Drone Parts Co. Makes Strong Showing in Q1/25
Research Report

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Disclosures for Litchfield Hills, Unusual Machines Inc., May 9, 2025

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Unusual Machines Inc. (UMAC:NYSEAMERICAN) posted stronger-than-expected Q1/25 results, reported Litchfield Hills Research Analyst Barry Sine in a May 9 research note.

"UMAC's first-quarter results demonstrate a strong start to the year, with solid revenue growth and continued progress on key strategic initiatives," Sine wrote. "The company's robust cash position, along with its expanding manufacturing capabilities, puts it in a favorable position to capitalize on the growing U.S. defense budget and continued demand for domestic drone and drone component solutions."

Litchfield Hills maintained its US$20 per share target price and Buy rating on the Florida-based manufacturer, noted Sine. The research firm values Unusual Machines at about two times the average of its industry peers to reflect its strong growth prospects and favorable position in the sector.

The Main Points

The takeaways from Unusual Machines' Q1/25 financial results, according to Sine, are that revenue and EBITDA significantly outperformed Litchfield Hills and consensus' estimates, and gross margin came in lower than in the previous quarter.

Revenue was US$2.04 million (US$2.04M), 59% higher than a year earlier. Compared to Q4/24, retail segment revenue increased 45% while the B2B segment stayed about the same. Enterprise revenue of US$306,000 (US$360K) was up slightly from US$300K in Q4/24, mostly due to previously announced orders for the Brave F7 controller.

The lower quarter-over-quarter gross margin in Q1/25 was due to new tariff policy negatively impacting some of the company's product orders from overseas vendors, particularly in China, Sine explained. This trend, however, is not expected to continue.

"We see considerable upside in the gross margin as Unusual Machines increasingly utilizes its internally manufactured components," the analyst wrote. "The company now produces parts that collectively account for 64% of the value of a midsized drone, positioning it to capture higher-margin opportunities as domestic production scales."

As for EBITDA in Q1/25, it was a loss of US$1.04M million but beat Litchfield Hills and consensus' forecasts. Sine wrote that it is reflective of Unusual Machines delivering "relatively strong" topline results despite tariff challenges and continued investment in growth structure.

At quarter's end, Unusual Machines was well-positioned financially with about US$40M in cash and no debt.

Opportunity at Home

Increasing drone use, particularly military, U.S. restrictions on drone and drone parts imports, especially from China, and a robust (US$1 trillion-plus) U.S. defense budget for fiscal year 2026 are creating a domestic market opportunity that Unusual Machines could seize, Sine purported.

Further, it is expected that the upcoming National Defense Authorization Act will earmark a significant amount of funds for drone-related technologies and that many contractors will source drone components from Unusual Machines.

Near-term Expectations

The company's drone motor production facility is on track for operations to start in about September, Sine reported. Equipment has been ordered, and negotiations for a 17,000-square-foot lease are nearly complete.

Litchfield Hills estimates that between Q2/25 and year-end, UMAC will see a 15% year-over-year boost in retail revenue and a 10% rise in hobbyist demand. Enterprise revenue should increase materially in Q4/24 if the U.S. Department of Defense's budget is finalized and Unusual Machines' customers start getting orders from the government beforehand.

Further out, Litchfield Hills predicts Unusual Machines will turn profitable in Q4/26, after losses through Q3/26 of US$4.7M. Unusual Machines, however, in a more optimistic view, expects to reach US$15–20M in annualized revenue between Q1/26 and Q3/26, then become free cash flow positive.