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Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference to Brian Alger, Senior Vice President, Corporate Development and Investor Relations. Please proceed.

Thank you, operator. Good afternoon, and welcome to Merlin's quarterly earnings call for the quarter ended June 30, 2026. Joining me on the call today are Matt George, Merlin's Founder and CEO, and Ryan Carrithers, our CFO. Momentarily, Matt will kick things off with a review of our recent achievements and a brief overview of Merlin and our objectives. He will then spend some time detailing the value proposition of the Merlin Pilot and the market opportunity that we believe it represents. Matt will be referencing a number of industry and market statistics throughout his commentary. Reference sourcing material for these comments can be found in the appendix section of the investor presentation deck intended to accompany today's call. That deck can be found at investors.merlinlabs.com. Ryan will then take you through the financial results, our balance sheet position, and our financial expectations.

Finally, Matt will have a few closing remarks before we start the Q&A session. Now, before we begin, a reminder that today's discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties, and other factors that could cause our actual results, performance, or achievements to differ materially from what is expected or implied. Those factors include, among others, regulatory approval timelines, competitive dynamics, capital availability, technology development, and broader market conditions. For a complete discussion of risk factors, please see our most recent filings with the SEC. We undertake no obligation to update any forward-looking statements except as required by law. Today's discussion will also reference adjusted EBITDA, which is a non-GAAP financial measure.

A reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP measure, is included in the earnings release available on the investors relation section of our website at investors.merlinlabs.com. With that, I'll hand the call over to Matt. Matt?

Thanks, Brian, and thank you all for joining us today for Merlin's second quarter 2026 earnings call. Before I hand things over to Ryan to walk you through the financials in detail, I want to spend some time talking to the results we've achieved, where we are as a business, and where we're going. We finished the quarter with $183.9 million in cash equivalents, and short-term investments, and importantly, no debt. As Ryan will detail momentarily, we believe our balance sheet strength is one of our strongest advantages today because it allows us to continue hitting the milestones necessary to capture the opportunity I am about to describe. When we last spoke in May, we laid out a number of ways to measure our progress.

We talked about key areas of focus in the near term, progress on our C-130J contract, building a go-to-market network for civil cargo, and advancing civil certification of our core AI processes and technology. In Q2, we delivered major milestones in all three categories. Early in the quarter, we announced completion of the critical design review, or CDR, with our lead customer on the C-130J, moving us closer to deployment across the fleet. At Farnborough last month, we announced that Israel Aerospace Industries, or IAI, and Merlin signed a non-binding MOU to advance the development, integration, and certification of AI-powered autonomy for commercial cargo aircraft. This expands our partner ecosystem and puts us on the path to serve approximately 2,400 aircraft in the global civil cargo market.

Just last week, we announced the achievement of stage of involvement, or SOI 3, with the Civil Aviation Authority of New Zealand under a bilateral aviation safety agreement with the Federal Aviation Administration here in the United States. Civil certification would be the first step towards opening up a global commercial market of more than 20,000 addressable aircraft for Merlin. These are the three areas of measurement with meaningful progress in all three. Double-clicking on each one of those milestones. First, completion of the CDR on the C-130J program. This is a real proof point of the compounding advantages we described last quarter, and it's exactly the kind of milestone we told you to watch for. The program's next milestone will be related to the integration work on the initial C-130J.

Since completing CDR, we've been working with our customer and subcontractors to define the scope and timeline for future integration, ground testing, and flight testing. Next is our collaboration with IAI, one of aviation's largest providers of freight conversions. Merlin and IAI are working together to advance the development, integration, and certification of AI-powered autonomy for commercial cargo aircraft. This will be a phased engagement, including engineering collaboration, joint market exploration, regulatory preparation, and initial platform selection to lay the groundwork for a definitive commercial agreement and a structured path towards civil certification. Together with our previously announced collaboration with World Star Aviation, Merlin is systematically building the go-to-market engine for the adoption of autonomy by the global civil cargo market. Most recently, we announced the completion of SOI 3 with the Civil Aviation Authority of New Zealand in coordination with the Federal Aviation Administration under their bilateral aviation safety framework.

Two critical components of the Merlin Pilot autonomy platform, the flight control computer and the automated communication system software, have been tested and verified against their requirements. To our knowledge, this is a first for large aircraft autonomy. Achieving SOI 3 represents an important certification milestone, demonstrating that our verification processes, testing evidence, traceability, and engineering controls are sufficiently mature to support certification. Separately, Merlin successfully concluded an important certification issue paper with the Civil Aviation Authority of New Zealand addressing the use of AI and ML-based natural language processing with the Merlin Pilot, enabling voice-based interaction with air traffic control. This additional milestone establishes the regulator's requirement and an agreed path for demonstrating compliance for this novel capability. This reduces a key area of regulatory uncertainty and represents meaningful progress towards the introduction of AI into certified aviation, not only benefiting Merlin, but the industry as a whole.

Each of these milestones tackles an independent challenge across commercial, technology, and certification, and that diversity is what makes them so important. Together, we believe these milestones represent meaningful evidence and progress towards our mission to build a certifiable autonomous core that is capable of safely and reliably flying any aircraft for any use case and monetizing the Merlin Pilot. As we look to the future, I want to underscore the opportunities we see ahead. For the past 100 years, aviation has been built around human pilots. In the United States alone, more than $45 billion is spent each year to keep our pilots flying. We believe the next 100 years of aviation will be built around autonomy, and we currently sit at the inflection point of adoption.

Merlin is building what we believe will be the operating system of record for the next century of aviation, physical AI for the sky. Our commercial traction, the technology progress, and the certification milestones are all steps on that path. On last quarter's earnings call, we talked about the distinction between the Merlin Pilot and our products, like Condor, and I want to make sure the distinction is well understood. The Merlin Pilot is the core, it's the brain. It's the certifiable AI system designed to adapt any airframe and any mission and becomes more capable with each adaptation. Our products are created when we take that core brain and combine it with a specific airframe, mission, and customer. Everything starts with and scales from the same continuously improving core, the Merlin Pilot. Let's talk about what this combination actually delivers to a market need.

We call it integrated autonomy that combines two things, flight autonomy with mission autonomy. Flight autonomy is what most people think of first. It's the aviate, navigate, communicate capabilities of most flying aircraft today. It means taking off, flying the airplane, communicating with air traffic control, and landing, all without the need for human intervention. Mission autonomy is different, but just as important. It's everything the aircraft needs to do to accomplish the job it was meant to do. The tasking, sensing, and decision-making specific to a cargo run, surveillance mission, or tactical resupply. We are building both. There are companies focusing on one or the other, but we believe our approach, one core brain, the Merlin Pilot, performing integrated autonomy, has the potential to improve and reduce deployment costs with each airframe we adapt to, compared to bespoke one-off systems where capabilities don't compound.

I also want to be really clear about the landscape we are addressing, what this is, and just as importantly, what it is not. Today, we are targeting larger fixed-wing aircraft. We see opportunity in both crewed and uncrewed aircraft and, importantly, in existing inventory. The airplanes are already flying today. We are building the brain that will fly today's aircraft for decades to come and one that is also capable of flying the fleets of the future. Let's quantify the opportunity. While we plan to generate revenue by adapting and integrating the Merlin Pilot onto airframes, the business model is centered on a recurring revenue license fee for the Merlin Pilot. That license fee is designed to be value-based, depending on the use case, complexity, and needs of our customer.

Let me share some data to help you better understand how we think about the opportunity and the value that the Merlin Pilot represents. Start with what we already have in-hand, our existing program with the U.S. Air Force on the C-130J, starting first with SOCOM. Today, SOCOM has approximately 75 C-130Js in a couple of different variants. This is part of the Air Force's 300-plus C-130Js and at full deployment across all branches of the DOD and allies, there are approximately 570 C-130J aircraft. We believe the C-130J airframe is a multibillion-dollar opportunity just by itself. Now, widen the lens. The broader U.S. defense inventory of fixed-wing aircraft is over 6,750 aircraft. Excluding China and Russia, global civil cargo represents another 2,400 aircraft and global passenger aircraft, over 20,000 more.

Add it all up, and that is an operating base of more than 29,000 aircraft before we even begin talking about future airframes. Over time, we believe autonomy will drive greater and greater value on the aircraft and the missions that are so important to our customers. Today, in just the United States, third-party sources report that more than $45 billion is spent annually on pilotage. The U.S. military spends over $22 billion on its fixed-wing pilots. Today, there are over 6,750 fixed-wing aircraft in our military inventory. Mathematically, this means the U.S. military currently spends about $3.3 million per plane per year on its pilots. On the U.S. civil side, the dollars spent per plane are remarkably similar at approximately $3.2 million per plane per year. With a U.S. commercial fleet of 7,400 planes, that equates to more than $24 billion being spent on U.S. commercial pilots.

The value of what we are building with the Merlin Pilot is tied to that spend, plus forecasted growth and diversification of the aviation industry against well-documented perennial shortfalls of new pilots being trained and even fewer achieving the flight hours needed to become professional pilots. Put it all together, based on the assumptions and the market data we have described and factoring in future market growth, we estimate an annual TAM for Merlin of several billion dollars per year. That is what we are building towards. Of course, a large TAM doesn't mean much without a credible map to revenue. So let me quickly walk you through how we actually get there, starting with defense. For the Department of Defense, we believe our multi-year head start and the regulatory complexity of this domain provide meaningful competitive advantages.

We've been putting in the work for five years, going from RFP through CDR. The next steps are relatively straightforward: integration, ground testing, and flight testing. Adoption across airframes isn't a serial process. It is parallel tracks running at the same time. Every branch and every platform we work with builds experience that we believe compresses the time to adoption for the next platform. Two more things worth knowing about the DOD. Their funding subsidizes a meaningful amount of our integration costs, and the DOD controls the pace of adoption and the installation schedule. That's a feature of working with this customer, not a bug. It's part of why the C-130J program has been de-risked the way it has. On the civil side, we have made considerable progress towards certification. We achieved SOI 3 by successfully testing and verifying our flight control computer and the automated communication system against their requirements.

To our knowledge, Merlin Pilot is the first to reach this important milestone for large aircraft autonomy. With that, I'll hand it over to Ryan to walk through the numbers.

Thank you, Matt. Good afternoon, everyone. As Matt described, our balance sheet continues to provide a strong foundation for Merlin to build what we believe is the operating system of record for the next century of aviation. Our balance sheet has strengthened significantly, and we consider it a strategic advantage. Merlin ended the second quarter with $183.9 million in cash equivalents, and short-term investments with no debt. That's up $60.8 million compared to the first quarter of 2026. We believe these resources position us well to build on our operational progress and pursue the opportunities Matt just outlined. Second quarter revenue was approximately $2.2 million, up $1.2 million from the first quarter of 2026. The substantial majority of that revenue was recognized under our defense IDIQ structure as tapped orders were funded and work was performed.

On a GAAP basis, net loss for the quarter was approximately $58.4 million, an improvement of $32 million compared to the first quarter of 2026. That improvement was primarily non-cash, driven by changes in the fair value of our warrants and convertible promissory notes, along with several one-time charges related to our business combination in the first quarter. Because the number of items contributing to net loss are financing-related and non-cash, we don't believe they reflect our underlying operating performance. Excluding these and other similar items, second quarter 2026 adjusted EBITDA was a loss of $27.8 million, compared to a loss of $23.3 million in the first quarter of 2026. This increase reflects our deliberate investment in engineering, certification, and program execution. A reconciliation of adjusted EBITDA to net loss is included in the earnings release.

Cash flow from operations in the quarter was a negative $27.3 million versus a negative $23.6 million in the first quarter of 2026. Capital expenditures in the quarter were approximately $1.6 million compared to approximately $2.2 million in the first quarter of this year. Before we move to Q&A, I want to underscore the point of all this. Our balance sheet strength gives us room to invest with discipline, and we intend to direct spending primarily toward advancing Merlin Pilot and accelerating our go-to-market opportunities. As I said last quarter, we believe Merlin's financial runway extends beyond our near-term certification and commercial milestones. More specifically, based on our current operating plan assumptions, we believe our existing resources are sufficient to fund our growth into fiscal 2028.

In the near term, our revenue will be tied to our progress on the C-130J IDIQ contract with USSOCOM, where we are now advancing into the integration phase, the second of our three revenue phases. We expect this same three-phase model to apply across every airframe and customer we work with, defense and civil alike, as Matt just detailed for the Merlin Pilot. In adaptation, we are paid to adapt Merlin Pilot to a customer's specific airframe and requirements. In integration, we work with a growing network of partners, including World Star Aviation and IAI, to physically integrate our solution onto the aircraft. In licensing, we collect a recurring license fee for the life of the software, which we expect to receive over the remaining operational lifetime of the airframe. What we charge at each phase is driven by complexity and the value we deliver to the customer.

The key milestones investors should watch for remain progress in our contract with USSOCOM, expansion of our go-to-market partnerships across the defense and civil aviation industry, new engagements on emerging mission sets and programs. With that, I will turn the call back over to Matt for his final thoughts.

Thanks, Ryan. Let me bring this together into several key points I want you to leave the call with today. First, we believe there is a multi-billion dollar total addressable market for Merlin annually. Second, we already have real tangible progress towards that opportunity. Our existing program on SOCOM C-130J provides us with a potential path to the Air Force's total inventory of more than 300 aircraft, not to mention C-130Js operating globally outside of the U.S. Air Force. Third, we have a lead in process and development. Getting from RFP through CDR took us five years, and with parallel tracks for each airframe, that lead compounds with every new program. Fourth, our differentiation is clear. We are focused on the DOD's large existing aircraft with an intent to leverage our work with that customer into additional commercial opportunities.

Fifth, we have demonstrated real success doing this by securing both PDR and CDR on the C-130J. We are excited about the future because we believe we are building the operating system of record for the next century of aviation and believe we have built meaningful early advantages that we expect to compound over time. We are operating with conviction, with capital, with customers, and with a clear plan. Our team has spent eight years getting to this moment, and we believe the opportunity in front of us is significant and important. We appreciate every one of you being on this journey with us. With that, I will turn the call over to the operator for Q&A. Operator?

Thank you. As a reminder, to ask a question, simply press star one one on your telephone and wait for your name to be announced. To withdraw your question, press star one one again. Our first question is from Andres Sheppard with Cantor Fitzgerald. Please proceed.

Hey, everyone. Good afternoon. Congratulations on the quarter, and thanks so much for taking our questions. Congratulations on the completion of the CDR. Very exciting. Just wanted to follow up maybe on Ryan's remarks there towards the end, coming back to the C-130J program. I realize you are not guiding revenues here, but just wondering if you could maybe give us a sense or just help us better understand how we should expect that stage or Phase 2 ramp up, and then going into the final phase, just any more granularity you might be able to give us or direction?

Hey, Andres. Thanks for the question. We are working close with our customer to hopefully be able to announce expansion on that contract. We expect meaningful revenue in 2027 to be coming from the next phase. We do not have anything we can announce today, but, as soon as we do, we will be putting out a release to announce that.

One moment for our next question. It comes from Gautam Khanna with TD Cowen. Please proceed.

Can you give us some estimation of what second half revenues might be if you hit your milestones?

Yeah. We're anticipating anywhere between $4 million and $6 million in the second half of this year for revenue.

Right. Do you have a ballpark sense for what 2027 could provide in revenue?

Not at this moment. We are not providing guidance on 2027 revenue at the moment.

Can you talk a little bit more specifically about some of the other platforms you are working on besides the C-130J and when those milestones might actually be?

Hey, Gautam. This is Matt. That is a great question. One of the things we pride ourselves on at Merlin is ability to go adapt the Merlin Pilot to a bunch of different aircraft and be able to do that very quickly. We started out way back in the day with small canard composite aircraft, which are about 1,000 pounds. Now the largest aircraft we are doing is the C-130J, which is clearly a much larger aircraft. We expect to announce new aircraft here in the short term. Watch this space. It is something that we are really excited about as a team. Nothing we have announced yet, but at the core of what we are building is adaptable different types of aircraft. The other thing that investors should watch for is how we use new types of aircraft to enter new segments of markets that we previously have not addressed.

Just like there are certain types of aircraft for transport or commercial cargo, both markets that we have announced, there are other types of aircraft that open up new types of markets for Merlin that we have not yet announced, but definitely watch this space, leveraging our aircraft adaptability.

Thank you.

Thank you. Our next question comes from Suji Desilva with Roth Capital. Please proceed.

Hi, Matt. Hi, Ryan, Brian. Congratulations on the progress here. The C-130J, you talked about remaining milestones and steps, and you said something about there being parallel tracks, potentially. I just want to understand what that comment meant and if that has implications on the timing of what's remaining for the C-130J in terms of milestones.

Yeah, that's a great question. So two answers to that that both add into each other. The first is that as we're integrating on the C-130J, the core Merlin brain and the software releases that we're releasing are continuing to get smarter and smarter and smarter. We've talked about this in previous earnings calls, but you can really think about it as like a brain and a body. So while the brain is embodied in different types of aircraft, like the C-130 or the Cessna Caravan or some of the other aircraft that we've flown, the brain continues to get smarter with each and every release. That's track number one. And track number two, which is really actually quite important for the C-130J, is this is the first time we're integrating on a very large aircraft. The C-130J is like almost a Boeing 737-sized airplane.

Yeah.

The lessons that we are learning of integrating onto a large multi-engine turbine aircraft, those lessons, both technical but also regulatory and safety, allow us to move really quickly on other adjacent aircraft, like the KC-135 and some other aircraft that we have talked about. By taking that brain, putting it in the C-130J, we believe that that will allow us to go accelerate onto other platforms much more quickly. We have seen that feedback from our customer as well, which has been exciting.

Okay, great. My other question is on how the expenses will kind of trend from here, just to understand as you move toward longer-term break even. Also, with C-130J on the military side and then IAI on the commercial side, how much of that effort has synergy or overlap technologically and with people? Or should I think of them as two separate efforts that have to be staffed up independently?

Yeah. Thanks, Suji. I will answer the expenses one first. First half of the year, our adjusted EBITDA was just over $51 million. As you imagine, we had a lot of non-recurring external expenses, one-time costs that are built in there that we are now through. We are anticipating the second half of the year to be flat to a little bit better than the first half of the year as we have now worked through some of those, and our ramp of hiring is slowing a little bit in the second half. I will turn to Matt for the other question.

Yeah. As we are thinking about IAI and some of the commercial work that we are doing vis-a-vis the C-130J, it goes back to the previous question, which is we are taking that Merlin Pilot brain and putting that Merlin Pilot brain into large, highly certified, complex aircraft. The C-130J is, while used for military applications, is a very large, highly complex airplane, just like some of the stuff that we are considering with IAI. If you look at the refueling and tanker market, where we have talked about some of our work on the KC-135, that is a derivative of a commercial aircraft. It is the same core technology, same core group that is working on how to make the Merlin Pilot applicable to those large transport class aircraft, where clearly there is differences in parts of the mission.

But at the end of the day, flying those large airplanes is quite similar between the civil and sort of the defense markets, particularly for cargo missions. So that is where we, on the team, are pretty excited about the overlap, and that is why we have been very careful about which opportunities we pick so that we can go after the largest addressable market in the shortest period of time with as much focus and capital efficiency as possible.

Okay, great. Thanks, Matt. Thanks, Brian.

Thank you. Our next question comes from Mike Latimore with Northland Capital Markets. Please proceed.

All right. Thanks. Yeah, congrats on hitting the milestones here. I guess, Matt, you mentioned you hope to announce an expansion. By that, do you mean a task order under the IDIQ or an expansion from the 105 number that is attached to IDIQ?

Yeah. Clearly we are not going to get out in front of anything yet that we have not released. As we talked about when we released the CDR news, the reason the CDR news is important, clearly first is that the team passed the milestone. To our knowledge, it is the first time anybody has done something like that on this complex of an aircraft with autonomy. Also, what the CDR does is it clears us from an engineering and technical perspective to begin the process of integrating onto that first aircraft. That is kind of the table stakes for other additional task orders. Clearly, with each one of those stages, we have to go back, work with our customer, work with our subcontractors. It is a bunch of work to begin integration onto a C-130J. So we are working with our entire industrial base, our customers.

Nothing to announce there yet. We have cleared that milestone, so that door is now open, and we are working with all of our stakeholders to start the process to integrate onto that airplane.

Got it. Then, I guess in the press release, you talk about the next phase is to integrate the system onto an aircraft. So would a logical task order be basically the integration cost or revenue related to integration on one aircraft, or is it broader than that?

I am not going to get in front of our customer on the specifics of task orders. What I will say is that this is the first time, to our knowledge, autonomy has been integrated onto a large aircraft for the U.S. Air Force.

It is going to clearly start with one airplane, then we're going to expand from there. With that said, it is a lot of work, and even that one airplane will be a lot of work, but we're excited about it. It's going to be the first time that autonomy has crossed that valley of death and actually gotten onto a large United States Air Force aircraft, which we're mega excited about.

Right. I guess you've talked in the past about how much integration revenue you could get per plane. Would this initial one be more than that sort of that longer-term average by a fair amount?

Yeah. The first one, just like we've sort of talked about in previous calls, the initial integration of going from zero to one of the capability for the United States Air Force and United States Special Operations Command, everything is going to be more expensive. There's going to be larger quantums of capital as we adapt the system onto that first aircraft. But we're excited about the future, and always building and integrating towards production.

Mm-hmm. Yeah. Thanks.

Thank you. We have a question from the line of Austin Moeller with Canaccord Genuity. Please proceed.

Hi, good afternoon. I was just wondering, once you integrate the Merlin Pilot onto the aircraft as part of the next phase, what mission objectives will need to be accomplished during flight? Will you be flying in different weather conditions, carrying different size payloads, air traffic control conditions? Do you need to fly a certain range? What boxes need to be checked here?

Yeah, we are not going to get in front of the customer on specifics of the mission of their aircraft. What I can say is we are regularly flying our system out of our test facility in Quonset Point, Rhode Island, on one of our surrogate aircraft, where the aircraft is taking off, touching down, interacting with air traffic control. The initial set of features will be crawl, walk, run, in that vein of flight autonomy on that airplane. Then we will gradually layer on mission elements on top of that basic capability. That is why it is so important that even while we are integrating on the C-130J, the core Merlin Pilot brain is getting smarter and smarter with more and more features being added, that we will then, when the customer is ready, introduce those features onto the C-130J and into their operating environment.

Okay. I guess, as far as the revenue opportunity and getting the licensing revenue on Merlin Pilot, do we essentially need to get to the integration stage and through critical design review, and get that certified on type with each aircraft before you can start seeing that recurring licensing revenue?

When we're looking at the industry writ large, there's a lot of experimental projects, there's a lot of Defense Advanced Research Projects Agency programs, but what is most exciting, at least for us, about what we're doing with the C-130J, is we're working with the end customer on an operational aircraft and an operational airframe. Clearly, we have to go meet the safety requirements and integrate onto that first aircraft. You're totally right, that integration is the first step on the journey to what we believe will be a first of full autonomy entering service on a large United States Air Force aircraft with the revenue profile that we've previously discussed on previous earnings calls.

Yeah, maybe just to add to that, we've talked about revenue in three ways, which is adaptation of the Merlin Pilot, integration onto the plane, and then the licensing phase being the last pillar.

Excellent. Thanks for all the details.

Thank you. As a reminder, if you do have a question, simply press star 1 to get in the queue. As I see no further questions in the queue, I will pass the call back to Matt George for final comments.

All right. Thank you, operator. We really appreciate each and every one of you being on this journey. As we've demonstrated today, we're making really meaningful progress towards taking autonomy out of a concept and getting it into the hands of the folks that use it and need it the most, and you're all part of that journey with us. Really appreciate everyone taking the time. Please don't hesitate to reach out if you have any further questions. Thank you.

Thank you, and this concludes our conference. Thank you for participating, and you may now disconnect.

Welcome to Merlin's first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will conduct a question and answer session. Today's call is being recorded, and a replay will be available on Merlin Investor Relations website following the call. I would now like to turn the call over to Brian Alger, SVP Corporate Development and Investor Relations. Please go ahead.

Thank you, Andrew, and good morning, everyone, and welcome to Merlin's first earnings call as a public company. Joining me on the call today are Matt George, Merlin's Founder and Chief Executive Officer, and Ryan Carrithers, our Chief Financial Officer. I'd like to direct your attention to the presentation intended to accompany today's conference call.

A link to the presentation can be found on the investor section of our website. Momentarily, Matt will kick things off with a brief overview of Merlin and the opportunities we are trying to address. He will also discuss our first product launch and its significance under our platform architecture. Ryan will then take you through the financial results, our liquidity, and our financial expectations. We'll then close with a Q&A session.

Before we begin, a reminder that today's discussion is being recorded and will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties, and other factors that could cause actual results, performance, or achievements to differ materially from what is expressed or implied.

Those factors include, among others, regulatory approval timelines, competitive dynamics, capital availability, technology developments, and broader market conditions. For a complete discussion of risks, please see our most recent filings with the SEC. We undertake no obligation to update any forward-looking statement except as required by law.

Today's discussion will also reference adjusted EBITDA, which is a non-GAAP financial measure. The reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP measure, is included in the appendix of our earnings presentation available on the investor section of our website at investors.merlinlabs.com. A replay of today's call will also be available on the same website shortly after we conclude the Q&A session. With that, I'll hand the call over to Matt. Matt?

Thanks, Brian. To everyone joining us today, thank you. I'm excited to be speaking with all of you on Merlin's first earnings call as a public company. To kick us off ahead of reviewing our Q1 2026 financials, I want to talk at a high level about our business and our markets. For 100 years, aviation has been built around human crews.

At Merlin, we believe that aviation's next 100 years will be built around autonomy. For us, autonomous flight means one certifiable AI system adaptable to any airframe and any mission, which becomes more capable with each adaptation. We see this as physical AI for the sky, and we believe it has the potential to expand airframe use cases, grow aviation productivity, improve safety, lower operating costs, and build data and operating flywheels that could advantage every existing aircraft.

Finally, we think autonomous flight has the potential to radically change how aviation's future is built and deployed, creating significant market opportunities for systems like ours to pioneer it. Turning to Merlin itself, our HQ and engineering center are located in the great city of Boston, Massachusetts. Beyond Boston, we have flight test facilities in Quonset, Rhode Island, and in Kerikeri, New Zealand.

Our now almost 200-person team has spent the past eight years on a single technical agenda, aiming to build certifiable autonomy that can fly any aircraft in any mission and for any operator. If you're new to Merlin, here are four key highlights about our company that you should know. The first is that we are the prime on a U.S. SOCOM IDIQ contract on the C-130J with a $105 million contract ceiling.

The second is that we have executed our first fully automated takeoffs on certification candidate aircraft this year. We did this on April 11th and April 21st in both the U.S. and New Zealand on two aircraft on two different continents. The third is that we work supporting those takeoffs inside an active certification program with multiple regulators in two countries on the same software stack.

I will come back to certification later because it is an important component of the competitive mode that makes Merlin so special. The fourth highlight is the financing we closed on May 1st. Following that close, Merlin's cash equivalents, and short-term investments were approximately $183 million. We believe this provides us the runway intended to support our near-term priorities. Now, let's talk about the technology at the heart of our business.

If you started with a clean sheet of paper and you set out to build a generational aerospace and defense business, you would not begin with metal and rivets. You'd begin with a brain. You would build an intelligent system that could fly any aircraft anywhere and on any mission. Because you build that brain, not an airframe, you would design your system to be smarter, faster, and more capable with every flight.

That brain is what we are building with the Merlin Pilot. The Merlin Pilot is the same core software across every aircraft we equip. Every aircraft we integrate is another spin of the Merlin flywheel because we think the data collected from each flight will make the core smarter and more capable.

Our strategy is to scale the software platform across multiple aircraft and multiple markets while focusing our engineering investment where we can quickly build structural advantage. If you're following along in the deck, right now you should be looking at what we call the spaghetti slide. The slide is the visual I use with investors who ask, "What would the platform actually look like at scale?" The answer: it would look like one core across many programs and many airframes.

This includes both military and civil aircraft. We believe leveraging the same core should compound our advantage over time in three mutually reinforcing ways. The first is engineering. To reiterate, with each new aircraft we integrate builds on the same core Merlin Pilot software. We think the engineering cost of each subsequent program should significantly decline over time. The second is regulatory.

Prior regulatory alignment, accepted compliance methods, and reusable certification artifacts should create significant leverage for subsequent platforms. The third is data. Information we capture from every flight will make the core itself more capable over time. We do not think these compounding dynamics can be replicated quickly, and all three of them get more valuable to us with every aircraft we add.

That's why we believe that this is a platform business designed to benefit from real network effects across our fleet and across our customers. With the strategy behind the technology defined, I wanna double-click on certification. It is important to realize that we're not only writing code that can fly an airplane, we're also building processes, policy, a team, and a data lake all focused on turning code into safe, reliable, human or better performance.

We are aiming to be the first in the world to achieve civil certified, fully automated takeoff to touchdown flight on a fixed-wing aircraft. The gap between can fly and is certified to fly is where most autonomy programs end. It's also where Merlin's moat begins. Certification is a demanding process and a complex topic.

Today, I wanna frame out our high-level progress. We've cleared the first two major certification milestones with the New Zealand Civil Aviation Authority in a concurrent validation program with the United States Federal Aviation Administration. Those milestones are SOI 1 and SOI 2. Think of those as the planning and development review gates. We're currently working on SOI 3, which is where we demonstrate that our software verification holds up under the regulator scrutiny. SOI 4 is the final software compliance gate.

A successful outcome with the CAA would potentially create direct pathways for U.S. operational approval. As we noted earlier, if we achieve certification, we believe downstream progress would become easier and more efficient from both a technical and regulatory perspective. Now, I wanna turn to how Merlin defines a product. For us, a product is a combination of four things.

It is the Merlin Pilot core integrated onto an airframe, oriented at a mission, and targeted at a customer. Software plus airframe plus mission plus customer equals a product. Now, let's look at how we execute against our product definition. When we launch a product, we think an aviation vertical has the following opportunity set. First, we want the Merlin Pilot core to be technically mature on the relevant aircraft category.

Second, we assess whether our software will add significant value to operating that aircraft, either in terms of fleet productivity or in terms of missions it otherwise couldn't fly. The third is there should be a clear basis for understanding the relevant regulatory airworthiness requirements with target regulators.

Finally, we look for an external indication of interest from potential customers or collaborators. Discipline is important. If we cannot clearly apply these four criteria to a given opportunity, we won't do it. We are early in this commercialization effort. Longer term, our goal is to build a portfolio of product verticals on top of the Merlin Pilot software platform. Right now, let's turn to the first major step towards that goal. We announced it right ahead of this call. Our first product launch is called Condor.

Condor is the Merlin product designed to bring certified autonomy into multi-crew large aircraft sitting alongside the human pilots already in the flight deck. Our goal is to make every flight safer and more productive. As a product, it applies both to the civil and defense markets. On the civil side, we think Condor has compelling tailwinds, given the growth of demand across the narrow body and wide body freighter markets and the structural challenge related to pilot shortages around the world.

In particular, we believe the combination of those two dynamics creates a real opportunity for single pilot and augmented operations in this space. Let me explain by putting the scale of what those airframes carry in context. According to the International Air Transport Association, air cargo moves roughly 1/3 of the world's trade by value, more than $8 trillion of goods per year.

That includes around 77% of the world's smartphones, 60% of laptops, and more than 99% of the world's memory chips. At the same time, aviation is overall experiencing pilot shortfall. The National Air Carrier Association forecast projects a cumulative shortfall of nearly 30,000 pilots in the U.S. alone, with an even larger shortfall globally. To bring autonomy to that network, we need allies.

Autonomous cargo aviation is a network of operators, lessors, integrators, and of course, regulators. Merlin is already collaborating with World Star Aviation, a leading freight lessor, and is developing additional relationships with key players in the commercial cargo conversion market. We believe these kinds of collaborations will give Merlin and Condor the technical and commercial framework to help us scale. We expect to collaborate with more key operators in this ecosystem over time.

With Condor's applicability to the private sector hopefully clear, let me now underscore Condor's defense applications. Here too, we believe Condor will allow for the eventual transition to single pilot and augmented operations. I referenced the USSOCOM IDIQ contract on the C-130J earlier. From an operating certification and technical capabilities perspective, the C-130J is of course a significant deployment.

It is a serious aircraft, four engines, high gross weight, tactical missions, contested environments. The work we do on this airframe should translate to a meaningful set of additional defense aircraft. If our autonomy stack works on the C-130J, the technical case for it is also meaningful on our civil airframes. Finally, let me reiterate that Condor is just the first named product of an expected portfolio. With that, let me turn it over to Ryan to walk you through the first quarter financial numbers.

Thanks, Matt. Good morning, everyone. The financial picture this quarter tells a story consistent with what Matt just walked through. We successfully completed our business combination and additional PIPE financing to significantly strengthen the balance sheet and support our next phase of growth. I'll now talk through each of those areas in more detail.

First quarter revenue was approximately $1 million, up roughly 15% year-over-year. The substantial majority of revenue in the quarter was recognized under our defense IDIQ structure as task orders were funded and work was performed. On a GAAP basis, net loss for the quarter was approximately $90 million. I want to flag up front that this figure is heavily influenced by non-cash items tied to the completion of our business combination.

Most significantly was a non-cash fair value adjustment on our convertible promissory notes of $88 million, partially offset by an approximately $27 million non-cash gain on our warrant liabilities. These items are financing-related and non-cash. We don't believe they're reflective of our underlying operating performance.

Excluding these and other similar items, adjusted EBITDA was a loss of $23.3 million compared to a loss of $10.4 million in the prior year quarter. That increase reflects a deliberate investment in engineering, certification, and program execution that Matt walked through. We are spending ahead of the platform leverage we expect to generate. We believe the return on that investment will show up in the speed and cost efficiency of every product vertical that follows Condor.

A reconciliation of adjusted EBITDA to net loss is included in the appendix to the presentation and in the earnings release. Capital expenditures in the quarter were approximately $2 million compared to approximately $100,000 in the prior year quarter. The CapEx this quarter primarily reflects flight test equipment and ground infrastructure across our three operational sites.

Turning to the balance sheet, we ended the 1st quarter with approximately $123 million in cash equivalents, and short-term investments and no debt. Subsequent to the quarter end, we closed our private placement with an existing long-term institutional shareholder on May 1st. As of May 1st, our cash position was approximately $183 million.

Together, the completion of our business combination and this additional capital raise has meaningfully strengthened our balance sheet, providing the capital and flexibility to continue advancing our certification roadmap, scaling engineering and integration capacity, and supporting the commercial introduction of Condor. Before I hand it back to Matt to close the call, I want to spend a few minutes on how we're thinking about the year ahead and what we believe investors should be watching.

Our near-term financial trajectory is tied to the timing of certification milestones, program awards, and the commercial introduction of Condor. The timing and magnitude of revenue associated with each of these can shift meaningfully based on the customer procurement cycles and regulatory processes. Given this variability, let me be clear about how we're thinking about three things that matter most right now for Merlin. The first is the balance sheet.

As I noted earlier, the May 1st close of our private placement leaves us well-capitalized with no debt. Of course, actual results will depend on the assumptions underlying our operating plan, including certification timelines, program costs, and revenue generation. Based on that plan, we believe Merlin's runway extends beyond our near-term certification and commercial milestones. For a company at our stage, that matters.

It means we can choose the right programs, invest ahead of the revenue curve, and pursue the compounding advantages Matt described without the distraction of what we currently anticipate to be our near-term capital needs. The second is operating investment and expenses. Our $14 million in R&D in the first quarter reflects deliberate investment to advance our certification roadmap and support the Condor commercial introduction.

We are optimizing for the platform leverage we believe will show up in the speed and cost efficiency of every product vertical that follows Condor. We will continue to invest in R&D to advance our products and platforms, as Matt discussed previously.

The third and most important area of focus is the progression we are making towards our four major initiatives, development of our Merlin Pilot platform, the introduction of Condor products, certification on our target airframe, and the commercial collaborations Matt referenced. These are the leading indicators of a business building durable, compounding revenue and margins. These are the metrics we are driving our business towards. With that, Matt, back to you.

Thank you, Ryan. Before we open it up for Q&A, let me leave you with a few summary points. First, watch how we develop the Merlin Pilot platform. Watch how many aircraft are integrated, how many are operational, and how we believe the certification work on the first airframe can be leveraged across future programs. The compounding I described in the first part of the call is the structural advantage of this business. Second, watch the vertical products.

Condor is the first one, and we expect it to be one of several. Even ahead of scaled commercialization, we believe the product launches are meaningful signals for where we're deploying expertise and capital. Third, watch certification. We believe certification progress on our initial aircraft is the moat, and every milestone we are able to clear will accelerate that path for future verticals. Lastly, watch the commercial network we're building.

We believe the Condor commercial collaborations are just the beginning. Over time, we believe the breadth of the network behind Merlin Pilot is what will differentiate the platform, and it is a priority we intend to invest in over the next several years. Our team has spent eight years getting Merlin to this moment. We are operating with conviction, with capital, with customers, and with a clear plan. We look forward to building that future with you. Operator, back to you to take questions.

Thank you. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment, please. Our first question comes from the line of Suji Desilva with ROTH Capital.

Good morning, Matt. Good morning, Ryan. Congratulations on the first quarter and the public combination. Maybe I can ask a question specifically about the combination and now that you have post this, you have better access to capital and currency with the raise you did. Any thoughts now, I know you haven't historically, any thoughts on what might be available to you inorganically and how you might wanna grow sort of the Merlin base of assets strategically?

Thanks, Suji. As we've said prior, we believe that there's gonna be a neo-prime built in this space. As we've seen from the Department of Defense, even over the past couple weeks, the DOD and militaries around the world are building new capabilities and relying on new entrants like Merlin to get that done.

For us, what that means is using M&A and inorganic growth in order to go take our autonomy core and start to do some transactions that allow us to leverage our core autonomy in ways that gets that autonomy out into the hands of customers, partners, via existing products or existing companies and build that neo-prime thesis. All primes over the past 20 or 30 years have built now multi-billion dollar bases off of that M&A strategy, leveraging that common core. Nothing to announce there yet, but it's a really important part of our strategy.

Okay, Matt. Excellent. Very helpful. Maybe you can talk specifically about the C-130J IDIQ and what milestones we should be watching for the rest of the year, how this will play out. I know obviously, you know, inherent in the structure is the uncertainty, but any color you could offer there would be helpful.

Our integration on the C-130J, we believe that that is gonna be the first time autonomy flies on an operational Air Force aircraft, a fixed wing operational Air Force aircraft. It's gonna be a big deal for us, and it's gonna be a big deal for the U.S. Air Force. We have announced PDR in the past two or three months.

The next milestone to watch out for is our completion of CDR, which is, you know, one of the two big milestones, PDR being one and CDR being the other. Nothing to announce there yet, that is the next big milestone to watch out for, particularly as we bring the system closer and closer to getting onto the airplane. Nothing to announce there yet, definitely watch this space.

Appreciate you laying that out, Matt. On the call, you teased us, you know, congratulations on Condor and the new product, obviously very exciting. You teased us on about a roadmap of products, this being the first one. I know you don't wanna pre-announce anything, can you give a sense of the vectors we should think about for roadmaps of products? What framework you think about when you think about your product roadmap from Condor forward?

This goes back to us developing the core brain and the core software that can be used in a wide variety of applications. When we announce a product, it is taking that core brain and applying it to a particular vertical. In this case, using the Merlin Pilot brain, to augment operations on very large multi-crew aircraft.

You could expect from us in the future, clearly, that we can go take that brain and start to put it into different operational use cases, but as I talked about in my comments, we're also gonna do that in a way where we always announce partners and collaborators within the ecosystem to take what we're building and really turbocharge it out in the market.

Today on Condor, we announced the first partner under the Condor program, which is World Star Aviation, one of the largest lessors of cargo aircraft in the world. You can expect similar motions from us in the future, where we go take that core Merlin Pilot brain, put it into a particular product category, and then make sure that we're bringing partners along on that journey with us.

As we announce progress over the course of the coming months and years, we'll continue to announce progress on each one of those product verticals as we build that diversified product line towards that neo-prime overall thesis for Merlin.

Very helpful to kind of see, where you're headed with this. Then lastly, and I'll pass it on, certification obviously very important here. You gave us some color on the timelines and the next steps. Can you help us understand what opens up for Merlin as a business post achieving certification versus the current status, just to help understand what it unlocks for you guys? Thanks.

Yeah. For us, certification is going to be really important. Nobody in the world has yet certified takeoff to touchdown autonomy. As we talked about on the call, we believe we will be the first in the world to certify takeoff to touchdown autonomy in our partnership with the Civil Aviation Authority of New Zealand and their relationship with U.S. Federal Aviation Administration.

For us, that certification unlocks, you know, a ton of stuff, but also, and more importantly, builds out the technical maturity, the team maturity, and everything else that we need to go continue to win large contracts, like our $105 million contract on the C-130J. It's also enabled us to be in a position where we can announce things like Condor. At the end of the day, certification is a really important part of our story.

You can view it as kind of an indicator of technical maturity, even in addition to the straight certification milestone. Once again, nothing to sort of pre-announce here, but definitely watch this space, as we announce more.

Very helpful color, Matt. Thanks, and thanks, Ryan. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Austin Moeller with Canaccord Genuity.

Hi, good morning. Just my first question, is there any capability to test the autonomy platform on aircraft as part of the SMART program or other aspects of the FAA infrastructure investments to digitally deconflict airspace?

Yeah. We are investing particularly in those areas pretty heavily. As I'm sure you've seen in the news, there's been a lot of stuff out there, over the past couple months and couple years where human error has unfortunately led to a bunch of accidents. With our Condor release, one of the things that we're excited about working on and getting out into the market is tools that help pilots operate aircraft more safely and more efficiently.

In the past, we've done work on things like ACAS X, which is MIT and Lincoln Labs, sort of collaboration with Merlin around how to do airspace deconfliction around TCAS and ACAS. We're gonna continue to announce features there as we roll the Condor product line out onto target customer aircraft in order to make those aircraft safer.

Also, of course, we're working closely with global regulators on how we integrate those safety features into the national airspaces around the world, so that we can make those preventable accidents just that, preventable, rather than inevitable.

Okay. Are there any specific funding line items you see within the fiscal year 2027 defense budget, which is requesting $71 billion for unmanned systems and autonomy that could be directly applicable to Merlin as they're conducting the testing on the C-130J and other platforms?

Yeah, we do. As it's been out there, the Defense Autonomous Warfare Group has a $53 billion top-line ask in the president's budget. That's still all working out through reconciliation and the budget cycle. You know, there's plenty of stuff in there that's directly applicable to what we're building here at Merlin, and ultimately is tens of billions of dollars more for autonomy for the Department of Defense that otherwise wasn't there.

We're excited about the C-130J because we believe it's one of the closest, shovel-ready programs to get autonomy out onto operational Air Force aircraft. Clearly nothing we're gonna pre-announce there, the tailwinds are certainly there and, you know, we're accelerating that effort given those tailwinds.

Excellent. Looking forward to it. Thank you.

Thank you. Our next question comes from the line of Anton Renner with TD Cowen.

Hey, good morning. Thanks for taking my question. Congrats on the first quarter. Just curious, how are you thinking about M&A now that you have some cash on the balance sheet, or some more cash on the balance sheet? Are there any gaps that you might be looking to fill?

For M&A, we are building what we believe is the leading takeoff to touchdown autonomy system in the world. When we're looking at M&A, we're looking at opportunities where we can leverage that core autonomy into platforms, programs, existing contracts where that autonomy can meaningfully accelerate capability to our customers and provide asymmetric value to our investors and also to what we're building at Merlin.

Nothing to pre-announce there yet, but M&A is certainly top of mind for us as we build what we believe will be a pretty important neo-prime focused around autonomy. Clearly, there's lots of stuff going on in the defense tech space.

We think that focus is really important. We're going to be building Merlin really as a neo-prime, but focused just on autonomy and on autonomy, particularly at least at first, in the air domain, where we can leverage what we have built to deliver asymmetric value for our customers, but also for our investors.

Got it. Thank you. Then, maybe just quickly, could you maybe provide an update on how you're thinking about pricing of Condor and Merlin Pilot platform as a whole? Are these pricing discussions still ongoing? Any color there would be helpful.

The discussions are certainly ongoing. High level, we believe, in a two-part, you know, pricing model for things like Condor. First, we're selling the physical hardware that goes into the aircraft that enables the aircraft to fly autonomously.

We believe that that hardware can be sold at relatively low margins to enable the eventual software deployment, which is, of course, very high margin, and we think that that software deployment needs to be priced in a way where there are shared savings and shared value with our customers. If you're able to leverage the software as a customer, in order to save on operating costs, or to increase aircraft utilization and efficiency, we believe that the customers should see savings from that.

Merlin will take a portion of those savings in a true partnership with our customers versus this being a net new above and beyond base operating expense for our customers. That's exciting. It changes the way our customers do business, but also enables a long-term software sale in the aerospace and defense market that really hasn't existed before, while also dramatically expanding the capabilities of the aircraft for our customers. Ongoing discussions, but we're pretty pumped about it.

Great. Thanks for the call.

Thank you. I'm shown no further questions. With that, I'll hand the call back over to CEO, Matt George, for closing remarks.

Great. Thank you so much. Last thing I'll say is we appreciate each and every one of you being on this journey with us. Building Merlin and building what we think is gonna be a very important company and a generational company in the space is really the opportunity, at least for us, of a lifetime, and we appreciate you all being on the journey with us. Please reach out if you have any questions, and really appreciate everyone's time here today learning more about Merlin and what we've been working on this quarter. Thank you.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.