AgEagle Aerial Systems (NYSEMKT:UAVS) is a U.S. drone manufacturing and agricultural aerial data company that recently raised $10 million. UAVS stock now has a market capitalization of $155.7 million, even though the company is losing money with very little revenue.
This stock has been on a tear since the end of June when it ended at $1.19 per share. Prior to the direct listing on Aug. 5, UAVS stock shot up to over $3 per share and is now at $2.67.
There are indications that the company expects its stock price to move significantly higher.
Its Financials and Warrants Are Interesting
The company recently reported that it made just $16,000 in revenue during its most recent quarter. For the six months ending June 30 sales were $408,000.
However, AgEagle Aerial Systems does have $12.9 million in cash sitting on its balance sheet as of June 30. Moreover, since the end of the quarter, the company raised an additional $9.9 million at a price of $2.98 to an institutional investment firm. So now it has $22.8 million in cash.
In addition, it also issued warrants to the investor for $8.3 million more UAVS stock at $3.30 for a period of 10 months (i.e. up until June 6). However, the warrants cannot be exercised until Feb. 6, 2021.
The warrant’s exercise price is over 23% higher than today’s price. This structure is a bit unusual and it tells us something about what the company expects to happen in the future. For example, the 10-month exercise period for the warrants is out of the ordinary.
Exercise periods for warrants are usually set for several years at a minimum. This is because it usually may take this long for the stock price to rise well above the 23% higher exercise price.
In other words, the exercise price is 23.6% out-of-the-money. It usually takes some time for the price to be in-the-money enough to entice the investor to pay $8.3 million for shares. The fact that the company forced the institutional investor to accept a 10-month term shows it had the bargaining power.
In other words, AgEagle Aerial Systems must know something that will likely push the stock much higher by year-end. They didn’t want the warrant holder to then buy more shares before the end of the year. This will make the financial statements look better than when the company issues the warrant shares.
Where UAVS Stock May Be Headed
In a presentation dated Sept. 9, the company said it now has $25 million in cash. That is $2.2 more than the $22.8 million than I can account for in its public statements, so it might have taken on some debt.
But the presentation also said it has no debt. Therefore, the company either sold more shares that have not been disclosed, or its revenue and free cash flow has come in pretty strong during Q3.
Nevertheless, it shows that the $156 million market valuation is not completely ridiculous. In other words, it looks like the company has plenty of money to survive a cash burn rate from accelerated growth.
AgEagle said in its Q2 earnings release that $770K in revenue originally planned for the Q2 report will be in Q3 earnings. AgEagle both sells drones made in its Wichita plant and also aerial SaaS (software as a system) subscription data. It has identified agriculture as its main customer base.
The company did not provide any revenue guidance other than this year will be a record year. Clearly the institutional investment firm that made the $12 million investment and now owns the warrants believes this. They would not have agreed to such a short-term warrant exercise period and the restriction on exercising if they did not think 2021 would be even better.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.
