Unusual Machines Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2025

Key Takeaways

  • Positive Sentiment: Unusual Machines delivered record Q2 revenue of $2.12 million, up 51% year-over-year, achieving a 37% gross margin as enterprise sales rose above 30% of total sales.
  • Positive Sentiment: The company ended Q2 with a cash position exceeding $80 million after a $44.9 million raise, and plans to maintain a low cash burn while funding growth.
  • Positive Sentiment: Key manufacturing initiatives remain on track: low-volume motor production machinery is installed and first motors are expected from the new facility in September 2025, with the Rotor Lab acquisition closing in Q3.
  • Positive Sentiment: Unusual Machines is onshoring Fat Shark headset assembly in Orlando through a new manufacturing line led by its newly hired VP of headsets, aiming to reduce costs and improve supply stability.
  • Positive Sentiment: The company projects cash-flow positivity in 2026 upon reaching $20–30 million in annual revenue, expecting U.S. government drone orders to drive volume growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Unusual Machines Q2 2025
00:00 / 00:00

There are 5 speakers on the call.

Operator

Hello, everyone. Good afternoon, and welcome to Unusual Machines Second Quarter twenty twenty five Earnings Conference Call and Webcast. With us today are Unusual Machines' CEO, Alan Evans and CFO, Brian Hoff. Following today's remarks, we will have a Q and A session. During this call, management will make forward looking statements, including statements that address unusual machines' expectations regarding the impact from tariffs our ability to add more employees to our ranks our factory expansions, our ability to increase our margins and revenues, our ability to achieve aggressive growth, our expectation that the marketplace will change in quarter three and 2025, our plan of keeping our cash burn low, our ability to scale our motor and headset manufacturing capabilities, our ability to scale supply chains to meet our customer needs, our expectation that first motors will be delivered in September 2025, our expectation that we will close the Rotor Lab acquisition in quarter three, our increase of our workforce to 50 employees by the 2025, receipt of orders from the US Department of Defense, our ability to continue growing revenue and improving margins, our ability to become cash flow positive in 2026, and our expectation that The U.

Operator

S. Drone market will continue to explode. Forward looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Unusual Machines' most recently filed Form 10 Q, Form 10 ks and Prospectus Supplement. Except as required by law, Unusual Machines disclaims obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

Operator

As a reminder, this call is being recorded, and a replay will be available on Unusual Machines website at www.unusualmachinesmachines.com. Now let me hand the call over to CEO, Alan Evans. Please go ahead, Alan.

Speaker 1

Oh, goodness. It seems like, that statement pretty much covered everything. Anyway, I am really excited about today's call. I'm gonna be reading, so forgive me a little bit for that. We have some prepared remarks that are covering our second quarter results, some of the subsequent events.

Speaker 1

And then after Brian and I finish, we're gonna be really happy to take your questions in an open q and a session. I really wanna start by acknowledging how much work our small team puts in. This quarter was a lot of extra work because of the day to day changes in the tariff situation and the rates and the policies on what we could bring in. So everyone just keeps putting in the work, and it's it's really awesome. And they're bringing energy and enthusiasm to these different challenges we face in a weird environment.

Speaker 1

And I just I'm still so excited because the the culture and the quality of our workforce just have me really believing in what we can collectively achieve as we go forward and as we add people to what we're doing. So thank you, everyone. Speaking of being busy, so even with what I think I personally expected to be a second quarter lull because of tariffs and consumer demand, it just doesn't seem to slow down for us. And this second quarter was yet again our highest revenue quarter of all time. This is the fifth consecutive quarter that's true.

Speaker 1

It's 51% growth over quarter two last year, which we're excited about. For the quarter, we generated $2,120,000 in sales. And really what's neat is we did that at a 37% gross margin. So this growth really coupled with an increase in enterprise sales, which climbed above 30% of our total sales, they overcame this quarter of weak consumer demand that was really caused by tariffs. And then on top of that, again, pushing margins to 37% without doing anything damaging on the pricing side is really us starting to move in the direction we wanna move in.

Speaker 1

So from my perspective, given that backdrop, I view this quarter as a really great quarter. It was a challenging market environment, and we still hit record revenues. We increased our b to b sales. We improved our margins, and we are now really accelerating our progress. So with all this going on, we'll talk about cash flow, operations, and growth.

Speaker 1

So we started this quarter with $5,000,000 and that may seem like a long time ago. As we finished the quarter with $38,900,000, we raised another $44,900,000 after fees in quarter three. So we have a cash position of more than $80,000,000 We're very comfortable with it. And aside from some CapEx expenses for factory expansion, we plan on still keeping our cash burn low going forward. So now we're actively getting ready to aggressively grow, and we expect the marketplace and are actually starting to see indicators of it, changing in quarter three and quarter four.

Speaker 1

I'm sure most of you are on this call to actually hear about that, So I'll hand it off to Brian while you're still a captive audience to cover our financial results in more detail, and I'll leave you waiting just a little bit longer for those forward looking statements. With that, I'm gonna hand it off to Brian.

Speaker 2

Thank you, Alan, and appreciate everyone joining the call today. As Alan mentioned, we continue to have growth in top line revenue and overall gross margin. We hit 2,100,000.0 in revenue for the quarter with 4,200,000.0 year to date, which is 65% increase as compared to the prior year pro form a revenue. This is also done with increasing our margins from 25% last year year to date to 31% year to date. And as Alan said, we kinda expected to have a drop in our total revenue and margins between q one and q two of this year from the tariffs and some of the uncertainties, but we didn't see that as we continue to grow our enterprise orders, that also have higher margins.

Speaker 2

We did see an increase in our tariff costs during q two. However, we were able to pass these costs on to both retail and enterprise deals. We're gonna continue to closely monitor and adjust related to tariff changes moving forward. Our operating expenses increased this quarter as we incurred additional costs as we started setting up our motor factory. We're gonna continue to see some operating expenses increase during q three and q four as we're hiring and have additional costs for both our motor facility and headset operations.

Speaker 2

However, we are gonna continue to be cost conscious as Alan mentioned. We also saw an increase in our g and a costs. A lot of that was related to some nonrecurring professional fees from some of the acquisition related activities that we've been through and some of the transactional expenses. It's nonrecurring investor relations and some noncash and the large noncash increase in our stock based compensation, was 5,500,000.0 during the quarter. As we noted in our shareholder letter that we just pub published of to about thirty minutes ago, our net loss was approximately 6,900,000.0, which and including the 6,100,000.0 of nonrecurring and noncash costs.

Speaker 2

I did reference table two in that shareholder letter to see kind of our normal operations, and the breakdown there. It's very interesting to reflect on our balance sheet position over the past year. Last year, we had about 2,200,000.0 in cash and 4,000,000 in debt as of this time last year. This year, we're at we've reported about 39,000,000 in cash and no debt. And as Alan mentioned again, we just raised 48 and a half million in addition to put our cash balance over 81,000,000.

Speaker 2

Transformational for sure. We also with that large cash balance, we saw about, $200,000 of interest income during the second quarter and expect that to continue to increase during q three, with the larger cash balance. We will we started purchasing our motor inventory and equipment, and we're gonna continue to additional purchase into q three and q four. Our strong balance sheet is gonna position us to take advantage of these growth opportunities quickly, which Alan will go into very shortly. Finally, I'd also like to welcome all our new hires to the team as we continue our growth and say a big thank you to the team for all their hard work and execution over the past quarter and look forward to closing out 2025 strong.

Speaker 2

I'll send it back over to you, Alan. Thanks.

Speaker 1

Thanks, Brian. And Brian, I'm sure, is particularly appreciated of the team as we added a controller. So, thank you again for all the hard work, Brian, and and now to your couple of the members that help you out after a year of slogging through it yourself. So it should be obvious to everyone at this point that we're extremely excited about what's next for unusual machines. We're really well positioned in the domestic and global political landscape.

Speaker 1

We generally have really favorable market conditions for the American drone subsegment. We also have the capital to execute. So I'm about to go into a lot more detail, but absolutely want everyone to take note that the rest of my comments from this point forward are forward looking, and they're in no way guaranteed. So let's start with the 80 plus million in cash we have. We have enough money to build out the motor and headset production as well as scale supply chains to meet our customers' needs.

Speaker 1

We're keeping it in cash equivalents right now that are generating interest, and we plan on doing that for most of it through the October when we have a very clear understanding of what 2026 operating needs will be. And we're also starting to explore what a treasury strategy will be, and we'll have more news on that in the coming weeks. But the real key takeaway is that our growth is not resource constrained. We'll be able to rightsize our company and our speed of growth no matter how fast or how big the marketplace requires us to become. And I spoke at length about other ways we plan on leveraging our cash position last quarter.

Speaker 1

I won't go into too much more detail now except to say that, we don't plan on sitting on our hands. So update on motor production. We have received delivery of our low volume production machinery. It when we say low volume, it's not prototype y. It's, you know, tens of thousands a month rather than more.

Speaker 1

And we are installing and testing it even right now in our 17,000 square foot motor facility. We still expect the first motors to come out of that factory in September. So in some miracle of execution, we're still on time. That's a testament to the team, I think Andrew and Brad and everybody doing the work to get that done. We also expect to close the purchase of Rotor Lab in Australia in quarter three, maybe even as soon as by the end of this month as we met the final major closing condition, which was approval from the Australian government.

Speaker 1

So in regards to motors, everything remains on track, which is exciting and, you know, almost unusual in this world. So then many of you may know with Avagon and Fattshark, I have a personal long history of developing and producing headsets and headsets for drones. So the opportunity has really come up for us to onshore this now. So we're gonna start doing final assembly and production of Fat Shark headsets in a new Orlando facility. So we're just starting to look at the leasing and everything else.

Speaker 1

But I am super excited that we recently hired Tom Mercier to be our vice president of headsets, and he's gonna really oversee the initiative. And I just you know, there aren't a whole lot of people that are as excellent as he is for this position. He comes from Google, and he was a key person in building out magically production lines also in Florida. So I'm excited to say as one of our new initiatives that we we don't think it'll be very long until they're made in USA, Fatshark headsets, and we're really excited that our customers have supported and encouraged us to to do that. Speaking of hiring, so we ended the second quarter with 19 employees, which is why the work that they've done has been so impressive.

Speaker 1

And we started scaling, so we're already at 29 employees. We are going through this growth phase, and we expect to be at about 50 employees by the 2025. And that's just to continue in our scrappy way to meet the demand increase we expect to go through the second half of this quarter and quarter four. So to everyone who's joined the team, I wanna say welcome aboard. We're glad you're here with us.

Speaker 1

And I think for investors, while the addition the addition of new employees like Tom or our new controller, Tim, it can be really exciting. I can tell you that I am personally even more excited about the growth of some of our team members that we already have. For example, Stacy Wright, who was the president of Rotor Riot, was promoted to be executive price vice president of revenue. She was just questioning it. She's a big part of why we have quarter over quarter over quarter revenue growth.

Speaker 1

And to see her and a whole bunch of other team members really bring the energy, the enthusiasm, and the excellence to these positions just is really exciting. One thing that I very strongly believe is a company is only as good as the people that actually do the work. And I think if you look at us, that just makes us one heck of a company. So gives me a chance to really think we've we've got something special. So I'm sure some of you at this point are thinking, woah.

Speaker 1

That's a lot of growth all at once. And, you know, are we sure that now is the right time to turn on? I'd say those concerns are legitimate because scaling early is absolutely a a real risk factor, and it's caused a lot of companies to get themselves into dangerous positions. We are very confident that the time is now. At a macro level, the catalysts are in place.

Speaker 1

The government finally passed a budget. They added more money for drones in the reconciliation phase. Secretary Hegseth issued a memo making drones easier to purchase by different groups of the DOD. Secretary Duffy recently opened up the BD loss rulemaking with a drone dominance inside The US, and it it really enables more use cases for domestic drones. I strongly expect government orders to start any day now and then start to come quickly and in significant volumes.

Speaker 1

At the same time, at a micro level, our team has been working with a lot of different customers to understand their specific component needs and volume expectations. We're already seeing the B2B volume increase. We saw that in quarter two as it moved to over 600,000, and we're really getting guidance and initial orders and feedback that we're about to see much larger volumes, much larger orders being placed with us over the next three to six months. So given all of this, we absolutely believe the time is now, and we believe that it's gonna be driven by US government orders, which are just starting to happen. So so we're just at the front end of this, and it it's going.

Speaker 1

So, really, when we when we look at q two, I wanna go back to say that our our team's ability to continue to grow revenue and improve margins in what was a really macro challenging quarter with no government orders or anything else. It for me, that makes the second quarter really stand out. And it's really exciting because now that we're well capitalized, we're growing the team and the facilities, these government orders are just starting to materialize for our customers, and we're starting to get guidance there. It's all coming together, and and we're we haven't left pieces of it undone or behind as we scale. So we stated that our goal is cash flow positive, and we expect to need to be at 20 to 30,000,000 in revenue annually to get there.

Speaker 1

I firmly believe that's gonna happen in 2026, and we're gonna cross that 5 to $8,000,000 quarter. And that doesn't mean that I think we're gonna stop there. But once we get there, we're gonna be cash flow positive. And I think the major catalysts for that revenue in 2026 are starting right now. Unusual Machines is at the corner where the market is about to mature.

Speaker 1

Our business is capitalized, extremely healthy. We've demonstrated consistent execution, and now we are aggressively pursuing growth. The US drone market is about to just explode, no pun intended, and we absolutely expect to fearlessly seize this opportunity that we have right now. I wanna say thank you again to our our staff, everybody new. I also wanna say thank you to our shareholders.

Speaker 1

You know, we're we're in this together. You're owners in the company, and so we're all doing this collectively. So thank you. And then with that, I wanna open up the call to questions. So if you're on a handset, dial 9 to raise your hand.

Speaker 1

If we let you know, it'll be 6 to unmute. We'll try to also answer questions in the text, and we'll see if we can get through this in a way where, it works out. So let me see what we got here. Alright. Somebody's gonna have to let me know if we have hands up.

Speaker 1

So I'll start with the first q and a, and then I'll jump over to the hands that are in the air. Justin Gerden asked, can you expand upon the announcement new facility for headsets, and will you be working on a new headset that will be introduced to the market in the future? What does it mean new levels of interoperability across systems? A new new machine strategy to expand US based production of critical drone components will initially focus on assembling high performance FPV goggles with new levels of operability across systems. Justin, thank you for the question.

Speaker 1

What we are going to start to do is final assembly of one of our FATHRQ product lines that we already have that is being, ordered in large volumes by government users. So that way, we can get our whole team up to speed on how to manufacture. And then once we have that excellence in house, we do expect to start to do more headset development and production in The US, sort of in the same slice stepwise function that we've always taken. So appreciate it. Alright.

Speaker 1

We're gonna go over to the call in, and we're gonna say, John Roy, you got a question for us?

Speaker 3

Can you hear me now?

Speaker 1

I can hear you, John. What do got?

Speaker 3

Alright. So more legislation. Are you expecting to see anything new? I mean, obviously, we've had a lot. Do you, a, expect anything new, and, b, do we need anything new?

Speaker 1

I don't have any real expectations of anything new except for the BV loss, like the rules for domestic drones to go through the rule making process. I I think we're in a great spot legislation wise. I think it's really set to go forward, and now we just you know, now it's that market full where the government will start to place orders, and we'll see where that lands.

Speaker 3

Yeah. And as a quick follow-up on that, you gave us some color on the government drone demand. Can you give us some more color on you know, are you guys selling a lot of of parts into those? I mean, where where where is unusual play in that order?

Speaker 1

So question that I have to answer a little bit delicately. All of our customers can, like, in a lot of cases, compete with each other. So we can't say anything until it's all the way done and all the way announced. So we are selling to a bunch of different folks. And I would say one big driver is a program called PBAS, which is an FPV program by the government.

Speaker 1

There are 12 companies that are currently being looked at to be down selected. Four of those will be down selected, and that's looking to be about a $500,000,000 total basket. And we have several companies that we are a supplier for that are competing in that as an example of a place where once that's finished, you know, we'll get those revenue projections and really be able to understand what 2026 looks like.

Speaker 3

Great. Thanks so much, Alan.

Speaker 1

No problem. Thank you. I think people are typing in the chat, but if you guys can type in the question space instead of the chat, it would be really appreciated. Right. I'm gonna go back to a q and a question.

Speaker 1

Rodrigo asked, good afternoon. As a young enthusiastic shareholder, I'd love to go check out the factory in Orlando. Anyway, there can be tours or videos for all those looking to learn what happens behind the door. Rodrigo, I I think it's a great suggestion. We do have a video team.

Speaker 1

Let me work with them and see what we can get out there because I we wanna share what's enthusiastic with everybody as it comes together. And appreciate you being a shareholder and and wanting to be part of the journey. Thank you. Alright. So now we're gonna go back to somebody who wants to speak here.

Speaker 1

We're gonna go to Danny Ka. Alright, Danny. Are you with us? And you got on mute, sir. Alright.

Speaker 1

What do you have?

Speaker 4

Just curious. What kind of collab are you guys doing with the Reddit Cat? I know that you and Jeff are are pretty close, and what a coincidence that you're both doing a town hall the same day, time, and hour. So I'm curious what you and red Redcat have, have going on together.

Speaker 1

Well, Jess, great guy. We obviously came out of Redcat. They, publicly, we're doing motors for them, So that's great. And I'd say the same time thing is just because the there are rules on when earnings have to go out, and we're close to the deadline. So, you know, when you're busy, it's where you push it.

Speaker 1

But I can't go into more detail because, again, we we don't talk about our customers. That's more for them to talk about, and we're happy to approve anything they wanna they wanna share.

Speaker 4

Got it. Well done, and you're doing a great job. We're I'm a I'm a big shareholder of your of your company, and I'm super proud.

Speaker 1

Thanks. Really appreciate it, and I thank you for joining us today. Alright. We got a q and a and a typing. Jesse says the goal of a new machines is producing drones in The US.

Speaker 1

Can you please give us an update about that? What are the next steps for this goal? Jesse, I'd say our goal right now is to produce parts so other people can produce drones. There are a whole lot of great drone companies out there, and we don't wanna directly compete with our customers. So the second we start doing that, I think we we start to not service the entire industry.

Speaker 1

So now if in a few years, there's consolidation and things move around, that may change. But right now, we're just trying to get ahead of the component supply chain. All right. Let's see what we got next. By the way, I appreciate it, guys.

Speaker 1

Your questions, you know, we're here to be as transparent as possible. So Jason Yoon, do you anticipate needing any additional equity raises this year? But considering the timing of expected orders and any supply chain prebuys, do you foresee a need to raise incremental capital? No. I don't think we'll need any more capital for operations.

Speaker 1

Now if there are strange circumstances or other things occur, there's the opportunity to make all our shareholders a bunch of money, you know, we're gonna explore it. We're not ever gonna take anything all the way off the table, but our burn rate is really low. We're in a great position to execute on everything we need, and we don't have a requirement in any way around that. Compared to my interview in mid July, are you seeing stronger demand from customers and a faster pace of orders today? Yes.

Speaker 1

It is turning on now. This is about to go. Among competitors, who else has comparable balance sheet strength? Do any peers have a cash position as strong as ours right now? I am unaware of any other parts vendor in our same situation.

Speaker 1

There are a couple other parts vendors that don't sell into the value segment where we sell, sort of competing with the Chinese. And I'd say, like, there's some great companies out there. Examples are, like, Moto dot ai, you know, a few others that sell sort of premium, Atarian, The other companies that their parts may get mixed and matched with ours depending on our customers' objectives. But I don't think there's a parts company out there in our same position at this point. Alright.

Speaker 1

We're gonna go to Joe Schicker. Joe, are you with us? I think you're muted, Joe. Alright. Alright, Joe.

Speaker 1

Alright. We're gonna we'll have to get back to you, sir. Alright. Dylan, huge fan of the company. Would love to know some insight in the new means of production, what scalability looks like in the current factory.

Speaker 1

Right now, we're producing tens of thousands of electronics components. We're producing tens of thousands of cameras. We're lining up to be able to produce tens of thousands of motors. We have enough motor material in to do tens of thousands already in the supply chain. You know, there might be some teething efforts.

Speaker 1

There might be some supply chain hiccups that's a little early. So, you know, tens of thousands is what we're looking at with a supply chain that's ready to go pretty much across everything. If we have to scale to hundreds of thousands, you're really looking at a six month window with a ramp into it to build out the supply chain. And that's that varies depending on the component. But if you use it as a rule of thumb, you'd get a really good idea where it's at.

Speaker 1

Larry Walls. Where do you see the company in ten years? Honestly, Larry, we're either one of the two or three major drone companies left or we've lost. And I see us being one of the two or three major drone companies left, and I see us being a monster in what is an emerging logistics category. That's what our entire objective is, and we won't put till we get there.

Speaker 1

So the exact steps to get there, the exactly what that looks like, I think we're gonna have a a drone future. And I think once we get and start to win in with drones, then you're gonna see our parts used with other robotics companies. And I see that as our long term expansion. Now we gotta win these first steps, and we gotta focus on them or we'll never get there. But I think we're taking it one step at a time and not losing sight of the long term goal.

Speaker 1

Austin, congrats on the solid results in a tough environment. Thank you. It's all credit to the team. They crushed it. How should we think about gross margin in the second half?

Speaker 1

We're really constantly striving to always say minimum 30% gross margin with long term goal 50% gross margin. 3037% might be a little bit of an overshoot. It might ring back down, but I think you're gonna see us keep staircasing this up. And, you know, I would expect 35%, and if volumes are higher, us to keep figuring out ways to improve margins. Now we're gonna see blended margins drop a little as we turn on a motor factory because when you do something new, your margins, you know, because you're doing returns and replacements for customers and stuff.

Speaker 1

But I still think as we do this, we're gonna manage to start to take those margin gains that are gonna be required for us to be a sustained business. Next question. Are we expecting to grow revenues sequentially in the second half twenty twenty five and quarter three and quarter four? Well, every quarter has been our highest revenue quarter to date, and we expect the market to turn on. So, yes.

Speaker 1

I I mean, I think if it would take a real anomaly for that not to be true. So, yes, I expect revenues to continue to grow, and I expect to have to repeat that same opening line several more times in a row. I did almost you know, if you're gonna sit at home and play Allen bingo, you'd probably make it your bingo center square for a while here if you were listening to these. How big should enterprise sales account for total revenues in 2025? It's a little bit uncertain.

Speaker 1

You know? It it depends on the timing of the orders and what they order and delivery. I think we're seeing 30% of where we're at. I think we could we'll probably hold there. We might see an uptick depending on if they want delivery in 2025 or early twenty twenty six.

Speaker 1

But I think our move to 30% you know, our our long term goal is to have enterprise be more than 50%. But you gotta remember, Christmas is our biggest consumer season, we and have a lot of stuff there. So it's the two the two parts are kinda racing each other to see see how it goes. But, you know, I'd say the 30 to 40% that we were able to demonstrate in q two feels like where I would minimally expect it, and it could be a lot bigger than that if some of our customers want earlier delivery. Chris Paul.

Speaker 1

How much of the production is based on assembly of third party components, and how much is vertically integrated? Chris, truth is it depends how far down you you go down the chain. Right? If you think about Apple phones, they don't do any manufacturing. I mean, they still maintain the whole supply chain and do it all.

Speaker 1

And then if you look at, like, our motors, we make all the motor components, but we don't make the rare earth magnets. But then if you look at the people who assemble the rare earth magnets, they don't mind the magnetic material. So at some level, it's all us. At some level, it's none of us. It just depends on how many slices you wanna go.

Speaker 1

Do we have stamping and powder coating lines for cores and housings going live or soon to be? We have some of that in Australia with our acquisition of Rotor Lab. We do some of the mechanical components over there. Otherwise, we haven't put that in place yet just because there's a lot more of those services domestically than there are some of the other things. And and we're still just trying to prioritize the things that nobody else really has good alternatives for.

Speaker 1

I mean, I wish we could do everything all at once, but we can't, and our COO, Andrew Camden, would probably quit out of being overwhelmed. So I really appreciate the questions. Kelly Roman, what's the plausible best case revenue for 2026? I. E, if the customers you work would land the vast majority of expected drone related contracts.

Speaker 1

Okay. Wildly speculative. Depends on the government place and stuff. Depends on everything else. Let's take PBAS, which is a $500,000,000 contract.

Speaker 1

You expect the whole collection of customers probably to take 50% margins. So $250,000,000 in drone parts or in drones. Let's call half of that parts 125,000,000. I mean, I think if you're looking at, like, best case scenario numbers, somewhere in there, that's also probably about as fast as we could scale to fulfill. I mean, if somebody came and said we needed to do a billion dollars in parts next year, I'd look at them and be like, okay.

Speaker 1

Eighteen months? Because you require a ramp and you require a supply chain and a lot of other stuff. But I think if you if you look at what's out there publicly and you do some back of the envelope math, you'd be in the low hundreds of millions for absolute best case. What do I see as the best edge and biggest mountain for the future? I'm a backpacker, so I'm not sure about the mountain.

Speaker 1

I could get literal, and I don't think that's the question you're asking, Derek. I think our best edge is the aggressiveness that we've taken in terms of getting ahead of making it in The US and and then also just working with our customers. Like, we they're very much about solving their problem. And it's not about, hey. Here's what it should be.

Speaker 1

It's like, what are you trying to do, and how can we be helpful? And then compared to some of the other parts, guys, we have scale. So if you look, for instance, for our our VTX, there's a chip in there made by a Taiwanese company, Richwave, where because of the conflict in Ukraine, you can't even order them unless you're gonna place an order for 40,000. They just won't talk to you. You'd have to go to brokers or whatever else.

Speaker 1

So we're big enough, and we move enough that we can go have those direct relationships, and that gives us cost, supply chain assurity, reliability. And then having that stuff in stock at a competitive price not only lets our customers, our consumer customers get a great deal, it lets our government customers get a great deal too. And I see those as the biggest edges. The biggest mountain is honestly government purchase processing. So, okay, the government said they're gonna do all this.

Speaker 1

When do they execute this? And then our customers have to place their orders. And so that creates a lot of timing uncertainty, and that's a big part of why we raise the money is to mitigate that uncertainty so we didn't have to guess. Anonymous attendee. Has the Coast Guard purchased any drone components, or is it mainly the army?

Speaker 1

I'm not I don't know the exact answer of all the people that have purchased components because a lot of them come through the store directly, But we've had most of the branches and a lot of different folks in the government buy different parts of components at different scale. So I think the army and the marines right now are the ones the most forward in terms of budgets for drones. And so we probably see it weighted to those two groups more than others, but everybody's really started to to to make purchases and explore. WHBBBBBB, what role does Trump junior play at UMAC, and how are we getting value out of that relationship? He's an adviser.

Speaker 1

I talked to him. You know, he is able to do business introductions, but right now, we're not in a position where we need much. So when we get back to those elements, we we engage and and we ask. But we're just trying to scale. We're trying to drive sales, so that's what we see.

Speaker 1

So very happy to have him as an adviser. You know? I think the folks that support the company, everybody, are are really excited and helpful in the ways they see it being helpful. Justin, does the company have ambitions of manufacturing some digital components in the future for the drone industry like you have for analog? Justin, if you look at the history when I was at Fattshark, we were the first ones to partner with HD Zero to introduce HD Zero's digital product to the market, and then we were the first ones to partner with Waxnail to introduce Waxnail's products to the market.

Speaker 1

If you go back in time when I was at Avagon, we inter integrated the Avagon glyph with DJI's Lightbridge, and we were the first headset DJI ever used. So if you look at the history of integrations that we've done and where interest in things I have led has driven us, you would absolutely bet that we are interested in digital components. And we're not there yet. We're focused more on the airframe because right now, there's 20 or a 100 drones for every ground station, and the drones are the really sensitive parts. So we're trying to solve the drone segment prior to getting to the ground station, but we absolutely do have ambitions for that.

Speaker 1

DC, do we see the possibility of buying back shares once enough capital has meant revenues begin to ramp up, Or will funds be generated mainly to r and d? Do you see? We actually are also looking at a treasury strategy that we'll bring to the market here in a few weeks to see where that lands, and then we're very open minded to maximize shareholder value. And so I think that that's a dynamic question that we can't answer yet because we don't know where the marketplace is gonna take us or what opportunities are there, but we're not close minded to anything either. Francisco, do you guys expect an increase in your average total cost of headset production when it's moved to The US?

Speaker 1

We actually expect the cost of production to be slightly higher but lower than the cost of overseas production with tariffs. So we expect our net cost, if you include tariffs in COGS, to be lower with onshore production. And that's even just right out of the gate. Anonymous, at what percent does unusual machines cover the TAM for components of FPV drones? No idea.

Speaker 1

The TAM is wild because there's four or 5,000,000 drones being built in Russia. So in Ukraine. So it depends if you're talking globally, if you're talking domestically. You know, I think if we can capture 20 to 30% of the TAM in this government cycle along with consumer TAM, that we're doing a great job because you're gonna see these some of these companies do some of their own components in house. And so I think, really, there's probably only 70% of the TAM that's accessible.

Speaker 1

Jason, I may misheard. When you mentioned a treasury strategy, were you referring to a crypto treasury strategy? No. But it's more a strategy with what to do with our capital. And, again, we're finalizing it, and we'll get updates for you guys in the next few weeks on where we expect to go with it.

Speaker 1

John, how complex are headsets? Will you need to start spending significantly on R and D? So they are complex, which is why we're starting with the manufacturing side because the manufacturing of headsets is complex in terms of how you calibrate them and test them, etcetera. Luckily, we have a long history of making headsets, so we don't need to start spending on R and D right away. And we'll start moving toward development when we see, what that needs to be.

Speaker 1

But once we have manufacturing up and running, then the bridge to introducing it as a product will lower those R and D expenses. And, again, really, really excited to work with Tom. You know, he's done this several times. I've done it a couple of times. It's my career as an engineer.

Speaker 1

And so this is one of the few places where I think from a leadership perspective, we have a really solid handle on it, and it's we're just gonna have to block and tackle. Oh, well, without providing details on specific government projects in the pipeline, can you share how many government projects are expected by the end of the year? My guess is that in the categories where we're selling stuff, probably a total of $750,000,000 worth of contracts. It's my guess. So, I mean, real big opportunity.

Speaker 1

Chris, also, what other production is housed in the main facility? Do you have an SMD line operational? We don't do SMD in house. We do final assembly and fulfillment in one center, and then we have a place right next door, which is the motor facility. And then we have a place right next to that, which is going to be the headset production facility, which we haven't leased yet.

Speaker 1

So, we'll continue to look and and manage our space as we need to. And and anytime we see an opportunity to gain margin expansion and get high utilization from production, we're gonna go ahead and do it. Danny, are Chinese parts for drones officially banned? Not yet. The, some of them are for some government stuff, but the American Securities Drone Act doesn't go into effect until January, which is the ban on elements for the US government.

Speaker 1

And the Americans, not the Americans, the section seventeen zero nine of the NDA, which is the FCC ban on DJI and AUTEL also doesn't go into effect until January. But because everybody knows that it's gonna be in effect, it's people are treating it like it's official. Jason. Nope. Same question.

Speaker 1

So we'll just delete that. A different Jason. Hey. Thank you for your time. Have you structured your production supply chain, including any planned expansions to not only rapidly fulfill initial orders once contracts are awarded, but also scale to meet potential demand volumes if they exceed current projections?

Speaker 1

Jason, yes. That's what we're in the process of doing right now. So we're not building for orders we've already gotten. We're building for orders that we expect to get. And on top of that, I think a lot of customers are gonna get orders from the government.

Speaker 1

They're gonna go to their suppliers, and some of their suppliers are gonna fall down. And when they fall down, we wanna be able to be there and be sure that they are able to still get motors and other components. So we're always happy to be a second source. And then if we have to step in and be a primary source, we will, and we can only do that if we're really in a position to build stuff in a timely fashion. John, are you still expecting to park 30,000,000 in the bank to be more able to more readily do deals?

Speaker 1

John, that update's coming in a couple weeks. Appreciate it, sir. Danny, where can we buy some hats? Danny, love hats. Love the energy.

Speaker 1

I keep asking our team to put them in the store. One of these days, it'll bubble up the priority list high enough to go in the store. But I'm a hack guy, so I'll keep working on that. Greg, what are your plans for when the China ban happens? Will it affect revenue?

Speaker 1

Greg, maybe. You know? We're in a position where we pretty much have one of every component for our customers is NDA compliant, so we're in a really good spot. So I think if it happens and other people then can't source, we're gonna be a second source. So I do think the impact on revenue would be positive if it occurs and other people haven't addressed the problem and they shift over to us.

Speaker 1

Anonymous. If Chinese drone ban falls through, are you still optimistic about growth? Yes. I am, actually. Most people aren't.

Speaker 1

Like, I would say, DJI, the Chinese company, does an amazing job. They're an amazing company. Just but there's still this real interest globally because of some of the regionalism and some of the tariffs to have diversified supply chains. And I think the US government, particularly, as a customer, is still going to really prioritize buying domestically. And I think the tariffs are still gonna be in place.

Speaker 1

And with the tariffs, we're actually cheaper than importing because we've structured to be cost competitive. So I think our company is in a really good spot to be competitive even in that regard. Joe, can you get magnets from Australia for your motors? Joe, we're sourcing magnets from three or four different places to see which ones work. At least one of them is not Chinese, so we're gonna be alright then.

Speaker 1

What production run rate do we foresee? Can UMAC produce tens of thousands of units in the short term, and which parts do you see a huge demand for? We can produce small numbers of tens of thousands. We expect by January to be able to be low tens of thousands. We're doing thousands of parts a month right now.

Speaker 1

And I think if we saw hundreds of thousands, it'd be able to work scaling into it. The mid tens of thousands, That's what we're building to expect in the short term. The parts we see the biggest demand for are our first part that we put out there, which was our flight controller. A a lot of interest in that because it's been out there the longest.

Speaker 1

Lot of demand for our cameras. And then otherwise, pretty even across the board. I mean, we're we're in the process of of manufacturing in the tens of thousands and shipping it. I mean, not all at once, but it's been good. We it's surprising and and more than we expected.

Speaker 1

Chris, sorry all my questions are production related. I think production is the most important question. Are we winding in house? What does the transition from low volume to high volume look like to you? Are there constraints adding additional cells rapidly?

Speaker 1

Yeah. We're doing winding in house. We have a bunch of winding machines. I think we have four or five cells to start, so we'd be able to add cells. Low volume production means, you know, high thousands, low tens of thousands.

Speaker 1

And, high volume is just more automation. So we can always scale production by adding people and and some of the same redundant machines that we have, faster. But if we have really large orders, we can move the high volume production machine, which actually lowers our COGS because it requires less touch time from people, which is why we're doing it. So we'll be in a position to meet capacity demands. And, you know, the turning on is always a little you run into unexpected hiccups, and so we anticipate that.

Speaker 1

And we're excited about the Rotor Lab acquisition because, know, they've already gone through running into a lot of the hiccups. So they'll be like, oh, let's not do that. It's like and I think really speed up our time to to running effectively there. TC, do we plan on partnering with domestic materials supply companies for lithium batteries, magnets, etcetera? We do now.

Speaker 1

So we partner with domestic companies for batteries and and for other stuff. We're a very big believer in the domestic ecosystem and prefer to support domestic companies if all things are equal. Alright. What is our process for deciding what new positions will be added at UMAC? It's actually pretty complicated.

Speaker 1

So we take bringing people on really seriously. And what it is, the whole leadership team meets. We say, okay. Where are our pain points? You know?

Speaker 1

Who how do we figure this out? How do we wanna hire? What are our initiatives? What are we trying to do? And then we all agree on it.

Speaker 1

We we talk about it, and then we go through a pretty robust vetting process. And then we we have a pretty pretty engaged interview and HR process to be sure that the people we bring in, that they wanna work with us, and we wanna work with them. But it's definitely not arbitrary. It we spend probably more time than anyone else but me likes on the process because I'm I'm particular in being sure that we we keep what makes us magical, which is the people. Where do we see the share price and market cap end of year?

Speaker 1

I appreciate it. WHBBBB. I can't answer those questions. It's like this I'm not allowed to to speculate on that. So I'll leave that for everyone on this call to guess and then decide if we're a good buy right now or not based on on what you independently determine.

Speaker 1

Joe, are we looking at more acquisitions, especially software? Joe, we're always talking to different companies. So, you know, I think you're gonna see consolidation in the marketplace. Right now is a quiet period as everybody's going through the sales cycle. So I think those discussions are really turned on again late October when we get through what this government interaction moment is where everybody's distracted.

Speaker 1

So right now, things are quiet. Everybody's focused on sales, partnerships, driving outcomes, and you know? But we're always open to talking to people because we think good teams, good products, you know, makes sense. Sylvia, what percentage of sales do you expect to be domestic, and what percentage international? I think 95% domestic.

Speaker 1

We're not focused on international sales right now. We do have some, but we're not focused on it. And then, Danny, do you have any NATO or international government customers? Yeah. We have a few.

Speaker 1

I mean, we sell over some some stuff over in Europe, but it's not our focus for sales. Particularly with the tariffs and, I'd say, the regionalization in the marketplace, we really see, with our limited team, our best sales opportunity domestically right now, and that's where the market's really turning on. Alright. Goodness. Are there other questions?

Speaker 1

Because that was awesome. I I really appreciate the questions. Alright, Chris. You got another one. I appreciate it.

Speaker 1

Then we'll we'll wrap up here pretty quick. If you were asked to text your motor production tomorrow morning, what would be your first constraint you'd be encounter? Supply chain for magnets. So right now, lead time for magnets is six months long. Silvio, do you build only to order, or, also, do you build inventory for your most common components?

Speaker 1

Silvio, we build ahead of time. Like, we have a really pretty good idea of what's popular and what's not, and so we definitely build in front of demand. And that actually, is something that captures a lot of customers because a lot of other groups only build the order and then their backlog's six months where people call us up, and we're like, we can get to do that in a week. And so, us looking out for our customers that way because a lot of them don't know what's gonna happen has been really effective for us as a business. Greg, appreciate the transparency.

Speaker 1

I'm very excited about the shares I hold after this. Greg, appreciate you as a shareholder. Appreciate your time, and, you know, thank you. It's the questions you guys ask. We're all on this together, so glad we can share the journey with you.

Speaker 1

Anonymous. Why did we choose Orlando for the new facility? Are we looking to expand elsewhere? When you build physical things, people gotta come to the office. People gotta touch stuff.

Speaker 1

And so we found that Orlando is really great logistics, really great workforce. It's right in that stretch between Tampa and the Space Coast where there's a lot of engineering. There's a lot of drone interest, and so we're gonna consolidate to Orlando. You know, it's just there's there's something intangible, hard for Brian to measure. So people always bring this up, and I tell them we don't have a choice.

Speaker 1

I'll figure out how to measure it if I have to justify it, of having people kind of all be able to interact and share expertise across the board and and have those interactions. And so our plan is to really build out in Orlando. And, you know, we've been able to find really good talent. And especially a little diatribe, one of the things that's really cool is we're entering that phase where people in the industry or people that are really savvy start to look at it, and they can start to tell that it's really turning on, and they've seen wins before. And so the people that are reaching out to us now are amazing talent, and they just wanna come join and come build.

Speaker 1

And we're we're really starting to get that energy of a place where things are gonna happen, and that that's a snowball. And that's the snowball where if you track kind of where people start to matriculate or go and where they come from and who they are, you can you can really get a good read on sort of almost the intuition that people have been really successful have. And they're you know, we're really excited that they wanna come join the team. And, you know, they're everybody's a great fit. That coupled with how awesome our our, you know, current employees are just growing into roles and really taking on new responsibilities is has me even more excited about Orlando, actually.

Speaker 1

Tim, can I elaborate on any more robotics in the future? Tim, we get some ancillary orders. You know? Some people doing, like, robotic cars wanna buy motors and some of the other things. So I think as you see industries really expand and saturate with a component, it gets picked up by other stuff.

Speaker 1

Right? So if you go in and use a touch screen when you order stuff at a place, right, that's all Samsung or iPads because they're already used in sort of the mobile industry, and they just got brought over. Or if you look at in the DOD, like, all the controllers are almost all Samsung phone based because that quality component is at scale. It's reliable. People know it.

Speaker 1

And so I drones are one aspect of robots, and I think it's really the one in high demand. But as we scale into that, I think we're gonna start to see people pick off some of our stuff for other other other robotics. And, you know, I'm kinda I'm always excited to see what our customers do because I'm an engineer, but nobody let me touch any engineering tools because it's not my job. And so when customers have these really neat applications, I just get excited. Bill.

Speaker 1

Okay. So when will we see the stock splits? I'm looking forward to this being the next big thing. Bill, if this is the next big thing, it doesn't need to split. I mean, you know, I that's a choice we have to look at making in the future depending on what we wanna do.

Speaker 1

But one does not require the other, sir, and I appreciate the energy. Alright. Anybo anybody else got questions?

Operator

Hey, Alan. There's something in the chat from Marble Peggers. Would you like me to read it?

Speaker 1

Yeah. Get it out there.

Operator

How much of the 40,000,000 and $48,500,000 offerings are going to be spent on the And how much is left off after the in house manufacturing? What are the next major components that UMAC attempts to mass manufacture in house after the motors?

Speaker 1

So we expect to have about $80,000,000 left after all the CapEx from the motor factory. We're still burning under a million dollars in cash a month, and that will be mostly offset by interest from the money even at the current rate. And then we plan on moving to set up a headset final assembly line, which will be significantly less expensive and move to revenue sooner. So we expect to be sitting you know, to to actively have for funds under management between 70 and $80,000,000 through 2026 depending on how how fast we grow and and return. So we we feel really comfortable with that, and we're really excited about having kept our our cash burn rate low so that we can be in a position to do this without creating, you know, tertiary or cash risks.

Speaker 1

Okay. So, Chris, I can't comment on direct targets, but can we get a feel for m and a activity ahead? Chris, right now, you know, I think there are a lot of interesting drone parts companies out there, etcetera. And everybody right now thinks they're gonna get the government contract. You know?

Speaker 1

So if if you're talking to anyone right now, they're like, oh, I'm gonna get this huge contract. We're gonna crush it. And it'll really be who are the really solid teams that maybe didn't get selected for a government contract or whatever else that we can add in and really build something robust because we we're not here to overpay. You know? And we're, again, very particular about who we who we wanna integrate because integration's a real headache.

Speaker 1

And it's personality driven, and is it a good fit in the company and everything else. So I think we're again, we talk to everybody. You know, we're a supplier to everybody. We do a really good job there, but we're not there's nothing, like, real spicy or anything. And I think we'll again, we'll we might see what it really looks like, and there might be a lot of opportunity.

Speaker 1

But it it won't be till late October till people know who won and lost. Alright. I know. Right? Do we we got anything else?

Speaker 1

I mean, I'm pretty excited about it.

Operator

We have one last comment from Bill McCammon. He's enjoying the q and a and just hearing more. So

Speaker 1

Well, thanks, Bill. I I really appreciate your time, sir. And I appreciate everyone's time. I mean, Stu, there's, like, 80 of you who listen to me for this long. So hopefully, you recorded it, you can play it at night, and the baritone will put you to sleep so you can get two uses out of it.

Speaker 1

But, otherwise, again, I wanna say thank you to everyone for your time, for being shareholders, being interested in the company, and really supporting what we're trying to do in terms of bringing supply chains for critical technologies back to The US. So thank you, everyone. I I hope you guys have a wonderful day, and and really appreciate your time.

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