Q3 2022 Ondas Holdings Inc Earnings Call

Welcome to the honest holdings incorporated third quarter 2022 conference call.

All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

Before we begin the company would like to remind you that this call may contain forward looking statements.

While these forward looking statements reflect artist is best current judgment they are subject to risks and uncertainties that could cause actual results to differ materially from those implied by these forward looking statements.

These risks fact these risk factors are discussed in August is periodic SEC filings and in the earnings press release issued today, which are both available on the company's website I'll just undertakes no obligation to revise or update any forward looking statements to reflect future events or circumstances, except as it.

Required by law. Please note. This event is being recorded I would now like to turn the presentation over to Eric Brock Chairman and CEO . Please go ahead.

Well good morning, it's a pleasure to welcome you to our conference call I'm happy to be joined today by Eric <unk>, Our president and CFO . So we're cancer, the founder and president of on Das networks, and reached Moser American robotics founder and CEO .

Let's begin with some opening remarks before we outline today's agenda I want to start by emphasizing that business is on track at on.

The technology based leadership positions, we have established with customers in the critical infrastructure and services market. We target continues to strengthen we expect this to create substantial shareholder value and are determined to deliver that value to our investors. This is the eve, we will come back to it.

As our investors are well aware, we have invested substantial amounts in our technology platforms. If you look at on dust networks American robotics, and now with <unk>. We are in the process of acquiring we have collectively invested well over $250 million in our businesses.

This is a substantial and quite clearly our investors have not yet been rewarded for that investment and our hard work.

Of course, I believe we will be rewarded and it's my responsibility along with our management team to make sure that we deliver on our plan and earn our just rewards on your behalf.

The ultimate measuring stick for the value creation. We expect is clearly the revenue profit and cash flow that we can generate from the monetization of our platform technologies. This is always the case, we don't develop wireless network technology or autonomous drone and data capabilities for the moves in odds they generate.

Our purpose is not to impress engineers, our purpose is to generate tangible financial rewards for you.

Our management team is hugely focused on monetizing the substantial investments we have made by delivering that revenue and profit growth, which we deserved.

We believe the revenue ramp will start with our Das networks, where we continue to advance the 900 megahertz network with Siemens and the class one rails.

Prelaunch activity with the class one has progressed and the initial buying water from Siemens received in the third quarter illustrates that we are moving close to wide scale adoption in a meaningful revenue ramp.

And in medical Robotics, we continue to make progress with customers towards large revenue opportunities. We have learned a lot in the field in new verticals, including oil and gas and mining in our in engineering, the scalable solution by integrating new data capabilities with payloads in analytics development.

We are defining these solutions hand in hand with customer input.

And we are very optimistic in our ability to deliver here are robotics is similarly progressing their plan, while we and the robotics team work closely and supporting the integration of the two companies are robotics is seeing weak demand bill as they are incredibly impressive and mature Optimus drone platform. It feels service capabilities are being recognized.

By customers via the adoption, we will provide more context and then during the call around the excitement about robotics business prospects and the benefits of combining our drilling platforms.

Look forward to sharing more details on our business progress across my desk as we move through the presentation. This morning.

So with these opening remarks, I will now outline the agenda I will start the call with some details and commentary on the funding we announced at the end of October I will then provide a brief update on the robotics.

On the deal timelines and highlighting the integration activity between the two companies as well as recent significant customer announcements.

Then I will turn to Derek for the financial review before we provide updates on progress made on the business plan and as networks and they are and of course shorten Reese will help lead that discussion.

That will wrap the call by focusing on the outlook before we take investor questions.

Let's start by highlighting the recent move to strengthen our balance sheet as we all know the financial markets have been challenging for the better part of a year now if not warranted in this environment smaller emerging technology companies like ours that have been under particular pressure from both a cost of capital at am.

Access to capital perspective.

Meanwhile, we are positioning the company in huge markets and investing to drive significant platform adoption and revenue growth.

In this difficult financial crime. It we were able to secure a $30 million from a convertible note offering we raised this capital from a high quality Investor group pro forma cash balances as of September 30, or $43 million adjusting for the net proceeds of the note offering.

I am very pleased with this outcome, including the key terms, which we have included on this slide I believe the overhang of an obvious funding need for Argos in a difficult equity market had been unduly pressuring the shares lower.

So this event remove that overhang and allows us to execute our plan and deliver the growth that our investors are looking for and our management team is focused on it.

In addition to increasing our balance sheet liquidity I wanted to highlight that we have access to additional potential sources of capital.

The agreement to the notes offering has an option for an additional $30 million in gross proceeds in additional convertible notes under similar terms the total $60 million of potential amounts available under the convertible notes transaction combined with the ATM. We have in place represents incremental potential liquidity of over 90 million.

Of course, we don't believe we need all that capital for our plan and we will be prudent here.

I like this because I believe our funding profile should alleviate any fears or I guess his support from investors in access to capital.

To sum it up we have secured an agreement for investment of up to $60 million non das demonstrating in my opinion, a strong belief in the value of our technology and markets and growth outlook across on dust networks American robotics in soon Aero box.

Yeah.

Moving to a robotics I would like to provide an update on the deal timeline and business progress we feel good about the process and the timely visibility we expect to close the acquisition in the first quarter of 2023 and more specifically in January the next key event will be the robotics shareholder vote on December 18th.

Major shareholders have communicated their support on das or this compelling combination.

After the shareholder vote the deal should move swiftly to close about a month later.

Customers are responding very positively to this transaction. We have spent time with the robot as customers and partners and they are very happy with the strength of the combined company both from a balance sheet and technology standpoint.

Similarly, our customers here in the U S with American Robotics are excited about the breadth of services, we can offer in future product development Roadmaps we.

We believe we will see significant interest in the United States for the robotics Optimus platform from both commercial and government customers as well as potential strategic partners. We look forward to sharing more specifics around the business plan after the deal closes and.

In the meantime, the integration work, we have been doing positions us to hit the ground running when we do close the transaction.

I also I want to also highlight the massive achievement announced last week by robotics and in fact I have to pound the table on this.

Gradually as the team at Arrow bars last Wednesday, aerobatics announced that a UAE government agency and Dubai has placed the $2 million follow on offer for the two for two optimists drone platforms. This order will build upon the two system. They they have already deployed in Dubai and comes after extensive performance and reliability.

Testing in 2020 one.

This order magazine marks the initial roll out of a fleet of autonomous drone that will be deployed by aerobatics with this customer throughout the city of Dubai. The Artemis drones will be used for public safety homeland security and Smart city applications.

It is entirely accurate to say this order is a landmark event for the drone industry. We believe this is the first true fleet deployment of autonomous drone systems in the world.

It makes it even more noteworthy is that just deployment is in an urban environment from a regulatory standpoint operations or drones boss taught both autonomous and piloted pack the past passed an incredibly high bar in terms of reliability and safety to be widely deployed in that bar, even higher for heavily populated environment.

Yes.

Very few industry observers have thought a citywide autonomous drone deployment was possible, but here. We are ear robotics has proven their system provides customers highly valuable data and information services and more importantly, if we if all economists Optimus drone can be reliably and safely deployed in densely populated cities.

We see additional fleet demand across the region and globally as well. This customer has publicly indicated that the initial robotics optimists suite deployment is targeted for 24 systems based in strategic locations covering the city of Dubai.

This is a landmark deal, which we believe will lead to significant growth ahead.

I will now hand, the call over to our CFO , Derek White steel to walk through our financial results in more detail Eric.

Thanks, Eric.

I get started I want to remind our investors that our financial statements reflect the investment in preparation for larger commercial rollouts with our non das networks, and American robotics, which we will which we believe we will soon see.

Revenues for the periods presented have been generated by full Max product sales and service revenues for customers, including class one railroads. In addition to product development programs with Siemens.

Of course, we believe this activity has served to establish the broader opportunity and will lead to significant growth in the fall Max based wireless systems and scout deployments in the coming years.

For the third quarter of 2022 revenues were $600000. This was an increase from $300000 during Q3 last year Rob.

Revenues during the recent quarter were generated by product sales. In addition to services related to the class one Federated rail lab shipped to N VX rail in the third quarter.

In addition, we advanced the H O T and European products developing programs with Siemens.

Gross margin improved significantly to 63, 2% for the third quarter of 2022.

Paired with gross margin of four 8% in the prior year period.

As we have described in our prior calls due to the historically lumpy nature of development programs and customer product sales and services gross margins can be volatile on a quarterly basis.

The margin improvement is primarily due to a larger proportion of high margin product sales and services revenue and the revenue mix during Q3 this year.

Operating expenses increased to $13 9 million for the third quarter of 2022 as compared to $4 9 million in the prior year.

The increase in operating expenses was primarily due to spending at American robotics, where we grew head count over the last 12 months to support customer activity and do the deal expenses incurred for the aerobatics acquisition.

Noncash expenses totaled $2 8 million for the third quarter of 2022.

Stock based compensation was approximately $1 5 million in the third quarter that increased by approximately $1 2 million from the prior year.

Depreciation and amortization expenses increased from 700000 in the third quarter of 2021 to approximately $1 3 million in the third quarter of 2022.

The bulk of the increase in noncash expenses related to the acquisition of American robotics.

Operating expenses in the third quarter of 2022 also included approximately $1.7 million in professional and advisory fees related to the Arrow Biotics acquisition.

We consider these acquisition related expenses to be non reoccurring.

Excluding non cash expenses and non reoccurring professional fees related to the arrow Biotics transaction operating expenses were equal to approximately $9 5 million, which were higher than expected due to accelerated spending on customer related activity at American robotics.

<unk>.

While our operating expenses were higher than initially expected. We believe the additional investments we made were prudent and necessary for the expansion of our services and capabilities.

Ultimately drive larger revenue opportunities over the longer term.

The company realized an operating loss of approximately $13 5 million for the third quarter of 2022.

As compared to $4 9 million for the three.

Third quarter of 2021.

This loss includes the aforementioned noncash and nonrecurring expenses.

As noted the increase in both cash and noncash expenses related to the business development activity and the addition of American Robotics operating expenses, which were not included in last year's full Q3 results were the biggest driver of the year over year increase in operating losses.

Now, let's turn to the balance sheet.

We ended the third quarter with approximately 15.3 million of cash.

As Eric mentioned earlier pro forma for the convertible notes offering our cash position would have been approximately $43 million.

Outside of the new convertible notes, we maintain minimal long term debt.

And a $93 8 million equity position of.

Of course, our equity position reflects the substantial investments made in our full Max and Scout technology platforms.

We feel good about our balance sheet and believe it supports our business plan.

And now I will hand, the call back to Eric.

Thank you Derek let's transition to an update on business development activity around that networks in American robotics before I asked Stewart and reached a share details of the progress we are making I will provide an initial summary of where we are on our key priorities.

I will start by reiterating that our business plan is on track and we believe we are creating significant shareholder value as we work with customers to adopt our technology platforms.

And as networks continues to retain its launch activities with the class one rails and of course, we continue to work closely with Siemens mobility here. The initial Siemens volume order of $5 $2 million announced in August is validation that we are well positioned to penetrate the global rail market with programs. While we are happy to begin building.

Inventory with Siemens for commercial customer deployments in 900 megahertz.

I want to be very candid about the pace of orders and our expectations for growth.

I expected to have a higher level of bookings with the class one rails at this point in time.

We believe those bookings are coming we need to adhere to the formal transition processes with the railroads, which are taking longer and are a bit more arduous than originally anticipated remember.

Remember our rail customers are upgrading a mission critical network a decision that is a 10, if not 20 year commitment to our platform involves nearly all aspects of their train operations.

As such they act very deliberately planning commercial deployments and that explains the comprehensive work we're doing with these customers.

We work closely with the railroads on a nearly daily basis and the feedback we get from the class one rails me as extremely positive.

That extends to organizations within the rail sector, including H D. A R and M. Xb rail is clear to us that our full backs that 16 platform will be adopted broadly across the night Greenfield 900 megahertz network as well as other mission critical networks in short increased bookings are coming we continue.

We expect additional orders and backlog growth, which will lead to a breakout year in 2023 in terms of real realizing shipments and revenue.

To that point Stuart will shed more light on the work we're doing to secure additional orders both from the initial two class one rails were the first to deploy on the 900 megahertz network and the other freight rail operators as well.

As Stewart will highlight the internal activities that the two initial rail warrants customers are taking to support commercial deployments have been successful, which is moving us closer to an order of ramp.

Before moving to American robotics, I want to highlight that our success with validating the platform with Siemens and on the 900 megahertz network is leading to adjacent network and in market opportunities as you know our joint development work with Siemens has extended past the 88 Tcf system on 900 megahertz, we are now developing on locomotive products.

For the class one rails for the $4 50 megahertz network in North America. In addition to similar on locomotive products tailored to large Asian and European markets.

Today's announcement that Siemens has placed an initial order of the jointly developed.

On locomotive H O T radio for a large Asian railway is a signal that our full Max wireless platform has broad global opportunities.

As further evidence of broadening opportunities, we announced an initial order from a large Israeli defense contractor for a maritime network deployment to support coastal surveillance and a large Asian country.

This program without that began several years ago, but was slowed by COVID-19, we're happy to see it back on track and we expect follow on orders to this homeland security project in use case in 'twenty, two 'twenty three and beyond.

At American Robotics activity supporting solutions for marquee customers continues we announced a new oil and gas customer who is deploying in the strategically important Permian basin. In addition to our new program with Nevada Gold mines as we continue to concentrate our energy on developing a scalable set of data solutions for focused industries.

As Reece will describe we have taken steps to enhance our payload and data analytics capabilities to help move closer to fleet deployments at a R.

I will reiterate we believe the acquisition of Aero bodies, clearly positions us as the leading provider of autonomous drone through data intensive industrial and government services and we have already done substantial work on integration in front of the deal closing but.

I now hand, the call to Stewart.

Yeah.

Great. Thank you Eric as most of you are aware in the last call we announced our initial volume order from Siemens for the 900 megahertz Greenfield network in North America, where we now have five of the class ones active with our formats technology and two having completed their launch activities.

Disorder from Siemens was a pivotal event for on dust networks.

Well down the path to scaling production, including having qualified contract manufacturing to start deliveries this quarter.

Similar to other manufacturers, we too have experienced supply chain pressures, but anticipate that we can manage this process going forward as we ramp up our deliveries to address Siemens backlog.

We believe this initial volume orders a reflection of the progress IMAX derail the E R and the class one rails have made in qualifying air link 16, and completing their associated launch activities.

We expect these activities to drive follow on orders and rail deployments, including expansion into the North American passenger and transit rail markets.

The next version of the <unk> 16 standard known as I Triple E. $802 16 T is in its final draft form and harder for the eye Tripoli ratification in the near future.

The standard has received strong support from Amex via rail and behavior are.

In September we transferred the rail lab to MFC rails, new headquarters in Pueblo, Colorado, where the lab will be under Mxe's control along with ongoing support from us.

We expect new development programs on behalf of <unk> and their customers standardize on <unk> 16, and the 900 megahertz networks. In addition to other mission critical class one rail wireless systems.

Furthermore, we continue to see adoption of <unk> 16 beyond the North American market.

Evidence of this includes our announcement today of our first international volume order from Siemens for delivery in Q1 2023 for a major rail customer in Asia.

Disorders. The result of the completion of our joint development program with Siemens for the next generation H O T radio in Asia.

We've already started production activity for disorder. This isn't on locomotive H O T radio and its part of a multiyear delivery program for a large railroad in Asia, but the total addressable market of approximately 10000 units.

Precision rail network is the fourth largest in the world.

We progressed on our development work on the advanced radio multiple which is part of a new joint development program with Siemens to U K for the European locomotive market with deliveries expected in the second half of 2023.

And beyond rail <unk> is seeing traction in new segments, including the mission critical homeland security market.

Previously announced we have obtained a new order from Elsa and Israeli based global defense contractor for coastal surveillance in Asia and Thats to be delivered this year.

We expect this is the first of approximately 40 sites to be rolled out in a sovereign country in Asia.

To sum up we are now scaling for delivery on our first volume order for 900 megahertz market in North America.

In parallel the rails are testing expanded use cases, which we expect to drive follow on orders in 900 megahertz and other frequency bands in North America.

We're now completing development of the H two radio for a seamless customer in Asia with initial volume orders to be delivered in Q1 2023.

Furthermore, the advanced radio module as part of a new development program to be delivered to Siemens rail customers in Europe by Q4 of 2023.

Now I'll pass the call over to <unk> to provide updates on American robotics race.

Thank you Stuart and Q3 American robotics achieved a number of important milestones in.

In M&A and partnership activity, we entered into definitive agreements to acquire a robotics one of the world's foremost leaders in autonomous drone systems, expanding our portfolio of industry, leading talent industry, leading IP and broadening our customer pipeline.

We also acquired the assets of field of view.

That specializes in the integration of payloads into commercial drone platforms. Additionally.

Additionally, we announced a strategic technology partner.

With ICR, a leading developer infrared sensors specializing in the oil and gas market.

This partnership was the direct result.

Of customer requirements determined during our pilot engagements as well as the expected updates to EPA regulations governing government being rigorous requirements for oil and gas companies to routinely monitor all existing assets across the United States for methane leaks.

Our regulatory reactivity American robotics received three new milestone approvals from the FAA further solidifying our leadership position in fully autonomous BV loss approvals in the United States. The first in the form of a new exemption permits widescale commercial operations of our <unk>.

Moscow system without limitations on use by removing a prior restriction that constrained operations to R&D crew training and market surveys.

The second approval of waiver permits expanded area offer autonomous DB Las operations unlocking inspection opportunities for customers with very large industrial sites and linear assets.

Third being announced for the first time on the call today.

Laver from reading automated PD loss of operations at two new customer sites located in Texas.

All three were predicted on the prior earnings call and all three have occurred.

With each of these combined with our prior approvals. It is clear American robotics is maintaining its IP enabled competitive advantage in this critical regulatory category.

Despite often misleading claims from other vendors, we believe American robotics remains the only drone manufacturer in the United States to be granted the approval to operate fully autonomous drone systems with no humans on site.

And commercial activity, we announced a new purchase order from a leading oil and gas company to deploy scout systems in the Permian Basin and continue to have other active oil and gas opportunities in the pipeline.

Next I want to provide some insight on the hard work and the exciting progress that is being made behind the scenes.

Behind customer deployments and regulatory milestones our team is working on a host of initiatives that we believe leads to significant sustained revenue growth. These include new payload integrations, new analytics development optimization of our customer portal safety evaluations cyber security evaluations.

I integrations and customer training to name a few.

Tying this to our customer pilot programs.

And what can be considered phase two with many of our customers, where we've taken the learnings from our proof of concept phase and are integrating payload upgrades and analytics features that had been directly requested by our customers.

Once these product enhancements are complete.

Duplication of the success across all applicable asset sites or in other words sleep appointments.

One of the most notable payload enhancements and process is methane detection.

Through our engagements with customers, including Conocophillips and Chevron, we believe to be heavily driven by current and pending EPA regulations.

What are the most important questions is when does this translate into significant revenue growth for the company.

So this got system. We are currently in the early adopter cycle.

We're a national engagements focused on design partnerships with our customers and new feature introduction as customers within certain markets require customized payload packages. This translates to an average of 12 to 18 month phase for this initial proof of concept.

On average six to 12 months for initial fleet rollout, which we characterize as two to 10 minutes per customer.

We expect this cycle to conclude in the third quarter of 2023 at which time, we will enter an accelerated cycle, where focus is no longer on designing new features but instead success duplications, both within existing customer accounts as well as new ones. The exception to this is within the bulk materials in aggregates market, where no new payload.

Woods, where analytics are required.

After initial fleet Rollouts occur we expect regional fleet Rollouts to fall followed by National Fleet, Rollouts, where we can expect hundreds of orders per customer account.

By the end of 'twenty 'twenty four is case that things become more widely publicized we expect this process to be further optimized with new sales beginning with a simple demo instead of a proof of concept engagements.

As alluded to in the prior slide fleet readiness depends on sector and the associated payload integration for the scout system.

The three primary market targets for scout bulk materials and mining most ready with no additional payload or analytics development required.

With our customers in this market, we anticipate fleet readiness to occur in the first half of 2020 three.

For oil and gas we are working to integrate the customer requested payloads and analytics mentioned earlier with the acquisition of field of view and the partnership with ICI contributing to that effort.

We estimate product readiness for fleet deployments within the oil and gas market to occur in the second half of 2023.

For rail, we expect product readiness for the scout system in the first half of 'twenty 'twenty four but what's important to note that we expect pure SaaS sales of your dentist software to occur prior to that in 2023.

I'd like to now recap the rationale for the Arrow acquisition as well as provide updates on progress and outlook.

First let's recap some of the key differentiating features of the Arab products Optimists system.

Optimist comes equipped with up to 10, Swappable batteries up to nine Swappable payloads, all powered by a robotic arm within the base station at all for a variety of industrial grade payload sensor options ranging from high resolution video to Lidar.

And also offers a delivery solution for small parcels such as medical supplies. This robust system has been designed for harsh environments and thoroughly tested across thousands of flight hours with these features and others. It enables fully automated 24 seven operations across roughly a 31 square mile.

Area per system.

As a result of this industry, leading feature set and reliability last week. It was announced that <unk> received the first in history order for commercial fleet deployment of autonomous drone systems in an urban environment. It cannot be overstated. How impactful. This is both for the company as well as a whole.

This marks a pivotal inflection point in the autonomous drone industry and the startup of a new era for autonomous drone technology in cities. The order too optimist systems. The coastal fleet to four four with the customer planning to cover the entirety of Dubai over the next few years.

We believe similar fleet adoption opportunities for Smart city use cases are in the pipeline.

As a result of this customer success platform increased inventory at our robotics have begun which we had on das or supporting inventory will be increased both for anticipated additional orders in the UAE and to build systems for expected interest with government and commercial customers here in the United States.

So we asked the same important question again for the Optima system.

When does this translate into.

Revenue growth for the company within the Smart city market Optimists as currently in the accelerated cycle, where design partnerships. Some new feature introductions have concluded.

So far this cycle to drive revenue growth over the next two years and beyond with the initial proof of concept stage for new customers Lapsing, an average of two to six months and fleet Rollouts falling.

And as I mentioned, a moment ago, we are working with their own robotics and plans to build inventory, which we expect to support revenue growth in 2020 degree.

So why both systems scalp and Optimus much like the automobile in the traditional aviation industry. These products have different feature sets different price points and are designed for different customers the market opportunity for autonomous drone and a box technology is massive estimated at over 100 billion.

And annual recurring revenue and spans numerous sectors and use cases.

Products offered in our system targets the high end of the market spectrum, including Smart cities security public safety and defense, whereas the scouts system targets a different set of markets with an estimated a larger total addressable market, including oil and gas rail bulk materials mining and agriculture.

Together, we not only find sales and marketing synergies, but also technology financial talent expertise and regulatory synergies together. We believe we are the clear market leaders in autonomous drone and a box technology.

This concludes my prepared remarks, I look forward to the Q&A and I'll hand, the call back to Eric.

Sure.

Well, thank you Reed.

Now, let's turn to summarize some of our key business objectives, as we wrap up the year and look forward to 2023.

As discussed we are focused on ramping production at under its networks to meet the initial demand from Siemens of course, our rail team is working in parallel with Siemens and customers to secure additional 900 megahertz orders from additional railroads.

The network being built by the railroads have 10 to 20 year lifetime, if not longer and of course, they are large well. The initial ordering has come slower than we like the long term opportunity remains there Ron deaths.

While we don't expect to beat our original bookings targets for 2022 we do see at least 8 million product and developing bookings as reasonable goal for 'twenty to 'twenty, two and expect to secure significant growth in bookings in 2023.

We anticipate providing an update on our 'twenty 'twenty three outlook in the first quarter of next year.

I wanted to highlight that we expect increased public dialogues in the rail industry regarding their support for the that 16 wireless standard in plans to adopt our full Max platform, starting with the Greenfield 900 megahertz network as we have highlighted the rail industry has been active in the eye Tripoli agents without <unk> 16 standards group.

And that Federated rail lab operated by NXP rail is poised to become a showcase for our full Max technology and critical rail networks raising awareness within the industry, which again, we expect the rail customers to do well it will help accelerate broader ecosystem and vendor participation driving integration of more.

And more applications being developed to run on the network. This activity supported by NXP rail in the E. R will serve to further increase the value of our full Max technology.

Lastly, Brian Dust networks, we expect to continue to grow in new markets as Stuart highlighted we are tracking passenger in transit product and network.

Eldon opportunities and look to transition those networks into formal development programs with customers and strategic partners in the coming months if not sooner.

Of course, we will also focus on delivering the new locomotive products, we plan to introduce with Siemens in both Asia and Europe .

Similarly, we are targeting follow on orders to the Asian Maritime networks, with Alta and creating new opportunities and homeland security.

Primerica robotics, we plan to selectively add customers in our targeted oil and gas mining and rail verticals. Our pipeline continues to be represented by major blue chip industrial companies with active players to deploy drone and operations.

A bigger emphasis in the near term will be on delivering the backend data solutions through integrating new payloads and data analytics capabilities tailored to customer request as described by Reece remember.

Remember the pathways to success Studer is much higher by concentrating our solutions development with a handful of motivated customers as opposed to solving the same problems with many customers at the same time, we do not want to dilute our efforts the scalable data solutions combined with the capability and autonomy of our scout system in the air Robotics optimistic.

Some will be critical to drive adoption.

Premier Robotics, we believe we're on the path to fleet adoption to 'twenty 'twenty three in both the mining and oil and gas vertical with existing customers.

Of course this is incredibly important suite adoption of air Robotics has already now be gone.

Lastly, we expect to close the robotic acquisition acquisition in early 2023 with a target of mid to late January after the close we plan to hold an investor meeting to outline the combined company business model and growth plan, We believe American robotics, India robotics have impressive customer opportunities it will deliver revenue growth in 2023.

Fleets appointments.

We continue the outlook I want to reiterate that the convertible notes funded in October it leaves us with a healthy balance sheet. Our cash position is strong and we have demonstrated access to capital we expect cash opex of about $95 million for the businesses in the fourth quarter, not including ongoing costs related to the <unk>.

Our next transaction.

An important message here is that we understand the tight funding environment and the need to deliver on revenue growth, we will live within our means as it relates to investing for growth.

We are attacking a huge opportunity at both on dust networks and they are and have an ambitious plan, but we need to earn the right to expand that plan and that's by rewarding shareholders with upside from.

From here, we are extremely focused on driving revenue growth across our businesses and believe we are positioned to deliver meaningful revenue growth in 2023.

Before we close I want to share some broader context around the opportunity ahead for on the long term opportunity, which I believe is not fully appreciate it and I'll try to be brief. This is important not just for our investors, but I think it's a topic the wider drone industry has to embrace and sort of what we continue to believe is a huge.

Recycle and drones over.

Over the last 10, or even 20 years, we have seen massive energy and talent working to build drone technologies and services of course, we have seen a significant amount of capital invested as well.

So far it isn't obvious when the payoff for this hard work will come.

We think this is misunderstood tomorrow.

From our view the drone industry has made significant technical advancements in technologies, ranging from Uavs and components batteries wireless communications networks and other infrastructure payloads data analytics. In addition to professional services groups that are emerging in many other parts of the drone ecosystem.

What is further underappreciated is the pace at which these complementary technologies and services are coming together and being integrated in commercialized at the systems level as solutions.

Our near Robotics are demonstrating just this by delivering complete turnkey end to end solutions importantly, customers and regulators are taking notice that these drone driven scalable solutions are emerging.

At the same time, you can see on the vendor map. We're sharing here there are simply too many drug companies. The sector is overly fragmented and on average vendors are subscale and unfortunately remain poorly capitalized.

The result is confused and often disappointed customers as most vendors simply arent able to bring a complete solution. In addition.

That's the capital is spread way to family like peanut butter across way too many companies the adoption cycle and drove needs scale providers. That's required for it will be valued by customers regulators and importantly investors.

The industry need significant consolidation, which we see.

We will see in the next three to five years.

Adding technology providers industry talent and investors should embrace this opportunity that drove the economy is huge the focus needs to be on growing the pie, which can only happen at integrators emerged and bring scale to solutions and services demanded by customers we.

We believe and us with our wireless and autonomous drone platforms and expanding global capabilities has a role to play and we look forward to continuing to engage with joint industry leaders regulators and investors to help drive industry growth.

In the context of our leadership position I want to reiterate again that we believe our shares are undervalued as we discussed on our last call leading UAS platforms are valuable.

Actually any market survey you will find will confirm that the German economy is huge with tens measured in the many billions of dollars. We see that the UAS market has large submarkets where leaders come in billions of dollars of market value and are backed by sophisticated investors I want to reemphasize, we believe the industrial and commercial markets.

I made a drone services targeted by a or in your robotics.

Ultimately proved to be the most valuable of all drone segments.

We believe the rewards for winning will be significant for our investors, which helps you understand why we are being so deliberate in our growth plan.

Before we turn the call over for Q&A I want to reiterate that we remain bullish on the outlook for Rhonda and believe our business is strengthening we are focused on turning the major investments we have made into tangible results in terms of bookings and revenue generation. We believe this starts with analysts networks is that our drone platforms with American robotics.

As soon as robotics will be strong contributors as well.

We're at an inflection point now I'm excited to build customer momentum to set us up for a big revenue growth in 2023.

Operator, please open the call for Q&A.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to simpler roster.

Our first question comes from Tim Horan from Oppenheimer. Please go ahead.

A few questions can.

Can you update us maybe on the timing do you think of when you receive a booking and when you can basically recognize revenue.

For both major segments, and maybe just elaborate a little bit more on the manufacturing capacity that you have for both in terms of revenue generating capacity at this point.

And then I have two follow ups. Thanks.

Okay sure. So we do have that initial order from Siemens Tim.

We're now producing and we expect to earn some revenue on that order in Q4 with the bulk being in the first half and we're targeting Q1 to be a big delivery quarter.

As it relates to production we are ramping our we've been working on the supply chain now for awhile.

And we believe we'll be able to meet those timelines or just mentioned.

And of course, we're in parallel working with the customers and Siemens to our book.

Book additional orders and we think that will be those additional orders will be up.

Produced and delivered and recognized in our 2023.

So I guess I agree with you one of them.

If you receive an order you know if you've received an order how long would it take you to deliver a recognized revenue you know your best guess like if you perceive that $20 million in booking in the first quarter that we recognize that in the third quarter.

So as we get as we get orders, we get delivery time timelines at six to nine months. So we think as the production process and the supply chain gets going that'll be closer to the six month timeline.

Thanks.

But I just wanted to talk about a the manufacturing outlook on that.

America Robotics side.

Yeah sure. So we've been working closely with our manufacturing partner.

Based here in the northeast for a couple of years now so they're pretty much up to speed on producing the scouts system as it exists today, we've already produced a roughly 20 of those and we anticipate 35 to be completed by the beginning of Q2.

And we think that'll supports a bulk of our our deployments in 2023 and.

Pair them for larger volume amounts by the end of the year.

Yeah.

Great and.

Maybe can you give us an update on just the clearing out of the 900 megahertz spectrum you know your best guess on timing at this point and you know that.

Total amount they need to spend the rails that isn't it looks like they're going to meet the Miss their August 23, our commitment date on coming up that spectrum, but you know are there any penalties for that or.

Do you think that's the case thanks.

Sure. So the in terms of the deadlines to retire the legacy network, we still we still understand them to be over the next several years Theres a couple of railroads that have deadlines for 2023, and the railroads are still motivated to meet those deadlines. So there too.

Making them very seriously.

I guess that's.

That's.

In terms of the market opportunity the addressable market and 900.

900 megahertz alone is three a $300 million Tam.

We think that the a T. S has about a third of that.

A T I I'd say a couple of things a tcs has a heavy base station.

And higher Asps mixed to it as opposed to.

<unk> network.

But in parallel we see the railroads are working on not just safety, but other applications.

Stuart has explained earlier so.

So the timing is still.

In terms of the focus and the railroads continues to be a three year build out with certain deadlines in 2023, and that's why you're seeing these orders come in we expect to see more as we're moving into 2023.

And I'll just add my answer before did not include any robotics projections just to be clear so Artemis system, yes, there's a.

Certain amount that are already manufactured and we're working to manufacture more.

To deliver for them to buy order as well as some other orders that we expect to see in 2023.

And so where we're going to plan to share more details on those plans after we close the deal.

Got it and just lastly on the additional potential to raise more convert money from that that investor I think it's at their option do you know what criteria, they're looking for to do a reimbursement.

They have not shared the criteria you're right. It is at their option and that's 12 month option.

Great. Thanks, a lot guys.

And that's I mean, that's.

Sorry, as a reminder, if you have a question. Please press Star then one.

Our next question comes from Carter Massbauch from Fort Capital Group. Please go ahead.

Good morning, gentlemen.

Good morning, Carter, so I'd like to I'd like to congratulate you guys on all the developments that you've had and I wanted I have a couple of question just for clarification purposes. So as for the hour robotics to by contract, but I think I heard or what I read is that you have.

The the part the potential of 24 units and I believe I read or heard that there are a million dollars a product.

Drone is that correct.

That is correct. The initial order, which is a follow on order.

Beginning the rollout of the fleet.

It was for two systems for $2 million, we think that pricing will be reflected in future orders.

So basically what you're saying it is $24 million of opportunity.

Exactly.

Yeah.

Yeah.

Please yes.

So I think there's there's some recurring revenue in there as well for for maintenance and continued operational systems excellent now did I also hear that there's another one that's very similar in nature that could.

That could get the benefit at the same type of revenue.

Yes.

So the robotics does have inactive customer pipeline, including in the UAE.

So we expect that there will be more business, there and I think we should probably hold off on describing that in greater detail.

So we think we're thinking 24 million on this contract which is a big number so last point for them. So it seems like over the last four years that I've been involved the foundation is being built and now we're looking to build the house. So I'm assuming from your words that this is a hockey stick year end 2023, now that being the case, assuming I'm right and what I'm.

Saying when your Q4 comes out and you stopped giving projections for 2023 will you be able to be more clear and have better understanding of what youre looking for in 2023.

I do believe that's the case Carter.

And as I said in the prepared remarks, we are working with the rail industry, including the customers the E R and NXP rail.

Two more broadly communicate the plans for the Dot 16 platform adoption and network Rollouts. We expect that did you just get a lot more visibility that's going to be helpful for investors, but it's also helpful for the industry as well vendors, who are gonna be plugging into the network. For example are going to be more engaged.

As awareness builds.

Okay great.

Continued success and I look forward to the major ramp in 2023, thanks again.

Thank you Carter.

The next question comes from Mike Latimore from Northland Capital markets. Please go ahead.

Yeah.

On this Oh robotics, Dubai deal would that be the likely do the majority of their revenue next year coming from this contract and then.

As you look to kind of move Arab sort of integrate arrow robotics with American robotics.

Does the revenue model changed at all or are you end up with more selling more recurring revenue under the robotics product, let's say and then also you know what kind of.

Additional regulatory approval did you get need to get to sell a robotics in the U S.

Yeah, I can take some of that.

Eric.

Yes sure.

Yeah, I think the Dubai order.

It certainly represents a significant portion of your expected revenue in 2023, although we do see.

Some other <unk>.

Similar opportunities forming.

So you know.

Erik said, there's only so much we can say right now, but we'll be sharing more details on that after the deal closes I do think it's important to note that.

You know what once when order like this is a complete.

Complete for the city of Dubai, and the ability to duplicate that at a faster rate becomes a lot more feasible because you know other customers around the world see the success at this place and people feel more comfortable about placing orders in that and that's the same thing at American robotics as well.

On the recurring revenue side.

Robotics has a mix of recurring revenue, but also hardware sales.

So I think that mix is going to continue American robotics is.

Heavier on the pure subscription model dinner robotics, so there's going to be a mix of that over the coming years. I think there was one more question, which I forgot now.

Yeah, just know what kind of all the regulatory approvals you need to get for Aero Biotics to sell it in other regions, particularly in the U S.

Yeah. It's a good question. So it depends how it's being used if it's being used in a fully autonomous manner in the United States stupid required approval like ours and that's one of the reasons that we decided to join forces just because American robotics has this unique approval set driven by some of our intellectual property and so we went.

Dissipate are integrating that into the our robotic system, and allowing allowing Optimus to operate the way that scout does in the U S. Probably important to note, though that one of the unique things that robotics has is they're very far along in what's called the type certification process.

Which is important to being able to fly over very populated areas. So that's not something that American robotics has pursued because we typically operated very rural areas, but as far as your duplicating.

The Dubai success in cities in the United States Aero Biotics is extremely far along that path.

And we expect some pretty big news around that topic over the next year.

Okay, I guess today.

Yes.

Mike just wanted to just one more thing on on robotics, and the rollout of fleets. So the Dubai order. It brings a it basically doubles the system, but that starts to fleet deployments. They have publicly indicated that they expect.

To have 24 systems throughout the city Dubai by the end of 2025.

And we do they also have signaled that they're going to do there'll be additional orders next year.

And I'd also add that we expect more than one suite customer building out in 'twenty two 'twenty three so so this revenue will be a meaningful ramp.

Sure and then just lastly on approvals generally I guess you talked about three additional ones for American robotics are there more approvals youre looking for in the next year.

Yeah, we expect to continue adding additional sites is now becoming somewhat routine for us which is a good thing.

So that's certainly part of what we expect to see there's another couple of approvals that we're gonna be going for that.

You know I'm I'm I'm going a whole lot of details right now, but the answer is yes, I think we're going to continue to extend our lead with these approvals.

Okay. Thanks.

There are no more questions in the queue. This concludes our question and answer session.

I'd like to turn the conference back over to Eric Brock for any closing remarks.

Okay. Thank you operator, I'm going to quote close the call by thanking you again for attending we have a lot of work ahead and look forward to keeping you informed on our progress we do expect to hold an analyst call. After closing the robotics acquisition and in the meantime, if investors are always welcome to reach out and hope you have a great day and this ends the call.

Thank you.

Yeah.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

Yeah.

[music].