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Hey there folks, quick disclaimer here. This is educational informational entertainment, my opinions, not financial advice. I may own these stocks and can buy and sell at any time. This isn't a paid for promotion. If I've done consulting, it's separate from this interview. Full disclosure are linked below the video.
Hey everybody, Tim from Alpha Wolf Capital coming at you with a follow-up interview to one of my favorite stories and still one of my favorite stories. UWM Unusual Machines, Alan Evans in the house. And we were just talking off camera. Alan had to take a little breather.
Oh yeah, I take a few days off and the market crashes. Sit on my couch, you know, you're like, well, there it goes. Whoops. Here we are now. You know, you just aren't a boring individual, you know that?
That's what my wife tells me. But she doesn't say it as a compliment, Tim.
Yeah. So, let's see. What new things have developed in UWM world since last we spoke?
Oh man, it's been a little while, right? So, we I think we didn't speak after earnings. So, earnings came out and we did I think a 49 quarter in quarter four. So, started to turn really turn the corner on scaling. I think we raised some money in there. You know, we raised about another 150 million bucks at $17 a share. From really great institutions. We can dive into what that looked like because I'm sure people are curious. And then, you know, it just keeps going. We have so many employees, I don't know all their names anymore. So, we're there now. That's interesting. You know, so we've got some scaling there.
Yeah, I think you know, we only chatted right after the new year, right? So, we got some big orders we got to place. We're still out of stock. Like we can't make stuff fast enough.
Oh, we do lunch every day for every shift now. So, that's a big operational change. It's great.
Wow. Nobody has to think about lunch.
We started that in beginning of February. You know, so really it's pretty much the same. We do drone parts.
And you happen to own pieces of some pretty interesting companies as well.
Oh yeah. No, we invested some of the money really to support companies and or drive awareness to groups we think might not have had the same visibility and obviously to get a reasonable return for our shareholders. So, and you know, again, I could click the buttons today and see where we're at. We were up more when before I took a few days off. But I think we're still doing okay.
So, let's back up a second and talk about the capital raise, right? So, in people's minds and you and I had an opportunity to talk for a little bit before we hopped on. I mean, when you go out to raise capital, right? You can go out at a certain price to try where you're looking to raise. And then dynamics of the market can change very quickly, right? But if you have strong institutions that you would love to have be owners of or part owners of the story and the price changes on the offering, that's beyond your control. You can choose to walk away from the deal, right? Or you can say, 'I'm going to take the money.' It's not ideal, it's not exactly where I wanted it, but I'm going to take the money. Because I want to be. Right?
So, that at a high level, you're right. And I think I don't know if the people listening to this care. We can talk about how deals actually get done and what they look like from institutions. So, typically when the sophisticated institutions in the small and mid-cap invest, the basic math that they do is whatever the dilution amount is and the raise amount, they want the market cap to be the same afterward. So, they're going to put in a, you know, if you're worth a billion dollars, let's say, and they're going to put in a hundred million dollars, they'll do it at a valuation of nine hundred million dollars so the market cap stays the same at a billion dollars. So, trading equity for cash. So, when these firms typically price a raise, that's how they're priced. And so, you can say is a deal a good deal or a bad deal. If it's common only, if the market cap goes up, it's a good deal. There was more appetite than there was. If the market cap goes down, there wasn't enough appetite to do the raise. So, I think that's important context for understanding how institutional investors, like the sophisticated ones that tend to be long only, look at qualifying and bidding on a deal.
So, if we go back in time, you know, we were trading above $20 a share. And we're growing as a company faster than I ever expected. And we can talk about that later, but when you're going this fast, we're in a position to need working capital. And we've always wanted to staircase financings. So, you start the process to raise money. It's not instantaneous. You know, you got to go do the road show, talk to everybody, all these things. And when you go talk to the top 50 funds, the top 20 funds, you can't sit there and explain what you're doing and take your time and have them interested. And if they put in an offer that's reasonable, if you tell them to piss off, they're not going to be there to go invest and take this institutional position in the future. So, when you look at Unusual Machines, we really were a pretty heavy retail base. I mean, it took us a long time to even get the shareholder votes for our last shareholder meeting. Like we really had to go wrangle it. And we're seeing this transformation into institutional ownership, which really baselines the company for future growth. If you think of that at venture capital, we're moving from like the venture stage to the growth stage of financing and ownership. And so, you know, we started the process again in the 20s. Had these really great conversations with like the big dogs, the small cap investment, like the premier owners that you want to have on your company. And the market started to go down across the board, not just us.
And by the time we got to pricing, they came back and we had huge appetite at what was an 8% discount. Huge appetite. Way more dilution. So, we ended up very positive on that valuation, which shows sort of the strength of the interest in the raise. And we did it at about an 8 and a half percent discount, but we had to make the choice to say, 'Okay.' And it's still a step up. You know, we did the deal at 17 rather than in the 20s when we initially started. But we did the deal because we had this awesome amount of interest from these really great investors and we want them to be part of the ownership group in addition to, you know, having some use for the capital. I think the other thing people don't realize is that I have never sold a single share of stock ever. We make everybody file 10b5-1s, which is automatic selling for taxes. I canceled mine every quarter and pay the taxes to keep as much stock as possible. And in this case, I was actually in an open trading window, which for CEOs, there aren't that many of them. And so, we chose to do this raise even instead of selling stock myself. Where I could have established that.
Every right, by the way, to sell stock, right?
Agreed. Agreed. Especially because a lot of it I paid for. Right. If you think about the time, I invested in most of our early financings. And so, like especially that stock where if I was trading it, you'd be like, 'Yeah, okay, but he bought those shares.' Like, you know, it feels different. Right.
Anyway, still choosing not to do any of that.
You know, because of belief in the company long-term and belief that this is the right thing to do. So, when you look, I'm really excited about this changeover in ownership, and you're going to see more of that over the next 3 months because we're very likely to be added to the Russell 2000. And so, you're also very likely to see more and more institutional ownership. So, I think at the end of quarter two, you're going to see 13Fs.
I mean, they have to buy it, right?
I think you're going to see a lot of interesting 13Fs over the next... You know, the big boys have to file if you have so much money under management, you have to file 13F. And so, I think everybody will be like, 'Oh, these people all own a piece of Unusual Machines.' And people will be like, 'But they're smart rich guys. Like, of course we should do what they do.' So, you know, but even with the weakness across the sector right now, like I think what we did was by far and away the right choice for the company, not just for the money, but for the change in ownership and the long-term support we're establishing. So, you can't really get everybody all warmed up and then just be like, 'Nah.' You know, when you cancel.
But like you said, the odds that you're going to get a second shot at those investors probably is not very high.
No, they would just think I was a chump. Wasting their time. Right. Especially when they're putting in bids that are like really low discount against what you would say is the normal math. Right. And so, really excited about where we sit. And you know, in all seriousness, excited about it. And I think there's a lot of this that, 'Hey, I didn't know anything about it' in terms of this level of inside baseball until really going through it a few times. So, hopefully that helps people understand what it is better. They can feel however they want about it. And everybody's entitled to their opinion, but I think understanding what the process looks like and what the tradeoffs are is interesting.
You know, look. The way I look at it, and you and I talked about this also before we hopped on, is there's a lot of uncertainty right now in the marketplace because of everything that's going on, right? And nobody has a crystal ball as to how everything is going to play out. I'm not a dooms dayer like a lot of people are. I just can't go there for whatever reason. I always have this optimistic view that things are probably going to work out better than people anticipate, right? And but just in case if they don't work out, you're in a much better position than if you had to raise capital in a bad situation. It's much more difficult to do, right? The markets can dry up in a second. So, being well financed has never been a really big problem to have. I think it's a good problem to have, right? I have not heard too many people or too many companies ever say they have too much money.
Right? Like, you just... And I think more importantly from our end, because we don't really burn too much money. So, we're okay. We can sustain. But over the last month, the thing that was theoretical has become real in terms of, you know, I talked about a market vacuum before and the third biggest one I've seen beside the Great Firewall in China or the smoking ban in the US. We are hiring as many people as possible. We're bringing in as much material as we can as fast as we can. We're making stuff. People are excited. There's energy. We still can't put any of our own products on our own store. The market vacuum is tangible and real now. And you can feel it.
Right. And there's no... I mean, I've been doing products a long time. Right? You're like, 'How much do we make? How do we put it in the store?' There's always the marketplace dynamic, and I can tell you over the last about month, just feeling this velocity, feeling this market demand, getting all the calls from everyone.
Because as we have stuff and we scale, people's appetites for the stuff become bigger and more voracious because we can start to really satisfy it, and they have to switch over. I have never been in a company as an advisor or adjacent at anything with this level of demand. And, you know, in a week or two, we're going to have to order another 60 to 80 million dollars worth of raw material. Okay? And then 6 months after that, we're going to have to order 100 to 150 million dollars of raw material. We're not wasting the money.
Like, if you don't have a pile of cash, nobody will give you credit terms. And we are just experiencing this market vacuum, what it is is basically can be modeled as infinite demand. And I talked about this on earnings because we were just starting to feel it. And it has become stronger and stronger since then. And I, you know, appreciate people who trade stocks, appreciate the marketplace, appreciate the financial industry a lot, and it's necessary to make all this work. So, I don't want to be dismissive of that energy or the thoughtfulness or the way people look at it. People look at discounted cash flow analysis, right? Like, DCFs. They'll look at modeling demand or modeling growth or whatever. Very few people have ever modeled a market vacuum because they don't happen. And so, it's not a cerebral thing. It's not a tool that most people have. You know, they might chart, they might do a lot of really fascinating things. Having done products for 20 years, sitting in this and feeling a market vacuum, it gives you this idea that you have an opportunity to just do this thing so fast because it's not just the velocity you create, we're being pulled forward.
And it's like, we're not losing the money. We're just using it as working capital in the machine, and we need it to do it. I don't know. It's very hard to explain, and it is surreal to sit in the middle of it and to literally... So, literally walking through the factories yesterday, we are doing 15 to 20,000 motors a month right now. We have highly automated equipment that'll get us to 100 to 120,000 motors a month. We have made the decision to hire to double our motor factory staff and double our current production line because we can't wait for the automated equipment and have to double our capacity right now, and we still won't meet the demand. And watching thousands of motors being made, literally tray after tray after tray being tested and packaged and shipped, and we can't even put 100 on our own website because all of those have been ordered, and they're ordered months out. And then going to our next factory, one of our other buildings, and seeing 1,800 partially assembled drone frames because we'll do partial assembly for our customers to speed up their production, stacked against a wall, ready to be packaged and shipped, and knowing that those were put together in less than a week. So, basically 2,000 drones that are going to a customer that we put together in a week so they can build the drones, and still asking, 'Do we need to put bathrooms in the parking lot so we can add more staff to go faster?' Because once you run three shifts, you can't run a fourth shift. And bathrooms are the limit in that factory, and we're building another bathroom in that factory, and we don't know if we can wait for that to be done. And then going to our fulfillment center which is 25,000 square feet. We have four high bays, three forklifts, 30 to 40-foot high ceilings with pallets all the way up. Looking at it and going, 'Crap. We have no finished goods in there. We have raw material and we don't think it's enough space for the raw material we're going to have without even finished goods a year out.'
I've never had this experience in my life. I don't think there's many very many industries that have ever had that experience in their life.
Yeah. So, no, but now you look at the landscape and there's tons of great drone companies.
Who else makes parts? Knock on wood. I hope that... I mean there are other people doing it, but it doesn't matter. The demand is so great. Like there's not even competitive risk, but two great parts companies, ModalAI and Auterion, won one drone dominance phase one. People don't want to buy parts from other drone company competitors. So, two really great parts companies sort of took themselves out of the game to go be drone companies and they're great drone companies and they're making that move and I think they do great work, but now they've sort of left even more of a vacuum in the parts market. It is wild to think about where we look at it all and we know what the demand is and the demand keeps getting bigger. Bigger. And it's not momentary. The demand keeps growing.
Yeah, and I don't see how that changes, actually. I really don't. Not for quite a while, right? I mean, it's all S-curves and we're at the bottom of the S-curve.
Whenever anybody talks about exponential growth, what they're really talking about is the bottom of an S-curve of growth because you go exponential and then asymptotic. And we're at the bottom of the S-curve and you know that they kicked out DJI from the US with the FCC ban and that's a million drones a year. So, let's just assume somebody's going to replace it because people know what they want with drones commercially and I think that's a reasonable assumption to make. That is about 4 million motors a year for drones. That's roughly 8 million battery packs. So, we're not there yet. You know, we're not at that asymptotic point in the S-curve and we can start to feel that energy driving us to go through this S-curve as fast as possible and that FCC ban is really where the long-term investors looked at us and said, 'Okay, if you just look at drone dominance and the military demand and you do a cash flow analysis, they figure, okay, billion-dollar company, give or take at the end of 2027 if we can hit our targets.' And we could sit here and do all the math, but I mean back of the envelope, people can scratch it out. But if we keep going through that with drone delivery and with the replacement of the consumer cycle, people are looking at that and going, 'Okay, I see a really high likely base hit for Unusual Machines as a company, as an investment.' But is it fastball pitcher and maybe hit the fastball really hard? And if you're not going to like... so they see this really likely base case that is reasonable and in the next 18 to 24 months. And then they see 36 months out maybe better than a base case. Maybe this market vacuum beside what we feel right now, maybe it continues and maybe we're the ones that are there. Right. And maybe we're a billion dollar a year revenue company because of the drone market. Maybe. And if we are, then we're a pretty good investment right now for these large institutions, right? And that's how they look at it. And a lot of them came down, so we did an investor tour day and a lot of them walked around and saw what we were doing and saw the facilities and when you do that, you can feel it. And I just there's something to it that it's very difficult to convey with numbers.
Listen, I just reflect back to well, even a couple of interviews ago, two or three interviews ago when I asked you, 'So, what do you think you're going to need for full employment?' And I remember what you said. You said, 'Ah, about 48.' And how many do you have now?
About 150. I have told our team now to plan for at least a thousand.
Yeah. What was the size of the first building? Was it a...?
Just under 7,000 square feet.
That was 70,000 square feet and we're trying to double that again. We like, this is very serious. My COO and I are mad because the real estate agent didn't call us back on a Monday morning when we sent them a note on Friday. Because we just don't process that like it's not full speed all the time. Commercial industrial real estate doesn't go at the speed of us working the weekend. And for a minute we were confused and then we stared at each other and just started laughing, right? You're like, 'Oh, yeah, of course. Of course.' But no, I mean like... Again, we talked a long time, right? And I talk about this market vacuum or the opportunity or whatever. When we were talking about it before, it was theoretical. Right. Holy crap, I was wrong. And everybody on my team thought I was aggressive when I was talking about scaling. And I seriously, right? They like when they would be like, 'Oh, how many people should we hire?' I'd always add to the number. I'm like, 'Oh, no, we need this many.' When we'd order raw material, I'd add to the number. I'd be like, 'No, I think we could do more.' They're like, 'Okay.' You'd see everybody be a little nervous. In all of those, I was wrong. I was too conservative. And that doesn't mean that this will last forever. It doesn't mean we don't have to pay attention. We really do. But it is something different.
Right. And you're not just talking about... it's not just US-based. There's going to be international and I know people are in an uproar about the drones that are for fun, right? It's like, where are those going to come from, right?
Right now, nobody knows, right? Because where do you get parts? And build your own, I guess, huh?
I mean, yeah, what I'm saying is for the... like our retail customers who are awesome will buy the parts and build their own drones and stuff. It's super cool.
We can't even put our parts in our store.
We... like we really want to, right? We want our customers to be able to go buy it. And we just have... I mean it's wild.
It's wild. Remember the first time we talked?
Yeah, we were trying to figure out how to make it squeaking by.
Yeah, I remember that. Remember that? I do remember that. Yeah, I could do that. Yeah, I could be. No, the best analogy I have, you know, I love my analogies. And so, the best analogy I have now for where we're at as a company is we're surfers. You know, we're out there and we're like, 'Okay, maybe a wave's coming in.' We started to paddle. Now we're surfing the wave and you know what? This wave was a lot bigger than we thought, so it's a little bit scary. And not a lot of other people paddled to catch it. So, we're looking around trying just not to wipe out. Like we're just trying to not wipe out. Right there. But there's nobody else on boards around us we're going to crash into. So, can we surf the wave to shore or not? And but Tim, I don't know about you, but I'm a really bad surfer. And so when you're on a bigger wave than you expect, it's a little scary. And this is a big wave. So I mean we're surfing.
Just think of this, right? The bigger the wave that you can surf, right? What does that do for you long-term for the company? Right? What's that do?
Yeah, it's really... What it does is it means we've created already 150 good paying manufacturing jobs in Florida. That don't just support the workers, but their families with health care. The community. Everything else builds a community. It means that we've created because we're dual use, you know, during World War II, GM was able to move to make tanks because we had domestic capacity for production that could be repurposed. We're developing this domestic capacity. We were able to place a big enough purchase order for another company to set up in Orlando to do carbon fiber. So we're able to create these jobs. We're able to create other opportunities for people to onshore production. We're no longer... we really outside of the business outcomes which we're really driving, you can now really start to see impacts, like really positive impacts on community that we're able to have because, you know, we look at it and my whole team does this and I think it's one of the most profound things. People, my whole team is thoughtful of people. That doesn't mean you're nice or a pushover, but you're just considerate of the fact that everybody has, you know, their own lives and their own stuff going on. And because of that we have this really collaborative environment. And it makes what we're doing where it could be really stressful and it is, and it could cause people to descend into sort of survival negativity. Instead everybody works together and picks stuff up and supports each other and it makes what we're doing awesome. And that is the attitude that the whole workforce that we have brings. And there's something about that that, you know, gives you energy. Makes work and every day exciting.
It makes going to work fun.
It does and it makes it... not just the value that you see created, but getting to do it with a group of people who are also bringing that same energy. I just I think it helps all of this go even faster in a healthy way where, you know, I was able to take a couple days off last week. Luckily I got to miss the whole market meltdown. So I just like I got to time skip to disaster, but it's because everybody, you know, you're like, all right, you got to go take a break. You got to recharge. There's not this like tearing you apart in the craziness that can come with really busy time periods. And so I think that is awesome.
Very good case study because you and I have talked about and I think we did it in an interview, the hiring process, the way the teams choose who they're going to hire, right?
