Airship AI — Third Quarter 2026 Earnings Summary

Financial Performance:

• Net revenues for the quarter ended September 30, 2026, were $6.23 million, representing a 429% increase compared to Q3 2025.
• Gross profit was $3.50 million for the quarter, a 481% increase year-over-year, resulting in a gross margin of 56.2%.
• Operating loss was $561,000 for the quarter, which included $555,000 in noncash stock-based compensation; the company operated at a breakeven basis excluding noncash expenses.
• Other income totaled $10.18 million, driven by a $3.23 million gain from the change in fair value of earnout liability and a $6.83 million gain from the change in fair value of warrant liability.
• Net income for the quarter was $9.62 million, or $0.28 per basic share.
• Net cash provided by operating activities was $384,000 for the quarter.
• Cash and cash equivalents stood at $12.74 million, and accounts receivable was $6.28 million as of September 30, 2026.
• For the nine months ended September 30, 2026, net revenues were $16.71 million compared to $8.83 million in the prior year period.
• For the nine months ended September 30, 2026, net income was $6.49 million compared to $6.36 million in the prior year period.
• Net cash provided by operating activities for the nine months ended September 30, 2026, was $963,167.

Guidance and Future Outlook:

• The company aims to achieve cash flow positive operations by the end of 2026.
• Management plans to capitalize on long-term business development efforts forecasted to be funded in 2026 through the One Big Beautiful Bill Act (OB3).
• The first release of the agentic AI software, now the largest share of development effort, is expected to be deployed to initial customers around year-end 2026.
• Several large opportunities in the existing pipeline are anticipated to close between the fourth quarter of 2026 and the first quarter of 2027, tied to Department of Homeland Security (DHS) funded procurement efforts.
• The company intends to continue tactical and strategic investments in sales and business development using organic cash flow and potential cash exercises of public warrants.

Business Segments and Product Lines:

• The backlog as of September 30, 2026, was $28.3 million in awarded firm-fixed price orders expected to be shipped and invoiced in subsequent quarters.
• Total validated pipeline was approximately $215 million at the end of the quarter, covering single and multi-year opportunities for AI-driven edge, video, sensor, and data management platforms.
• Product demand included substantial orders for Outpost AI edge appliances and Fortress AI server-side analytics platforms.
• The company continues to refine its Acropolis software platform to support new workflows for cloud-based deployments in highly secure operational environments.
• Commercial business growth was driven by increased partner adoption and pipeline expansion.

Market and Competitive Landscape:

• The company positions its distributed AI architecture as a competitive differentiator, enabling intelligence generation at the edge and enterprise-scale processing without requiring the replacement of legacy infrastructure.
• Most awards are executed on closed or restricted contract vehicles due to the sensitive nature of customers and deployment use cases, limiting public disclosure of specific awards.
• The company is targeting expansion within federal agencies and programs where technology is already deployed, leveraging existing customer relationships for broader enterprise-wide implementations.
• Increased procurement activity is observed across key federal customer agencies, supported by funding for critical homeland security and law enforcement initiatives.

Risks and Challenges:

• The timing and ultimate value of future opportunities, including large-scale Indefinite Delivery/Indefinite Quantity (IDIQ) contract vehicles, remain subject to government acquisition decisions.
• The company is restricted from publicly disclosing many awards and specific customer details due to the sensitive nature of its customers and use cases.
• Approximately 75% of quarterly revenue is transactional and recognized in the same quarter, meaning the backlog is not indicative of future quarterly revenue.

Management Commentary and Tone:

• Paul Allen, President, stated the quarter demonstrated the ability to execute against a growing pipeline and strengthen the company's position as a trusted provider of mission-critical AI solutions for the federal government.
• Victor Huang, Chairman and CEO, noted the core business is growing and funding itself, with the agentic AI software layer representing the largest share of development effort.
• Management highlighted the evolution from traditional video analytics toward autonomous, AI-driven operational workflows as a key opportunity to expand value delivery.
• The tone reflects confidence in the company's differentiated technology, trusted customer relationships, and ability to scale operations with a strong balance sheet and significant order backlog.

Other Key Points:

• The company hosted its largest annual customer engagement event to date, bringing together over 100 federal law enforcement customers for training and demonstrations.
• Total liabilities decreased from $26.62 million as of December 31, 2025, to $19.25 million as of September 30, 2026.
• Stockholders' equity turned positive, moving from a deficit of $7.15 million as of December 31, 2025, to an equity position of $1.54 million as of September 30, 2026.
• Deferred revenue increased to $11.17 million (current and non-current combined) as of September 30, 2026, from $8.63 million as of December 31, 2025.
• Inventory was introduced to the balance sheet at $1.08 million as of September 30, 2026, compared to zero in the prior period.
• The company reported a gain of $7.50 million from the change in fair value of warrant liability and $2.31 million from the change in fair value of earnout liability for the nine-month period ended September 30, 2026.