AgEagle Aerial Systems Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
AgEagle designs and delivers drones, sensors and software for agriculture, energy, construction and government markets. The company’s portfolio includes MicaSense sensor products, Measure’s Ground Control SaaS platform and AgEagle’s HempOverview platform.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. MicaSense was acquired in January 2021 and Measure Global was acquired in April 2021, materially changing the company’s scale, revenue mix and cost structure.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $2.02 million | $0.75 million | $5.66 million | $1.16 million |
| Gross profit | $0.79 million | $0.32 million | $2.78 million | $0.54 million |
| Gross margin | 39% | 43% | 49% | 46% |
| Operating loss | $(3.80) million | $(0.58) million | $(11.58) million | $(2.24) million |
| Net loss | $(3.77) million | $(0.58) million | $(11.38) million | $(2.24) million |
| Loss per share | $(0.05) | $(0.01) | $(0.17) | $(0.33) |
- Q3 revenue increased 169%; nine-month revenue increased 389%, primarily from MicaSense sensor sales, Measure subscription revenue and continued HempOverview sales.
- Nine-month revenue comprised approximately $5.29 million of sensor sales, $0.37 million of software subscription sales and approximately $0.4 thousand of drone and custom manufacturing sales. Q3 drone and custom manufacturing revenue was negative $59,493, as presented in the filing.
- Operating expenses rose to $14.36 million for the nine months, including $8.18 million of general and administrative expense, $2.24 million of professional fees, $2.12 million of research and development, and $1.81 million of sales and marketing expense.
- Nine-month operating cash use was $6.68 million, compared with $1.44 million in the prior-year period. Investing cash use was $30.64 million, including $14.54 million for MicaSense, $14.92 million for Measure and $0.76 million of platform development costs.
- Financing activities provided $45.60 million, including $37.18 million from common-stock sales, $8.31 million from warrant exercises and $0.11 million from option exercises.
- Cash was $32.22 million at September 30, 2021, compared with $23.94 million at December 31, 2020. Working capital was $29.27 million.
- Total assets increased to $108.64 million from $28.73 million at year-end 2020, largely reflecting acquisitions. Goodwill was $64.57 million and intangible assets were $6.31 million.
- Total liabilities were $14.46 million, including $10.63 million of liabilities related to acquisition agreements and $1.02 million of lease liabilities. The filing shows no outstanding promissory-note balance at September 30, 2021; the PPP loan was forgiven in May 2021.
- Common shares outstanding increased to 75.29 million at September 30, 2021, from 58.64 million at December 31, 2020, reflecting equity financing, acquisition consideration and equity compensation.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by acquired MicaSense and Measure operations rather than legacy drone manufacturing.
- Gross margin improved for the nine-month period to 49% from 46%, although Q3 margin declined to 39% from 43%, reflecting product mix and higher sensor-related cost of sales.
- Operating losses expanded substantially as the company added personnel, sales and marketing infrastructure, research and development, professional services, leases, ERP implementation costs and amortization associated with acquisitions.
- Stock-based compensation increased to $3.32 million for the nine months from $0.26 million in the prior-year period. The company also recorded $2.91 million of stock issued for professional services, including settlement of the GreenBlock Capital matter.
- The company raised approximately $30.87 million through its ATM program from May 29 through September 30, 2021, in addition to other equity and warrant proceeds, resulting in meaningful shareholder dilution.
- The company corrected prior-period acquisition-related revenue, cost of goods sold, operating expenses and net loss presentation associated with MicaSense. The filing does not provide a separate quantified reconciliation of the correction.
Guidance, outlook, risks and unusual items
No formal revenue or earnings guidance is provided. Management stated that cash on hand and expected revenue would be sufficient to fund operations and capital requirements through December 2022, while also indicating an intention to pursue additional outside capital.
- Management’s strategy emphasizes full-stack drone solutions, continued product and software development, expansion beyond agriculture and growth through acquisitions.
- On October 18, 2021, after the reporting date, the company agreed to acquire senseFly S.A. and senseFly Inc. for aggregate stated consideration of $23.0 million, subject to adjustments, including holdbacks totaling $5.0 million. A portion of the consideration includes $3.0 million of AgEagle common stock.
- COVID-19 and related supply-chain risks include logistics cost increases, port congestion, supplier delays and microchip shortages. These issues could constrain manufacturing and increase costs.
- AgEagle had approximately $2.8 million of purchase commitments expected to be realized in 2021 and 2022, plus operating lease obligations with recorded liabilities of approximately $1.02 million.
- A $700,000 note receivable from Valqari was subject to a maturity and collection dispute. Valqari sought a substantial discount based on alleged manufacturing-agreement breaches, which AgEagle disputes; the parties were negotiating and AgEagle reserved the right to pursue legal action.
- Acquisition accounting remained preliminary, and final purchase-price allocations for MicaSense and Measure could materially change the allocation among goodwill, intangible assets and other assets and liabilities.
- Goodwill and acquired intangible assets represent a significant portion of the asset base and may be subject to future impairment or amortization expense.
- Several previously disclosed securities and derivative lawsuits were voluntarily dismissed during 2021. The company stated that litigation outcomes and insurance coverage remain subject to uncertainty.
- Management stated that disclosure controls were effective as of September 30, 2021, while also noting that remediation and improvement of internal controls were ongoing.
Important facts for investors to verify
- Whether MicaSense, Measure and the subsequent senseFly acquisition generate sufficient recurring revenue and gross profit to offset the substantially higher operating cost base.
- The company’s cash-burn rate, additional capital requirements and potential dilution under the remaining shelf and ATM capacity.
- The collectability and ultimate resolution of the Valqari note and related manufacturing dispute.
- The final purchase-price allocations, goodwill balances and impairment sensitivity for the 2021 acquisitions.
- The effect of supply-chain constraints and microchip shortages on sensor availability, manufacturing costs and delivery schedules.
- The amount and timing of acquisition holdbacks, purchase commitments, lease payments and other contractual obligations.
- The quantified impact of the MicaSense revenue and expense correction and the company’s ongoing internal-control remediation.