Welcome back, everyone. Next, we have Unusual Machines Inc., trades on the NYSE American under the symbol UMAC. Manufactures and sells drone components and drones across a diversified brand portfolio, which includes Fat Shark, the leader in FPV, ultra-low latency video goggles for drone pilots. Happy to welcome its CFO, Brian Hoff. Welcome to the conference today, Brian.
Thank you, Anna. I appreciate it, and appreciate everybody being here today. I look forward to telling everybody about Unusual Machines and what we're doing.
All right, go for it. Call me back when you're ready for questions.
Thank you. Before we get started, just wanted to say this presentation will include forward-looking statements. You can find our full disclosure on our website at unusualmachines.com under the investor presentation. To kind of give an overview of what we're going to be talking about today, we'll go through the drones, drone component industry, what we provide as a company, what's really enabling the industry, the growth around the industry, the legislation that's also providing some great opportunities, and then our financial profile to really take advantage of this growth that's happening right now. To Unusual Machines, we are a drone parts manufacturer here, based in the United States. You can see a handful of our products here on the bottom. You can see between drone motors, flight controllers, ESCs, some cameras. We produce headsets.
We're trying to onshore and bring all these pieces back to the United States. We're really focused on producing high volume at affordable prices, and this is all done through our Orlando factory and different warehouses there. To kind of give a little bit of history on the supply chain and why we're trying to do this and bring this back to the United States, these components have been built over the last 2, 3 decades in China and other foreign countries, why try and do this? Really, it's driven based on a handful of pieces. The recent conflict with Ukraine, supply chain issues, our own defense initiatives, there's a strong need to make sure that the supply chain and our own reliance here is secure.
This is also driven, which we'll go into in a little bit, about kind of some of the federal regulations as to why that's also being enabled and why we need to do this here in the United States. These drone components, you know, drones can be varying in different sizes, but what are we really after on this side? This is a picture of kind of one of our drones. It doesn't have a battery or any type of payload in this, but really we're after these small, low-cost, attritable drones. Why attritable? Think of these drones as one-way type strike drones, right?
They'll be first-person view, which, again, we sell headsets, and so you'll think of a pilot wearing a kind of virtual reality-type goggles, but this actually has a video feed between the drone and the pilot's headset, that's going to give low latency, real-time pieces without compromising any position of the pilot. These drones are going to be anywhere from 5, 7, 10-inch prop size. We're really focused on this piece. These drones are very fast and quick maneuvering. Let's kind of piece this apart and understand, what does the market and the industry look like overall for this?
There's a handful of different defense-related programs, that's really enabling this, and the drone industry and market, they're looking to make 1 million of these small drones over the next several years, even more than that. These drones, in total, could sell anywhere from, you know, $2,000 up to $5,000 a drone, depending on the program, the timing of what that looks like. We're talking a large kind of market that's really coming back to the United States as to what we want to do, driven by this defense market. This is a great picture of one of our drones, just kind of pieced apart, and shows the different components that we're after.
The components that we sell and manufacture here, they make up about $600-$1,000 worth of parts on each drone, depending on the size that we're after. When we look at just over the next several years, this growth is just It's happening right now, and we're enabling ourselves to be to take advantage of this. We have a large market opportunity from just the drone components and drone part size. You're going to have different programs from the defense side with the Department of War's Drone Dominance program, which they're committing to making 90,000 drones this year, 250,000 next year, and even more beyond in 2028.
There's the Drone Dominance program, there's what's called PBAS, or Purpose-Built Attritable Systems, there's the SkyFoundry program. All of those pieces are really going to make up more than 1 million of these drones, and the parts that go along with it. As again, we want to make large volumes, affordable pricing, primarily because there's going to be so many of these. We go and sell these. And we're more of a B2B2G kind of customer. We're not going after one program of record. We're not trying to win the prime contract. We're gonna go supply all the drone manufacturers with these parts that are made here in the United States, as is gonna be required. Again, we'll go into some of the regulatory pieces here in a little bit.
We're not dependent on those pieces, so we can go and supply, and that gives us a really strong capture to go after the full kind of market opportunity. Versus, you know, sometimes these defense programs, they're gonna look to kind of diversify their suppliers, and they're not gonna just provide as a single source. And some of our customers that are going after, again, like the Drone Dominance program, which should be announced for the next phase of who's gonna kind of win some of those programs in the coming weeks. You know, we're involved with quite a bit of them, and we're already selling parts to some of them and talking with them to really be able to supply this.
We may sell one piece, we may sell and provide this entire system for some of our customers. It's really gonna vary on how much, you know, what's gonna be their requirements as a part of their program as well. Great market opportunity. We're trying to take advantage of it now. We'll kind of go about how we enable our some of the decisions we've made, some of the capital we've raised to really put us in a prime position to go and take capture of this market opportunity that's happening right now. Talking a little bit about our history, where we're at now, and then where we're going, this isn't just a full defense play, right?
We've got a fantastic team that's really grown up in the, this like FPV, kind of small drone, hobbyist, where it was really from a racing perspective, it was from a cinematography and cool YouTube videos, and like, these guys beat these things up, and they're fantastic pilots. They know the ins and outs of these drones, the parts, how to fly them. That really has strong roots for where we're at, and why we're enabling ourselves to be in this section for the Defense on how to fly these things, help train these, you know, these programs, and really be in a position to make these components that are known for reliability, quality, and really providing our, you know, our Defense teams with strong, reliable pieces and products.
As we move beyond the defense section, there's gonna continue to be enabled on drones, the expansion of the, you know, the enterprise with things like drone delivery, the consumer segment for, you know, individual consumer needs. There's a lot of future needs that are gonna go beyond this. Let's just say everything ends in Ukraine, and there's less of a defense need, there's still going to be strong market demand for these drones in the future. Talking about where we've been, kind of what some of the decisions we've made, where we're headed, this is a good kind of view as to things on to show our growth.
In about Q2 of 2025, again, less than a year, we were under 20 people, had a single facility, you know, selling $ a couple of million a quarter, right? With some of the federal regulations that are kind of giving us a tailwind, we knew and we made some strong decisions to say, "Here's an inflection point where we have to start spending some of our capital, invest in equipment, invest in supply chain, and really be that primary source of drone parts." Over the last couple of quarters, we've put in significant investment. We've got, our motor factory set up, we've got a headset factory, turning on here now. It's on as of Q1 this year. We have a flex assembly building for our full drone systems.
There's a lot happening, and we've moved from that 20 people, single facility, to we're over 120 to this day, with 5 facilities and 6, including Australia, and really driving growth in these drone parts. If we think of, like, our motor demand, we started in November to turn that factory on. It was a single shift, about 30 people producing several hundred motors a day. We've gotten a lot of increase just based on the demand right now for what we're after. We've had to increase our shifts. We now have 3 shifts. We're running 24/5 on those shifts to really make sure that we can produce. Now, we've had to invest, again, in capital inventory purchases for raw materials, our other inventory goods.
We've had to invest in that ahead of kind of these programs coming online. We're seeing an inflection point right now in our costs and really being ahead of where our revenue curve is right now. That's gonna catch up as these programs are awarded. Our customers are coming to place orders. We've already gotten some orders that are not on some of the Drone Dominance, but other PBAS-related items. We've seen some of that kind of starting to catch up, but we're gonna have to still make investments because some of these materials may take six to nine months to really secure with those long lead times, right? We're trying to produce as much as we possibly can out of China, provide other raw materials from other sources, even outside of there.
We're making strong decisions to say, "Let's invest in that aspect." We're gonna have to buy these materials now for 6 to 9 months from now and really understand what that demand curve looks like. Again, we've got. Some of the capital that we've raised has really enabled us to do so, but as we've move on, our revenue is really gonna kind of continue to catch up, and we'll hit that inflection point here probably over the next 2 quarters as our revenue kind of will start outpacing that spend that we've already kind of had to put in. All right, we kind of mentioned it a little bit about this, but just a little bit of history on this.
Some of the recent regulatory enablements and tailwinds in relation to this, we really saw a lot of this with the NDAA, or the National Defense Authorization Act, or also known as the Drone Act. This is where critical components had to be approved and go through kind of a rigorous audit and kind of review to ensure that there was no communication. What was your sourcing of critical raw materials? Where was that produced? Making sure that this wasn't happening in covered foreign countries. They were banned from this. If we kind of take one of the primary motor companies, they're no longer allowed to sell into the United States under the NDAA, and it was really just under covered foreign countries.
That's kind of where we started making some of our decisions to really buy equipment, raw materials, all those items to really enable us to be in the position we are today, to go supply what is coming here in the next couple months and years for our growth. Add on what happened in December of 2025, just a couple of months ago, the FCC put out a kind of. We knew some of this was coming. We thought this was gonna be more on just drones, but they also added drone components, meaning essentially they expanded this to you have to find critical components in the United States because those cannot be sourced from any foreign country, not just covered foreign countries.
It was a big, big demand push that's gonna kind of continue to be rolled into place here over the next year. Really we're gonna start seeing some of this happening right now and into Q2 and Q3 that we're trying to go after. Great news on that front. It's really enabling us. Our demand has spiked. Our customers are kind of continuing to come to us to start enabling it. They're not gonna find out for, especially on this, like, Drone Dominance program, probably for another couple of weeks.
If we really put it into perspective, we had to start making these decision points, again, several months ago, so that way when they hear their awards, there's no delay on saying, "Hey, I need this in March." We have to be able to produce and provide motors and ESCs and our flight controllers, our headsets, all of it, right? We had to make those pieces. We've been starting to build up our scaling our factories to really produce these goods. Great stuff coming out of that side. Over the last year, we've really strengthened our financial position. We've raised over $160 million over the last year. We have over $100 million in cash and strong inventory balances and really enabling us to take advantage of the time that's happening right...
again, happening right now in front of us. We have these government procurement cycles, as you even see, might take quite a bit of time to do. We have to have enough time to secure our inventory purchases, to take it through to production, to sell to our customers, to get paid, and then kind of come all the way back full cycle. We have a very healthy balance sheet. We have no debt. Again, $100 million in cash. We're in a good position to go take advantage of this opportunity. You add those things like the timing. We've been working very hard to get our warehouses up to speed, our manufacturing process, continue to bake in more efficiency, and then just our history and our time and our team is just...
We know what we're doing on this side. Taking a quick look at just kind of the overall kind of competitive drone parts landscape, you know, you have a handful of other customers that are in the kind of premium, but some of these might be 2, 3, 5, 10 times more expensive on some of our parts than us, and probably can't produce on that same scale. You get into the value section, which where Unusual Machines is at, we can produce low cost, value, high production quantities, which is needed, and we're really kind of in a standalone spot in what this is looking like for the amounts of need and demand that the industry is gonna enable.
Just again, taking a quick look at our cap table, I kind of mentioned this, we're all common, no debt, strong cash, great position to be from a balance sheet perspective. Here's the team. You know, I'd really like to focus on that we're building out our next layer below kind of our exec team. These are fantastic engineers, manufacturing team, sales and marketing. We're building out that layer below us, and they are crushing it. They are doing fantastic. We're asking them to do so much to from a scalability, and the timing is in such a short window here that they're pulling a lot of weight for where we are for Unusual Machines and the growth that's enabling us.
Kudos to them and what we're really bringing to the table. Again, thank you for taking the time to listen about Unusual Machines, what we've been up to, kind of the growth that we're enabling. If you have specific questions and can't stick around and ask, please email us at investors@unusualmachines.com.
Perfect. Thank you for this presentation. Really enjoyable. I want you to answer, how should we think about the margin profile of this business and path to profitability, please?
Yeah. We look to maintain our margins close to 40%. We've historically been able to do that. I think some of the... We're also trying to compete with those kind of cost components from China, right? Our customers are used to those pieces. We have to keep those, the low-cost aspect of this, but still maintain a decent margin. Now, we're building out our manufacturing in motors and headsets, and, you know, there takes just timing, improvement process, all of those kind of things. We'll probably see a little bit of a margin impact at the start. Is it gonna be significant?
I don't expect that to be the case, but we're gonna stick to about close to 40% from our margin perspective, and really, it's gonna continue to improve and increase each day that we get better and better at producing this stuff. When we talk about profitability, we're, you know, we're spending and we're investing money today. From an operational perspective, though, we don't burn a lot of operational cash. We might be investing in kind of CapEx and inventory purchases that are gonna enable kind of future sales. We burn, you know, maybe $1 million a quarter in cash, but that's gonna continue to get better as we kind of grow our top line. We're kind of seeing a break-even point, probably around $40 million top-line revenue at our kind of our current margin levels.
You know, we'll continue to invest in things like, you know, batteries, camera production here, and assembly in the United States. We'll see how that all kind of impacts and influxes, but I think we'll be about $40 million before we get to that kind of break even and profitability perspective.
With that said, a major focus in 2026 is execution. Walk us through the current state of your manufacturing ramp and the types of capacity you're building into 2026.
Yeah, great question. We're, continuing to, again, we're continuing to ramp our manufacturing, as much as we possibly can. We started again in November for our first shift in motors. We've increased that to the strong interest and demand from these programs of record. I mean, We're increasing this. This has been the large majority of our hires, a great team that we're building out there. We're now over 120. We're scaling into three shifts on that.
Mm.
Our flex and assembly has now added a second shift, potentially considering additional-.
Yeah
... shift on that side. It's gonna continue to take a big jump forward as we get into Q2 and Q3. We're gonna be bringing on kind of an automated line from our motor facility, so we're gonna probably, you know, 5 to 10x our motor production on how much we can do as we build out this automation, and this gets installed. Again, stuff that we've made in a decision, a year ago, but execution's gonna be important for us. Scalability, we're trying to go as quick as we possibly can without, like, completely breaking everybody at the same time. We're doing a great job, and the team's helping build this out, and we're seeing a great shift in output from where we started.
Talk about your competitive advantage. How do you see UMAC gaining the most share, and how defensible is that advantage as more suppliers enter this market?
Yeah, I think this opportunity is happening right now. I mean, would we have loved to have another year under our belts of getting all these things set up? Absolutely. I think at the same time, we weren't sure exactly how this was gonna go. It is happening right now, and we wanna be a leader in this supply chain, in drone parts, and we have to capitalize on the market opportunity as we speak. We wanna be a supplier of all parts for drones. That might mean that we're gonna continue to look at other opportunities, again, batteries, bringing camera assembly, other pieces here. You know, how are we gonna continue to take that larger portion of the market share?
I think with the tie-tag on our balance sheet position, our cash, we're able to move quick, and we're gonna get our production and scale up as quickly as possible. That's gonna continue to build our advantage over our competitors from trying to enter into this because I think as we are a reliable, large quantity producer of these components, it's gonna continue to increase our advantage exponentially based on that.
It seems like you're entering 2026 with a strong backlog and exposure to several high-volume programs. How should investors think about backlog conversion, timing, and the degree of visibility you have today versus incremental upside?
Yeah, we're continuing to see the demand from the current orders that we've seen, over the last, leading from Q4 into Q1. We've got great visibility into what this is gonna look like over the next couple of quarters. I think as some of these winners are announced over the next couple of weeks, we're gonna understand even more as to what that... I think that really drives a lot of incremental upside. We're already seeing strong demand from where we started last year to where we are. I mean, there's great visibility into what we're gonna be able to produce for 2026, with very strong capacity, and incremental upside is kind of we're alluding to.
That's gonna be based on kind of as our customers are gonna be finding out, we'll be there, ready to produce. And we see the inbounds coming in from just kind of the demand, the supply that our customers are needing. We're bringing on the inventory and other materials, and I think there's a lot of longer lead supply chain that we're gonna be positioned to for when our customers come, we're ready to go supply that. 2026, yes, strong backlog conversion, and I think the incremental upside over the next month or two, we'll really understand how 2026 is gonna shape up, which should be a great year.
How do you expect regulatory shifts, for example, restrictions on foreign-made drone parts, to impact demand and market access?
Can you repeat that, Anna? Sorry.
Yeah, sure. How do you expect regulatory shifts, for example, the restrictions on foreign-made drone parts, to impact the demand and market access?
I think the regulatory shifts are really enabling us to shift to U.S. suppliers and manufacturers. I think over the next 2 quarters is probably where we're gonna really see it. I think there's still kind of this historical view of how things are, what type of drone components. It's really this FCC kind of ban has really enabled us to drive this market adoption of U.S. manufacturing. I think it's gonna hopefully continue in other aspects, just even outside of drones, and really enable kind of the rest of bringing this type of thing back to the United States. I think it's gonna be a big catalyst for us and for the marketplace in its entirety. It's really gonna. It's driving the demand.
Perfect. Can you talk about some of the key revenue drivers for the past 12 to 18 months, and what went into the reported 133% year-over-year growth in revenue?
Yeah, I mean, I think again, it's really just the defense side is really our biggest driver. We were primarily and historically kind of set up from a retail avenue with some enterprise over the last 12 months and 18 months. Really in Q4, when we see some of these regulatory tailwinds coming in, we saw the demand of what this is gonna look like. Our biggest side is just these programs of record, and helping our customers who are... Again, we're gonna be a B2B2G type program. That's really been the biggest enablement and driver as to what we're doing, and just bringing this manufacturing here back to the United States. It's...
We're shifting away from that retail side and really going after this enterprise and defense section, which is really driven based off the NDAA, FCC, and other programs of record.
Can you talk about to what extent is Unusual Machines capturing market share domestically versus internationally?
Yeah, right now we're mostly focused all domestically, right? There is some aspects that, yes, can we provide some internationally? Of course. I think with the demand that we've just seen from the U.S. side, it's really driven. Like, that's enough for us to even just think about the scaling of what we've already accomplished and the challenges and complexities that come with that. There's enough demand that we're really just focused on the United States right now. At some point, sure, can we look at it? I think there's probably a regionalization factor that's happening right now, where maybe European, other countries might be focused on other European suppliers for their needs. We've got enough demand here for the United States to really focus on just domestic customers.
Can you maybe close with this, depending on how long, but what's the long-term strategic vision across commercial, enterprise, and defense segments? Is this vision reflected in the revenue mix today?
It is, I think, you know, I guess, the long-term vision as to, like, how far out do we look? I think even if we look at the strategic aspects of what we're looking at this year, we want to take as much of the market share as we possibly can. It is. There's opportunity we're trying to go for, again, motors, headsets, ESCs, and other critical components. We're trying to add on other pieces to bring even more larger market share to things like batteries. That, we're trying to bring carbon fiber, all these other pieces that we're trying to bring into our own manufacturing pieces. We're really gonna go after those aspects.
There might be some other M&A activities that help enable this and bring this on sooner. We really want to be that primary. We're starting with defense. Again, I think as you start seeing the transitions from defense, that's kind of the first part of the enablement of it, right? We're gonna go to. There's already other aspects that are already starting on the commercial and consumer aspects of this, right? Again, drone delivery, we might have, you know, the DoorDash of the world might need food delivery and those kind of things, right? There's already enablement on what that's gonna be. Because again, the FCC ban doesn't just mean it's for defense. That's gonna be across the entire industry, commercial as well.
I think as we kind of tackle the immediate need and the scalability that's enabled by the defense section, that's gonna then translate and go into the other sections, probably in the, in several years to kind of continue to come. The growth is gonna happen, but we're gonna go tackle that defense side right now in the immediate piece, really enable all the components that we possibly can, and then in the future, it's gonna continue to shift into that commercial and consumer sectors.
Well, it's quite the time to be in your industry right now. We'll see what the future holds as the world adjusts to this and adopts this. Thank you so much, Brian, for your thorough presentation. We certainly look forward to following along with all of your updates.
Thank you, Anna, and I appreciate everybody's time.