AgEagle Aerial Systems, Inc.

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's prepared remarks, both company officers will respond to questions that were previously submitted via email 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 CEO Barrett. Please go ahead.

Thank you, and good afternoon, everyone. I wanted to start off this webcast by thanking all our employees across the globe. We've had to face unexpected and unprecedented challenges throughout the past two years, But despite these hard-hitting and taxing obstacles, our team has risen to the occasion and made transformative progress in positioning AgEagle to be a leader in an ever-evolving and fast-paced industry. Your tireless support and dedication to executing our growth strategy has not gone unnoticed, and on behalf of the board and management team, we thank you all. Since initially embarking on this journey as a public company in 2018, I truly believe we have established a strong foundation with the necessary technical, operational, and commercial capabilities supported by our team of world-class talent to make meaningful strides this year and beyond. Before we dive into our goals and objectives for the future, I wanted to highlight all the progress we made during 2021. While I was only recently reappointed as CEO, in 2021, I sat in the chairman seat, keeping my finger on the pulse of the company and also being involved in the strategic decision-making process as we laid the groundwork for an autonomous full-stack drone solution this past year. I want to ensure all our long-term shareholders have a complete understanding of what we did, but most importantly, why we did it. So with that, let's jump right into it. In 2021, we were focused on preparing our company for growth opportunities to utilize drones and data analytics to drive actionable insights for a variety of applications and industries. Our work was centered on acquiring and integrating complementary companies to round out our full-stack platform, growing our talented team across the globe, introducing new products to the market, and deepening existing relationships while simultaneously establishing new connections with customers and peers around the world. Early last year, we acquired Micasense for their best-in-class advanced drone sensors. Micasense's patented high-precision thermal and multispectral sensors helped serve the aerial mapping and analytical needs of companies across a variety of industries, most notably in agriculture. With distribution in over 70 countries, we integrated Micasense and its technologies to bolster our offerings to existing customers while having an expanding product portfolio to market to potential new customers. Our engineers continue to push boundaries within their product capabilities, and our efforts resulted in two new sensors that we introduced in the fourth quarter. the Red Edge P and the Altum PT. Both of these sensors were built on our own proprietary circuit boards, designed in-house and manufactured exclusively for AgEagle. The leap in technical capabilities, thanks to an in-house design and produce system on module, can't be understated. With our new architecture, we are positioned to build solutions for a variety of industries with unique edge computing technology. We believe these sensors represent revolutionary leaps forward in combining resolution, and panchromatic capabilities to multispectral camera technology and will better serve our customers' needs long into the future. We anticipate these sensors will be very popular as we have begun seeing growing demand for these two products already early in 2022. Then in April of last year, to help bolster and develop our software offering, we acquired the award-winning aerial intelligence solutions company, Measure Global. Recognized for its cloud-based operating system, Ground Control, The acquisition greatly complements our existing hardware and data collection platform. Software is a key component to expanding AgEagle's reach. Connecting disparate hardware data points to insights and intelligence is at the core of what AgEagle software development has always focused on. As we move forward in becoming a global leader in end-to-end robotic solutions, we need to be able to offer a comprehensive user ecosystem for our customers to operate out of. The acquisition of Measure allowed us to leap forward with their existing software capabilities already validated by their world-class customer base. That includes many Fortune 500 companies, including Marathon Pipeline, the U.S. Air Force, and too many to name here. In November, with the software solutions that Measure provides, we announced that we teamed with Wing to integrate the open sky into ground control. This partnership materially enhances the capabilities that our platform offers, to customers by utilizing OpenSky's technology to make it easy for drone flyers to abide by airspace rules and regulations, as well as request authorization to fly in controlled airspace in near real time. As our ecosystem continues to expand, we will look to partnerships like this to not only push forward our company, but the industry as a whole. Our final acquisition of last year came in October when we acquired SenseFly, the developer of EB-branded high-performance fixed-wing drones. Headquartered in Luzon, Switzerland, SenseFly brings to our company world-renowned expertise in the fixed-wing drone space, as well as existing revenue to help enhance our growth strategy moving into next year. Since closing the acquisition, we have worked tirelessly to integrate their existing product line with the opportunities we've identified stateside. Soon after, SenseFly was named to the blue SUAS 2.0 list of drone suppliers by the U.S. Defense Innovation Unit. This project aims to bring greater variety of small unmanned aircraft systems to the Department of Defense as well as other U.S. government entities. After multiple successful demonstrations and months of testing our EB-TAC fixed-wing drone with U.S. government officials, we became the first approved drone to be added to the DIU Blue UAS cleared list. This represents a huge step forward in the validation of our products with our EB-TAC drone now available for purchase by U.S. government agencies, and all branches of the military on the GSA through our partner resellers. While we continue to integrate our acquisitions into one cohesive offering, we also spend time establishing and deepening new and existing partnerships. We continue to nurture our network of approximately 200 resellers in 75 countries worldwide, which helps us organically grow revenue year over year. These relationships are going to be critical as we move into our next phase of growth. Our achievements throughout the year would not have been made possible without the commitment of our talented team now stationed around the world. From the end of 2020, we have grown to over 150 full-time employees. Over 70% of our expanded employee base now consists of highly experienced engineers and data scientists that are considered experts in their respective fields. Our company is centered around emerging and innovative technologies that are pushed forward by the expert team that we work with every day. Without their expertise, we would not be where we are today. In addition to our growth through acquisition achievements, we also realized significant milestones on our capital market strategy. In May, we filed a $200 million shelf registration to provide a clear pathway for funding our integration and growth initiatives. Through this process, we named Stiefel and Raymond James as our lead investment bankers who have been instrumental in guiding and executing our funding strategies. Then in June, we were added to the Russell 3000 Index, which is used by institutional investors for index funds and as a benchmark for active investment strategies. Being included in the Russell 3000 Index greatly expanded our investor reach and has helped to increase awareness of AgEagle within the institutional investment community. Overall, we made significant strides in 2021 to lay a strong foundation and set us up for success with everything we were able to accomplish I'm very pleased to have stepped back into an operator role as CEO to unlike and catalyze more value with a clear goal of driving profitable revenue growth. As I stated in my recent shareholder letter, I'm very aware of the negative optics that come with leadership turnover that AgEagle has experienced over the past few years. However, I want to reiterate my commitments to the company and my excitement for the growth opportunities on the horizon. It's been incredible to see AgEagle transform from a small drone manufacturer based in Neodesha, Kansas, into an NYSE listed company that has a global team developing and delivering full stack autonomous robotic solutions and array of critical industries. I fully intend to remain in a hands-on leadership position, ensuring the execution of our growth strategy. This vision not only includes drones, but an entire ecosystem that supports autonomous robotics capabilities to help our customers perform their work as efficiently as possible. While our 2021 year-over-year revenue growth was fueled by the successful execution of our growth through acquisition strategy, we anticipate our trajectory will be accelerated by numerous organic growth initiatives in 2022 and beyond. Before I share more details of our growth plans, I'd like to turn it over to our CFO, Nicole Fernandez-McGovern, to provide a recap of our 2021 financial performance. Nicole, over to you.

Thanks, Barrett, and thank you all for joining us today. Yesterday, we filed our 10-K with the SEC, which is accessible on the SEC.gov and our investor relations section of the AgEagle website. Additionally, we announced some key highlights from our 10-K via a press release this morning, which I'd like to recap here. Looking at the results for the full year 2021, total revenue increased 659%, climbing to $9.8 million compared to $1.3 million in the prior year period. This increase was the result of the three aforementioned acquisitions contributing meaningful revenues throughout the year. Breaking down the full revenue results was our Red Edge and Altum sensor sales that totaled approximately $6.8 million, our drone and custom manufacturing sales that totaled approximately $2.4 million, and our software as a service subscription sales that totaled approximately $500,000. Consolidated gross profit margin on total revenues was 44% compared to 45% from 2020. The decrease was primarily a result of an increase in cost of components and parts, mainly due to supply chain constraints in the marketplace today we face. Our net loss available to common stockholders for 2021 was approximately $30.1 million. or 43 cents loss per share compared to a net loss available to common stockholders of approximately 14 million or 35 cents loss per share for 2020. Our cash position as of December 31st, 2021 was 14.6 million compared to 23.9 million at the end of 2020. In addition, total stockholders' equity increased substantially to 76.5 million as of December 31st, 2021, compared to $26.4 million as of the end of 2020. The increase in cash was primarily as a result of our investing activities, increased investing activities related to the three aforementioned acquisitions. Lastly, I want to provide an update on our capital raising efforts. From May 26, 2021 through December 31, 2021, we raised approximately $30.9 million by utilizing our ATM with our co-agents, Stiefel and Raymond James. These efforts have provided us the resources to pursue our goal of building a full-stack solution that we believe will generate significant opportunities for growth across both commercial and government defense verticals, ultimately delivering increased substantial value to our shareholders. Now, I'll pass it back to Barrett to go over more detailed reviews, state of the industry, and our vision moving forward. Barrett?

Thank you, Nicole. To set the stage for our growth opportunities, progress in artificial intelligence, machine learning, and navigation technology is leading to a new generation of autonomous robots and UAVs being increasingly commercialized. They are being utilized in both indoor and outdoor environments and in applications that span mapping, inspection, agriculture, military defense, public safety, package delivery, transportation, warehouse management, among many others. And this is just the tip of the proverbial iceberg. Autonomous things will increasingly take over repetitive, dangerous, and remote labor previously conducted by human workforces. This significantly bolsters operational efficiency for companies, reducing costs while increasing output given robotics' ability to operate 24-7 with real-time decision-making and optimization. Autonomous robotics requires a thoughtful architecture of hardware and software working in coordinated effort to streamline and improve workflows and outcomes based on the valuable, actionable, data-driven insights that they capture and provide. It is our belief that as an autonomous technology continues to evolve, it will become more and more integrated and intelligently connected with humans, as well as with the environment in which they operate. AgEagle intends to remain at the forefront of this evolutionary process, serving as a respected industry innovator and enabler through our unified line of industry-trusted drones, sensors, and software. I believe that when people look back at our company in the years ahead, they will realize that the groundwork laid in 2021 through our acquisition strategy will have had a far-reaching impact on how the industry ultimately matured and prospered. With this industry backdrop and solid foundation in place, it's been one of my top priorities since rejoining as CEO to ensure our entire organization is aligned on the growth objectives at hand. Today, in 2022, we are focused on capitalizing our specialized expertise in innovating and commercializing advanced drone sensor and software technologies. In fact, 2022 will be defined by organic growth through meaningful sales performance as we aim to provide our existing and future customers with autonomous robotic solutions that meet the highest possible safety and operational standards to fit their specific business needs. With world-class sensors, software, and airframes, alongside an immense pool of talented engineers and data scientists, we have the utmost confidence in our ability to deliver best-in-class solutions. To deliver upon our organic growth objectives, we have established three centers of excellence that our leadership has challenged to cross-pollinate ideas, industry insights, and interdisciplinary skill sets. The goal of this is to generate intelligent, autonomous solutions that efficiently solve problems for our customers. As I stated in my March letter to shareholders, we're going to be more than just customer and product-centric. We'll be obsessed with innovation and knowing the needs of our customers before they do. Looking at our sales efforts, we will continue to capitalize on growth opportunities stemming from the application of our solution, experience and expertise in agriculture, energy utilities, and mapping and surveillance. However, it is also our belief that virtually every commercial and government enterprise can benefit from AgEagle's autonomous robotic innovation. To really capitalize on these potential opportunities, we have been intensely focused on building out an appropriate sales force. Utilizing a combination of our extensive reseller network across the globe and direct consumer channels, we're also ensuring we're evangelizing our products to the right people through effective marketing tactics. We intend to adopt a proactive approach to showcase our expertise and capabilities at numerous industry events, conferences, and trade shows in the months ahead. We also look forward to participating in multiple investor conferences so that we can help the institutional investor community come to appreciate the long-term sustainable value proposition inherent in our company today and in the years ahead. I look forward to keeping you all apprised on the progress we make throughout this journey and to ultimately drive shareholder value. I'll return for some closing remarks, but I'd like to turn it back to Nicole for our prepared Q&A session. Nicole, over to you.

Great. Thanks, Barrett. Let's address the questions we've received from investors at this point. With the ongoing conflict with Russia and Ukraine, are these applications to utilize the EB tax for this situation?

First, I'd like to say our hearts go out to all the people affected by this conflict, and we stand in support of those promoting a speedy and peaceful end to the military aggression. But directly, the EDTAC offers an aerial reconnaissance platform for a variety of military applications, including in active conflict areas such as that which is transpiring between Russia and Ukraine. provide increased flight time for surveillance over our competitors and can offer a significant improvement to the information available to forward operating units when the conditions are changing drastically, thereby improving the safety and effectiveness of military personnel. So in short, yeah.

Great. Next question. Given the company's global footprint these days, what percentage of sensors and airframes are manufactured in the U.S. versus other countries?

This is a great question because we really prided ourselves on our manufacturing prowess and capabilities. And all of our hardware is manufactured either in the United States or Switzerland. While we've continued to shore up our supply chain, a few of our components are still sourced from a variety of locations around the world. But all design, assembly, and testing comes out of one of our facilities either in the United States or Switzerland.

Perfect. Next question, with the EB tax added to the blue UAS cleared list by the Defense Innovation Unit, are there meaningful cross-selling opportunities for other offerings such as sensors or software?

Absolutely, absolutely. We offer a variety of solutions, and our expertise in combining software and hardware development makes us an ideal partner for many industries, including the government and defense sector. So cross-selling is a big focal point of our growth strategy going forward. We're actively combining and training our sales team to work in a coordinated, matrixed way so that we can provide the best solutions for solving customer problems. If we don't have the best solution, we can build it.

Okay, great. Next question. Barrett, you mentioned in the shareholder letter that it was your goal to achieve cash flow positive as quickly as possible. What are some of the steps you've taken to accomplish this, and what are the catalysts to getting to that point?

I do believe that growing our way to cash flow positive is the best approach, as quickly and as practicable as for the business. To that end, we're reorganizing our team to focus on a matrix leadership style that takes advantage of our team's expertise, regardless of geography, to support the best-in-class product development and cross-selling opportunities, as I mentioned before. We're also looking at how our software and SaaS offerings can continue to accelerate our growth by selling deeper into our customers' organization and by offering better and more integrated solutions. It's a key element that the catalyst is going to be our synergistic approach, being able to manufacture and build solutions under our own umbrella in the United States and in Switzerland, being able to design new and innovative sensors and hardware, and then wrapping that together at the customer point of interaction with really keen software that expresses a data-driven solution and innovative answer to some of their challenges. you know, that's going to be the big catalysts that are going to get us past that. So my goal here with this cash flow positive as quickly as possible is really to grow our way there through the synergy and innovation.

Well, thank you for that. As CFO, I truly do appreciate that. So moving on to our next question, what product offerings do you expect to see the most sales growth from in the near term there?

Well, we expect strong sales growth in all of our product categories. I mean, the most exciting and fastest Growth revenue areas will be, you know, where we have integrated sales, where we have customers that are using multiple AgEagle products that are driving single synergistic and scalable product ecosystems. We have a really good outlook on how software is shaping up and its utilization, how that is driving collaboration with the sensor units and our brand new sensors, as I mentioned earlier in my remarks. And so we have really high hopes for the performance of those units, as well as some innovative stuff on the flight hardware side with the EVTAC and units coming from those. So, I mean, what product offerings do I expect to see the most sales growth from is really all of them. I mean, we have a lot of growing room with where our products are positioned in the marketplace, and we're very excited about what that's going to mean for 2022 and beyond.

Great. Next question is hemp overview as a solution. Any plans to further expand it into new states or with commercial opportunities?

Well, we're always looking to expand the Hemp Overview and any of our solutions that are on the market. We still offer the Hemp Overview software platform and are regularly engaging new state government customers. While this part of our business has certainly slowed, coming from the news cycle perspective, we do continue to actively look for growth opportunities, including partnerships, new contracts, and additional key feature development. Recently, we were even able to add additional crop tracking services to the state of Florida, leveraging our existing software features, but selling basically more to our customers who appreciate the flexibility of that product offering. There is always a hope to expand any of our commercial solutions, whether that be through partnerships and new contracts or whether we're expanding feature development on the platform itself.

Great. So our final question for today is, what is AgEagle's plans for drone delivery? Do you believe there are enough near-term growth opportunities to invest in, or are you in a standby mode to see how the regulatory landscape pans out?

AgEagle has a history of collaborating with companies, looking to manufacture UAVs, ground support equipment, and testing equipment directly related to the drone delivery pipeline and ecosystem. While we still cannot disclose either our previous or current relationships due to strict NDAs which are in place to protect us and our partners, there are several key opportunities where AgEagle is best suited to develop solutions for airborne drone package delivery. With regulation still being a focal point, of the changing landscape, the B2B package delivery has a unique set of challenges. And several of our projects, including our prior work with mailbox systems and Valkyrie, are emerging as safe options. So as we look to the future, our approach is the same as it's always been and has been for several years. We offer hardware and software solutions that power both the autonomous flight and ground control components of autonomous drones and drone delivery. So with these tools, you know, these tools are absolutely critical to the infrastructure of robotic package delivery, and we anticipate that we will continue to be on the forefront, you know, pushing what's capable and what's producible. So this concludes our Q&A session. But before we end the webcast, I just wanted to reiterate our vision for the future. We are one company with one vision. While we've made substantial progress over the past few years to be in the strong position we're in today, I firmly believe we've only scratched the surface on the true potential of this company. We were fortunate enough to get a head start on this fast-evolving industry, and our intense focus on delivering some of the most innovative autonomous solutions in the market is poised to keep us at the front of the pack. As I stated in my shareholder letter, good fundamentals reflect good businesses, and good businesses command premium valuations in the market. It is my promise to you that we will remain committed to seeing our organization deliver upon the growth objectives we've laid out to generate consistently strong financial performance. With that, I'd like to thank you all for joining our webcast today, and I'd like to thank all our shareholders for their continued support. We sincerely appreciate you for staying with us throughout this journey. Nicole and I look forward to sharing our first quarter results for 2022 next month. 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.