Ondas Holdings Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited. Ondas provides private wireless networking and autonomous drone and data solutions through Ondas Networks and Ondas Autonomous Systems. The period includes Airobotics results from January 24, 2023, following its acquisition.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2.67 million | $0.63 million | $10.73 million | $1.65 million |
| Gross profit / margin | $0.55 million / 21% | $0.40 million / 63% | $4.65 million / 43% | $0.84 million / 51% |
| Operating loss | $5.93 million | $13.55 million | $27.08 million | $34.91 million |
| Net loss | $7.29 million | $13.58 million | $30.71 million | $34.98 million |
| Net loss per share, basic and diluted | $0.15 | $0.32 | $0.62 | $0.83 |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $(28.11) million | $(26.20) million |
- Q3 revenue growth reflected higher product sales, principally to Siemens, and Airobotics revenue. Nine-month revenue included $8.88 million of product sales, $1.29 million of service and subscription revenue, and $0.56 million of development revenue.
- Gross margin declined year over year in both periods. Management attributed the decline to lower-margin Ondas Networks product mix; Q3 margin was also affected by fixed manufacturing costs and lower Airobotics revenue.
- Operating expenses fell 53% in Q3 and 11% year to date. Management cited integration savings, lower headcount and stock-based compensation, partly offset by higher sales and marketing and depreciation and amortization.
- Interest expense, debt discount and issuance-cost amortization, foreign exchange losses, and changes in the fair value of government grant liabilities contributed to higher other expense.
Financial position and funding
- At September 30, cash and cash equivalents were $20.97 million, restricted cash was $0.04 million, and accounts receivable was $4.89 million. Total current assets were $30.27 million against current liabilities of $35.55 million, a working-capital deficit of approximately $5.28 million.
- Cash, cash equivalents and restricted cash decreased by $8.76 million from year-end 2022 to $21.01 million. Financing cash flow of $18.70 million was insufficient to offset $28.11 million of operating cash use; investing activities provided $0.64 million.
- The company reported approximately $26.54 million of short-term borrowings and $6.58 million of net long-term borrowings. Convertible notes issued or exchanged under the 2022 and 2023 financings had $30.33 million outstanding, net of discounts and issuance costs, at September 30. Monthly installments may be converted to stock if specified conditions are met, or may be payable in cash if they are not.
- Management stated there is substantial doubt about the company’s ability to continue as a going concern, and that its funding plans have not alleviated that doubt. It expects to rely on revenue and gross profits, possible customer prepayments, potential warrant proceeds, and additional financing; availability and terms of future funding are uncertain.
- Ondas Networks raised $15 million gross from redeemable preferred stock and warrants. The preferred stock carries an 8% annual dividend and, after five years, a holder redemption right generally tied to at least twice the initial investment plus accrued dividends. The financing gave the investor an approximately 28% minority interest in Ondas Networks; associated warrants cover 10.2 million Ondas Holdings shares at $0.89 per share.
Material changes, outlook and risks
- Airobotics was acquired in January 2023, and Iron Drone assets were acquired in March. Airobotics contributed $5.65 million of nine-month revenue. The Optimus drone received FAA Type Certification on September 6, 2023, enabling expanded U.S. operations, including flights in populated areas.
- Q3 revenue was highly concentrated: one customer represented 91%. Three customers accounted for 47%, 31% and 18% of nine-month revenue. Two customers represented 64% and 24% of accounts receivable at quarter-end.
- The Israel war disclosed after quarter-end had called approximately 17% of the Israeli workforce to active duty. Management reported no material operating disruption to date, but warned prolonged or escalating hostilities could adversely affect operations and results.
- Nasdaq notified Ondas on October 3, 2023 that its share price had been below the $1 minimum bid requirement for 30 consecutive business days. The initial compliance period ran through April 1, 2024; failure to regain compliance could put the listing at risk.
- Share dilution is a key consideration: common shares outstanding increased to 55.18 million at September 30 from 44.11 million at year-end 2022. The filing also lists 75.81 million potentially dilutive securities excluded from diluted loss per share as anti-dilutive, including warrants, options and potential shares under convertible notes. Subsequent to quarter-end, approximately 3.13 million shares were issued through convertible-note installment conversions.
- Other notable items: the company terminated its ATM equity sales agreement in July and expensed $151,431 of deferred offering costs; employee separation-related RSU modifications reversed approximately $2.8 million of previously recognized compensation expense. Stockholders approved an increase in authorized common shares to 300 million on October 31, 2023.
- No numerical revenue or profitability guidance was provided in the supplied filing text. Management emphasized that achieving profitability depends on securing customer orders, delivering them efficiently, and obtaining sufficient working capital.
Most important facts for investors to verify
- Cash runway, cash burn, working-capital needs, and whether additional financing or customer prepayments can be secured on acceptable terms.
- Convertible-note installment, conversion and cash-payment requirements; resulting dilution and the impact of the October 2023 share issuances.
- Customer concentration, Siemens order timing, revenue quality, and whether gross margins can recover as product sales scale.
- Operational effects of the Israel conflict, workforce availability, and any impact on Airobotics delivery or customer commitments.
- Progress toward Nasdaq bid-price compliance and the consequences if the company cannot maintain its listing.
- Terms and potential economic cost of the Ondas Networks preferred-stock redemption and related warrants.