Q2 2023 Ondas Holdings Inc Earnings Call
[music].
Welcome to the <unk> Holdings, Inc. Second quarter 2023 conference call.
All participants will be in a listen only mode.
You need any assistance. Please signal conference specialist by pressing the star key followed by Japan.
After todays presentation, there will 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.
These forward looking statements reflect honest as 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 risk factors are discussed in on this as 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.
During this call the company will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investor Relations section of our website.
This non-GAAP information is provided as a supplement to not as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. However management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business.
Please also note that this event is being recorded today.
I would now like to turn the president the presentation over to Eric Brown, Chairman CEO and President. Please go ahead.
Well. Thank you operator, and good morning, I wanted to get started by welcoming everyone to our second quarter Investor call as always we appreciate the time, you're spending with us and your interest in our company.
I'm happy to be joined today by Derek Rice our.
Our CFO as well as Stuart Cantor, the founder President and CFO of on dust networks.
Are kleiner, the founder and CEO about a robotics and the president of Argos economists systems.
Today, we plan to review, our financial performance and strategic progress for the recently completed second quarter and discuss our outlook for the second half of 2023 and beyond.
Now, let's turn to the agenda, we will start today's call with some brief comments about the second quarter performance and the significant progress we have made in advancing the adoption of our technology platform.
I'll also spend some time reviewing the recent financings we announced in July .
I will then hand, the call over to Derek for a detailed review of our second quarter financial performance.
As part of the financial review I will discuss our balance sheet and liquidity position and then provide an update on our outlook for the rest of 2023.
Then we will transition and provide a business unit update for on dust networks.
Autonomous systems, where I'll ask Stewart and married to provide commentary around current business activity.
I will then wrap the call and open the floor for investor questions.
As we move through the second quarter, we continued to pick up momentum with our customers that both on dust networks in autonomous systems. We are now driving platform adoption, which we expect to broaden with both existing customers and with new customers and ecosystem partners globally.
This momentum was evidenced by top line revenue, reaching $5 $5 million in the second quarter.
This quarterly performance brings first half revenue to $8 million, which is an eight fold increase versus just $1 million for the first half of 2022.
Cause I'll make them also allowed us to secure a $25 million in additional funding from sophisticated private and institutional investors.
I will discuss the financing in more detail shortly though I will highlight that these investors they perform substantial diligence on our technology and market opportunity in my opinion. This capital raise reflects confidence in the value of our proprietary technology platforms and the end markets and customers we are targeting for growth.
Regarding these end markets I'd ask networks is now deep in field activity with specific rail customers in advance of what we believe is the beginning of major volume orders in the 900 megahertz network. This.
This activity is focused on identifying locations in applications for initial volume deployments.
In addition, Siemens is negotiating key turns with select rails for purchase agreements around pricing volume build out timelines.
While this work is advancing the migration of Accs did a new 900 megahertz frequency band is poised to be the first application deployed 900 as migrating to a T. C. S systems from the legacy network is mission critical.
Stuart will share more details around our work with Siemens and the class one rail customers and the outlook for 900 megahertz the points.
At OAS lead adoption continues to move along with the completion of the proof of concept in Abu Dhabi, Yeah, robotics execute commercial fleet orders for the Optimus system from additional customers and partners in the Gulf.
We also announced the expansion into two new large market that being firstly in India, where we entered into a partnership with the Arrow <unk> Z a firm with deep local knowledge with particular strength in government security and defense markets.
We also announced a partnership in Saudi Arabia, we saw the excellent and I am particularly excited about this opportunity.
Its already excellent is heavily involved in the Saudi vision 2030 initiatives, which is helping to drive significant economic growth and transform the Saudi economy. The.
The partnership with Saudi Excellence comes on the heels of our successes in the UAE and allows us to bring our Optimus system to a large fast growing Saudi market of.
Of course since closing the robotics acquisition in January we have invested time and energy to introduce the Optimus system to industrial and government markets here in the United States with a particular focus on public safety Smart city and oil and gas customers.
As evidenced by our customer and partner announcements with nasty Yoki aeronautical and critical infrastructure and Sky fire and public safety. These efforts in the U S are beginning to gain traction.
As we increase Optimus systems inventory, we expect additional customer announcements in the second half of 2023.
Mayor will share details around the continued advances in fleet operations, the new partnerships in India, and Saudi Arabia, and the progress we are making in the United States.
Wrapping up the introduction, we are now beginning to scale at both on dust networks and Elas.
I'm happy with how we are positioned to grow our business in the coming quarters supported by our recently fortified balance sheet. We are continuing to focus on driving orders customer adoption and revenue growth. In addition to maintaining cost discipline as we work to drive down cash burn and move towards profitability.
Before I hand, the call to Derek to review, our Q2 results I want to take a moment to provide some details around the $25 million. We raised in the two recently announced funding transactions as I mentioned at the outset and a difficult funding market. We were fortunate to be supported by two groups of well funded investors whereby we.
We're able to firstly secure $15 million to deliver on the on dust networks below plan, and then $10 million at the holding company to scale, our drone platforms and fund public company costs.
As we're all aware these financings removes a significant overhang for the company as our need for capital was weighing on our shares.
The address networks investment was led by Charles and Potomac last Friday, we completed the final closing for their 15 million dollar investment.
CMP groups includes sophisticated investors some with extensive senior level wireless railroad backgrounds and their investment was made after extensive independent diligence on our format as wireless technology platform the <unk>.
60 standard and the growth opportunity with the class one rails.
I believe that the CMP and investment is a significant validation of the potential value creation ahead on dust networks and the CMP group is putting their own personal capital behind our company.
Importantly, we believe this capital injection into on dust networks will fully fund the growth plan, there by allowing our shareholders to maintain control and benefit from the significant value creation, we see over the next few years.
In addition, the CMP group may become a large investor in <unk> holdings, given the warrants they received as part of this transaction.
This further aligns the incentives around public shareholders with a large supportive financial partner.
At the holding company, our existing convertible note investor exercised their right to invest another $10 million in gross proceeds from new convertible notes, which have a two year maturity.
I'll provide additional details on the terms of the convertible note and the CMP group investment wont when we discuss our balance sheet.
Net net these financings put us on a much firmer ground and I'm pleased with the outcome and excited about our ability to execute from here for our shareholders.
I'm now going to hand, the call to Derek for the financial review Eric.
Eric.
Thanks, Eric as I get started I want to remind our investors that our financial statements reflect the early stage of platform adoption.
For both on Das networks in OAS and the preparation for larger commercial rollouts.
We expect significant operating leverage as revenues grow.
Today's revenue levels do not yet cover our operating expenses.
Revenue for the periods presented have been generated by both on Das networks and the OAS business units.
And totaled approximately $5 5 million for the second quarter of 2023.
Which was a significant increase from the 600000 of revenue generated in the second quarter of 2022.
Quarter over quarter revenues also showed robust growth of more than 100% from the $2 6 million in revenue reported in the first quarter of 2023.
Growth was primarily the result of both higher product shipments at on dust networks and deployments of optimists systems related to customer activity for OIS in the UAE.
Gross profit for the second quarter of 2023 was approximately $3 1 million a 10 fold increase from the same period in 2022, when gross profit was approximately 300000.
Yeah.
Operating expenses declined slightly to approximately $11 6 million in the second quarter of 2023 as compared to $11 7 million in the prior year. Despite the larger business operations, which now includes a full quarter of aerobatics expenses.
Cash operating expenses were equal to approximately $8 8 million, which was about in line with expectations.
For the next few quarters, we believe that we will realize additional benefits from the OAS integration on the cost side.
Noncash expenses, including stock based compensation and depreciation and amortization totaled approximately $2 9 million for the second quarter of 2023.
This is up slightly from the noncash expenses of $2 6 million in the second quarter of 2022.
Yeah.
The company realized an operating loss of approximately $8 five for the second quarter of 2023 as compared to $11 4 million for the second quarter of 2022.
The decline in operating losses was primarily due to higher revenue and gross profit generated during this quarter.
Excluding the noncash expenses the company generated an EBITDA loss of $5 6 million in the second quarter of 2023, which was an improvement compared with $8 8 million EBITDA loss for the second quarter of 2022.
The company realized a net loss of 9 million for the second quarter of 2023 as compared to a $11 4 million loss in the second quarter of 2022.
The lower loss was due to higher revenues and gross profit during the quarter.
Now, let's turn to the balance sheet.
We ended the first quarter with $3 1 million in cash prior to closing the $25 million funding transactions announced in July .
Pro forma for the funding transactions on <unk> cash balance was approximately $27 1 million, we will provide more details on the pro forma balance sheet in a moment.
The cash burn in the first half reflects ongoing investment in the business.
So the burn was elevated due to certain one off and non restructuring costs related to the acquisition of Arrow Biotics and the integration of Aero Biotics and American robotics into the OIS business unit.
In addition to the integration costs.
Used approximately $11 6 million of cash for working capital and debt repayment alone in the first half of 2023.
Which included approximately $6 1 million and working capital investment, including inventory and receivables in the first half and cash debt repayments of approximately $5 5 million related to the convertible note amortization and retirement of alone at Arrow Biotics.
As Eric will outline next our businesses remain capital light from a capex perspective.
And we believe that as we grow revenues and gross profits, while controlling expenses, our cash burn will decline in the coming quarters.
I will now hand, the call back to Eric.
Thank you Derek as described previously the recent funding has substantially fortified our balance sheet and placed us on strong footing to execute our growth plan.
No former for the funding and also had approximately $27 $1 million in cash as of June 30th.
Between the original and new convertible notes, we have approximately $31 million in outstanding loan balances that we will look to <unk> as soon as we can.
The way to drive equalization of the notes and by extension a deleveraging of our balance sheet is through execution of our business plan and growing our market capitalization for the benefit of our investors.
Regarding the convertible notes, we and the Investor also agreed to extend the maturity of the original convertible notes from October 'twenty 'twenty four to April 2025.
This works to reduce the monthly amortization of that original no.
Note that the exchange price for the notes.
The shares prior to maturity is now approximately $1 45 per share.
The convertible preferred shares that honest networks, which provide the CMP group investors with an effective 28% equity interest in our on dust networks subsidiary are reflected as a minority interest in the consolidated balance sheet.
Let's now move to discuss the financial outlook before turning to a review of our business units. Firstly, we are poised to have a very strong year and onto us as both business units transition to generating revenue growth.
In 2023, we are demonstrating real demand for our technology platforms and that they are commercially ready is scalable.
We expect the growth this year to continue in 2024 and beyond we believe our expectations for step essential multi year growth you made achievable, but that said our trajectory can be lumpy and difficult to forecast as our adoption curves are just beginning.
For the full year 2023, we expect to fall short of the ambitious revenue targets, we laid out to begin the year. This is largely the result of a slower production ran it at honest networks. Initially due to component availability challenges we identified on our last conference call, which were exacerbated by a tight working capital position that constrained our ability to make.
Component purchase commitments.
More recently component availability has improved and of course with the recent financings, we have working capital to accelerate production as such.
We have launched plans to increase production activity from here.
However, given six month lead times from production to shipment catching up on our original revenue target via product shipments is going to be difficult. We will certainly try with respect to OAS. Our outlook remains unchanged, we execute with customers and drive additional order activity in both international markets as well as in the United States. Despite.
Despite the shortfall versus earlier targets, we still see significant growth in the second half of 2023 and into 2024 and 2025 across both business units, we expect to generate at least $7 million of revenue over the second half.
Of 2023, which brings a new target for revenue to approximately $15 million for the full year I.
I want to reiterate we are tracking meaningful volume orders with Siemens and the advancing field work and expect to share an update on the waterfront as available as.
As we scale adoption and deliver revenue growth, we will remain focused on controlling expenses as we drive towards improved profitability.
We expect cash operating expenses to be approximately $9 million for the third quarter of 2023, which is consistent with targets in the recently completed quarter. We are continuing to manage opex efficiently. We will look to maintain cost discipline going forward.
Now we will transition to a review of our business units and as Stuart Cantor and their client or to share updates on recent activity in the field with customers and industry partners. We will start with Stewart, who will update us on the current status with the rails on <unk> 16 adoption and focus on the work with customers in our preparations for volume deployment and the new.
900 megahertz network Stuart.
Great. Thank you Eric.
Networks, we had a record revenue quarter driven by shipments for customers, we delivered approximately one and a half million dollars in product and development revenue in the second quarter with that new record delivery and product shipments to Siemens.
This is coming off a solid first quarter of approximately $1 million in revenue with a previous record amount of shipments.
Moreover, we're fully engaged with Siemens in the class one rails to further prepare for large scale commercial deployments at 900 megahertz and with the adoption of the standard in March 2023, we see increasing amounts of deployment planning among the class ones.
We are now working hand in hand on deployments with key rail personnel with direct budget responsibility specifically in July we commenced work with a major rail visiting their critical a T. C. S locations and completing detailed site surveys and preparation of new a T C L.
Installations.
As we shared on our last call the announcement by the American Association of railroads in March that the Dod 16 platform was chosen for deployment in the Greenfield 900 megahertz network.
Combined with the approaching deadline to retire the legacy 900 megahertz network by September 2025 is advancing the formal activity of the rails around migrating the network.
Our initial deployments are focused on critical network in high traffic locations as well as new vital communications endpoints such as rail crossings.
We believe this work in the areas of focus reflect positively on how the rails have come to value the 900 megahertz opportunity.
Simultaneously to this work Siemens is actively negotiation negotiating purchase orders with select rails.
In terms of development and standardization and makes me rail, which is a subsidiary of the E. R is thoroughly engaged on the Dod 16 network integration plans with a continued focus on the new network controller and critical Dod 16 functionality.
Including key high demand features like peer to peer networking.
We expect our activity with that makes me to continue to expand as new use cases and the additional frequency bands are targeted for $802 16 integration.
On the production side after early challenges in obtaining key components described earlier by Eric We've we have alleviated many of the constraints, which impacted our first two quarters of shipments.
And our recent financing gives us the necessary working capital to continue to build inventory and transition to contract manufacturers, which will allow us to ramp production.
And as we ramp production lead times may limit our ability to ship as much product as we had initially planned for but we are making every effort to move faster.
Okay.
With the new capital secured we intend to move forward aggressively on obtaining new orders and growing our production capabilities.
We have recently engaged a new U S contract manufacturer, who we believe is capable of allowing us to scale rapidly in front of the 900 megahertz migration.
We see a need to build inventory with Siemens in front of what we continue to believe will be a significant network build out across the class one rails in 'twenty 'twenty four and 2025.
Be clear we are seeing some migration on 900 megahertz. This year as the rails begin to move and that will drive revenue growth in the second half tempered of course by the aforementioned early product early production bottlenecks.
So despite the slower production ramp we expect on dust networks will still grow revenue in Q3 and Q4.
At the same time, we will continue to foster our existing and new development programs. The Siemens locomotive program.
Previously announced for Europe is well advanced and has recently expanded in scope.
We have now responded to two major passenger in transit network proposals, which appear to be very promising.
As we grow we will pay close attention to spending levels on operating costs as we drive towards profitability.
As revenue and gross profits grow with increasing demand in shipments we expect to be increasingly self funding as we move through the year and into 'twenty 'twenty four.
Now I'll hand, the call back to Eric Eric.
Thank you Stuart I will now ask matter of client or to take the floor and update us on progress with customers that aren't up autonomous systems and provide some insight into the outlook for the rest of 2023 Mer.
Thank you Eric we continue to build momentum on this autonomous system in the second quarter with revenue, reaching $4 million a substantial increase over Q1 revenues of $1 5 million our team continues to execute well.
Evidenced by the successful completion of our proof of concept.
UAE and the ongoing advancement of activity with existing customers as well as new customers and partners globally.
In Dubai, we are continuing to expand on one relationship with the government. We secured an additional servicing women for our deployed systems and plan to expand the OE has operation and footprint in the city later this year.
We anticipate starting goes to our 2023 and into 'twenty 'twenty, four which ongoing fleet expansion, you know would that be Dubai and other countries in the region as we welcome new customers.
We provided investors with an important update in July on our type certification activities with the FAA as we approach receiving FAA type certification for the openings to stem our focus is qualifying and acquiring customers in the United States.
We have secured an agreement with the Massachusetts Department of Transportation Mastodon, and we'll now take our department for proof of concept program.
Which includes demonstrations to relevant stakeholders across the state. These demonstrations may attract auto government agency for Massachusetts, and beyond we are excited to showcase our optimal system, which is state of the art capabilities and functionality, which can enter the virus use.
Cases desire by the public agency in charge of providing critical services to the state of Massachusetts.
Additionally, we have made significant progress in our partnership with Sky fire, a leading consulting firm into Douane public safety field by combining skyphos expertise in police one programs in various states with our type certificate optimal system. We have made game changing advantage we end.
<unk> I believe the market for the one first responder or <unk> is very large and it spending on one solutions in public safety market is now growing rapidly.
Again, we are very excited to bring Optimus to the U S market, where we see significant demand and firmly believe in the substantial opportunity to drive fleet adoption as the one infrastructure.
On the strategic side as previously announced the optimal system has successfully completed its noise certification.
Which was the less desk required by the FAA to attain a type certificate for the system.
Our dedicated team is currently finalizing the last reports and submissions to the FAA and we can see this certification process coming to its conclusion soon.
I would like to take a moment to explain why the type certification is such an important milestone for <unk>.
In the United States anyone wants to operate the drawn for capturing data or parcel delivery purposes must comply with certain requirements. The most common one is flying the drawn in line of sight or pilot. Additionally, the ones I'm not allowed to fly where people at night over a century.
Infrastructure and more to conduct one flight outside of these requirements. The operator must apply for a waiver for each specific area and time.
And where those are not the order was granted by the FAA.
For our system, along the Optimus, which can launch and with a flight every week with no human involvement the FAA needs to understand air worthiness level over the aircraft just like in men.
The type certification process aims to establish solid criteria that the FAA can rely on to understand the engineering and concept of operations of the optimal system.
When did that certification process is completed the robotics will be able to work with the FAA on complex operations similar to what we are conducting in the UAE for example flights for public safety and municipal use cases, which include flying over people Oh, it's critical infrastructure like government builds.
<unk> and power plants as well as other Ruben features.
Based on the optimal system.
A new certification of medical robotics, along with our new partners in the U S will be able to offer one of the world's best solutions for automated streamlined OEM data capture by two ones.
In addition to our growing efforts to end of the U S market, we have been working on the Oi S. A 's global expansion to other regions, we announced our partnership with <unk>, an Indian company specialized in security and defense systems, and presenting the Optimus and Ireland run radar system.
And the designated explain India, which accumulated significant interest from the local industry. We are optimistic that this partnership will produce Guo opportunity.
Additionally, we have initiated a new relationship with Excellence Corp, a leading software company, providing next generation security and defense technologies to start with the government and enterprises to court the case.
Together, we will work on establishing a local office in the kingdom and the strategic aligns to offer our solutions in this growing market.
We see numerous opportunities within the country in defense and homeland security as well as in industrial and Smart city applications.
We expect to share more details on our entrance into the India and Saudi market in the coming months.
Leslie <unk> appointment to the board of directors of the commercial I'm Dwan Airlines C. D was an important achievement for the company. The CBA is an important industry body that collaborates closely with the key policymakers and the FAA D O T White House and Congress to promote one business in various industries.
The U S a.
We continue to expect mostly deployments due in 2020, three and anticipate achieving additional milestones related to the expansion of Optimus in Ireland, one in the U S and other countries.
Progressing as planned we are successfully delivering on fleet deployment in the UAE and look forward to announcing additional orders in the country.
In addition, we are actively advancing new market expansion with local partners in Saudi Arabia and India.
We remain focused on accelerating U S business development by leveraging American Robotics U S footprint to penetrate public safety Smart city construction and other industrial markets to achieve this we are expanding our sales team and pre sales activities.
Engage with a large number of customers and ecosystem partners.
Additionally, we are building inventory and expect to complete manufacturing and delivered 10, new optimal system by the end of 2020 three we have a total of 15 systems on order.
The concept of joining our books and substantial benefits of autonomous ones and become a consensus understanding and many entities are seeking to remove dwan operators from rooftops.
As both a sense of like type certification come together, we envision this market growing exponentially and the Oes is well positioned to lead this evolution.
This completes my formal remarks, Eric I'm going to end the call back to you now.
Thank you mayor before we turn the call over to Q&A I want to reiterate that we remain bullish on the outlook for Amdocs and believe our business has strengthened considerably we have worked extremely hard to position for growth as we all know we and our investors had had a bumpy 12 months. The challenges we have faced which included extended time.
Minds, particularly on the rail side with on dust networks.
I've been exacerbated by a more difficult funding backdrop for small emerging technology companies.
Nonetheless, I believe we are clearly on the path to monetize the significant investments we have made in our format and optimists platform technologies.
Of course this growth plan is now supported by a strengthened balance sheet.
The class one rails are now engaged deeply in formal planning for the 900 megahertz network migration and we believe visibility in the big ramp ahead is improving dramatically.
We will look for volume orders as we move through the fall and in parallel work to scale production to be prepared to meet the expected order ramp.
I'd only yes week appointments are validating the safety and reliability of our opt in the system as well as the value our automated drone services provide this.
This is driving faster engagement with a broader set of partners and customers across the globe, including in new markets, such as India, and Saudi Arabia and of course in the United States as well.
The broader engagement for both networks and OAS is exactly what you want to see when you're in the early stage of technology adoption. It is evidenced that we are in the initial stage on the S curve of exponential growth.
We expect to grow orders and deliveries in the second half, which will allow us to maintain the momentum we built coming into 2023 with a significant ramp in 2024 and beyond.
This growth combined with continued cost discipline will allow us to reward our shareholders from here I firmly believe the outlook for <unk> is only getting better and better.
With that said, let's see if there are any questions operator.
Yeah.
Operator.
The technical difficulties here.
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 take our first question.
Come from Tim Horan with Oppenheimer. Please go ahead.
Hey, guys. Thanks for the time can you give us a sense of Hum.
How much in orders you received from the rails.
I'm just trying to understand the process or maybe it seems like most of the orders have to come in the next nine to 12 months of its going to be six months to deliver.
And then.
Can you just talk about the gross margins on the on the rail equipments.
And I.
Just related to those.
If you can talk about how many orders now can you give us a sense of how much in orders you expect in the next 12 months and then are you basically can you talk about what.
What you are anticipating like are you starting to building equipment in front of the orders and can you talk about.
How much equipment you've ordered here.
And then.
The working capital is up still a problem or do you think you.
Totally solve that at all at this point I know that's a mix of questions just trying to understand the whole process on the rails here from.
When you what orders you received.
When you put in the <unk>.
When do you start making the equipment and then basically have you started making equipment in front of the order size.
Great. Thanks, Tim I'll start with the.
The gross margin question first and then we'll talk about the ordering process and expectations of our ability to.
Over the next few quarters so.
So gross margins on the on dust networks system side are targeted at 60% Youll.
You'll see that bounce around a little bit until we get into these bigger volumes, but of course, we do see the volumes ramping.
But that's that's what it looks like a margin on the margins.
And we will give more clarity on that as we get the volume out of revenue pull through in.
In terms of the order and inventory building process, but what we're doing in the field today with customers is really working hand in hand with <unk>.
<unk>.
Discussing with customers locations.
Requirements are in terms of what applications.
They want to pick up first.
And in and around that of course, we're talking about violent volumes and pricing et cetera.
<unk> is handling the bulk of your negotiations on that front and what we do with Siemens.
In parallel we're planning for production and capacity ramp.
So as we're moving through this year, we are targeting significant orders.
And having.
Having conversations evenings.
The timing of our ambulatory production in front of that so the dynamic is with with these what we do expect to be a big build out in 2024 and 2025 to meet deadlines that we need to start ramping production now and we're doing that in front of what we think is we expect to receive the orders opened up.
The balance of the year.
So we will be building inventory for Siemens and we think we're turning into 2024.
The demand for even more building.
Certainly increase.
Yeah.
Can you talk about.
The dollar amount of orders you have kind of a replacement.
If you're going to get like 200 million orders in the next 12 to 18 months I mean, no suggestion you'd like 100 million in working capital.
The 50% gross margin.
How do you plan on funding that.
So we do have we are expecting to have payment arrangements with Siemens to help support component.
Inventory built so that's that's one aspect of it and we also expect to have Barry.
Attractive payment terms in terms of.
And when we ship.
And bill when we see panels so.
So we think thats going to help us quite a bit on working capital.
Was there another element of that question Greg.
Can you talk about how much like the rough size of orders you've placed the slow. So so yes, I don't want to do that just yet.
This conversation with seniors and the railroads is where we're negotiating and we certainly are as you can understand want to work to get to firm commitments on this upfront and to the extent where sort of signaling that we want to build inventory in front of that.
I would not want to put a number on that.
Because that would delay some of the.
If it is getting less firm commitments so.
So I wanted to sort of defer on that question at the moment.
And do you have a sense of when the orders will really start kicking in as of third quarter. This year fourth quarter first quarter of next year and then.
And on the revenues.
I'm guessing a six to nine months after the orders can you kick in but do you have a sense when the orders will start flowing.
Yes.
A couple of days. So so the orders that theme and secures that then turns to US we do expect over the balance of the year.
And I think.
I would say in the next few months I don't want to put a specific timing on it again, given where we are in these discussions.
The competitive standpoint.
But of course, having the visibility we do on the expected brand, but knowing that we need equipment we.
So we could start start ramping now and I think that we're only going to be building capacity through the year. So I can't I can't get any more granular than that at this point.
Okay got it but it seems like.
You kind of expecting the orders really ramp in the fourth quarter and first quarter and then the revenues really grant second and third quarter next year is that fair to say your best guess at this point. It is it is it is fair to say when we think about the very large revenue numbers that we believe are ahead of us, but I do think that.
We're moving through the year into Q1, I think Q1 will be.
You can see a nice uptick as well.
So you kind of expecting to receive revenues from these orders.
In Q1 will be quicker uptake.
Okay, Yes.
Can you give us a sense of how much you received in order so far.
Q1, I know you had some guidance on bookings for the at the beginning of the year for this year can you give us a sense of where you're tracking well we didn't yet. So we haven't we didn't give guidance guidance on bookings, we gave targets for revenues and of course, we've updated that today.
I don't I don't want to go further on the booking side.
As we.
As we're moving into the second half.
We'll update you as we can.
Okay. Thank you.
Sure.
Again, if you have a question you May press star one to join the queue.
Our next question will come from Matthew <unk> with Maxim Group. Please go ahead.
Matthew Cowen and co. Your line is open please check if it is muted.
Hey, good morning, Thanks for taking my question I'll be brief I wanted to maybe get a little bit more color on the contract manufacturer.
You're engaged with now.
Any any fixed commitments there and.
Just to be extent that you do expect the volume orders from rails in the next year or two.
Is this manufacturer.
In a place to meet that capacity or do you expect to have to do more and more work to to get to that point.
I'm going to ask Stuart to share more details.
On this contract manufacturer. This is a firm that we were working with to qualify for quite some time now.
We've been doing that in parallel with Siemens and again it wasn't at this stage.
Obviously the increase in volumes, so Stuart what would you add to that.
Yeah.
So we this.
Uh huh.
The contract manufacturer in the U S.
It's one we qualify with Siemens and they support Siemens and <unk>.
Many of their product lines.
<unk>.
Feel they're very capable.
And as we secured the new working capital we've now engaged them in.
Have turnover some critical.
Uh huh.
Boards in our development that.
Have been a bottleneck in the past so.
They are prepared to ramp and R. R.
Well qualified we also have a <unk>.
Another manufacturer in Canada, that's supporting us for some other key components. So I think we feel very confident with them.
Got it thank you and maybe just any help.
Help me understand the type certification.
And how that factored into the timing on.
On the pipeline build and engagement.
With U S entities and.
It doesn't seem like you've needed it to.
Ramp up engagement, but.
Thank.
If you could help me understand a little bit better.
Is it a question of Hey, we get the certification and you expect U S orders imminently or.
Still several months post four additional evaluations before you get too.
Something to volume in the U S.
Thanks, Matt.
So the.
The type certification itself or lack thereof in Poland, but we formally receive it had not been a barrier <unk>.
Conversations with customers because theres other ways, we can get out.
Receive approvals for flight operations I think what Youll do you see is that in.
In our marketing efforts.
It's a lot easier to have these conversations.
And it's easier for customers to engage and engage more quickly.
When we have this level of quality.
That's been validated by things like such as type certification as well as the experience we're able to point to all the all the flight hours for example, our commercial and commercial deployments in urban environments in the UAE. So.
So I kind of I think you can think of it as an accelerant.
Well the activity with customers, maybe it's a it's going to be more efficient in the.
Sales prices will be shorter as a result.
Or would you add anything to that.
Yeah.
So we finished the last we need to do with the FAA and now we're waiting for the final approval.
Our opinion is going to make a game changer in the industry because.
This is the first time.
Anyone will get his approval to fly above people without the need with specific waiver and as Erik mentioned, it will give us the ability.
To accelerate and.
Yes.
Okay.
Alright deal with clients.
And more quickly.
Cause we will have these approval and we can open new markets in the United States.
One infrastructure in Wuhan area and not only in a remote area.
Got it that's helpful.
Alright.
I appreciate it I'll jump back in the queue.
Thank you Matt.
And again, if you have a question you May press Star then one to join the queue.
Our next question will come from William Morrison with B Riley. Please go ahead.
Good morning, Eric.
Hi, Bill.
Good.
Good you wouldn't have to be particularly insightful to understand if there might be.
No.
Inventory shortages going out so what exactly went wrong because he doesn't like the last five times, we've talked about this.
It was in our control so what changed like who dropped the ball.
Well Bill we did I'll refer back to our last conference call. We highlighted some of its components.
Bottlenecks that we had.
<unk> been experiencing as we were really ramping up volume production for the first time. So we've done a lot of work to qualify suppliers of components, but the first time you bought it.
You enter into these volume orders with them.
That'll be they can't catch them guard so.
As Stuart had mentioned, we believe those specific bottlenecks.
And today, we believe the supply chain is in pretty good shape for us, we're going to be particularly active.
Sort of focusing on advanced purchases for certain components.
In addition to qualifying other component vendors for diversification, but.
That's kind of how we dealt with it but we did highlight this on the last call I'd say, a bigger issue has been particularly as we move into the contract manufacturer has been having.
The working capital base to make commitments to volume purchases of components to ramp production.
Yeah.
As you know we completed a financing in July we were trying to get that financing again.
A bit earlier, but you know these things can sometimes take some time.
So we really have just started to ramp.
We described with a contract manufacturer and these other component orders.
For higher volumes.
We announced the funding and given the lead times the ability to pull that through the supply.
The production.
It means that.
Some of that.
So in Q1.
And how much of this is applicable to AOS.
No the OAS as we're talking specifically about Argos networks related.
Good.
Apply chain.
Ramp.
OAS has.
We entered the year as you recall, we bought a robotics acquisition in January .
That time, we ordered 50, new Optimus systems.
And we are we were expecting to receive pen in the second half of this year and we're still on track.
With that.
Alright, and then what about a major fleet orders.
Looking for those for a while.
Not like 10, but you know hundreds of hundreds of systems.
We got to give us a little time on one hundreds per customer.
Came into the year with the optimal system, we spoke of the activity in the UAE those customers, we're furthest along in commercial adoption suite adoption.
And.
We are we've targeted or where we've highlighted that the customers have been publicly discussing.
In the UAE.
It's 50 units.
So two legs through 2025.
So we're kind of.
Working with them to build that out.
Elsewhere, when we're talking about new markets like India, Saudi Arabia and of course in the United States. We have identified early customers and partners, we're going to work with them, but youll see them sort of start to ramp in.
More deliberate way right could take maybe a couple of systems up to five.
Build those out and then from there we can scale more quickly.
As they get the experience that we do.
Right.
<unk>, how we deliver the solution so.
The valuable experience.
So I guess, we'll see how we do think we're on that path.
And as you'll as we were able to share with your customer activity with the with these other markets.
Spitzer, where in the U S as well.
Youll get busy with the customers will give you more plans on what we can tweak deployments look like.
Alright. Thanks.
Sure.
Okay.
And with that this will conclude our question and answer session.
I'd like to turn the conference back over to Eric <unk> for any closing remarks.
Okay. Thank you operator, just going to close the call today by thanking you again for attending as always we have a lot of work ahead, and we're going to get right back at it and we look forward to staying in touch and keeping you informed.
Our progress so have a great day. Thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.