Ondas Holdings Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited. The registrant is Ondas Holdings Inc. (Nasdaq: ONDS).
Business context
Ondas develops, manufactures and sells FullMAX software-defined radio systems and related services for mission-critical industrial wireless networks, including rail, utilities and drone applications. At period-end, its business was reported as one operating segment. The August 5, 2021 American Robotics acquisition occurred after quarter-end and was disclosed as a subsequent event.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0.887 million | $1.155 million | $2.052 million | $1.356 million |
| Gross profit / margin | $0.307 million / 35% | $0.615 million / 53% | $0.916 million / 45% | $0.634 million / 47% |
| Operating loss | $3.138 million | $2.766 million | $6.020 million | $5.097 million |
| Net loss | $2.822 million | $3.221 million | $5.960 million | $6.028 million |
| Basic and diluted loss per share | $(0.10) | $(0.16) | $(0.21) | $(0.30) |
- Q2 revenue declined about 23% year over year; six-month revenue increased about 51%. Development revenue was $1.939 million for the first half, versus $0.515 million a year earlier, while product revenue fell to $0.089 million from $0.827 million.
- Management attributed lower Q2 gross margin to a higher mix of lower-margin development work versus product sales. Six-month gross margin also declined, to 45% from 47%.
- Cash and cash equivalents were $58.550 million at June 30, 2021, compared with $26.061 million at December 31, 2020. Total current assets were $63.488 million and current liabilities were $4.447 million.
- Operating cash use was $7.089 million for the first half, versus $2.766 million in the prior-year period. Investing cash use was $2.166 million, including the $2.0 million loan to American Robotics. Financing provided $41.744 million, principally from the June stock offering, partly offset by debt repayment.
- Long-term notes payable were $0.300 million; no short-term borrowings remained. The company paid off its Steward Capital secured loan in June, including interest, fees and an early-payment penalty.
- The June public offering raised $47.524 million net from 7.36 million shares. The company reported 34.039 million shares outstanding at June 30 and 39.667 million at August 13.
Changes, outlook and notable matters
- Operating loss widened in both comparative periods, despite the first-half revenue increase. Higher general and administrative expense included acquisition-related professional fees; management cited approximately $1.314 million of additional professional and facilities costs for the first half.
- First-half net loss was slightly lower year over year, helped by lower interest expense and $666,091 of PPP loan forgiveness recognized as other income. This forgiveness is a non-recurring item.
- Management said December 2020 and June 2021 equity proceeds, together with anticipated revenue growth, were expected to fund operations for at least twelve months from the report’s issuance. This is not a guarantee; the company cautioned that revenue, cash generation and access to future financing are uncertain. No quantified revenue or earnings guidance was provided.
- Management expected continued COVID-19 effects in 2021, including slower customer activity and delays to sales visits, testing and deployment. The company said the future impact could not be reasonably estimated.
- Commercial progress included Siemens rail development programs (reported 99.5% and 58% complete at June 30) and an AURA project reported 97% complete. Management anticipated further orders and commercialization, but these were forward-looking expectations.
- On August 5, 2021, after the reporting date, Ondas completed its American Robotics acquisition. Consideration included $7.5 million cash, subject to specified deductions, 6.75 million shares, warrants for 1.875 million shares at $7.89, and other specified amounts. Ondas also issued 1.375 million restricted stock units to key American Robotics management.
- Three shareholder lawsuits filed in July challenged disclosures related to the proposed acquisition and sought injunctive and other relief. The acquisition subsequently closed; Ondas said it considered the claims without merit and intended to defend them. The filing did not quantify a potential financial exposure.
- Disclosure controls were deemed ineffective because of a material weakness: limited accounting staff and inadequate segregation of duties. Management described a remediation plan, including additional accounting personnel, outside expertise and stronger controls.
- Revenue and receivables were concentrated: two customers accounted for all reported revenue in Q2 (43% and 57%); one customer represented 75% of period-end accounts receivable.
Important facts for investors to verify
- Whether expected Siemens, AURA and other customer programs convert into recurring product orders and improve product mix and gross margins.
- Post-acquisition cash requirements, final purchase-accounting effects, integration costs and progress toward realizing American Robotics’ expected benefits.
- Actual cash burn and funding runway after acquisition and ongoing development, sales and marketing spending.
- Progress in remediating the internal-control material weakness, particularly segregation of duties and accounting capacity.
- Developments and any potential costs from the shareholder litigation, and the impact of customer concentration and COVID-related delays.