Unusual Machines, Inc.

Hi, everyone. Good afternoon. We're going to be starting the webinar in about a minute to let more people into the room. So one moment, please. Hello, everyone. Good afternoon and welcome to Unusual Machines second quarter 2025 earnings conference call and webcast. With us today are Unusual Machines CEO, Alan Evans, and CFO, Brian Hough. 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 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 Q3 and Q4 of 2025, 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 customer needs, Our expectation that the first motors will be delivered in September of 2025. Our expectation that we will close the rotor lab acquisition in quarter three. Our increase of our workforce to 50 employees by the end of 2025. Receipt of orders from the U.S. Department of Defense. Our ability to continue growing revenue and improving margins. Our ability to become cash flow positive in 2026. 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 Form 10-Q, Form 10-K and prospective supplement. Except as required by law, Unusual Machines disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. As a reminder, this call is being recorded and a replay will be available on Unusual Machines' website at www.unusualmachines.com. Now let me hand the call over to CEO Alan Evans. Please go ahead, Alan.

Oh, goodness. It seems like that statement pretty much covered everything. Anyway, I am really excited about today's call. I'm going to be reading, so forgive me a little bit for that. We have some prepared marks that we're covering our second quarter results, some of the subsequent events. And then after Brian and I finish, we're going to be really happy to take your questions in an open Q&A session. I really want to start by acknowledging how much work our small team puts in. This quarter was a lot of extra work because of the day-to-day changes in the tariff situation and the rates and the policies on what we could bring in. So everyone just keeps putting in the work, and it's really awesome. And they're bringing energy and enthusiasm to these different challenges we face in a weird environment. And I just – I'm still so excited because the culture and the quality of our workforce just – have me really believing in what we can collectively achieve as we go forward and as we add people to what we're doing. So thank you, everyone. Speaking of being busy, so even with what I think I personally expected to be a second quarter wall because of tariffs and consumer demand, it just doesn't seem to slow down for us. And this second quarter was yet again our highest revenue quarter of all time. This is the fifth consecutive quarter that's true. It's 51% growth over quarter two last year, which we're excited about. For the quarter, we generated 2.12 million in sales. And really what's neat is we did that at a 37% gross margin. So this growth really coupled with an increase in enterprise sales, which climbed above 30% of our total sales, they overcame this quarter of weak consumer demand that was really caused by tariffs. And then on top of that, again, pushing margins to 37% without doing anything damaging on the pricing side is really us starting to move in the direction we want to move in. So from my perspective, given that backdrop, I view this quarter as a really great quarter. It was a challenging market environment and we still hit record revenues. We increased our B2B sales. We improved our margins and we are now really accelerating our progress. So with all this going on, we'll talk about cashflow, operations and growth. So we started this quarter with $5 million, and that may seem like a long time ago. As we finished the quarter with $38.9 million, we raised another $44.9 million after fees in quarter three. So we have a cash position of more than $80 million. We're very comfortable with it. And aside from some capex expenses for factory expansion, we plan on still keeping our cash burn low going forward. So now we're actively getting ready to aggressively grow and we expect the marketplace and are actually starting to see indicators of it changing in quarter three and quarter four. I'm sure most of you are on this call to actually hear about that. So I'll hand it off to Brian, while you're still a captive audience, to cover our financial results in more detail. And I'll leave you waiting just a little bit longer for those forward-looking statements. With that, I'm going to hand it off to Brian.

Thank you, Alan, and appreciate everyone joining the call today. As Alan mentioned, we continue to have growth in top line revenue and overall gross margin. We hit $2.1 million in revenue for the quarter with $4.2 million year to date, which is 65% increase as compared to the prior year pro forma revenue. This is also done with increasing our margins from 25% last year year to date to 31% year to date. And as Alan said, we kind of expected to have a drop in our total revenue and margins between Q1 and Q2 of this year from the tariffs and some of the uncertainties. But we didn't see that as we continue to grow our enterprise orders that also have higher margins. We did see an increase in our tariff costs during Q2. However, we were able to pass these costs on to both retail and enterprise deals. We're going to continue to closely monitor and adjust related to tariff changes moving forward. Our operating expenses increased this quarter as we incurred additional costs as we started setting up our motor factory. We're going to continue to see some operating expenses increase during Q3 and Q4 as we're hiring and have additional costs for both our motor facility and headset operations. However, we are going to continue to be cost conscious, as Alan mentioned. We also saw an increase in our G&A costs. A lot of that was related to some non-recurring professional fees from some of the acquisition related activities that we've been through and some of the transactional expenses. Non-recurring investor relations and some non-cash and the large non-cash increase in our stock based compensation, which was $5.5 million during the quarter. As we noted in our shareholder letter that we just published about 30 minutes ago, our net loss was approximately $6.9 million, including the $6.1 million of non-recurring and non-cash costs. I referenced Table 2 in that shareholder letter to see kind of our normal operations and the breakdown there. It's very interesting to reflect on our balance sheet position over the past year. Last year, we had about 2.2 million in cash and 4 million in debt as of this time last year. This year, we've reported about 39 million in cash and no debt. And as Alan mentioned again, we just raised 48.5 million in addition to put our cash balance over 81 million. Transformational for sure. We also, with that large cash balance, we saw about $200,000 of interest income during the second quarter and expect that to continue to increase during Q3 with the larger cash balance. We started purchasing our motor inventory and equipment, and we're going to continue to additional purchase into Q3 and Q4. Our strong balance sheet is going to position us to take advantage of these growth opportunities quickly. which Alan will go into very shortly. Finally, I'd also like to welcome all our new hires to the team as we continue our growth and say a big thank you to the team for all their hard work and execution over the past quarter and look forward to closing out 2025 strong. I'll send it back over to you, Alan. Thanks.