MRLN Q3 2026 earnings call transcript, November 12, 2026

and thank you for standing by. Welcome to the Merlin Inc. third quarter 2026 earnings call and business update. At this time, all participants are in listen-only mode. After the speakers...

presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message while your hand is raised. To withdraw your question, please press star 11 again. Please advise that today's conference is being recorded. I would now like to hand the conference over to your first speaker today. Brian Alger, Corporate Development and Investor Relations. Please go ahead.

Good afternoon, everyone. Welcome to Merlin's third quarter 2026 earnings conference call for the quarter ended September 30th, 2026. Joining me today are Matt George, Merlin's founder and CEO, Mark Bruner, Merlin's president, and Ryan Carruthers, Merlin's CFO. Matt will begin with a review of our third quarter with a particular focus on our progress against the commitments we've made on our prior calls. We will then hear from Mark to give us a bit more color on our programs and the market signals he and his team are receiving. Ryan will then walk through the finance. Our balance sheet and how we're thinking about our cost structure as we plan for 2027. Finally, Matt will close with a few remarks before we take your questions. 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 expressed or implied. For a complete discussion, for a discussion of risk factors, please see our most recent findings 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, a non-GAAP financial measure. The reconciliation of historical adjusted EBITDA to net income or loss, the most directly comparable GAAP measure, is included in our earnings release, which is available on the Investors Relations section of our website at investors.merlinlabs.com.

And with that, I'll hand the call over to Matt. Matt?

Thanks, Brian, and thank you all for joining us. This week, we announced a milestone contract with U.S. SOCOM to take our C-130J autonomy program into its integration phase, laying the groundwork for future flight demonstrations and production revenue with SOCOM and ultimately for the global C-130J fleet, including hundreds of aircraft. We continued that commercial momentum with AFRICOM, selecting Merlin to demonstrate the Merlin pilot. Flying in austere conditions on an aircraft we already fly. These are real contracts generating real revenue where our customers need autonomy most. Every new program builds on the work that came before and we believe the compounding advantage paired with disciplined use of capital marks meaningful progress towards delivering autonomy for any aircraft and for any mission. I am pleased to report that Merlin grew revenue 58% sequentially and realized a $3.7 million $3.7 million. quarter over quarter improvement in adjusted EBITDA in Q3 of 2026. Our cash position remains strong at $161.6 million in cash, cash equivalents, and short-term investments, and we are actively finalizing an operating plan to substantially extend our runway without a dependence on capital raises. On our second quarter call in August, we gave you a number of things to watch. Progress on our C-130J contract, expansion of our go-to-market partnerships, and last week, new mission sets. We did what we said we would do and moved each one of those forward this quarter with revenue-producing contract awards. Let me take each in turn. First, let's talk about the C-130J contract. This week, we took the next major step forward in bringing autonomy to the C-130J fleet with an $8.9 million task order funded under our existing IDIQ contract. This is the third task order, and it moves us from the adaptation phase of our

Thanks, Matt, and good afternoon, everyone. The significance of Merlin's work with US SOCOM and now AFRICOM deserves highlighting. Coming from a back... background as a naval aviator, Pentagon official, and later as a senior advisor to Congress, I have a unique perspective. I've been a consumer, a customer, and now an industry partner to the US government. Winning the initial IDIQ award with SOCOM is impressive in and of itself, but the work since then between Merlin, its subcontractors, and the program office is substantial. Each step represents a further validation and differentiation. The preliminary design review and critical design review are formal milestones in defense acquisition that Merlin passed with flying colors. It means our design and our airworthiness approach were evaluated against the most rigorous safety standards that govern military aircraft programs. This week's announcement of a third task order is a significant step forward. It signals that the customer not only has evaluated the technology favorably, but is committed resources to implement it on existing aircraft. And as Matt laid out, the work we've done on the C-130 program and go-to-market effort has positioned us to compete and win selection for AFRICOM's autonomous casualty evacuation challenge. The initial phase is roughly half a million dollars and gives us a platform to work directly with the operators. And we believe there's a clear follow-on path to operational scale using a King

Air variant. I want to step back for a moment on what this week represents. In back-to-back days, we announced two contracts with two different customers on two very different aircraft for different missions. On Tuesday, it was SOCOM and the C-130J, a four-engine military airlifter, where the work is about reducing the load on the crew across every phase of flight. On Wednesday, it was AFRIC. And a single-engine Grand Caravan, where the mission is autonomous casualty evacuation from start to finish. From the outside, these can resemble two unrelated programs. From the inside, they run on the very same Merlin pilot. That's by design. We spent years building an aircraft agnostic core so that each new aircraft or mission is designed to build on the work we've already done. Having sat on the buying side of the table, I can tell you that's what customers are looking for. Not a one-off solution for one airframe, but a capability. They can deploy fleet-wide for any mission. Now we'll pass the call to Ryan to go through the financials.

Thanks, Mark, and good afternoon, everyone. I want to walk through our results against expectations we gave you in August. Our cash position. And how we are thinking about our cost structure as we plan for 2027. Starting with revenue, third quarter revenue was approximately $3.5 million, up from $2.2 million in the second quarter and $1 million in the first quarter. That is three consecutive quarters of sequential growth, and the substantial majority of it comes from our defense IDIQ structure as task orders are funded, work is performed, and results are delivered. Now to our GAAP results and adjusted EBITDA. On a GAAP basis, we reported net income. approximately $73.8 million for the quarter compared to a net loss of $58.4 million in the second quarter. I want to be direct about what is driving this swing the same way we've been direct about this volatility every quarter this year. It is almost entirely a non-cash fair value adjustment, this time a gain rather than a loss tied to the change in the value of our warrant and other financial instrument liabilities as our stock price moved during the quarter. It is not a reflection of our operating performance and we did not want a quarter of GAAP net income. Read as a change in our underlying business. We also look at adjusted EBITDA, a non-GAAP measure that we use alongside, not in place of our GAAP results. A reconciliation to our Q3 net income is included in our earnings release. Third quarter adjusted EBITDA was a loss of $24.1 million, an improvement of $3.7 million from the $27.8 million loss in the second quarter. In August, we told you to expect the back half of the year to come in flat to modestly better than the first.

Thanks, Ryan.

Before we open up the call for questions, I would like to address the elephant in the room. Although the end market acceptance and demand for autonomy has steadily risen throughout the year, market multiples and the cost of capital have changed for us and a number of our peers. Although this could be a temporary phase, the planning process that... Ryan just mentioned is intended to ensure that we not only meet the opportunities presented by our current contracts but also the broader market potential we detailed on last quarter's call. We believe that it is imperative for MERLIN to continue to advance the MERLIN pilot, but it's also imperative that we demonstrate the discipline and the investments we are making along the way. As Ryan stated, our balance sheet remains strong. As we finalize our annual plan for 2027, we intend to make certain that today's balance sheet serves the...

...company into fiscal year 2029. And now I would ask that the operator open the call for questions. Operator? Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Our next question comes from our line of Fuji De Silva of Roth Capital. Your line is now open.

Hi, Matt.

Hi, Mark.

Ryan. Congratulations on the progress here. Can you talk about the EIPP program that you participated in? What maybe some of the next steps are there? And just update us generally on any regulatory approval progress, FAAs, so forth. Thanks. One of the most important parts about the announcement we made on the C-130J is getting autonomy onto a large aircraft for the first time. For us and for the industry, moving the chains on actually getting useful, meaningful autonomy on an aircraft that is the same size as... 737 is a milestone not just for us, but for the industry at large. As you saw with our participation at the event down in Dallas, Texas, we're designing the Merlin pilot not just for a military use case, but for a civil use case as well. So as we are moving forward, particularly on the C-130J, we're learning lessons, developing technology, developing use cases, developing safety cases, developing bases for certification. that allow that Merlin pilot to not just fly the small aircraft that we showed down at the EIPP event in Dallas, Texas, but take that and really move it on to the thousands of large aircraft that are around the world where we can make a meaningful impact, not just for cost and efficiency, but for safety and access of all those large aircraft around the world. So Suji, to directly answer your question, the EIPP demonstration and... And the aircraft that we brought down to the EIPP event down in Texas is all part of our overall strategy of maturing that pilot and getting on to large aircraft, which is what these two contract awards, the C-130J and the award on the caravan with U.S. AFRICOM, are making real and turning into real operational revenue for Merlin.

Okay, great.

Thanks, Matt.

And then my other question is probably for Ryan. Just as you think about... trying to approach improving EBITDA, how do we balance that with your growth plans and OPEX and EdCount, just to understand how are you going to kind of reconcile the two as you move forward? Thanks. Yeah, Suji. So, you know, we're still finalizing the 2027 plan, so I'm not going to put a number on it today. But what I can say is we're really focused on lowering our operating expenses and cash burn going into 27 versus 26, focused on our revenue generating customers and, you know, providing Merlin. Runway into 2029 without any additional capital raises. So, we'll be in a position to share more of the framework with you all during our fourth quarter report. Okay.

Thanks, Ryan.

Thanks.

Thank you. One moment for our next question.

Appreciate it. Thank you. One moment for our next question.

Hi.

Good afternoon.

So, you now have relationships with both SOCOM and AFRICOM to install into their airframes. Is CENTCOM and EUCOM the next target for aircraft installs?

We can't comment clearly on any unannounced programs or what we're doing in the future, but what I will highlight is that we are building one Merlin pilot. As this earnings call has shown, we're taking that one Merlin pilot, integrating it onto a C-130J for US SOCOM to perform a really important mission and a mission set for them, and taking that same Merlin pilot and integrating it in US AFRICOM on a totally different airframe for a totally different mission. As we look forward, that core Merlin pilot and the portability of that Merlin pilot allows us to tackle missions for SOUTHCOM, SETCOM, ACC, variety of customers, both within the US Air Force, the Joint Force, the COCOMS, and also international customers with that same core software. I've talked about this on previous earnings calls, but that core software approach allows us to deliver software for autonomy, just like software service businesses deliver software into a wide variety of markets. So, nothing to announce yet on more customers, but as we demonstrated on this earnings call, we're beginning to go take that Merlin pilot and apply it to a wide variety of customers for a number of different missions on a bunch of very different aircraft. Okay, and just looking out in the M&A market and defense tech or software, is there anything else out there that you see might be enticing that would help to increase the value proposition here?

Just given the haircut and valuations? As we've shown today, our plate is pretty full. Customers are looking to us to build core software to power their missions. With the two announcements that we've made today, particularly with both of them tied to revenue, we're going to be heads down, focused on delivering real value in that revenue for our customers and for our shareholders. As we deliver on that, we may pop our heads up. and look at other opportunities that allow us to bring more capabilities and ultimately more revenue to bear for our customers. But our plate is pretty full right now, as we've announced on this call, and we've got more than our good share of work ahead of us just on the programs that we're on today. Okay, great.

Thanks for filling me in.

Thank you. I'm showing no further questions at this time. I'll now turn it back to... Matt George, CEO, for closing remarks. All right.

Thank you all for your attention and interest in Merlin. As we've hopefully told you about today, it's a really exciting time here. And we truly are thankful to have you all on the journey. Before closing the call, we'd like to remind everyone that Merlin will be meeting with investors at the Roth Technology Conference in New York next week and at Northland Securities Virtual Conference on December 16th. With that, I wish everyone a good night.

Thank you for your part.

Participation in today's conference. To just conclude the program, you may now disconnect.