Unusual Machines, Inc. 2026 Q2 Earnings Call

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 regarding our expectations for product demand, revenue growth, manufacturing expansion, gross margins, and anticipated regulatory developments. Actual results may differ materially due to factors including government program funding and timing, customer concentration, inventory risks, manufacturing challenges, supply chain disruptions, tariff impacts, and other risks described in our Form 10-K for the year ended December 31, 2025. We undertake no obligation to update forward-looking statements except as required by law. For a complete discussion of risk factors, please refer to our SEC filings and the shareholder letter accompanying this call. In addition to reporting financial results in accordance with GAAP, we will discuss certain non-GAAP financial measures, including Adjusted EBITDA. We believe these measures provide useful supplemental information to investors regarding our operating performance.

A reconciliation of non-GAAP measures to the most directly comparable GAAP measures is included in the shareholder letter earnings press release, which are also available on our website and filed with the SEC. 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 over the call to our CEO, Allan Evans. Please go ahead, Allan. Thank you, Christine.

Good morning, everyone, and thank you for joining us today. During this call, I will discuss our second quarter 2026 performance. In the second quarter, we generated more than $16.7 million in operating revenue. This is a 687% year-over-year growth from the second quarter in 2025, and it's more than double the revenue we generated last quarter, the first quarter of 2026. We generated a GAAP loss of approximately $7.8 million for the quarter, which represents a net loss of $0.16 per share. That's a reduction in loss when compared to the $0.32 per share from the second quarter of 2025. The key takeaway from this quarter for me is that we are continuing to dramatically increase revenue while getting closer to consistent profitability. The Q2 results begin to reflect the underlying financial structure Unusual Machines is working to achieve.

There is rapid continued growth, doubling to almost $17 million in revenue, with the growth driven entirely from our enterprise segment. At the same time, we've managed to reduce our non-GAAP Adjusted EBITDA from a loss of $1.6 million last quarter to a loss of only $400,000 this quarter. Our margins have remained consistent and healthy, with the slightly lower than target depression that we see from rapid growth. We finished the quarter with a 34.7% growth margin. This is in that backdrop of scaling, as our headcount went from 141 employees to 240 employees as of July 1st. A healthy balance sheet remains a priority for us, we took the opportunity to raise another $60 million at $30 a share, and we did this with block ATM transactions. Right now, we have about $367.5 million in total working capital and no debt.

It's very important to remember that we don't burn cash, this money remains in the war chest and enables us to both manage inventory and make investments that accelerate our customers and the entire drone marketplace. The success of this quarter, and of the company, just would not be possible without the hard work everyone on the entire Unusual Machines team puts in. Everybody works hard and brings incredible energy to all of the challenges we face. I am confident we can handle continued growth because I am confident in everyone I have the pleasure of working with. I want to say thank you to everyone working at Unusual Machines. I'll hand this call off to our CFO, Brian Hoff, to cover our financial results in detail, once he finishes, I'm going to go into more detail on both this quarter and our plans going forward.

With that, I'm handing the call off to our CFO, Brian Hoff.

Thank you, Allan. Thank you everyone for joining the call. As Allan just mentioned, we've had another strong quarter with $16.7 million recognized in revenue for the quarter, which, as he said, is a 687% increase from the prior year and 107% increase from the prior quarter. That puts us at revenue year to date at $24.8 million. We continue to see this significant shift toward enterprise revenue About approximately 95% of our second quarter revenue was generated from enterprise customers, which is across a diverse base of customers and products. Gross margin was 34.7% for the quarter, which is an increase from last quarter, slightly below our 2025 margins. We expect to continue to see these margin fluctuations as we scale our manufacturing and work to capture the market demand. We anticipate additional margin fluctuation for the remainder of 2026, primarily related to our growth initiatives.

However, we expect them to kind of continue to recover. Our operating expenses also increased during the quarter to $13.6 million for Q2 of 2026. This increase reflects deliberate investments and strategic decisions to support our continued growth and scale of our business. Things that are including of building out our G&A infrastructure, headcount, systems, process. Including it is also $5.7 million in non-cash stock compensation expense and about $1.8 million in non-recurring expenses. We continue to expect additional operating expenses as we continue to hire additional staff, add additional manufacturing space, and have additional public company-related expenses. Please reference the tables at the end of the shareholder letter for the additional detail which reflects our Adjusted EBITDA. As Alan said, we've brought this down from about $1.6 million in Q1 to about $400,000 in Q2, showing very positive trends.

In other income and expense, we had additional positive results from our investments. These investments are designed for strategic purposes, and they create goodwill in the U.S. drone industry and develop supplier partnerships and customer relationships. Our strategy is continuing to work. The results show a $2.3 million realized gain from investments during the quarter, which is a nice add-on to our overall cash without adding additional dilution. We also had interest income of about $1.8 million during the quarter. Our balance sheet also remains very strong and reflects our focus on positioning for anticipated growth. Our cash balance ended the quarter at $229 million, which included the $60 million from our ATM block funding in May at $30 a share.

The balance sheet is also further supported by our short-term investments of over $86 million, and inventory, which includes raw materials and finished goods and deposits paid of about $42.4 million. We're going to see this continue to increase in Q3 and Q4 as we make significant purchases to meet demand and do our part in managing supply chain issues as much as possible. Our total working capital is over $367 million, which puts us in a great position to capitalize on demand moving forward. I'd also like to reiterate what Alan just said. None of this is possible without the fantastic team working extremely hard to make things move. It's an exciting time to be at Unusual Machines and looking forward to the rest of the year. Thank you to our shareholders and partners for continuing to support our mission throughout it all.

Back to Alan. Thanks, Brian.

At a high level, we've spent an impressive quarter. We keep scaling both sales and company size. We maintain a strong cash position. We've added product categories through activities like the Upgrade Energy acquisition. We've been able to achieve these results while reducing our operating losses. We believe we remain well-positioned to be a supply chain leader for components for small drones as the domestic industry expands. I'm about to go into a lot more detail on the second quarter and also discuss our outlook going forward. I'd like to remind everyone that my comments coming forward from here definitely contain forward-looking statements, and actual results may differ from those anticipated. Quarter two. The second quarter is worth talking about in more detail.

The second quarter is the moment where I've gone from hoping we could be a major supplier in the emerging drone industry to believing that we will be. Two major threads emerged in the second quarter that are not going to show up in the financial statements, but are really core to Unusual Machines' ability to effectively grow forward and be a larger company. The first was a supply chain issue. During the quarter, we outgrew one of our electronics vendors, and we had to work through challenging supply chain challenges as we replaced different components and where we got parts as we still fulfilled products for our customers.