AgEagle Aerial Systems Inc. — Q1 2021 Form 10-Q Summary
Business Context and Reporting Period
AgEagle develops and manufactures drone systems, multispectral sensors, aerial imaging and analytics solutions, and software subscriptions, primarily for agriculture and expanding commercial markets such as package delivery, infrastructure inspection, public safety, and security. The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020.
On January 27, 2021, AgEagle acquired MicaSense, a developer and seller of thermal and multispectral drone sensors. MicaSense products were distributed in approximately 70 countries and materially changed the company’s revenue mix and asset base.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $1.70 million | $391,280 | 335% increase |
| Gross profit | $1.08 million | $216,797 | 398% increase |
| Gross margin | 63% | 55% | Improved |
| Operating expenses | $4.04 million | $620,070 | 552% increase |
| Loss from operations | $(2.96) million | $(403,273) | Loss increased |
| Net loss | $(2.93) million | $(403,273) | Loss increased by $2.53 million |
| Loss per common share | $(0.05) | $(0.03) | Higher loss per share |
| Cash used in operating activities | $(1.13) million | $(359,629) | Greater cash use |
| Cash balance at period end | $24.19 million | $356,084 | Substantially higher |
Revenue consisted of $1.68 million of sensor sales and $24,243 of software subscription sales. The prior-year quarter included $374,278 of drone and custom manufacturing sales and $17,002 of software subscription sales. The filing attributes the revenue increase primarily to MicaSense sensor sales and continued Iowa aerial imaging and analytics activity.
Operating expenses increased because of MicaSense-related payroll, sales and marketing, research and development, amortization, rent, professional fees, acquisition and capital-raising activity, and a consultant-related contingent liability accrual. Professional fees were $1.66 million, general and administrative expenses were $1.85 million, research and development expenses were $232,804, and sales and marketing expenses were $297,705.
Investing activities used $13.28 million, including $12.99 million for the MicaSense acquisition, $205,780 for platform development, and $82,990 for fixed assets. Financing activities provided $14.66 million, including $6.31 million from common stock sales, $8.31 million from warrant exercises, and $41,380 from option exercises.
Balance Sheet, Debt, and Liquidity
- Total assets were $53.50 million at March 31, 2021, compared with $28.73 million at December 31, 2020.
- Cash was $24.19 million, while total current assets were $26.25 million and total current liabilities were $9.07 million.
- Working capital was reported at $17.18 million.
- Total liabilities were $14.97 million, including $9.58 million related to the MicaSense acquisition, $1.14 million of lease liabilities, and $107,439 of remaining PPP promissory note obligations.
- Goodwill increased to $22.12 million and intangible assets increased to $3.67 million, primarily because of the MicaSense acquisition.
- Management stated that cash on hand and expected revenue would be sufficient for the next year of operations and indicated that capital resources were expected to support anticipated operating costs and capital expenditures through December 2022. The company also expected to pursue additional capital raises.
Material Changes Versus the Prior Comparable Period
- Revenue increased sharply, primarily from the newly acquired MicaSense sensor business.
- Gross margin expanded from 55% to 63%, reflecting a greater mix of higher-margin sensor sales.
- Operating expenses increased substantially, causing the operating loss to widen from $403,273 to $2.96 million.
- Operating cash burn increased from $359,629 to $1.13 million.
- The company shifted from a largely drone and custom manufacturing revenue mix to one dominated by sensor sales.
- Common shares outstanding increased to 62.5 million at March 31, 2021 from 58.6 million at December 31, 2020; 68.4 million shares were outstanding as of May 17, 2021.
Outlook, Commentary, Risks, and Unusual Items
Management’s strategy focuses on expanding agricultural solutions, sensor solutions, and U.S.-based drone design and manufacturing. Management also intends to pursue growth through acquisitions and expansion into package delivery, inspection, mapping, decontamination, and other commercial applications.
- MicaSense acquisition: The preliminary purchase price was approximately $23.0 million, subject to adjustments, including $3.0 million of stock consideration and a $4.75 million holdback. The purchase price allocation remains preliminary and could change materially.
- Subsequent Measure acquisition: On April 19, 2021, the company acquired Measure Global Inc. for an aggregate purchase price of $45.0 million, consisting of $15.0 million in cash and approximately $30.0 million in common stock, before specified adjustments. This transaction was not reflected in the March 31, 2021 balance sheet.
- Consultant settlement: The company agreed after quarter-end to issue 550,000 shares to settle a disputed GreenBlock Capital consulting claim. The filing reports an aggregate accrued liability of approximately $2.91 million for the settlement.
- Valqari note: A $500,000 convertible promissory note matured on April 15, 2021. The company was in active discussions with Valqari regarding whether the contractual extension conditions had been satisfied.
- Litigation: Two shareholder securities class actions and one shareholder derivative action allege, among other matters, misleading statements concerning the company’s relationship with an e-commerce company. The company disputes the claims and stated that it could not meaningfully assess the likelihood of an unfavorable outcome.
- COVID-19: Potential risks include supply-chain disruption, manufacturing or shipment delays, reduced access to capital, and weaker demand. The company had not experienced material COVID-19 disruptions as of the filing.
- Commitments: The company reported approximately $850,000 of purchase commitments expected to be realized during fiscal 2021, in addition to operating lease obligations.
- PPP loan: The company had applied for forgiveness of its $107,439 PPP loan and expected full forgiveness, but acknowledged that forgiveness was not assured.
Important Facts for Investors to Verify
- Whether the preliminary MicaSense purchase price allocation, goodwill, and intangible asset valuations change materially.
- The financial contribution, integration costs, dilution, and cash requirements associated with the Measure acquisition.
- Whether the Valqari note was repaid, converted, or extended after its April 15, 2021 maturity date.
- The final cost and share issuance related to the GreenBlock settlement and any further litigation exposure.
- Whether sensor revenue growth is sustainable and whether the company can reduce operating losses as acquisitions are integrated.
- The pace of operating cash burn, additional financing needs, and potential dilution from future equity issuance and equity compensation.
- The outcome of the shareholder litigation and any related insurance coverage or settlements.
- Whether the PPP loan ultimately received full forgiveness.