AgEagle Aerial Systems, Inc. (AMEX:UAVS) Q4 2022 Earnings Call Transcript

AgEagle Aerial Systems, Inc. (AMEX:UAVS) Q4 2022 Earnings Call Transcript April 4, 2023

Operator: Good day, everyone, and thank you for participating in today’s conference call. Joining us today from AgEagle is Chief Executive Officer and Chairman of the Board, Barrett Mooney; and Nicole Fernandez-McGovern, AgEagle’s Chief Financial Officer and Executive Vice President of Operations. Following Barrett and Nicole’s prepared remarks, both company officers will respond to questions that were previously submitted via e-mail by analysts and investors. 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’ll turn the call over to AgEagle’s CEO. Barrett, please go ahead.

Barrett Mooney: Thank you, Kat, and good afternoon, everyone. We greatly appreciate you taking the time to join us on our webcast today. I’d like to start off by inviting Nicole to review AgEagle’s key financial highlights relating to our 2022 year end performance, after which I’ll cover some operational highlights from the past year and provide you with some detail and perspective on our growth strategies and outlook for 2023 and beyond. With that, I’ll turn it over to Nicole to review our financials. Nicole, over to you.

Nicole Fernandez-McGovern: Thanks, Barrett, and thank you all for joining us today. Shortly before the start of this call, AgEagle released an announcement relating to our financial and operational highlights for the year ended December 31st, 2023. Our corresponding annual report on Form 10-K will also be filed today with the SEC and be accessible on the SEC’s website and on the Investor Relations section of AgEagle’s website. We encourage you to read over our 10-K to better understand and appreciate our business, growth objectives, risk factors and greater details relating to our financial results. Among other important information made available to you. I’ll begin my prepared remarks by highlighting some key metrics relating to our results for the full year ended December 31st, 2022, as compared to the prior year.

Total revenues in 2022 climbed to a new company record of $19.1 million, up 96% from $9.8 million when compared to the prior year end. The increase in sales is a direct reflection of our acquisition activities in 2021, coupled with robust global market demand for our new panchromatic sensors commercially released in early 2022. Drilling down total sensor sales for the 12 months ended December 31, 2022 increased 27% to $8.7 million compared to $6.8 million in the prior year. As noted, the increase was primarily due to growing demand for our proprietary sensor product portfolio and more specifically broad adoption of our new Altum-PT and RedEdge-P multispectral sensors primarily used for sophisticated applications of agriculture, forest management, land management and plant research.

Now, looking at drone sales. We recorded revenue from sales of our line of eBee fixed wing drones of $9.8 million in 2022, which compared to $2.4 million generated from eBee sales in 2021. As a reminder, we acquired senseFly in October 2021 for the prior year only has recorded sales of our eBee of line from October 21 to the end of 2021. Revenues from software subscriptions increased 11% to nearly $600,000, compared to approximately $538,000 in the prior year. Moving down the income statement notwithstanding non-cash charges for goodwill impairment of $41.7 million booked in 2022. Our loss from operations totaled $22.8 million, which compared to a loss from operations of $17.9 million before factoring a non-cash goodwill impairment of $12.4 million for the 12 months ended December 31, 2021.

Inclusive of the aforementioned non-cash charges, net loss totaled $58.3 million compared to $30.1 million for the years ended December 31, 2022 and 2021, respectively. In addition, the 2022 net loss was impacted by greater operating and transactional costs as a result of the acquisitions completed during the 2021 fiscal year. This was partially offset by a $6.5 million non-cash gain on debt extinguishment associated with the reductions of holdback liabilities realized in the third quarter of 2022 in connection with the company’s acquisitions of senseFly and MicaSense in the prior year. Our cash position as of December 31, 2022 was $4.3 million compared to $14.6 million at the end of 2021. During 2022, we raised total net proceeds of approximately $17.9 million in our financing activities, including $4.6 million through our ATM, $9.9 million through registered direct offering with an existing institutional investor and $3.3 million in promissory notes issued to a current institutional investor.

More recently, in February of this year, we raised an additional $3 million through the private placement of Series F convertible preferred shares with the same institutional investor. It is important to note that the Board of Directors has been granted authority by our shareholders to issue up to $25 million of preferred stock in one or more series to raise capital when and if necessary to support our future operations and growth strategy. As we proceed through 2023, we intend to continue exercising strict financial discipline in cash management and capital formation, while we also work to achieve sustainable cost reductions through ongoing integration and consolidation of our business units. Now I’ll pass it back to Barrett to go over some operational highlights and a review of our strategy moving forward.

Barrett?

Barrett Mooney: Thank you for the recap of the financials, Nicole. Let’s jump right into it. Our year was marked by steady progress as we focused on strategically aligning our organization and building a foundation rooted in strong fundamentals all with a deliberate plan to achieve profitable growth. Our efforts to unify the company and provide our customers with a full stack solution comprised of drones, sensors and software has resulted in the continued consolidation of the acquisitions we made throughout the balance of 2021, and we expect to begin seeing these benefits to our cost structure flow through to the bottom line in 2023. I want to repeat that we fully expect this year 2023 to be the year we see the strongest net change in our financial growth.

It’s been encouraging to see how our efforts have begun to bring us together into one cohesive organization with our various teams collaborating under one unified vision for AgEagle. I’d like to thank our vast and growing global network of over 180 value added resellers. Over the last year, we’ve been able to leverage their unique expertise and their respective territories to strengthen our market presence and provide the best collaboration with our customers. This strategy is instrumental in delivering sustainable and incremental organic revenue growth as we focus on chipping away at a very large commercial market. Our reseller network gives us access to a greater number of resources, which in turn allows us to expand our geographical coverage and generate consistent and frequent sales.

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This approach has proven to be effective so far, and we are confident that our reseller network will continue to be a crucial component of our long-term growth strategy. Well, we’re focused on scaling our network of value added resellers and creating a backbone for incremental revenue growth. We will continue to work towards capitalizing on larger opportunities, representing potential significant revenue. To that end, we’re currently participating in several large tenders for NGOs and government organizations to capture every opportunity to drive growth. That being said, securing and executing larger contracts requires a longer lead time, which is why we’ll continue to execute on our commercial strategy that provides for more frequent deliveries with a more predictable, steady and scalable flow of revenue.

While we can’t always publicly announce every sale we make, I assure you we are laser focused on scaling our revenue. This means we may put out less frequent headlines or news. However, our wins are reflected in our revenue results. The progress that we’ve made in our commercial strategy consolidation efforts and building out a robust network of resellers has allowed us to increase revenue through a more efficient sales process. With that, I’ll jump into our segment level discussion, starting with our fixed wing drone segment. This last year, we kept our attention on innovation and obtaining regulatory approvals, which led to a further validation of the value proposition of our drones and unlock demand from new customers. Additionally, we continue to focus on the endurance features in our drones, where we now have more than half of our eBee series lineup capable of delivering 90 minutes of flight time.

We view this as a differentiating factor that will continue to drive demand from customers that are focused on covering more ground or need to stay in the air longer, particularly for operations over people. We saw continued interest across our eBee series line-up through our value added resellers FEDS. We were awarded a contract to supply the Kingdom of Saudi Arabia with eBee X drones and sensors for use for environmental mapping. Additionally, we stayed active in showcasing the unique capabilities of our drones in different markets and regions throughout the quarter. For example, we were pleased to be invited to the United Nations Food and Agricultural Organization and Oman’s Ministry of Agriculture, Fisheries and Water Resources to demonstrate the eBee X’s applications for tracking and controlling the spread of desert locusts, with an aim to prevent the loss of agricultural crops in Oman.

I’d like to take a moment to highlight our newest addition to the eBee line-up. The eBee VISION, an intelligence surveillance and reconnaissance drone, which we have slated for commercial release in mid-2023. We’ve already received encouraging interest and positive feedback for the eBee VISION and we successfully delivered several units purchased by the European Armed Forces after extensive tests and demonstrations. According to European military officials, our eBee VISION drone does a great job of filling the gap between low endurance quadcopters and large military fixed wing drones and is an effective tool for tackling ISR missions thanks to its optical and thermal video quality. We are actively engaged in demonstrating eBee VISION to military forces in the US and around the world, and we are excited about the growth opportunities that the eBee VISION provides, especially in regard to its value among civil and government entities.

In development of the eBee VISION, we’ve also created several adjacent technologies that improve the performance of our drones. We built and used an automated design software to speed and aid in the development of new UAVs based on payload specifics. We’ve also created new RTK antenna that works with cheaper GNSS to provide increased accuracy at a more affordable price point. These few honorable mentions, as well as the other complex new technologies we create in-house have paved the way for this breakthrough and set the stage for a series of new UAV platforms. Having reached the one year milestone since integrating senseFly and the eBee series drones into AgEagle, I’m highly encouraged by our efforts to continue senseFly’s legacy of being a cornerstone of the fixed wing drone segment.

Bringing senseFly to AgEagle enabled us to hit the ground running with a stronger value proposition across our full stack solution, and I’m looking forward to what the future will bring as drones continue to become essential tools across many industries. Moving onto our sensor segment. We saw a significant increase in demand for our sensors throughout last year with the most substantial growth taking place during the third and fourth quarters. Our sensor business segment was our strongest performer in 2022 and we expect this trend to continue as we both increase and improve our line of products and manufacturing capacity. We strive towards building out our commercial presence in the space. Although we worked through a considerable amount of backlog during the quarters.

Demand for our sensors has remained high, which has led to our backlog for sensors being replaced with a strong pipeline of new orders. From what we’ve experienced over the past several quarters, our sensors have been increasingly recognized for their premium quality and advanced applications. While we continue to establish ourselves as a distributor of high-end sensors for professionals, we have made particularly strong inroads in the agricultural space. For instance, we’ve secured numerous sales in growing APAC market and continue to find partners worldwide that integrate our high quality sensors into their UAV platforms. In our software segment, we made an effort to streamline our measured ground control team and enable them to focus on what they can offer from a multi-platform perspective.

Although we take great pride in providing a comprehensive full stack set of drone sensor and software products, we are also proud to support a broad range of products from other companies in the industry with our software. By doing so, we expect to capitalize on organic sales growth from supporting companies that many view as our competitors and benefit from the broader drone industry becoming more established and commonplace. Our mission has always been to support growing UAV value proposition and ecosystem for the commercial benefit of our customers. To enhance our software line-up, we have recently introduced a new product called Field Check. This is an innovative tool that allows users to check the quality of their data before leaving the flight location.

And from this, users can be confident that they are receiving accurate and reliable data every time. Field Check will allow users to check the exposure, overlap and blur of their images directly after a flight to ensure the data was collected properly. In cases where the flight and data collection parameters were not met, the software will automatically create a new flight plan and will optimize collection of the missing or problematic images. This new enhancement to photogrammetry will speed up data collections in the field and guarantee our customers get the data they need out of every scheduled flight. The ground control software has experienced a valuable increase in market opportunity through its integration with our sensor group and growing support for drone flight logging.

We have experienced an increase interest from larger commercial operations that need to consolidate and manage drone fleets and ground control is well positioned to be that solution. With recent innovations in growing UAV flight, logging and reporting support, the customer pipeline has continued to increase. As we reflect on both quarter and the full year, our main focus has been on building a strong foundation by aligning our business segments, optimizing our cost structure and positioning ourselves on a path to reach cash flow breakeven. We’ve made meaningful progress in each of these areas and remain committed to this approach. By streamlining our operations, we expect to see reductions in operating costs flow through to our bottom line in the coming quarters.

As discussed during our last shareholder corporate update call, we are happy to report that we’ve successfully relocated our Washington, D.C., Austin and Seattle operations, thereby reducing our burden and supporting our efforts to advance towards profitability. This move reflects our ongoing commitment to optimizing our operations, improving communication and efficiency at every level of our organization. In terms of our M&A mindset going forward, we will continue to evaluate potential M&A opportunities that can enhance our current solution set while keeping a keen eye towards maintaining our high standards for acquisition targets. In addition to being able to stand the test of difficult market conditions, we are looking for businesses that have the potential to open new customer markets have technology that can broaden our offerings in key markets like the utility, energy, utilities, energy, insurance, agriculture or government segments have a strong track record of revenue growth and share our focus on profitability.

And lastly, offer revenue positive ways to enter any new market category. We are maintaining strict discipline as we evaluate the M&A opportunities and believe these parameters will help ensure any M&A that we embark on has the potential to be accretive to our financial results. Moving into the new year. We are mindful of the macro headwinds that persist in the broader economy. We believe that autonomous solutions are becoming increasingly advantageous for organizations needing to improve efficiency and reduce their labor costs. It’s important to note that we don’t view automation as replacing human labor. Instead, we view it as an opportunity for human machine teaming, which can significantly enhance an organization’s productivity and reduce their internal and external risk.

While the drone industry continues to grow and establish itself as a commercial industry, only companies with well-rounded products and services will succeed in navigating the still emerging industry amidst ongoing macro challenges and thereafter. In our case, we have a value proposition that is built on solid foundation and further benefited by a broad shift towards human machine teaming and the adoption of robotics to drive operational efficiencies. Despite the challenges of the current macro landscape, we are confident that our well-defined plan for growth grounded in sound fundamentals will ultimately position AgEagle for long-term success. Now I’ll turn it back over to Nicole for our Q&A to answer some of the previously submitted questions.

Q – Nicole Fernandez-McGovern: Thanks, Barrett. Let’s address the questions we received from various investors. The first one. Do you see a delisting as a potential near-term threat for your stock?

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Q&A Session

Barrett Mooney: Well, we’ve continued to receive this question from time to time. I’d like to make it clear that we currently meet all regulatory requirements to be listed on the NYSE American Stock Exchange. To the best of our knowledge, these concerns are likely based on listing requirements posed by NASDAQ, which we are not in any way subject to.

Nicole Fernandez-McGovern: Thanks for that, Barrett. Next question. Do you intend to pursue a reverse stock split in the near future? Are there any specific conditions or factors that would prompt your company to consider this strategy again?

Barrett Mooney: At this time, we’re not looking at completing a reverse split. In fact, on our last proxy statement, we sought shareholder approval to only provide our board with the right to complete a reverse stock split in the event that it made strategic sense to do so or was a requirement. Since that’s not the case? No, at this time, we are not seeking any approvals to do a reverse split. This may be considered as part of a full recap strategy in the future that will better position us to pursue attractive M&A prospects or other compelling growth opportunities, but not at the moment with the strides we’ve made to push the company forward and the bright future we see in both potential future earnings and in our growing pipeline, we are confident that a split is not necessary now.

Nonetheless, as we prepare for our 2023 annual meeting, we expect to re-evaluate our growth initiatives and the prevailing market conditions to determine if we will once again ask our shareholders to give the board the option to do a reverse split if and when the board deems it makes strategic sense and will deliver long-term value creation for our shareholders.

Nicole Fernandez-McGovern: Yeah. Barrett, I do appreciate you clarifying that for our shareholders based on our last proxy. So next question. Do you have any intentions of venturing into the drone delivery market in the near future?

Barrett Mooney: That’s a good question. As we have discussed in previous shareholder calls, we’re looking forward to the growth of the drone delivery market and what that will mean for our industry as a whole. We’ve chosen to state previously and remain resolute that for us to be in that market, we’ll need to partner with other companies and other technologies. We continue to focus our efforts on regulatory and safety accomplishments that will generate confidence in drones to operate in urban and suburban areas, paving the way for drone delivery in neighborhoods. But at this time, we’re actively seeking the appropriate partners for a growth of that industry and our role that we’re going to play in it as it respects their technologies.

Nicole Fernandez-McGovern: The next question is, in the past, you’ve spoken to the goal of getting cash flow positive as soon as possible. Can you provide an update on your progress and when we can expect to see some improved profitability in our cash flow and financials?

Barrett Mooney: We’ve made great strides in finding synergies in the teams we’ve brought together under the AgEagle brand. While we still need to grow our way to profitability. We have both increased revenue and cut our burn over the last six months. We are confident that you will see improved performance and continuing improvements in profitability and cash flow in the coming quarters. The path to profitability is a road that we’ve been that we’ve been paving for some time and due to the positive financial growth in 2022 without ballooning everything on the cost side, we feel like we’ve remained quite restrained and with our active management of our cash position and our active management of our burn to continue in the coming quarters, we do expect to see, you know, strong signals that will be reported in our future financials for this year.

Nicole Fernandez-McGovern: Yeah. Thanks for that, Barrett. I do think that’s something that the entire C-suite and the rest of the executive team agrees with you in terms of making this a priority. Next question is, what are your main capital allocation priorities for 2023? You’ve discussed M&A opportunities, the past. Anything else imminent?

Barrett Mooney: Well we don’t have anything M&A related to announce today. We are absolutely looking for opportunities and companies with talented teams. Mostly we’re focused on skill set and product offerings that will expand our reach either by a unique technology or expertise in an industry that varies from our own current markets or things that are related to skill sets and revenue generation in new markets that we’ve been going after and attacking. We are expanding constantly what AgEagle can do and M&A will absolutely be part of that in the future. But in the current economic conditions, it’s best to be prudent and look for the best growth opportunities rather than the quickest or easiest M&A opportunities.

Nicole Fernandez-McGovern: Perfect. Thanks for that. And our last question for today is, could you provide more details on the progress of your efforts to pursue military and government opportunities, particularly with the introduction of the eBee VISION drone? How do you anticipate these developments impacting your sales growth in the upcoming quarters?

Barrett Mooney: Our government strategy is evolving and we are investing heavily in an approach to access that market with the right talent and the right products. We’ve actually already begun to expand the government sales team by adding experienced personnel just this year with a mandate to build up new market access and opportunities. We’re also looking to new drone developments like the VISION and new software features to improve our access to civil government and military markets. We have previously been pulled into these markets up until now, thanks to our great technology, robust design and strong value proposition. This year we’re proactively pushing into the global defense markets by leveraging the same products and features that have made us a great value to the military in the past. With a new team focused entirely on where we can best serve those customers.

Nicole Fernandez-McGovern: Okay, great. So that was our last question for Q&A. It was a great opportunity to showcase the company’s vision and progress, not only in terms of our financial results, but also in our progress in uniting our operational efforts. Thank you all for joining our webcast today and we extend our gratitude to all of our stakeholders for their unwavering support. Barrett and I look forward to sharing our continued progress on our next corporate update webcast. Thank you and good afternoon. Operator, back to you.

Operator: Thank you. This does conclude today’s conference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.