Ageagle Aerial Systems Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
The filing covers the three and six months ended June 30, 2021. AgEagle designs and delivers drones, sensors and software for agriculture, energy, construction and government markets. The company expanded materially through its January 2021 acquisition of MicaSense, a multispectral and thermal sensor business, and its April 2021 acquisition of Measure Global, a drone-operations software provider.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $1.94 million, versus $16,325 | $3.64 million, versus $407,605 |
| Gross profit | $978,135, versus $1,295 | $1.98 million, versus $218,972 |
| Gross margin | 50%, versus 8% | 54%, versus 54% |
| Operating loss | $4.82 million, versus $1.26 million | $7.78 million, versus $1.66 million |
| Net loss | $4.68 million, versus $1.26 million | $7.61 million, versus $1.66 million |
| Loss per share | $0.07, versus $0.31 | $0.12, versus $0.44 |
| Operating cash flow | Not separately provided | $(3.51) million, versus $(710,679) |
- Revenue was driven primarily by MicaSense sensor sales, with six-month sensor revenue of $3.38 million, and by SaaS subscriptions from HempOverview and Measure’s Ground Control platform.
- Operating expenses increased to $9.76 million for the first six months, including $5.68 million of general and administrative expense, $1.95 million of professional fees, $1.34 million of research and development, and $791,427 of sales and marketing expense.
- Cash was $39.21 million at June 30, 2021, compared with $23.94 million at December 31, 2020. Working capital was $34.07 million.
- Total assets increased to $114.54 million from $28.73 million at year-end, primarily because of acquisitions. Goodwill was $64.57 million and intangible assets were $6.21 million.
- Total liabilities were $19.65 million, including $16.10 million of acquisition-related liabilities. The filing reports no outstanding promissory-note debt after forgiveness of the PPP loan, although operating lease liabilities totaled approximately $1.08 million.
- Financing activities provided $43.34 million in the first half, including $34.96 million from common-stock sales, $8.31 million from warrant exercises and $75,825 from option exercises.
Material changes versus the prior comparable period
- Six-month revenue increased approximately 793%, while quarterly revenue increased approximately 11,767%, primarily reflecting the MicaSense and Measure acquisitions.
- Six-month gross margin remained approximately 54%; second-quarter gross margin improved to 50% from 8%, reflecting higher-margin sensor and SaaS sales.
- Operating losses widened substantially because of added payroll, acquisition-related operations, stock compensation, professional fees, research and development, sales and marketing, rent and amortization.
- Common shares outstanding increased to 74.67 million at June 30, 2021 from 58.64 million at December 31, 2020. The company also issued 5.32 million shares for Measure and 540,541 shares for MicaSense.
- MicaSense was acquired for aggregate consideration of approximately $23 million, including $3 million of stock and a $4.75 million holdback. Measure was acquired for approximately $45 million, consisting of $15 million of cash and approximately $30 million of stock, plus a $5.625 million holdback.
- The company corrected a prior-period accounting error involving MicaSense revenue and related costs. Management concluded the cumulative effect was immaterial under SAB 108, but disclosed that internal controls were not effective as of June 30, 2021.
Outlook, commentary, risks and unusual items
- Management stated that cash on hand and expected revenue should fund operations for the next year and indicated that available resources were expected to support operating costs and capital expenditures through December 2022. The company also expects to pursue additional capital-raising opportunities.
- Management’s strategy emphasizes full-stack drone solutions, continued research and development, expansion beyond agriculture and growth through acquisitions.
- COVID-19-related risks include supply-chain disruption, logistics and port congestion, supplier delays, increased costs and microchip shortages. The company reported that its locations and primary suppliers were operating as of June 30, 2021.
- The company relies on financing activities and equity offerings to fund operations, acquisitions and capital expenditures while continuing to incur operating losses. Future liquidity depends on operating performance, market conditions and access to capital.
- The company recognized $108,532 of other income from forgiveness of its PPP loan.
- Stock-based compensation was $2.53 million for the first six months, and $2.91 million of common stock was issued to settle a GreenBlock Capital consulting dispute.
- AgEagle terminated its Valqari manufacturing agreement for cause and disputed the maturity date of a $500,000 convertible note. AgEagle claimed unpaid invoices of $43,945 plus amounts related to two undelivered units; collection and damages remained unresolved.
- The company had approximately $2 million of purchase commitments expected to be realized during 2021 and 2022.
- The CEO resigned effective May 24, 2021, and Brandon Torres Declet, formerly associated with Measure, became CEO. The company approved related severance, equity awards and executive bonus arrangements.
- Several shareholder and securities-related lawsuits were voluntarily dismissed after quarter-end; the filing states that the status and disposition should be verified against subsequent filings.
Important facts for investors to verify
- Verify the final purchase-price allocations, goodwill valuations and impairment risks for MicaSense and Measure, which remained preliminary at June 30, 2021.
- Assess the company’s ability to convert acquisition-driven revenue growth into sustainable operating cash flow and profitability.
- Review dilution from the ATM program, acquisition shares, equity compensation, options and any subsequent equity offerings.
- Investigate the disclosed material weakness in internal controls and the status of remediation, including the revenue-recognition correction.
- Confirm the collectability and maturity of the Valqari note and the resolution of the related manufacturing-contract dispute.
- Evaluate dependence on continued equity financing, supply-chain availability, microchip sourcing and key vendors.
- Review subsequent SEC filings for changes in litigation status, executive compensation, acquisition liabilities, holdbacks and liquidity.