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UM

Unusual Machines, Inc. (UMAC)·Q3 2024 Earnings Summary

Executive Summary

  • Revenue of $1.53M grew 9% q/q in a seasonally soft quarter; gross margin was 26%; operating loss was $(1.46)M and net loss was $(2.14)M, driven in part by ~$0.7M non‑cash derivative accounting from debt conversion .
  • The enterprise components pivot began contributing: Brave 7 flight controller gained Blue UAS Framework approval; nearly 7,000 units ordered in the first week; shipping >1,000/month, with stronger near‑term demand from Europe offsetting slower‑than‑expected U.S. DoD activity; management expects Q4 to be “one of our best quarters” .
  • Liquidity and capital structure improved: Q3 cash ended at $1.69M; an October PIPE added $1.733M net; $1M of debt was converted to equity and the interest rate cut to 4%, leaving $3.0M due Nov 2025; fully‑diluted shares (ex‑warrants) ~12.6M with warrants/debt largely struck at $1.99 .
  • Stock reaction catalysts: additional Blue UAS approvals, potential U.S. tariff changes favoring onshored components, European component orders, and a strong holiday retail quarter; management plans a near‑term growth push even at a slightly higher burn to capture share .

What Went Well and What Went Wrong

  • What Went Well
    • Q3 revenue rose ~9% q/q to $1.53M despite seasonal retail softness; management remains ahead of pace for a ≥$5M 2024 revenue target .
    • Brave 7 flight controller approved for the Blue UAS Framework; initial demand strong (almost 7,000 units in week one; shipping >1,000/month), with European orders emerging as near‑term driver .
    • Liquidity actions: $1M debt converted to equity at above‑market terms and interest rate reduced to 4%; Oct PIPE added $1.733M net; management cites comfort with cash and controlled burn .
    • Quote: “We generated approximately $1.5 million in sales…26% gross margin…9% growth quarter‑over‑quarter” .
  • What Went Wrong
    • U.S. DoD demand did not materialize as expected before fiscal year‑end; management cites procurement delays and expects continued uncertainty near term .
    • Gross margin stepped down to 26% vs. 28% in Q2, and operating loss remained elevated at $(1.46)M as the company invests for growth and absorbs public‑company and transition costs .
    • Large non‑cash P&L items tied to derivative accounting from the debt conversion (~$0.7M) widened net loss to $(2.14)M and obscure underlying progress .

Financial Results

  • Income statement and cash metrics (chronological, oldest → newest)
MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD)$618,915 $1,411,124 $1,531,264
Gross Margin %33% 28% 26%
Operating Loss ($USD)$(1,086,352) $(1,571,704) $(1,461,052)
Net Loss ($USD)$(1,106,001) $(1,612,238) $(2,144,250)
Diluted EPS ($)$(0.18) $(0.16) $(0.30)
Cash & Equivalents (quarter‑end, $USD)$3,208,606 $2,222,445 $1,685,772
  • Actual vs. Wall Street estimates (S&P Global) – Q3 2024
MetricActualConsensusSurprise
Revenue$1.53M N/AN/A
EPS (diluted)$(0.30) N/AN/A

Note: S&P Global consensus for UMAC Q3 2024 was unavailable at time of analysis; comparison to Street estimates not possible.

  • Segment/KPI highlights
    • Mix: Q3 revenue primarily B2C retail; enterprise components began contributing late in the quarter .
    • Enterprise KPIs: Brave 7 Blue UAS approved; ~7,000 units ordered in week one; shipping >1,000/month .
    • YTD (since acquisitions Feb 16–Sep 30): Revenue $3.56M, YTD gross margin 28% .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2024Target ≥$5M retail revenue (ahead of pace as of Q2) Still ahead of pace for ~$5M+ FY sales Maintained
Q4 OutlookQ4 2024Expect enterprise components to contribute in 2H’24 “Full quarter” of Brave 7 orders fulfilled; Q4 “one of our best quarters” expected Raised qualitative outlook
Blue UAS CertificationsQ4 2024–Q1 2025Brave 7 approved; initial demand assessment underway Expect “a couple of products” approved in Q4 and “a few more” in Q1 Increased approvals pipeline
Gross Margin2H 2024–202528% in Q2; no formal forward guidance Potential margin tailwind if U.S. tariffs increase costs of Chinese parts; focus on onshoring Qualitative tailwind
Cash BurnNear termOpex est. ~$450k/quarter; manage inventory and burn Slightly higher burn to capitalize on growth; Oct PIPE adds liquidity Higher near‑term spend
Debt/Capital StructureThrough Nov 2025Promissory note $4.0M outstanding (Q2) $1M converted to equity; balance $3.0M due Nov 2025; interest cut to 4%; warrants at $1.99 Reduced debt/cost of capital

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Blue UAS / NDAA componentsQ1: First flight controller expected by end of June, aiming for Blue UAS certification . Q2: Brave 7 approved; expected contrib. in Q3/Q4 .Brave 7 approved; ~7k orders in week one; >1k/month shipping; more products targeted for Blue list in Q4/Q1 .Accelerating approvals and demand
DoD demandQ1–Q2: Anticipated late‑Q3 contracts before FY‑end .Did not materialize; procurement delays expected to persist near term .Weaker near term; delayed
Europe demandLimited earlier commentary.Strong near‑term demand tied to Ukraine; bids for multimillion‑dollar contracts .Strengthening
Retail (Rotor Riot)Q1: $619k in 45 days; GM ~33% . Q2: $1.4M; GM ~28% .Q3: $1.53M; GM 26%; holiday push expected to lift Q4 .Revenue up; GM down modestly; seasonal tailwind ahead
Tariffs/onshoringBuilding U.S. components to reduce China exposure .Expect potential tariff changes to favor U.S.‑made parts, aiding margins and pricing .Potential 2025 tailwind
Liquidity/capital structureQ1 cash $3.2M ; Q2 cash $2.2M .Q3 cash $1.69M; Oct PIPE +$1.733M; $1M debt converted; W/A shares framework discussed .Improved flexibility

Management Commentary

  • “We generated approximately $1.5 million in sales…26% gross margin…9% growth quarter‑over‑quarter” (CFO) .
  • “In the first week of availability, we received orders for almost 7,000 [Brave 7] units and are currently shipping more than 1,000 flight controllers per month” .
  • “We converted $1 million of our debt into equity…now we have a $3 million balance…due at the end of November of 2025…closed the PIPE at the end of October for…$1.7 million” (CFO) .
  • “We expect [tariffs] will improve our gross margins on everything we make domestically and push our competitive pricing…up to a higher level” (CEO) .

Q&A Highlights

  • DoD timing and visibility: Management attributes slower DoD orders to budget delays and bureaucracy; expects continued near‑term uncertainty, with supplier orders lagging prime awards (e.g., SRR) .
  • Route to DoD: UMAC does not plan to be a prime; will supply partners such as Red Cat/Teal (e.g., FANG, Black Widow) as programs progress .
  • Warrants/debt conversion: Warrants largely struck at $1.99; some have company‑forced conversion at $3; potential ~$7M value (mostly cash) if fully exercised/converted; intent is to simplify cap table and fund growth .
  • Tariffs: Company does not “need” tariffs, but earlier imposition would advantage U.S.‑made components in retail and enterprise (pricing and margin) .
  • Scaling production: Prepared to support components demand up to ~$100k/month; supply chain plans in place to scale .
  • Mix: Q3 still “pretty much all consumer”; enterprise was one month of sales; concentration TBD as enterprise ramps .

Estimates Context

  • S&P Global consensus for Q3 2024 revenue, EPS, and EBITDA was unavailable at time of analysis; as a result, we cannot quantify a beat/miss versus Street for this quarter. Management reiterated being ahead of pace for a ≥$5M 2024 revenue target; no formal quantitative guidance ranges were provided for Q4 or FY metrics .

Key Takeaways for Investors

  • The enterprise components inflection has begun (Blue UAS Brave 7), with strong early demand and additional approvals targeted near term—key to 2025 growth and margin mix shift .
  • Q4 setup is favorable: full‑quarter Brave 7 fulfillment plus holiday retail; management expects one of its best quarters, positioning the company to meet/beat the $5M 2024 revenue target .
  • U.S. DoD remains a timing risk; near‑term growth likely Europe‑led and retail‑supported while U.S. programs progress, creating potential quarter‑to‑quarter variability .
  • Capital structure actions de‑risked liquidity: $1M debt conversion, lower interest to 4%, and $1.733M PIPE enhance runway as UMAC leans into growth .
  • Potential U.S. tariff changes could be a 2025 margin/pricing tailwind for onshored components, improving competitiveness versus Chinese parts .
  • Watch KPIs: Blue UAS approvals cadence, enterprise order conversion (EU bids), Q4 retail sell‑through, gross margin trajectory, and inventory turns .

Appendix: Additional Detail

  • Other Q3‑period press releases: No additional Q3 2024 press releases located beyond the shareholder letter furnished in the 8‑K; relevant Blue UAS approval was disclosed in the Q2 letter (Aug 14) with immediate demand signals -.
  • Balance sheet snapshot (Q3): Cash $1.69M; inventory $1.45M; prepaid inventory $1.14M; convertible note $3.0M; warrant and derivative liabilities ~$0.62M combined; equity $19.23M .