Welcome to Alpha Wolf Capital. I'm Tim, and I want to personally thank you for stopping by. This channel is designed to help small companies, both public and private, gain exposure with potential consumers, investors, even partners. Take for example today's guest, CEO Allan Evans of Unusual Machines, ticker symbol MAC. Unusual Machines is in the envious position of being a US drone parts supplier, one of the very few US drone parts suppliers. They are in the process of building out a 17,000 square foot facility to manufacture drone motors right here in the United States. As we move into 2026, Unusual Machines is going to be a key player in the drone component industry for US-made drones. But I'm going to let Allan tell you more about that in just a minute. This is not to be taken as investment advice. I am not a certified financial planner. This is for education and entertainment purposes only. I encourage everyone to do their own due diligence.
Hey everybody, Tim from Alpha Wolf Capital coming at you with another follow-up with you, because well, they got a lot of stuff going on so it seems like, you know, every couple of weeks me and Allan are talking, but it's always a good conversation, right? Exciting times.
Did you have something happen in the last week or so that was kind of important?
No, a little more impactful than the haircut.
We did a registered direct last weekend and raised $48.7 million.
Was that a struggle? I mean, it took the whole weekend.
No, we basically at the end of the day Friday, you know, with the Hexath news, we sat around as a team and said, "Okay, you know, what does this change?" And we said, "All right, we probably could use a little more money in the bank as we go after this, especially given the enthusiasm." And then, as we always said, we don't raise money unless we're fairly certain we'll make those investors money. Like, our job starts after we raise money, not before, which is maybe an unusual attitude, but because of it, reached out to our banker Kyle at Dominari who's been great, and you know, we were oversubscribed I think by Friday night, and so we priced Monday morning.
We did it at a 20% discount to Friday's close with a common-only deal, and you know, since then it's traded up. So we put our investors in a position to get IRR on a common-only deal. It was a very clean deal. Yeah, no, I mean the only warrants are the underwriter warrants, which you would expect, right, in terms of what we're doing, but otherwise very clean. We still don't have any debt. We have a lot of cash.
We have about what, 90, somewhere in there?
Yeah, 85 to 90 million give or take. Yeah, we're still burning about 750K a quarter. That might step up a little bit. We'll have some transaction-related fees and we're hiring a few people, but our burn is pretty modest compared to that cash position.
Yeah, I actually wanted to bring that up as well. So, I've noticed on LinkedIn there are several posts for different positions within the company, right? And we were talking before we hopped on that you have a pretty unique way of, even though you have your PhD, you're not necessarily, it's not a school thing, right? Or an education thing. It's more of some of the intangibles, right?
Well, a couple things that are interesting about how we approach hiring. And let me start by saying one of what I see the key measures to long-term success for a company is churn, whether it's customer churn, employee churn. Churn is fundamentally destructive, but nobody sees it, doesn't show up in like your queue or whatever. So, one of the things I'm really proud of is we have extremely low churn, low customer churn, low employee churn, everything else. And a couple things that we do, we try very hard to promote internally. We don't care about education. And so, we've recently announced, for example, somebody who's been crushing it for years, Stacy Wright, is promoted to EVP Revenue. And she's just been on fire. A big part of why every quarter's been our best quarter of all time is, you know, her getting her hands in it. So excited about that.
But also when we hire, one of the things we try really hard to do is have the four or five people that you're going to work closest with also get to spend time as part of the interview process. And then if anybody says no, we don't hire you, because that way we don't accidentally, you know, it's not one person making a decision and maybe running into personality mismatches that can make work, I don't know, not fun. And so we try to make it a place where, okay, the person that you're working with now, you said yes to. So they come in and you've already sort of invited them into the team and so it's a lot more collaborative even right out of the gate. But yeah, we're looking to scale up, probably to about 40 people, you know, which it's a really great place, high school education to come be salaried, get options, you know, benefits to do production work, you know, we're more automated, that's how we deal with some of the costs, but building out in Orlando. So, anybody interested, you know, reach out to our HR group and we're always happy to talk to you.
So, you're looking for, I mean, you're not just looking for one or two positions. You're looking for production guys, you're looking for engineers, you're looking for salespeople.
Yep. Yeah. I mean, yes, we're moving to the next phase of the company. So, you know, part of the financing and part of this growth effort is from the different things we're hearing from our customers and ultimately from defense as a customer, coupled with the executive orders, the budget being passed, and Heath's memo, like this is going to go. And so if we don't hire the people now and train them sort of this summer and have everybody ready to work when we start to see orders, I think we're still going to not see them till the end of August, September, October. But once we see them, we have to be able to fulfill them, right? If we can't deliver for our customers, they're going to be pissed and they're going to go find somebody else that will. So, this is all us just positioning to be ready now for what is going to be a really interesting late summer, early fall in terms of orders from the government and ultimately then from our customers that sell to the government.
And that is, like you said, a big part of the reason why you did do another, right?
Sure. Let's just go through a hypothetical. Let's say one of our customers gets an order for 100,000 drones. You know, if you look at different analysis out there, we're probably about $500 a drone in materials from us to that customer. Okay. Well, that's $50 million. Now, with the change in the way that the government has identified drones as basically munitions, they kind of don't pay till they get it, you know, just like the rest of us. So moving away from these really long drawn-out contract processes means moving away from strange "here's giant deposits" to more like "yeah, we'll pay when we get it, cool."
So now what people don't realize is supply chains that are non-Chinese are really long, you know, 9 months long at least. And so for instance, just for an RF chip, delivery times are six months and the minimum order quantity is 50,000 chips.
Okay. So, we got to start to set up the supply chain now to be able to begin deliveries in a time period. And you're looking at that for 100,000 drones, you're looking at $50 million worth of parts. And if it's 9 months long, plus you deliver to the government, they pay net-30, but they often pay late. So, really, you figure they're net-60, net-90. They'll pay a penalty on it. You're looking at you need $50 million just in the system to realize your delivery time periods for those orders you expect to get. And when we were looking at our balance sheet before, like $40 million is a lot of money for our burn for what we're doing, we realized that, you know, given some of our potential pipelines, if those hit, we didn't have enough money to put into the system to deliver.
And so we thought, here's a pretty good opportunity, you know, we have this exciting fall coming. So, we're pretty sure investors are going to be in a position where we're going to do everything we can to be sure they get a return, because that's our job to our investors. But now, we feel like we're in a much better position to, you know, continue to hire a couple people, build out the motor factory, but really have that capital to put into the supply chain as we start to see the indicators of these orders. So, we're able to deliver and not hit a cash crunch. You know, if success, you don't want to...
Cash crunches, you're talking about. It's not just drones. I mean, it's for other automobiles. It's...
Like, look, you don't matter. First, there's 4 million drones being consumed in Ukraine every year. So, you don't matter to these chip manufacturers unless you're single-digit percentages of volume, right? So, if you figure 4 million, if you're not doing 40,000, you're not 1%. Is a sales guy there going to talk to you? And that's not even counting like some camera chips that go into automotive for backup cameras or these other things where like you're talking tens of millions are consumed. So in order to even get the attention to buy directly, which is where huge cost savings come in, which lets us be price competitive, 25, 50,000, that's table stakes to play just based on their economics.
And so a 100,000 unit order, if we don't have 25,000 chips for them to go through our supply chain to start to deliver when they need to deliver in January, crap. Like, do we want to be late delivering on government orders or do we want to be able to hit this scale on time and then really drive it? This is the fundamental corner for a high-risk, high-return business decision we have to make. Do we believe that we're going to see 25,000 units or more ordered? If we do, we need to commit to our supply chain now to hit the front end of that delivery, where we know that if we get even larger orders, we have time to scale the supply chain on the back end. And so given the Hexath change, what we're hearing from our customers, from the DoD, we said, "Okay, let's put the money in the bank and say we believe we're going to see at least 25,000 units ordered."
This is a perfect example of you raise money when you can, not when you need to. Right? I mean, if you wait until you need to raise money, that could be a very bad situation.
That's a public markets attitude that I would definitely agree with. I look at this still more as venture, when you have the opportunity to put money to use to drive overwhelming outcomes. Yeah, you take the money to drive overwhelming outcomes. And again, just like we have all the way along, we have to make some assumptions about what will happen. We're assuming the market turns on this fall. I'm still not, I'm assuming August, September for when orders happen. I don't think it'll be sooner because of when the budget got passed. So, we're making an assumption it happens and we have to commit to the supply chain already.
We have to commit to the staffing already. And so, there is some risk here. We're scaling in advance of marketplace indicators so that if those marketplace indicators show up, we are there. And if we wait, then we're too late. So this is a high-risk, high-return leverage moment for our company where if you believe what we believe and you believe that we're paying attention to it, there's a lot of opportunity here. And if we're wrong, well, then we have enough money and enough momentum to probably buy the winners. And that's fine, too. Like that's our backup plan, because they're all private companies. So if in November we realize we lost, we can go have conversations with the winners and say, "Hey, look, liquidity in public stock, like what do you guys think?"
No, I just, like any good CEO going into a critical event, every drone company, every drone parts company will tell you right now, they're sure they're going to win. We're sure we're going to win too. You know, I'm positive. It turns out not everyone's going to win, but right now everyone's confidence is through the roof.
So I think, and you think, we've talked about this before we hopped on, that in the next six months, you're really going to get a better picture of who prepared well and who didn't prepare well enough, right?
I think there's a couple of phases to what we're going to see in the market. The first phase we're going to see through about November is who gets orders. Okay. Some people are going to get orders, some people aren't. And the people that aren't, if they're smart, they'll recognize that hardware is a virtuous cycle. They're going to be left behind and you'll see some consolidation there. But the next thing you'll see is the people who can deliver on those orders versus not. And there's also been a history of drone companies and emerging hardware companies in general who get these really big orders who just can't scale. So you're first going to see who can get sales and then who can scale. And by late next summer, we'll probably be down to a third of the companies that are meaningful over what we have now, because maybe you lose a third to half in the sales and I think you'll lose another third to half in the scaling function.
What do you mean, 'wow'? The winners are going to be way bigger than they are now. I mean, that's the difference. Like, okay, wow, we lost, like we saw consolidation or companies die off or go zombie, but the winners are going to be—you'll be able to invest with much higher confidence in the winners because they'll have identified sales and scale and after that you're now on that growth factor.
Right. So this is a really high alpha time if you're successful in picking the winners through those two phases. And then like for us, we're willing to hedge, because if we lose the sales phase, we're willing to go buy them. I mean, we'll engage in public-private arbitrage if we have to as a backup plan.
You pretty much came to win, right?
Yeah. Like, this is a tens of billions of dollars legislatively created market that requires huge amounts of resources and is going to be a bloodbath in terms of there are not going to be very many surviving companies, because it's a virtuous cycle. The bigger you get, the better you get. The bigger you get, the better you get. It happens fast. And so the winners are going to win. There aren't going to be that many. And the ones that win are going to be monster companies.
Hey, so that's why we state our assumptions. We hold our conviction. We go after it. Hey, if we're wrong, we're going to be wrong hard, you know, like, but if we're right, we're going to be right hard. And that's part of, you know, looking at what the Hexath memo and the changes in the marketplace, we realized we didn't have enough resources to put into the supply chain to be right hard, right? And so now we do.
Now, is that going to change? Are we going to get spendy all of a sudden? No. There's not a lot of extra money here to go raise salaries or move away from our core. We sort of pay a lot of attention to what our spend rate is. Now, there is going to be some money to go fast or to clean up problems as we absolutely need to, you know, keep our customers happy, right? So there'll be a little, you know, it might show itself in slightly lower gross margins for a little bit as we bring stuff online and we have to credit it or do returns if maybe a batch of motors didn't work great or whatever. And so it does give us some cushion to address those things, but it doesn't fundamentally change our attitude toward how we spend money. And it can't, like it literally enables us to make the choice to go be a manufacturer. I think people dramatically underestimate how much money is in material flow for manufacturing.
Yeah, I would think there are probably a lot of people that are not real clued in to that aspect.
Yeah, here's a funny one. If you want a funny one, totally different industry. If you look at Diageo, they make a lot of scotch, right? They're a global liquor brand. About 10% of their market cap is in barrels that require more than another year to age. Just think about that—is like they're a manufacturer in a traditional industry. 10% of their market cap is what they need to have in stock sitting around, right? Like manufacturing requires a huge amount of flow and when you scale up is when it requires the most disparate financial disparity, because you have to put money in the system for revenues a year out to recover. So the faster the growth, the deeper the money in the system to enable that growth so you get up to steady state.
Yeah, it makes a lot of sense. And normally you would finance that growth through either vendor terms or supplier terms or whatever. But because there's no drone supply chain, there's no major drone company in the US, that means there's no like big gorilla that's able to finance it.
So we get to be that gorilla. But that makes it a lot easier for people to buy from us, because are you going to buy from us where we can deliver at a reasonable price on time and, you know, give you payment terms, effectively financing your order where we collect money on it, or are you going to go put all your cash into a company where you don't know if they're going to run out of money or deliver on time even if the quality of the product's the same. So this bank account effectively helps us drive sales and drive outcomes for our customers as well, because now if they get a big order, they're not getting paid up front, but they can show us the order and then we can give credit against that order as a lien.
Yeah, that makes sense. Allan, I gotta tell you, man. Anybody that's been watching the interviews that we do, you can learn an awful lot about just running a business and how to look at a business, right?
Hopefully. I mean, I try to share insights so that people can at least understand the journey in real time and decide if they think I know what I'm doing or not. It's like if I put out the assumptions, like here's what we're doing and why, could I be wrong? Yeah. But if I'm right...
And you've been right, I think you've been dead on. And I mean, I've said that since day one. We talked about, well, is it too early? Maybe. But sure looked like the timing was right to me, right?
Yeah. Yeah. I mean, you look, sometimes you get a little lucky and, you know, I'm not going to complain.
But that's just, I'm pretty well positioned. I'm pretty excited about what we're doing. This feels like the last major gamble we have to take as a company in terms of, you know, really everything is saying, and we've all agreed, it's not just me. It's our entire team. Like now is the moment. And so we're embracing the moment and we're going to go after it. If we're wrong about that, okay, we'll identify that we're wrong about it and it really won't do that much damage to where we're at. You know...
I think what's awesome is that what you're demonstrating is the ability to quickly make decisions, right?
You have to and take action.
Speed of execution is the number one advantage of a small company. If you're not willing to use what is your only advantage, you'll lose. I mean, if the market was known, Lockheed, Boeing, they all have huge amounts of resources. They can just fast-follow. They could go acquire winners. They can do whatever. When you're small, you have to make assumptions. You have to treat those assumptions about the future as basically truths and then you have to make decisions and execute toward that end.
