Q3 2021 Ondas Holdings Inc Earnings Call
Good day and welcome to the <unk> Holdings, Inc. Third quarter 2021 earnings Conference call.
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Before we begin the company would like to remind you that this call may contain forward looking statements. While these forward looking statements reflect on this is best current judgment they are subject to risks and uncertainties that could cause actual results to <unk>.
Differ materially from those implied by these forward looking statements.
These risk factors are discussed in <unk> periodic SEC filings and in the earnings press release issued today, which are both available on the company's website.
<unk> undertakes no obligation to revise or update any forward looking statements to reflect future events or circumstances, except as required by law.
Please note that today's event is being recorded.
At this time I would like to turn the conference over to Eric Brock Chairman and CEO.
Begin sir.
Well. Thank you operator, good morning, and welcome to our third quarter Investor call I'm joined today by Stuart Cantor, our president and CFO and <unk>. The CEO of our wholly owned subsidiary American Robotics I'd.
I'd like to set the stage for today's call by providing an overview of Amdocs holdings now that we've closed the American robotics acquisition effective August 5th.
I. That's holdings is now formally comprised of two wholly owned subsidiaries.
Networks in American robotics, both companies' networks and they are provide platform technologies as full end to end integrated mission critical Iot data solutions.
Networks provides mission critical private wireless networks, offering unmatched data capacity and operating flexibility for industrial and government markets.
Robotics offers discounts system.
First in only fully autonomous drone platform approved by the FAA to fly beyond visual line of sight without onsite human operation and industrial agriculture and government settings.
Both companies have attractive high margin capital light and high return on investment business models networks offers a large platform sale whereby our formats wireless technology is able to generate significant revenue at network deployment and of course, those networks and grow.
The network platform sale is complemented by recurring software and systems maintenance, providing SaaS like revenue and profit streams.
Similarly, Merit robotics deploys its Scott with system in a turnkey robot as a service also known as data as a service business model. The Scout drone system is owned and operated by a R. While the customer pays an annual subscription to receive the data analytics required for each of their use cases.
Together, you will see tremendous synergy between the two companies as we scale, we have the opportunity to bring the full Max wireless platform to discount system and extend the reach of the scout system more deeply across field operations for our customers.
We see customer interest in the <unk> system is driving new and CIO T wireless network opportunities for on dust networks, we see significant customer marketing and field services synergy cross the common customer end markets, both companies' target in.
In short <unk> Holdings has a full suite of technology position to attack the large end market with significant growth potential and we do this with businesses operating under attractive financial models.
With that overview, let's shift towards outlining the agenda for today's call first I will highlight the progress we are making on the key business priorities on dust networks in American Robotics, then I'll ask Stuart to share our Q3 financial results next Stuart and I will provide detailed updates on activity with the rail.
Steven in or networks Reese will then provide a similar update for American robotics as we execute the go to market strategy with the scout system.
Now I will summarize the call and then open the floor for questions and answers.
So let me start by highlighting that we have made significant progress over the second half of 2021 and executing on all our key priorities for both on dust networks in American Robotics importantly, and on dust networks. We are now marketing this upcoming period as a transition we are transitioning.
From investment mode to full Max platform delivery in adoption mode I want to emphasize this commercial adoption of our <unk> technology platform has begun and we are transitioning towards platform delivery.
We are excited to announce that on Das has received the first commercial purchase order for systems connected to that all important Greenfield 900 megahertz network. This order has come from Siemens on behalf of a major class one rail in addition, Siemens and on US having conversations with other class one rail about additional 900 megahertz.
Others.
This moment has been eagerly awaited for by our investors and we continue to be thankful for your support again, we have now transitioned on Das network networks towards platform delivery. This is a huge accomplishment and I want to take a moment to acknowledge the team at on Das and all the hard work and talent that has gotten us to this point, it's really exceptional.
And I'm very proud of our team and grateful for their efforts.
In addition to the initial order for 900.
900 megahertz, our partnership with Siemens continues to broaden on the call. We will share details on the outlook for additional jointly developed products whereby Siemens continues plans to integrate our full Max wireless technology in the critical training systems that Siemens markets to rail customers worldwide. The seamless partnership is also expanding on the marketing.
Side, we've seen we see identified customer network opportunities in international markets and have also begun exploring near term opportunities and transit markets as we expand expand beyond our initial focus on North American class, one rail Ian as interest and I Tripoli agency that 16 S 16 T builds throughout.
The global rail sector. So the <unk> relationship continues to grow across products and end markets market signaling the value, which are full Max connectivity platform provides as we build our ecosystem.
We've also now completed the phase one effort with Aura network systems, we will provide more insight on the technical development, there and the value created for on dust networks.
Let's turn to medical robotics, we are now in execution mode.
Our focus is on scaling their business.
We laid out the American robotics business expansion plan in great detail in our business update investor call at the end of September that plan has been launched and as you know it's very ambitious key hires are being on boarded and we are adding significant talent to help build our business. We have ramp production capability of the <unk> system and deliveries have begun we built.
The field installations are poised to accelerate customer activity is expanding and the ecosystem around scout is also growing as evidenced by the recently announced partnership with diadem AI Dai them is a supplier of artificial intelligence technology with physics based foundation <unk> is going to provide important highlights of all this activity as a mirror.
Robotics scales at Scout delivery platform Stuart I will now hand, the call over to you to provide more details regarding the third quarter.
Great. Thank you Eric as I share our financial results today for the third quarter and first nine months of 2021. Please note that we've included in our financial statements in this morning's press release and will be filing our 10-Q by the end of the day.
The numbers we are reporting do include financials for American Robotics, beginning August six.
Now moving to our third quarter results revenues decreased by 54% to approximately <unk> 3 million for the three months ended September 32021, as compared to approximately <unk> 6 million for the three months ended September 32020. The decrease in revenue was primarily a result of lower <unk>.
Sales and development revenue in the three months ended September 32021, as compared to the three months ended September 32020.
Gross profit decreased by 95% to approximately 14000 for the three months ended September 32021, as compared to 248000 for the three months ended September 32020, as a result of lower revenue and higher cost of goods sold related to development agreements.
Gross profit on a percentage basis was approximately 5% for the three months ended September 32021, compared to 40% for the three months ended September 32020, the lower gross profit percentage was driven by lower amounts of product revenue with higher gross margin and higher cost of goods in development revenue.
<unk> expenses increased by $1 9 million for the three months ended September 32021, as compared to three months as compared to the three months ended September 32020 the.
The increase in operating expenses was primarily due to an increase of approximately 664000 and professional fees related to the American robotics acquisition, an increase of approximately 629000 in depreciation and amortization amortization expense due to amortization of the American robots.
Intangible assets and an increase of approximately 463000 in R&D development expenses for the three months ended September 32021.
The company realized an operating loss of approximately $4 9 million for the three months ended September 32021, as compared to $2 7 million for the three months ended September 32020.
Operating loss increased primarily as a result of an increase in operating expenses of approximately $1 9 million primarily associated with the American robotics acquisition and a decrease in gross profit of approximately 235000 for the three months ended September 32021.
Net loss was approximately $4 9 million for the three months ended September 32021, as compared to a net loss of $3 3 million for the three months ended September 32020.
I'll now transition to our first nine months financial results revenues increased by 19% to approximately $2 3 million for the nine months ended September 32021, compared to approximately $2 million for the nine months ended September 32020.
The increase in revenue was primarily due to larger amounts of development revenue from Siemens and or our networks. During the first nine months of 2021 offset by lower amounts of product revenue.
Gross profit increased by 5% to 929000 as a result of higher revenue for the nine months ended September 32021, as compared to 882000 for the nine months ended September 32020.
Gross profit on a percentage basis, but it's approximately 40% for the nine months ended September 32021, as compared to 45% for the nine months ended September 32020.
Operating expenses increased approximately 36% totaled $11 9 million for the nine months ended September 30th 2021 as compared to $8 7 million for the nine months ended September 32020.
The increase in operating expenses was primarily due to an increase of approximately $1 5 million in professional fees related to the American robotics acquisition, an increase of approximately 644000 in depreciation and amortization expense due to the amortization of American robotics intangible assets.
And an increase of approximately 743000 and development expenses for the nine months ended September 32021.
The company realized an operating loss of approximately $10 9 million for the nine months ended September 32021, as compared to a loss of approximately $7 8 million for the nine months ended September 32020 operating loss increased primarily as a result of an increase of approximately $1 5 million.
Professional fees due to the American robotics acquisition.
Increase of approximately 644000, and depreciation and amortization expense due to amortization of American robotics intangible assets and an increase of approximately 743000 and development expenses for the nine months ended September 32021.
Net loss was approximately $10 9 million for the nine months ended September.
2021, as compared to a net result of $9 4 million for the nine months ended September 30 of 2020.
And lastly, the company held cash and cash equivalents of approximately $47 5 million as of September 32021, as compared to approximately $26 1 million as of December 31 2020.
Now ill turn this back over to Eric.
Well. Thank you Stewart now lets transition to a more detailed conversation around the key elements of the business plan for on dust networks in America robotics as we move through the second half of 2021, I will give an overview and as Stuart and reach to provide detail.
Let's start by again highlighting that we have now received the initial commercial purchase order for the Greenfield 900 Megahertz network. In addition, we along with Siemens are finalizing terms with the association of American rail or the E. R. Regarding the strategically important and CIO T rail lab, which we will discuss in greater detail in a moment.
As well Stuart will also provide more insight into the Siemens partnership and the ways. It is growing and adding to the value creation at on dust networks. In addition, he will summarize where we're at with Aura is a critical technology and intellectual property, we have created with our work there.
It's finished Reese will provide an update on where American robotics is on the business plan as we scale operations and deliver for customers that they are Stuart.
Great. Thanks again, Eric.
During the third quarter Undisc networks, along with our strategic partners Siemens mobility officially launched the Siemens New Airlink mission critical Iot radio platform.
This family of software defined radios as a result of our exclusive partnership with Siemens to bring next generation wireless products to the North American rail market.
And are based on <unk> eight O 2016 S T software defined radio technology.
The product launch, which was held at the railroad system supplier show in September included the announcement of the completion of our first joint development program for the North American rail market.
The program has now delivered a full Max integrated dual mode base station and wayside edge radio operating the newly allocated 900 megahertz band. This radio had simultaneous support for the existing 900 megahertz a T J S spectrum.
These radios enable a smooth and flexible migration path for the class one railroads to the new 900 megahertz frequency range and as Erik just previously shared we are also excited to announce that Siemens mobility is now secured its first commercial order from a class one railroad for the new 900 megahertz.
Mode Radio products scheduled for delivery starting this December.
In addition to the North American products, we continued to advance our second major development program with Siemens for next generation radio for the global rail markets, including support for our first onboard locomotive radio.
Women's is identified demand for this product in both North America and in international markets and Siemens confidence in Us and our technology has now been further demonstrated by awarding on this a new development contract to customize the radio solution for a major rail customer in Asia.
Our partnership with Siemens continues to broadened in scope and reach as both companies acknowledge that reliable wireless connectivity is a key enabler of the digitalization of railroads and the wafer increased automation.
We also expect additional joint development programs for global products to be secured by the end of the year.
And finally, we expect during the fourth quarter to continue to build inventory and increased internal human resources to remain to meet an expected increase in product demand for both North American rail and international markets.
Now moving onto the M C I O G rail lab.
<unk> and Siemens are currently negotiating with the association of American railroads for the implementation of the M. C. I O T rail lab to be hosted at our headquarters in Sunnyvale, California.
We expect the lab to support not just the 900 megahertz band, but multiple nationwide frequencies held by the railroads and managed by the E. R. As the industry standards Standardizes on the eight O 2016 S. T Communications protocol.
The lab will allow for next generation application and interoperability testing optimization of various network configurations and training of rail network engineers for deployment nationwide.
We believe the lab validates the importance of the standard and the coordination of the industry around our technology.
Now transitioning to or in networks.
So in the third quarter, we successfully completed our phase one software and hardware development for Oregon.
Ora has constructed a private nationwide air to ground Communications network using dedicated licensed frequencies based on our radio platform and is actively working with test customers as it pursues commercialization plans with NASA and the FAA.
We expect additional orders in the fourth quarter to support their testing and commercialization efforts importantly, the new phase one software release include significant real war World Airborne testing of <unk> CTO capability for unmanned aviation.
Just as proven CTO capabilities, along with its support for multiple licensed frequencies continues to stimulate interest from additional drone upper operators as well as our own American robotics subsidiary.
I'll now turn the call over to Reece Moser. So he can provide an update and outlook for American robotics.
Yeah.
Thank you Stuart.
American Robotics continues to execute the business plan outlined in the Investor call on September 28.
Progress has been made on all fronts hiring has accelerated to a steady on targeted growth rate and head count has increased over 200% from Q3 of the previous year.
We've added key personnel and industry, leading talent at all levels of the organization, including VP of sales VP of operations VP of engineering director of talent director of flight operations and director of product.
Kris head tankers, enabling American robotics to accelerate sales manufacturing and deployment of <unk> systems.
Additionally, we have made progress on maturing our supply chain and manufacturing capacity to satisfy existing customer demand.
To this end, we have partnered with industry, leading contract manufacturers in the northeast and have completed the training necessary for those partners to independently manufacture our products initial production units from this manufacturing line have been delivered and installed at customer sites.
Customer demand remains robust and our pipeline is growing.
We announced the receipt of a purchase order in the third quarter from a fortune 100 oil and gas company and the initial units whose contracts has been delivered and installed in the Midwest. This oil and gas customer conocophillips fits the characteristics of a franchise customer with the ability to move to fleet deployments. We expect this relationship to grow to additional.
Units and expanded use cases there.
There are more than 90000 oil and gas wells in the United States and 835 kilometers of pipeline that require constant monitoring and inspection.
We've also secured a purchase order with Syngenta for Q2 delivery and look forward to working with them on AG specific applications.
We've made significant progress with stockpile stockpile reports as well a customer who has contracted for multiple <unk> systems.
We've deployed our scout platform at a mid Atlantic location and had been delivering data reliably and repeatedly.
We have successfully completed a deep integration of our respective technologies, enabling extremely accurate and reliable information and measurements about their assets multiple times a day this contract calls for scaling.
The deployment of our scouts system throughout the United States and we are working with stockpile reports to prepare and operationalize. These commitments in the fourth quarter of 2021 and beyond.
We expect additional fortune 500 industrial companies to provide orders in Q4 for delivery in the first half of 2022.
Currently have a backlog of customer interest and we expect to build in the coming months as we were able to support increased customer field activity. These.
These franchise customers offer the ability to purchase and utilize suites of scouts systems across the United States and the world.
Lastly, we want to highlight a significant strategic relationship. We recently established with dine in AI and develop our artificial intelligence and machine learning capabilities.
The partnership will allow <unk> to accelerate its product offering a cutting edge AI and ml techniques to its industrial customers further increasing the value proposition for these markets and accelerating customer demand.
<unk> worked for this partnership has already begun and we expect to announce these additional analytics driven product offerings in the coming quarters.
In connection with the our partnership on US Holdings has made an investment in dine in AI.
We're very excited about the strategic value of this relationship as we continue to develop and enhance our library of proprietary AI driven analytics features.
To summarize we are very happy with the pace of development at American Robotics, we believe on a cost of widespread adoption for our market leading scouts system for several critical industries, and we look forward to providing more updates over the balance of the year on additional business accomplishments now I'd like to.
Back to Erik to wrap up the call before Q&A.
Well. Thank you recent Stuart I'd like to take a minute to wrap up our prepared remarks before we move to Q&A honest have made tremendous progress this year positioning the company for huge growth a large open ended market. We have worked extremely hard to deliver on these opportunities for investors and we are grateful for your support.
We execute these business development efforts.
There is clearly more work ahead, we have reached an inflection point in the business for on dust networks.
Networks, we are transitioning from investment platform delivery as the 900 megahertz commercial build begins as we engage in planning with Siemens in our rail customers visibility on the ramp for wide deployment on the 900 megahertz system will improve we expect to carve out time for an on dust networks rail update in Q1, either on the quarterly conference call.
Or perhaps in a separate breakout meeting to provide an updated and more comprehensive view of the rail Tam and the cadence for the 900 megahertz deployment cycle as well as opportunities that are emerging and international markets.
At American Robotics, we are similarly in execution mode production of Scout systems is ramping and more importantly, the customer at field services platform is being scaled to support more customer activity. We are establishing critical business processes to serve our sophisticated customers ranging from streamlining purchase order.
Patient and contracts at the time of sale to creating efficient Scott system installations in flight operations.
This is all pointing towards preparation for both our customers and the American robotics team for fleet deployment by franchise customers.
We expect to have a greater and more consistent volume of customer purchasing activity at both on Das in America robotics, as we move into 2022.
We look forward to wrapping up a strong year with significant strategic accomplishments and we intend to build on the momentum we have generated for our businesses at both on dust networks in America robotics.
Operator, we can now open the call for Q&A.
Yes.
We will now begin the question and answer session.
As a reminder to ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. It. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Yeah.
Sure Youre in our lives.
And it appears there are.
Our original questioner may have disconnected.
I'm going to take the next question now from Mike Latimore with MCM.
Please proceed sir.
Great. Thanks.
Yeah, congratulations on all the strong developments there.
I guess in terms of the first commercial order I don't know can you provide.
Our sense of the number of units or size of that order and then also maybe just a little more color on the type of use case and this is going to be in a specific region and any more color on that would be great.
Sure. Thanks, Mike, we're not able to share terms at the moment, we need to like Siemens plan to marketing on the details of the orders as soon as Stuart mentioned earlier on Das is Siemens are in active conversations with multiple rails that we do expect additional orders.
So Stuart would you add anything to that.
No I think that's right in terms of applications. It's all of the ones we've been talking about.
Anywhere from crossings to high rail.
Basically the way the rails view our network because it's an IP network for all of their advanced applications of course, theyre going to be supporting their legacy Adcs.
Train control system.
As they migrate off the bat.
Okay.
Then.
This is this order is separate from the M. C. I O T lab order I believe I guess can you talk a little bit more about.
When you might see that kind of lab order.
Yes, so as we said, we're finalizing terms and we're targeting a purchase order in Q4.
This lab is I'll I'll add strategically important for us as we as Stuart described the lab goes beyond 90.
900, megahertz, and it's really an evergreen testing environments for all the class One communications network. So for 50 160 is well on its another validation point for the important role on das in our pool match wireless platform has on a on a technology roadmap to the class one rail.
Great.
And then just on American robotics, and dine them that AI.
Is it maybe can you provide a little more detail there what would be sort of the first type of analytics, we might see or you know which vertical might they focus on first.
Sure I can take this yeah.
Yeah.
The applications for our products are quite broad.
So theres a lot of options and as our business is ultimately about data.
Theres really.
An extensive list of opportunities to.
Leverage and monetize the techniques that diamond brink's.
But for example, you know our focus is going to be on.
The markets that we're most interested right now which includes oil and gas rail and.
Bulk materials and mining.
Okay, great. Thank you.
Thanks, Mike.
Our next question comes from Tim Horan with Oppenheimer. Please proceed sir.
Hey, guys. Congratulations on a couple of questions one.
Do you think the rail industry can meet the requirements of the FCC requirements of vacate the 900 megahertz spectrum on time.
From what you can tell at this point and can you remind us how large of an overall opportunity that is for you guys have a few follow ups.
Yes sure. Thanks, Tim So yes, it's been publicly disclosed by the FCC. The rails do have a three to five year requirement to retire the legacy 900 megahertz network and of course that clock began in 2020.
So we believe that theyre going to have to retire the system by over.
Over 2023 to 2025 certain portions of our legacy 900 network were negotiated move sooner than others and as we've talked about previously we believe the full Max shared architecture is going to drive that network upgrade faster so.
So it's still the same outlook in terms of the time lines and we do believe the rails can meet their timelines.
Great.
And any update on what the overall revenue could mean to you for this migration.
So we're still.
So we still see a very big system on 900 megahertz to of course.
Do you want to.
Remind you we have call it 50, and $1 16 in the pipeline as well, but that 900 megahertz network is largest in the hundreds of millions of dollars in the Tam.
And we look forward to we're planning to share a lot more details on that.
Next quarter.
As visibility is improving we're in conversations now with Siemens and railroads.
On the commercial rollout now.
Alright, great and then just on the supply.
Supply chain issue.
You'd be able to kind of meet the demand on both the rail side than on the robotics side and sorry.
Sorry on the <unk>.
Rome side and can you give us any more color on how rapidly and how many units you cannot produce on the drone side and the timing on that.
Alright, I'll ask Stewart to take it on the supply chain question Port networks, you can do the AOR.
Sure sure. So it's no surprise to anyone that there are supply chain issues, but we've been expecting.
<unk>.
These orders for quite a while so we've been.
Pairing.
There's kind of two.
Two areas one is our hiring.
The talent and then also acquiring critical parts and were feeling confident that we've put in place a team.
<unk> that can security orders so one of the first order here.
Sitting for delivery before end of year.
And we feel we're on track for that but we are ramping up.
And acquisitions parts to make sure we are on the network side, we can tick off.
Our goals.
Yes.
Ill jump.
Jumping for robotics.
Yes sure.
Yeah like everybody else supply chain is something that we're managing and thinking about the milestone for US recently has been the.
Completion of the training with our contract manufacturing partners.
And basically standing up a manufacturing line.
And so now we're transitioning to planning.
Bulk purchases of parts and materials for the.
The rest of this year and into 2022.
So that's something we're gonna be managing them and I think that looks like.
As we've said in previous updates tens of systems are the near term and working towards hundreds of systems you know by the by the end of 2022.
Congratulations on I'm, assuming demand does not the problem could you just maybe talk about how many how much demand do you have on how many how many units and.
Is there a way to ramp that system up even faster, but the demand is higher.
Yes, the demand is definitely there, it's an exciting time in and in many ways, it's a bit too expensive.
To remind everyone. This.
Automated drone system that we developed is the required solution for about 90% of all commercial drone applications.
So extremely expensive.
Trying to take a thoughtful approach on how we.
Grow each one of those markets.
And making sure that everything is for Boston, our supply chain or manufacturing operations et cetera.
So I'd say in general moving as quickly as we can but certainly reliability and good customer service is on the top of our agenda right now.
Thank you.
As a reminder, if you do have a question. Please press Star then one on your Touchtone phone.
Our next question comes from Bill Morrison with National Securities. Please proceed.
Hey, guys congrats on the railroad or.
Couple of questions first of all can you remind us what the.
The software looked like for AI between.
<unk> and Pan American Robotics.
The platform is American robotics developed for AI and ml.
Sure. So yeah, the engagement of a dine in months it can be grouped into two categories. One is one is the development environment.
To.
Produce each analytics feature more quickly, which we think is an important competitive advantage.
And then the other is just specific analytics products for each one of these markets.
So.
The work has already begun with on them and we are.
Developing a set of projects that are going to make.
Our use cases more valuable to our customers. So you know that conversation, we pretty long again theres a lot of.
A lot of different use cases, but.
But I hope that answered your question I could probably give a bit more detail. If you want a follow up.
Yeah, I'll follow up offline.
And then just.
A little more color on the ramp for the rails.
So how does that look going into 2022.
900, megahertz, and 450 megahertz and how many rail cars would you envision deploying in 'twenty two.
Bill.
I'd like to give you as much information as we cannot do that but we're still in active conversations and planning with Siemens as a customer. So so I think we've got a differ.
And I expect to have more visibility on that the next time, we speak.
Alright, good look forward to it thanks.
Great. Thanks Bill.
Okay.
At this time, we're showing no further questions in the queue.
And our question and answer session I would now like to turn the conference back over to Mr. Eric Brock for any closing remarks.
Alright. Thank you operator, we can end the call now is as we do I want to thank you again for joining US. This morning, and I also want to express gratitude on behalf of the entire team at <unk> for your support we do have momentum at both on dust networks in American robotics, and we're going to remain incredibly focused on accelerating our business activity, we look forward to continuing to share.
To share updates on our key initiatives going forward.
Again, thank you for joining us this morning have a great day.
Yeah.
The conference has now concluded thank you for attending today's presentation.
You may now disconnect.
Okay.
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