XTIA

Good afternoon, and welcome to the XTI Aerospace first quarter 2026 earnings call. Joining us today from XTI Aerospace are Scott Pomeroy, Chief Executive Officer, Brooke Turk, Chief Financial Officer, and Jeremy Schneiderman, CEO of Drone Nerds. Before we begin, please note that certain statements made during today's call may be considered forward-looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Additional information regarding these risks and uncertainties can be found in the company's filings with the Securities and Exchange Commission. The forward-looking statements made today speak only as of today, and the company undertakes no obligation to update these statements except as required by law. In addition, during this call, we will make reference to certain non-GAAP financial measures.

A reconciliation of these non-GAAP financial measures are available on the investor relations section of our website. Earlier today, the company posted its earnings news release, slide presentation, and prepared remarks to the investor relations section of its website. Today's session will be conducted as a live video-based earnings call. Scott Pomeroy, Brooke Turk, and Jeremy Schneiderman will be responding to questions from participants. The discussion today will focus on first quarter 2026 results. I will now turn the call over to Scott Pomeroy. Mr. Pomeroy, you may begin.

Great. Thank you. Thanks everybody for joining us here this afternoon. It's great to have you here. As the moderator just pointed out, we did file earlier today, along with the 10-Q, the earnings release, as well as the script. As with last quarter, our objective with that is really to avoid having to spend time on this call reading through the script and maximizing the time that we have to answer questions. We hope that continues to be an effective mechanism and platform for you, and we'll continue to do that. We've gotten good feedback that it's helpful to carve out the time just for Q and A, we intend to do that.

Really since the acquisition in November last year, we've continued the transformational journey of XTI, we are now a revenue-generating unmanned systems platform. We're focused on operational execution, on margin improvement, and cash flow discipline. The first quarter of 2026 marks the first quarter that we've had the full operating performance of Drone Nerds in our results. We've believe that we've demonstrated meaningful progress in reducing costs, improving operational alignment, and lowering our cash burn. That will continue throughout the balance of the year, we're off to a good start.

Based on our current operating plan, we continue to expect to achieve positive and growing cash flow from operations throughout the balance of the year, starting in the third quarter as revenue scales and operating efficiencies improve. During the quarter, we continued to see broad-based demand across enterprise and government markets. That includes areas such as public safety, infrastructure, utilities, agriculture, education, surveying, mining, and energy customers. We also continue to benefit from the growing industry demand for NDAA-compliant and domestically aligned drone solutions as customers are increasingly focused on secure supply chains and regulatory compliance. Jeremy can provide more color on that as we continue with our conversation here today. Our enterprise B2B pipeline strengthened throughout the quarter, and the momentum has continued into the second quarter.

Based on the current operating plan, we continue to expect full year 2026 revenue of approximately $160 million or greater, with projected gross margins of between 19% and 21% and EBITDA margins of between 9% and 10%. We ended the quarter with about $15.2 million in unrestricted cash and cash equivalents, along with some substantial liquidity available under our asset-based lending arrangement. As we move through the remainder of 2026, our priorities remain clear. It's about improving margins, strengthening liquidity, reducing cash burn, and continuing to build long-term shareholder value through disciplined execution. With that, let me turn it back over to the moderator.

Thank you. At this time, we will now open the floor for questions. If you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form. Our first question is a written submission. Our question is: How should investors think about the difference between average EBITDA generation during the second half of 2026 versus the EBITDA run rate the company expects to exit the year with?

Great question. As you know, we guided to second half of between $2 million-$3 million of positive cash flow. I think the real key point there to keep in mind is that the quarter-to-quarter performance is not flat. We expect revenue and EBITDA to continue to grow throughout the second half of the year and cost efficiencies and initiatives to continue to take effect. You can't really take the guidance of the full entire second half and extrapolate that into an average monthly or average quarter performance. The strength of the cash flows continues to grow as the year progresses.

It's really, you know, we're looking to a solid fourth quarter and end of fourth quarter as being much more reflective of what our ongoing run rate will be.

The next question is a written submission. Our question is: How should investors think about the seasonality and quarterly revenue cadence during 2026?

Jeremy, why don't you take that one?

Absolutely. Well, first, thank you everybody for joining us today. To tell you a little bit historically about Drone Nerds, you know, first quarter has always traditionally been one of our slower quarters, and we always see an eventual ramp up into the fourth quarter for multiple reasons. You have procurement cycles, you have seasonality in agriculture. Public safety has different budget timelines. Historically, if you look at our business, fourth quarter is always our strongest quarter, with that ramp up into fourth quarter. If you were to compare Q1 2026 versus Q1 2025, you'd have to really look a little bit deeper into what happened in Q1 2025. We had major supply constraints in the fourth quarter of 2024, where we saw some of those sales move over into Q1 2025.

If you were to look comparatively over the two, it really wouldn't be true indicative of what normal business would look like.

Q1 was a little bit overstated, Jeremy, of 2025, and Q4 understated.

Correct

In that demand delay.

Absolutely.

The next question is a written submission. Our question is: Drone Nerds is the largest U.S. enterprise drone distributor, with $100 million+ in 2024 revenue. Third-party research from Grand View, Drone Industry Insights, and Fortune Business Insights sizes the U.S. commercial drone market in roughly the $6 billion-$8 billion range today, growing double digits. With strong policy tailwinds from Executive Order 14307, FCC foreign UAS action, and DOD Drone Dominance, that implies Drone Nerds holds roughly 1%-1.5% share of the multi-billion dollar highly fragmented market. As the number one domestic player, how do you size the U.S. enterprise drone distribution and services TAM, and how fragmented is the long tail behind you?

Jeremy-

So-

maybe touch on that, and then we could also, weigh in a little bit.

Absolutely. We see the U.S. enterprise drone distribution and services TAM as a multi-billion dollar range. With our position at over $100 million in revenue, we, and being the number one domestic player in the market, we see a market where the tail is about 100+ regional resellers, mostly that sub $5 million range, with very little infrastructure to deliver really robust solutions that we provide. We see that as a very opportunistic consolidation opportunity for us. Our position in the market is we're set up for success to capture it.

The follow-up: Given that fragmentation, the policy environment and strategic capital, how should investors think about Drone Nerds' runway to consolidate share organically and through tuck in M&A over the next 24-36 months?

Well, I think there's a couple ways that, you know, we should be looking at that. Obviously, as Jeremy just outlined, those, you know, being the largest by orders of magnitude, domestically here in the U.S., with really no close second player, it sets the market up strategically for interesting consolidation opportunities. We will look to capitalize on that. It also suggests that with some internal investment, we can compete organically and take share. If I look at the broad base of this industry that's growing by any, by any mechanism or by any forecast you wanna look at, it's growing at 20%+. You got a business that's gonna grow at 20%+ just by keeping, holding share.

Our ability to continue to consolidate and take share should add fuel to that growth rate over time. We think these opportunities trade our direction. We'll be opportunistic in looking at that. We don't need to go out and consolidate 100 companies. There are a handful that make good sense for us to consider. The rest of them, it's a competitive dynamic. It's also a potential for margin expansion as well, as you eliminate some of those additional players that are in the market. We look at the entire landscape as it being ripe for consolidation growth and margin expansion.

The next question comes from Robert Barrow. Robert, please unmute your line and ask your question. Robert, you may now unmute your line and ask your question. All right, we're gonna move to our next question. Our next question comes from Matthew Galinko with the Maxim Group. Matthew, please unmute your line and ask your question.

Hey, good afternoon. Thanks for taking my question. I was hoping you could maybe touch on what your visibility into, you know, the next nine months, 12 months is for revenue for Drone Nerds, and sort of how do you build that forecast? Thank you.

Jeremy, maybe touch on that just a little bit as you look at your pipeline and your forward-looking elements of it and maybe a generalization.

Yeah.

We haven't given quarterly guidance, we've just given annual. You know, we've talked about the first quarter being the low water mark, the fourth quarter being the high water mark of the year. Maybe just some general commentary on that.

Great question. You know, really it's about how are we going to execute to hit the $160 million that we've put out there. You know, what we do really, really well is serve the enterprise market. You know, we've increased our revenue year-over-year with very strategic investments focusing on that segment of our business. What we've done this year, and we've just started to implement, is increase our enterprise direct sales channel with investments into our sales team. We've made strategic investments into marketing, specifically into those verticals. And with deep focus on specific verticals, like public safety, agriculture. These are the verticals that we're really starting to see that hockey stick growth. And we know, you know, we need to be in the center of that.

With the recent FCC regulations that have passed, we've seen an uptick for NDAA compliant products. We're well-positioned to serve that market because if you look at kind of what we do, we're kind of the centerpiece for manufacturers to get to customers. With the NDAA solutions, they're so much more complicated, full suite of solutions to sell that. We're making a heavy effort into making sure that we are capitalizing in that marketplace. We're starting to see, as Scott mentioned, our pipeline is larger than it was year-over-year, which is a good indication of what sales are gonna be. We're gonna continue to make those investments into those programs. That's gonna continue that shift into our highest margin segment of our business.

Our next question is a written submission. Our question is: Why does management believe Drone Nerds is differentiated versus a traditional drone reseller?

Jeremy, I'm gonna keep coming to you. I think that's.

Yeah

good one for you to touch on.

Great question. We don't think of ourselves as a reseller, and I don't think the market does either, right? A typical reseller is one that would just move boxes. We look at us as we're a platform between manufacturers and the enterprise customer. It comes down to four different things that are kind of like our secret sauce, right? You know, our scale. Where we are in our scale, the guy that's just a reseller moving simple box, they don't have the plethora of inventory and the portfolio of products that we have. They don't have the repair infrastructure, the training capacity, really what it takes to scale up the largest programs in the U.S.

You know, a reseller is really good at selling one or two boxes, but if you wanna stand up a large program, there's a lot more to it than just buying the drone. You know, having the right selection of products to serve enterprises, is one of our keys. You know, we've got You know, I always say we have the largest toolbox in the industry. To sell a full solution, you have to have the right hardware, the right software, the right sensor, ultimately the right service to stand behind it to stand up, the large programs. We don't see ourselves as your traditional reseller. We are much more sophisticated and, you know, pretty unmatched in the industry because of our scale.

Our next question is a written submission. Our question is: What gives management confidence that XTI can achieve positive cash flow in quarter three, 2026?

Brooke, maybe you can take that one.

All right. Hi everyone, good to see everybody. Yeah, we are at a really important inflection point at the company this year. As you saw, we've been steadily decreasing our cash burn as it we reflected in our EBITDA results. We came down from a $-10 million EBITDA in Q4 2025, and down to $-5 million at the end of Q1 2026. We continue to ramp our revenue. It'll continue to ramp throughout the rest of the year. We're expanding our margin for the rest of the year. We're continuing to tighten our belts and cut additional costs. What you're gonna see is the lines are gonna cross.

As we continue to ramp up revenue and costs come down, you're gonna see that starting to reflect in our Q3 and Q4 results.

Our next question is a written submission. Our question is: What progress has the company made on liquidity and balance sheet stability?

That sounds like a Brooke question. Brooke?

Sure does. Sure, yeah. We ended the quarter with about $15.2 million in cash and cash equivalents. As you know, we stood up a $20 million ABL with JPMorgan in Q1, of which we had drawn by the end of the quarter about $4.8 million down, and then that left us with a little over $8 million in borrowing base still to borrow against. Still strong liquidity available to us. You know, we guided that we'll end the year at around $15 million-$17 million in cash. We feel like the balance sheet is very stable this year.

Our next question is a written submission. What gives management confidence that XTI can achieve positive cash flow in quarter three, 2026? Excuse me. We already asked that question. Our next question is.

I think we just asked. Yeah.

Yes. Apologies.

Okay. Is that a trick?

This is a good time, I think, to prompt the audience. If anybody wants to raise their hand for a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk. You will hear your name called. Please accept, unmute your audio, and ask your question. We'll wait another moment to allow the queue to form. Okay. Our next question comes from Robert Barrow. Robert, please unmute your line and ask your question.

Guys, how you doing? girls, I'm sorry.

Yeah. Go ahead

With drone, well, we've all invested what we can because we trust the company and we trust what you guys are doing. Biggest question is, besides the U.S. government military, are you working with other countries also with drones?

Yeah. Jeremy, If you could, you touch on that.

Yeah

good question.

Great question. We do provide other parts of the world drones. We have a strategic partnership in Colombia where we provide, and to Colombia. The Latin, LATAM market is a significant market for us as well. We've also supported Poland with technology, as well as Israel. We are a global company.

Yep. Good. All right. Thank you.

Our next question comes from Matthew Galinko. Matthew, please unmute your line and ask your question.

Hey, Matt.

Matthew?

Hey. Thanks for taking my follow-up. Maybe, I guess, looking a little bit past this year and into when it gets a little bit more complex to deliver NDAA and kind of qualify, you know, domestic source products, you know, how do you see that affecting your gross margin and kind of EBITDA margin over time? You know, should we expect to see some of the incremental value that you deliver in the margin? What timeframe should we be thinking about for that?

Why don't you start that, Jeremy, and then I'll pile on a little bit.

Yeah. I would say we're already selling NDAA products and Blue UAS products today. We have been since the Blue UAS program has started. It's, I think it's only gonna get better. I don't think it's gonna get more difficult. I think your question mentioned it's gonna get more complicated. I think it's actually gonna get easier in the future as our partners that are our OEMs that are providing this technology, you know, continue to scale up.

What I'd probably add to that, Matt, is as that scale occurs, the margin profile is better for us with those newer NDAA compliant sellers, OEMs. We expect the mix to work in our favor. Also, I think your question also implied the notion of some of these other services that we provide, and the enhancement of those services tends to drive margin up as well, which we would agree. Right now the services tends to be a quite a low percentage of our overall mix. As we see more in the area of repair, maintenance, training, et cetera, some of the areas that Jeremy talked to, we would expect margin to expand.

You know, the question behind the question is what do we believe about margins over time? You know, this is a business that can see a fairly, as a percentage, a fairly significant increase from where we are today. You know, it's not infinite, but, you know, we can see better than the 19%-21% that we've guided to. We would expect that to be higher in future years.

As a final reminder, if you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait for one moment to allow the queue to form. Our final question will be a follow-up from Robert Barrow. Robert, please unmute your line and ask your question.

Yeah. When it gets to $10 a share, can I get a vest like yours?

You know, I'd probably get you a vest sooner than that, Robert. I'm not gonna be greedy. I won't wait till $10.

I just figured I'd add a little lightheartedness to the whole thing.

Yeah. No, thank you very much.

Yeah.

Thank you. As the last question, you know, I do want to again reiterate our gratitude for you spending time with us here again this afternoon. Hopefully the, you know, the information is substantive, it's on point, it's clarifying. Our objective is to be transparent and forthcoming with both our performance, our current performance and our anticipated performance with the business. Our focus again as a business is really on the Drone Nerds platform, our unmanned systems platform. We think we're extremely well-positioned as a company. Many of you may have heard, you know, my use of the predicate of Amazon.

I know it's a bold statement, but I think it's absolutely appropriate that Drone Nerds is the Amazon of the drone industry and the commercial and enterprise space. What does that mean at the end of the day? Well, what that means is, we understand all the demand signals that are out there. We know why people are buying, we know what they're buying, we know what matters, we know what configurations matter to them. Then that kind of insight evidenced through the data gives us almost infinite ability to maneuver in the future. Whether that's in the area of manufacturing or that's in the area of really expanding ourselves into government work.

None of that is possible if we don't have our base solid and solidified. Right now, our focus is squarely on ensuring that Drone Nerds is optimized fully. We will be opportunistic in other areas. We will limit any kind of spending that we're doing right now on anything other than Drone Nerds. We'll just simply allow the market to evolve around us as we enjoy the fruits of the labor here with Drone Nerds. We continue to see revenue growth, margin expansion, cash flow improvement. Once you have that base solidified, there's a number of things you can do with the business. Until that's, you know, until your house is in order, you can't.

We're, you know, we're in the process of coming off of a longstanding development, a design and development business. We had to focus on radical cost reduction. We're continuing that in through the second quarter as we realign our cost structure for the business that we are today. You'll see that in the numbers as each quarter progresses. We anticipate, you know, very productive, very significant things for the company in the future. Thank you all for your support, for your continued interest in us. You know, we just invite all of you to keep taking a look at us, holding us accountable, and we'll keep bringing you the information. Thanks.

Appreciate it. We will, we'll talk to everyone either on the road or next quarter.

This concludes today's call. Thank you for joining us. You may now disconnect.

Good afternoon, and welcome to the XTI Aerospace full year 2025 earnings call. Joining us today from XTI Aerospace are Scott Pomeroy, Chief Executive Officer, and Brooke Turk, Chief Financial Officer. Before we begin, please note that certain statements made during today's call may be considered forward-looking statements within the meaning of the federal securities laws.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Additional information regarding these risks and uncertainties can be found in the company's filings with the Securities and Exchange Commission.

The forward-looking statements made today speak only as of today, and the company undertakes no obligation to update them except as required by law. This morning, the company posted its earnings news release, slide presentation, and prepared remarks to the investor relations section of its website.

Today's session will be conducted as a live video earnings call. Scott Pomeroy and Brooke Turk will be responding to questions from participants. The discussion today will focus on full year 2025 results, and the company will not be providing or discussing fourth quarter results separately.

Additional information may be referenced from the materials available on the company's investor relations website. I would now like to turn the call over to Scott Pomeroy, Chief Executive Officer and Chairman of the Board. Mr. Pomeroy, you may begin.

Great. Well, thank you. On behalf of the board of directors and the management team, I want to extend my appreciation for your joining the call here today with us at XTI. As the moderator noted, earlier today we filed the 10-K. We issued an earnings release. We filed our script as an 8-K. We also posted the investor deck on the website. By the way, all those materials can be found on the website.

That's a lot of information, and obviously this is a different approach for us. We intend to maximize information that's both compliant and clear for you as investors. Our objective here is not to waste your time simply reading to you something that you are perfectly capable of reading through yourself, thus we filed the script in advance.

We really want to ensure that our time is spent talking with you, not at you. The objective here is to maximize the time that we have to entertain your questions, what's on your mind, and try to maximize the amount of information that we convey during the short period of time we have together.

Obviously, we've been very busy, as the information would suggest that's out there over the past five months since the closing of Drone Nerds. We have fully integrated the company. We've established new objectives, targets, strategies to drive growth into a business that's got an 8+ year history of growth and profitability.

We exited one of our divisions, and we established a clear and bold new vision for the overall company as we seek to take full advantage of one of the most significant market opportunities in modern aerospace.

We look forward to entertaining your questions and hearing what's on your mind. With that, I'll turn it back over to the moderator, who will have a few instructions to provide, and then we'll open it up for you to extend to us your questions.

At this time, we will open the floor for questions. To ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called.

Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form. Our first question will come from Matthew Galinko with Maxim Group. Please unmute your audio and ask your question.

Hey, good afternoon. Thanks for taking my question. Just confirm you can hear me.

We can. Yes. Thanks, Matt.

Perfect. Well, Scott, Brooke, thanks for taking my question. Maybe could you walk us through how you're navigating the DJI FCC potential disruption? Are your customers prepared, and how is your engagement with them on preparing for that?

Yeah. Thanks, Matt. Good question. Obviously, as you know, we're under a ban from the administration under a prospective perspective. In other words, the ban that's currently in place is for future SKUs, future models of foreign drones.

In particular, DJI and Autel that are on the list. So that's intended to provide for a ramp of compliance on the part of the customers, those like us that are in the distribution. We find a mixed bag of adoption, frankly. We're seeing that some of the governmental agencies are taking more of an aggressive stance and beginning to make the migration and move sooner.

Then we have many who are looking at this as a slower adoption, that it'll take a few years to take effect as some of the new models that come out are no longer FCC certified.

From a customer standpoint, you see a different kind of reaction depending on who they are and what sector they're in. Certainly one of the things that you're seeing from our strategic statements that we've made about what we're looking at in getting more into the manufacturing.

One of the objectives there is to mitigate this potential risk. We don't see it as a flash cut. We don't see it as something that's going to take place overnight, that we're going to have time to address that sunsetting. We also don't want to rely on that because we don't have control over those regulatory pronouncements.

We're preparing to fill that gap. I'd also point out that as the largest distributor in the U.S., we've got a multitude of brands that we represent.

To the extent that our customers begin to sunset their dependence on or their willingness to use DJI, we are replacing that with other models that are manufactured and produced in other places, including the U.S.

There's still a lot of foreign manufacturing that we're having to rely on and make sure that they're Blue UAS compliant, NDAA compliant. We're also seeing our customers rely on us more heavily, to discern that regulatory labyrinth that we find ourselves in to ensure that what they're doing is going to be NDAA compliant both now and in the future.

That enhances our relationship with our customers or the necessity of our involvement with them as well. In total, while we see it as disruptive, we don't see it as traumatic. It's something that we have to address.

We think we've got time to address it, but we're looking at this under a multitude of facets that we're addressing.

Thank you.

Our next question comes from Michael Molnar with MiG Advisors. Please unmute your line and ask your question.

Hi, Brooke and Scott.

Hi, Michael.

Michael.

Good afternoon. Thanks for doing this, and thanks for putting out your voluminous filing this morning. That had to be heroic. Whoever pulled that off, I have to say, was heroic and did it in a timely fashion. That's impressive.

Scott, is there any remnant of the engineering and development and R&D capabilities that came with the vertical takeoff and landing efforts, the internal combustion efforts, that is relevant for you going forward?

I think the way I see the business is it's disproportionately Drone Nerds, which is a nice business, and you got it at a nice price at a good time, and you got UMAC on board, which is great. Alan's terrific. I'm just curious, are there other components here? Maybe some of the legacy R&D and engineering abilities are relevant in future product development efforts. How might the revenue composition look by year-end?

Is it just disproportionately Drone Nerds, or are there other sources that might evolve?

Yeah, good question, Michael. First and foremost, the simple answer is yes, right? We looked at that as we made the determination to pause the VTOL business. As we pointed out in our filings, it's really a capital allocation or prioritization issue for us when you look at the development of the VTOL, which is a long-dated asset juxtaposed against the market that really is more short-term in nature in terms of capital raising.

We were able to take, though, some of the capabilities. Frankly, any kind of an aircraft, vertical takeoff and landing kind of an aircraft, and I'd include drones among that mix, you're really looking for three things. You need engineering, you need what the industry calls touch labor, which is really the ability to take your engineering and turn it into a product that you can test fly, and then flight control system capabilities.

When we looked at the potential repurposing and then filling in some of the needs that we had, we looked at those three areas, engineering, touch labor, and flight control systems.

You see in our filings, as we've talked about what we refer to as our ADS or Autonomous Defense Systems division, formerly the XTI Aircraft, we've retained those skills, and we are currently bidding and proposing on numerous different government programs that are dealing with autonomous flight. Historically, the TriFan was a vertical takeoff and landing. It was just a manned aircraft.

We probably could not have picked a more difficult aircraft to go build initially, a manned version of a drone, in essence. What we've really, in essence, done is rolled that back and said the current future is in autonomous flight.

We need to ensure we have that capability to ever make the VTOL truly viable in the ecosystem out there. Our focus is on drone technology, drone capability, drone manufacturing, and obviously the core business we have is a distribution business.

That is beginning to move into governmental or military focus as well, but it's historically planted its flag very squarely in the commercial and enterprise market. Yes, we have retained that capability. We've already put that to good use as we're bidding and proposing.

That bid and proposal has us looking at somewhere in the neighborhood of up to $150 million, roughly, of contract value with over $1.5 billion of production value, should all those be won. Now, we don't anticipate winning all those by any stretch, but we are relevant in those contracts.

As you think about future revenues, I would think about both the distribution revenue, contract revenue, manufacturing revenue in the future, in the not too distant future for us.

Okay. Scott, just repeat so that it's command and control, or how would you describe those capabilities that you just referenced? Like what, navigation?

With regard to the team, yeah, well, it's basically the ability to design, produce and manufacture at scale. Productize your manufacturing, if you will.

The skill set that our leadership has, and I think we've highlighted Steve Zourabian in particular, who leads that group, comes out of Boeing Phantom Works. He's had a long stint at Piasecki doing just exactly what he's doing for us now, which is government-related work.

Okay

Around aircraft. Where focus is on the autonomous drone flight and programs that the government's currently looking at. By the way, we're much more facile and flexible. What you're starting to see.

Right

even in the drone market, whether it's Anduril, Shield AI, they're starting to become the industrial military complex in their own right. Having somebody who's more conversant in, more flexible with, more capable in the area of your Group 3, 4 and 5 drones is something that the military relishes.

Okay. Does counter drone fall broadly into that realm?

Absolutely. Yeah. It's certainly an area of focus.

Okay

for the military.

As does your Group 1 and Group 2.

Okay.

We're seeing different agencies, departments within DoD and otherwise starting to look at Group 1 and Group 2 because we're still in the Group 3 through Group 5. It would be a fair accusation to say we're still killing gnats with bazookas. While we're being taught in theater, like Ukraine and Iran and other, Israel, that you can do some serious damage with a $30,000 drone.

Yeah.

The military's trying to figure some of that out.

Is the $160 million guide for calendar 2025, if I have that right, how does that break down Drone Nerds versus other?

We haven't specifically broken it down.

Okay.

It does incorporate all of our revenue.

Right

that we anticipate for this year. You probably could do as good a job just on the back of a napkin given our current base of $121 million that we reported for last year, $41 million for the quarter, roughly. It's a formidable business, Drone Nerds is.

Yeah. Okay. Yep, for sure. Okay, that's great. Well, it's nice to see you both. Brooke, thanks for all your help in keeping us up to speed. Thank you for your time, and congratulations on your progress and happy to be a shareholder.

Great. Thanks, Mike.

Thank you.

Our next question comes from Matthew Galinko with Maxim Group once again. Please unmute your line and ask your question.

Hello again. Couple of follow-ups. First being maybe how your capital allocation philosophy has evolved with kind of the new operating structure and objectives for the business.

You do touch on a little bit of potential for M&A in the press release. So I'm curious where things kind of shake out and whether you expect to be acquisitive under any of the segments in the next year or two. I have a follow-up after that.

Yeah. Thanks, Matt. Again, simple answer would be yes, we do expect to be acquisitive. Obviously, there are constraints on that. Our market cap is what it is. We don't have some of the cash arsenals that some of our peer groups have, that have taken advantage of some of the market conditions out there.

But we do, and we have signaled that capital needs for potential acquisitions is something that we will be considering. We have to be smart about it. We'll be looking for opportunities. We think we did a very, very good job of buying Drone Nerds right.

We think that's one of our areas from the senior leadership team of the company. It doesn't take you much digging to figure out that this is a team that comes from a legacy and heritage of M&A.

It means we understand how to buy right, we understand how to integrate, we understand how to derive value out of an M&A strategy. We will absolutely be looking at that.

The industry is consolidating. To the extent you're not a consolidator, you're a consolidatee in this market and environment, likely. We believe we've got the makings of being a successful consolidator as we take the advantages that we have. We occupy a space that very few others really can boast, which is a clear understanding of the market.

We know what the demand signals are out there, and we understand who's buying, what they're buying, why they're buying, what they're buying. It makes us an ideal candidate for really moving laterally both into manufacturing and government applications.

We're confident that we'll be active in that area, but you can expect us to be as disciplined and as smart as we were on the Drone Nerds acquisition.

Thanks. On the revenue mix, can we kind of expect a similar shift in 2026 as we had in the prior year? In other words, enterprise and government grow faster, distribution shrinks? Do you think it'll be a relatively steady mix compared to the prior year?

I think we'll start to see growth in government. I think you're also going to see continued growth in enterprise. If you take a look at the chart that we provided in the deck where we showed some of the mix shifting, what really is happening there is we're moving more and more to direct interface with customers.

The objective of Drone Nerds itself is to become a highly valued value add reseller as we look to consume more share of wallet. We look to have a stickier relationship directly with our customers that are more enterprise and commercial related and government related.

Historically, the company was built on a high volume of retail. They have systematically moved themselves out of that for margin considerations.

As we moderate the mix, as we diminish our reliance on some of the Chinese products, as we expand share of wallet, my expectation is that you'll see some margin expansion.

Great. Thank you.

We received a written question that asks, what is the core driver of XTI's business today? As a reminder, if you'd like to ask a question, please click on the raise hand button, which can be found at the black bar at the bottom of your screen.

Yeah. I'd probably amplify a few of the points in answering that question with some of the points I've already made. Really, our XTI Drones, which is represented by Drone Nerds today, is really the engine of the company.

As we've noted, we generated over $121 million in 2025 pro forma revenue and positive cash flow. It's a scaled commercial platform, serving enterprise and increasingly defense customers.

That profitability allows us to fund some of our operations. It allows us to move with some investment into some of the other areas of our business, as I've highlighted. We view this as a flywheel, with our anchor in the core driver of the business, which is in fact our distribution. It informs us. Data is incredibly important.

As I mentioned earlier, we understand the demand signals, and that's a consequence of the data that we derive by serving over 14,000 customers, tens of thousands of units that we sell each year. We derive a tremendous amount of information about what's driving demand out there.

That data feeds the other elements of our strategy around government development, around our manufacturing aspirations. We think we're well-positioned because of our knowledge and understanding of the industry, to be one of the more efficient operators, as we seek to be a gap filler, and assist in gap filling what's clearly a shortcoming in the United States today, which is drone manufacturing capability.

Our last question is also a written question. How is XTI positioned in the defense and autonomous systems market?

As I mentioned earlier, our ADS or Autonomous Defense Systems was born out of our legacy roots of XTI Aircraft. We brought over the capability, and intentionally so, in the area of engineering and touch labor and in flight control systems, which are all necessary to be able to design, develop, produce aircraft in the Group 3-Group 5 space in government drone production.

As a consequence of that capability, we find ourselves now with the opportunity to be bidding and proposing on nearly $150 million of contract value that has $1.5 billion in production value. I'll reiterate again that we don't expect to win all those, but we think we're a relevant and positive entrant into that process.

We think that we are going to have success in that area. We aren't necessarily forecasting or projecting exactly what that'll be, but we do anticipate some success.

In addition to some of the work that we're bidding directly with some of the government agencies such as the Navy, the Marines, the Air Force, SOCOM, to name a few. We're also looking to bid with primes who are further bidding into some of the government contracts.

We've got an abundance of opportunity. We're evaluating that. We think it gives us line of sight to be able to bring forward, ultimately, NDAA-compliant domestic production. We'll continue pursuing that, and you'll hear from us as we progress our successes in that area.

Certainly where we fall short and what our learnings are as we go through that process, but we think we're well-positioned.

There are no more questions at this time. I will now turn the call back over to Mr. Pomeroy for any closing remarks.

Excellent. Well, thank you very much, and again, appreciate the participation and the questions. At the risk of being repetitive, I suppose, I would leave you with a handful of thoughts. The thing that we would want you to remember. Obviously, we have a strong foundation.

We secured an asset with Drone Nerds that constitutes the baseline for us, and the foundation upon which we're building the rest of our strategy. It's a scaled commercial platform. It's our engine. We're performing. We're delivering over $120 million of revenue at over 20% gross margins.

Strong EBITDA out of that. We're looking to expand share of wallet, expanding customers, moving closer to the customer as we increase our value. We've got opportunity to expand both geographically and vertically as we go deeper with that in the area of M&A.

It really provides the basis of everything else, which is embodied in the data. We've launched our advanced technology and manufacturing. It's powered literally by our understanding of the demand signals from our distribution platform.

We won't be product-biased as we build out capability. We will be relying on those demand signals to determine what we produce and for whom. We're targeting NDAA-compliant, domestically manufactured hardware that's purpose-built for enterprise and defense procurement. Ultimately, it's led by an individual, Dr. Williams, who we highlight in all of our materials.

You can see his credentials. This is an individual that has studied, understands, and is capable in the area of manufacturing. We got a long ways to go in this country to make up the ground against some of our foreign competitors.

In the area of Autonomous Defense Systems, we determined that we had a need to pause the TriFan. We made that decision. To reiterate, we are currently not spending money against that program.

That has been reappropriated, and we've put ourselves in a position by keeping engineering, touch labor, and flight control capabilities that we now have a foundational bid to propose, and ultimately produce opportunities with the military.

I listed before some of the departments that we're bidding with, that we expect some success with, and the magnitude of the contract and production value that that represents. Bottom line is what we've established strategically as our flywheel is working.

Ultimately, distribution drives customer adoption and data at scale. That data gives us an understanding of those demand signals that enhances our manufacturing effectiveness and efficiency.

Those capabilities in manufacturing enhance our credibility and the success that we expect to see in the productization for the military. Ultimately, all of that feeds success in the military, feeds civilian and commercial product placement and adoption.

When taken together, it all will drive growth at the top line, margin expansion, and strategic value creation over time. We're encouraged by where we are. It's only been five months since we closed.

As I opened some of my comments with, we've been extremely busy putting all of these pieces in place and together. We're moving at a rapid pace. We're thankful for the support and the interest in the company, and we look forward to further conversation and bringing you further information in the not-too-distant future.

This concludes today's call. Thank you for joining us. You may now disconnect.