Unusual Machines, Inc. (AMEX:UMAC) Q3 2025 Earnings Call Transcript

Unusual Machines, Inc. (AMEX:UMAC) Q3 2025 Earnings Call Transcript November 6, 2025

Unusual Machines, Inc. misses on earnings expectations. Reported EPS is $-0.03 EPS, expectations were $0.13.

Operator: Greetings. Welcome to Unusual Machines Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Christine Petraglia, Investor Relations for Unusual Machines.

Christine Petraglia: 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 4 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 10-Q, Form 10-K and prospectus 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. Allan?

Allan Evans: Oh, I’m sorry, I was muted. Thanks, Christine. Sorry, everyone. 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. So please e-mail 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 doesn’t 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 has 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. 18 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 initial — just initial results from the seeds we planted and all the hard work we have done. So, 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. And the way that we have maintained our culture as we have grown has been 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: 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 significant focus on enterprise sales with expanding margins. We ended Q3 with over $2.1 million in revenue for the 3 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 ’25. And 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 at scaling our operations. We fully expect to see an increase [ Audio Gap ] 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 noncash stock compensation expense of $2.1 million and nonrecurring expenses of $1.2 million related to Investor Relations and other professional fees. I’d reference Table 2 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. And 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 30, 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 and currently working on our GAAP purchase price allocation related to that. Overall, balance sheet is very strong positioned to take full advantage of the growth that Allan is going to talk to you about. I’d like to thank our entire team, old and new, for their continued — for their 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: 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 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 1 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. So, 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 manufacturing supplier, we ask our customers to give us both forecasts and then purchase orders. It’s 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 6 months. Our growth ultimately requires purchase orders. We’re 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 6 to 8 months long, and that’s the lead time on several critical components, not just one. So, 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 payment 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, and then 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 2 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.

So, 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 midsized 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.

And with that, I want to open up the call to questions.

Q&A Session

Operator: [Operator Instructions] Your first question for today is from Matthew Galinko with Maxim Group.

Allan Evans: Not sure, if you’re muted, Matt.

Operator: Matthew, your line is live.

Matthew Galinko: Can you hear me now?

Allan Evans: Yes, sir.

Matthew Galinko: All right. Congrats on the strong quarter. Allan, you touched on expecting to reach a new revenue equilibrium sometime in ’26. But to your point, in the growth cycle we’re in for drones and domestic components, do you expect that ’27 will be — and I realize you’re not guiding at this point to ’27, but do you expect we’ll still be in a growth cycle in ’27? And to the extent that we might be, is the working capital investment cycle going to continue past 2026?

Allan Evans: Yes. So, I think everybody is going to try to scale as fast as humanly possible in ’26, and 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. And so, I do expect working capital to continue to probably be sort of outlaid in front of revenues in that growing pattern. But I think towards the latter half of ’26, we’ll have a better idea of what that growth looks like, because I think the next year is sort of the 0 to 1 or the 5,000 to 100,000-plus drones. And then after that, it’s $100,000 to $200,000. So, it’s less of a dramatic step function. But I — right now, all indicators suggest grow as fast as we all possibly can because of market demand until 2028.

Matthew Galinko: Got it. And 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 ’26 that you have line of sight to?

Allan Evans: Yes. So, if you look in quarter 3, we put this in our shareholder letter. Our cash burn, which we try to pay attention to, is still $900,000, and that’s without any of the added income from the investments or anything. We still really stare at that pretty hard. And I’m personally proud that we’ve kept it under $1 million every quarter for operating. Now, we might grow a little bit past that, and that will just come down to some of the GAAP elements that just when our customers receive material. But our goal is going to be to keep it down. And in quarter 4, quarter 1, it will be a little bit variable just based on when we’re — when our customers are able to accept product from when they can get it to the government. So, 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.

Operator: Your next question is from Austin Bohlig with Needham.

Austin Bohlig: Can you hear me?

Allan Evans: Yes.

Austin Bohlig: All right. 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. Like, is there a way you guys could frame up like the revenue that you guys could capture, whether it’s through like your internal capacity plus the contract manufacturing if we get a perfect strong scenario next year with this demand?

Allan Evans: Yes. 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 we expect holidays is big for us. So, 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 $100 million, $150 million worth of orders, we’d figure out how to get it done. And more than that, we’ll have to start to add space and equipment, and there’s longer lead times on that on the CapEx. But I think you could see somewhere in the $100 million to $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 SkyFoundry 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. But we need those indicators here before the end of the year. And of course, if we had them, we’d share them with everybody. So —

Austin Bohlig: Okay. No. Perfect, perfect. And then 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?

Allan Evans: Yes, a couple of things. The summer tariff weird uncertainty, I think, caused a little consumer hesitation in the marketplace. We weren’t focusing on it with the same thing. So, we had some shipments early in this quarter that — because we had a little bit of out-of-stock stuff. So, 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. And I think you’ll see it rebound this holiday. So, you get a little shifting across that time barrier, but my expectation is we’ll see us back to normal with consumer in quarter 4 here.

Austin Bohlig: Got you. Got you. And then my last question is just kind of around this $30 million annual run rate for you guys to reach breakeven. On a quarterly basis, is it fair then to assume that it’s around like $7 million, $8 million? Or how should I think about like the quarterly revenues you need to be breakeven?

Allan Evans: Yes. Yes, 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.

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

Joshua Sullivan: Congratulations on the quarter as well as the strategy coming together here. Just actually a follow-up on that last question, on that $8 million. What do — can we get there on the enterprise mix where it is? Or is that assuming the enterprise mix is materially higher?

Allan Evans: Oh, I think it’s going to be on the enterprise mix. So enterprise is going to grow much faster than retail. And as long as it continues to even show up the way we’re there, I feel pretty good about it. Hopefully, that answers the question. If it doesn’t, ask it again, and I’ll try to dig in better about it.

Joshua Sullivan: And then just you talked a bit about the competitive advantage you guys have regardless of how long the shutdown lasts, which is great. But 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 M&A opportunities that might be out there? I mean you talked a bit about the S-1 dynamic. Is this competitive advantage? Does it need to play out? Or is it now when people are coming to you?

Allan Evans: A combination thereof. So we can finance some inventory. So for our customers that want to be aggressive, we’re willing to take a chance with them. And that builds — that gives them an advantage right now and us as a parts vendor, but it also builds relationships. And when you’re a supplier, relationships for 10 years long is you don’t lose spots very often. And so 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. And in doing that, we’re creating very long-term relationships with preferred vendors.

Joshua Sullivan: Got it. And then the other dynamic is speed to market, and we talk about this big opportunity coming up here. Can you frame where you guys are relative to the competition and how you’ve been successful winning these awards?

Allan Evans: Yes, we started earlier. I think we messaged really well, but my understanding, we’re the only ones doing thousands of motors right now. We — anything we do, when we go place orders into our component supply chain, it’s at least — it’s for at least 10,000 units. So, when customers come to us and they want 15,000 of thing, we can deliver. So, we really haven’t seen any of our competitors do that for value components in the U.S. market. And 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 like an LRIP run or something, we have them right away because it doesn’t affect our material flow. And then when they scale up, we’re a trusted vendor.

So, this was — 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. And it’s 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? Well, you call us.

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

Barry Sine: Lots of questions for you. So, 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. So, we’ve seen some of the announced customers that 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: Yes. So, I think there are several different pieces to this. First, there’s — the government issues are customers often programs and long-term contracts. And there are some things being competed like PBAS, purpose-built attributable systems. And there’s — they haven’t awarded the final awards for it yet, but we have parts on, I think, every finalist. So that’s an example of where we have forecasting if they win, but haven’t seen purchase orders yet necessarily. So, when you look — and also the purchase orders we get for anybody are really only for the things they want in the next 3 to 6 months, and we’re setting up inventory for the forecast. So, 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.

But my expectation is that what we’ve put out there is well 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. But I’m very confident in where we’re at going forward, and that’s why we continue to scale. We just — 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.

Barry Sine: And then 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, maybe second. Where do you see holes in your product line? For example, do you need to have a digital — more digital solutions? And along those lines, I had a good conversation with a new hire, Al Ducharme at Rampage, and he’s got a pretty strong background there. So, what might we see product-wise in components with his fingerprints on this?

Allan Evans: Yes. So, product road map, we’ll start to really flush that out in quarter 1. What I would say is, right now, we’re trying to scale for the FPV segment because there’s a ton of demand, and we’re really — 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. So, motors plus motor controllers plus batteries is kind of a sweet spot to go look at delivery drones or aerial photography drones or otherwise. And then 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 Digital Lynx, there are several companies that do that, Mobilicom, Doodle Labs, et cetera.

And so 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. And 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 and we’ll get those parts done as quickly as they need them.

Barry Sine: So my ears perked up when you said the word batteries because I don’t think you have — you make your own batteries today. So that sounds like it might be a potential area of acquisition.

Allan Evans: Yes. 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 to see if we can be part of the solution there.

Barry Sine: And then 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. So, if you have any sense on that. And secondly, the other person I had a good conversation with at Rampage was Nate Kennedy, and he seems to have some ideas on growing that business. And 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 where — what started the company.

Allan Evans: Yes. So, we see our retail channel as a massive sales funnel, as you mentioned, and it’s great. And we realized that as we’re being overwhelmed as a small team with the very rapidly scaling demand for enterprise that we were making some compromises. So, we definitely — we brought in some senior personnel to help be sure that our retail channel is better than ever this holiday and past it. And that’s where — that’s why I think the hiccup is just added to hiccup. And 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. So, I’d like to thank every Rotor Riot customer and Fat Shark customer that — and everybody that went to Rampage. I mean they’re just awesome. And we want to be sure to continue to service that customer base even better than we did before as we grow.

Barry Sine: Okay. And Allan, my last question, you made 3 strategic investments during the quarter, Safe Pro, LightPath, Kopin. And we proved that you’re a great portfolio manager with the nice gain there. But from a strategic standpoint, could you talk about each of those briefly? Why did you make that investment? What do you see in them? And when might we see the benefits of those new partnerships show up on your income statement?

Allan Evans: Yes. So Safe Pro was the first one. It was a smaller one. It was done in collaboration with Ondas, and that was more — that was done because they’re finding land mines and that helps generate value, whether there’s conflict or not. I think, it’s a really great use case. And 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’s a little further removed from our platforms. So, I don’t 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, but we do want to be sure it works. If you look at LightPath, they’re doing non-germanium thermal cameras.

Pretty much everybody — every enterprise customer wants multispectral or thermal cameras. So, Sam’s just crossed a way in Orlando, like literally 20 minutes away and has just so much business that, that investment can put us in a position to do thermal cameras. Camera is a little further down on our road map. So, we’re not there yet, but I think that will start to materialize in collaborative stuff, assuming we execute and we set up our road map probably mid to late 2026 in product offerings would be the goal. And then Kopin does panels, display panels, and we’re building headsets. So I expect our headset assembly to be online here in January, but we’re starting conversations to figure out how to include their panels. And again, that will probably be late 2026.

New products take 18 months generally. So, I wouldn’t expect anything faster than that.

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

John Marc Roy: Allan, I wanted to discuss a little bit about the domestic motor and headset production. Kind of 2 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? And the second thing would be, how do you expect margins might ramp as you really put some more into production costs, et cetera?

Allan Evans: We always set out and said that nothing we did could be more than 20% greater in cost than what came out of China. And that’s how we try to price. And 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 that we’ll keep those slots with those customers through customer service and being local, and also it’s just expensive to change suppliers. So, what I think we’re 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. But what I’m really proud of the whole team, we’ve demonstrated we can get to 39%, 40% margin.

We’re on the way we are, and that’s at lower revenue. So, 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. And that’s 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. And so we’re not scaling problems. We’re scaling solutions. And that has me feeling pretty confident that even though we’ll run into the — probably some yield stuff as we — some other ripples in margin as we scale that we’ll get back to it and probably exceed 40%.

John Marc Roy: Cool. One last question for me, maybe a little bit 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. Just curious as to how you might see the competitive landscape evolving.

Allan Evans: Yes. 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. And so 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. And I think there’s going to be so much demand with all the GDP budgets in Europe increasing that will be there. And then 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. So I think that is in a tie, I think the local option wins. So, I think we just need to play for the tie and we’ll win in North America, and we’re really focused on North America rather than those other geos for that reason. So that’s an assumption we’re making and how we’re going forward.

John Marc Roy: Sounds good. Congrats on the quarter and talk to you soon.

Allan Evans: I really appreciate it. We also have a couple of questions from an analyst that came in via e-mail, 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 UMAC’s growth versus regular waste spend? How is growth appearing between acquisition officers and base combatant commanders? So, I think the major drone awards for the U.S. government shutdown, I really don’t expect them if the shutdown goes on much longer to probably occur until early 2026. Where I do see a lot of the overly allocated stuff of 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, et cetera. Reclassifying drones as munitions helps our growth in that it allows much smaller groups to just buy drones and not have to track them. And so, 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. So, that — those looser spends, I expect to come online much faster when the government comes back and to drive sort of maybe fewer headlines, but a lot of the revenue in the category. And then 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.

And it also feels like they’re still figuring that out, like what is the ratio or who’s in-charge of what. And so, I think in another 6 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 UMAC, 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, and we’re really excited about it. One of the things I think it does is there’s an initiative called SkyFoundry, where the Department of war, and I think the Army in particular, is considering spending several hundred million dollars — $200 million or $300 million, starting to build drones inside the military to understand them better.

And I think really AUSA drives a lot of awareness as us as a vendor for that. And I really think it being so inherent even in our customers wanting to use American source components. I think it points out to everybody that this is an important thing from a redundant supply chain perspective. And so, it’s been a real positive. And there’s — it’s also helped to highlight that we don’t have, like, just at-scale suppliers yet. And so there’s 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.

And so as I alluded to earlier on Barry’s question, I think batteries is something we’re going to have to look at, and that will come into our growth algorithm. There may be some opportunities to move to like cameras, like gimbaled cameras and the ISR stuff if our customers want it. I think that’s a little further out. But 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. And 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. And so we’re able to be really dynamic and not really put ourselves in a situation where it could all come tumbling down.

And I think that’s what I like the most about it. And those are the questions from the e-mail. So, I think that’s all the questions.

Operator: [Operator Instructions] 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: 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. So, thank you. I wouldn’t be here without the team. We had 30 people start Monday. They’re building motors this week. So, 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, do the best. And I just — it’s a great quarter. It’s profitable. We’re growing. Everything is set up for this to scale, and there’s — there are no roadblocks in our way. So, it’s time to go. Thank you.

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