Unusual Machines — Third Quarter 2026 Earnings Summary

Financial Performance:

• Revenue totaled $13.9 million for the three months ended September 30, 2026, representing a 551% year-over-year increase compared to $2.1 million in Q3 2025, though a 17% decrease quarter-over-quarter.
• Gross margin was 35.4% for Q3 2026, down from 39.4% in Q3 2025.
• Loss from operations was $8.4 million for Q3 2026, compared to an operating loss of $4.9 million in Q3 2025.
• Net loss attributable to common shareholders was $25.0 million ($0.50 per share) for Q3 2026, compared to net income of $1.6 million ($0.05 per share) in Q3 2025.
• Adjusted EBITDA loss was approximately $0.7 million for Q3 2026.
• Cash balance was $162.0 million as of September 30, 2026, up from $103.3 million as of December 31, 2025.
• Working capital was approximately $342.1 million at the end of Q3 2026, down from $367.5 million in Q2 2026.
• Accounts receivable increased to $18.7 million from $9.3 million in Q2 2026.
• Inventory and prepaid inventory increased to $65.9 million from $42.4 million in Q2 2026; finished goods increased to $9.3 million from $4.4 million.
• Unrealized loss on short-term investments was $18.4 million for Q3 2026.
• Stock compensation expense was $5.5 million for Q3 2026.

Guidance and Future Outlook:

• The company expects ongoing investments in foundational work to contribute meaningful revenue in Q4 2026 and throughout 2027.
• Management targets positive adjusted EBITDA in 2027.
• The company aims to achieve a 40% gross margin target, though this may take longer due to prioritization of rapid growth.
• Demand is expected to be supported by allocated government budgets through at least Q1 2027.
• The company anticipates adding domestic camera manufacturing in early 2027.
• Management expects to add 100,000 square feet of real estate in Q4 2026 to support growth in early 2027.

Business Segments and Product Lines:

• The company manufactures NDAA-compliant drone components including flight controllers, electronic speed controllers, video systems, motors, FPV headsets, and cameras.
• Following the acquisition of Upgrade Energy, the company has added battery pack production and expanded into additive manufacturing.
• The single best-selling product accounted for approximately 19% of Q3 2026 revenue.
• A new automated motor production line is expected to support 100,000 additional motors per month once fully operational.
• The company added batteries through the Upgrade Energy acquisition.
• The company serves defense, enterprise, and commercial customers, as well as the consumer FPV market through Fat Shark and Rotor Riot brands.

Market and Competitive Landscape:

• The U.S. drone components market represents a $3 billion to $5 billion opportunity according to Fact.MR.
• The Drone Dominance Program (DDP), a $1.1 billion Department of War program, finalized orders.
• The DDP announced budget allocation for Phase 3, and approximately $4.5 billion in counter-drone IDIQ awards were issued to 10 vendors.
• Unusual Machines received a $16.9 million order from Powerus.
• The company expects customer concentration to increase through 2027 as the market consolidates.
• The broader drone segment is trading at lower revenue multiples, making capital raising more challenging for public and private companies.
• The company believes domestic drone production has widespread bipartisan support despite short-term uncertainty from the U.S. election.

Risks and Challenges:

• Macroeconomic factors could reduce investment capital in the market, requiring a shift to reinvesting internally generated gains.
• Inventory buildup may become obsolete or be sold at unreasonable margins.
• Manufacturing delays, bugs, or supply chain issues could impact operations.
• Availability of a satisfactory labor pool to meet planned growth is a risk.
• Technical issues or litigation regarding the FAA's Part 108 rulemaking process could impact commercial market growth.
• Inflation and its continued effect on the U.S. economy are potential risks.
• The company faces the risk that customers may not receive orders under the Drone Dominance program.

Management Commentary and Tone:

• CEO Allan Evans stated that the company is "firmly structured for another cycle of growth" while maintaining financial discipline.
• Management expressed being "extremely encouraged" by the relatively small adjusted EBITDA loss given the lack of revenue recognition from ongoing growth investments.
• The tone indicates confidence in achieving positive adjusted EBITDA in 2027 without compromising growth plans.
• Management noted that the quarter's net loss was "almost entirely driven by non-cash items."
• The company is shifting from an external investment mindset to one focused on internal reinvestment due to the challenging financial environment.

Other Key Points:

• Headcount grew from 240 employees at the end of Q2 2026 to 276 at the end of Q3 2026, and to over 340 employees as of the letter date.
• Total headcount reached 325 employees after the close of the Upgrade Energy acquisition.
• The company made approximately $3.0 million in equipment purchases during Q3 2026.
• The company holds strategic investments in Powerus, Xtend, and XTIA Aerospace / Drone Nerds.
• CEO Allan Evans recently became Chairman of the Board of XTIA.
• Approximately $1.9 million of the $18.7 million accounts receivable balance is from related parties.
• Approximately $2.0 million of the $13.9 million Q3 revenue is from related parties.
• The company completed a common stock offering in March 2026, an at-the-market (ATM) offering in May 2026, and cash exercises of warrants in January 2026.
• The company is actively looking for substantially more real estate space to support production scaling.