Unusual Machines, Inc.

Okay. Good afternoon, everyone, and welcome to Unusual Machines' fourth quarter and full year-ended December 31st, 2024 earnings conference call and webcast. With us today are Unusual Machines CEO, Alan Evans, and CFO, Brian Hoff. Following today's remarks, we will have a Q&A session. During this call, management will make forward-looking statements, including statements that address Unusual Machines' expectations for future performance and operational results. 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 Destroyed by Unusual Machines most recently filed Form 10-K. 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 Alan Evans, CEO. Please go ahead, Alan.

Thank you, Christine. Thank you, everyone, for being here. Before I begin, our lawyers have asked me to read the Safe Harbor Statement, and it probably is a summary of the rest of the call. Please note that the company's remarks made during this call, including answers to questions, include forward-looking statements, which are subject to various risks and uncertainties. These statements include our expectation that we will not incur similar gap losses as we incurred in Q4 2024 in the future, our ability to continue to limit our cash burn and improve our margins, cash flow, and revenues, our expectations that tariffs will not have a significant negative impact on our business, our ability to close the loft transaction, Our ability to expand, rotorize operations, driving both top line growth and improve margins while introducing U.S. made components at competitive global prices. Our ability to take advantage of tariffs to improve our margins. Our ability to get more products listed on the blue UAS framework of the U.S. Department of Defense. Our ability to achieve aggressive growth. Our ability to take advantage of a favor favorable legislative environment. Our anticipation that our B2B sales will represent a higher percentage of our revenue going forward. our ability to quickly scale a motor factory in Orlando, and our ability to capitalize enterprise sales and the legislative environment to drive substantial growth through 2025. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties related to Unusual Machines Inc.' 's business is contained in its filings with the Security and Exchange Commission. including the annual report on Form 10-K filed with the SEC on March 27, 2025. Additionally, we are dependent upon third parties in getting on the Blue UAS framework for our drone parts in a timely manner and receiving subsequent orders for our Made in the USA parts and drones. Unusual Machines, Inc. disclaims any obligation to update any forward-looking statement as a result of future development. Those are the the recommendations the lawyer had me read. We have prepared some remarks that we do want to share to provide clarity on what we see as our 2024 results. As usual, I do apologize. I will be a little robotic. I'm reading. This is absolutely the best way to be sure you get all the information we want to share concisely. After our prepared comments, Brian and I will be happy to answer any questions in an open Q&A. We'll provide instructions at the end on how to ask questions. I really want to start by saying thank you to our entire team. The fourth quarter is especially hard. It's busy, and our staff, they work really long hours during the holiday, and they end up spending that time away from family and friends. Thank you. Without you guys, this company wouldn't be what it is. You guys are awesome. This is our first annual report as a public company. It's been a very busy year. The fourth quarter was, yet again, our highest revenue quarter of all time, and we actually outperformed our expectations for the year. This year, we also started a components business. We began onshoring production. For physical goods, progress is fast. With all the dynamic pieces, it's still very important to focus on our three core priorities, cash flow, operations, and growth. Priority one is cash and cash flow. We started the quarter with $1.7 million. We finished the quarter with $3.8 million. And since then, the holders of most of our warrants have exercised, and we've received an additional proceed of about $2.4 million. We are very comfortable with our cash position heading into 2025, especially as we've historically and continue to focus on keeping our cash burn as low as we reasonably can. Prior to you is our operations. For the quarter, we generated over 2 million in sales at 28% gross margin. This is awesome. It's a 31% increase over just our third quarter. We finished the year at 5.65 million, which doesn't include the first six weeks of the year because we IPO'd last February. And this exceeded our target of 5 million in sales for 2024. Even better, a wonderful note in all of this is we did this without customer concentration. No individual customer exceeded 5% of our total sales. This is with us starting to see those enterprise sales materialize. It represents about 15% of our quarter four B2B was from B2B sales. Anyway, I'm really encouraged by the financial health of the company and the opportunity we have going forward. Because of that, Brian and I and the rest of the team, we worked with the NYSE and we enabled options trading on unusual machines. It actually started Monday of this week. We anticipate filing a form S3 in the next month to provide us with flexibility to aggressively execute as the market potentially materializes. And I've also asked the management team to put in place 10B51 stock sales plans so that they can pay for taxes on equity grants. That way, nobody really gets too sideways with the IRS if we have share price volatility. Our third and arguably most important focus is on growth. We are planning for aggressive growth this year. We do expect a slightly higher cash burn as we go after the components business and take advantage of what we see as a really favorable legislative environment. We see this as a window of opportunity where we can materially improve top and bottom lines over the next 12 months. And we do expect some CapEx costs as we aggressively build out electric motor production in Orlando. In a moment, I'll hand off to our CFO, Brian, who will discuss our financial results in more detail. But first, I'd like to discuss some of the unusual GAAP and 10-K items in order to provide context. Generally accepted accounting principles. It has some really funky outcomes when we look at our intangible adjustments in debt conversion. I honestly believe that this obscures the true performance and nature of the company. The entries that lead to what I think is a fairly silly outcome are we reported a net loss of $32 million for 2024. Brian's going to be able to walk us through the specifics here, but I want to remind everyone that the company is in the best financial position it's ever been in. We eliminated the $4 million in debt we had. We have more cash in the bank than we ever have had. We are tightly controlling cash burn. We're generating record revenues and improving our margins. And we were managed to do all this, to organize the entire company in less than a year since our IPO. Of course, nothing is free. The price for cleaning up everything was some modest dilution. Since the day of our IPO, our fully diluted share count increased from 11.2 million shares to 17 fully diluted shares at the end of 2024. Anyway, I do want to say thank you to Brian for the long hours working through GATMA. With that, I'm handing the call off to our CFO, Brian Haas.

Thank you, Alan, and thank you to everyone for joining us this afternoon. As Alan said, the fourth quarter was our best quarter to date with revenue over $2 million. Total revenue for the year was $5.65 since the date of acquisitions in February. The fourth quarter was our first quarter with selling our blue UAS products, and our fourth quarter was margins remained in line with expectations at 28%. This was also a very transformational quarter for us in regards to our balance sheet. Throughout the quarter, we converted the remaining $3 million, $4 million in total of debt to common shares, we completed a $1.8 million private investment and had 1.5 million in cash exercises on warrants. This had a net impact of increasing our cash balance by 2 million and eliminating the debt of 3 million during the quarter. Finally, as we noted in an 8K recently, and in February 2025, we also had additional warrants of exercises of cash for approximately 2.4 million, and our total cash balance is approximately 5.5 million today. Moving our attention to SG&A expenses, which is kind of our normal operations, our operational SG&A expenses remain very consistent and in line with expectations. The big fluctuations we saw this quarter were a little bit more in ad spend and shipping expense, but that's expected given the holiday increase in sales. There are two non-cash related items in our SG&A expenses. That's related to $1.5 million worth of stock compensation expense and a $10 million impairment on Goodwill. Stock compensation expense was higher in the fourth quarter based on timing of equity grants and the increase in our stock price. In addition, and then as we mentioned, the $10.1 million in loss on Goodwill. Now shifting to the other expenses in the statement of operations, We had additional large non-cash expenses, all related to the derivative accounting of that debt conversion that we did. The net of this really, again, doesn't necessarily highlight how the health of our business is, but it required us to take $14.8 million worth of expense for that debt conversion. But again, it's all non-cash, and the only cash expense that we had was about $15,000 in the fourth quarter for interest expense. To summarize this, our statement of operations was 31.98 million net loss. However, if you remove those non-cash expenses and the debt conversion, our true kind of practical operating loss is about 4.6 million. And I'll reference you to the shareholder letter that we issued today. There's a nice reconciliation and table in the back to show you the gap net loss to that practical operating loss. And as a final quick note on our cap table, our outstanding shares is only in common stock, and we have no more preferred outstanding. There's a few more warrants out there, but that's all held by insiders. I also want to echo Alan's comments and say thank you to our entire team for their hard work during the fourth quarter and throughout this entire transition year. Couldn't have done it without you. We are very happy with our 2024 operational results, and the momentum is very strong coming into 2025. There's a lot of growth potential, and with our much improved balance sheet and cash position health, this provides us with the right mechanisms to take advantage of our growth objectives for the year.