By Brian Lantier, CFA
NASDAQ: HOVR
READ THE FULL HOVR RESEARCH REPORT
On October 9th, before the market opened, New Horizon Aircraft (NASDAQ: HOVR) released its first quarter results for fiscal 2027 and held a conference call to update investors on its progress in building the full-scale Cavorite X7. The company remains on track to complete assembly of the full-scale Cavorite X7 within the next six months, which will be a key catalyst for investors to monitor. The company continues to pursue a prudent financing strategy, accessing the capital markets only when it views the terms as favorable. The company's CAD 70 million in cash balances (estimated at $50 million USD) and relatively low burn rate (estimated at CAD 2.4 million/month) provide its management team with significant flexibility to be patient when it comes to future financing.
We feel like there are two prospective catalysts for Horizon over the next six months. One will be the anticipated reveal of the completed full-scale prototype in the first quarter of calendar 2027, after which initial ground testing and taxi tests can begin. We think that the second potential catalyst will be any nondilutive financing secured by the company to further its development. We think this second point is underappreciated by the market.
The company has largely mitigated its near-term financing risks as a result of several capital raises in 2026, and while the company's shares have been treading water over the past three months, the stock has performed better than about half of its comps during that period, which has seen the share prices of several companies fall 30-70% during the quarter even though these companies are further along the development pipeline than Horizon.
As in previous quarters, the company's reported first-quarter results reflect the operating costs for the period, as it remains in pre-revenue development for the next several years. The company's first-quarter results reflected a sharp increase in R&D expenditures, with R&D costs rising CAD 4.7 million to CAD 7.4 million, up more than 170% from the same period in fiscal 2026. Engineering costs accounted for all of this increase, jumping from roughly CAD 5.1 million to CAD 5.3 million, which was partially offset by lower compensation costs. The company indicated on its quarterly conference call that it has increased its overall staffing from roughly 30 a year ago to 65 today, with roughly another 20 full-time equivalent positions contracted.
Cash used in operations was CAD 7.2 million in Q1, and with more than CAD 70 million on the balance sheet at 8/31/26 and a relatively slow uptick in expenses, the company appears to have adequate funding for operations for at least the next 24 months.
Given the company's current burn rate and cash balances, we do not anticipate any meaningful new share issuance until the end of fiscal 2028; however, the company has demonstrated that it will seek to raise funds when it views the terms as favorable, so investors should be aware that additional equity issuance could occur if market conditions were favorable.
Canadian Opportunities: We feel that the coming year could be very eventful for companies like Horizon that sit at the intersection of various industries poised to see marked increases in investment in Canada, including the sustainability, defense, and aerospace sectors. The federal government has prioritized domestic spending in these sectors, so the combination of additional spending with Canadian-based firms and an overall increase in spending should create several opportunities for Horizon. There are already several tax credit and research grant programs in effect that could provide additional funding for Horizon, but we think we could see even more opportunities when the Canadian federal budget for 2027 is finalized.
We would encourage investors to review our updated research report for a complete overview of the industry and our valuation for New Horizon Aircraft.
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