Ageagle Aerial Systems Inc. — 2023 Q3 Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2023. The filing was dated November 13, 2023. AgEagle designs and delivers drones, sensors and software for agriculture, infrastructure, utilities, government, defense, public safety and related markets through its Drones, Sensors and SaaS segments.
Financial performance and position
| Metric | Three months ended September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 |
|---|---|---|---|---|
| Revenue | $3.5 million | $5.5 million | $10.8 million | $14.6 million |
| Gross profit | $1.2 million | $2.1 million | $4.2 million | $6.0 million |
| Gross margin | 34.8% | 37.9% | 39.0% | 41.0% |
| Operating loss | $(6.0) million | $(5.1) million | $(15.0) million | $(18.0) million |
| Net income/(loss) | $(8.0) million | $1.7 million | $(17.9) million | $(11.5) million |
| Basic loss per share | $(0.07) | $0.02 | $(0.18) | $(0.14) |
- Revenue declined 36.5% in the quarter and 26.0% year to date. The quarter reflected lower Sensor, Drone and SaaS revenue.
- Gross profit declined 41.7% in the quarter and 29.6% year to date. Management attributed margin pressure to price reductions on eBee products, higher component and labor costs, and supply-chain constraints.
- Operating expenses were $7.2 million in the quarter and $19.2 million year to date, down 0.4% and 19.9%, respectively, primarily because of integration-related cost reductions, lower payroll, consulting and stock-based compensation expense.
- Third-quarter results included a $1.5 million goodwill impairment charge related to the SaaS reporting unit and a $79,287 lease impairment charge recognized during the nine-month period.
- Other expense was $2.0 million in the quarter and $2.9 million year to date, including interest expense and a $1.5 million loss on debt extinguishment. The prior-year periods benefited from a $6.5 million non-cash gain on debt extinguishment.
Cash flow, liquidity and debt
- Cash was $1.6 million at September 30, 2023, compared with $4.3 million at December 31, 2022.
- Operating activities used $8.8 million of cash during the first nine months, compared with $15.2 million in the prior-year period.
- Investing activities used $0.6 million, primarily for capitalized platform and internal-use software costs and property and equipment.
- Financing activities provided $6.7 million, including $3.0 million from Series F preferred stock and $3.8 million from common-stock sales, net of issuance costs.
- Working capital was $2.8 million, and the accumulated deficit was $134.4 million.
- Debt included a $4.1 million amended promissory note, $815,906 of COVID loans and $3.6 million of operating lease liabilities. The promissory note requires $525,000 of principal payments during the remainder of 2023 and $3.6 million during 2024 under the terms disclosed at September 30.
- Management stated that additional liquidity is required to fund operations and meet obligations for the next 12 months and disclosed substantial doubt about the Company’s ability to continue as a going concern.
Material changes versus the prior comparable period
- Quarterly revenue fell by $2.0 million, driven primarily by a $1.5 million decline in RedEdge-P and Altum-PT sensor revenue, a $454,233 decline in eBee drone revenue and a $51,464 decline in SaaS revenue.
- Nine-month revenue declined by $3.8 million, including a $3.0 million decrease in eBee drone revenue, a $673,143 decrease in panchromatic sensor revenue and a $132,896 decrease in SaaS revenue.
- Gross margin decreased 310 basis points in the quarter and 200 basis points year to date.
- General and administrative, research and development, and sales and marketing expenses all declined year over year, reflecting integration and cost-reduction actions.
- Common shares outstanding increased to 117.9 million at September 30, 2023 from 88.5 million at December 31, 2022. The increase resulted from equity offerings, preferred-stock conversions, warrant-related transactions and equity compensation.
- The Company issued 16.72 million common shares for $4.18 million of gross proceeds and issued warrants for up to 25.08 million shares at an exercise price of $0.38. At September 30, 2023, 48.35 million common-stock warrants were outstanding.
Guidance, outlook, commentary and risks
- The filing does not provide quantified revenue, earnings or cash-flow guidance.
- Management expects growth from the eBee VISION, eBee TAC, RedEdge-P dual sensor, Measure Ground Control software and expanded government, defense and reseller-channel activity. Commercial production of eBee VISION began in September 2023, and orders were being accepted.
- Management identified continuing risks from supply-chain disruptions, inflation, component and labor availability, manufacturing consolidation, adverse capital-market conditions and regulatory uncertainty.
- The Company expects inflation and supply-chain effects to continue negatively affecting its business and manufacturing capacity.
- On October 5, 2023, the promissory note was amended again. Certain deferred payments became due December 15, 2023, additional scheduled payments were deferred into 2024, and 50% of qualifying equity proceeds above $2.0 million was required to prepay the note.
- The Company entered into a sublease for its Seattle facility but remains the primary lease obligor. The filing reports $2.1 million of purchase commitments as of September 30, 2023.
- The SEC instituted cease-and-desist proceedings related to Section 13(a) and Section 16(a) reporting violations. AgEagle agreed to pay a $190,000 civil penalty; its former CFO agreed to pay a separate $125,000 penalty personally.
- Following the CFO’s departure effective October 13, 2023, Mark DiSiena became interim CFO and principal financial and accounting officer. The Company also sought shareholder authorization for a potential 1-for-10 to 1-for-20 reverse stock split primarily to maintain its NYSE American listing.
Important facts for investors to verify
- Whether the Company secures sufficient financing or achieves sufficient sales growth to address the disclosed going-concern uncertainty.
- The timing and availability of cash needed for promissory-note payments, lease obligations, COVID-loan payments and other commitments.
- Whether eBee VISION, eBee TAC, RedEdge-P dual and Measure Ground Control products generate the anticipated demand and offset declining legacy-product revenue.
- The extent to which supply-chain constraints, price reductions and manufacturing consolidation continue to affect gross margin and delivery schedules.
- The potential dilution from 48.35 million outstanding warrants, 25.1 million common shares issuable upon conversion of Series F preferred stock, stock options and restricted stock units.
- The outcome and potential implications of the SEC administrative proceeding and the proposed reverse stock split.
- The recoverability of goodwill, intangible assets and inventory, including the risk of additional impairment charges.