Earnings Transcript for UAVS - Q2 Fiscal Year 2022

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 that 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 will turn the call over to AgEagle’s CEO. Barrett, please go ahead.

Barrett Mooney: Thank you, Sharon and good afternoon everyone. I’d like to start this call off by inviting Nicole to review AgEagle’s key financial highlights related to our performance during the second quarter and the first half of 2022, after which I will walk through several important developments that have helped drive our Q2 results and then provide you with details on our strategy for the rest of 2022. With that said, I will turn it over to Nicole for a review of our financials. Nicole, over to you.

Nicole Fernandez-McGovern: Great. Thanks, Barrett and thanks all for joining us today. Yesterday, we filed our 10-Q with the SEC, which is accessible on the SEC website and on the Investor Relations section of the AgEagle website. Additionally, we announced some key highlights from our 10-Q via a press release this morning which I’d like to recap here. For the 3 months ended June 30, 2022, total revenues were $5.29 million compared to $1.94 million in the prior year, an increase of $3.35 million or 173%. This increase was primarily attributable to sales of our eBee drone products that came as a result of an acquisition, of the senseFly acquisition in the fourth quarter of 2021 and strong continued demand for our advanced multi-spectral sensors. As we continue to look further into revenue results, the senseFly acquisition led to the company recording incremental revenue of our eBee fixed wing drones totaling $3.04 million that were not included in the prior year financials. In addition, continued strong demand for the company’s new Altum-PT and RedEdge-P multi-spectral sensors, introduced to the market in the fall of 2021, resulted in sensor revenues rising 23% to $2.10 million from $1.71 million. Our software subscription sales declined to $158,000 compared to $229,000 in the prior year’s second quarter, which was primarily due to lower sales of our HempOverview and Ground Control SaaS platform. The company’s loss from operations totaled $5.39 million compared to $4.82 million. The increase is primarily attributable to a decrease in gross margins due to supply chain constraints and higher operating costs as a result of inclusion at a full quarter’s expenses for the 2021 business acquisitions, offset by the balance of transactional costs incurred for these acquisitions. Our net loss was $5.6 million or $0.07 loss per share compared to $4.68 million or $0.07 loss per share. Now, looking at the results for the 6 months of 2022, total revenues increased significantly climbing 151% to $9.13 million compared to $3.64 million in the prior year period. We are very pleased with this increase, which was attributable to the growth in our Centers of Excellence during the 6-month period

Barrett Mooney: Great. Thank you, Nicole. The results we have achieved in the first half of 2022 demonstrates that our efforts in establishing 3 Centers of Excellence focused on flight hardware, sensors and software are helping us achieve critical milestones vital to our long-term success in creating sustainable value for our shareholders. As we continue to refine our strategy, I have challenged our entire organization to determine what excites us and what steps must be taken to ensure that we continue to motivate and inspire our customers, our business partners and our shareholders. In doing so, we are building the marketplace solutions that improve the automation of data collection and insight derivation, driving our current and future innovations towards this aim. We are also making progress expanding demonstrations where our technology fits real-market needs and the demands of today. For example, our eBee X was deployed to Heathrow Airport, Europe’s busiest airport, to assist in developing an intricate 3D digital model of the airport as they evaluated runway expansion plans. Through leveraging our fixed-wing drone, they were able to survey much faster and more cost effectively than typical on-the-ground methods, saving the expansion project €20 million and 100,000 project hours. The eBee X has also been deployed on various disaster relief efforts, including mapping the Florida landscape affected by wildfires during extremely windy conditions. The eBee X was also deployed in the country of Georgia to provide an aerial survey of a 14-meter fissure and the data collected was utilized to assess reinforcement operations within very high risk area. These are just a few select, countless examples of our solutions being leveraged a variety of applications to achieve important objectives. With the products we are actively marketing, we are looking to continue deploying innovative solutions that take full advantage of our core strength to penetrate new markets and high growth opportunities for AgEagle. Our purpose is to offer customer-centric, advanced autonomous robotic solutions where our unique blend of flight hardware, sensors and software will present revenue opportunities for our customers and business partners. Looking at the big picture, our mission is focused on innovation through automation and sensing and the products we produce will serve as the catalyst in the creation of new markets and products within the autonomous robotics sector. This in turn will drive market expansion for our existing offering. To achieve our mission, we must make a point of staying on the leading edge and remaining ahead of our peers on the global regulatory front, understanding and anticipating our customers’ evolving needs and identifying future opportunities. We must continue engineering products and solutions that excite, motivate and inspire. As we move forward with this mission, let’s take a moment to provide some updates on our exciting products and some specific examples where our products are changing, starting with our flight hardware. Last month, we submitted a Freedom of Information Act request to the FAA to access all U.S. commercial drone registration data from 2016 through the end of 2021. According to our analysis of the data, we confirmed that our eBee was the commercial small UAS choice for the U.S. commercial drone operators, outnumbering all other fixed-wing registered, including vertical take-off and landing aircraft by a large margin. The results revealed that we hold a 41% market share of the U.S. fixed-wing market. We view this as an important affirmation of the U.S. market’s recognition of the eBee’s superior performance, ease-of-use and flight safety profile. Our eBee TAC became the first small unmanned aerial system to be added to the Blue UAS Cleared List by the Department of Defense Innovation Unit as part of the Blue sUAS 2.0 project. This means that DoD agencies, including all branches of the military, are free to purchase the eBee TAC and fly without a waiver to operate. Following being named to the Blue UAS list, the eBee TAC was showcased at the Association for Uncrewed Vehicle Systems International, AUVSI Annual Exponential Conference in Orlando, Florida. In addition to the eBee TAC receiving an Excellence in Technology Award in the hardware and systems design category, our representatives hosted numerous meetings and product discussions with key officials from several U.S. government agencies, including the U.S. Department of Defense, Defense Innovation Unit and the U.S. Department of Homeland Security, among others. The eBee TAC also took center stage at the USGIF GEOINT Symposium 2022 held in Aurora, Colorado this spring as part of a featured presentation by the Director of the National Geospatial-Intelligence Agency, Vice Admiral Robert D. Sharp. In support of growing interest in the eBee TAC from government and military agencies, we expanded our sales team to include the appointment of a new Director of Government Relations as we also expect this to be a major contributor to our future success. We achieved another industry first with the eBee TAC where we received design verification essential for beyond visual line of sight and operations over people from the European Union Aviation Safety Agency, or EASA. This was a huge accomplishment for us and is reflective of the great work done by our regulatory team. As previously mentioned, safety and control are a big focus for us as we are expanding our autonomous robotics capability. This is a key differentiator for AgEagle and one that clearly sets us apart in the industry. The EASA design verification report demonstrates that the eBee X meets the highest possible quality and ground risk safety standard and that to its lightweight design, effect of ground impact are reduced. As such, drone operators conducting advanced drone operations in 27 European member states, Iceland, Liechtenstein, Norway and Switzerland can obtain the high or median robustness level with the M2 mitigation without additional verification from the EASA. In fact, two of our customers have already received approval from their respective civil aviation authorities, thanks to this EASA M2 certificate

A - Nicole Fernandez-McGovern: Great. Thanks, Barrett. So we’ve got some questions we’ve received from our investors that we think we’re going to go through today, this afternoon. So the first question that came, the question is, as we continue to receive and reiterating our position in the industry, is AgEagle going to pursue opportunities within drone delivery there?

Barrett Mooney: That’s a good question. We absolutely are advocating and patiently looking forward to a regulatory environment that would support a healthy drone delivery ecosystem. In addition, we are constantly looking for opportunities where our experience in this space can be applied in a commercial way. So the short answer is yes, we are interested in pursuing drone delivery opportunities. But this is a market that will require a strong market position and a broad reach. So we are approaching this market very carefully with collaboration and partnership focus.

Nicole Fernandez-McGovern: Perfect. Next question, is your facility in Wichita currently being used for any manufacturing?

Barrett Mooney: Absolutely. We strongly believe in having a U.S. domestic manufacturing operation. We have a team of engineers, project managers, technicians working at the Wichita facility. We also have teams in Seattle, Washington and Raleigh, North Carolina. The team is currently focused on bringing in-house the manufacturing of our UAVs and proprietary camera system, but we are evaluating more opportunities for U.S. manufacturing and streamlining our processes. It’s important that we grow the production to meet our backlog and our continued demand for our customers with U.S.-made production.

Nicole Fernandez-McGovern: So the next question is, with the latest capital raise at the end of June, what are your capital allocation priorities for the remainder of the year?

Barrett Mooney: Our first priority related to the capital raise early this year was to pay off our debt related to the recent acquisition. And we made a public announcement and a press release related to this. So we were really looking for the opportunity to clear the debt off the books and allow us then to focus the capital expenditures going forward. So it was a great opportunity for the company. We believe this will materially strengthen our balance sheet and empower us to focus on launching new products and successfully transitioning to our expansion and growth to profitability. The key was keep the balance sheet clean and now streamline our operations to focus heavily on our growth in our commercial sectors.

Nicole Fernandez-McGovern: Great. So in May, you put out a press release regarding strong government demand for the eBee TAC. Can you speak to any notable government contracts you received and progress within that sales pipeline?

Barrett Mooney: With our government distribution partners, we are seeing increased interest from several governmental agencies and defense department units. We’re looking forward to a really strong third and fourth quarters related to government sales and hope to have news out in the future to share these successes with you. Getting approved on the Blue UAS 2.0 list and allowing us to open up communications with parts of the DoD and government units has really opened up the dialogue so that we can start to push through to the consummation of those sales deals. So what we really expect is we expect the turning point in this Q3/Q4 period to showcase the fruits of the efforts that we’ve made around the government sector.

Nicole Fernandez-McGovern: And our last question for today, Barrett, is, on the last corporate update, you spoke to cross-selling as being a focal point of your growth strategy going forward. Has the sales team been able to make any meaningful progress on this front?

Barrett Mooney: This is another really great question because as I mentioned earlier about the website, we are really focusing on bringing operational efficiency and streamlining our approach as a committed team. Instead of being a mixture of several companies under one umbrella, we are one committed team all moving in the same direction. So we are making really great strides in integrating our teams to be better positioned for cross-selling. Our exhibiting at AUVSI was an example of this where we had all of the teams committed to selling in one location. We are doing the same as we go to the commercial UAV show in Las Vegas and GEOINT in Europe this year. So we have two more shows coming up where we’re really starting to exhibit this cross-selling approach. The collapsing of our website, again, is another great move for showcasing how our technologies are interoperable, working together in the field. So as we clear our backlog in sensor sales and we move through our government sales strategy on the eBee TAC, we’re looking into markets, geographic and vertical and industrial, that would be most favorable for combined sales strategy. Similar to our participation and how we moved that into GEO and the CUAV and AUVSI conferences in September and October coming up, we’ve got these events where we’ve just drawn from everybody’s expertise and started to offer a combined co-selling approach. So it’s taking a bit of time to streamline, but we’ve actually made quite a bit of a jump in our performance to enable the cross-selling features. And that will be evident both in the website and our upcoming showcase.

Nicole Fernandez-McGovern: Great. So this was our last question on our Q&A section. Barrett, I’d like to thank you for all of that today. I think it was great to show not only the vision but the progress that the company is really making not only in our revenue but also in our operations and streamlining efforts. This has taken a lot of hard work. I know on your part, I personally want to thank you for that and thank our shareholders for their continued support. And appreciate you stay here with us throughout this journey. Barrett and I look forward to sharing our continued progress on our next corporate update. Operator, back to you.

Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.