Executive Summary

Q2 2024 net revenues were $6.40M, gross profit $4.50M, and gross margin 70%; operating income turned positive at $1.0M, reflecting mix shift toward Outpost AI and lower stock-based comp .
Year-over-year, revenue more than doubled vs Q2 2023 ($2.77M), while gross profit nearly tripled and operating loss turned to income; sequentially, revenue fell from Q1 2024 ($10.58M) but margins expanded sharply from 25% to 70% .
Other income was $17.5M driven by fair-value marks (earnout, warrants, and convertible debt), inflating GAAP net income and EPS; investors should focus on operating performance and cash flow given these non-cash items .
Backlog was ~$2.0M and the validated pipeline increased to ~$150M; management reiterated outlook for triple-digit revenue growth and positive cash flow in FY 2024, supported by US federal wins and Outpost AI momentum .

What Went Well and What Went Wrong

What Went Well

Strong margin expansion: gross margin rose to 70% on product mix (reduced equipment purchases, increased Outpost AI sales) and lower stock-based compensation driving operating efficiency .
Positive operating income: $1.0M, a notable turnaround from prior operating losses; “Our team was able to generate strong revenues… at a gross margin percentage of 70%… We were also able to achieve positive operating income of $1.0 million” — Paul Allen, President .
Strategic traction: FedRAMP High deployments, Skydio integration for edge analytics on drone data, and partnership with T-Mobile for secure 5G backhaul reinforce product differentiation and federal adoption .

What Went Wrong

Sequential revenue decline: Q2 revenue of $6.40M vs Q1 $10.58M, highlighting quarter-to-quarter variability and transaction-heavy revenue model (~75% recognized in-quarter) .
Cash burn: Q2 net cash used in operating activities was $2.5M; cash at Aug 14 was ~$1.4M after AR conversion and repayment of founder advances ($0.8M), indicating funding needs before subsequent capital raise .
Balance sheet leverage to fair-value marks: $17.5M other income (earnout, warrant, convertible debt revaluation) drove GAAP net income, complicating EPS comparability and potentially increasing volatility tied to share price and liability fair values .

Financial Results

Metric	Q2 2023	Q1 2024	Q2 2024
Revenue ($USD Millions)	$2.77	$10.58	$6.40
Gross Profit ($USD Millions)	$1.67	$2.63	$4.51
Gross Margin (%)	—	25%	70%
Operating Income (Loss) ($USD Millions)	$(3.08)	$(1.40)	$0.98
Other Income (Expense), net ($USD Millions)	$(0.02)	$(30.56)	$17.49
Net Income (Loss) ($USD Millions)	$(3.10)	$(31.96)	$18.46
EPS Basic ($USD)	$(0.14)	$(1.40)	$0.80
EPS Diluted ($USD)	$(0.14)	$(1.40)	$0.58
Net Cash from Operating Activities ($USD Millions)	—	$(1.70)	$(2.50)

Segment revenue and cost detail:

Segment	Q2 2023	Q1 2024	Q2 2024
Product Revenue ($USD)	$1.80	$9.40	$5.36
Post-Contract Support Revenue ($USD)	$0.97	$1.18	$1.04
Cost of Sales ($USD)	$0.56	$7.79	$1.31
PCS Cost ($USD)	$0.54	$0.16	$0.59

KPIs and balance sheet snapshots:

KPI	Value
Backlog (as of 6/30/24)	~$2.0M
Validated Pipeline (Q2 2024)	~$150M
Cash & Equivalents (6/30/24)	$0.227M
Cash & Equivalents (as of 8/14/24)	~$1.4M (post AR conversion; after $0.8M founder advance repayment)
Warrant Exercise Price Reduction	From $11.50 to $7.80 (effective 6/3/24)
Russell Index Additions	Russell 3000/2000/Microcap (effective 6/28/24)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue Growth (YoY)	FY 2024	“Triple-digit revenue growth” objective	“Triple-digit revenue growth” outlook reiterated	Maintained
Cash Flow	FY 2024	Positive cash flow objective	Positive cash flow for calendar year 2024	Maintained
Gross Margin	FY 2024	Margin expansion focus	“Rapidly improving gross profit margins”	Maintained (qualitative)
Sales & BD Investment	FY 2024	Tactical & strategic investments	Tactical & strategic investments via operations and potential warrant cash exercises	Maintained (clarified funding sources)

Earnings Call Themes & Trends

Note: A Q2 2024 earnings call transcript was not available via our tools; themes below are derived from Q1 and Q2 press releases.

Topic	Previous Mentions (Q1 2024)	Current Period (Q2 2024)	Trend
AI/Technology Initiatives	Outpost AI and Acropolis deployments; FedRAMP cloud expansion; edge AI models	New Outpost AI with integrated 5G; Skydio integration for edge drone analytics; T-Mobile partnership for secure 5G backhaul; continued FedRAMP High transitions	Strengthening
Federal/Agency Traction	DOJ sole-source wins; DHS deliveries; Singapore gov award	DHS deliveries completed; additional brand-name-only awards pending; multiple U.S. law enforcement acquisitions	Strengthening
Product Performance/Mix	Lower Q1 margin due to third-party hardware mix (25%)	Higher Q2 margin (70%) due to reduced equipment purchases and increased Outpost AI sales	Improving
Pipeline/Backlog	Validated pipeline ~$120M; backlog ~$3.4M	Pipeline increased to ~$150M; backlog ~$2.0M	Pipeline up; backlog normalized
Compliance & Regulatory	FedRAMP cloud adoption	NDAA/TAA compliance emphasized; continued FedRAMP High deployments	Emphasis maintained
Supply Chain/Process Efficiency	Margin expansion through sourcing/process improvements	Continued focus on sourcing, supply chain, and production efficiencies to drive margin	Ongoing

Management Commentary

“Our team was able to generate strong revenues for the quarter of $6.4 million, at a gross margin percentage of 70%… We were also able to achieve positive operating income of $1.0 million for the quarter, quickly closing in on our objective of being cash flow positive for the fiscal year.” — Paul Allen, President .
“With several major U.S. government agencies transitioning to Airship this quarter—both moving to FedRAMP High—we remain optimistic about our offerings… we’re witnessing early orders for our latest Outpost AI appliance, which comes equipped with an integrated 5G modem.” .
“These releases also supported our expanding partnerships… including… Skydio, Inc.… allowing customers to run advanced analytics on real-time drone derived data at the edge… and a new partnership with T-Mobile U.S… for optimized high speed secure backhaul of edge data.” .
“Lastly… our current cash flows are strong… our current cash balance… approximately $1.4 million as of August 14, 2024, following the repayment of the founder advances in the amount of $800,000.” .

Q&A Highlights

A Q2 2024 earnings call transcript was not available via our tools, so Q&A themes and clarifications could not be verified. This report relies on the press release disclosures for qualitative insights [Search returned none in filings or earnings transcripts during Q2 2024 window].

Estimates Context

S&P Global Wall Street consensus data was unavailable for this company via our tool (GetEstimates mapping error for ‘BYTS’). As a result, we cannot anchor comparisons to SPGI consensus for Q2 2024.
Third-party proxies (non-SPGI) indicate: Revenue expected ~$5.40M vs actual $6.40M; EPS expected -$0.02 vs reported normalized -$0.01 (methodology differs from GAAP diluted EPS $0.58 due to significant non-cash fair-value gains) .
Given methodology differences and the outsized impact of fair-value marks on GAAP EPS, investors should emphasize operating metrics, margin trajectory, and cash flow when assessing beats/misses .

Third-party proxy estimates (non-SPGI):

Metric	Proxy Consensus	Actual Reported
Revenue ($USD Millions)	$5.40	$6.40
EPS (Normalized, $USD)	-$0.02	-$0.01
EPS (GAAP Diluted, $USD)	—	$0.58

Key Takeaways for Investors

Mix-led margin inflection: Q2 gross margin at 70% and positive operating income reflect Outpost AI-driven mix and lower SBC; sustainability hinges on continued software/edge-led sales and supply-chain/process efficiencies .
Operating vs GAAP optics: $17.5M other income (fair-value marks) boosts GAAP EPS; focus on operating income, gross margin, and CFO to gauge core performance and trajectory .
Federal momentum as growth catalyst: DHS deliveries, DOJ wins, and FedRAMP High deployments underpin pipeline growth to ~$150M; watch for conversion of pilots and brand-name awards into multi-year contracts .
Liquidity watch: Q2 operating cash outflow ($2.5M) and low quarter-end cash were later augmented (~$1.4M as of Aug 14 via AR conversion) and, subsequently, by a $8.0M public offering in late August/early September; monitoring working capital and warrant exercises remains key .
Transaction-heavy revenue model: With ~75% of quarterly revenue recognized in-quarter and backlog ~$2.0M, sequential variability is likely; investors should track pipeline progression and timing of federal awards .
Near-term trading lens: Margin expansion and evidence of contract conversions are narrative drivers; absence of SPGI consensus makes “beat/miss” framing less definitive, so price reaction may hinge on perceived durability of 70% GM and federal momentum .
Medium-term thesis: If Outpost AI and Acropolis continue to anchor FedRAMP deployments and commercial ORC use cases, recurring support revenue and software mix could structurally lift margins and cash generation, subject to execution and federal procurement cycles .

Airship AI Holdings, Inc. (BYTS)·Q2 2024 Earnings Summary