Drone Parts Co. Builds Momentum in Q3/25
Research Report

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Disclosures for Litchfield Hills, Unusual Machines Inc., November 7, 2025

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Unusual Machines Inc. (UMAC:NYSEAMERICAN) announced "one of its most substantive quarterly updates to date," reported Barry Sine, analyst at Litchfield Hills Research, in a November 7 research note. This Florida-headquartered defense firm manufactures and supplies drone components.

"The company now holds roughly US$16 million (US$16M) in purchase orders scheduled for delivery through Q2/26," Sine wrote. "[It] is aggressively expanding its U.S. manufacturing footprint."

132% Return Implied

Litchfield Hills maintained its US$25 per share target price on Unusual Machines Inc., noted the analyst, who pointed out the potential for a UMAC rerating.

"As program awards resume post shutdown, as automation equipment comes online and as the company demonstrates progress toward cash flow break even, we expect the market to rerate the shares in line with a higher-growth, defense-technology peer set," Sine wrote.

Compared to the US$25 per share target, UMAC was trading at the time of Sine's report at about US$10.75 per share. From this price, the return to target is 132%.

Unusual Machines remains a Buy.

The company has 36.8 million shares outstanding, a market cap of US$334.4M and a 52-week range of US$1.89–23.62 per share.

Q3/25 Results Recapped

Sine reviewed the company's Q3/25 financial results. The highlights were the beat of consensus on earnings per share with a US$0.05 GAAP profit. This resulted from US$5.8M in realized gains from strategic investments made during the quarter.

Also noteworthy, gross margin reached a record 39.4% in Q3/25. This reduced the EBITDA loss by more than US$1M.

 "We expect the introduction of automated high-volume production equipment by mid-2026, combined with a rising backlog, to be a pivotal point for margin expansion," Sine wrote.

The purchase order backlog scheduled for delivery through Q2/26 as of Q3/25's end was US$16M.

"This figure exceeded expectations and does not include the retail business, which we believe is positioned for another strong holiday-driven Q4," Sine wrote.

As for other Q3/25 performance, revenue was "essentially flat" quarter over quarter (QOQ) but up 39% year over year (YOY). Enterprise revenue reached US$1.1M, up from zero in Q3/24 because the first shipments of previously announced component orders started contributing to results. Most of this revenue likely is from electronic components like controllers, Sine wrote.

Q3/25 retail revenue dropped QOQ and YOY, reflecting typical seasonality during the period. Litchfield Hills expects retail to rebound significantly in Q4/25 due to there now being a company executive dedicated to retail and if the level of sales activity this quarter reflects the level in Q4/24. Litchfield Hills expects retail, over the long term, to expand about 10% each year.

Capex amounted to US$1.3M during Q3/25, leading to negative free cash flow of US$2.9M.

Improved Balance Sheet

Thanks to its at-the-market equity program, Unusual Machines' balance sheet strengthened during Q3/25 and subsequently. The company now has about US$133M in cash and no debt, which positions it nicely to generate US$21M in 2026 revenue, Litchfield's forecast, and scaling up over the long term to more than US$100M, Sine wrote.

This liquidity also affords UMAC "exceptional flexibility to support working capital, absorb growth-related inefficiencies and opportunistically pursue acquisitions at a moment when industry competitors face capital constraints," wrote Sine. Unusual Machines is expected to pursue acquisitions, especially related to drone components it does not offer now, like batteries.

The company expects to reach cash flow break even status at about US$7.5M in quarterly revenue, potentially by Q4/26, reported Sine. Litchfield Hills' estimate is "just under that figure."

Production Expansion

UMAC continues to ramp up its U.S. production aggressively with its new and now operating  drone production factory and 31 new staff members, noted Sine. From this facility, the company now can ship thousands of units per month. Automated high-volume production equipment is slated for installation in mid-2026, which should accelerate production and lower unit costs.

Due to the U.S. government shutdown, defense orders have been on hold. This is simply a timing issue not a demand problem, and could allow for Unusual Machines to catch up on some of its backlog, noted Sine.

PBAS Opportunity Ahead

Sine pointed out that the U.S. Army's Purpose-Built Attritable Systems (PBAS) program, which aims to procure low-cost, sub-US$2,000 attritable drones, would be a great opportunity for Unusual Machines, its CEO said in the recent earnings call. It would bring about US$200–300M over the long term and would start next year. Already, UMAC is supplying ever Tier 1 PBAS contender, Red Cat Holdings Inc. (RCAT:NASDAQ), Anduril, Skydio, and Performance Drone Works. Also Unusual Machines already supplies numerous components for the 101st Airborne's Attritable Battlefield Enabler program, which validates the company's U.S.-based manufacturing strategy, noted the analyst.

"As a component provider, Unusual Machines would capture only a share of system-level revenue, but its military-certified, National Defense Authorization Act-compliant portfolio gives it a strong competitive position across platforms," Sine wrote.

Long-Term Outlook

Sine discussed the outlook for Unusual Machines. Litchfield Hills forecasts Q4/25 revenue of US$3.5M, expecting a robust holiday season for the company and early shipments of announced enterprise orders.

"In our opinion, Unusual Machines approaches 2026 with a clear pathway to scale," Sine wrote.

As for 2026, Litchfield Hills also sees Unusual Machines becoming cash flow break even by year-end and generating US$21M in total revenue for the year. The purchase order pipeline and the potential in manufacturing support this outlook.

Longer term, Litchfield Hills and Unusual Machines agree that US$100M in annual revenue is doable, "consistent with the emerging demand landscape for attritable drones, the PBAS program and other directed-requirements pathways coming out of the Pentagon," wrote Sine.

Factors to Consider

Sine listed several drivers supporting this outlook for UMAC, which when combined, "support a favorable multiyear risk-reward profile."

U.S. Drone Orders Delayed: The U.S. Department of Defense has not yet issued the large-scale drone orders expected under various programs of record, and these would generate ongoing orders.

Attritable Drones in Demand: Because the drones governments want today are attritable, they need replacing regularly. The Pentagon's FY25 ammunition procurement budget is US$4.7 billion. If expendable drones account for even a part of this total, the market could expand dramatically. If Unusual Machines continues bolstering its position in drone components, revenue could exceed the targeted US$100M level.

U.S. Equipping Military Units: Over the next several years, the U.S. military will need to rapidly scale procurement to finish equipping various units with drones. Because these drones are expendable, these purchases should become recurring.

Broader M&A Field: With the U.S. government not approving new public offerings due to the shutdown, companies may turn to acquisition opportunities instead. This could open the door for UMAC to acquire a drone component or other firm, and the company has indicated it would like to add batteries to its offerings next.

Opportunity in Commercial: The commercial market continues to offer significant upside for UMAC. Companies are pursuing delivery via drones. The military drone technologies being honed in Ukraine, such as swarming and cybersecurity defense measures, apply to commercial operations as well.

"As these technologies mature, commercial demand could form the second major leg of Unusual Machines' long-term growth story," Sine wrote.