AgEagle Aerial Systems Inc. — Form 10-K Summary
Business context and reporting period
AgEagle designs and sells autonomous unmanned aerial systems, multispectral and thermal sensors, and drone-management software. Its principal markets include agriculture, surveying and mapping, utilities, infrastructure, public safety, and government and defense. The company operates through its drone, sensors, and software-as-a-service segments and completed integration of its 2021 acquisitions of MicaSense, Measure, and senseFly during 2022.
This filing reports the fiscal year ended December 31, 2022, compared with the fiscal year ended December 31, 2021. The filing was dated April 4, 2023. Fourth-quarter results included significant goodwill impairment charges.
Financial performance and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $19.1 million | $9.8 million | Up 95.6% |
| Gross profit | $8.2 million | $4.3 million | Up 93.1% |
| Gross margin | 43.0% | 43.6% | Down 0.6 percentage points |
| Operating loss | $64.3 million | $30.3 million | Higher loss |
| Net loss | $58.3 million | $30.1 million | Higher loss |
| Loss per basic and diluted share | $0.70 | $0.43 | Higher loss per share |
| Cash used in operating activities | $20.1 million | $12.5 million | Higher cash use |
| Cash and cash equivalents | $4.3 million | $14.6 million | Down $10.2 million |
- Revenue by segment was $9.8 million from drones, $8.7 million from sensors, and $0.6 million from SaaS. Drones benefited from the inclusion of senseFly, while sensor revenue increased 27% and SaaS revenue increased 11%.
- Cost of sales increased 97.6% to $10.9 million, reflecting higher product volumes, component shortages, labor costs, freight, inflation, and supply-chain disruption.
- Operating expenses increased 109.8% to $72.5 million. They included $17.8 million of general and administrative expense, $8.1 million of research and development, $4.9 million of sales and marketing, and $41.7 million of goodwill impairment.
- The fourth-quarter goodwill impairment charge totaled $41.7 million: $29.0 million for SaaS and $12.7 million for drones. Goodwill declined from $64.9 million at year-end 2021 to $23.2 million at year-end 2022.
- Other income was $6.0 million, primarily reflecting a $6.5 million non-cash gain from extinguishment of acquisition-related liabilities.
- Working capital was $9.1 million at December 31, 2022. Total assets were $54.2 million and total liabilities were $11.0 million.
- Debt included a $3.5 million unsecured 8% promissory note issued in December 2022, recorded net of discount at $2.1 million, and $0.9 million of remaining senseFly COVID loans. The filing reports no material acquisition-related liabilities remaining other than $23,798 owed under the MicaSense agreement.
Material changes versus the prior comparable period
- Revenue nearly doubled, primarily because 2022 reflected a full year of senseFly drone operations and higher demand for the Altum-PT and RedEdge-P sensors.
- Despite revenue growth, the net loss increased 93.5%, driven principally by the larger goodwill impairment, higher operating costs, acquisition integration expenses, and increased research and development spending.
- Gross margin declined modestly because of higher component, labor, and shipping costs.
- Cash used in operations increased by $7.6 million, while cash provided by financing declined to $17.9 million from $45.6 million in 2021.
- The company raised net proceeds of approximately $4.6 million through its ATM program, $9.9 million from Series F convertible preferred stock, and $3.3 million from the December promissory note.
- Common shares outstanding increased to 88.5 million at year-end 2022 from 75.3 million at year-end 2021. Additional dilution could result from outstanding Series F conversion rights, 21.1 million warrants, and 2.6 million options.
- The company consolidated facilities and operations and expected to complete the move to centralized locations in Wichita, Raleigh, and Lausanne during 2023.
Guidance, outlook, management commentary, risks, and unusual items
Management did not provide a quantitative revenue, earnings, or cash-flow forecast. Its stated strategy is to expand market share in agriculture, energy and utilities, infrastructure, and government and military markets; invest in new drone, sensor, and software products; leverage its reseller network; and develop integrated full-stack solutions.
- Management expects commercial release of the eBee VISION during 2023, with commercial production planned for mid-2023. European military units ordered multiple prototypes for expected delivery in early 2023.
- The eBee TAC received Blue UAS approval from the Defense Innovation Unit, while the eBee X series received regulatory or design approvals supporting operations over people and beyond visual line of sight in various jurisdictions.
- The company reported progress in reducing its sensor backlog after expanding supply sources, but continued to identify COVID-19 effects, component shortages, inflation, labor constraints, and logistics disruptions as ongoing risks.
- The independent auditor included an explanatory paragraph expressing substantial doubt about the company’s ability to continue as a going concern. Management stated that additional liquidity is required over the twelve months following issuance of the financial statements and is evaluating additional financing and operating restructuring.
- The company has a history of operating losses and had an accumulated deficit of approximately $111.6 million at year-end 2022. It stated that it may need additional equity or debt financing and could be required to curtail operations if financing or sales growth is insufficient.
- The filing highlights risks from intense competition, uncertain customer adoption, evolving FAA and international regulation, export controls, cybersecurity, intellectual-property claims, foreign currency exposure, product liability, supplier concentration, and the ability to recruit technical personnel.
- Subsequent to year-end, the company issued $3.0 million of additional Series F preferred stock and warrants to purchase up to 7.1 million common shares at $0.42 per share. Shareholders also approved the issuance of shares associated with the Series F financing.
- Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2022. As a smaller reporting company, the filing does not include an auditor attestation on internal control.
Most important facts for investors to verify
- Whether the company can raise sufficient capital to address the disclosed going-concern uncertainty and fund operations beyond the reported cash balance.
- The timing and terms of future equity or debt financing, including the effect of preferred-stock conversions and warrant exercises on dilution.
- Whether revenue growth, particularly in drones and sensors, can continue after supply-chain constraints ease and whether gross margins can recover.
- Whether the eBee VISION launch, Blue UAS status, regulatory approvals, and government or military opportunities translate into material orders and recurring revenue.
- The operating performance and cash requirements of the SaaS segment, which incurred a substantial goodwill impairment.
- The recoverability of remaining goodwill and intangible assets, given the impairment testing assumptions and the company’s declining share price and historical losses.
- The status of outstanding purchase commitments, lease obligations, COVID loans, the promissory note, and any remaining acquisition-related obligations.
- The company’s ability to manage supply-chain, regulatory, cybersecurity, export-control, product-liability, and competitive risks.