Q3 2024 Ondas Holdings Inc Earnings Call
Speaker Change: Welcome to the Hondas Holdings Inc. third quarter 2024 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2.
Speaker Change: Before we begin, the company would like to remind you that this call may contain forward-looking statements.
Speaker Change: While these forward-looking statements reflect ONDIS' 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.
Speaker Change: and in the earnings press release issued today, which are both available on the company's website.
Speaker Change: On this undertakes no obligation to revise or update any forward looking statements to reflect future events or circumstances, except as required by law.
Speaker Change: During this call, ONDIS will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting
Speaker Change: This non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.
Speaker Change: However, management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business.
Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Eric Brock, Chairman and CEO.
Eric Brock: Please go ahead. Thank you operator and good morning. I want to get started by welcoming you to our quarterly conference call. We appreciate the time you're spending with us and for your interest in our company.
Eric Brock: I am happy to be joined today by key members of our leadership team, including our interim CFO, Neil Laird, Guy Simpson, the President and Chief Operating Officer of Ondas Networks, and Meir Kliner, President of Ondas Autonomous Systems and the Founder and CEO of our Aerobotics subsidiary.
Now let's turn to the agenda.
Eric Brock: We will begin the call with some brief comments highlighting recent business developments at both our OnDesk Networks and OnDesk Autonomous Systems business units.
Eric Brock: I will then hand the call to Neil for a financial review of our third quarter 2024 results.
Eric Brock: We'll then provide a business update for Honest Networks in our OAS Business Units, where I will ask Guy and Meir to provide commentary around current business activity.
Eric Brock: Then we will wrap the call and open the floor for investor questions.
Eric Brock: I will start the call by saying simply, this is an exciting time for ONDOPS.
Eric Brock: Our hard work is translating into commercial success, and that is being reflected not only in the recently announced orders, but also in the maturation of the customer pipeline and the improving visibility for both OAS and ONDIS networks.
Eric Brock: This supports our belief that we will have a significant revenue growth ahead looking into Q4 and for 2025.
Eric Brock: The big news this quarter, of course, was the $14.4 million of orders OAS secured for our Iron Drone Raider and Optimus platforms.
Eric Brock: This signaled our entry into military markets and established our Iron Drone Raider system as a third revenue-generating technology platform in the ONDAS portfolio.
Eric Brock: Further, the expansion into global military markets has dramatically increased the TAN for OAS, but more importantly, the serviceable and obtainable market, or SOM, that we can identify with customers today, which has also increased.
Eric Brock: I am incredibly proud of our team at OAS and their perseverance through a challenging wartime. Clearly the conflict in Israel has been disrupted from an operational and financial standpoint, but our team continues to rise to the occasion to support their country while continuing to advance the business.
Eric Brock: This is truly exceptional, and that effort has translated into the largest bookings order in the company's history.
Eric Brock: Further, the orders were received directly from the military customer, representing programs of record for both Iron Drone and Optimus in establishing Ondas as a prime vendor, while also establishing pricing and margins for our high-performing autonomous drone platforms.
Eric Brock: We believe the Iron Drone Raider is a best-in-class autonomous solution from a performance standpoint with its capabilities in complex environments, unique hard-kill execution, reusability, and price point.
Eric Brock: This platform is positioned as a leading candidate to own the category for a hard-kill county UAS infrastructure.
Eric Brock: We further believe there is a significant global market for iron drone to protect from the growing threat of hostile drones.
Eric Brock: I see substantial expansion opportunities in the global defense market. In fact, we are seeing tangible engagement with additional military customers already, and those government-to-government marketing opportunities are supported by our initial military customer.
Eric Brock: In addition, our Optimist system will now be deployed to secure military bases and border checkpoints, demonstrating the exceptional capabilities of this market-leading system in high-value security markets.
Eric Brock: We believe the Optimist system was chosen for this critical security requirement due to its rugged, military-grade design and its unmatched reliability in performing autonomous operations.
Eric Brock: Further, this new program for Optimus entails OAS enhancing the functionality to allow for remote operations in complex, GPS-denied aerial environments.
Eric Brock: Our ability to meet these military requirements is a testament to our engineering expertise which is demonstrated across both Optimus and Iron Drone. This expertise is highly valued by our customers.
Eric Brock: I would like to stay on Optimist for a moment. We see a steepening demand curve for aero security and inspection services utilizing remotely operated autonomous drone-in-a-box systems.
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Eric Brock: As we scale with existing customers for military and public safety applications,
Eric Brock: We see evidence that security officials and project managers in military
to secure and protect high-value assets and locations.
Eric Brock: The work to establish AmeriCorps Robotics' scalable operations capability has advanced in customer pipelines and maturing. We see specific opportunities in public safety, as well as the protection of critical assets including ports, and the protection of critical technology infrastructure, which includes data centers and semiconductor facilities.
Eric Brock: For OnDesk Networks, I want to highlight progress on gaining clarity on the railroad's plans for the 900 MHz network.
Eric Brock: This is reflected in the strategically important order our distribution partners seem to secure from METRA, Chicago's primary commuter rail system.
Eric Brock: This is a significant milestone, and we will support a system-wide upgrade of the 900 MHz network to the new A block for METRA beginning in the fourth quarter.
Eric Brock: In addition, we've got some FEMA secured in order for an expansion of a live dot 16 network in the 900 megahertz band with a class one railroad in Chicago.
Eric Brock: We expect this to result in broader deployment across Chicago for that railroad in 2025, with likely expansion from there.
Eric Brock: The activity with both Metra and this freight railroad operator, Chicago, is an important development as it clearly signals to the rest of the industry that Honest Networks and Siemens have established a comprehensive deployment and migration plan to support adoption of the DOT 16 wireless standard by North American railroads in a new 900 megahertz network.
Eric Brock: In short, we are demonstrating the robustness of the DOT16 standard as we start 900MHz upgrades in Chicago, the most complex railroad wireless environment in the country.
Eric Brock: In addition, we see a consensus emerging across our railroad customers regarding use cases from 900 MHz that should lead to more system orders and deployments in 2025.
Eric Brock: In certain regions, railroads will migrate the legacy ATCS function to the new 900 MHz network.
Eric Brock: In other locations, Legacy ATCS, also known as CTC, will move to the 220 MHz network.
Eric Brock: Either way, we are well-positioned with a multi-purpose network hosting either primary trade control applications.
or hosting CTC and PTC traffic as a secondary network.
Eric Brock: This demonstrates the value of our .16 platform with increased capacity and flexibility that supports robust, general-purpose, and multi-purpose network hosting.
Eric Brock: In this instance, PTC protocols will be carried on 900 megahertz.
Speaker Change: I will now hand the call to Neil to provide the detailed third quarter financial update.
Neil?
Thanks, Eric.
Speaker Change: As I get started, I want to remind our investors that our financial statements reflect the early stage of platform adoption for both ONDAS networks and OAS, and the preparation for larger commercial rollouts.
Speaker Change: We expect significant operating leverage as revenues grow, though today's revenue levels do not yet cover our operating expenses.
Speaker Change: For on-disk networks, revenues will fluctuate from quarter to quarter, given the uncertainty around the timing of customer activity in front of the targeted commercial rollouts in the 900 MHz network.
and the development programs underway with Siemens and MXV Rail.
Speaker Change: Similarly, revenues at OAS are expected to vary from quarter to quarter and to normalize into a more predictable pattern as we grow our customer base and more of those customers enter fleet programs and recurring service revenue agreements in the United States and internationally.
Speaker Change: In the third quarter of 2024, revenues were approximately $1.5 million, as compared to approximately $2.7 million for Q3 2023.
Speaker Change: This was primarily a result of extended timelines at ONDOS Networks related to the 900 MHz activity with the Class I railroads.
Speaker Change: partially offset by increases at OAS as we started to fulfill the purchase orders received during the quarter.
Speaker Change: Gross margin was $48,000 per Q3 2024, as compared to $555,000 per Q3 2023.
Speaker Change: Gross Margin was 3% for Q3 2024 as compared to 21%.
for Q3 2023.
Speaker Change: The gross margin performance is due to the change in the mix of revenues in the third quarter.
Speaker Change: of 2024, which included lower margin development projects as compared to product revenue with higher gross margins in the prior year quarter, as well as certain fixed costs related to OAS service delivery.
Speaker Change: Gross margins can be volatile on a quarter-to-quarter basis due to low revenue levels and shifts in revenue mix between product, development, and service revenue.
Speaker Change: Operating expenses were $8.7 million for Q3 2024 as compared to $6.5 million in Q3 2023. Cash operating expenses were $7.1 million compared to $7.5 million.
Dollars.
Speaker Change: Cash operating expenses exclude non-cash operating expenses for depreciation and amortisation of $1.3 million in both quarters and stock-based compensation of $0.3 million in the third quarter of 2024 compared to the credit of $2.3 million in the third quarter of 2023.
Speaker Change: The operating loss was $8.7 million per Q3 2024 as compared to $5.9 million per Q3 2023, reflecting the lower revenue and the one-time stock compensation credit in the prior year.
Speaker Change: Adjusted EBITDA loss was $7.1 million for Q3 2024 as compared to $6.9 million for Q3 2023.
So now let's turn to the cash flow statement.
Speaker Change: We held cash and cash equivalents of $2.9 million as of September 30, 2024, compared to $15 million as of December 31, 2023.
Speaker Change: The nine-month cash provided by financing includes additional gross financing totaling $15 million, of which $6.95 million occurred in the third quarter.
Speaker Change: The $6.9 million included $4 million at Old Us Holdings via a registered direct equity offering to a single institutional investor and $2.95 million at Ondas Networks via secured loans from Charles & Potomac.
Speaker Change: Cash used in operations during the first nine months of 2024 decreased by 2.7 million dollars.
We expect cash utilisation to improve in the fourth quarter.
Speaker Change: Given our expectation of a recovery in revenue and gross profit growth as we fulfill orders from the backlog beginning in the Q4 of 2024.
Speaker Change: The company expects to fund its operations from the cash on hand as of September the 30th, 2024.
Proceeds from financing activities, growth profits generated from revenue growth.
Speaker Change: potential prepayments from customers for purchase orders, potential proceeds from warrants issued and outstanding, and additional funds that the company may seek through equity or debt offerings and borrowings under additional notes payable, lines of credit, or other sources.
Speaker Change: In terms of the balance sheet, as of September the 30th, 2024, Ondas Holdings had $27.8 million in convertible notes outstanding. And as mentioned previously, we had $1.5 million in convertible notes outstanding at Ondas Networks.
Speaker Change: We also had $1.45 million of non-convertible notes payable at on-bus networks.
Speaker Change: We have been focused on maintaining liquidity to fund our growth plan.
Speaker Change: Subsequent to September 30th, we have raised an additional $3.55 million of capital.
Speaker Change: This funding in the current fourth quarter includes $3.5 million via a convertible note at OAS, a transaction led by Privet Ventures and Charles & Potomac.
Speaker Change: Privet Ventures is an investment vehicle owned by our CEO Eric Brock.
Speaker Change: In addition, we have established a relationship with Clear, a working capital provider who provided $500,000 to Ondas Networks in October, backed by customer invoices.
Speaker Change: We expect to have additional liquidity via the CLEAR relationship to help support working capital needs as orders grow at both ONDAS networks and OAS.
And I will now hand the call back to Eric.
Eric Brock: Thank you, Neil. Now we will transition to a review of our business units and ask Guy Simpson and Meir Kliner to share updates on business development activity and operations at OnDesk Networks in OAS.
Eric Brock: As I hand the call to Guy, I want to reiterate that we are encouraged by the increasing transparency from certain railroads who have begun to communicate network architecture plans and their vision for 900 MHz.
Speaker Change: Of course, we continue to push the railroad customers for visibility on network deployment timelines and orders for 900 MHz as we prepare for 2025.
Speaker Change: I have the utmost confidence that OnDesk Network's wireless technology is critically valuable for the RHEL customers.
Speaker Change: Despite extended timelines, the opportunity in 900 MHz, as well as with the other private networks for the Class I rails, in addition to global rail markets, remains substantial. Guy, please proceed.
Guy Simpson: Thank you, Eric. Once again, I'm happy to be here this morning and to share with our investors the progress that Ondas Networks is making.
Guy Simpson: In previous calls, I've talked about the challenges of working with the railroad's timescales and the general lack of visibility for their deployment plans. The good news is that in Q3, things have definitely improved.
Guy Simpson: Our distribution partner, Siemens Mobility, received an order from Metra, the primary commuter rail system in Chicago, for a system-wide upgrade of their 900 MHz network.
Guy Simpson: This project includes the migration of the network to the new Avalok channels and the introduction of 82.16 to support General Purpose IP applications.
Guy Simpson: Siemens Mobility also received an order from a Class 1 railroad to expand a 900 MHz field trial, also in Chicago, that has been supporting live traffic for almost a year.
Guy Simpson: As with METRA, this project includes migration and the deployment of ETA 2.16 in the new 900 MHz A block.
This activity will start later this month.
Guy Simpson: Multiple Class 1 railroads have expressed an interest in extending the new 900 MHz network from its primary use of transporting legacy Centralized Train Control, or CTC, traffic to providing a backup for the Positive Train Control, or PTC, applications operating on the 220 MHz network.
Guy Simpson: Field trials of Airlink 802.16 products supporting the required ITCM messaging over 900MHz are scheduled to start later this month.
Guy Simpson: This recent activity not only validates the commitment the AAR has made to the FTC regarding the 900 MHz network build-out, but also that the value of a general purpose network is now being recognized by the railroads.
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Guy Simpson: The successful integration of AirLink products into legacy 900 networks is a key milestone on the path to network migration.
Guy Simpson: In Q3, we continued our support of multiple customers to achieve this critical objective.
Guy Simpson: Beyond 900 MHz, we continue to execute on the new PTC data radio program with our partner Siemens Mobility on behalf of Amtrak.
Guy Simpson: The first prototype radios were delivered to Amtrak in Q3 and the development activity is on track to be completed in Q1 of 2025.
Guy Simpson: We are working with Siemens Mobility and Amtrak to expedite the delivery of the first production PTC data radios in Q2 of 2025.
Guy Simpson: We continue to work with Siemens in the UK on a new locomotive radio for the European market, with key development milestones achieved in Q3 2024.
Guy Simpson: We expect to deliver prototype radios in the next few weeks and we are working with Siemens to identify and actively support the first field trials next year in Europe.
Guy Simpson: In response to various unfortunate events in the rail industry, and to support the safe operation of longer trains, the AAR has initiated a program to develop the Next Generation Head-of-Train and End-of-Train, or NGHE, solution.
Guy Simpson: Ondas Networks has recently participated in a comprehensive technology bake-off at the AAR's MXV Rail Test Facility in Pueblo, Colorado.
Guy Simpson: Whilst the visibility of commercial orders for the 900 MHz network is improving, we continue to manage our expenses prudently in advance of substantial commitments.
Guy Simpson: Our confidence in the application of Ada 2.16 wireless technology in the railroad space is finally being rewarded.
Guy Simpson: While there is still much work to be done, I remain extremely positive on our outlook with the railroads.
Guy Simpson: Time and time again we have proven the value of our technologies and expertise across multiple applications and opportunities.
Guy Simpson: We are building momentum on multiple fronts and well positioned to execute on the pent-up demand.
Now I will hand the call back to Eric. Eric?
Eric Brock: Thank you, Guy. I will now ask Meir Kliner to take the floor and update us on progress at Ondas Autonomous Systems. Meir's comments will include an update on Iron Drone and Optimus activities with customers. Meir, please proceed.
Meir Kliner: Thank you, Eric. Ondas Autonomous Systems has an outstanding quarter, positioning the business for a long-term success.
Meir Kliner: This positive trend in bookings validates our decision to focus energy on the military, homeland security, and public safety markets, and expand the market for both Optimus and Iron One.
Meir Kliner: We will address the increasing global need to protect and secure critical locations, infrastructure, industrial assets and populations.
Meir Kliner: Aerobotics is well known for its ability to produce highly functional and most importantly highly reliable autonomous systems meeting the most rigorous and complex standards and requirements.
Meir Kliner: We are providing not just industrial-grade solutions, but also military-grade. Our Iron One and Optimus dual-use technology platforms demonstrate our proven ability to produce built-for-purpose and scalable autonomous systems.
Meir Kliner: Of course, this is possible because of the talent and experience we have built within our organization. I will give more details about these bookings shortly.
Meir Kliner: During Q3, aerobotics' primary focus was on continuing to advance the capabilities of the I-11 radar, which included enhancing navigation systems to support operations in complex airspace.
Meir Kliner: In parallel, we are working with our customers and partners on establishing standard operational and sustainment activities to support the deployment of Iron Drone as a security infrastructure.
Meir Kliner: In addition, our Optimus Dwarf network operations with our local governmental partner in Dubai are expanding and the network is extensively utilized and performing extremely well.
Meir Kliner: We are excited to be at the forefront of public safety urban drone action, where once thought to be futuristic drone operations are now becoming a day-to-day reality.
Meir Kliner: We are looking forward to hearing more good news from Dubai by the end of this year.
Meir Kliner: We are also working on expanding our market reach into Europe and will perform demonstrations in the 2nd half of November for defense, security and critical infrastructure customers with our partner Halaskai at the port of Hamburg in Germany.
Meir Kliner: In the US, American Robotics has successfully delivered a key contract with the United States Coast Guard for maritime emissions monitoring to support EPA Clean Port Initiative at the ports of Los Angeles and Long Beach as a prime vendor for a US federal agency.
Meir Kliner: American Robotics also advanced and performed multiple demonstrations of the Optimus system to key potential customers, showcasing its capability to remotely operate BVLOS drone fleets by leveraging Optimus FAA type certifications and the Castrol system.
Meir Kliner: We see the American robotics customer pipeline deepening and maturing supported by continued successful demonstrations.
Meir Kliner: Indeed, American Robotics will have the opportunity during the fourth quarter to conduct follow-up demonstrations on site with one of the largest police departments in the U.S.
Meir Kliner: in providing area security and intelligence for public safety, DOTs, ports and terminal operations, data centers, semi-contactor facilities, and construction project management.
Meir Kliner: In addition, OAS entered a strategic alliance with GenLab Venture Studio.
to develop mutual go-to-market models.
Meir Kliner: leveraging their AI capabilities together with the best-in-class capabilities of the Optimus system in capturing for security and inspection applications and building the large data libraries required to develop sophisticated AI-driven data analytics tools.
Meir Kliner: As I previously mentioned, we add record iBookings for both the i101 Raider and Optimus platforms.
Meir Kliner: I would like to explain and provide details on these orders and how we will deliver these systems and fulfill the customer purchases.
Meir Kliner: We received our initial order for I-11 radio systems, which were deployed to demonstrate their capabilities in a controlled environment.
Meir Kliner: Subsequently, we received an additional order for specific technical upgrades during August.
Meir Kliner: Lastly, during September, we completed a third order for fleet deployment in multiple locations for this customer.
Meir Kliner: These deployments are for live military activities defending borders, assets, and ground forces. This order for Iron One totaled approximately $9 million.
Meir Kliner: For the Optimus system, we received a significant order from a different division for the same military customer, which amounts to approximately $5.4 million.
Meir Kliner: These optimal systems are intended to provide a perimeter and border security.
Meir Kliner: We believe there are few, if any, systems comparable to Optimus able to deliver persistent availability and reliability amid the environmental and complex aerial operations required for military and homeland security deployments.
Meir Kliner: This order demonstrates our ability to address these requirements and we expect this to support a large opportunity for military base and border security for this customer, as well as for global defense customers, including in the United States.
Meir Kliner: In short, our serviceable and obtainable market for both R&D One and Optimus has expanded dramatically in the last six months.
Meir Kliner: We intend to expand our distribution capabilities to address the global military and homeland security markets for both Iron One and the Optimus system.
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Meir Kliner: We are looking forward to fulfilling the Q3 orders during Q4 and Q1 2025.
Meir Kliner: As we deliver these systems, we are expanding success-based opportunities with this customer and many other governmental customers in the defense sector, which will be our focus during Q4 and into 2025.
Meir Kliner: We will be advancing the required specific upgrades of our systems and focusing on executing operational deployments in multiple locations and implementing sustainment activities to support our customers and partners.
Meir Kliner: We will also be working on securing follow-on volume orders and building our supply chain and services infrastructure to sustain our business growth.
Meir Kliner: We are looking to capture new global defense customers, leveraging these activities with our current customers.
Meir Kliner: As I mentioned in the opening, we are witnessing strong utilization of our drone network in Dubai and expect to see more orders coming during Q4.
Meir Kliner: We are looking forward to expanding this network and services it provides to new stakeholders and applications with AI technology and other cutting-edge capabilities.
Meir Kliner: OAS will continue to promote its solutions in Europe with our partner Halasky and more potential customers.
Meir Kliner: We will drive the expansion of the Optimus system in the U.S. market, which is growing rapidly as more police departments and communities, as well as owners and operators of critical infrastructure and technology assets, realize the opportunity and benefits of fully autonomous drones.
Eric Brock: I will end the call now to Eric, who will dig a little deeper into the public safety market and the rapidly growing and evolving Duan as a first responder market over the last few years.
Eric Brock: Thank you, Meir. I want to take some time to share some context on the rapidly growing and evolving opportunity in public safety.
Eric Brock: For many years, public safety has been considered an attractive target market for drones for a very simple reason.
Eric Brock: Drones save lives. They save lives for both citizens and first responders themselves.
Eric Brock: Indeed this market has always been a focus for aerobotics and you can see that we are addressing the highest end of public safety in Dubai where you're deploying Optimus as drone infrastructure with our customer.
Eric Brock: Operations like those we support in Dubai are increasingly being described as DFR 3.0, which I will come back to.
But first, some context.
Eric Brock: When responding to emergencies, first responders like police officers and firefighters are faced with many unknowns.
Eric Brock: How serious is the issue? What is the threat? How many people are at risk? And how many perpetrators are there? Are there weapons involved? And so forth.
Eric Brock: Not understanding these risks has consequences. When drones fail to arrive at the scene before officers, crucial issues ranging from car accidents to violent crimes can remain unaddressed.
Eric Brock: In the case of car accidents, for example, the absence of drones can lead to delayed assessments of the scene, hindering the identification of the most severely injured victims and slowing down the delivery of emergency medical services such as ambulances.
Eric Brock: Without the aerial perspective, traffic flow around an accident might not be managed efficiently, causing further delays and secondary collisions, all of which creates real-world economic and social issues.
Eric Brock: In a violent crime scenario, such as an armed robbery or assault, drones provide a vital real-time overview, helping to track suspects and gather crucial evidence.
Eric Brock: Without this rapid response, police officers might miss critical moments that could prevent further violence or aid in apprehending suspects.
Eric Brock: These examples and countless more underscore the importance of timely drone deployment to enhance situational awareness and response effectiveness.
Eric Brock: So, the drone as first responder, or DFR concept, evolved a number of years back as law enforcement and rescue organizations realized the benefits of equipping police officers and firefighters with manually operated tactical drones.
Eric Brock: We have seen many successful and growing implementations of drone programs around the country. And these organizations, their communities, and importantly, the folks in charge of municipal budgets have increasingly realized the value and scalability of autonomous drone networks.
Eric Brock: This is because attaching a piloted tactical drone to the dispatch unit doesn't shorten the response time, as the drone needs to be mobilized to the scene.
Eric Brock: For this purpose, a more strategic network of drones should be in place, allowing for shorter mobilization times by leveraging flight capabilities.
Eric Brock: This is now being called DSR 3.0 by some of the industry.
Eric Brock: As we see in Dubai, public safety organizations are looking for automated drone platforms that are highly reliable and capable of true, fully remote and scalable operations.
Eric Brock: The autonomous drone adoption cycle is accelerating as agencies see the huge value from drones and saving lives.
Eric Brock: The high level of autonomy unlocks scalable operations, which we believe will drive the next leg of growth in public safety.
Eric Brock: As drone infrastructure is deployed, municipalities are seeking to centralize the remote operating centers and provide services across multiple agencies.
Eric Brock: In this instance, police, fire, transportation, ports, and many other municipal agencies can be served by shared drone infrastructure across an urban environment that is centrally operated by the Public Safety Organization.
Eric Brock: We can see the competition building around this use case as more and more drone companies are launching new drone box solutions.
Eric Brock: And we are very excited to observe the market evolving around this application, not only because we have always known these are life-saving technologies and services with a positive impact on communities, but also because we have been working on this vision for almost a decade.
Eric Brock: To be very clear, our Optimist system holds one of the most promising solutions for DFR 3.0. We believe major public safety and security organizations are recognizing this.
Eric Brock: We have already nailed it in Dubai, and with our FAA-type certification, we are ready to provide this platform solution in U.S. cities via AmeriCorps Robotics.
Eric Brock: Removing the human factor from drone operations is not an easy task. It requires deep technology and experience, which of course we have in states.
Eric Brock: So DFR 3.0 requires scalable shared infrastructure that is proven and reliable, it requires full autonomy, scalable remote operations, 24-7 availability, and the ability to service multiple agencies across a drone network.
Eric Brock: We look forward to sharing more details on this exciting DFR market in the quarters ahead.
Eric Brock: Let's wrap the call now and summarize the outlook for Q4 and provide some context as to how and where the business will develop in 2025.
Eric Brock: We expect modest revenues for ONDES networks in Q4, mostly driven by development programs. However, we continue to see a major financial opportunity in 900 MHz and beyond, and are optimistic that railroad orders will merge in 2025.
Eric Brock: For OAS, we see significant revenue growth beginning in the fourth quarter as we begin to fulfill the military orders announced in Q4. In addition, we expect to land additional orders at both Aerobotics and American Robotics in Q4 and to build backlog for 2025.
Eric Brock: I believe the revenue recovery beginning at OAS this quarter will be strong and durable for both our Optimus and Iron Drone platforms.
Eric Brock: Demand for Optimist is expected from both existing customers in the Middle East and rest of the world, and a growing opportunity set in the United States with America Robotics.
Eric Brock: In parallel, we are preparing to increase production capacity, field deployment and sustainment capability, and expanded marketing to other defense and security customers globally.
Eric Brock: The opportunity to expand both Iron Drone and Optimist with our current customer, as well as with allied militaries, is substantial and likely to be additive to 2025 from an order and revenue standpoint.
Eric Brock: We believe we will demonstrate progress on the DFR 3.0 opportunity in the coming months.
Eric Brock: both with existing and new customers, including in the United States, which will also contribute to revenue in 2025.
Eric Brock: I want to highlight, I am very happy with the new customer demonstration training in Remote Operations Center in Maryland that Tim Tenney and our American Robotics team have stood up.
Eric Brock: This is supporting the maturation of our customer pipeline and accelerating sales cycles for customers and public safety as well as those protecting critical assets such as ports and critical technology infrastructure including data centers and semiconductor facilities.
Eric Brock: We expect to establish additional similar customer centers in the United States in 2025, specifically targeting military customers, and in Europe, targeting DFR, ports, and critical infrastructure.
Eric Brock: The need to protect and secure military locations, critical civil and industrial infrastructure and technology assets, and for public safety and emergency response capabilities continues to grow in importance. We have the product platforms and services portfolio to meet the needs of the highest end of these markets.
Turning now to our liquidity position in the NASDAQ listing.
Speaker Change: As Neil said, we may seek additional funds through equity or debt offerings and or borrowings under additional notes payable, lines of credit, or other sources.
Speaker Change: Additionally, we expect non-dilutive funding to be available to support working capital from our new financial partner, Clear, for both ONDAS Networks and OAS.
Speaker Change: We are grateful for Charles and Potomac's ongoing support and investment, and I personally participated in the OAS convertible with a $1 million investment. We remain very bullish on the outlook for Andas in our business units.
Speaker Change: In addition, we have requested an additional 180-day compliance period from the NASDAQ to regain compliance with NASDAQ's minimum bid price requirement. We believe we meet the requirements for an extension and will share an update on the request when we are notified by the NASDAQ.
Speaker Change: I want to now wrap our prepared remarks. This has been quite a year for ONDAS where we've had to navigate issues ranging from rail timeline uncertainty to, of course, the conflicts in Israel. Our teams remain totally committed to our objectives and we are positioned to deliver.
Speaker Change: We have now regained our momentum, and we expect to close 2024 on a strong note. Further, we are prepared for and very optimistic about 2025.
With that said, let's see if there are any questions.
Speaker Change: Eric Brock, Yishay Curelaru, Neil Laird, Meir Kliner, Propaganda Corp Founder, Tim Tenney, Odenkirk.
We will now begin the question and answer session.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Mike Lattimore with Northland Capital Markets. Please go ahead.
Some of the big orders in the quarter there.
Speaker Change: In terms of the iron drone prospect, Eric, you talked about, you know,
Speaker Change: I think demonstrating combat success could lead to more volume orders. I guess, can you...
Speaker Change: Explained that a little bit more, you know, have you had combat success, how long, you know, would it take to, and if not, how long would it take to kind of prove that out, just trying to get a sense of when another kind of, you know, major iron drawn order might come in.
Speaker Change: I'm going to ask Meir to comment on that. Thank you, Mark.
Thank you. Thank you. And thank you. Thank you.
Eric, do you want me to take it?
Yeah.
Speaker Change: I can't say specifics about what's happening here in Israel, but as we mentioned before we sell for
Speaker Change: for IDF-specific iron rods, and we worked together with them in the last eight months.
Yeah, so to add on that,
You know, we are in the process of...
of Delivering on the Orders.
Speaker Change: and we've described the activities around the delivery, which is installing
Speaker Change: and the systems as infrastructure integrated with the technologies around command and control detection etc. And as we're doing that you know we're prepared to be live in operations. We can't give specifics on timelines as to when that, where we are in that process.
Speaker Change: I will say this, Mike, and I just say this, we do expect orders in 2025, but we can't be more precise just yet.
Speaker Change: Okay, good. And then on the DFR opportunity in the U.S., do you need to get any kind of additional, you know,
Speaker Change: certifications to be able to have autonomous drones kind of working in these use cases you're pursuing?
Thank you very much.
Speaker Change: No, we just have to go through the regulatory processes that we go through with all the other work we're doing here in the U.S. and with with that it would be integrating into the operations with the police departments we work with.
Speaker Change: First of all, you don't need an FAA… Sorry, to add to what Eric said, after we got the type certificate from the FAA, the Federal Alert Administration, so the regular process is much more quicker and easier for us to deliver the first responder.
Speaker Change: Great. And then last one, just on gross margin. I know you talked about this quarter having project revenues. What is kind of a good gross margin to think about on this $14 million of orders?
Oh, for the $14 million, it'll be north of 50%.
Got it. We got it. Perfect. Thanks a lot.
Thank you.
Speaker Change: The next question is from Glenn Madison with Ladenburg-Fulman. Please go ahead.
Glenn Madison: Yeah, congrats on that quarter and the strong orders on the OAS side in particular.
Speaker Change: Remind me, I'm sorry, I'm jumping across a couple of calls. Did you say the 14 million voters that most would be recognized in Q4 and Q1? Did I hear that correctly?
Yes.
Speaker Change: Great. And then talking about the Dubai opportunity, can you remind us, I believe the total
Yeah, so we've shipped eight systems to the customer
without having 22 systems by the end of 2025.
Speaker Change: And then, you know, there'd be some new orders that come online, theoretically.
Speaker Change: as well as that to kind of backfill out the rest of the year. Do you think the year kind of trends higher as you go throughout the year, or do you think it's...
Speaker Change: We expect to grow with and also growing with our military customer and new military customers. And then we pointed to activity here in the United States with American Robotics, which will be additive as well.
Speaker Change: There'll be a bit of a lag with these initial orders we've announced but as the railroads expand and more railroads get engaged Siemens will be in the need of reordering so
Speaker Change: So, you know, the order from, say, Metro, just to be specific, will be fulfilled from the Siemens inventory. But from here, we see them starting to eat through that. So, you know, 2025, we'll definitely be getting reorders based on our current expectations.
Great, that's it for me. Thanks and congrats again.
Thank you.
Speaker Change: The next question is from Matthew Galinko with Maxim Group. Please go ahead.
Thank you for watching.
Speaker Change: Hey, thanks for taking my question. Hard to, I guess, have a call this week without talking about the election a little bit. So can you give us a preliminary view on how the change in U.S. government control might change the trajectory of the DFR opportunity in the U.S. and, you know, federal support of the domestic drone industry?
Speaker Change: Yeah, so Matt, I'll say, I think the support is really across both aisles for DFR and more broadly for commercial and military use with drones and integrating that into our security infrastructure.
So that's the short answer.
Speaker Change: I will say at the margin that we've seen with the new administration, a particular focus on supporting the domestic drone sector. But again, I think that's really broadly shared, but as it relates to supporting U.S.
Speaker Change: producers. I think if I netted it all out I'd say it's a it's a positive for sure.
Got it, thanks. I guess follow-up to that...
Speaker Change: Well, Matt, I think the answer is yes to that. We've always viewed optimists as very robust in not just industrial grade, but military grade system. But we've seen in defense markets globally is really good.
Speaker Change: You know, this move towards deploying more and more autonomous technologies.
as we're looking at other mobile defense customers.
Speaker Change: So I'd say, yeah, for sure, you know, optimists in 2025 as we're looking for, you know, global defense markets, it's probably coming a little sooner than we would have planned.
Speaker Change: Got it. And final question for me, just the ability to scale optimist production in light of that, maybe quicker build than that opportunity, you know, do you, you know, do you feel like you're in a position where you can, you know, source components and get the building done? And or what do you what has to happen to get to that point?
Speaker Change: So, where we are today, we feel good about our production capabilities, and I'll remind you that the Optimist system is a very high-end solution.
Speaker Change: So what we're not doing is building 1,000 or 10,000 small disposable or trimmable drones that are, you know, two, five, $10,000. Our system is robust, premium.
Speaker Change: So, we're doing that work now to broaden our capabilities as it relates to supply chain.
Great, thank you.
Thanks, Matt.
Speaker Change: The next question is from Timothy Horan with Oppenheimer. Please go ahead.
Speaker Change: Hi guys, thanks a lot. Eric, maybe just once again, can you give us a bit of an update on, you know, how much you think that rails need to spend to clear the spectrum and
Speaker Change: You know your best guess on the timing and I guess can they meet the you know, the FCC deadlines
Speaker Change: You know, I know it's a lot of lower parts out there. And then, you know, secondly, just a bit of an update on, you know, liquidity and, you know, how do you need the requirements over the next year that you have. And then just kind of, kind of any update on the stock listing, you know, what you guys need to do. Thank you.
Speaker Change: be careful and you know they have said publicly as recently as acute third quarter that they intend to meet the deadline to retire the legacy network
Speaker Change: And, you know, for us to be able to support that, we're going to need, you know, some lead times, right, because it's a big project.
and we're working with them on that.
Speaker Change: As it relates to TAMs, the TAM that we see still remains the same. You're talking about the same network coverage or territories that need to be covered in 900 megahertz. So, you know, the base station infrastructure is what it is. And then, of course, you know, the edge remotes for the applications around train control are what they are as well. We know those locations.
Speaker Change: So we think they're similar. I will say that, and Tim, Guy went into some detail on the network architecture plans for the railroads.
Speaker Change: And one of the things that we've seen is that the railroads will be using 900 as a primary network in certain locations and also as a secondary or redundant network.
Speaker Change: as well. And I think that, you know, is really, it's great for us to get that visibility because now, you know, we're getting confirmation that they intend to build. And we're still waiting on when that inflection point comes in orders, but we do see it's, we do believe it's coming soon.
Speaker Change: You know what and that could mean that because because now when we're using 900 as a redundant network, it could mean we have more edge Opportunity with edge remotes because we'd be carrying multiple applications including PTC backup in that situation. So
Speaker Change: And then on the liquidity front, you know, I'm limited in what I can say other than our prepared remarks. We do see at OnDesk Networks...
Speaker Change: On OAS, as we outlined at our investor day in September, we do have a multi-stage capital plan. We've started the first phase of that, which was the offering that I participated in with Charles and Potomac.
Speaker Change: We do believe we meet the requirements of the extension and I think we're going to find out soon on that.
Thank you.
Thank you.
Speaker Change: The next question is from Carter Mansbach with Fort Capitol Group. Please go ahead.
Good morning, gentlemen.
Speaker Change: First, I want to say three things. Thank you so much for the update on the listing because that's been a level of angst for a lot of investors and we look forward to hearing the update. Secondly, congratulations on the on the drone side of the business. $14.4 million is tremendous considering where you guys have come from and I think equally as important is the rails.
Speaker Change: So, if you could give me, just more in English, some color on what exactly you've achieved with the Rail One. And last point on this is...
Speaker Change: From my knowledge being involved with the company for so many years, you know, it seemed always that one rail goes, the others go with them because they're all interconnected.
Speaker Change: So, would you agree with that statement and would you agree with the general statement that 2025 for Omdis as a whole is the beginning of the hockey stick for the company?
Speaker Change: All right, Carter. Yeah, so I'll start with the last comment and agree with you. I do believe 2025 is the beginning of the hockey stick, and maybe it's even Q4.
Speaker Change: You are spot-on when you're suggesting that the railroads are interconnected. And the first rails to move on upgrading a major network, it's always the hardest.
Speaker Change: but it's very important the activity we've seen in Chicago with Metra and the other class one railroad that we've discussed because what they're demonstrating is not just that the system is robust and meeting mission critical requirements, also demonstrating that
Speaker Change: with the customers have an operational and migration plan to deploy a new network. And that's really important because
Speaker Change: When you make these network upgrades, you have to do it in the context of rail operations continuing.
Speaker Change: So this is what we've talked about in the past, is the backwards compatibility, for example. And then the migration plan is how you put new base stations in, make them backwards compatible with the remote radios, and then you continue to go and the railroads, you know, continue their operations.
Speaker Change: So I think you're going to see, as we're going into 2025,
Speaker Change: There's going to be a lot more public conversation about this in the industry.
Speaker Change: because it's actually going. And, you know, this is something that we've been working on for the last five years, but when you see action in the field, things change. So, was there anything else that you asked, Carter?
Carter Mansbach: Yeah, the only thing I was asking was just a little more color on what you actually achieved with the Royal Ones.
So, you know, this latest development.
Speaker Change: So firstly, it's really simple. I think we achieved clarity, and Guy, maybe you can speak to that a bit.
Guy Simpson: Yeah, happy to Eric. Hi Carter. I think the key the key thing here is that the rail You know the all the time and effort that we've put into working with the railroads Either in their test labs or in field deployments is paying off
Guy Simpson: and it does take them a while to figure it out, but as you made the point.
Guy Simpson: I think that, you know, once the first one of them moves...
especially in a place like Chicago.
Guy Simpson: The others follow. And that is now happening. We're seeing that in that, you know, the diligence that we've put into and the time and effort into getting there, you know, building confidence with them, that we have a long term, you know, sustainable solution for them in the 900 megahertz is, again, is paying off.
Thanks a lot.
Speaker Change: Okay, well, guys, thank you so much. And I really appreciate the update and congratulations on all the developments. 2025 should be very interesting. Thanks again.
Let's get started.
Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Eric Brock for any closing remarks.
Eric Brock: Okay, thank you, operator. I'm just going to close the call by simply thanking everyone again for attending. We have a lot of work to do and we're going to get right back at it. So, you know, in the meantime, we'll stay in touch. But we'll be talking soon. So thank you very much.
The conference has now concluded. Thank you.