Business context and reporting period
Ondas Holdings Inc. (Nasdaq: ONDS) filed this unaudited Form 10-Q for the quarter ended March 31, 2022. It operates two businesses: Ondas Networks, which provides private wireless connectivity for mission-critical industrial applications, and American Robotics, which sells autonomous drone and data services. American Robotics was acquired in August 2021, so the prior-year reported quarter does not include its results; the filing also provides pro forma comparisons.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $410,198 | $1,164,764 |
| Gross profit / margin | $122,266 / 30% | $609,414 / 52% |
| Operating expenses | $10,113,599 | $3,490,802 |
| Operating loss | $(9,991,333) | $(2,881,388) |
| Net loss | $(10,010,399) | $(3,138,119) |
| Basic and diluted loss per share | $(0.24) | $(0.12) |
| Cash used in operating activities | $(7,101,930) | $(3,066,199) |
| Cash used in investing activities | $(1,562,295) | $(148,281) |
At March 31, 2022, cash and cash equivalents were $32.1 million, down from $40.8 million at year-end 2021. Working capital was approximately $30.4 million; stockholders’ equity was $103.6 million. Total liabilities were $8.4 million, including $300,000 of long-term notes payable and $3.6 million of operating lease liabilities. The company reported no short-term borrowings. Approximately $31.4 million of cash was held above federally insured limits.
Revenue consisted of $149,270 of product sales, $60,117 of service revenue, and $200,811 of development revenue. By segment, Ondas Networks generated $350,081 in revenue and recorded a $3.3 million net loss; American Robotics generated $60,117 and recorded a $6.7 million net loss.
Material changes versus the prior comparable period
- Revenue fell 65% to $410,198, mainly because development contracts with Siemens and AURA were substantially completed in 2021. Product and service revenue increased, but did not offset the decline in development revenue.
- Gross margin decreased to 30% from 52%, reflecting the lower contribution from development work.
- Operating expenses rose $6.6 million, or 190%. Management attributed approximately $6.1 million of the increase to the American Robotics acquisition, including compensation, amortization and research and development costs.
- Net loss increased $6.9 million to $10.0 million. Lower interest expense, following repayment of the Steward Capital loan in 2021, partly offset the higher operating loss.
- Operating cash use more than doubled year over year, and equipment purchases drove higher investing cash use.
Outlook, management commentary, risks and unusual items
- Management said existing 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. The company remains loss-making and says it may seek additional equity or debt financing; future financing availability and terms are uncertain. No quantified revenue or earnings guidance was provided.
- Management identified COVID-19-related customer and field-work delays, supply constraints for critical parts, and difficulty attracting employees as factors expected to affect 2022 results. The company could not reasonably estimate the full impact.
- Customer concentration is significant: Customer A represented 84% of Q1 revenue and 52% of accounts receivable at quarter-end. The filing notes the company has only recently invested in customer service and support.
- The company entered an agreement to acquire Ardenna’s assets for $900,000 cash and 780,000 shares. The acquisition closed on April 6, 2022, after quarter-end.
- A $50 million at-the-market equity program was established in March. In April, after quarter-end, Ondas sold 343,045 shares at an average $7.72, receiving approximately $2.5 million net of agent compensation.
- Disclosure controls were reported ineffective at March 31, 2022 because of a material weakness in reviewing stock-based compensation issued in connection with the American Robotics acquisition. Management reported remediation work underway, including third-party equity-management software and revised review procedures.
- The company reported no material legal proceedings or recognized loss contingencies. It also reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether revenue from new products, subscriptions and development programs can replace completed customer development contracts and improve margins.
- Actual cash burn and the adequacy of liquidity, particularly if revenue growth or profitability is delayed; also consider the potential dilution from ATM sales and other equity awards.
- Customer concentration, accounts receivable collection, and the company’s ability to convert pipeline opportunities and partnerships into recurring commercial orders.
- Progress addressing supply-chain, hiring and deployment constraints, and whether management’s 12-month liquidity expectation remains supportable.
- Completion and effectiveness of the internal-control remediation, especially the review and accounting of stock-based compensation.
- Integration and expected commercial contribution of American Robotics and the post-quarter Ardenna acquisition; the filing does not provide a clear quantified outlook for either acquisition’s future contribution.