Swarmer, Inc (SWMR) Q3 2026 Earnings Call Transcript

Good afternoon. Welcome to the Swarmer Incorporated Third Quarter 2026 Earnings Conference Call. Joining us for today's presentation are the company's President and U.S. CEO, Alex Fink, and Chief Financial Officer, Brooks Ensign. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will open the call for questions. Before we begin, I want to remind everyone that today's call will include forward-looking statements within the meaning of the federal securities laws. These statements include, among others, statements regarding swarmer strategy, market opportunity, customer engagement, product development, technology integrations, expansion into new markets, future revenue opportunities, expected customer mix, potential deployments, and the anticipated benefits of the company's relationships, memoranda of understanding, partnerships, and commercial initiatives. Forward-looking statements are based on current expectations and assumptions and are subjects to risks and uncertainties that could cause actual results to differ materially. Additional information about factors that could cause actual results to differ is included in the company's earnings release issued today and in the company's filings with the Securities and Exchange Commission, including the risk factors described in those filings. The company undertakes no obligation to update the forward-looking statements except as required by law. Finally, I would like to remind everyone that this conference call is being webcasted, and a recording will be made available for replay on the company's Investor Relations website. In addition to the webcast, the company has posted a press release that accompanies these results, which can also be found on the Investor Relations website. I will now turn the call over to Swarmer's President and U.S. CEO, Alex Fink, for his comments. Sir, please proceed.

Thank you, Operator, and thank you, everyone, for joining us. The third quarter was pivotal for Swarmer. Over the past year, we have spoken frequently about our vision to build a platform for combat-tested technologies from Ukraine to spread to all allied nations. We have taken meaningful steps towards realizing this vision. Most notably, we announced our pending acquisition of Retel Robotics, one of the largest manufacturers of unmanned ground vehicles in Ukraine. Rattel accounted for 37% of all purchases of unmanned ground vehicles by Ukraine's government in the previous procurement cycle in spring 2026. We also announced the penny acquisition of intellectual property and R&D personnel from Vataga drone, which adds multiple models of combat-tested quadcopters, interceptors, and initiation boards to our hardware portfolio. Finally, we signed the Memorandum of Understanding to manufacture and deliver complete air defense systems for Vectis Air Defense. Throughout all this, we have strengthened our cash position and finished the quarter with more than $37 million of cash on our balance sheet, compared to approximately $25 million in Q2. These developments are a major expansion. Sparmer is no longer a software provider who relies on drone manufacturers to gain access to the battlefield. It is becoming a direct seller of end-to-end solutions, with a growing portfolio of ground vehicles, bot copters, interceptors, and air defense systems that can be deployed in Ukraine and in all other allied nations. We are making the strategic, proactive investment to own the entire value chain, end-to-end. We know there is enormous demand for autonomous drones and autonomous interceptors. We know the military units that want it, and we know they are willing to pay for it. And with the pending Vataga deal, we should soon have the intellectual property and the hardware team to fulfill this demand with a complete kit where autonomy is built in and not bolted on. We believe this complete end-to-end kit can be codified in Q1 and help make autonomy more widely adopted on the Ukrainian battlefield.

This does not mean we are stepping away from software sales

or from vendor agnostic solutions that can be used by any drone maker in the market. But it means we are no longer relying on the strategy exclusively. I expect us to focus more heavily on B2G sales, selling directly to the Ukrainian government and to other governments around the world, with B2B software sales becoming one out of many revenue streams and not the primary one. With this in mind, I'd like to cover Rattel Robotics in more detail. The definitive agreement was signed on September 9th, and our shareholders approved the related share issuance on November 2nd. We expect the deal to close in November 2026, as there are no governmental approvals required. We have Rattel's audited financials through Q2 of this year, and their unaudited financials for Q3 as well. Rattel's year-to-date revenue for the first three quarters of 2026 was $42.1 million, with $32.5 million in the third quarter. Moreover, $14.9 million were booked in September alone. While these numbers are unaudited, I believe they reflect the growth that the company is undergoing. As it is increasing manufacturing capacity to fulfill its existing 86 million of previously signed government contracts. With this, I am comfortable providing revenue guidance for Q4 this year, estimating that retail revenue for Q4 will likely be between 35 and 40 million dollars, with operating margins of between 13 and 17 percent. Our definitive agreement with Rattel makes the majority of their consideration contingent in the form of earnouts on Rattel's continued ability to grow the revenue and operating income. The revenue targets set in the agreement are $77 million in 2026, $130 million in 2027, and $187 million in 2028, with operating income targets of $8.47 million, $14.3 million, and $20.57 million, respectively. There is an additional bonus payment due if Rotel reaches a revenue target of $249 million in 2021, along with an operating income target of $27.39 million. Rotel's willingness to commit to these targets and make its consideration contingent on hitting them shows that they are confident in their ability to achieve these targets. They are manufacturing at full capacity, and they are increasing their manufacturing capacity each quarter, as we have seen from the Q3 numbers. We have seen evidence of this team's ability to perform, and we believe in Tarasov Kupchuk and his team. While we understand the uncertainty of geopolitics and of Ukraine's future budgets, we believe that this team will do everything within their control to deliver on their commitments. We are further encouraged by the announcement of cooperation between Rattel and General Dynamics, as well as discussions with other manufacturers in Germany, Denmark, Netherlands, and other countries that have joined the Build with Ukraine program. Our own Q3 results do not reflect these numbers, but we have a high degree of confidence that our results from Q4 onward will reflect them going forward. In parallel, we continue to make progress in air defense. Earlier this year, we became a founding partner and 20% equity holder in Vectis air defense systems. The rest is held by an entity managed by Eric Prince, the founder of Blackwater. And our non-executive chairman. During the quarter, we announced a memorandum of understanding under which Swarmer intends to manufacture and sell complete air defense systems for Vectis. Importantly, Vectis has confirmed its intent to purchase at least 40 systems during the first year following the start of production, and 80 or more systems during the second year, subject to definitive agreements and customary approvals. The MSRP of each system is estimated to be between $5 and $6 million. So we believe it is fair to expect that air defense will become an important pillar of our future earnings profile. These are the three pillars of our current market position. Ground vehicle, air defense, and autonomous drone kits that combine both hardware and software. All built from combat-tested, real technologies that have already had an impact on Ukraine's battlefield. With that, I will turn it over to Brooks to walk over the financials in more detail.

Thank you, Alex. Before I review the quarter, I'd like to remind everyone that additional detail regarding our financial results can be found in today's earnings release in our Form 10-Q to be filed this week with the SEC. For the third quarter ended September 30, 2026, revenue was approximately $26,000 compared with approximately $36,000 in the prior year period. Revenue recognized during the period was primarily associated with support services provided under existing customer agreements. We reported a gross loss of approximately $47,000 in the third quarter of 2026, compared with a gross loss of approximately $10,000 in the prior year third quarter. Cost of revenue primarily reflected a fixed allocation of cloud storage costs. Operating expenses were approximately $9.4 million, compared with approximately $0.8 million in the prior year period. The increase reflects investments we are making to build the foundation for future growth. Including expanding our engineering and product development capabilities, scaling our operational infrastructure, supporting our public company requirements, and pursuing strategic initiatives such as the pending acquisition of Retail Robotics. Operating expenses during the quarter also included approximately $1.7 million of non-cash stock-based compensation expense. Net loss for the quarter was approximately $9.3 million compared with a net loss of approximately $3.4 million in the prior year period. Turning to the balance sheet, we ended the quarter with approximately $37.3 million in cash and cash equivalents compared with $25.3 million at June 30, 2026. The increase in cash was primarily driven by capital raised during the quarter from our equity line of credit. We remain committed to managing our capital responsibly while investing in opportunities that we believe can generate long-term shareholder value. And with that, I'll turn the call over to the operator for questions. Operator?

Thank you. At this time, we'll open the line for questions. As a reminder, if you would like to ask a question, please click on the Raise Hand button at the bottom of your screen. Once prompted, please unmute your line and ask your question. We will now pause a moment to assemble the queue. Now, our first question will come from Alex Furman with Lucid Capital Markets. Please proceed.

Hey, guys, thanks very much for taking my question. Alex, I was hoping you could help me understand your current mix of business and how the Rattel acquisition is going to change that. You know, from what I read in the media, it seems like there's obviously some concern that Democratic control of Congress could potentially put some pressure on defense budgets broadly. But it certainly seems like Ukraine specifically could be a bright spot. There was a Reuters article recently, I think, that quoted Democratic aides in both chambers saying that funding for Ukraine could be a big priority for the new Congress. If I'm not mistaken, I believe all of your revenues to date have been in Ukraine. As you think about Retel, and obviously they have a roadmap to several hundred million in sales here over the next couple of years, how much of that projection is based on the war in Ukraine versus sales to the U.S. or other countries in Europe? Can you help us understand that mix of business, please?

Yes, thank you so much for this question. Right now, to date, all of our revenue has been in Ukraine. All of Ratel's revenue and the current guidance that was provided is in Ukraine. And the same is true of Vataga. So, indeed, I think that we are somewhat different from other defense tech companies in the U.S. and that most of them rely on procurement in the U.S. and rely on defense budgets in the U.S. Whereas we, to date, have relied mostly on Ukraine. And as we... Think about expanding to air defense and to other markets. Those are worldwide markets. They're also not US-centric. So I hope this helps people understand and view this more broadly. I think, obviously, when we're looking at General Dynamics or other partnerships in the future, those may sell worldwide as well and to the US as well. But everything within the short to intermediate term that has been discussed so far has been in Ukraine.

Okay, that's really helpful. Thank you for that clarification, Alex. And then just as you think about Rattel, I think you'd mentioned previously, even ahead of the transaction closing, it sounds like Rattel's been working on prototypes of UGVs that would kind of expand beyond their existing use cases and more getting into launching UAVs from them. Can you give us an update on how much progress has been made there? Have there been any successful launches of UAVs from UGVs yet?

So, they have had successful prototype launches, which you can find in their social media. They've also had successful mounting of machine guns and other military hardware on UGVs and many other use cases like demining. Again, all of this, I can just refer people to Rattel's social media. They can speak for themselves. So, they have clearly been quite prolific when it comes to prototyping and experimentation. Obviously, If the deal closes as we anticipate, we will be working together on scaling and productizing this in the best way.

Okay, that's really helpful, Alex. Thank you very much.

Thank you so much. At this time, this concludes our question and answer session. If you have any additional questions, you may contact Swarmer's investor relations team at swmr at gateway-grp.com. I'd now like to turn the call back over to Mr. Fink for his closing remarks.

Thanks again, everyone, for joining us today. As a reminder, you can find out more about our company, receive additional updates, and learn about upcoming events from the investor relations section of our website. We look forward to updating you on the exciting progress we are making in the defense technology market. Finally, I'd like to thank our employees, partners, and shareholders for their continued support. Operator?