Ondas Holdings Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The filing is unaudited. Ondas operates Ondas Networks and Ondas Autonomous Systems; Q1 results include Airobotics from January 24, 2023, following its acquisition.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $2.60 million | $0.41 million |
| Gross profit / margin | $1.03 million / 40% | $0.12 million / 30% |
| Operating expenses | $13.68 million | $10.11 million |
| Operating loss | $(12.65) million | $(9.99) million |
| Net loss | $(14.46) million | $(10.01) million |
| Net loss per share, basic and diluted | $(0.30) | $(0.24) |
| Cash used in operating activities | $(12.74) million | $(7.10) million |
- Revenue increased $2.19 million, primarily from Airobotics, which contributed $1.47 million, and higher Ondas Networks product sales. Product revenue was $2.36 million; service and subscription revenue was $0.08 million; development revenue was $0.16 million.
- Gross margin improved to 40% from 30%, which management attributed mainly to a greater mix of higher-margin Ondas Networks product sales versus development revenue.
- Operating expenses rose 35%, mainly from increased staffing, research and development, and acquisition-related costs. R&D costs also included costs associated with terminating an American Robotics development contract during integration restructuring.
- Net loss increased 44%. Higher operating expenses and $1.80 million of net other expense contributed; interest expense included about $1.00 million of debt-discount amortization and $0.50 million of issuance-cost amortization.
Financial position and liquidity
- Cash and cash equivalents were $14.12 million at March 31, 2023, versus $29.78 million at December 31, 2022; cash including restricted cash was $14.16 million. The company reported a working-capital deficit of approximately $3.5 million.
- Total assets were $93.77 million and stockholders’ equity was $54.08 million. Total liabilities were $39.69 million.
- Convertible notes payable were reported at $15.75 million current and $10.24 million long term, net of unamortized discounts and issuance costs; an additional $0.30 million note payable was long term. The company reported approximately $15.98 million of short-term borrowings and $12.12 million of net long-term borrowings in its liquidity discussion.
- Operating cash outflow was $12.74 million. Investing activities provided $0.86 million, including $1.05 million of cash acquired with Airobotics; financing activities used $3.74 million, including note repayments and payments on Airobotics-related debt. Cash and restricted cash decreased $15.62 million during the quarter.
- Accounts receivable rose to $1.12 million from $0.10 million; inventory increased to $3.76 million from $2.17 million. Approximately $12.89 million of cash was above federally insured limits.
Material changes and business developments
- Ondas completed its Airobotics acquisition on January 23, 2023, issuing approximately 2.84 million common shares and assuming acquired liabilities. The preliminary purchase-price allocation included $2.00 million of goodwill and $6.06 million of acquired intangible assets. Airobotics results are included from January 24 onward.
- Airobotics acquired Iron Drone assets on March 6, 2023, adding the Raider counter-drone system. The company also formed Ondas Autonomous Systems to manage American Robotics and Airobotics together.
- Revenue by segment was $1.13 million for Ondas Networks and $1.47 million for Ondas Autonomous Systems. Segment net losses were $4.23 million and $10.23 million, respectively.
- In January 2023, the company exchanged its 2022 convertible promissory notes for 3% senior convertible exchange notes due October 2024. Monthly installments may be paid in shares subject to specified equity conditions; otherwise, cash payment may be requested. The company issued 2.10 million shares for debt installments during Q1.
- Common shares outstanding increased to 49.11 million at March 31 from 44.11 million at year-end. The filing reported 51.08 million shares outstanding as of May 11, 2023.
Outlook, risks, and other notable items
- No numeric revenue, profit, or cash-flow guidance is provided. Management expects to fund operations for the next 12 months from cash on hand, gross profits generated through revenue growth, and potentially additional equity or debt financing. It cautions that revenue and cash flow may not meet plan and that acceptable financing may not be available when needed.
- Management cited a potential commercial opportunity from the Association of American Railroads’ selection of IEEE 802.16 for the greenfield 900 MHz rail network; the filing says the network is expected to be substantially built by April 2026. Management also expected additional 2023 orders for coastal surveillance systems. These are forward-looking expectations, not assured outcomes.
- Airobotics was described as being in the advanced stages of seeking FAA Type Certification for Optimus, which could expand U.S. operations, including in populated areas. Approval had not yet been obtained.
- Customer concentration is substantial: two customers represented 54% and 43% of Q1 revenue. Three customers represented 71%, 13%, and 12% of quarter-end receivables.
- Management cited risks including continuing losses and cash burn, dependence on additional financing, execution and integration of acquisitions, customer and revenue concentration, manufacturing and sales execution, regulatory approvals, and possible supply-chain, component, labor, and cost pressures. It noted that the COVID-19 pandemic’s future operational effects could not be reasonably estimated.
- The company recorded no material loss contingencies or material legal proceedings. Management concluded disclosure controls were effective as of March 31, 2023; it reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether cash burn and the working-capital deficit can be managed without additional financing, and the terms and dilution risk of any financing.
- The convertible notes’ installment, acceleration, conversion-price, and cash-payment provisions, along with the potential share dilution; 38.15 million potentially dilutive securities were excluded from diluted EPS as anti-dilutive.
- Whether Airobotics integration, product deliveries, and the preliminary acquisition accounting proceed as expected, and whether FAA Type Certification is achieved.
- Whether the concentrated customer relationships convert into repeat orders and collections, and whether the rail and surveillance opportunities produce material revenue.
- Whether the higher revenue and gross margin can be sustained while operating expenses and operating cash outflows are controlled.