Guerrilla RF, Inc. (GUER) stock intrinsic value fair value estimate & owner earnings analysis

Guerrilla RF is a small fabless semiconductor company in Greensboro, North Carolina, founded in 2013. It designs radio-frequency chips (MMICs) for wireless infrastructure, automotive and general catalog markets. Manufacturing is outsourced to wafer foundries in Taiwan and Singapore, with assembly and test in Malaysia. The shares trade over the counter (OTCQX). Most sales go through two global distributors: Richardson RFPD took about 65% of 2025 product revenue (77% in 2024) and RFMW about 15%. Track record. Revenue grew from $8.1 million in 2020 to $22.7 million in 2025. But the company lost money every year and paid for its growth with private placements and expensive loans. Its accumulated deficit was $60.8 million at the end of 2025. We measure owner earnings as operating cash flow without working-capital swings, minus stock compensation and the equipment spending needed to keep the business running. On that basis the business lost about $4.1 million in 2021, $12.3 million in 2022, $12.7 million in 2023, $8.2 million in 2024 and $5.1 million in 2025. The turn. Things changed from mid-2025. Operating cash flow was positive in the third and fourth quarters of 2025, at about $0.9 million and $1.1 million. Most of that came from collecting receivables and cutting prepaid costs and inventory, not from earnings. Without those, the second half of 2025 was roughly break-even. The first half of 2026 was the first truly profitable stretch. Revenue rose to $14.5 million from $9.7 million a year earlier, and gross margin reached about 70%, up from 65% in 2025. Second-quarter revenue of $8.0 million produced $0.96 million of operating income. The reported first-half net loss of $1.1 million includes a $2.1 million non-cash charge for the rising value of the company's warrants, which we ignore. About $0.4 million of other income in the first half is not explained in the data available, and we did not treat it as recurring. How we set the earnings level. Every full year so far was loss-making, and the business now looks different, so we measure from the mid-2025 turn rather than from the loss years. Before interest, the business produced roughly $2 million of cash over the four quarters since then (about $1.7 million without the unexplained other income). At the first-half 2026 pace it would produce roughly $3 million a year, after allowing about $0.8 million a year for normal equipment spending. We use $2.5 million a year of pre-interest cash flow as the median level. For comparison, owner earnings improved by $3.1 million in 2025 but were still negative; our base case adds no growth on top of the $2.5 million level. We do not count on future revenue growth, for three reasons. Past growth was paid for with outside capital, not the company's own cash. The year-end 2025 backlog of $6.3 million covers only about one quarter of sales. And one distributor still carries most of the revenue. Debt and preferred stock. At June 30, 2026 the company had $4.6 million of cash, against about $5.7 million of borrowings and $0.5 million of finance leases. The main loan is $4.5 million from Salem at 12% cash interest. It is repaid $0.2 million in 2026, $1.5 million in each of 2027 and 2028, and $1.3 million in 2029. Because that rate is well above market, we add about $0.5 million to the debt. We treat $2 million of cash as needed to run the business, which leaves net debt of about $4.2 million. The $22 million of Series A convertible preferred stock, issued in August 2024, also ranks ahead of the common. North Run, which controls it, held 41.3% of the voting power. In a sale the preferred receives the greater of $22 million or its as-converted value: 7.2 million common shares, a conversion price of about $3.05. It is only worth converting if the whole equity is worth more than about $55 million. Below that, common shareholders get only what is left after the $22 million. There are also 5.8 million warrants, 5.0 million of them exercisable at $2.50 or $3.05. The cases, discounted at 6%: Bear: The first-half 2026 strength fades, and the business slips back to the roughly break-even level of late 2025. That leaves no operating cash for about $0.8 to $1.0 million a year of interest or for the Salem repayments. The business is worth about zero and owes about $4.2 million, with the preferred's $22 million claim sitting behind the lenders. Common is worth about -$0.39 per share: the company would owe more than it is worth, and shareholders would face dilution or a restructuring. Base: $2.5 million a year for ten years, fading to zero over the next ten as today's products age. Meanwhile the R&D program keeps the product line current. It is paid for within that cash flow: about $8.6 million of spending in 2025, 20 new products released in 2025 and 32 in 2024, 183 products in total. The business is worth about $23.5 million. Subtracting $4.2 million of net debt leaves $19.4 million, about $2.6 million short of the preferred's $22 million preference. Nothing is left for common, about -$0.25 per share. Bull: The second-quarter 2026 run rate holds, at about $8 million of quarterly revenue and $1 million of quarterly operating income. That gives about $4.5 million a year, with the same ten-year fade. The business is worth about $42.3 million, or $38.2 million after net debt. After the preferred's $22 million, common is worth about $16.2 million, about $1.51 per share. At that value the warrants stay out of the money. Accounting choices. We treated operating-lease payments as rent rather than working capital. Equipment financed through finance leases is counted as debt, not as spending. The $0.4 million Gallium Semiconductor GaN product portfolio bought in April 2024 was treated as an acquisition, not as maintenance spending. Amortization of acquired intangibles is too small to matter. What would make this wrong. The key question is whether the second-quarter 2026 profit level lasts. All value above the preferred's claim goes to the common. So each extra $1 million a year of lasting pre-interest cash flow adds about $9.4 million of value, roughly $0.88 per common share. If revenue slips back toward 2025 levels ($22.7 million, when owner earnings were -$5.1 million), the company would again need outside money. Margin-of-safety price. In our median case nothing is left for the common, so price alone is not enough. The margin-of-safety price applies only if the company confirms the new level: positive operating income in both the third and fourth quarters of 2026, each on at least $7 million of quarterly revenue. If that happens, about $4 million a year becomes the median level, worth about $1.07 per common share after debt and the preferred. The company is tiny, depends on one distributor and has a large preferred stake ahead of the common, so a wide margin of safety is warranted and the margin-of-safety price is $0.40.