Ondas Holdings Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Ondas operates two segments: Ondas Networks, which supplies private wireless connectivity solutions, and American Robotics, which provides autonomous drone and data services. Figures below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $632,489 | $283,329 | $1,646,905 | $2,335,525 |
| Gross profit | $399,488 | $13,613 | $840,334 | $929,784 |
| Gross margin | 63% | 5% | 51% | 40% |
| Operating loss | $(13,548,744) | $(4,913,351) | $(34,913,165) | $(10,933,044) |
| Net loss | $(13,578,341) | $(4,914,272) | $(34,980,165) | $(10,874,157) |
| Loss per share, basic and diluted | $(0.32) | $(0.13) | $(0.83) | $(0.34) |
- Q3 revenue rose about 123% year over year, while nine-month revenue fell about 29%. Management attributed the year-to-date decline chiefly to lower development revenue after earlier contracts were substantially completed. Product and service revenue increased.
- Q3 gross margin improved to 63%, which management attributed to lower development costs and better product margins. Nine-month gross profit nevertheless declined, despite the higher reported gross margin, as revenue fell.
- Operating expenses increased 183% in Q3 and 201% for the first nine months. Management attributed most of the increases to American Robotics, including compensation, research and development, and depreciation and amortization. The acquisition was completed in August 2021, so the periods are not fully comparable.
- Cash and cash equivalents were $15.3 million at September 30, down from $40.8 million at December 31, 2021. Nine-month operating cash use was $26.2 million; investing cash use was $5.5 million; financing provided $6.2 million. Cash at September 30 was $15.3 million.
- Working capital was $12.9 million. The company reported $0 short-term borrowings and $300,000 long-term notes payable, plus $3.3 million of operating lease liabilities. Total liabilities were $9.2 million.
- After quarter-end, the October 2022 convertible-notes offering provided approximately $27.75 million in net proceeds. The notes carry a 3% stated rate and may result in up to 16,235,294 common shares; the filing also reports 202,711 shares issued as the first monthly payment.
Material developments and outlook
- Ondas Networks revenue for the nine months was $1.45 million; American Robotics revenue was $193,247. The filing describes an initial Siemens volume order for rail products and reports that the rail testing lab was transferred to MxV Rail. Management also cited expected additional defense-customer orders in 2023; these are forward-looking statements, not guaranteed results.
- American Robotics had signed subscription agreements across several industries. The filing provides no quantified revenue or profitability guidance. Management said available cash, together with expected revenue growth and execution of its business plan, should fund operations for at least 12 months from the filing date, while cautioning that revenue and cash generation are uncertain.
- The proposed Airobotics merger was expected to close in Q1 2023, subject to approvals and other closing conditions. The termination date was later extended to February 15, 2023. Ondas also made up to $2.0 million of credit available to Airobotics; $1.75 million had been borrowed after quarter-end.
- Management cited COVID-related customer and field-activity disruptions, supply constraints for critical parts, and difficulty attracting employees. It said the full future impact could not be reasonably estimated. The company may need additional financing if cash, revenue, or operating performance falls short of plan.
- Revenue concentration is substantial: Customer A accounted for 92% of Q3 revenue, 88% of nine-month revenue, and 95% of accounts receivable at September 30. A loss or payment delay from a major customer could materially affect results or liquidity.
- The company reported no material legal loss contingencies and no off-balance-sheet arrangements. Management stated disclosure controls were effective and that the previously identified stock-compensation control weakness had been remediated.
Important facts for investors to verify
- Whether Siemens and other customers convert development activity and orders into repeat product deliveries, subscriptions, and collected cash.
- Cash burn, remaining liquidity after the convertible-note financing and Airobotics advances, and the potential dilution and repayment terms of the notes.
- Customer concentration, receivable collectability, and the effect of supply-chain or deployment delays on revenue timing.
- Whether the Airobotics merger closes on revised terms and schedule, and whether the expected operational and commercial benefits materialize.
- The filing contains inconsistent ATM proceeds disclosures: the financial statements and offering note report approximately $65,000 net proceeds for Q3, while the MD&A states $0.65 million. Investors should verify the correct amount.