AgEagle Aerial Systems, Inc. (AMEX:UAVS) Q1 2023 Earnings Call Transcript May 16, 2023
Operator: Good day everyone, and thank you for logging into AgEagle’s Corporate Update Webcast. Joining us from AgEagle is Chief Executive Officer and Chairman of the Board, Barrett Mooney. Before I turn it over to Barrett, I would like to remind you that during today’s call, including the question-and-answer session, statements that are not historical facts, including any projections, statements regarding future events or future financial performance or statements of intent or belief, are forward-looking statements and are covered by the Safe Harbor disclaimers contained in the company’s public filings with the SEC. Actual outcomes and results may differ materially from what is expressed in or implied by these forward-looking statements. With that said, I would now like to introduce AgEagle’s CEO, Barrett Mooney. Barrett, the floor is yours.
Barrett Mooney: Thank you, Kat, and good afternoon everyone. Since we just hosted our year end call early last month, for today’s call I’ll be keeping this brief. In the first quarter, we remain committed to continue building a robust foundation across our core business units. We dedicated our efforts to optimizing and streamlining our cost structure. What I mean by that is, reducing our burn while growing our top line. On our last call, I outlined our priority to deliberately to profitable growth and we’ve made significant progress towards that goal. During the quarter, we generated a total revenue of $4.1 million, marking a 5.6% increase from $3.8 million in the first quarter of 2022, while significantly reducing our cash burn compared to the same quarter a year ago.
The increase in our top line performance was driven predominantly by strong demand for our sensors during the quarter. Over the past several quarters, we’ve been working diligently to improve our supply chain. With this in mind, we established a network of vendors that enable us to simplify our structure and facilitate a more efficient procurement process. The progress we’ve made in streamlining our supply chain has culminated in tangible results and has helped us improve our gross margin by over 1,300 basis points in the first quarter to 48.8%, significant jump from 35.5% in the same period last year. And looking deeper at our profitability metrics, our loss from operations totaled $4.2 million during the quarter compared to a loss of $7.5 million in the first quarter of 2022.
The improvement in our operating loss was largely due to the progress we’ve made in aligning and co-locating our business units into a more geographically concentrated footprint and the reduction or elimination of redundant expenses. While there’s still much work to be done and is clear, and we are making steady progress in reaching cash flow breakeven while simultaneously generating top line growth. One of the keys to our long term success will continue to be the momentum and expansion of our highly effective value added reseller network. As I mentioned on our prior call, we have a very strong network of trusted resellers who work diligently to drive sales in their respective territories, leveraging location based expertise to collaborate with customers on a case-by-case basis.
Currently, our network consists of more than 200 value added resellers affording AgEagle and expansive collective presence in a vast array of geographies worldwide. With much of our integration efforts nearly complete and a talented team of resellers in place to capitalize in both large and small sales, we have a healthy foundation to propel us towards our long term objectives. We have the means to not only scale our presence and drive top line growth, but to do so while spending a lot less cash. During the quarter, our Board of Directors authorized the company to issue up to 25 million of preferred stock to support our future operations and growth strategy. I want to stress that we currently view our ongoing need for additional capital as decreasing.
As we continue to march towards cash flow breakeven, we will be less reliant on raising outside capital. As you can see from our performance over the last several quarters, we are moving in the right direction, both financially and operationally. We built a solid foundation, grounded in sound fundamentals, and we are continuing to improve. Now I want to dive into our segment results during the quarter, starting with our drones. While last year was focused heavily on securing regulatory approvals and expanding our EV lineup through our consistent innovation, we started this year with a solid fixed-winged drone lineup ready to push into the market. Upon releasing our latest product innovation eBee VISION drone in the latter part of the fourth quarter, we began to see strong initial demand for the new UAV.
During the quarter, we successfully delivered several of the eBee VISION drones to three separate branches of European military forces. According to the European officials, the eBee VISION successfully filled the gap between the low endurance quadcopters and larger military fixed-winged drones making it a valuable addition to their technology stack. Looking at our results for the segment, we generated drone sales of $2 million, which compares to $27 million in the first quarter of 2022, declined in our year-over-year drone sales was largely due to the decrease in sales from our older eBee Series drones like the X and the [AgGeo] (ph) outside of the eBee VISION. As we put our focus on eBee VISION going forward, we expect sales in the segment to rebound in future quarters, given comprehensive market initiative involving on-site demos with government and military agencies across Europe and the U.S., coupled with active sales support of our reseller network.
Our Sensor segment on the other hand doubled in sales to $2 million in revenue during the quarter compared to $933,000 in the first quarter of last year. The year-over-year increase in sensor sales was primarily driven by growing demand for our RedEdge-P and Altum-PT panchromatic sensor, as well as our newest addition to our sensor lineup, the RedEdge-P Blue, which we announced this morning. Our Sensor segment was a high performer for us in Q1 and we expect continued demand in coming quarters. As we focus on building our commercial presence within our sensors segment, we’re working hard to enhance our value proposition. Just by working through a significant amount of backlog during the quarter, demand for our sensors remained high and we will continue to look for ways to capitalize on this trend.
In recent quarters, our high end sensors have gained significant recognition for their superior quality and advanced capabilities. Our efforts to establish ourselves as a premier distributor to businesses across a wide range of industries have yielded impressive results, particularly in the agriculture sector. Subsequent to the end of the quarter, we signed a two year supply agreement with WingTra. Under this agreement, we’ll be supplying our RedEdge-P sensor kits for integration with their WingtraOne, Vertical Take-Off and Landing drones. WingTra plans to utilize the MicaSense outfitted drones to generate plant level detail and high precision resolution for commercial agriculture, forestry, environmental research and water management use case.
This is an exciting development as the contract represents approximately $2 million in revenue over the next two years. Furthermore, this collaboration supports our belief that the adoption of UAS on a global scale will only be possible if drone solution providers work together to deliver technologies and capabilities that benefit commercial drone operators. Moving on to software, during the quarter, subscription sales of HempOverview and Ground Control totaled $121,000 compared to $170,000 in the first quarter of 2022. While software still represents a small portion of our revenue, we continue to make progress in expanding our software value proposition with innovation and key partner integration. Following the end of the quarter, we announced the launch of a new ground control feature Field Check.
This new innovation feature enables users to verify the exposure overlap and sharpness of the aerial images immediately following a flight ensuring accurate data collection and situations where the flight and data collection parameters fall short of expectations, our software automatically generates a new flight plan to gather the missing or problematic images most efficiently. Moreover, our ground control software has gained traction in interest across various smart. Thanks to its seamless integration with our sensor group and the growing support for drone flight logging. This increased market opportunity allows us to expand our offerings and provide even better experience for our customers. Recently we won a federal contract with the U.S. Department of Defense’s Defense Innovation Unit to deliver our eBee VISION drones to the DoD and support their software development integration efforts to securely connect and bridge the eBee VISION specific government networks.
This custom software paid for by the DIU will be compatible and in full compliance with the DoD robotic and autonomous systems air interoperability profile, demonstrating our ability to develop highly innovative solutions that meet the needs of our customers. With this agreement, we secured an upfront payment for the development of the custom command and control software and the right to sell the eBee Vision drones within the U.S. Department of Defense going forward. Adding to the inroads we’ve made with the civil and government agencies, we were recently awarded a five year multiple award schedule contract by the U.S. General Services Administration, which is a centralized procurement arm of the federal government. This contract marks yet another example of our deepened penetration in the government sector.
[indiscernible] this deal, we also decided to take the next step in solidifying our presence in this space by recruiting a Director of Government Sales. As said, we look forward to growing our presence as a critical partner for civil and government applications by providing the industry’s most innovative UAS solution. We continue to believe that our participation in government related contracts will play a meaningful role in our overall growth strategy, which includes selling our full stack set of drone solutions through an expansive network of highly trusted value added resellers. Overall, our focus during the quarter was to continue to build a strong foundation and further optimize our cost structure while pursuing attractive opportunities for growth that put us on the path towards cash flow breakeven.
We continue to maintain strict financial discipline and have already achieved a reduction in our operating costs. We expect to continue seeing the results of this effort flow through to our bottom line in the coming quarters. As reflected in our results and my comments here today, we are moving in the right direction, both financially and operationally by cutting costs, growing our top line and streamlining our business units for better efficiency. Even amidst the challenges of the current macroeconomic environment, we remain confident that our growth plan will lead AgEagle’s to long term success. We will continue to remain cost disciplined as we steadily expand the AgEagle brand and continue on a path towards profitability and maximize value to our shareholders over the long term.
We are pleased to have the opportunity to showcase the vision and progress of our company on these webcasts, we would like to express our appreciation to all of our stakeholders for their support and we continue to thank you for joining us today. So with that, operator, back to you.
Operator: Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
End of Q&A:
