{ "docId": "019dd923-622c-750b-8b98-405eb4149c5a", "docSlug": "d9c5fbbb51d2", "documentTitle": "Red Cat Holdings, Inc. (RCAT)", "authorId": "53_Kerrisdale_Capital", "authorName": "Kerrisdale Capital", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2025-01-09 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 4, "pageCount": 29, "prevPage": 3, "nextPage": 5, "slideType": "villain_critique", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 6, "notes": "This is a short-seller research note page focusing on operational and market-demand skepticism.", "elementsJson": [ "paragraph" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-405eb4149c5a/4", "deckHref": "/decks/019dd923-622c-750b-8b98-405eb4149c5a", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-405eb4149c5a.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-405eb4149c5a#slide-4", "components": [ { "bbox": { "h": 0.05, "w": 0.78, "x": 0.11, "y": 0.48 }, "kind": "callout", "text": "Contrary to Red Cat's grandiose claims, the opportunity to sell Red Cat drones outside of the US Army is negligible.", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "df63c9c8-c17f-4e5f-b64f-9061e0be285d", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "callout", "text": "Contrary to Red Cat’s grandiose claims, the opportunity to sell Red Cat drones outside of the US Army is negligible.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-3f41-721f-9e44-4954d266d881", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.78, "x": 0.11, "y": 0.67 }, "kind": "paragraph", "text": "First, there isn't much use for infantry reconnaissance drones in the Air Force, which doesn't really have much...infantry. As for the Marines, their small-drone program is even more modest than the Army's (by 60%) and already spoken for with other suppliers (Lockheed and FLIR, among others). So the Black Widow sales channel at other US military services is nonexistent.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "25c01c9a-9410-4f16-9ddd-b7e52f1b6516", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.78, "x": 0.11, "y": 0.87 }, "kind": "paragraph", "text": "Over at the Department of Homeland Security (DHS), of the “16 organizations” Red Cat is excited to sell to, only two of them – the Coast Guard and Customs and Border Patrol (CBP) – have anything approaching a drone procurement program. The Coast Guard's near-term budget is less than $1 million annually and dedicated to servicing the drone fleet they already have. CBP is interesting because Red Cat has been talking about selling to CBP for years. The company even announced in 2022 that it won a $90 million contract to supply CBP with drones. That contract turned out to be a multi-year multi-supplier contract through which Red Cat sold a grand total of $1.8 million in drones. As for the near term, CBP's published budget indicates that", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "afd4d0a7-a5cb-4694-856b-ef7a3b08964e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.78, "x": 0.11, "y": 0.09 }, "kind": "paragraph", "text": "Red Cat has the manufacturing capability for mass production of drones. Getting there would take time and a real capital expenditure commitment. Considering that Red Cat has dedicated a total of just $3 million to capex over the last 3 years (most of it in 2022), it's going to be a long and expensive slog to the kind of facilities that would enable a respectable drone manufacturing operation. It certainly won't be ready to meet investor expectations for 2025.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "bad2c6a2-382e-447f-ae5f-91e796ea01fc", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.22, "w": 0.78, "x": 0.11, "y": 0.25 }, "kind": "paragraph", "text": "Management has also sent conflicting signals about Red Cat's ability to manufacture more than one model on the Teal production line. On the one hand, management is guiding to tens of millions of dollars in 2025 revenue from each of the Teal 3 and Black Widow (SRR) models. On the other hand, management blamed the precipitous dip in sales of the Teal 2 model in the second half of 2024 on the need to retool the factory for the SRR. So, can the factory produce two models simultaneously? Realistically, we think Red Cat faces a dual predicament – the company indeed lacks the manufacturing capacity to produce two models concurrently and, at the same time, demand for its $15,000 drones is much weaker than management lets on.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c55c7904-e458-46d5-81d4-7530a946b3ef", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.78, "x": 0.11, "y": 0.54 }, "kind": "paragraph", "text": "Listening to Red Cat's management, you'd be forgiven for thinking that hundreds of millions of dollars of drone acquisition decisions were hinging on the results of the SRR competition. Now that it's been decided, the Marines and the Air Force and the Departments of Interior and Homeland Security and an array of NATO militaries will be lining up to bid on Red Cat's Black Widow or Teal 3 drones. The dam on the sales channel, so goes the narrative, has burst. But it's nonsense.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "e56d2048-5518-4f07-ad9a-9846000cfd58", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.78, "x": 0.11, "y": 0.77 }, "kind": "paragraph", "text": "Meanwhile, the Department of Interior is committed to buying drones as cheaply as possible and hasn't acquired more than a handful of them in the last few years, ever since the government-wide prohibition on Chinese drones went into effect. Eventually, when they do get past the holdup, their public records indicate that they'll opt for a drone made by Parrot that's similar to Teal's but wholesales for less than half the price.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "e8466795-9b86-45a3-ad38-131006b5c7a3", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 6, "from": 4, "beatId": "48625def-0778-4ea8-93c6-4147e20a81c0", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Villain Critique", "beatSlug": null, "evidence": "The document critiques Red Cat's manufacturing capability and guidance.", "position": 0, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }