That will still relate to the SwarmOS capabilities. I don't want to say more about it than that because it's premature. But bottom line is we've got some good momentum with the Department of War following on the backside of some of the existing contracts that we have.

And just last one. It seems like GuideTech is able to produce key systems in much more cost effectively. Can you just provide a little more detail on how they do that? Why are they so much more cost-effective?

Yes. One of the things that the founders did when they started the company about 10 or 12 years ago, coming from Raytheon Missile Systems, was to invest significantly in developing their own internal software systems. These tools are transforming aerospace design and engineering. They can move from concept to working prototype in less than six months. For instance, with SwarmStrike, they achieved their first flight in just 4.5 months after the initial concept. This rapid development is largely due to the internal software tools they have created. When I consider the key strengths of GuideTech, I believe it is the people and the internal software systems that enable faster design conception and validation compared to the rest of the industry. This capability has contributed to their success with customers in the defense prime sector.

Our next question comes from James Kisner with Water Tower.

This is James. Can you hear me?

Yes, I can hear you. Thank you, James.

Congrats on the transaction. I just wanted to double-click a little bit on the vertical integration and sort of the benefits of that and sort of the why behind the transaction. I think you said that it helps your scaling, but are there other benefits here like time-to-market or integration technology or maybe even some margin stacking that's eliminated that also are rationales for these ready transactions?

Here's the way I think about it. The ability to control your destiny on both the hardware and software side to evolve them in tandem so that you can optimize both is something that you don't get the benefit of if you're just providing hardware or just providing software. You can think of a couple of great examples that I use as an analogy here. If you thought about Steve Jobs trying to come up with the iPhone and all, he was going to produce the hardware, not the software, it wouldn't be the hit product that it became. Vice versa, if he was only focused on software, not hardware, it may not have become the hit product it was. Take it into something that's a little more current. Think of the Tesla cars. If Elon had said, I'm going to build the frame and the physical instantiation of the vehicle, but I'm going to farm out the AI and the software to somebody else, it would not have been an optimized car that attracted the millions of customers that they have today. What we see in our opportunity set going forward is in those cases where there are gaps of capability that we think the Department of War wants, we now are bringing together our software and the hardware and the avionics and the components altogether vertically integrated so that we can go faster in a way that demonstrates enhanced capabilities so that we can beat our near-peer competitors worldwide to the punch.

Very helpful. Just one other follow-up. I mean the shutdown, obviously just ended and you're kind of early commercialization, but have you seen any change in the tender conversations in the last couple of days, anything to report there? That's all I have.

I have been pleasantly surprised by the lack of slowness in reengaging people now that they are back at work. It seems like the momentum quickly picked up again, at least with the individuals and specific areas we're focusing on. While I can’t comment on the entire Department of War or the whole government, I have been very pleased to witness almost immediate reengagement, resuming right where we left off.

I will now turn the floor back over to Brian Siegel for any questions from our webcast audience.

Thanks, Juan. I got a couple here. The first one is earlier this year, you described a roughly 12- to 18-month sales cycle and suggested you'd have more visibility in the back half of the year. I'm wondering whether the acquisitions along with the creation of Palladyne Defense have improved that visibility. Are you seeing any signs that these moves could shorten the sales cycle?

So the 12- to 18-month sales cycle was primarily focused on the commercial side of our IQ sales. And I don't see any change there. And certainly, these two acquisitions don't really impact that. I do think what these acquisitions do is they give us more avenues to monetize our SwarmOS swarming software, a lot more customers that we can now tap into relationships that we can build and expand on. And so it's too early for me to say whether I think the sales cycle for that product on the defense side will be shorter, but I do know it increases significantly our shots on goal.

One other question is, will you need to expand sales staff as you grow, let's say, over the next 6 to 12 months?

We anticipate achieving that, as it has already been included in our budget, regardless of whether we proceed with these acquisitions. One benefit of these acquisitions is that they each have their own business development initiatives, which we will support and strengthen. As I noted earlier, Doug Dynes has joined us to lead our defense business, focusing primarily on revenue generation in that area. He has excellent relationships, and we will be assembling a team to assist him.

The bottom line is that, as I have mentioned in the past when asked similar questions, the more we understand what encourages a customer to say yes, the more resources we will allocate to acquiring more customers. However, we will not invest heavily in marketing and sales until we have identified what strategies are effective and have figured out the key to success. One last question. It's about the commercial business. When will the next version of IQ become available? And is it being tested currently at customer or potential customer facilities?

We are testing the V2 of IQ in our own facilities now. As soon as we believe we've got it debugged and completely ready to go, then we will start placing it with customers. So we're not quite there yet. A lot of that, as I mentioned in my prior comments in past quarters or in our press releases, was focused on improving the user interface. User interface is never as easy as just putting a wrapper on the piece of candy. It actually requires integration with the way the software works, but we've never had an issue with the functionality of V1. What we had was an issue with the ease of use and making it so that we truly can have folks that are not software engineers able to interact with it and train robots the way very expensive computer programmers and software engineers typically do. So I think that we're close, and we're going through all the testing internally right now internally to make sure that it will be satisfactory for our customers when we release it out into the wild.

Great. That's all the questions from the webcast. Juan, you can close out the call.

Ladies and gentlemen, this now concludes our question-and-answer session and does conclude today's teleconference as well. We thank you for your participation. Please disconnect your lines, and have a wonderful day.