Co. Set for Growth Under New Drone Policy Enters Into Offering

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Drone technology leader and component manufacturer Unusual Machines Inc. (UMAC:NYSEAMERICAN) announced it has entered into a securities purchase agreement with certain investors for the sale of 5 million shares of common stock at a public offering price of US$9.70 per share.

The company said it anticipated generating total gross proceeds of US$48.5 million from the offering, which it announced had closed on Tuesday, prior to accounting for placement agent fees and other associated costs.

The net proceeds are earmarked to enhance U.S.-based manufacturing capabilities, meet working capital requirements, and address general corporate needs.

According a report by MSN.com's Fiona Craig on Monday, the news sent UMAC's stock tumbling as much as 18%.

Analyst: Co. 'Positioned to Win'

The company "is positioned to win" following the U.S. federal government's recent policy shift on July 10, which now classifies small drones as ammunition rather than aircraft, according to a July 11 research note by Litchfield Hills Research Analyst Barry Sine.

Based in Florida, the company is engaged in the design, manufacture, and sale of drone components and drones. With the increasing use of low-cost armed drones in modern warfare and the U.S. ramping up its ammunition reserves, Unusual Machines stands to gain from these developments, Sine pointed out.

The Pentagon already acquires 1.5 billion rounds of ammunition annually and maintains substantial reserves. "The scale will be enormous," Sine wrote. "At about US$500 per Group 1 drone (covered under this new order), demand could be staggering."

Litchfield Hills reiterated its US$20 per share target price on Unusual Machines. At the time of Sine's analysis, the company's shares were trading at approximately US$8.69 each. From this price point, the potential return to the target is 130%. Unusual Machines is rated as a Buy.

Additional modifications under the new Pentagon policy are set to benefit the drone parts manufacturer, according to Sine. For example, combat units are now authorized to purchase small drones directly, bypassing the traditionally lengthy procurement process, and can even use military credit cards for these purchases. Furthermore, each military branch is required to establish active-duty experimental formations by September 1, aimed at rapidly scaling and fully integrating small drones into combat training by 2026.

The analyst drew a parallel between Unusual Machines today and Intel during the personal computer (PC) boom. Much like Intel's chips were essential to personal computers, UMAC's components are crucial to drones. The company provides approximately US$300 worth of vital parts, such as motors and controller boards, for each US$500 drone. Similar to Intel's historical role, Unusual Machines' potential lies in its components being integral to numerous units sold, Sine explained.

"While UMAC may not record end drone sales, its customers will, leading to significant component orders for UMAC," he wrote.

Litchfield Hills has predicted that the upcoming U.S. defense budget for the next fiscal year will likely enhance sales for Unusual Machines, as noted by Sine. The recent small drone policy change is expected to boost this effect even sooner, which is promising news for UMAC. "We now anticipate a meaningful financial impact by the end of 2025," Sine remarked.

American Drone Dominance

Last week, U.S. Secretary of Defense Pete Hegseth announced a significant directive from the Pentagon via a video on X, aimed at bolstering the nation's unmanned aerial systems arsenal. This initiative is designed to fulfill President Donald Trump's executive order to establish "American drone dominance." In a symbolic gesture in the video, a drone delivers a memo to Hegseth, who is seen signing it. Hegseth stated, "While our adversaries have produced millions of cheap drones, we were previously hindered by bureaucratic red tape. Not anymore." He further noted, "In June, President Trump issued an executive order to strengthen our drone industry and equip our warfighters."

The recent executive order, titled "Unleashing American Drone Dominance," primarily focuses on the civilian uses of unmanned aircraft but also includes several provisions that could significantly influence Pentagon and military operations, as reported by Brandi Vincent for DefenseScoop on July 8. Trump emphasized in the directive, "The Department of Defense must be equipped to procure, integrate, and train with low-cost, high-performing drones manufactured in the United States."

The timing of this order is critical as autonomous systems become increasingly essential on modern battlefields. Despite significant investments, all branches of the U.S. military are encountering challenges in adopting and deploying a diverse array of cost-effective drones on a large scale.

"At first glance, the EO (executive order) is directionally sound — it signals a strategic interest in accelerating the adoption of commercial unmanned aerial systems in the U.S. and reducing barriers to their use, especially for testing and training," said Lauren Kahn, a senior research analyst at Georgetown University’s Center for Security and Emerging Technology, in a conversation with Vincent.

David Rothzeid of Shield Capital, an Air Force reservist and Defense Innovation Unit alum, shared a similar sentiment, noting, "It sends a meaningful demand signal to American entrepreneurs and primes the broader market to accelerate development." The executive order also mandates the Department of Defense and military leadership to identify programs that could be more cost-efficient or lethal if drones were to replace current systems, with findings to be reported to the president within 90 days.

The global market for drone components is expected to experience robust growth, with a projected compound annual growth rate (CAGR) of 11.4% through 2028, according to Tech Sci Research. This growth is driven by the expanding integration of drones across various sectors and the broadening scope of their applications.

In terms of drone motors, North America continues to play a significant role in production. According to a report by Future Market Insights, last year the region accounted for 40%, or US$966.2 million, of the global US$2.4 billion drone motors market. Looking ahead to 2032, the North American drone motors market is expected to grow at a CAGR of 18.7%, with the U.S., Canada, and Mexico projected to see substantial growth.

Globally, the drone motors market is anticipated to expand at a CAGR of 16.8%, potentially reaching a valuation of US$16 billion, driven by continuous technological advancements and a rising demand for high-performance motors that offer extended flight durations, enhanced performance, and durability under extensive operational conditions.

Ownership and Share Structure

About 11.1% of the company is owned by management and insiders, UMAC said. The rest, 88.9%, is retail.

Unusual Machines has 24.83.1 million common shares. Its market cap is US$288.03 million. Its 52-week high and low share prices are US$23.62 and US$1.28 per share, respectively.