Hello, everyone. Good afternoon, and welcome to Unusual Machines Second Quarter 2025 Earnings Conference Call and Webcast. With us today are Unusual Machines CEO, Allan Evans; and CFO, Brian Hoff. 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 quarter 3 and quarter 4 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 3, 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 prospectus 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, Allan Evans. Please go ahead, Allan.

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 remarks 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 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 to 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 2 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 the increase in enterprise sales, which climbed above 30% of our total sales, they overcame this quarter…

Thank you, Allan, and I appreciate everyone joining the call today. As Allan 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 a 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 Allan 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 Allan 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…

Thanks, Brian. And Brian, I'm sure, is particularly appreciative of the team as we added a controller. So thank you again for all the hard work, Brian, and now to your -- a couple of the members that help you out after a year of slogging through it yourself. So it should be obvious to everyone at this point that we're extremely excited about what's next for unusual Machines. We're really well positioned in the domestic and global political landscape. We generally have really favorable market conditions for the American drone subsegment. We also have the capital to execute. So I'm about to go into a lot more detail, but absolutely want everyone to take note that the rest of my comments from this point forward are forward-looking, and they're in no way guaranteed. So let's start with the $80-plus million in cash we have. We have enough money to build out the motor and headset production as well as scale supply chains to meet our customers' needs. We're keeping it in cash equivalents right now that are generating interest, and we plan on doing that for most of it through the end of October when we have a very clear understanding of what 2026 operating needs will be. And we're also starting to explore what a treasury strategy will be, and we'll have more news on that in the coming weeks. But the real key takeaway is that our growth is not resource constrained. We'll be able to rightsize our company and our speed of growth no matter how fast or how big the marketplace requires us to become. And I spoke at length about other ways we plan on leveraging our cash position last quarter. I won't go into too much more detail now, except to say that…

[Operator Instructions] So let me see what we got here. All right. Somebody is going to have to let me know if we have hands up. So I'll start with the first Q&A, and then I'll jump over to the hands that are in the air. Justin [indiscernible], can you expand upon the announcement new facility for headsets? And will you be working on a new headset that will be introduced to the market in the future? What does it mean new levels of interoperability across systems? Unusual Machine strategy to expand U.S.-based production of critical drone components will initially focus on assembling high-performance FPV goggles with new levels of operability across systems. Justin, thank you for the question. What we are going to start to do is final assembly of one of our Fat Shark product lines that we already have that is being ordered in large volumes by government users. So that way, we can get our whole team up to speed on how to manufacture. And then once we have that excellence in-house, we do expect to start to do more headset development and production in the U.S., sort of in the same slice stepwise function that we've always taken. So appreciate it. All right. We're going to go over to the call in, and we're going to say, John Roy, you got a question for us.

So can you hear me now?

I can hear you, John. What do you got?

All right. So more legislation. Are you expecting to see anything new? I mean, obviously, we've had a lot. Do you, A, expect anything new? And B, do we need anything new?

I don't have any real expectations of anything new except for the [BV loss] like the rules for domestic drones to go through the rule-making process. I think we're in a great spot of legislation-wise. I think it's really set to go forward. And now we just -- now it's that market full where the government will start to place orders, and we'll see where that lands.

Yes. And as a quick follow-up on that, you gave us some color on the government drone demand. Can you give us some more color on -- are you guys selling a lot of parts into those? I mean, where is unusual play in that order?

So a question that I have to answer a little bit delicately. All of our customers, like in a lot of cases, compete with each other. So we can't say anything until it's all the way done and all the way announced. So we are selling to a bunch of different folks. And I would say one big driver is a program called [PBAS] which is an FPV program by the government. There are 12 companies that are currently being looked at to be down selected, 4 of those will be down selected, and that's looking to be about a $500 million total basket. And we have several companies that we are a supplier for that are competing in that as an example of a place where once that's finished, we'll get those revenue projections and really be able to understand what 2026 looks like. I think people are typing in the chat, but if you guys can type in the question space instead of the chat, it would be really appreciated. I'm going to go back to a Q&A question. Rodrigo asked, good afternoon, as a young enthusiastic shareholder, I'd love to go check out the factory in Orlando. Anyway, there can be tours or videos for all those looking to learn what happens behind the door. Rodrigo, I think it's a great suggestion. We do have a video team. Let me work with them and see what we can get out there because we want to share what's enthusiastic with everybody as it comes together. And appreciate you being a shareholder and wanting to be part of the journey. Thank you. All right. So now we're going to go back to somebody who wants to speak here. We're going to go to [Danny Ka]. All right, Danny, are you with us? I think you got on mute, sir. All right. What do you have?

I'm just curious, what kind of collabor are you guys doing with Red Cat? I know that you and Jeff are pretty close. And what a coincidence that you're both doing a town hall the same day, time and hour. So I'm curious what you and Red Cat have going on together.

Well, Jeff is a great guy. We obviously came out of Red Cat. They -- publicly, we're doing motors for them. So that's great. And I'd say the same time thing is just because there are rules on when earnings have to go out, and we're close to the deadline. So when you're busy, it's where you push it. But I can't go into more detail because, again, we don't talk about our customers. That's more for them to talk about, and we're happy to approve anything they want to share.

Got it. Well done, and you're doing a great job. I'm a big shareholder of your company, and I'm super proud.

Thanks. Really appreciate it, and thank you for joining us today. All right. We got a Q&A in the type in. Jesse says, the goal of Unusual Machines is producing drones in the U.S. Can you please give us an update about that? What are the next steps toward this goal? Jesse, I'd say our goal right now is to produce parts, so other people can produce drones. There are a whole lot of great drone companies out there, and we don't want to directly compete with our customers. So the second we start doing that, I think we start to not service the entire industry. So now if in a few years, there's consolidation and things move around, that may change. But right now, we're just trying to get ahead of the component supply chain. All right. Let's see what we got next. By the way, I appreciate it, guys. Your questions, we're here to be as transparent as possible. So [Jason Yun] do you anticipate needing any additional equity raises this year? But considering the timing of expected orders and any supply chain prebuys, do you foresee a need to raise incremental capital? No, I don't think we'll need any more capital for operations. Now if there are strange circumstances or other things occur, there's the opportunity to make all our shareholders a bunch of money, we're going to explore it. We're not ever going to take anything all the way off the table. But our burn rate is really low. We're in a great position to execute on everything we need, and we don't have a requirement in any way around that. Compared to my interview in mid-July, are you seeing stronger demand from customers and a faster pace of orders today? Yes. It is turning on…

Something in the chat from Marvel Pegers. Would you like me to read it?

Yes, I get it out there.

How much of the $40 million and $48.5 million offerings are going to be spent on the motor factory? And how much is left off after the in-house manufacturing? What are the next major components that UMAC attempts to mass manufacture in-house after the motors?

So we expect to have about $80 million left after all the CapEx for the motor factory. We're still burning under $1 million in cash a month, and that will be mostly offset by interest from the money even at the current rate. And then we plan on moving to set up a headset final assembly line, which will be significantly less expensive and move to revenue sooner. So we expect to be sitting to actively have for funds under management between $70 million and $80 million through 2026, depending on how fast we grow and return. So we feel really comfortable with that, and we're really excited about having kept our cash burn rate low so that we can be in a position to do this without creating tertiary or cash risks. Okay. So Chris, I can't comment on direct targets, but can we get a feel for M&A activity ahead? Chris, right now, I think there are a lot of interesting drone parts companies out there, et cetera. And everybody right now thinks they're going to get the government contract. So if you're talking to anyone right now, they're like, "Oh, I'm going to get this a huge contract. We're going to crush it." And it will really be who are the really solid teams that maybe didn't get selected for a government contract or whatever else that we can add in and really build something robust because we're not here to overpay. And we're, again, very particular about who we want to integrate because integration is a real headache. And it's personality driven and is it a good fit in the company and everything else. So I think we're -- again, we talk to everybody. We're a supplier to everybody. We do a really good job there, but we're not -- there's nothing like real spicy or anything. And I think we'll -- again, we might see what it really looks like, and there might be a lot of opportunity, but it won't be until late October until people know who won and lost. All right. I know, right? Do we got anything else? I mean I'm pretty excited about it.

We have one last comment from Bill McCammon. I'm enjoying the Q&A and just hearing more.

Thanks, Bill. I really appreciate your time, sir. And I appreciate everyone's time. I mean, still there's like 80 who listened to me for this long. So hopefully, you recorded it and you can play it at night and the Veritone will put you to sleep, so you can get 2 uses out of it. But otherwise, again, I want to say thank you to everyone for your time for being shareholders, being interested in the company and really supporting what we're trying to do in terms of bringing supply chains for critical technologies back to the U.S. So thank you, everyone. I hope you guys have a wonderful day and really appreciate your time.