Ondas Holdings Inc. (Nasdaq: ONDS) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; financial statements are unaudited. The company operates Ondas Networks and Ondas Autonomous Systems, which includes American Robotics and Airobotics. Airobotics was acquired on January 23, 2023, so 2023 results include it from that date.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $5.47 million | $0.60 million | $8.06 million | $1.01 million |
| Gross profit / margin | $3.07 million / 56% | $0.32 million / 53% | $4.10 million / 51% | $0.44 million / 43% |
| Operating loss | $(8.50) million | $(11.37) million | $(21.15) million | $(21.36) million |
| Net loss | $(8.96) million | $(11.39) million | $(23.41) million | $(21.40) million |
| Basic and diluted loss per share | $(0.18) | $(0.27) | $(0.47) | $(0.51) |
- Q2 revenue growth reflected Airobotics sales and higher Ondas Networks product sales, including to Siemens. Autonomous Systems contributed $3.95 million of Q2 revenue; Networks contributed $1.52 million.
- Six-month operating expenses increased 16% to $25.25 million, including higher R&D and sales and marketing costs and acquisition-related expenses. Operating loss was approximately flat year over year, but higher interest and debt-discount/issuance-cost amortization contributed to a 9% increase in net loss.
- Operating cash outflow was $21.86 million for the first half, versus $15.30 million a year earlier. Investing activities provided $0.70 million, including cash acquired with Airobotics; financing activities used $5.50 million, primarily for convertible-note and loan payments.
- At June 30, cash was $3.06 million and restricted cash was $0.04 million, down from $29.78 million cash at December 31, 2022. Working capital deficit was approximately $15.96 million. Current assets were $13.09 million against current liabilities of $29.05 million.
- The company reported $20.53 million of short-term borrowings and $3.66 million of net long-term borrowings in its liquidity discussion. The 2022 convertible notes bear 3% interest and had $23.45 million principal outstanding at June 30; their carrying value is reduced by unamortized discounts and issuance costs.
Material changes and capital structure
- Airobotics’ acquisition expanded the autonomous-drone business and contributed substantially to reported revenue, assets, goodwill, and amortization. The purchase-price allocation remained preliminary.
- Common shares outstanding rose from 44.11 million at December 31, 2022 to 52.45 million at June 30, 2023, including shares issued to repay convertible debt. Approximately 54.46 million shares were outstanding on August 8, 2023.
- After quarter-end, the company issued approximately 1.985 million additional shares through note installment conversions. The notes’ conversion price is linked to recent trading prices; if specified equity conditions are not met, installments may be payable in cash.
- On July 21, 2023, the company amended the existing notes, including extending their maturity to April 28, 2025 and changing conversion terms. On July 24–25, it issued additional convertible notes with $11.5 million original principal and approximately $10 million gross proceeds, maturing July 25, 2025.
- Ondas Networks received an initial $11.51 million preferred-stock investment after quarter-end; a subsequent closing brought the purchaser’s investment to $15 million. The related parent-company warrants cover up to 10.2 million shares at $0.89 per share, subject to their terms. Management reported approximately $25 million raised after quarter-end through convertible notes and the Ondas Networks preferred-stock financing.
- The company and its sales agent terminated the ATM offering agreement effective July 11, 2023.
Outlook, commentary, and risks
- Management said the June 30 cash position, working-capital deficit, recurring losses, and negative operating cash flow raised substantial doubt about the company’s ability to continue as a going concern. It stated that the subsequent approximately $25 million capital infusion alleviated the going-concern conditions and expected funding for the next 12 months from that capital, revenue growth, possible customer prepayments, warrants, and potential additional financing. This is not a profitability forecast; the filing provides no quantified revenue or earnings guidance.
- Management cautioned that future funding needs depend on product development, manufacturing, sales, and working-capital requirements, and that additional financing may not be available on acceptable terms. It also noted there is no assurance that revenue and cash generation will meet its business plan.
- Key risks include continued cash burn; note payment, acceleration, and refinancing obligations; potential dilution from conversions, warrants, and future financing; significant customer and receivables concentration; and execution and integration of acquired businesses. Two customers represented 61% and 28% of Q2 revenue; three represented 42%, 33%, and 23% of first-half revenue.
- Further risks include supply-chain, component, labor, and cost pressures; competition and market adoption; and FAA approval requirements. The filing says Airobotics was in advanced stages of seeking FAA Type Certification for Optimus, which would enable broader U.S. operations, including in populated areas.
- No material legal proceedings or loss contingencies were reported. Management said disclosure controls were effective as of June 30, 2023. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- How the post-quarter financing proceeds are allocated, the company’s current cash runway, and whether operating cash burn is declining.
- The detailed conversion, installment, maturity, and cash-payment terms of the existing and additional notes, including any subsequent amendments or conversions.
- The potential dilution and registration obligations associated with note conversions and the 10.2 million-share warrant package.
- Whether reported revenue growth is repeatable, particularly given the acquisition contribution, customer concentration, and product-heavy revenue mix.
- Progress on FAA Type Certification, customer deployments, and execution of the stated business plans for Ondas Networks and Autonomous Systems.