UMAC

Please note this conference is being recorded. I will now turn the conference over to Christine Petraglia, investor relations for 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 are expectations concerning the demand for our products, our ability to manage this demand, the growth of our operations, our business, and our revenues, the growth of the NDAA compliant drone market, Our anticipated growth margins and future costs, our plans to scale manufacturing capacity, including the timing and success of new production lines for motors, batteries, cameras, and headsets, our battery manufacturer acquisition, our ability to achieve cash flow positive operations in the future, and expected 2027 FAA rulemaking. The results expected by some or all of these forward-looking statements may not occur.

Factors that affect our ability to achieve these results, including the risks that enough of our customers receive orders under the Drone Dominance program or other government programs, and in turn place component orders with us, as well as potential funding reductions, program delays, or changes in procurement priorities. Our dependence on a limited number of enterprise customers and the risk of customer concentration, the risks that our inventory buildup will become obsolete or that we cannot sell such inventory at reasonable margins.

Our ability to manage our rapid growth, including integrating new employees and maintaining quality control, risks relating to manufacturing bugs, delays, or failure to achieve anticipated production efficiencies, the availability of satisfactory labor pool to meet our planned growth, potential supply chain disruptions or component shortages.

The impact also from tariffs, including inflation and increased costs of goods sold, the risk that our automated production equipment may not be operational on the anticipated timeline, unanticipated audit issues relating to Upgrade Energy, technical or political risks that may affect FAA rulemaking, and the risk factors contained in our Form 10-K for the year ended December 31st, 2025.

Factors or events that could cause our actual results to differ may emerge from time to time. It's not possible for us to predict all of them. Any forward-looking statement made by us herein speaks only as of the date of which it is made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law.

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 CEO, Allan Evans. Please go ahead, Allan.

Thank you, Christine. Good afternoon, everyone. Thank you so much for joining us today. We really appreciate your time. I apologize if I'm a little bit hoarse. I've been at the trade show AUVSI all week, and I'm talking to a lot of people. Anyway, during this call, I will discuss our Q1 2026 performance. In Q1, we generated approximately $8.1 million in operating revenue.

This is a 296% year-over-year growth from the Q1 of 2025, and a 65% increase from the revenue generated in the Q4 of 2025. In addition, we generated $10.3 million in net profit for the quarter.

What's really key here is even if you remove from that $10.3 million in net profit, the unrealized gains, if we exclude them, we still ended up being profitable. We've also really dramatically increased revenue for the Q1. The Q1 results just start to show the dramatic growth that we're at the early stages of. Every single business indicator that we're seeing is pointing to growth.

We were able to jump from $4.9 million in revenue just a quarter ago to $8.1 million in revenue this quarter. That's without the benefit of Christmas driving high consumer demand. We've increased our headcount from 81 employees to 141 employees across the quarter. We continue to grow the team as we move forward.

We saw the expected drop in margins as we added all these new employees, and the team did a really good job, and we managed to still hit a 32% gross margin, which is a little bit above where we expected to be. All of these trends that we've seen in the Q1 are continuing through now, and we're still scaling as fast as we can to meet the needs of the marketplace.

In the Q1, we were able to really secure our war chest to be sure that we can manage the working capital and finance this growth, which normally requires some cash in front of seeing the revenue returns. We raised $150 million at $17 a share in a confidentially marketed public offering.

We now have about $320 million in total working capital, which puts us in a very strong position. We very recently entered into an agreement to purchase Upgrade Energy, that's a total of just over $50 million in a blend of cash and stock. That's there to accelerate our battery ambitions and bring a new product category to market faster. It's, I think, really important in all of this to remember that we're not seeing this growth by burning cash.

This money remains in our war chest, remains in our bank accounts, and can be used to really foster and turn over the growth rather than just to fund operations. The Q1 was our eighth consecutive quarter with record revenues. Since going public, we've never had a quarter where revenue has gone backward, and we don't expect to have one anytime soon.

This sort of constant success is just not possible without our entire team putting in a lot of really great work. Everyone is working hard, bringing just fantastic energy to all the different challenges we face as we go through this. I'm confident that we can continue to handle this really fast rate of growth because I'm confident in the team and in each person doing the job that they're doing.

I very much have the pleasure with and do wanna say thank you to everyone working at Unusual Machines for continuing to make this possible. I'll now hand this off to our CFO, Brian Hoff, to cover our financial results in detail. Once he finishes, I'll go into more detail on our going forward plans. With that, I'm handing the call off to our CFO, Brian Hoff.

Thank you, Allan, and thank you everyone for joining the call this afternoon. I'm excited to share our Q1 results with you all. As we discussed during our year-end results, we had a lot of momentum entering the year. Our Q1 results reflect that momentum, and we continue to expect to continue that for the remainder of 2026. With that, let's dig in.

Revenue was $8.1 million for the Q1, which Allan noted as approximately 296% growth from Q1 of last year, and 65% quarter-over-quarter growth from Q4 2025. As we left 2025, we felt that momentum and demand coming online, and this quarter is just the start of the demand curve.

Our Q1 revenue mix was approximately 90% enterprise and 10% retail, with a healthy mix of customers and product and little significant concentration. Gross margin for the quarter ended at 32.8% for the quarter, which is as we said, is a slight decrease from the trend over the last few quarters.

However, we anticipated this as we are continuing to scale as fast as possible, which included significantly increasing our manufacturing staff by adding a third shift to our motor line, a second shift to our assembly line, and our total headcount increased from 81 to 141, and we're coming close to crossing over that 200 employee threshold today. This is another indicator of the continual demand increase we're seeing and trying to capture.

While we anticipate margins will have some fluctuation throughout 2026, we are making decisions to grow operations and be in a position to deliver on the demand throughout the year and headed into 2027. We are continuing to see our yield rates on manufacturing lines improve as we become more efficient and trained in this process. Jumping to operating expenses, these also increased during the quarter to $9.9 million for Q1 of 2026.

These expenses were specific decisions to continue to enable our growth. This includes building out our G&A infrastructure, including headcount, systems, and process build-out. We may see some additional growth in the short term in these costs. However, we will gain some efficiencies as we continue to scale revenue, and our operating expenses will grow at a slower rate.

In addition, this includes two additional facilities that commenced during the quarter, which is our headset facility and kinda in our corporate office. Included in the $9.9 million figure also includes cash, non-cash-related expenses of approximately $4 million and other non-recurring expenses of about $1.7 million. I'd reference the tables in the back of our shareholder letter for the additional detail around that. In other income and expense, we had very positive results from our investments.

These investments, which are designed for a strategic purpose, creating goodwill in the U.S. drone industry and also create supplier partnerships and customer relationships, our strategy is working, and we have received orders from some of these investments as well.

The results include a $7.3 million realized gain from investments, which is a nice add-on to our overall cash balance without any additional dilution. We also had additional unrealized gains of approximately $9.5 million and interest income of about $0.8 million. Our balance sheet is strong and shows our continual view of being able to grow into the demand. We have a significant cash balance of approximately $223 million after our public offering in March, which netted about $139 million after expenses.

Our short-term investments are continuing to prove strong from a financial perspective and strategic partnering industry with a balance of over $60 million. Our inventory, including raw materials, finished goods, and deposits paid, are approximately $27.4 million.

You're going to see this to continue to increase in Q2 and Q3 as we make significant purchase to meet the demand and do our part in managing supply chain issues as best as possible. Our total working capital is approximately $320 million, which puts us in a great position to capitalize on the demand moving forward. I'd also like to reiterate what Allan said.

None of this is possible without a fantastic team working extremely hard to make things move, and very quickly. It is an exciting time to be at Unusual Machines and looking forward to the year ahead. Thank you to our shareholders and partners in continuing to support our mission throughout this all. Send it back to you, Allan.

Thanks, Brian. What can I say about the year so far? A lot has changed in the seven weeks since we discussed last year's results on a previous earnings call. We keep scaling both sales and company size. We raised $150 million at $17 a share, then subsequently placed $75 million in raw material orders and signed a definitive agreement to buy Upgrade Energy to really jumpstart our entire battery position.

We continue to be extremely well-positioned as a supply chain leader for components for small drones in the U.S. We have the capital to execute and have been growing while maintaining profitability. I'm gonna go into more detail now, but want everyone on the call to note that my following comments are forward-looking and in no way guaranteed. From our perspective, demand remains on track.

The current marketplace remains severely supply constrained, and we still see demand outstripping supply this year and deep into 2027. We're continuing to build the company and procure raw material to grow into this demand as fast as we possibly can, and we don't anticipate slowing down any time in 2026. The primary driver of this growth, it continues to be the Department of War. For example, the Drone Dominance Gauntlet program is one purchasing group, and that remains on track.

They announced the timing for phase II, as well as reiterated the commitment to buying 60,000 more drones in the second half of 2026. They even were smart enough to put it before the end of the government fiscal year so that everything will be done, and isn't subject to delays that could be caused by continuing resolution.

When you look out a little further at future demand, the proposed budget for the Department of War, it has a 50% increase. They're talking about $1.5 trillion. I think even more interesting is the dramatic increase in the proposed budget for the Defense Autonomous Warfare Group, DAWG, moving it to a little over $50 billion, which is really the drone-focused government procurement budget.

Department of War, as an end customer, has really strong sourcing requirements with a preference for U.S. supply chains and is really the initial force behind driving this demand, relentless demand cycle. In addition to these drone programs, you're seeing counter-drone programs that are really starting to materialize, and that's becoming an emergent addressable market segment.

I think a very good example of what we're seeing there is real orders and partnerships with our first order coming, Powerus, who's one of the companies we invested in. That's really pushing an even additional category to create this demand. Given this overwhelming demand environment, we're trying to scale as fast as we possibly can to provide our customers with the parts they need to sell into the Defense Department or the Department of War.

To facilitate this, in April, we placed over $75 million worth of raw materials in order to build out motors and other products. We scaled from 81 employees at the end of 2025 to about 200 employees today.

We're definitely adding team members, and we're continuing to add shifts and facilities to deliver the just the raw material or the subsystems that our customers need. In addition, and I think very interestingly, we recently announced the merger agreement with Upgrade Energy for the total purchase price of $52 million. The purchase is almost a 50/50 blend of stock and cash, with half of the purchase price up front and the rest being earned out.

Upgrade Energy did just over $6 million worth of revenue. This is unaudited, so, you know, it, as we go through the audit, it may change, in 2025, and that was in their old facility in El Segundo, California. They very recently moved into a new 18,000 sq ft facility, much larger, in Torrance, California, and I think we're really gonna see that ramp quite quickly.

I'm personally very excited to work with Matt Barnard, the owner of Upgrade Energy and CEO, as he joins the team, and really their entire team. They built a really strong brand in the battery business. They have some patented, protected technology that works in production at scale. Our ability to work right away with them and to do it at scale is gonna let us drive, I think, very quick growth in the battery category.

I own now the entire powertrain, from the battery to the motor controllers through to the motors, to build that whole lift platform. What I think people might not yet realize is that the purchase and the choice to go do batteries, it's not necessarily a right now choice.

It's a strategic choice for what we see as the emerging markets that come next, even more than it is just another SKU in our offerings. We expect the FAA to enable the legislative framework that people are calling Part 108. It should really open up new activities like drone delivery in mid to late 2027. Defense or attritable drones or one-way drones, whatever you wanna call them, they typically only have one-to-two batteries per drone.

On the other hand, delivery drones, because they'll go up and down and up and down and up and down, and they'll need to change batteries every time as the batteries recharge, are expected to have about 10 batteries per drone.

This purchase and our subsequently planned build-out in Florida for batteries is gonna let us get ahead of the supply chain in this problem to really be in a place to do what is a very large battery-to-drone ratio TAM for what we see as the FAA-enabled market segment that we expect to materialize in 12 to 18 months.

Not only is it revenue right now with a team we like and people with the same attitude, but it also positions us, I think, to capture a large chunk of the value in the emerging market that the FAA is gonna open up. Just a quick summary. Q1 of 2026 is everything working well, kind of working the way we planned it. We're rapidly scaling. Our revenues grew above $8 million.

We were able to report a profit, so we're not losing money in doing this. While our operations are not yet independently profitable, you know, we had about a $1.5 million-$1.6 million loss just from operations in terms of cash if you subtract out equity comp. Our business as a whole is profitable. We were able to raise more money, quickly put that money to work into our supply chain and really drive what we see as a transformative acquisition with the Upgrade Energy merger.

Unusual Machines remains at the forefront of the domestic components market, and the market is continuing to really see this extreme growth. We're well-capitalized. We're extremely healthy. We have the infrastructure to continue to scale, and we're just gonna continue to grow as fast as we possibly can.

You know, I am just completely overwhelmingly confident that our team can meet the demand that exists right now. I want to say thank you again to our entire staff and all of our shareholders and all of our customers. With that, I'd like to open up the call to questions.

Thank you very much. We'll now be conducting our question and answer session. If you would like to ask a question, please press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Thank you. Our first question is coming from Craig Irwin of ROTH Capital Partners. Craig, your line is live.

Good evening, and thank you for taking my question. Allan, at AUVSI, it was really obvious, talking to many of your customers, many of the other drone producers there's no shortage on demand. There is an intense demand in the market, and people want credible supply. Your customers are lining up to be as credible as possible to the end agencies, particularly the military.

You, you highlighted delivery as, as a market, and they are also talking about that. The biggest constraining factor right now is from what many of them represent capacity. You know, you've gone from 81 employees to over 200 today. You added a third shift to motors. You added a second shift to assembly.

Can you maybe unpack for us, how much of your time is going into capacity planning? The, you know, the $75 million pre-purchase on raw materials is obviously, you know, a big commitment to that capacity or that execution capacity. But, you know, actual, you know, employees, infrastructure, you know, seats and workstations, new products. You know, you've got camera products and battery products and all sorts of, you know, new things coming in. How important is managing this to you right now?

Craig, I appreciate the question. I think when you look at a hardware company and the inventory flow, managing the capacity and being sure that you get utilization but also don't create backlog in this growth period is my most important job. Capacity really breaks down into three different things that we need for it. The longest lead time thing is the raw material. It's also the most expensive.

When we place raw material orders like we just did, you know, you're looking at first deliveries are at least four months out. You're probably not material complete, which is when you have all the material to make a thing for maybe six months, and then you can start to convert that raw material into finished sub-assemblies.

What we're seeing is because we're becoming a more and more globally significant buyer from these non-Chinese supply chains, is that while we do get a little bit of scaling function, we also get, "Oh, oh goodness, we have to go help our suppliers scale to meet our demand." You know, they also have to scale up. When you see what we're doing for capacity management, step 1, get material in the door so we can transform it.

Step two is, you know, get facilities. If you look, we're regularly adding a new building here or a new, adding on to a building there. We're going through that, and we're very active in that process in what is our Orlando campus. Once you get the building in place, then you have a place to put the equipment and the people.

We see that process typically shows up, three or four months in front of being able to start to produce things. Raw material, let's call it six months, facilities and the capital equipment, maybe three to four months, and then the people really come in one or two beforehand and drive it. You're watching us stage this for material, facilities, people. You know, every time we've guessed and done something we thought was ambitious from a capacity perspective, we realized we weren't ambitious enough.

I think we continue to see that, and we have, you know, really great person running HR in Trish and a great HR team helping drive hiring and really great workforce management folks. Jay, our VP of supply chain, is doing a really good job with our buyers managing the incoming material.

Luckily, I don't have to do the job by myself. I think when you look at strategically in our business that capacity management, and more importantly, the inventory flow management and sort of that transformation is singularly the strategic focus of where we as a leadership team need to pay attention.

That makes complete sense. My second question is around the gross margins. When we were talking in the Q4, you know, you are obviously careful and cautious around gross margins. You, you know, bringing your motor manufacturing up and the other, you know, significant aggressive hiring to meet demand, you were cautious but optimistic. You know, this quarter your execution was strong, was better than what we were looking for.

That's with, you know, some substantial headcount additions. You know, your margins, you know, is it fair for us to see similar margin execution over the next couple quarters, given that you have a couple quarters here under your belt, where, you know, you're obviously managing the efficiency and the productivity of new employees?

You know, I can imagine that, people will become, you know, more productive, you know, given, you know, months and years of experience. You know, the gross margin trajectory I think is somewhat important, less important than revenue, but somewhat important, to, you know, the future profitability where, you know, many of us are looking several years out.

Yeah, no, you know, the team did a really good job of training and getting people on board, and I think being more efficient and sort of aspiring to be really good as a production engine. I think margins for the Q1 exceeded our internal expectations. I think where we're at, given where we performed is it's below the margins we'd like to see when it's a little more stable. You know, I think in this low 30% range, it seems like it's what we're doing. You know. The team's done a really good job on onboarding.

If we can even hold here, and we can hold our material margins where we sort of like them so that we know that we have the room to hit our gross margin targets in the long run, I would feel really good about it. You know, there may be some movement around it up and down a little bit because it's not as important to us as being sure our customers get really high quality products that meet their demand.

If we got in a batch of stuff that didn't meet our quality standards and we had a scrap rate or something that had a little bit of a negative impact on margins, we'd be okay with that to prioritize customer success.

This feels, to me at least right now, sort of a really good spot and where I think we will strive to maintain as we continue through this growth cycle. I think if I was looking at it, you know, we did it through what I think is one of the harder transformations, which is crossing that 100 employee line, and we now have a lot of processes and training and things that are being built out that I think allow us to carry the success forward.

Okay. The last question, if I may. Many people know my approach is kind of to get around a little bit. When I met with the people from the FAA, I was teasing them. I was sitting around saying, "Guys, what's taking you so long? Manna Air Delivery in Ireland has already done 1 million deliveries. This is America. We're the technology leaders.

You're holding us back. What's going on." They were obviously pretty defensive, and they didn't really get the joke. When we had the conversation, the more extended conversation, they helped me understand that there's these outside influences that they would like to get their job done.

They really want to get Part 108, moving from, you know, waivers to permits, as far as the drone pilots and give people a clear line of sight. There's issues with the FCC and others trying to put their finger in the pie. You know, what do you think key issues are that you could outline for us for Part 108 over the course of the next year? I know you also had conversations with key people this week. You know, is there any update that you think or any framing that you think would be useful here for investors to understand?

Sure. First, I think the FAA is doing a great job and has a very hard problem because manned aviation is extremely safe. You know, they got the airspace with all of us flying on the carriers, and they have to maintain that and also got to be sure drones don't fall out of the sky. They have this challenging problem to create a technology infrastructure that sort of still maintains this thing that they've done an amazing job with. I have a lot of appreciation for the difficulty of their problem. I think there are a couple of things that need to be really finalized for Part 108. The big one is what is called detect and avoid.

When you allow drones to fly with one pilot controlling 20 drones or whatever, the skies start to have more things in them, what are the rules around how a drone, even without an operator, needs to see another drone, needs to see an airplane? What are the rules around how they dodge in the sky so that the onboard AIs prevent collisions? I think that's really one of the things where is it radio frequency? Is it cameras? Is it, you know, what.

There's some, how good does it have to be? How is it tested? How do you qualify your drone so that it can fly? Because I don't think we should just let an unqualified drone, you know, fly across Manhattan, right? That's a high risk.

They have to juggle a framework for innovation with sort of the regulatory and testing requirements necessary to be sure that those innovations are deployed in a way that's safe. I think they're really thinking about it. They're really smart. They have to collaborate with the FCC because of what if it's spectrum, just like, you know, self-driving cars, there's discussions around it too.

They're on track, and I actually think they're doing a pretty good job, and I think they're dealing with the right problems. You know, that's my take on it, is everything looks like it's coming together in a very effective way, and I think we'll see it in a year.

Because we're down to the really that as the problem, detect and avoid, and a lot of the rest of it's been sort of addressed and agreed upon as a framework.

Great. Well, I like that. Congrats on a really strong quarter there.

Thanks, Craig.

Thank you very much. Our next question is coming from Josh Sullivan of JonesTrading. Josh, your line is live.

Hey, good evening. Allan, did you say revenue should grow sequentially each quarter this year? Any reason that thought process wouldn't carry then into 2027 as now that you have the strategic inventory and order flow at hand?

I mean, we've never gone backward. I don't see any reason why we would, right? Like, the market's growing. With the way that I see demand, I think if we don't see consistent growth, I mean, from quarter-to-quarter, this last quarter, I mean, this is, you know, full speed growth. It doesn't mean we won't see hiccups or things that might change the growth rate. Really, I think it's a pretty big fumble on our end if we don't manage to achieve that.

With the Upgrade Energy acquisition and, you know, the positioning you're talking about around a drone powertrain platform, you know, as the commercial drone delivery market materializes, you know, next year or thereabouts, what do you think that battery-to-drone ratio looks like? What kind of business models could we see UMAC building around?

This is very much my personal opinion that I'll share with you, but I think the first delivery applications I really think are going to show up are food delivery. I think it's going to be DoorDash, Uber Eats, Grubhub. If you look, that matches very much the same performance stuff as the Drone Dominance program, right? five pounds, 10 km, that sounds like a hamburger to me.

I see a lot of appeal to that because it's something that people want urgently. You can deliver by drone in a lot of cases less expensively than by a vehicle. I think people will pick it up because you don't have to tip the robot, and I think we do have some social tipping fatigue.

Assuming that's true, you're probably looking at 10 batteries per drone for active running, give or take, depending on the design. I mean, you know, we could argue over it all day, but that's a good approximation. If that's true, batteries only have about 500 cycles, so you're probably looking at 10 batteries per drone per year as the attachment rate. It actually becomes more of an ARR function on the hardware in that delivery cycle rather than the one-time sale.

I think that'll lead to some interesting business models and some interesting ability to say, "Okay, here's our recurring power base." Also importantly, I think that the batteries and the motors and the whole powertrain are going to be part of the certification process because if you have a power failure, you're going to need to understand how to detect it and have it land safely. In order to get certified to fly over people, there's going to be a lot more requirements than there are for combat drones that are designed to go crash and don't have the same sensitivities for mitigating accidents.

I think we're going to see a lot of the energy and the scale being put in the Gauntlet program, particularly for the larger vehicles, are going to lead to some really great airframes and some cost structures. You know, think $5,000 a drone that are going to be able to deliver hamburgers or, you know, pick whatever your favorite food is.

For me, it's always burritos. Anyway, are going to be able to do those deliveries, and then I think you're going to see a battery ecosystem where the powertrain is going to have to be certified. We're setting up to position You know, if you walk through our factory, for instance, we don't do it right now.

We do date codes on tracking our motors, but we have the ability to actually do full electrical characterization and individual serialization of every single motor if that's what the FAA requires, or track the amount of time the motor runs for swap out. Same with batteries, same with energy levels, and sort of all these things that you'd see in maybe a type certification process for a different kind of aircraft.

Got it. Thank you. I'll leave it at those.

No problem.

Thank you very much.

Thanks, Josh.

Our next question is coming from Austin Bohlig of Needham & Company. Austin, your line is live.

Thanks, guys, for taking my question, and congrats on the great results. Allan, I was just curious with this battery acquisition, could you talk about how this changes, whether from like a revenue or kind of margin upside opportunity when it comes to the total content you guys are selling into Drone Dominance per drone?

For Drone Dominance, we were distributing their batteries. I don't think it really changes the total, like our partnership there has made us feel really good about this acquisition. It does mean that we'll get margin expansion. You know, I think on the batteries now, you'll see us move to that 40% gross margin, somewhere in there.

'Cause again, we're not, we try to target that to be a fair and equitable supplier and not break downstream economics for everybody. For Drone Dominance, I think we'll see that element of expansion. I also think, you know, they were in a similar place where we are, where there's this overwhelming demand.

Now we're able to go work with Matt and with some of the battery cell suppliers and start to drive more battery volume because we have the credit terms and the cash balance to break or do a lot more of the forward-looking inventory purchases there as well to enable really fast battery capacity growth, where it would've been more constrained had we not decided to try to put these two companies together.

Okay. How should we think about as you guys ramp throughout the end of the year, what operating expenditures should look like? I think you highlighted in the press release that the break-even point might now be a little bit higher. Just maybe trying to frame up how we should be thinking about that.

Yeah. I think it's really gonna come down to how much and how much faster we scale. I think the break-even point moves higher because we have more space, more people doing more stuff than we originally expected. I think with where we look, you know, at the end of Q1, we're starting to get to maybe a more normalized blend across our employee base of employee types.

I think you can look at operating expenses as probably being a headcount ratio to total expense that we saw in Q1, you know, if I'm estimating. What I think you're gonna see is the revenue generated per employee start to scale to push us past burning money. Maybe that's not the best answer on the planet for you, Austin, so I'm sorry if it's not.

I think we're moving to where our cost per person is pretty starting to stabilize. I think by the end of Q2, Q3, it'll really stabilize, and that we'll then see our ability to generate revenue per employee start to really expand as efficiencies increase.

Okay. All right. Well, thank you guys for taking the questions. Best of luck the rest of the year.

Thank you. Really appreciate it, Austin.

Thank you very much. Well, we appear to have reached the end of our question and answer session, and I will now hand back over to Allan for any closing remarks.

No, again, everybody for listening, really appreciate it. Really appreciate all the support. I think without the investor community, without our customers, without, you know, people who are interested in believing us, we're not in a position to help onshore production and create these jobs and really be part of the transformation of the American drone ecosystem.

I do want to say thank you. If people have questions or are interested, always reach out. You know, we try to be as transparent as possible and appreciate your continued interest and support.

Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful rest of the day. We thank you for your participation.

Greetings, welcome to Unusual Machines Q4 and FY 2025 financial results conference call and webcast. At this time, all participants are on 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 your host, Christine Petraglia, Investor Relations for Unusual Machines. Ma'am, the floor is yours.

Thank you, operator. Good morning, 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 our expectations concerning the growth of our operations, our business and our revenues, the growth of the NDAA compliant drone market, our anticipated growth margins, our plans to scale manufacturing capacity, including the timing and success of new production lines for motors, batteries, cameras and headsets, our ability to achieve cash flow positive operations in the future, our workforce expansion plans and future acquisitions we may make. The results expected by some or all of these forward-looking statements may not occur.

Factors that affect our ability to achieve these results include the risks that enough of our customers receive orders under the Drone Dominance program or other government programs, and in turn, place component orders with us, as well as potential funding reductions, program delays, or changes in procurement priorities. Our dependence on a limited number of enterprise customers and the risk of customer concentration, the risks that our inventory build-up will become obsolete or that we cannot sell such inventory at reasonable margins. Our ability to manage our rapid growth, including integrating new employees and maintaining quality control. Risks relating to manufacturing bugs, delays, or failure to achieve anticipated production efficiencies. The availability of satisfactory labor pool to meet our planned growth potential, supply chain disruptions or component shortages. The impact from tariffs, including inflation and increased costs of goods sold.

The risk that our automated production equipment may not be operational on the anticipated timeline. Any risk that our auditors may require us to make changes to our financial statements and the risk factors contained in our Form 10-Q filed with the SEC on 6 November 2025. Prospective supplements filed with the SEC on 2 September 2025, 15 July 2025, and 6 May 2025. In our Form 10-K for the year ended December 31, 2025, which we anticipate filing in the coming days. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Any forward-looking statement made by us herein speaks only as of the date on which it is made.

We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. As a reminder, this call is being recorded and a replay will be available on Unusual Machines website at www.unusualmachines.com. Let me hand the call over to our CEO, Allan Evans. Please go ahead, Allan.

Thank you, Christine. Good morning, everyone, and thank you very much for joining us this Monday. During this call, I will discuss our 2025 annual performance and also emphasize results specific to the Q4. In the year 2025, we generated approximately $11.2 million in revenue. This is 101% year-over-year growth from 2024. Over the course of the year, we raised $157.8 million through equity financings and closed out the year with $103.3 million as part of our $157.4 million in total working capital. This is a massive balance sheet increase from the $3.7 million we had in cash at the start of 2025.

The 2025 results, taken in aggregate, don't clearly portray the dramatic changes that occurred throughout the year. The year was a turning point for our business as we underwent the transformation from an online retail store to become a drone components producer and enterprise sales business. This can clearly be seen in the quarterly percentage of our revenue that was attributed to our enterprise segment. It was 31% in quarter 1, 48% in quarter 2, 57% in quarter 3, and 81% in quarter 4. Hardware companies like ours that rapidly scale operations and often see revenues that we often see these revenues follow operation scaling by a quarter or so. Our growth shift started in the Q3 when we went from 19 employees to 38 employees across the quarter.

At the same time, we also began to expand our footprint from the 6,900 sq ft to the 62,500 sq ft that we had at the end of 2025. The Q4 results, the financial results, are representative of the start of this growth process because the growth process started in the 3rd quarter, and I would like to cover them in more detail. The Q4 was our 7th consecutive quarter with record revenues, and it is not even close. We generated approximately $4.9 million in the Q4, which represents quarterly sequential growth of 133%. While growing, we were also able to sustain gross margins of approximately 36%, which did exceed our internal expectations for the quarter.

We continued to scale operations in the quarter, growing from 38 employees to 81 employees at the end of 2025, we started production of our motors in some scale at our motor factory in November. We expect this operational growth from quarter four to be evident in the 10-Q we file at the end of the first quarter of 2026. Even now, we are continuing to scale as quickly as we can to meet demand and are already over 140 total employees. Our IPO was only 2 years ago, we went public with the plan to transform into a leader for onshoring the production of drone components. In a relatively short period of time, we have managed to undergo that transformation, we are absolutely in the early phases of rapid growth.

This success would not be possible without the work our entire team puts in. As we continue to grow, we now have a few older and many newer employees. Everyone is working hard and bringing just incredible energy and ideas to all of the challenges we face. I am confident that we can handle the growth because I am confident in everyone I work with. I want to say thank you to everyone working at Unusual Machines. I will now hand this off to our CFO, Brian Hoff, to cover our financial results in detail. Once he finishes, I will go into much more detail on what this looks like going forward. With that, I am handing the call to our CFO, Brian Hoff.

Thank you, Allan. Thank you to everyone for joining our call this morning. I know you've heard it from Allan, it's the absolute truth. 2025 was a transformational year for Unusual Machines. We started the year with the goal of bringing drone component manufacturing to the United States. By the end of the year, not only have we accomplished this, we did this with such dramatic pace and scale that's required for the industry. This is starting to show in our financial results, as we will discuss. A quick note. As we mentioned in our shareholder letter issued this morning, the numbers in our presentation are unaudited and subject to change. We expect our audits to be completed in the next few days.

Revenue was $4.9 million for the Q4, which is approximately 133% growth quarter-over-quarter. FY-end 2025 revenue was $11.2 million, which was a 101% year-over-year increase. This is the start of us realizing that operational scale and transformation that's driven by the shift from the entire enterprise from retail to enterprise customers, as Alan highlighted. Again, it's based on our enterprise mix starting around 30% in Q1 to over 80% in Q4, really driven by our manufacturing coming online. Again, just the start. Gross margin has increased from 24% in the first quarter to 36% in the Q4 and 35% for the full FY 2025. Our margins continually improve as our mix has also shifted from retail to enterprise.

That being said, we do expect to see some margin fluctuation and decline in the future quarters based on certain product mixes as we continue to scale up manufacturing, invest in growth, add team members, and making our processes more efficient. Once our automated motor line is installed in the H2 of this year, we expect to see operating efficiencies and the ability to increase our delivery of drone components to customers. Our operating expenses increased from $18.5 million for 2024 to $29 million for 2025. All of which are choices to enable us for this growth, and more importantly, for even more growth in the future. This increase is in line with our expectations. You know, the largest increase in there is non-cash stock compensation expense, which was $15.6 million during 2025.

We also increased our headcount from 15 at the beginning of the year to 81 by the end of the year, expanded our systems, increased our investor relations outreach, and again, many other investments for enabling us for the future. We added additional facilities, which includes our motor factory, fulfillment center, headset factory. I'd also just like to reference you guys to our GAAP Q4 net loss to our net non-GAAP operating loss in table two of our shareholder letter to provide more detail. In regards to other income and expense, we had an interest income of $0.8 million in combined realized and unrealized gains. Or sorry, for the year was $1.8 million in combined realized and unrealized gains for short-term investments of approximately $4.1 million during 2025. Shifting to our balance sheet.

Our balance sheet is strong and is a reflection of our continued investment in growth and the momentum that we have heading into 2026. Our primary three items that we look at is cash, inventory, and our investment portfolio. We ended the year with $103 million in cash, and that included three different capital raises that netted approximately $157 million in cash. Our inventory, including prepaid inventory, is over $15 million at the end of the year, and we're continuing to make purchases to be in a position to help provide needs in the drone supply chain.

As part of our strategic plan to develop strong and strategic partnerships within the industry, we made strategic investments in drone companies that expect will drive additional liquidity. These three assets combined with no debt is setting us up for additional success, growth, and scale for 2026. As Allan said, thank you to the entire UMAC team. Everybody's working very hard. Strong growth as we couldn't do without them. We look forward to making this a great place to work. Thank you to all of our shareholders and partners. Allan?

Thanks, Brian. 2026 is going to be a year of rapid growth for the US drone ecosystem. Excuse me. We believe we are extremely well-positioned as one of the supply chain leaders for components for small drones. As Brian said, we have the capital to execute and the responsibility to demonstrate to our customers and shareholders that we can manage rapid growth. I'm about to go into more detail. Want everyone to note that my following comments are forward-looking and they are in no way guaranteed. Let's start by talking about demand. In general, right now, we view the current drone marketplace as being supply constrained. We see demand outstripping supply this year and deep into 2027. This perception, this idea is the assumption that allows us to procure material, build capacity, and otherwise invest in growth more aggressively than we traditionally would.

For example, if we order extra material now, we see the constant increase in demand over the next 24 months as consuming any excess that we have and making it reasonably safe from a business perspective to be so aggressive that we could even overbuild in the short term. This supply and demand imbalance, and it's dramatic, is created by two factors. First, legislative and regulatory actions have removed foreign competition from the market and domestic capacity is nascent. Second, the recent success of drones in international conflicts like Ukraine has resulted in the Department of War driving demand for drones and a domestic supply chain capable of supporting the expected burst drone demand required in a potential wartime scenario. The legislation has walled off the garden, and the Department of War is providing the influx of capital to quickly mature domestic solutions.

There are several legislative actions that all layer in to enable domestic producers to succeed in the US market while making it more difficult for competitors that are overseas to sell into the market. This has been true for the drone companies themselves for a few years with legislation like the American Security Drone Act, this has recently extended to components providers with legislation in 2025. There were some smaller examples of government action that highlight how quickly this market wall has erected. In early 2025, T-Motor, a major Chinese supplier, was added to the Entity List and banned from selling in the US Across 2025, there were tariffs on imported goods that increased the relative cost of our foreign competitors' products relatively to our domestically produced goods.

The most substantial government action was the FCC ban on new licenses for all foreign-made drones and drone parts that went into effect in late December 2025. The impact of this legislation on our business cannot be overstated. The US drone market for small drones is about $10 billion in revenue annually. That represents about somewhere between a $3-5 billion total addressable market for parts if the drone market stays flat, and it will all have to be made in the United States going forward or get a waiver from the FCC. This FCC action was unexpected, and it creates a huge marketplace vacuum in both the consumer and enterprise segments to go along with the demand we're seeing from the military segment of the industry.

To repeat, we believe the FCC actions have created at least a $3 billion non-defense components marketplace that will require domestic solutions within the next three-five years and massively expand the total addressable market we can go after. The second government push that is driving demand, still on that demand side, is the injection from the Department of War. The DoD has recently initiated several programs to buy different types of small drones, including short-range reconnaissance, which is SRR, purpose-built attributable system, PBAS, and most recently and most publicly, the Drone Dominance Program. The Drone Dominance Program is a very public example of how the Department of War is trying to drive scaling of the drone companies and the supply chain. They have communicated the entire procurement process publicly on their website.

They plan on buying 90,000 low-cost drones in 2026 and 250,000 drones in 2027. This program alone represents about a $90 million component opportunity for us this year in 2026 and roughly a $250 million component opportunity in 2027. While the environment is set and demand is there, it really doesn't matter unless we, Unusual Machines, are able to see and sell into that demand. As of right now, we have about $12 million in outstanding purchase orders that we are working to fulfill. About $9 million of those purchase orders are for programs that are not Drone Dominance. The first set of 11 winners for Drone Dominance were just announced on Friday, so I expect our sales team is probably reaching out, and we would see additional orders from them hopefully soon.

For the record, more than half of the announced winners of Drone Dominance are already customers of ours in some form or fashion. This early demand for our parts from the marketplace gives us a high level of confidence that we can capture a significant percentage of the total demand and total demand growth as long as we deliver quality parts on time for our customers. Given this overwhelming environment of demand, we have started to scale as fast as possible to provide as many products as we can. In very late December, you see some of that on our balance sheet, and in early January, we placed over $15 million worth of raw materials so that we could receive elements from our supply chain to build motors and other products.

We have scaled from 81 employees at the end of 2025 to over 140 employees today. We have started a second and third shift at our motor factory. We're currently producing about 15,000 motors a month, while that number is regularly increasing as we generate efficiencies. We've also started a second shift at our flexible production facility, where we kit and do other things to help our customers more effectively manufacture their drones. In addition to scaling our current products, we are working on introducing new products to capture more of the total component market. Some people might call that wallet share. In January, we produced our first US-made Fat Shark headsets. We are very quickly scaling to be able to manufacture 100 headsets per shift per day. We expect to hit that run rate sometime in April.

We are working on setting up battery pack production, which we expect to be online in the H2 of 2026, as well as install a very high volume automated motor production line in the H2 of 2026 that should get us to well over 100,000 motors a month. Finally, we anticipate manufacturing cameras in the United States by the end of 2026. Our explicit goal is to scale production so that we could meet the entire demand for every part that we sell from every company that would get orders in the second phase of Drone Dominance. We expect that to occur in September of 2026. We want to be ready.

That second tranche requires drone companies to use domestic supply chains, or at least NDAA-compliant supply chains, represents a major opportunity for our parts to get designed into their products. This is not mandatory for delivery of drones in this first phase, it is for the second. We want to be available to all those great companies to be a supplier and deliver on time, even if every single one of them requires parts from us. We have enough money to do all of this. We finished 2025 with about $157 million in net working capital and over $100 million in cash. Our growth is not resource constrained, we are doing a very good job of actively generating revenue as we scale.

Our financial position is strong enough that we can consider potential acquisitions if the right opportunity presents itself without having to compromise our growth plans. We do view acquisitions as a meaningful way to go faster, and we would use the template that we used when we acquired Rotor Lab. We see the acquisition plus the build-out in conjunction accelerated our motor production by 6-12 months and has allowed us to scale faster. To summarize, 2025 tells the tale of our transformation. The Q4 demonstrates tangible outcomes from scaling we started in the Q3. We are well capitalized, continuing to grow, and we believe that there is overwhelming demand for components that we make for the next two years. Unusual Machines is at the forefront of the domestic components market, and the market is undergoing rapid growth.

Our business is capitalized and extremely healthy. We are continuing to grow as fast as we possibly can, and I believe we will capture a significant portion of this rapidly expanding market. I am so confident that our team can meet this demand. I want to say thank you again to our entire staff and all of our shareholders and our great customers. With that, I would like to open up the call to questions.

Thank you. Ladies and gentlemen, at this time, we will be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. Thank you. Our first question is coming from Austin Bohlig with Needham & Company. Your line is live.

Hey, guys. Thanks for taking the question and congrats on the solid quarter. First question was just around kind of like the backlog numbers. I think you guys said it's around $12 million. Is that the right way to think about total backlog?

My whole team is cringey, Austin. Thank you for the question because I don't like the word backlog. It implies we're not delivering on time. That is the outstanding volume that we're working toward delivering to, and we're still hitting delivery schedules. $12 million is what we have purchase orders for right now, and then we have forecasts further out from customers.

Gotcha. Gotcha. Then, congrats on the high exposure to Drone Dominance Tranche One. Could you maybe just, like, walk through with, like, these six-five customers, like how much content per drone you guys are working with? Like, are they buying the whole portfolio of content? Is it primarily motors? Would just love to get a sense of kind of how you're exposed for this first tranche.

Yeah. Very few customers across all of the entrants have placed full Drone Dominance orders yet. That's being discussed this week now that they've found out that they've won. Our blend could be anywhere from one part for a customer all the way through a large chunk of them. You know, even actively over the weekend, we were getting some of these customers asking about other parts we offer. I don't know what the mix is. I trust Stacy and the whole revenue side of the house. We'll do whatever we can to serve as much of their needs as possible.

Yeah. Then just kind of last question, a sense of kind of like how we should thinking about the ramp throughout the year. Would we be, like, modeling sequential revenue growth throughout 2026?

We're still scaling as quickly as we can. What I would say is, there could be hiccups. Like, you know, supply chains could be tough. For instance, there's currently a challenge getting barometers. As demand for Drone Dominance, I think, sucks up a lot of parts, we have to get further in front of it. I would expect sequential growth over the course of the year with maybe some supply chain acquisition challenges if demand continues to outstrip supply. You know, the goal is sequential growth. Our procurement team's in front of it, but you gotta be material complete to make a part. If you're waiting on one component, there could be a delay that could cause revenues to slide one way or another.

Okay. Well, guys, thank you for taking my question, and congrats on the good results. Best of luck this year.

Thanks, Austin.

Thank you. Our next question is coming from Matthew Galinko with Maxim Group. Your line is live.

Hey, thanks for taking my questions, and congrats on the strong year. Touch on the investment needed for the automated motor production line and do you expect it to be kind of tuned and yielding at its expectation this year, or is that kind of a 2027 event?

The CapEx has already been made. That is already accounted for on our books. It's really, you know, we're targeting having it in-house right now, July. It's a little bit uncertain. At the same time, the cost that you'll see is the material components. If you're gonna run 100,000 motors a month, you gotta procure the material for that six months ahead of time. You'll see inventories match the requirement for that probably two-three months out, and then it'll turn on slowly. We really expect to see it running, you know, at reasonable scale by quarter 4. With, you know, if we're faster, if we get it done in quarter 3, that'd be great. You'll see the cost, the added cost for it will be us scaling inventory.

Since we're already moving toward 20,000-30,000 motors a month, you'll just see that carried as inventories and prepaid inventories probably at the end of Q2.

Got it. Okay, thanks. You mentioned outperforming your internal expectations for gross margin in the quarter. Can you maybe give us some thoughts on how that trends as you make the additional investments and expand into, you know, I think you mentioned battery pack production sometime this year. Where does gross margin trend?

Sure. I'll explain why, just so everybody can be aware on how gross margins work. You scale operations, all right? You don't really start to see revenue till a quarter delayed. You don't really see the gross margin impact till even a quarter after that. In a lot of ways, gross margin, because the people doing the work are in gross margin, but it doesn't show up in the financials till the product is shipped. For instance, you know, as we had people and we're building motors in November, we shipped many fewer motors that we made in November versus that we would in January. When you start new processes and new people, you know, they're not as efficient as they become with training and expertise and new processes.

I would expect whenever we turn something on, like the motor factory, the biggest impact to gross margins would be a quarter delayed. You'd expect those in Q1 and then recovery from that as efficiencies and processes and scale come in. We thought we'd see more from really the rapid scaling, more of a dip, but the employees that came on were more productive and crushed it and learned, and our team did a good job of keeping the dip lower. I would still expect our worst gross margins as we go through this to be somewhere in the Q1, Q2 timeframe, as we've just brought on so many new people and created so many new processes that the natural impact to COGS will be in those quarters.

Very helpful. Final question for me. Maybe if you could touch on what the competitive environment and components looks like today. You know, you've kind of been going at this for, you know, a few quarters now, and I'm curious if anybody is, kind of following a similar playbook or, you know, starting to catch up in components. Thanks.

There's several other small companies that are private that are out there doing different types of parts. In addition, some of our customers choose to do their own parts. I would say for electronics, PCBs, there's a really great supply chain in the US I'd say for everything else, there's nobody that is doing higher volumes than us. Again, because we think that this is a supply-constrained market, it's just us growing as fast as we can without worrying about competitors because there's this much larger demand where we just collectively can't fulfill it all. Right now this is a everybody can go as fast as they can to secure market share question. We think there are a lot of other companies out there trying to do and enter some of these segments in the US I do think that if you looked at who some of our competitors were last year, you know, you'd look and say, like Lumenier on the retail side or GetFPV. A lot of them set up NDAA compliant, but foreign supply chains, and the FCC ruling was a really big surprise for that. You know, we've been very aggressive about onshoring production and still are, and I think in a lot of the categories right now we're the largest producer.

Appreciate it. Thanks.

Thank you. Our next question is coming from Jonathan Siegmann with Stifel. Your line is live.

Good morning, Allan and Brian. Thanks for taking my question. The great color on how supply constrained the market is, appreciate that. Just with your capacity being so valuable in this environment, can you just talk a little bit about how you allocate that, your resources to customers? How do you choose winners in this dynamic marketplace? Thank you.

Jonathan, appreciate it. The first thing I would say is the other side of this question is a lot of people ask why we don't increase our prices. I'd like to start to say that we're trying to build relationships and a pricing model that's sustained, and we're not in this unique market. We try really hard not to pick winners. We try to work with as many people as possible, and that's where I'll use my statements about Drone Dominance as an example. We are building capacity to build components for every single winner of phase 2. Will we be able to supply every single winner? Will they all wanna buy our parts? Probably not, but I hope they do.

In that way, we'll talk to and work with the 30 potential companies when Drone Dominance only down select to 10, and then we'll have a capacity to supply 10, and we won't be forced to make companies that may not have won that program take components. We think by building to match the end customer demand, we're in a better position to shift material streams from us to the customers based on how effectively they compete. That's really what we're trying to do, is meet the entire US components demand so that none of our customers, so that we don't have a dependency and they don't have a dependency on any specific individual program.

Thank you. Good luck with the year.

Thank you.

Thank you. Our next question is coming from Barry Sine with Litchfield Hills Research. Your line is live.

Hey, good morning, folks. I wanna ask about the B2B sales pipeline coming up for 2026 and a couple parts of the question with a lot of numbers. How many B2B customers have you shipped to over the last year? How many are in that $12 million backlog? Looking ahead, what does the process look like? I know Stacy was promoted to Chief Revenue Officer. What does her team look like? I assume, you know, with the Drone Dominance announcement, it's all hands on deck right now to get those orders. If you could give us a little visibility, that it would help us looking out over the next year. Thank you.

Yeah. The number of customers we've sold to depends on how far down the line you want to slice it. We've sold to hundreds of enterprise customers in small scale for R&D, and some of that even through our retail channel. At large scale, it's constantly shifting with some of these programs, but, you know, we don't have single customer concentration. We still don't. I'm not positive where the exact blend is exactly today. Really, where we see Stacy's team continuing to drive this, and what we see is really important is not new customer outreach, but more importantly, being sure all the customers we have are satisfied.

You know, I believe in the last year, our sales team's done a really good job of driving awareness to everybody and getting you know, small numbers of parts and being designed in for most of the drone companies that people are aware of or that we think have any ability to scale and even some that are smaller. Now it's really relationship management and starting to look more past what they need today to what they need tomorrow. You know, we don't care if to service 200 customers. We think the market is gonna consolidate some and maybe be down to 50 customers. We wanna be sure that those 50 customers have a great experience working with us and get what they need.

Maybe a little visibility on what does Stacy's team look like? How many folks are underneath her now? How many, you know, in sales? How many customer service? What does that team look like?

There's five or six people right now doing the combination of sales and customer service, really more relationship management. Then we're actively looking for more account managers. Nice thing is it doesn't need to be a huge team because we don't have to go door to door or anything, and they're doing a great job.

If I could shift gears, I know it's no longer the focus, but on the retail part of the business, are you still looking to grow that business? How important is it? I know you've added a new person, you know, in charge of that. I'm actually seeing Rotor Riot TV commercials now. What's the strategy for the retail business?

The strategy is to use it as a sales funnel and provide parts out there. The goal is to keep it healthy. We don't expect significant growth there. We expect it to move with the marketplace, but it acts as an amazing sales funnel. A lot of our customers will go and buy motors off of there for R&D, et cetera, knowing that they can buy them at scale when they go to production. From that perspective, we think it's a really important part of our sales process. It minimizes the need for people to go ship stuff all the time. From that perspective, our hope is to, you know, see it continue where it's at with, you know, some growth and some energy, but it right now is not the priority of our business.

All right. Those are my questions. Thank you, Allan.

Thanks, Barry.

Thank you. Our next question is coming from Josh Sullivan with JonesTrading. Your line is live.

Hey, good morning.

Morning.

Just with the start of Operation Epic Fury, Allan, what have been your observations just relating to Unusual Machines and future warfare and how you're positioned? You know, I got mostly larger systems at this point, but, you know, if you look at lessons learned so far, curious what your observations are.

I'll start and say, hey, war sucks, right? What we're seeing is through conflict, people have developed new technologies. In this case, you know, I think Ukraine is still the largest driver of what has caused people to look at the drone component supplies. I would say when you look at Epic Fury, when you look at everything else, when you look at Drone Dominance, whether it's, you know, on the positive or negative side, I think the current Department of War realizes not just that drones are gonna matter, but counter-drone is gonna matter, and that we have to understand both sides of it. I think they'll procure a whole bunch of drones to test counter-drone systems to understand what they may use from our Department of War, may understand what adversaries may use against us.

I think you're just seeing the solidification of this next generation or next paradigm of how conflicts are going to be operated, you know, with robots and particularly aerial robots.

I guess just a question on the funding side or your customer funding side. You know, what are customers seeing on contract adjudications? You know, has the environment picked up? Is funding getting out to them?

I don't track too many of them too hard. I mean, most of them or a lot of them are large enough that they make money and they pay their bills on time. I haven't had people say, "Hey, look, we can't pay for components because we're waiting on payment," which we'd be fine with. In that case, I assume that they're getting paid, but we don't dive too deep into it past that.

Got it. Then in the letter for 25, you know, you painted a picture of two halves for 25. How would you might characterize 26, particularly as you scale here to capture this big demand environment?

I'm gonna use an analogy 'cause I like it, and this is a little bit more me, but 25 was fueling the rocket. Then you saw in early like in mid 25, we lit the fuse. Like any rocket taking off, it starts really slow. You know, it just starts to lift off the pad. I think 26 is gonna look like the next part of the launch.

Great. Perfect. Thank you for your time.

Thanks, Josh.

Thank you. As we have no further questions in the queue at this time, I'd like to hand the call back over to Mr. Evans for any closing remarks.

Thank you, everybody. We really appreciate your time this morning. Please reach out if you have additional questions. Again, I'd like to say thank you to the entire team for making all this possible. I hope you guys have a great morning. Bye.

Thank you. Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.