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    PDYN
    Earnings call· Jun 2026(Q2 FY26)

    Palladyne AI Q2 FY26 earnings call PDYN

    Aug 6, 2026 Source

    Executive summary

    Palladyne AI Q2 FY26 — Record Revenue, Strong Backlog Growth, and Key Defense Program Traction

    Palladyne AI delivered a strong second quarter, marked by record revenue and significant backlog expansion, driven by increasing traction in defense programs and strategic partnerships. The company's collaborative autonomy solutions are gaining operational validation in real-world military exercises, positioning it for future growth despite higher-than-average cash burn and initial margin pressures from capacity investments. Management reiterated full-year revenue and cash burn guidance, expressing confidence in continued momentum.

    Highlights

    5

    • Record quarterly revenue of $5.8 million, up 63% sequentially from Q1 FY26.

    • Backlog increased 43% to $24.6 million, driven by $13 million in new contract awards.

    • Secured a follow-on order for over 1,000 Brain FC1 units worth $2.3 million from a defense prime.

    • Gremlin X advanced from TRL 6 to TRL 7, demonstrating successful field performance by soldiers.

    • Expanded Air Force Logistics Center contract by $2.9 million, bringing total to over $10.6 million.

    Concerns

    3

    • Operating cash burn of $11.1 million was above the guided average quarterly rate of $8M-$9M.

    • Consolidated gross margin was 29%, reflecting underutilized manufacturing capacity and setup costs for new programs.

    • Stock-based compensation expense increased to $2.3 million, with a material increase expected in Q3 FY26.

    Guidance & targets

    3
    CategoryTargetConfidence
    Full-year 2026 Revenue
    $24 million to $27 million
    high materiality
    High
    Full-year Operating Cash Burn (inclusive of CapEx)
    $32 million to $36 million
    medium materiality
    High
    Backlog Conversion to Revenue
    Majority over next 12-18 months
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Product Revenue
    Primarily from precision manufacturing business and Brain avionics product.
    		$2.7 million———
    Engineering Services Revenue
    Generated from UAVs, missiles, loitering munitions, and spacecraft engineering services.
    		$1.9 million———
    AI Product Development Contract Revenue
    Accelerated near the end of Q2 FY26 after government shutdown in Q1 FY26.
    		$1.2 million———

    Operational metrics

    18
    Total Revenue
    $5.8 millionup 470% YoY, up 63% QoQ
    Q2 FY26

    Record quarterly revenue, broad-based growth across business units.

    Consolidated Gross Margin
    29%
    Q2 FY26

    Reflects manufacturing utilization below full capacity and includes setup costs for new program wins.

    Cash, Cash Equivalents, and Marketable Securities
    $43.7 millionflat with Q1 FY26, down $3.4 million from FY25 year-end
    Q2 FY26 end

    Liquidity position at quarter end.

    Operating Cash Burn (inclusive of CapEx)
    $11.1 million
    Q2 FY26

    Above guided average quarterly rate due to increased business development, non-recurring CapEx, and engineering team expansion. Offset by ATM proceeds.

    Non-GAAP Net Loss
    $10.8 millionvs $6.4 million in prior year period
    Q2 FY26

    Non-GAAP basis excludes impact of warrant revaluation, stock-based compensation, and change in contingent consideration liability.

    Stock-Based Compensation Expense
    $2.3 millionup from $1.1 million a year ago
    Q2 FY26

    Non-cash expense, primary driver of increased G&A. Expected to increase materially in Q3 FY26.

    Non-Cash Gain on Warrant Liabilities Revaluation
    $800,000
    Q2 FY26

    Included in other income.

    Net Proceeds from ATM Program
    $10.8 million
    Q2 FY26

    Used to offset operating cash burn. Year-to-date proceeds for H1 FY26.

    ATM Program Remaining Capacity
    $24 million
    Q2 FY26 end

    Remaining capacity under the ATM program as of June 30th.

    Gremlin X Cost Per Effect
    less than $1,000
    Current

    Gremlin X is a reusable mini-bomber designed to deliver a kinetic effect for this cost.

    Cost to Strike Mobile Air Defense Systems
    $10 million to $40 million
    Current

    Estimated cost for current methods, which IAI systems can offer an alternative to at a fraction of the price.

    New Business Booked
    $13 million
    Q2 FY26

    New contract awards during the quarter, contributing to backlog growth.

    Brain FC1 Follow-on Order Value
    $2.3 million5 times larger than prior order
    Q2 FY26

    Order from a defense prime for low-cost counter UAS interceptor units.

    Air Force Logistics Center Contract Expansion
    $2.9 million
    Q2 FY26

    Additional contract award for robotic work, bringing total for this program to over $10.6 million to date.

    Swarm OS Air Force Contract (Hang Time)
    $4.2 million
    Current

    Recently signed contract with the U.S. Air Force to extend SwarmOS technology to integrate sensors from other domains, including space.

    2025 Revenue
    $5.2 million
    FY25

    Used as a baseline for 2026 revenue growth guidance.

    IAI Backlog
    more than $30 billion
    Current

    IAI's backlog across its business, highlighting the scale of the partner.

    New Drone Platform Integration Time
    2 to 4 weeks
    Current

    Estimated time for integrating a new drone platform, depending on OEM and drone architecture.

    Industry KPIs

    1
    MetricValueDetails
    Order backlog order intake by segment$24.6 millionUSD

    Orderbook & backlog

    1
    Total Backlog$24.6 millionQ2 FY26 end

    up 43% from $17 million at Q1 FY26 end

    Majority expected to convert to revenue over the next 12-18 months.

    Product announcements

    1
    ProductTypeDetails
    IQ softwareupdate

    Deals & partnerships

    2
    Israel Aerospace Industries (IAI)Secured rights to Americanize, manufacture, and integrate IAI's Harop, Harpy, and Mini Harpy loitering munitions for the U.S. Department of War.

    IAI selected Palladyne based on engineering capabilities, U.S. manufacturing capacity, team, and autonomy software. Palladyne intends to integrate Swarm OS where appropriate for coordinated actions.

    Major Tier 1 Defense PrimeIncluded Swarm OS in its own Relentless Wolfpack proposal.

    This inclusion is seen as significant validation from a large industry partner, demonstrating recognition of Palladyne's innovation and capabilities.

    Risks & headwinds

    5
    Operating cash burn above guided averageQ2 FY26

    $11.1 million in Q2 FY26 vs. $8M-$9M average quarterly guidance

    Mitigation: Expects operating cash burn to decline in H2 FY26 as revenue and margins ramp; prudent use of ATM facility.

    Manufacturing utilization and gross margin pressureQ2 FY26

    Consolidated gross margin of 29%

    Mitigation: Margin reflects manufacturing utilization running below full capacity and includes setup costs; expects efforts to turn into a tailwind as incremental volume runs through existing capacity.

    Uncertainty in winning Department of War funding programsNear to long term

    Submitted proposals for >20 programs with aggregate potential value of several hundred million dollars

    Mitigation: Acknowledges not all will be won, but the number and size of opportunities are materially greater than six months ago, increasing 'shots on goal'.

    Timing of backlog conversionNext 12-18 months

    Backlog of $24.6 million at Q2 FY26 end

    Mitigation: Timing of bookings, contract performance duration, and revenue recognition can cause backlog to ebb and flow; current backlog and new awards provide good visibility for H2 FY26.

    Integration challenges with new drone architecturesOngoing

    Integration time for new platforms can range from 2 to 4 weeks for a couple of people full time

    Mitigation: Learning a lot along the way, understanding what questions to ask and what to get nailed down before starting the process.

    What to watch in Q3 FY26

    5

    Operating Cash Burn

    H2 FY26
    Current$11.1 million in Q2 FY26
    TargetDecline to average $8M-$9M per quarter in H2 FY26

    Why it matters

    Critical for managing liquidity and achieving full-year guidance.

    We continue to expect operating cash burn of $32 to $36 million for the full year, inclusive of CapEx, which means we expect operating cash burn to decline in the second half.

    Q&A highlights

    6

    What progress has been made on Americanizing IAI systems, including identifying domestic manufacturing sites and engaging with the U.S. government?

    Management has engaged with about half of potential U.S. government customers, finding meaningful interest. They are identifying currently available facilities for manufacturing to quickly scale if demand materializes, avoiding the long timelines of new construction. The battle-proven nature of IAI systems means there's pre-existing familiarity.

    “We have engaged now with the U.S. government I would say with about half of those targets. And across the board, I would say that there is meaningful interest, but interest is just the beginning.”

    asked by Max McEllis · answered by Unknown Speaker

    2 min read4 chapters

    Detailed Narrative

    01

    Decentralized Embodied Collaborative Autonomy (DECA)

    Palladyne AI is developing a new form of autonomy, termed Decentralized Embodied Collaborative Autonomy (DECA), which enables machines to operate independently, collaborate, and adapt in real-time without reliance on pre-programming or continuous cloud connectivity. This approach distinguishes itself from automated flight by embedding reasoning and decision-making directly on the drone, allowing multiple drones to aggregate knowledge across a swarm. SwarmOS software facilitates this collaboration across various UAV manufacturers, with intelligence operating at the edge for coordinated, adaptive responses.

    02

    Defense Market Alignment and Operational Validation

    The company's strategic focus aligns with the Department of War's priorities for intelligent systems and a robust industrial base capable of rapidly fielding affordable, mass-producible autonomous systems. Palladyne's DECA technology directly addresses the challenge of deploying large numbers of drones without requiring a proportional increase in human operators. SwarmOS and GremlinX demonstrated their capabilities in the Army's IV mass and PCC6 exercises, where soldiers successfully used the systems in operational settings, leading to contract options for FY27 and invitations to further exercises. A major Tier 1 defense prime's inclusion of Swarm OS in its Relentless Wolfpack proposal further validates the technology's potential.

    03

    Strategic Partnerships and Components Business Growth

    Palladyne is expanding its components business by exploring the supply of high-value subsystems, such as the Brain FC1 flight computer, to other drone and missile manufacturers, focusing on areas with unique competitive advantages. A significant partnership with Israel Aerospace Industries (IAI) grants Palladyne rights to Americanize, manufacture, and integrate IAI's combat-proven Harop, Harpy, and Mini Harpy loitering munitions for the U.S. Department of War. This initiative aims to address a critical capability gap and is projected to generate substantial revenue, potentially reaching hundreds of millions to billions of dollars over time⏳, with initial units available within 18 months of a clear government demand signal.

    04

    Commercial and Industrial Strategy & Opportunity Pipeline

    The Paladin IQ product focuses on automating difficult, dangerous, and repetitive industrial tasks, such as surface preparation for aircraft, exemplified by an expanded $2.9 million contract at an Air Force Logistics Center, bringing the total to over $10.6 million. The commercial strategy is shifting to a partner-led go-to-market approach. Concurrently, Palladyne has significantly expanded its opportunity pipeline, submitting proposals for over 20 Department of War funding programs with an aggregate potential value of several hundred million dollars, indicating increased engagement as DoD requirements evolve to incorporate the company's capabilities.

    AI-generated summary of the company’s earnings call. Not investment advice.