Unusual Machines, Inc. (UMAC)·Q1 2024 Earnings Summary

Executive Summary

• Q1 2024 marked UMAC’s first post-IPO operating quarter with reported sales of $0.619M over the 45-day post-acquisition period and gross margin of ~33%; GAAP net loss widened to $1.106M (-$0.18 EPS) on IPO and integration costs .
• No formal numerical guidance was issued; management expects first domestically produced flight controller by end of June and is pursuing Blue UAS certification to unlock defense channel opportunities .
• Balance sheet strengthened by IPO proceeds: cash rose to $3.209M; inventory/prepaid inventory established to support scaling; a $2.0M 8% convertible note funds acquisitions, with a material working-capital adjustment with Red Cat pending .
• Strategic narrative centers on onshoring components, defense demand tailwinds, and leveraging Rotor Riot’s 20–30% historical e-commerce growth; however, a material weakness in internal controls and a 5-year non-compete limiting direct sales of Class 1/2 UAVs to U.S. Government temper near-term visibility .

What Went Well and What Went Wrong

What Went Well

• Early revenue traction post-acquisition: ~$619K combined sales in the 45-day period with ~33% gross margin; management aims to sustain and improve gross margins as scale increases .
• Clear product roadmap: “first product, a flight controller, expected by the end of June” and intent to secure Blue UAS certifications to enter defense market .
• Liquidity improved: quarter-end cash of $3.209M and net working capital of $5.437M; management states cash is sufficient for at least 12 months of operations .

What Went Wrong

• Losses widened YoY due to IPO, acquisition, and integration-related expenses: operating loss ($1.086M) vs. ($0.589M) YoY; net loss ($1.106M) vs. ($0.589M); EPS (-$0.18) vs. (-$0.17) .
• Material weakness in internal control over financial reporting identified; remediation underway (staffing, ERP implementation, consultant engagement) .
• Pending, potentially material working capital adjustment tied to Red Cat acquisitions introduces near-term uncertainty on cash needs and note principal .

Financial Results

Notes:

• Prior quarter comparison not meaningful: UMAC had no revenues prior to the Feb 16, 2024 acquisitions; Q1 2023 was pre-acquisition .

Pro Forma (as if acquisitions present at period start):

Balance Sheet and Cash Flow KPIs:

Additional KPIs:

Guidance Changes

Earnings Call Themes & Trends

Transcript for Q1 2024 was not available in our document set; the company did announce an earnings webcast for May 15, 2024 . The narrative below reflects disclosures across the Q1 shareholder letter, 10-Q, and March investor presentation.

Management Commentary

• “For the 45 days post-acquisition in the first quarter, we generated approximately $619,000 in combined sales. While it is a limited operating period, we achieved over 30% gross margins combined, which we aim to sustain and improve as we scale.” — CEO shareholder letter .
• “We are progressing towards domestic production of drone components, with our first product, a flight controller, expected by the end of June. We expect this to be the first product that will get Blue UAS certification.” — CEO shareholder letter .
• “With the acquisitions of Fat Shark and Rotor Riot, Unusual Machines is well positioned to serve the FPV drone market… These strategic moves provide the basis from which we are able to focus on delivering great products to enthusiasts, drone builders, and FPV pilots.” — CEO acquisitions PR .
• “We believe that the net proceeds from our February 2024 IPO and existing cash balances will be sufficient to fund our current operating plans through at least the next 12 months.” — Management, 10-Q Liquidity .

Q&A Highlights

• Q1 2024 earnings call transcript was not available in our document set; only the call announcement was furnished. No Q&A themes can be reliably extracted .

Estimates Context

• Wall Street consensus (S&P Global) for Q1 2024 revenue and EPS was unavailable at time of retrieval due to access limits; as a result, we cannot assess beats/misses vs estimates. Values retrieved from S&P Global were unavailable.*

Key Takeaways for Investors

• First post-close quarter confirms commercial traction and 33% GM; losses widened on IPO/integration costs that should normalize, but near-term profitability depends on scaling Rotor Riot and launching US-made components .
• Liquidity appears adequate for ~12 months; watch for cash burn trends, pace of product milestones, and the material working-capital adjustment outcome with Red Cat (could raise or reduce note principal/cash) .
• Strategic path is component-led defense entry (Blue UAS) rather than direct UAV sales, consistent with non-compete restrictions; this focuses execution on certifications, B2B partnerships, and onshoring manufacturing .
• Internal control material weakness is a governance overhang; remediation progress (ERP, staffing, consultants) should be monitored for timely resolution .
• Balance sheet set up to scale (inventory/prepaid inventory; working capital positive); operating cash flow was negative in Q1 reflecting ramp costs — watch GM durability and OpEx discipline .
• Near-term catalysts: June flight controller milestone, Blue UAS certification progress, defense BD wins; potential risk: outcome of working-capital adjustment and the timing to resolve ICFR weakness .

Appendix: Capital Structure and Obligations

• Convertible promissory note: $2.0M, 8% interest, maturity Aug 16, 2025; default conversion feature at a 10% discount to 3-day VWAP; note principal may be adjusted by working-capital settlement with Red Cat .
• Non-compete: 5-year restriction on direct sales of Group 1/2 UAVs to Government Authorities (corporate); CEO has a 12-month non-compete; referral fee structure in place for Teal sales sourced by UMAC during restricted period .

Sources: SEC filings and furnished materials as cited above.