AgEagle Aerial Systems, Inc.

Good day everyone and thank you for participating in today's conference. Joining us today from AgEagle is Chief Executive Officer Michael Drozd and Chief Financial Officer Nicole Fernandez-McGovern. Following Michael's prepared remarks, both company officers will respond to questions that were previously submitted via email by analysts and investors. Before I introduce Michael, I 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 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 CEO Michael Drozd. Sir?

Yeah, thank you, Melinda. Good afternoon, everyone. It's a pleasure to be speaking to all of you again, as we have plenty of updates to discuss. I'm going to kick off by providing a high-level review of our record results for 2020. From there, I'll go through various operational and business development initiatives, including our recent acquisition of Micasense. And lastly, Nicole and I will close the call with a Q&A session to respond to questions submitted via email over the past couple of weeks. With that, let's start off with a quick overview of our financial results of 2020. I'm very pleased to report that we had a record year with revenues of $1.3 million, which is up more than four times from $297,000 in 2019. The majority of our annual revenue in 2020 was attributable to our major e-commerce client, which engaged AgEagle in late 2019 to manufacture and assemble UAVs designed to meet the critical specifications for drones to deliver goods to urban and suburban areas. As a reminder, we are not at liberty to disclose the name of the client or any specific details regarding our work with them as a result of our mutual NDA. Revenue growth was also positively impacted by the continued focus on expansion of our platform, providing aerial imaging and analytics solutions which serve new and emerging markets, including registration, oversight, compliance with hemp fields, by state departments of agriculture. Our gross profit margin also continued to increase, rising to 45% on revenues in 2020 compared to 32% in the prior year. The primary factor contributing to the increase in our gross profit margin was a continued shift to a higher margin mix of products and services. For many on this call today, 2020 was a pivotal year in many respects, including from a capital markets perspective. We raised a significant amount of capital which further bolstered our ability to execute on our strategic initiatives and accelerate our growth, while achieving favorable market support. In fact, according to various market sources, AgEel was the best performing stock on the New York Stock Exchange in 2020. As a result, cash on hand as of December 31st, 2020, totaled $23.9 million. Subsequent to the end of the fourth quarter, We raised an additional $8 million through the exercise of warrants, which further strengthens our capital position moving forward. Additionally, as many of you are aware, we have filed a shelf registration with the SEC, which will provide us with the ability to raise up to an additional $200 million in the future. This gives us flexibility for if and when our capital requirements dictate a need for even more cash to support our ongoing M&A and organic growth initiatives. Now turning to operational updates. During Q4 and early 2021, we accomplished several key objectives and announced a number of important developments that materially strengthened and enhanced our company on a number of mission-critical fronts. From a human capital perspective, we continue to attract and hire some of the industry's best talent. Most recently, we announced the addition of a new Vice President of Business Development and a new Director of Business Development for Drone Solutions, Paul Allen and Mary Beth Forrest. Both Paul and Mary Beth bring AgEagle invaluable experience market influence, and deep relations with the drone industry that we expect to fully leverage to support and further accelerate our penetration in the drone market. We have also increased the team in Wichita by recruiting several new positions that are needed in order to support our various growth and expansion initiatives. I also want to make you aware that we have changed our transfer agent of record to Equinity, leveraging their EQ platform to provide a more seamless and simplified process for shareholder services. To get in contact with our new transfer agent, you can find their information in the investor section of our corporate website. Additionally, we changed our independent audit firm to Witham, which is a nationally recognized and ranked public accounting firm of the top companies across the country. Both of these initiatives further strengthen our controls of the public Trump company and are another mark of progress in just how far AgEagle has come this past year. Lastly, we also engaged a new public relations firm, Clarity PR, to lead our brand building and PR activities. Clarity is a high-powered, award-winning firm with a breadth of experience in a variety of industries across the globe, and it consistently won various industry awards and recognitions. We're very excited to be working with Clarity team, and we've already made great progress since starting our engagement a few weeks ago. We look forward to unveiling some interesting new PR campaigns in the upcoming months. Now turning to our progress with our business development initiatives. In February this year, we announced that we teamed up with our partner Valkyrie to produce an on-demand drone delivery system to deliver food and beverages to golfers while they're playing golf on the golf course. We conducted our phase one demo of the system for officials at Sun City Country Club in Arizona, and this demo was very successful. We are now advancing to phase two of demonstration, and we look forward to sharing more details about this exciting drone delivery solution in the future. Once we prove success, our solution has a fairly sizable market opportunity with over 9,600 golf courses in the U.S. alone. We also believe this pilot will demonstrate just one of the many ways AgEagle and Valkyrie drone delivery can be used to optimize fast and secure deliveries, ranging from hospitality to commercial packaging deliveries and beyond. As we mentioned on our last call, in November, AgEagle was selected as industry partner in the next phase of FAA's UAS integration pilot program, also known as the BEYOND program. We remain confident that participating in this program will empower our company to lead select pilot projects in key areas of interest. In fact, we have proposed a framework for two pilot projects for the BEYOND program, one focused on drone package delivery and one on inspection. Although it is still in the early days for these two pilot projects, we look forward to providing more details as they come to take shape. Subsequent to year end, We started 2021 off strong in our Ag Solutions business with the state of Iowa signing a three-year contract for AgEagle's Hemp Overview solution. Throughout the 2020 planting season, Iowa's Department of Agriculture and Land Stewardship manually managed the registration, oversight, and reporting of hemp planting. This proved to be incredibly tedious and inefficient. After going through our demo and realizing the immense value of Hemp Overview was provided in the state of Florida, the regulators in Iowa knew it was time to utilize the technology solution designed to meet unique complexities of the hemp industry. And as a result, they signed a three-year contract with AgEagle through the 2023 planting season. Now both the state of Florida and Iowa are benefiting from our purpose-built aerial imaging and data analytic solutions for hemp crops. And we are working to introduce Hemp Overview to other states and tribal nations as a solution that can work for them as well. Stay tuned for more news on this front in the upcoming months as we continue to expand our footprint in other states and tribal nations. Now let's discuss another important milestone that AgEagle achieved at the start of this year. In late January, we were pleased to announce the acquisition of Seattle-based Micasense from Parrot, a French drone company, in a cash and stock transaction valued at $23 million. With this acquisition, we've effectually launched AgEagle's new sensor solution business. Recognized worldwide as one of the most trusted brands in drone-based multispectral imaging since its founding in 2014, Micasense sensors are sold in over 70 countries through its well-established reseller network. In addition, MicaSense sensors are integrated in over 150 different fixed-wing and multi-copter drones in the market. MicaSense holds a significant share of the drone multispectral sensor market, which we intend to increase in 2021 and beyond. This acquisition not only brought AgEagle best-in-class proprietary sensors, but it also added a world-class team of talented systems engineers, developers, and support staff who are among the best in the drone sensor industry. The integration of Micasense into the AgEagle organization has been incredibly smooth. We've been working together to define and progress our collective operational strategies for building on Micasense's success in the ag industry, while at the same time expanding into the broader drone solutions industry for a wide range of commercial and industrial applications. Ultimately, we believe this acquisition will empower AgEagle to drive true innovation and advancements of commercial drone systems and solutions for a number of high-growth industry segments. The strategic union of our skill sets, complementary technological expertise, and shared industry experience should position us well to capitalize on the growing demand for drone enabled solutions that can materially improve how businesses operate. As we move forward through 2021, we are very excited about advancing the many initiatives we have launched in the last several months to secure the long-term growth and success of AgEagle. Given the sheer enormity and diversity of these opportunities in the emerging commercial drone industry, It is vital to our long-term success to remain highly focused. With that, we intend to focus our energy, talent, and resources on three primary growth objectives. First is Ag Solutions. We plan to leverage our reputation as one of the leading technology solution providers to the agriculture industry as we look to increase market share through delivery of best-in-class drones and data analytics for hemp and other commercial crops. Next is Sensor Solutions. Our aim is to establish AgEagle as the world's preferred source of advanced, proprietary, multispectral drone sensors, serving the aerial mapping and analytic needs of the agricultural and broader drone markets. And third is Drone Solutions, empowering the drone age by providing American-made, tailored drone solutions to the world, including design, manufacturing, assembly, testing, and R&D for countless commercial and industrial applications. Through these three focus areas, along with everything we accomplished in 2020, we truly believe that AgEagle is at an inflection point in the global commercial drone market, and we continue to position the company as one of the global leaders in the drone industry. Before wrapping up the call, Nicole and I would like to address some of the questions we received from investors by email over the last few weeks. As always, we are very appreciative of all the questions that came in, but please understand that we cannot address every single one in a specific amount of time, Therefore, we selected what we believe the most important and relevant questions to answer. Nicole, I'll turn it over to you.

Great. Thanks, Michael. Kicking it off with our first question. AgEagle has several shareholder lawsuits outstanding as a result of the short seller report that came out in February. Can you speak to these lawsuits and the company's ability to defend itself?

Sure, Nicole. As we stated in our response PR shortly after the initial attack on AgEagle, the short-sell report released by Bonitas Research contained false, inaccurate, and misleading information. It was a clear attempt to manipulate and profit from AgEagle's resulting stock price decline. We were able to easily refute the false claims from the report, and therefore we believe the lawsuits were equally baseless and meritless. While we cannot comment on ongoing litigation, we remain confident in our legal ability's defense and hope to have the situation resolved as quickly as possible.

Great. So the next question relates to our acquisition of Micasense and the investment in Valkyrie. Is your focus going to be further integrating and capitalizing on these partnerships, or do you still plan to continue pursuing M&A opportunities? If it's the latter, is there a more specific area of your business you're looking to bolster, such as software, additional hardware components, manufacturing, et cetera?

Yeah, great question. M&A and organic growth will both play key roles in AgEagle's growth strategies moving forward. As I mentioned, our growth will center on delivering American-made, tailored ag, sensor, and drone solutions to the world. So we will continue to actively seek out strategic opportunities for our sustained long-term growth.

Great. Next question also has to do with Micasense. With Micasense having an established revenue stream and customer base, is it fair to assume this business will make up the majority of your revenue in 2021?

Yeah, although Micasense will represent a material portion of AgEagle's revenue for the foreseeable future, we do believe the continued execution of our organic growth strategy will result in significant new revenue for AgEagle in 2021.

Perfect. Continuing also regarding the Micasense acquisition and talking about our continued build-out of our management and manufacturing teams in Wichita, at this time, how many employees does AgEagle have?

Yeah, great question, especially given the emphasis I place on building a world-class, highly dynamic, and diverse team of professionals. At this time, we have a total of 32 full-time employees, and we are rapidly growing our team.

Next question has to do with our hemp overview platform. With us continuing to gain traction in the industry on the regulatory side of things, have you had any conversations with businesses, large hemp farmers, that could benefit from the platform's ability to monitor hemp crop health?

Yeah, we routinely speak with farmers and agronomists about opportunities to leverage AgEagles AgSolutions to help them to address and optimize crop health and yield. As we noted in the past, it is our belief that AgEagle represents the first agricultural technology company to bring to the market an advanced ag tech solution that is designed to meet the unique complexities and vigorous oversight, compliance, and enforcement demands of the emerging American hemp industry. We firmly believe that Hemp Overview addresses the unique needs and demands of key industry stakeholders, which includes a vast array of farmers.

Great. Most recently, has the global computer chip shortage affected iGIGL? Further, do you foresee any other supply chain issues that could affect us in the coming year?

Yes. In 2020, we did experience some supply chain delays due primarily to logistic issues related to COVID-19 shutdowns. We do anticipate some of these delays to continue in 2021. At this time, we are very proactively sourcing components for our manufacturing of sensors and drone solutions to minimize any disruption to our business.

Perfect. And our last question for today. Will there be an opportunity in the near future to see AgEagle's drone capabilities in action, similar to the video you posted for the golf course demo?

Oh, most definitely. In addition to conducting more demos for other golf courses around the country, we plan to expand to other commercial and industrial markets. we believe this end-to-end drone solution can prove to be a more safe, reliable, and cost-efficient alternative and ultimately solve important business challenges across multiple industries.

Great, and thank you, Michael.

Yeah, well, Nicole, this concludes our Q&A session. Before turning the call back over to the operator, I want to thank all of our employees, partners, and shareholders for their continuous support that results in a record year for AgEagle. Through the addition of Micasense, a bolstered management team, and strong operational and financial positions, we remain highly confident in our ability to execute our growth initiatives while continuing to prove our value in this emerging market. As I stated in the past, we are only getting started and have just begun to leverage the power of the platform and technology that we have. We will continue to keep you abreast of our progress, providing all pertinent and material updates in the business as we continue on this journey together. We hope you all stay safe and healthy out there, and thanks again for joining our call today. Operator, back to you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.