Q1 2021 Ondas Holdings Inc Earnings Call

And then pardon me, everyone and since the conference Operator, today's conference call will begin and just a few moments. We ask you. Please stay on the line and thank you for your patience once again, ladies and gentlemen, today's call of a starting in approximately two minutes.

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Good day and welcome to the oldest networks' first quarter, 2020, one and earnings conference call.

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And I'd like to turn the conference over to Eric Ross CEO. Please go ahead Sir.

Thank you operator, and good morning, and welcome to our first quarter Investor call. This is an exciting day for on Das. In addition to sharing our earnings release, we have also announced the acquisition of American Robotics.

This is the deal combining two leading mission critical industrial data platforms of course, I'm talking about honest as most.

The mission critical flow Max Wireless network, and American Robotics World class growth system.

<unk> is a homerun, it's a great deal for customers employees and importantly, a huge win for our investors I'm.

I'm thrilled to be sharing the skus with you and we'd be sure to dedicate enough time on this call to properly introduce American robotics to the investor community of.

Of course, and we also spent time covering Q1 results and give you an update on where we stand on our critical business development activity.

I'm joined today.

Thanks, Stuart Cantor, our President and CFO. In addition, we are joined by American Robotics, CEO re smoother and CTO Vijay some of the poly recent Vijay along with their teams have built an incredible technology platform and they are here to share details of their business.

Before we get going on the quarter and the outlook I wanted to take a few minutes here to share a couple of thoughts on member of American robotics.

Ah is leading the charge in the commercial drone sector. They bring both the first in class and a best in class complete drone and a box platform called the Scout system Scout is the type of solution that is coveted by our critical infrastructure customers.

The platform fits like a glove with our mission critical for Max wireless platform, both from a customer marketing and distribution standpoint, as well as from the wireless connectivity perspective, the drone needs connectivity.

And the significant marketing synergies and technical wireless platform integration provide and even more valuable turnkey data and edge computing solution for our customers.

And this is a bold move for on Das and that's exactly what on Das and American robotics need to do to create value and the mission critical data markets, we're serving and is exactly what our customers and shareholders should expect from us.

We are leading the charge and defining and delivering these data solutions for the critical industrial and public safety and government markets we address.

Now, let's sort of outline the agenda for today and we're gonna start first with the financial review from Stuart and I will then give the business outlook focusing on the key areas of business development of course that means I'm going to be highlighting where we are of Siemens the rails and Ora and then we're going to turn our attention back to providing information regarding American robotics and the.

<unk> the acquisition today and we.

We will leave time for Q&A.

Things are clicking ferrandez as Stuart will describe in detail, we generated both record revenue and bookings in the first quarter demonstrating clear progress on our plan, we continue to drive towards platform adoption and our critical rail and thrown markets with both the class, one rails and Ora and where.

Broadening our ecosystem, particularly through our seamless partnership which is the expanding through new product development agreements and we see more of that to come.

Stuart I'll now hand, the call over to you to provide more details on Q1 and the financial outlook.

Great. Thank you, Eric and welcome everyone and I want to begin by highlighting that we made excellent progress on all of our key business initiatives and the first quarter, including achieving both record revenues and bookings.

We booked approximately $2 4 million of new orders and generated $1 2 million and revenue with revenue growth of 480% of Q1 2020.

Our growth came primarily from joint development programs, the Siemens mobility, our partner and the North American rail market and aura, our partner, which is deploying the nationwide drone and unmanned aircrafts navigation network.

Our financial results of shown substantial proven euro per year and reflects excellent progress towards scaling both the rail and drone communications markets.

Our operating expenses were $3 4 million and increase of approximately one 1 million over Q1 and 2020.

The increase in operating expenses was primarily the result of $1 3 million and non cash stock based compensation.

We expect bookings and revenues to.

We need to grow substantially in the coming quarters, driven primarily by our sales activity from Siemens and the aura.

Revenue and profitability will fluctuate quarter to quarter, because our major commercial orders and new system deployments and don't have the amount of fixed timeline because of this as we mentioned in previous calls we don't intend to provide full year financial guidance.

For Q2, 2021, we expect revenue between one point.

1 million and one and a half million dollars and that revenue will come from our backlog as well as new sales orders from Siemens the class one railroads and the aura Eric will tell you more about this and the next section and greater detail.

Our cash operating expenses, which exclude noncash expenses such as stock based compensation are expected to be between two and a half from $3 million and the second quarter.

We believe we're positioned to see bookings and revenues grow on a quarterly basis throughout the year.

We continue to have a strong balance sheet with 24 million and cash at the end of first quarter.

And relative to the large revenue opportunities and our customer pipeline.

We have of modest cash burn.

Given all of these factors, we feel burden of great position moving forward and now Eric will provide more details on the customer activity and growth outlook for 2021.

Eric.

Thank you Stuart and as you can see we've made a lot of progress in Q1, though of course as I like to remind my team we have more work to do while the Big news today is of course, the American Robotics acquisition Q2 remains busy and milestone heavy as we set up for a strong year, we expect to see significant business development progress throughout the second.

<unk> with the class one rails, Siemens and aura.

Starting with the rails, we continue to highlight that we have multiple networks and our line of sight beyond the 900 megahertz that includes the 160 megahertz voice and data network as well as the $4 50 megahertz network, where the rails connect on locomotive systems.

For the 900 megahertz network is obviously, a huge deal and where we will start commercial deployments I wanted to make clear that we expect the demonstrate activity on these other systems and outside of North American rail as we move through 2021, and we will be supported as we do by our ecosystem partners, including Siemens.

Let's turn to that all important and 900 megahertz network, we continue to drive towards adoption on that large nationwide system, where our customer has greenfield spectrum to put to work.

As we previously shared we've worked principally with the wireless group under the umbrella to establish <unk> as the new 900 megahertz network platform.

And that effort is now evolving and expanding.

This wireless Comms committee or WCC has now elevated on das to the senior operating committee for the rails and order to formally ratify the establishment of the <unk> way of lab and Sunnyvale we.

We expect purchase orders related to the decision this quarter and the critical takeaway is that the users of the network those.

And those in charge of field area operations of.

Functions, such as train control of switching crossing safety and other applications, including drones.

Those folks are now engaged with their network and peers in the planning for the New network. This approval would be a very important strategic development and further validating this large opportunity for and us.

We continue to expect commercial deployments on the 900 megahertz network at the begin in the second half of 2021, we're.

We're not able to share detailed guidance on the timing of the appointments. When we know we will share that with you, but we are making progress.

Moving to Siemens or strategic partnership here continues to pay dividends for both parties.

And is it platform create systems upgrades opportunities for Siemens with the potential for them to drive additional revenues from the critical training systems. They provide the class ones, we are seeing seem and gain traction and build awareness with the field operating groups I referred to earlier across the board with all of the class one rails.

And again these business operating units that use the network for critical train system of operations.

And this is building rapidly beyond the network engineers as the users and the network begin to anticipate the increased bandwidth and all of the benefits that entails.

So, let's turn to Siemens and Siemens ordering activity recall that the initial 900 megahertz Atc's product development is complete and is now being qualified for sale, we expect Siemens the place orders for <unk> and the second half.

In addition, we noted on the last call that team has initiated a new product development program with us during Q1 net revenue generating program is underway and expected to be completed by the end of the year.

And I want to remind you that this new product with Siemens is for a separate application on a different frequency band away from the 900 megahertz network.

And this product will also be marketed globally by Siemens. This is clear evidence of the broader rail opportunity that we have been highlighting.

We expect the secure additional development programs with Siemens during the year with our full Max software defined platform being embedded in additional critical training systems globally.

Let's turn the aura our work with Aura has continued to move forward in 2021 with aura achieving their own key development milestones and January or received and FCC waiver for the air to ground radio spectrum license and the 450 megahertz band.

This waiver allows for the drone navigation network Theyre planning.

As Stuart mentioned, we now completing work on the optimization of the <unk> platform to create transitional network equipment for or UAS application. This work has included extensive aerial testing and we are very pleased with the results to date.

And this will allow and us and or to provide testing and demonstration networks for ores UAS customers.

We will realize product sales for this or optimize equipment soon.

In parallel on us and or our scoping the development program technical roadmap and expanded partnership structures for a significant FAA commercial station program related to this nationwide command and control or <unk>.

UAS network, we expect the big ecosystem play here with additional partners to emerge.

And we look forward to sharing more details on the expanding or relationship and program roadmap and timeline soon.

Now, let's turn back to American robotics.

I want to start by saying that this is an incredible company with massive talent and vision and poor.

Shortly AAR is and American drone company located just outside of Boston and.

And Boston as the region, many people consider to be of robotics and drone capital of the world.

And American Robotics stands out is a leader in this community recent Vijay and team have solve the biggest problem. There is and UAS and that is commercializing a complete fully automated drone system, a drone and the box.

Specialized for industrial use cases, this is called the <unk> system.

The scouts system enables the operation of drones beyond visual line of sight with FAA approval.

With no on the ground human operation Scow is the first and only truly scalable drone platform on the market.

Of course, the drone is the ultimate M Crot weapon for us, it's a mobile data gathering solution and we believe this ground breaking Scott system will be coveted by our industrial customers and.

And as we loved the huge addressable markets, we love huge camps, and we loved platform businesses and this is exactly what we have here with American robotics and their patented patented Scott system.

Price Waterhouse sizes, the UAS markets addressed by AAR as of $100 billion of more it's a huge opportunity American and robotics also brings a high margin high return on capital business also known as the robot as the service business model. We believe this model is great for customers and it can lead to very attractive returns.

Turns per and as investors.

<unk> is going to share more on that robot as a service business model and the value of bringing the turnkey platform to the market and how the very important first mover advantage. The the via the FAA approval will allow American robotics and on das to define the commercial drone market and the years ahead.

On the M&A or couldnt be a better fit to drive market penetration of the scout system the synergies between <unk> and the American robotics are significant and the combination of all of us as wireless connectivity with commercial drone and the box system is powerful again the drone is the ultimate mobile data gathering device at the edge of the mission critical network.

And the value to our customers to gather valuable information at of frequency they've never before been able to access the huge and we believe the pent up demand is significant today railroads utilities all in on oil and gas field operators. In addition to the critical industrial public safety and government markets are spending significant capex.

And Opex dollars on drones. The drone provides valuable data services and the budgets are in place and growing so the marketing synergies with the on us in a very real and valuable as are the technical the value of of reliable secure formats of wireless network reinforces the value of the scout.

On platform and vice versa, the customers are going to love. This.

And as an attack.

The tax the same end markets and on Das is robust networking capability will expand the market for American robotics Scout drones.

The drone is the most scalable and the most valuable when it's attached to a reliable secure mission critical wireless network.

And as the benefit is clear and broader customer solutions combined with an even greater ability to lay claim to the drone command and control navigation radio market Betsy to market starts with the Ora. It extends to the private networks. For example, drones can be and application for the rails and other industrial government customers for on.

Us.

And of course, the situ market extends to American robotics, and the local beyond visual line of sight markets. The scout system is defining the.

And as can now take our leadership position in the critical navigation link which is needed to address FAA requirements for the deployment of drones flying beyond visual line of sight at scale and.

American robotics puts us squarely in the huge market for smaller drone, that's why short of missions beyond visual line of sight at lower altitudes.

And also has overlap with the private industrial.

Networks, we're at the point, where customers operate both small and large drones often at low altitudes.

We expect to see immediate interest from our customers are already engaging on to us asking us to solve the drone radio network challenges and of course, and addition to the local and private wide area network applications, we're tackling tackling the high and drone missions with aura.

So while American Robotics Scout system is a crown jewel and a terrific standalone platform. The acquisition brings the added value of and US is full of match software defined network being positioned as the navigation backbone or the nervous system potentially for all industrial don't drone applications.

Infrastructure for.

The solutions for drones is a big opportunity and you will see on debt is playing an important and valuable role, bringing the picks and shovels to the drilling of economy.

I want and now hand, the call it the American robotics CEO of <unk>. So he can provide more information on them on the American robotics and the best in class Scout system risk.

Thank you Eric good morning, everybody and.

Great to meet you all and this new chapter of American robotics and on to Us.

So my name is <unk>.

And the cofounder and CEO of American robotics.

American Robotics is a developer of fully automated industrial drones and systems.

And as.

Eric mentioned at the beginning of his presentation in January.

We became the first company approved by the FAA to operate fully automated drones with no humans on site.

And so the most important.

The thing to understand about American robotics and.

And.

The commercial drone industry is the problem.

The Jones of been talked about for a long time now.

And there's been a lot of success with drones and the military sector. There's been a lot of success with drones and the consumer sector.

But in the middle of this very large opportunity for commercial drones that today, we are still barely scratching the surface.

And the reason for that is for the vast majority of commercial drone applications using and manually operated and drone is simply not practical.

And it takes way too much time and is not being in the economical solution because when you look at these industries and these use cases, whether it's oil and kind of.

Our agriculture.

Railways stockpile monitoring.

You have to operate this drone and collect data and analyze data multiple times of day every day for it to have value and having a person stand out there in the field with the remote control of walnuts occurring.

Quickly doesn't makes sense on <unk>.

Top of that default FAA regulations prohibit this kind of automated operation.

So today anytime of drone is playing a human has to be present on the ground with that drone typically with the eyes on it at all times.

Obviously prohibiting the ability to operate and that's fully autonomous and electric.

And so we have solved this problem with the skepticism.

The <unk> system is a truly automated platform.

And it consists of a number of software and hardware systems that are proprietary.

The American robotics that were developed on the ground up to work together to create this completely hands off experience and really change the dynamic of what it means to use of drone and the commercial sector.

So comprises our autonomous drone, our automated base station, our detect and avoid sensors and.

And the software to tie that altogether, both at the back end and at the front end and so everything has been automated.

The flight is actually just one component of what it takes the use of drones for business purpose and at the end of the day, what our product is data not the drilling itself and so we've automated mission planning precision landing charging and data processing and data store.

<unk> data transmission Phil.

Physical storage all of that together and now you can install these systems and your field.

And they will live there and definitely conducting 10 20 missions per day every day processing that data at the edge and transferring it back to the customer.

And so this again changes the dynamic of of what it means to use the drone and the changes the economics as well.

Okay.

So as it's been mentioned a few times now.

American Robotics and January of this year and became the first company approved by the FAA.

For fully automated drilling operation.

With no humans on site.

And this this is the most important approval that has occurred yet and the commercial drone space and as of right now we're actually the only company that has its approval.

Which means.

At the moment American robotics has the exclusive access to any of those markets, which require this degree of automation, which by our estimation incorporates about 90% of all commercial drone market. So.

And to recap of our system can fly the online of sites with nobody the observers or no humans on the ground at anytime that means before during or after flight at.

And at no point does a person have to be co located with the strong which again completely changes the dynamic and the economics of what drones can do for our commercial businesses.

So the.

The number of markets and the number of use cases for this type of technology is incredibly broad.

And as I mentioned, 90% of all commercial applications require this level of automation for drones to actually be of scalable solutions.

And we divide this into three overarching categories the industrial markets.

AG cultural market and the defense market and within each one of those.

You have things like oil and gas solar nuclear rail.

Railways utilities stockpile of yards.

Row crops and specialty crops just to name a few and the use cases are broad but.

The common theme among all of them and you want to be able to monitor your assets on a frequent basis, whether you have 500, well pads or 10000 acres of farmland.

Our system is able to digitize that.

Digitize that physical world and allow you to monitor.

Those assets remotely and and increase the efficiencies of your business.

So the.

The final piece of the puzzle is.

Once you can achieve this type of automation.

You can now combine it with the robot is the service model.

And we've extracted what is historically the most expensive part of operating and trial on which was the pilot.

And with that removed from the equation now we can focus on the service of the system provides and so instead of customers purchasing this hardware.

This is provided.

<unk> provided in terms of an annual subscription.

And this has two effects and this lowers the annual cost update acquisition for our customers.

And it also provides American robotics now of American robotics, and on the us with recurring software like.

Margins and.

And so Erika.

I'll hand, it off the you from here.

Alright. Thanks, Thanks, Chris So let me wrap it up before we move onto Q&A.

On Das continues to position itself for huge growth and our large open ended market. We have momentum and we are executing on our critical initiatives driving platform adoption and it starts with the rails and Siemens and ore of networks.

We're establishing our mission critical Iot platform as the default next generation why they are mission critical network.

And now we integrate American robotics, and medical robotics drone and the box Scout platform is best in class and it will be and high demand in our end markets and beyond this also positions on das as a leading player in all of the two markets with drones of all sizes and applications ranging from very large to small.

And for altitude ranging from high to low and for flight mission spanning local to regional the long durations and the drone ages here and and US will be a key player driving innovation infrastructure and end to end solutions as well as market penetration.

So operator, let's move to Q&A.

Thank you we will now begin the question and answer session.

And I ask the question you May Press Star then one on your Touchtone phone.

And with Speakerphone, please pick up your handset before pressing the keys.

Your question. Please press Star then two.

Today's first question comes from Mike Latimore with Northland Capital markets. Please go ahead.

Alright, Thanks, yes, congratulations on the acquisition and corner here.

And I guess, just starting with the couple of questions on the acquisition.

Maybe kind of basic but.

You know what what do you sort of charge per month like what's the art of who on a specific drone and then maybe just you know what is your ROI of pitched the customers like you know what.

And I'm Roy can you approve there.

Alright, I'm going to squeeze the answer the question I think we're gonna be a little sensitive on the price point at this moment and we will be providing a lot more information regardless regarding this and as of as of.

The we should know that the acquisition is expected to close and and in August. So we've got a couple of months here, but we will provide more details of at risk can you just share some perspective on this for Mike.

Yeah, absolutely and as the.

Eric mentioned.

Not disclosing specific pricing at this time, but we do look forward to sharing that.

Publicly soon.

And I can say when you look at the pricing as a result of this rollout is the service model, we are able to deliver the highest quality data at the lowest cost.

You know on our system again because of that human is removed from that operation.

It can run continuously.

And essentially marginal increase in costs all day every day and so that allows and entirely new category of data that has never.

And even be feasible to collect before.

So we're talking about sub centimeter resolution.

The times of day every day.

Which most importantly, unlocks a new category of data analytics and that was never possible before which we're excited to get.

Talking more of that that concept as we move ahead.

Hopefully that answers some of that question.

Yeah, and let me just.

And at a couple of things Mike on just to think about conceptually how it works when American robotics deploys the scouts system and the field, they're typically going to get of long term contracts from the customers. They are five years and the ideas and the and the initial year subscription agreement covers the cost to deploy the system and then you get extreme.

The high margins and years 234 and five.

Okay that makes sense.

And then just to be clear on the the data that you're gathering is this largely kind of video imagery and data that you're gathering and then I'm guessing that.

And I and a lot of data. So maybe is there something AI and the background that you know.

Sort of boil and analyze the data and sends it back of the most important stuff.

Yeah, absolutely and so it's been a focus of ours to do.

Create and deliver on full stack complete solution, which is again one of the reasons why we've joined up with on the us and and so one of the aspects of that is not just delivering raw data to the customer but actual.

Analytics and actual actionable information.

That's part of our product stack as Paul.

And there is multiple steps of that.

So actually going back to the first part of your question what type of data that we collect that depends on the market on the use case our system is largely.

Payload agnostic so.

And so within agriculture that is RGB and multispectral.

Within.

The industrial markets, it's typically RGB and thermal.

And there are other types of sensors on the horizon and things like the methane sensors for example.

And so.

And typically we're talking about collecting a very large amount of image data on.

On the order of 20 gigabytes a day.

That is all offloaded to the base station.

And within that base station and again. These also function of edge computing centers, which is the key.

Step to making this work.

And so those images are stitched together.

Processed and.

And to some degree analyze at the edge and then that finished product and uploaded to the cloud through our front and software called Scout view.

And then from that point on you can apply additional AI to analyze that data.

Okay, great. Thank you and then just on the core business here.

Maybe you can talk a little bit about the <unk>.

<unk> of you know.

And there's this lab sex and orders from the lab trial I think this quarter is that is that as of the success of that critical to the eventual commercial the orders you got and the second half of our there are a couple of rails that might sort of by the irregardless of that lab.

And there is gonna be rail activity irrigate irregardless of the lab. However, the lab is important and it's a place where all of the rails can come to collaborate on that shared system, we've talked about so.

So it is and it is an important step and as I highlighted earlier, it's really it validates the market opportunity to even further because we've now emerging not just with US wireless Comms committee, but we're sort of now.

Interacting and engaging with the senior operating committee of the folks who are going to use the network.

Yes, Eric maybe I can jump in too I think.

Although the work collectively they also.

Obviously, the rails were independently and so the number of applications continue to grow and the interest so I think.

The lab is critical but also.

Lots of activity going on.

And individually with the repurchase.

Okay.

Alright, Thanks, a lot and good luck.

Thanks, Mike.

Ladies and gentlemen, and as a reminder, if you would like to ask a question. Please press Star then one day.

The next question comes from William Morris on the National Securities. Please go ahead.

Hi, Eric.

Oh, Great Hey, Bill couple of question, sorry, if you hear any view of the thing.

How you doing.

And Theres hammering and the background and we have construction going on here sorry.

The problem of a couple of questions.

Do you have the cloud link also of Wimax radio two or do you have of radio and there.

And if so are you going to migrate this to on that.

The Wimax radio or software.

And.

Is it do you inter operate with any no.

AI cloud platform and the cloud <unk>, AI or Pearland tier zone.

Yeah, that's of Great question so.

The so the question of how we get the data to the cloud.

The.

Yeah.

Alright.

Are part of it just started.

The.

The answer depends on the site of the short answer is yes.

And with the full Max too.

Help us get that information of the cloud.

But if the seller.

Cellular connectivity is available in the site that we're operating and which is sometimes the case. We can also use that method.

Yeah.

Okay and then.

When you get it into the cloud and inter operate with the different AI platform or is.

As the year platform and the cloud too.

It is our profit from it on the cloud, but the system is developed and such a way where we have the opportunity to integrate.

With other software as well, whether that's of third party or that is something developed by the customer that we work with.

Yeah.

And then.

And on the drawing itself does there any compute resources like Intel net or anything like that.

On the drone itself the the computer and the intelligence focuses mainly on mission planning.

Intelligent flight dynamics things like precision landing.

The data itself from a customer perspective is stored on there and of raw format and then that's offloaded to the base for processing after the fight occurs.

Okay.

So I mean can you kind of give us an idea of <unk>.

And what your pipeline and looks like and when you're when do you expect to start to ramp in the orders.

Yeah absolutely.

So in coordination with the R&D efforts over the past five years, we've been building up of.

Deep customer pipeline and anticipation of our recent FDA approval now.

And now that we've achieved that milestone.

Back in January of this year. We're looking ahead the deployments with a number of fortune 500 companies across the U S and across multiple sectors, including energy.

The culture and rail are.

The focus now turns to building on our team and inventory to support this interest.

Our initial target deployments in Q3 and Q4 of this year.

Great. Thanks, I'll circle back.

Yeah.

Ladies and gentlemen, this concludes the question and answer session and I'd like to turn it back to the management team for any final remarks.

Thank you operator, I'd like to close by reminding our investors day on us is bringing tremendous value to the critical industrial and government markets. We're targeting we're focusing on delivering big networks for important end markets and we're proving this with the rails and aura and the flywheel is working and today's announcement with American robotics is proof.

And of our commitment to bring valuable and complete next generation solutions to these markets.

Adding the industrial market's best drone platform. The American Robotics Scout system is a huge win for our customers and investors.

So the close I want to thank you again for joining the call I also want to express gratitude on behalf of the entire team and on Das for your support we began the year with terrific momentum when we look forward to sharing updates on our key initiatives over the course of the year.

Thanks again for joining us this morning.

And thank you serve this concludes today's conference call and thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.