Business Context and Reporting Period
AgEagle Aerial Systems Inc. designs and sells unmanned aerial systems, drone sensors and software, serving agriculture, energy and utilities, infrastructure, government and other commercial markets. This Form 10-K covers the fiscal year ended December 31, 2021, with comparison to 2020. The company expanded materially through acquisitions of MicaSense in January, Measure Global in April and senseFly in October 2021.
- Operating segments: Drones and Custom Manufacturing, Sensors, and SaaS.
- The company reported 75.3 million common shares outstanding at December 31, 2021 and 81.6 million as of April 12, 2022.
- AgEagle is listed on NYSE American under UAVS and qualifies as a smaller reporting company.
Financial Performance and Position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $9.76 million | $1.29 million | +659% |
| Gross profit | $4.26 million | $0.57 million | +642% |
| Gross margin | 44% | 45% | Down 2 percentage points, per filing |
| Operating loss | $30.29 million | $4.93 million | Loss increased $25.36 million |
| Net loss | $30.11 million | $4.93 million | Loss increased $25.18 million |
| Basic and diluted loss per share | $0.43 | $0.35 | Loss per share increased |
| Cash from operating activities | $(12.46) million | $(2.26) million | Greater cash use |
| Cash from investing activities | $(42.50) million | $(0.78) million | Primarily acquisitions |
| Cash from financing activities | $45.61 million | $26.26 million | Equity and warrant proceeds |
| Cash balance | $14.59 million | $23.94 million | Down 39% |
2021 revenue consisted of $6.79 million from Sensors, $2.43 million from Drones and Custom Manufacturing, and $0.54 million from SaaS. Sensor revenue was led by MicaSense products; drone revenue benefited from senseFly; and SaaS revenue included Ground Control, HempOverview and Atlas Flight.
- Operating expenses rose to $34.55 million from $5.51 million, reflecting acquired personnel and operations, sales and marketing, research and development, stock compensation, amortization and other integration costs.
- Research and development increased to $4.08 million from $29,392; sales and marketing increased to $3.15 million from $40,003.
- The company recorded a $12.36 million fourth-quarter goodwill impairment charge for the SaaS reporting unit due to lower-than-forecast sales and profitability, declining market conditions and technology changes.
- Total assets increased to $104.68 million from $28.73 million, including $64.87 million of goodwill and $13.57 million of net intangible assets.
- Working capital was $5.85 million at year-end. Current assets were $23.00 million and current liabilities were $17.15 million.
- Total liabilities were $28.11 million, including $18.94 million of acquisition-related holdbacks, $1.26 million of COVID loans, $2.18 million of lease liabilities and other operating obligations.
- The company had no warrants outstanding at December 31, 2021. It reported no off-balance-sheet arrangements other than standard operating leases.
Material Changes Versus the Prior Comparable Period
- Revenue increased substantially because the 2021 acquisitions contributed sensors, fixed-wing drones and SaaS products that were not present, or were only minimally present, in 2020.
- Acquisition cash payments totaled approximately $40.91 million, comprising $14.57 million for MicaSense, $14.92 million for Measure and $11.43 million for senseFly, net of cash acquired.
- Goodwill increased from $3.11 million to $64.87 million, although $12.36 million of SaaS goodwill was impaired in the fourth quarter.
- Inventory increased to $4.04 million from $0.14 million as the company purchased materials to mitigate pandemic-related supply delays.
- Common shares outstanding increased from 58.6 million to 75.3 million, reflecting equity financing, acquisition consideration, option exercises and other share issuances.
- The company sold 5.71 million shares through its ATM program during 2021 for $30.87 million of net proceeds and received $8.31 million from warrant exercises.
- Gross margin declined modestly because of higher component costs and the discontinuation of certain older sensors and airframes.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal revenue, earnings or margin guidance. Management expects to pursue growth in agriculture, energy and utilities, infrastructure and government or military markets by integrating its drone, sensor and software offerings, expanding its reseller network and continuing product development and acquisitions.
- Management stated that cash on hand and expected cash generated from revenue should fund operations through December 2022, but also expects to pursue additional capital. Continued losses, weak sales growth or inability to raise funds could require reductions in operations or commercialization efforts.
- COVID-19 caused supply-chain delays, including delays affecting fulfillment for a large e-commerce customer. The company expects potential additional delays and has increased inventory to mitigate shortages.
- Commercial drone adoption depends on evolving FAA rules, including rules governing beyond-visual-line-of-sight operations, remote identification, privacy and safety. The FAA BVLOS rulemaking committee issued recommendations, but the filing does not indicate that final rules had been adopted.
- Key risks include rapid technological change, intense competition, intellectual-property protection, product liability, cybersecurity, dependence on suppliers and qualified personnel, acquisition integration, customer concentration and access to capital.
- The company has a history of operating losses and reported a cumulative deficit of $51.05 million at December 31, 2021.
- AgEagle’s PPP loan was forgiven in 2021, producing $108,532 of other income. Separately, senseFly-related COVID loans totaled $1.26 million at year-end.
- Valqari paid $315,000 against a $500,000 convertible note; the parties continued negotiating the remaining amount and related manufacturing-agreement disputes.
- Subsequent events included the January 2022 CEO transition back to Barrett Mooney, issuance of 1.93 million shares to Parrot for the senseFly acquisition, release of $2.27 million of MicaSense holdback, and approximately $4.58 million raised through the ATM program through March 18, 2022.
Important Facts for Investors to Verify
- Verify the company’s post-acquisition revenue trajectory, particularly recurring SaaS revenue and the contribution and profitability of MicaSense, Measure and senseFly.
- Assess the company’s cash runway after operating cash burn, acquisition-related holdbacks, lease payments, purchase commitments and additional 2022 financing.
- Review the assumptions supporting the $64.87 million goodwill balance and the $12.36 million SaaS impairment, including whether further impairments could occur.
- Reconcile the reported segment and geographic revenue disclosures, as the filing’s SaaS geographic table does not clearly reconcile to the segment revenue table.
- Monitor dilution from ATM sales, acquisition-related shares, equity compensation and any future capital raises.
- Evaluate supply-chain exposure, inventory obsolescence risk and the company’s ability to source discontinued or critical components.
- Track FAA and government procurement developments, including BVLOS and Remote ID rules and the commercial impact of the eBee TAC’s Blue sUAS approval.
- Review acquisition-related liabilities, contractual commitments of approximately $2.24 million, lease obligations and the remaining Valqari note dispute.