Earnings call transcript: Unusual Machines' Q3 2025 sees first profit, stock volatile

Unusual Machines Inc (UMAC) reported its first profitable quarter in Q3 2025, achieving a net income of $1.6 million and a revenue of $2.1 million, marking a 39% increase year-over-year. Despite this milestone, the stock saw a significant drop of 9.74% during regular trading hours, closing at $11.91, before recovering 2.26% in the aftermarket to $12.18.

Key Takeaways

• Unusual Machines reported its first profitable quarter with a net income of $1.6 million.
• The company achieved a year-over-year revenue growth of 39% for Q3 2025.
• The stock experienced a 9.74% decline during regular trading hours but rose 2.26% in the aftermarket.
• The company expanded its margins from 28% to 34% year-to-date.
• Strategic investments and production scaling were highlighted as future growth drivers.

Company Performance

Unusual Machines demonstrated a strong performance in Q3 2025, achieving profitability for the first time in its history. The company reported a revenue of $2.1 million, a 39% increase compared to the same period last year. Year-to-date revenue reached $6.3 million, up 55% from the previous year. The company also highlighted significant margin expansion and strategic investments in production capabilities.

Financial Highlights

• Revenue: $2.1 million, 39% growth YoY
• Year-to-date Revenue: $6.3 million, 55% increase YoY
• Net Income: $1.6 million
• Margin Expansion: From 28% to 34% year-to-date
• Cash Balance: $64.3 million, total cash over $130 million

Earnings vs. Forecast

Unusual Machines exceeded expectations by achieving profitability in Q3 2025, against an EPS forecast of -0.14. This represents a significant earnings surprise, as the company had not previously reported a profitable quarter.

Market Reaction

The stock of Unusual Machines experienced a volatile trading session, with a 9.74% decline during regular hours, closing at $11.91. However, in the aftermarket, it rebounded by 2.26% to $12.18. This movement suggests mixed investor sentiment, possibly driven by the surprise profitability and broader market conditions.

Outlook & Guidance

Looking forward, Unusual Machines is targeting a $20 million delivery by Q2 2026 and aims for a $30 million annual revenue to reach break-even. The company is scaling production to meet growing demand in the U.S. drone market, which is expected to expand significantly.

Executive Commentary

"We were profitable in the third quarter. Let me repeat that. We were not just cash flow positive. We actually had our first profitable quarter as a company," stated Allan Evans, CEO. He emphasized the company's strategic position in the growing U.S. drone market, saying, "The U.S. drone market is about to explode, and we expect to fearlessly seize the opportunity."

Risks and Challenges

• Sustaining profitability in future quarters amid market volatility.
• Potential supply chain disruptions affecting production.
• Competition in the rapidly growing drone market.
• Macroeconomic pressures impacting defense budgets.
• Execution risk in scaling production and meeting demand.

Q&A

During the earnings call, analysts inquired about the impact of potential government shutdowns, the company's competitive advantages, and its production capacity. The management addressed these concerns, highlighting their strategic investments and scaling strategies to meet future demand.

Full transcript - Unusual Machines Inc (UMAC) Q3 2025:

Conference Operator: Greetings. Welcome to Unusual Machines' third quarter 2025 earnings conference call and webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Christine Petraglia, Investor Relations for Unusual Machines.

Christine Petraglia, Investor Relations, Unusual Machines: Thank you, Operator. Good afternoon, everyone. With us today are Unusual Machines' CEO, Allan Evans, and CFO, Brian Hoff. 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 four of 2025 and 2026, 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 customers' needs, receipt of orders from the U.S. Department of War, our ability to continue to grow revenue, the timing of our 2026 inventory and other expenses, revenues, expected GAAP profits, and positive cash flow from operations, and our expectation that the U.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 10Q, Form 10K, and prospective supplement. Except as required by law, Unusual Machines disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. As a reminder, this call is being recorded, and a replay will be available on Unusual Machines' website at www.UnusualMachines.com. Now, let me hand the call over to our CEO, Allan Evans. Please go ahead, Allan. It's Allan.

Allan Evans, CEO, Unusual Machines: Oh, I'm sorry. I was muted. Thanks, Christine. Sorry, everyone.

Christine Petraglia, Investor Relations, Unusual Machines: That's okay.

Allan Evans, CEO, Unusual Machines: Before we get into the meat of the call, I want to address the format change to this audio-only format. We moved to this channel for our earnings calls because of direct integrations with a lot of investor portals like Bloomberg Terminals. This should give all of our investors, especially the ones unable to make the call, faster and easier access to information. As our company keeps evolving, we really do appreciate feedback, and we would love to hear any thoughts that you have, both good or bad, on the new format. Please email us at investors@unusualmachines.com if you have anything to say. Now, today is a good day. We were profitable in the third quarter. Let me repeat that. We were not just cash flow positive. We actually had our first profitable quarter as a company. The good news does not stop there.

It was the sixth quarter in a row we achieved record revenues. It was our best gross margin quarter of all time. It is the first quarter where more than 50% of our revenue was from enterprise sales, and we already have enterprise purchase orders totaling more than $16 million. From a diverse set of customers going forward. We closed the Rotor Lab acquisition. Our motor factory in Orlando is turned on, and we're currently producing American-made motors. We executed our staircase financing strategy and currently have more than $130 million in the bank. Our strategic investments have improved partnerships and yielded financial returns. Finally, our team has grown from 19 people at the start of the quarter to over 60 people today, and we're continuing to scale to meet demand.

Eighteen months ago, we set out with an idea to transform this company from a retail channel into a leader in the onshore production of drone components. The results of this quarter finally show. Just initial results from those seeds we planted and all the hard work we have done. It is not just a good quarter, but rather it's the first signs of a successful transformation and the beginning of rapid growth for Unusual Machines. This would not be possible without the work our entire team puts in. As we continue to grow, both old and new employees are working hard and bringing incredible energy to the challenges we face. The culture and quality of our workforce make me just very excited for what we can collectively achieve going forward.

The way that we've maintained our culture as we've grown has made me very confident our workforce can handle the imminent wave of demand we're starting to face. We have been aggressively growing as the marketplace changes, and I am sure that is what most of you really want to hear about. I'll hand this call off to our CFO, Brian Hoff, to cover our financial results in detail, and once he's finished, we'll talk about the future. With that, I'm handing the call over to our CFO, Brian Hoff.

Brian Hoff, CFO, Unusual Machines: Thank you, Allan. As Allan just noted, we're seeing the initial signs of our transformation from growing from our seasonal retail operation into an organization with a significant focus on enterprise sales with expanding margins. We ended Q3 with over $2.1 million in revenue for the three months ended September 30, 2025, which is a 39% growth from the prior year. Year-to-date revenue is at $6.3 million, which is a 55% increase year over year. We see the shift from retail to enterprise first through our margin expansion from 28% year-to-date in 2024 to 34% year-to-date in 2025. Second, we continue to maintain top-line revenue quarter over quarter, which typically we saw larger fluctuations from seasonality that typically comes with our retail operations.

Now, looking into Q4, we are bringing those strong enterprise orders that we will start fulfilling in Q4, along with our strongest retail quarter with the holidays coming. We did see an increase in our operating expenses quarter over quarter, which is intentional given our investment in our motor and headset production and in scaling our operations. We fully expect to see an increase. As we fully turn on our motor production facility, hired the additional staff, and continue to build for the future. Our G&A expenses increased in Q3 as well, which includes non-cash stock compensation expense of $2.1 million and non-recurring expenses of $1.2 million related to investor relations and other professional fees. I'd reference table two in our shareholder letter that we issued today for additional breakdown of our non-GAAP operating results.

We had interest income for our cash balance of $0.7 million for the quarter and recorded unrealized gains, as GAAP requires us to record at fair value based on current market values, from our short-term investments of $5.8 million, which brings us to net income of $1.6 million for the quarter. Now, shifting to our balance sheet, this is a reflection of our continued investment in growth and the momentum that has been building here. We ended the quarter with $64.3 million in cash, which included a $48.5 million raise in July at $9.70 a share. Subsequently, we raised an additional $72 million in gross proceeds at $15.46 per share off our ATM, giving us over $130 million in cash today. In addition, as of September 30th, we have approximately $16.8 million in short-term investments.

We've grown our inventory and prepaid inventory balances to over $10 million in preparation of our enterprise orders, the start of our motor and headset production, and the holiday push. We've grown our PP&E by $1.7 million during the quarter to purchase for our motor equipment and related items. We closed the acquisition of Rotor Lab at the beginning of September. We are currently working on our GAAP purchase price allocation related to that. Overall, the balance sheet is very strong, positioned to take full advantage of the growth that Allan's going to talk to you about. I'd like to thank our entire team, old and new, for their continued hard work and willingness to get things done. We look forward to a strong finish in 2025 and rolling that into 2026. I'll send it back to Allan. Thank you all.

Allan Evans, CEO, Unusual Machines: Thanks, Brian. It should be obvious by now that we're excited for Unusual Machines. We are extremely well-positioned in the current domestic and global political landscape, and we generally continue to have favorable market conditions for the American drone subsegment outside of maybe some of the very short-term hiccups given the government shutdown. We also have the capital to execute. I'm about to go into more detail, but I want everyone to note that my following comments are forward-looking and are in no way guaranteed. Let's start with an update on internal production. Development of our motor production has matched our expected timeline so far. Phase one of motor production is now fully operational. We've just started scaling production and expect to have thousands of motors shipped by the end of the month.

As this grows, we're beginning to source material for our highly automated production equipment that we expect to bring online through the second quarter of next year. Headset production is just starting to move forward. We're finalizing space and have already ordered the materials to produce 5,000 headsets domestically. Our internal expectation is that we'll start shipping headsets from our U.S. assembly facility in January of 2026. We have $130 million in cash. We have enough money to build out motor and headset production as well as scale supply chains to meet our customers' needs. As a general rule of thumb, we want to have at least 12 months of forward-looking revenue in cash to meet our working capital needs. Our growth is not resource-constrained, and we'll be able to right-size our company regardless of how fast or big this marketplace requires us to be.

This also provides us with enough extra capital that we can consider potential acquisitions if the right opportunity presents itself without having to under-resource our current plans. This moment of scaling with uncertainty is one reason why hardware is hard. As a component manufacturer and supplier, we ask our customers to give us both forecasts and then purchase orders. It is typical for customers to give us forecasts that extend 12 to 18 months out, but purchase orders are generally only placed for material that they need delivered in the next six months. Our growth ultimately requires purchase orders. We are excited. We have $16 million in purchase orders, and we expect delivery on those purchase orders to occur through the second quarter of 2026. We also have forecasts past that that have us confident in our continued scaling. Past that run rate way into the second half of next year.

For us to meet these demands, we have to place orders and provide forecasts to our vendors. Our supply chains outside of China are about six to eight months long, and that's the lead time on several critical components, not just one. This is causing us to, and will continue to cause us to have to place large orders and put significant amounts of cash in deposits and other payments for material. This material management is critical to our company and is going to likely result in significant cash outlays over the next few quarters. We expect revenue and GAAP profits to catch up in the second half of 2026 as we reach a new, larger revenue equilibrium. This uncertainty has been further complicated by the shutdown of the U.S. government.

Our primary enterprise business model is B2B2G, and the shutdown has prevented our customers from getting any additional orders. This, in turn, prevents them from placing orders with us. We see this as a competitive advantage. That's right. An advantage for our company relative to our competitors for two reasons. First, we expect the Department of War and other government agencies to still want the drones and drone parts as soon as possible, regardless of how long the shutdown lasts. This allows us to continue to build because we have the capital, and then we'll be in a position where we are in stock when those customers place orders. Any of our undercapitalized competitors, they have to wait for the actual orders to come to their customers and then to them to even start their supply chains. This allows us to get further ahead every day the shutdown continues.

Second, the shutdown in the government has stopped the SEC from processing S-1s for new IPOs. Most companies' numbers go stale in February, so there's likely to be a massive backlog and a challenge in the IPO market until at least May of 2026. There are very likely several wonderful midsize companies that will have trouble with access to capital due to the combination of the shutdown preventing orders and the IPO market being inaccessible. This could create an opportunity for us to potentially make a larger acquisition at a reasonable value and further accelerate our business. Regardless of the shutdown and when it ends, we believe the government demand is going to be very strong through 2026, and we are scaling as quickly as we can to capture as much of the emerging market as we are able to.

To summarize, our third quarter was a standout performance in my book. We are well-capitalized, growing the team and the facilities, and have started to see government orders materialize for our customers and ultimately for us. Even though we had a profitable quarter, our goal is to sustain positive cash flow, and we expect to need $30 million in annual revenues to get there. I believe this will happen in the latter half of 2026. Unusual Machines is at the corner where we think the market is maturing right now. Our business is capitalized and extremely healthy, and now we are aggressively pursuing growth. The U.S. drone market is about to explode, and we expect to fearlessly seize the opportunity. I want to say thank you again to our entire staff and all of our shareholders. With that, I want to open up the call to questions.

Conference Operator: Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we poll for questions. Your first question for today is from Matthew Glenko with Maxim Group.

Allan Evans, CEO, Unusual Machines: Not sure if you're muted, Matt.

Conference Operator: Matthew, your line is live.

Hi. Can you hear me now?

Allan Evans, CEO, Unusual Machines: Yes, sir.

All right. Thank you. And congrats on the strong quarter. Allan, you touched on expecting to reach a new revenue equilibrium sometime in 2026. But to your point, in the growth cycle we're in for drones and domestic components, do you expect that 2027 will be—I realize you're not guiding at this point to 2027, but. Do you expect we'll still be in a growth cycle in 2027? And to the extent that we might be, is the working capital investment cycle going to continue past 2026?

Yeah. I think everybody's going to try to scale as fast as humanly possible in 2026. We're still—the drone industry, particularly for defense, is going to fall short of the objectives of—not fall short, but the government programs have increasing numbers of drones they want from now through about 2030. I do expect working capital to continue to probably be sort of outlaid in front of revenues in that growing pattern. I think toward the latter half of 2026, we'll have a better idea of what that growth looks like because I think the next year is sort of the zero to one or the 5,000 to 100,000-plus drones. After that, it's 100,000 to 200,000. It is less of a dramatic step function. Right now, all indicators suggest grow as fast as we all possibly can because of market demand until 2028.

Got it. Thank you. Maybe just one quick follow-up for me. Just given all the additions and ramp-up in production that we're talking about that's happening in pretty quick succession, I'm wondering if you could give us a kind of reset view on your operating expense run rate, excluding stock comp, starting in the fourth quarter or first quarter of 2026 that you have line of sight to.

Yeah. If you look in quarter three, we put this in our shareholder letter. Our cash burn, which we try to pay attention to, is still $900,000. That is without any of the added income from the investments or anything. We still really stare at that pretty hard. I'm personally proud that we've kept it under a million dollars every quarter for operating. We might grow a little bit past that, and that'll just come down to some of the GAAP elements that just when our customers receive material. Our goal is going to be to keep it down. In quarter four, quarter one, it'll be a little bit variable just based on when our customers are able to accept product from when they can get it to the government.

A little tough to project it just because the shutdown will affect the day-to-day stuff. But we try to keep it under $1 million every quarter. That's been our goal since we started.

Great. Thank you.

Conference Operator: Your next question is from Austin Bolig with Needham.

Hey, guys. Can you hear me?

Yep.

All right. Hey, Allan and team. Congrats on the nice quarter and especially the margin expansion. Super exciting. I guess my first question, guys, is I just want to dive into kind of what your guys' current capacity is at as maybe we enter 2026. Is there a way you guys could frame up the revenue that you guys could capture, whether it's through your internal capacity plus the contract manufacturing, if we get a perfect storm scenario next year with this demand?

Allan Evans, CEO, Unusual Machines: Yeah. I mean, this is a little speculative on my end because we keep scaling as we see demand, of course. Right now, we said we have $16 million in purchase orders, and you'd expect holidays big for us. I would say between here and the end of Q2, everything we said suggests we plan without even being optimistic on delivering $20 million worth of stuff. I think if we got a $100-$150 million worth of orders, we'd figure out how to get it done. More than that, we'll have to start to add space and equipment, and there's longer lead times on that on the CapEx. I think you could see somewhere in the $100-$150 million range as being the capacity that we're scaling to and what we already have machines in for and CapEx in for and partnerships for.

We'd have to get the orders if it was Sky Foundry or PBAS or any of these very large programs. If we had indicators before the end of the year, we could bring in CapEx and exceed that. We'd need those indicators here before the end of the year. Of course, if we had them, we'd share them with everybody, so.

Okay. No, perfect. Perfect. I just kind of had a question just on the consumer business. It was down kind of a little bit lower than what expected. Anything specific to kind of call out for that near-term weakness?

Yeah. A couple of things. The summer tariff weird uncertainty, I think, caused a little consumer hesitation in the marketplace. We were not focusing on it with the same thing. We had some shipments early in this quarter that, because we had a little bit of out-of-stock stuff. We would have been, I think, on par for where we would have expected to be had we not run into a little bit of a stock thing with GAAP rules. I think you will see it rebound this holiday. You get a little shifting across that time barrier, but my expectation is we will see us back to normal with consumer in quarter four here.

Gotcha. Gotcha. My last question is just kind of around this $30 million annual run rate for you guys to reach a break-even. On a quarterly basis, is it fair then to assume that it's around like $7-$8 million? Or how should I think about the quarterly revenues you need to be break-even?

Yeah. Yeah. I would say I'd figure $8 million a quarter with the margins that we've been able to move to. And we're there.

Okay. Awesome. Guys, keep up the good work. Thank you so much.

Thanks, Austin.

Conference Operator: Your next question for today is from Josh Sullivan with Jones Trading.

Hey, good evening. Congratulations on the quarter. I suppose the strategy coming together here. Just to actually follow up on that last question, on that $8 million. Can we get there on the enterprise mix where it is, or is that assuming the enterprise mix is materially higher?

Allan Evans, CEO, Unusual Machines: Oh, I think it's going to be on the enterprise mix. Enterprise is going to grow much faster than retail. As long as it continues to even show up the way we're there, I feel pretty good about it. Hopefully, the answer to the question, if it doesn't, ask it again, and I'll try to be better about it.

Yeah. You talked a bit about the competitive advantage you guys have regardless of how long the shutdown lasts, which is great. Curious, is this just something you see from your vantage point, or do customers see this? Is it helping build your reputation, awards, or even the M&A opportunities that might be out there? You talked a bit about the S1 dynamic. Is this competitive advantage? Does it need to play out, or is it now and people are coming to you?

A combination thereof. We can finance some inventory. For our customers that want to be aggressive, we're willing to take a chance with them. That gives them an advantage right now and us as a parts vendor. It also builds relationships. When you're a supplier, relationships are 10 years long. You don't lose spots very often. I think it's both a right-now advantage in that we can help our customers gain the same advantage on their competitors, even if they aren't as well-financed. In doing that, we're creating very long-term relationships where we're preferred vendors.

Got it. The other dynamic is speed to market. We talk about this big opportunity coming up here. Can you frame where you guys are relative to the competition and how you're being successful winning these awards?

Yeah. We started earlier. I think we messaged really well. But my understanding, we're the only ones doing thousands of motors right now. Anything we do, when we go place orders into our component supply chain, it's for at least 10,000 units. So when customers come to us and they want 15,000 of a thing, we can deliver. We really haven't seen any of our competitors do that for value components in the U.S. market. That puts us way ahead because it gives us the long-term relationships with our suppliers. It means that if somebody needs 500 units for an LRIP run or something, we have them right away because it doesn't affect our material flow. When they scale up, we're a trusted vendor.

We're starting to see the results from work we put in more than a year ago when our first flight controller came out because we did 10,000 of those out of the gate. It is really starting to create sort of an avalanche advantage where, even if you go do a design with somebody else, how do you get to 10,000 real fast? You call us.

All right. I'll leave it there. Thank you for the time.

I appreciate the questions.

Conference Operator: Your next question for today is from Barry Sine with Litchfield Hills Research.

Hey. Good afternoon, gentlemen. Lots of questions for you. I want to talk about the outlook for orders. You've talked about the confirmed purchase orders, but that's really a subset of what's out there and what you're likely to win. We've seen some of the announced customers. Presumably, there's a lot more wins that you've won on platforms. Can you talk about the part of the iceberg that's under the ocean that we don't see? What is out there that you've won or you've won a placement on a platform that we don't see, at least size-wise? I know you probably can't name the companies.

Allan Evans, CEO, Unusual Machines: Yeah. I think there's several different pieces to this. First, the government issues our customers often programs and long-term contracts. There are some things being competed like PBAS, purpose-built attritable systems. They haven't awarded the final awards for it yet. We have parts on, I think, every finalist. That's an example of where we have forecasting if they win but haven't seen purchase orders yet necessarily. When you look, also, the purchase orders we get for anybody are really only for the things they want the next three to six months. We're setting up inventory for the forecast. I think there's still some uncertainty because the Department of War hasn't finalized contracts, and they're still trying to figure it out. My expectation is that what we put out there is.

Under 50% of what I expect to see in demand. Where that falls exactly will depend on which ones of our customers win which contests, whether we're a smaller portion or a larger portion of the bill of materials. I'm very confident in where we're at going forward. That's why we continue to scale. We know that when the government comes back, those will be awarded, and they'll still want the initial drones for those programs at the same time.

If we look at your product catalog on the blue list, your hot seller seems to be motors. You seem to be selling a lot of motors. I guess goggles may be a second. Where do you see holes in your product line? For example, do you need to have more digital solutions? Along those lines, I had a good conversation with your new hire, Al Ducharme, at Rampage. He has got a pretty strong background there. What might we see product-wise in components and with his fingerprints on this?

Yeah. Product roadmap, we'll start to really flush that out in quarter one. What I would say is right now, we're trying to scale for the FPV segment because there's a ton of demand. We want to focus on that scaling. I would say initially, where you'd see adjacencies into other drones, even before there's a lot more technology necessary, is in the powertrain. Motors plus motor controllers plus batteries is kind of a sweet spot to go look at delivery drones or aerial photography drones or otherwise. I think once we have moved to scale, we'll know what customers were successful, and we'll work on technologies that they need. I do think there's some really good other companies that do some of the high-value stuff like DigitalLynx. There are several companies that do that: Mobilicom, Doodle Labs, etc.

We're not trying to go compete with other people that are trying to build out the Western drone ecosystem. We're trying to be complementary. I think once we hit scale and we start to build the components for our customers that are doing tens of thousands, they'll tell us where to go, and we'll just listen. We'll get those parts done as quickly as they need them.

My ears perked up when you said the word batteries because I don't think you make your own batteries today. That sounds like it might be a potential area of acquisition.

Yeah. I would say. When we look at powertrain, I think batteries is one of the things that we'd have to look at in the next year. And see if we can be part of the solution there.

On the retail business, as you had a question before, kind of flattish sequential, although 3Q is never historically a big quarter, I don't believe. A couple of questions on that. First of all, some of that is actually enterprise where prospective customers are buying lots of units to try out before they place a large order. If you have any sense on that. Secondly, the other person I had a good conversation with at Rampage was Nate Kennedy. He seems to have some ideas on growing that business. I think I'm happy to see that because you guys are so focused on enterprise, it's nice to see somebody focusing back on Rotor Riot, which is what started the company.

Yeah. We see our retail channel as a massive sales funnel, as you mentioned, and it's great. We realized that as we were being overwhelmed as a small team with the very rapidly scaling demand for enterprise, we were making some compromises. We brought in some senior personnel to help be sure that our retail channel is better than ever this holiday and past it. I think the hiccup is just that, it's a hiccup. Otherwise, we're really excited about our brands and what we're doing going forward on the retail side and see it as just first, our customers there are awesome. I'd like to thank every Rotor Riot customer and Fat Shark customer and everybody that went to Rampage. I mean, they're just awesome. We want to be sure to continue to service that customer base as.

Even better than we did before as we grow.

Okay. And Allan, my last question. You made three strategic investments during the quarter: SafePro, LightPath, Kopin. And we proved that you're a great portfolio manager with that ice game there. From a strategic standpoint, could you talk about each of those briefly? Why did you make that investment? What do you see in them? When might we see the benefits of those new partnerships show up on your income statement?

Yeah. SafePro was the first one. It was a smaller one. It was done in collaboration with Ondas. That was more. That was done because they are finding landmines. That helps generate value, whether there is conflict or not. I think it is a really great use case. We just wanted to be sure that if they were using FPV drones, it worked fine. That was probably the most financial, in air quotes, of the investments in that it is a little further removed from our platforms. I do not know how much that will drive value for our company in deep strategic relationships just because we are not building too many cameras that will be special purpose for that. We do want to be sure it works. If you look at LightPath, they are doing non-germanium thermal cameras. Pretty much everybody, every enterprise customer, wants multi-spectral or thermal cameras.

Sam's just across the way in Orlando, literally 20 minutes away, and has just so much business that that investment can put us in a position to do thermal cameras. Camera's a little further down on our roadmap. We're not there yet. I think that will start to materialize in collaborative stuff, assuming we execute and we set up our roadmap, probably mid to late 2026 in product offerings would be the goal. Kopin does panels, display panels, and we're building headsets. I expect our headset assembly to be online here in January, but we're starting conversations to figure out how to include their panels. That'll probably be late 2026. New products take 18 months generally. I wouldn't expect anything faster than that.

Okay. Thanks for taking all my questions, Allan.

No problem. Thank you for them, Barry.

Conference Operator: Your next question for today is from John Roy with Water Tower Research.

Allan Evans, CEO, Unusual Machines: Hey, Allan. I wanted to discuss a little bit about the domestic motor and headset production. Kind of two twin questions here. One is, how do you expect to really turn this, what seems to be a reshoring competitive advantage, into a long-term competitive advantage with production of those? The second thing would be, how do you expect margins might ramp as you really put some more into production costs, etc.?

We always set out and said that nothing we did could be more than 20% greater in cost than what came out of China. That is how we try to price. We think in doing that and building really high-quality products and using things like automation to be able to be competitively priced, that once we win slots in this sort of disintermediating moment, we will keep those slots with those customers through customer service and being local. Also, it is just expensive to change suppliers. What I think we are going to see is a dip in margin, a little dip in margin as we really ramp, as we figure out how to get these things working again. What I am really proud of the whole team for is we have demonstrated we can get to 39-40% margin running the way we are.

That is at lower revenue. I think you might see a dip as we scale, but then at even greater volumes, I'd expect us to be able to probably break through that 40% margin level and be really competitive. That is where I think this quarter, where it's not like blowout revenues. We've done a really good job of taking what we were doing and refining it and polishing it. We are not scaling problems. We are scaling solutions. That has me feeling pretty confident that even though we'll run into probably some yield stuff as we, some other ripples in margin as we scale, we'll get back to it and probably exceed 40%.

Cool. One last question for me, maybe a little bit a broader one. How do you see the competitive landscape evolving maybe a little longer term? We're hearing rumblings from some European companies that they expect to start doing U.S. manufacturing. I was curious as to how you might see the competitive landscape evolving.

Yeah. My personal belief is that sort of in the deglobalization we're seeing right now as part of the macro trend, we're going to see regionalization. In the same way people ask, "Hey, are we trying to sell in Europe?" Not aggressively, no, because I think Europe is going to buy from Europe. I think there's going to be so much demand with all the GDP budgets in Europe increasing that it will be there. I think U.S. money is going to favor U.S. companies. I mean, it's taxpayer money when you want it to go to people that pay taxes and are other Americans. I think that is, in a tie, I think the local option wins. I think we just need to play for the tie, and we'll win in North America.

We're really focused on North America rather than these other geos for that reason. So that's an assumption we're making and how we're going forward.

Sounds good. Congrats on the quarter. Talk to you soon.

I really appreciate it. We also have a couple of questions from an analyst that came in via email, which I'll read and then answer. The first one, can you please discuss how you expect the timing of major drone awards to interact with U.S. government shutdown dynamics versus looser budget spending requirements for drone purchases? What does reclassifying drones as munitions mean for UMAX growth versus regular wasteland? How is growth appearing between acquisition officers and base combatant commanders? I think the major drone awards for the U.S. government shutdown, I really do not expect them, if the shutdown goes on much longer, to probably occur till early 2026. Where I do see a lot of the already allocated stuff at the looser, the smaller buys occurring when the government gets back online because those are just easier. They require less oversight, less people for approval.

Someone's on vacation, etc. Reclassifying drones as munitions helps our growth in that it allows much smaller groups to just buy drones and not have to track them. It means our customers can sell $100,000 or $200,000 worth of drones to these sort of base-level buyers rather than have to be all centralized and go through a really long process. Those looser spends I expect to come online much faster when the government comes back and to drive sort of maybe fewer headlines for a lot of the revenue in the category. Growth between acquisition officers and then base combatant commanders, that, to me, is pretty opaque. I would say we'd have to go talk to our specific customers. It also feels like they're still figuring that out. What is the ratio or who's in charge of what?

I think in another six months, we'll have a good idea there. The second question, can you discuss the acceleration of customer interest post AUSA? How does getting the 101st Airborne as a customer raise awareness, not just for UMAX, but also the importance of domestically sourced drone components? AUSA was a great event. We were able to go and see a bunch of our parts that were priced out on a wall with members of the armed services flying those drones. We're really excited about it. One of the things I think it does is there's an initiative called Sky Foundry where the Department of War and I think the Army in particular is considering spending several hundred million, two or three hundred million dollars, starting to build drones inside the military to understand them better.

I think really AUSA drives a lot of awareness as us as a vendor for that. I really think it being so inherent even in our customers wanting to use American-sourced components, I think it points out to everybody that this is an important thing from a redundant supply chain perspective. It has been a real positive. It has also helped highlight that we do not have just at-scale suppliers yet, and there is a real need for that. The next question, what engineering approaches, materials, or form factors are you most excited about with respect to drone components? How do you expect those dynamics to feather into your growth algorithm? I would say right now, I am the most excited about doing the powertrain. I think we sit really well there and can be complementary.

As I alluded to earlier on Barry's question, I think batteries is something we're going to have to look at, and that'll come into our growth algorithm. There may be some opportunities to move to cameras, like gimbal cameras and the ISR stuff if our customers want it. I think that's a little further out. I do think putting this all together is going to put us in a place to continue to add new components and get a more diverse group of customers, but also a more diverse portfolio to, again, really prevent any concentration risk. I think that's what's awesome about where we're already at is we're getting this growth, and we don't have customer or product concentration. We're able to be really dynamic and not really put ourselves in a situation where it could all come tumbling down.

I think that's what I like the most about it. Those are the questions from the email. I think that's all the questions.

Conference Operator: As a reminder, if you would like to ask a question from the phone lines, please press star one. We have reached the end of the question and answer session, and I will now turn the call over to Allan for closing remarks.

Allan Evans, CEO, Unusual Machines: Again, I would like to thank everybody for being on the call. Really appreciate it. We wouldn't be here without our customers, our shareholders, and people that support us. Thank you. Wouldn't be here without the team. We had 30 people start Monday. They're building motors this week. Thank you for being part of the team, to everybody with us since we started. Again, thank you guys all. To Brian for being here. Brian, you're the best. It's a great quarter. It's profitable. We're growing. Everything is set up for this to scale, and there are no roadblocks in our way. It's time to go. Thank you.

Conference Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

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