Ondas Holdings Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial statements are unaudited. Ondas operates private wireless and autonomous-drone businesses through Ondas Networks and American Robotics.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $604,219 | $887,432 | $1,014,417 | $2,052,196 |
| Gross profit | $318,580 | $306,757 | $440,846 | $916,171 |
| Gross margin | 53% | 35% | 43% | 45% |
| Operating expenses | $11,691,668 | $3,445,062 | $21,805,267 | $6,935,864 |
| Operating loss | $(11,373,088) | $(3,138,305) | $(21,364,421) | $(6,019,693) |
| Net loss | $(11,391,425) | $(2,821,766) | $(21,401,824) | $(5,959,886) |
| Loss per share, basic and diluted | $(0.27) | $(0.10) | $(0.51) | $(0.21) |
- Revenue declined 32% in Q2 and 51% for the first half, primarily because substantial development contracts were completed in 2021. Product revenue increased, while development revenue fell. Q2 revenue included $520,464 from Ondas Networks and $83,755 from American Robotics; first-half amounts were $870,545 and $143,872, respectively.
- Q2 gross margin improved as lower-margin development work represented less revenue and product margins improved. First-half gross margin edged down from 45% to 43%.
- Operating expenses rose substantially, mainly reflecting American Robotics, including compensation, research and development, and acquired-intangible amortization. The company reported stock-based compensation expense of $2.9 million for the first half.
- Operating cash outflow was $15.3 million for the first half, versus $7.1 million a year earlier. Investing cash outflow was $3.5 million; financing cash inflow was $6.0 million, primarily ATM share sales. Cash fell by $12.8 million to $28.0 million.
- At June 30, cash was $28.0 million, working capital was $25.8 million, and stockholders’ equity was $105.7 million. The balance sheet showed $300,000 of long-term notes payable, $37,709 of accrued interest, and $3.50 million of operating lease liabilities. No short-term borrowings were reported.
Material changes and notable items
- In April 2022, Ondas acquired Ardenna’s rail-monitoring image-processing assets for $900,000 cash and 780,000 common shares; $6.84 million was recognized as developed technology.
- The company raised $6.04 million net through its ATM program in the first half, issuing 852,679 shares. The ATM agreement authorizes sales of up to $50 million; further shares were sold in July after quarter-end.
- At quarter-end, Customer A represented 86% of Q2 revenue and 85% of first-half revenue, and 77% of accounts receivable.
- On August 4, 2022, the company agreed to acquire Airobotics in a stock-for-stock merger, subject to shareholder, regulatory, listing, and other conditions. The filing expected closing in the second half of 2022; either party could terminate if closing had not occurred by January 15, 2023.
Outlook, risks, and controls
- Management stated available cash, together with expected revenue growth and profitability as the business plan is executed, should fund operations for at least 12 months from the filing date. This expectation depends on securing customer orders, delivering products, and realizing planned growth; the company cautioned that additional financing may be needed and may not be available on acceptable terms.
- COVID-19 effects, supply-chain constraints, delayed customer and field activity, and difficulty attracting employees were identified as ongoing risks. Management said the full future impact could not be reasonably estimated.
- Management reported a material weakness in internal control over financial reporting involving inadequate review of stock-based compensation related to the American Robotics acquisition. Disclosure controls were deemed ineffective as of June 30, 2022. A third-party equity-management system went live at quarter-end, with parallel testing planned for Q3; management said the financial statements nevertheless fairly present the company’s results in all material respects.
- The filing reported no material legal proceedings or off-balance-sheet arrangements. It disclosed a full valuation allowance against deferred tax assets.
Most important facts for investors to verify
- Whether cash burn, customer orders, and the assumptions underlying management’s stated 12-month liquidity runway are consistent with subsequent results and financing needs.
- Customer concentration, collection of Customer A receivables, and the pace at which recurring American Robotics subscription revenue develops.
- Remediation and independent testing of the stock-compensation control weakness, including any financial-statement effects.
- The Airobotics merger’s closing conditions, expected share issuance, timing, and integration costs.
- Several MD&A amounts do not exactly match the financial statements: for example, MD&A gives different Q2 and first-half operating-loss figures and a different Q2 net-loss figure. The filing text does not clearly reconcile these differences; verify against the filed financial statements and any subsequent correction.