Elsight Limited

Good evening, everyone, and welcome to LSITE's presentation of our financial results for the third quarter of 2025. My name is Howard Digby, a non-executive director at LSITE, based here in Australia, and I'll be your host for today's session. Following the presentation by our CEO, Yoav Amitai, we will open the floor for a Q&A session where Yoav and the leadership team will address your questions. Before we begin, I would like to remind you that today's presentation may include forward-looking statements. These statements are based on our current expectations, assumptions and projections and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a detailed discussion of the risks and uncertainties associated with our business, please refer to the most recent financial reports and disclosures available on our website. Please also note that we undertake no obligation to publicly update any forward-looking statements unless required by law. As we go through the presentation, all figures are in US dollars unless indicated otherwise, and our financial year is the calendar year, and we're discussing what has just been the third quarter. We encourage you to submit your questions at any time during the presentation by clicking on the Q&A button at the bottom of your screen. We will address as many as time permits at the end of the session. Now, without further ado, I'll hand it over to our CEO, Yaav Amitai, to begin today's presentation. Over to you, Yaav.

Thank you, Howard, and thank you, everyone, for being with us in today's investors presentation. It's another exciting quarter for the company, and I'm really happy to be here and to share with the audience what we have to say and how we see the past performance and, more importantly, the future outlook of how we see the business and what is the opportunity we have in front of us. I think it's super interesting point in time for the company, for our employees, for our shareholders to be part of our journey. And I'm really happy to be here today and to share with you all what we have achieved and what we're looking forward to do in the coming months and quarters we have ahead of us. Starting in a high level for those of you who are new to the story, just to take very briefly about who is LSight and what we do. So LSight is coming from communication background. That's what we have done all of the years. and something like five years ago we focused the business to be solely for uncrewed system which include aerial vehicle aka drones ground vehicles maritime robotics sometimes and so on basically we're going after the market that moving systems without operator human operator in the field that needs to have reliable communication. After doing a lot of market research and exploring the different market sectors, we chose this market to be our focus at the moment. And we'll talk about it later, but I think that having our super reliable communication device or solution that can help us go into many other direction and we'll discuss it later in the presentation i'll just leave you with that for now in general once we chose that we're going after the uncrewed systems that presented us with a super interesting opportunity study started in commercial market doing a lot there from drone deliveries to inspection to agriculture healthcare services, first responders, and so on and so forth. Something like two and a half years ago, we also started to have an increased exposure for the defense market. And today we're playing in both the defense and the commercial market. And one of the nice thing about our product is it kind of one size fits all. We are using the same device, the same sets of features basically for both ground vehicle and aerial vehicle for both defense market and commercial market. And every feature or every capability that we're developing goes to all different kind of customers that we have, which makes it very, very interesting opportunity for us to continue and develop and to approach two different markets, very different markets, but to approach them with the same sets of features and capabilities. Looking on a high level about what we achieved this year, I think we're continuing to show the growth of the revenue and signing more contract over the last, over the third quarter, the third calendar quarter, like Howard said. I think it showed a very strong value proposition of product market fit within the market we're going after, and also show how important and how duties our technology on the different use cases that are currently using our systems and our products. And that's what we wanted to achieve. When we wanted to focus the business, it was about that. And now probably started to be the right time for us to broaden that and to start to look into adjacent direction or parallel direction that will be on top of the very big opportunity that we have ahead of us. One super exciting point that we were happy to announce to the market in the last quarterly a couple of days ago was that the company had become profitable. Like we estimated in the first half of the year in the previous quarterly, we estimated that we're going to become profitable. And I'm happy to say that this quarter we – we moved over the break-even point into profit, in profitable company. I would say as a side note or as a general note that while we are focusing on the top line and continue the growth because of the opportunity we have ahead of us, we're still talking about super high gross margins business that can create high profit margins. And that's a result of the uniqueness of the technology, the strengths of the technology and our position against other players in the market that are offering different kind of solutions. That's all behind us in terms of what we already achieved. And looking forward, we'll stretch the pipeline of more than or $157 million of pipeline of tangible opportunities, not just addressable market, but actual opportunities that we have different levels of connection with. We'll touch about that during the presentation. Production capacity and our operational capacity in general and how resilient is our production line. That will be another point in the presentation. And speaking a little bit about how we are making it more profitable and enhancing the business model or make the business model better as we scale and as we deploy more and more units into the field. but starting with the numbers uh or from beginning comparing to last years that we we had so you can see that the massive jump or the massive growth that we had in the revenue due to the industry tailwind and due to the execution that we're doing as a company it's all also plays into the operation cash flow and where we are positioned in terms of the cash flow of the business and same for the cash receipts from customers so um We are seeing how we are building cash position basically and making this a positive cash flow business and also profitable business, which allows us to do more and to execute better and to press the battle to the metal, being more aggressive in our go-to marketing and sales and new initiative development that we're doing in different directions. I think another interesting element or trend that we added to our presentation this quarter is how we are beating the records quarter of a quarter in the last three quarters. The reason we mentioned three quarters because those were all time highs quarters in LSI and you can see how we are growing that. And looking into the future, we also see how we continue this trend and how we can continue to take those numbers higher on a quarterly basis. which that's connected to the point that I made before about having this or being focused on growing the top line of the company while enjoying, let's call it the bottom line of having high profits and positive cash flow as a business in general. So that was to give you a very wide perspective about where we're at. Now starting to deep dive into why it's happening, why us and why now, starting from the macro picture of what is currently going on in the markets. And starting from the defense market, I also stretched it in our previous presentation, looking on the different trends that we're currently seeing in the market. So what you see here, the chart shows the expense of governments, the NATO governments on defense over the years. The light blue is what was the actual expense in 2014 the dark blue is what was what is the estimated expense or investment i should say in 2024 and this red dot the red dash line that you see in the top That's the NATO country's commitment to increase their defense budgets from 2.2% to 5% until 2032 or 2035, depending on the country. Now, there are two main trends that we're seeing, and that's not only in NATO country. We see it across the board in many different governments. One is the amount of capital or the amount of the budgets that are currently allocated to defense and the growth of those budgets of governments that are understood that they need to have their own industrial base, they need to have their own supply chain, and they are starting to build these capacities and getting ready for something that might happen in the future or something is already in the present. The second interesting trend that we're seeing is how much of those budgets are allocated into our system, which is exactly our market. So that's another interesting trend that we're seeing it all over the world. Just to give you an example that I read, it's not even here in the presentation, I just read it after we released the quarterly, about Greece. Greece is a country that I personally never have any title about what is their defense investment in general, and just last Sunday I read that Greece had had said that they're going to do thousand drones per month in the next couple of years to build their own capacity and that's greece now that's just an example of something that i literally just read a couple of days ago and that's plays across the board like i said seeing what is the that those kinds of systems are taking in the modern warfare, and that's in the defense market. Looking at the commercial market, we also see a lot of advancement happening in the commercial market. And I think the best example since the last quarter presentation is the FAA, the American Civil Aviation Agency that released what they called Path 108. Part 108 stands for the new legislation or the new framework, let's call it, for BVLOS, Beyond Visual Line of Sight application, or how drone service provider or drone users can now do Beyond Visual Line of Sight application with their drones. And it doesn't matter if we're talking about last middle of my logistics for drone deliveries or inspection, like I said before, or agriculture or drone as a first responder or you name it. It's not fully legislated yet, but there is a framework, and today, unlike a couple of months, just a couple of months ago, service providers know what are the boxes they need to tick and what is the process they need to follow, and we do expect, or the industry in general, not only us, expect that will be a strong catalyst for the market to start and do more and more commercial deployments and more and more commercial application. I would say that over the last quarter, we also saw that a lot of our commercial customers are starting to ramp up their production. It's still not in a multi-million dollars contract. It's in the hundreds of thousands of dollars, but we really see how it's getting there. A good example of it will be flock safety company in the US. doing drone as a first responder, also called DFR. Basically what they do, they're putting drone on rooftops across cities in the U.S. and providing police services as a service, basically, for local police department and being able to provide them with real-time situational awareness. They just launched their new drone last week in a big conference, chief of police conference in the U.S., and the Halo is big part of their of this new drone of this program of how we can control those drones for long distances and doing bv loss beyond visual line of sight missions so that should give you that just to give you examples from the tailwinds that we are seeing or the trends that we're seeing in the market both in the commercial and the defense market and what we're doing there and i think that's create kind of a perfect storm for us of having the experience in both market having a lot of ad hoc features that are specifically developed for those kind of customers, and having the market reach or the brand name within this market to be able to play a very interesting role within this industry, next growth stage. And I think we also see it in our own numbers of pipeline opportunities of actual revenues of actual contract new contract that's been signed that are not yet being delivered i think all of these are are factual truth basically to show where we at and and how the future will would look like for those of you again who are not familiar with what we actually do so else i started like i said as a communication solution providing highly reliable wireless communication solution and the challenge is with all those systems whether they are in the air on the ground or overseas how a remote operator or a control center can control all those different platforms and assets that are traveling around around the globe and that's basically what we are solving now there are a lot of different communication solutions All of you are probably familiar with them. There are the satellite solutions, there are the radio frequency kind of point to point, like the old RC remote control devices that we used to have as children's maybe, some of us at least. Private and public cellular networks that are part of the global infrastructure available. Our approach is that these infrastructures are great. None of them provide the ultimate solution of what those systems require in terms of mission continuity and communication resiliency. On the bottom line, what we are providing is what we call connection confidence. We're not talking with the customers about communication. We're talking with the customers about mission completion because if they lose communication, And it doesn't matter what the mission that those drones and robots need to perform. That will be a game over for many of them. And we're assuring that the mission will be able to complete and rather it's to deliver diapers for someone backyard with via drone or to do an inspection for a power line or to do isr mission or logistics mission um in front lines or any other mission those are examples of how we enable those platforms to to complete their missions basically um and being able to change or we're seeing in many cases how we change the whole concept of operation of our customers and how it's completely changed their end users approach of how they can utilize those systems. So taking on one hand the market opportunity or the trends that we're seeing in the market, like I just said two slides ago, with our strengths and experience and more than 450,000 flight and drive hours of experience that we currently have. Taking all of these together with our technology, I think that just showed the perfect storm that we're in the middle of it. And that's self-explanatory for those of you who are reading news and seeing what is the place that those kinds of platforms are currently taking in the front stage. And I truly believe based on the reaction, the feedback, the traction that we have coming from customers and prospects, I truly believe that L-Site is in a super interesting spot to take over this opportunity and to become a meaningful player within this environment or within this ecosystem. Talking a little bit about our business model and gross margins, like I said, we're talking about highly profitable business model. So, first of all, just to explain to, again, those of you who are not familiar with our product, we're talking about hardware-software combination. I always said to all people, customers and investors, the same, that we are, LSAT is a software company that happens to have hardware. We do have our own hardware. You won't be able to find this hardware manufactured by anyone else. but our core IP, our secret sauce is in the software and not in the hardware, but still it's still part of our solution. It's a feature, it's not a bug that we have in hardware. And today we are enjoying the fact that we have it. It's also helped with the stickiness of the product. So the business model works the following. First of all, we have the unit sales, the one-time unit sales that we're selling for a couple of thousands of dollars. So every drone is equipped with either one or more systems depends on the level of redundancy that the customer needs on the drone. Just to give you, again, a ballpark, on the hardware side, we're today doing around an average of 80% gross margin on our revenue that we are bringing from there. So we have 80 cents from every dollar we're selling remaining as profits, basically, on the hardware part, which is exceptionally high if you compare it to any other hardware solution. And I think it also shows where we're at in terms of competition and in terms of us being ahead of the game, basically. The second element, which is also mandatory inherent part of the solution is what we call the all site cloud. So every unit that being deployed in the field needs to be connected to this all site cloud, for government use, and it doesn't matter if it's defense or Homeland Security, those data centers will be on the customers premises. for commercial use, many of them are utilizing our own server infrastructure, all of them paying the same fee on between 10 to 20% of every sale is going to the recurrent revenue per annum. So as long as those customers would like to use their systems, their robots, their drones, their whatever they're using, they will have to pay this recurring fee. And again, going to gross margins, you can see that here, we're talking about 82% gross margin. Just to explain why it's, as far as my concern, relatively low margin for software solution or for software product. The reason being is because we build an infrastructure that can support a lot of units and as we scale and as we add more and more units, those growth margins are going higher. we started the year on q1 if you look on the presentation we released that was 51 gross margin and today we're in the end of q3 we're already in 82 gross margin the reason is because we're deploying more and more system on the same cost base so the margin are going higher and that's part of how we leverage our software capabilities and the fact that a lot of our value proposition is sits within the within the software On top of that, like I said before, we are utilizing all the different networks, the satellite networks, the cellular networks, private and public. And one of the challenges or friction that we have seen with our customers is that it's very hard for many of them to provide the airtime, the SIM cards, the Telstra and Opto SIM cards, or the airtime coming from the satellite provider. And today, part of what we're doing, we're also providing... a one-stop shop with the airtime with the sim cards with the satellite um airtime and that's kind of a resell model that we're providing a bundle solution kind of a one one invoice one-stop shop that you have all your communication need in one invoice and that's the value proposition or that's the user experience of what we wanted to create and it's played it's playing very well into our revenues, different revenue stream of what we were having, and that's become a very interesting revenue stream. So overall, if we take the, not the average, but if we take the number of the gross margin over all this bundle, today or in the third quarter, like we put in the quarterly, we have between 78% and 80% gross margin on all these offerings together, partially one-time, partially long-term. And that's related to what I said before of creating super valuable solution to our customers, solving real pain, that they are willing to pay for it and to pay for it at premium price. And this is what you see in our gross margin, and that's where we are positioned at the moment. Talking a little bit about pipeline and what we're doing to mature this pipeline. So just a comment that I received after releasing the presentation. For those of you who don't know, in the previous presentation we put out, we had $151 million on the pipeline. And today we, or in this presentation, we introduced the market with $157 million. And there is one point that I think it's important to notice. First of all, the bottom line here, the order book that we had last on the previous quarter, that was $11.5 million. And now it's $10.2 million. But as you all know, we announced in the quarterly that we have done $8.7 million in revenue in the third quarter. it means that not only that we converted part of the pipeline into actual sales, we also add on the top of the funnel, or the top of the pipeline, more opportunities. So the difference is not only these $6 million difference, it's also baked into it, all the different opportunities that was already converted into actual revenue. And that's how we are accelerating or that's how we are converting pipeline into revenue. I think Another important point to mention, and I get that feedback after releasing this presentation, is that this pipeline is, I don't want to say conservative, but I would say that this pipeline represent tangible opportunities of people or companies more accurately that we have connection with. It's not all the news that we see online and we collect them into pipeline. Those are real tangible opportunities that we are seeing how we can mature those in the next 18 to 24 months, like we put on the presentation. And that's super important because it's not just wishful thinking. It's more of a tangible opportunity, while the lower end of the pipeline is with existing customers in different stages of development. relationship, let's call it. And the top of the funnel, the top two tiers of the funnel, that represent prospects that were currently in different stage of the sale process of maturing this pipeline into actual revenue. In the next slide, I will talk about how we accelerate both pipeline growth and pipeline conversion. But the important point that I wanted to to present in front of you all is that those numbers we're seeing on a quarterly basis how those numbers are translate into actual revenue and and there are others that are not included even in this pipeline and they are happening just to give an example in the third quarter we had two or three different orders that was in the hundreds of thousands of dollars of revenue that wasn't even in the pipeline. And we didn't announce it in the market just because it's below the noise level for us today. But those orders are keep coming from return customers that are deploying more and more systems into the field. And we are based on our design win strategy, we are getting the POs on every new drone that they put those customers are putting out to the market. That's just to give you a good picture about our pipeline and how we convert it. Where we are focusing at the moment in terms of selling marketing efforts. Like I said in my previous presentation, We're seeing the biggest opportunity in the North American, mainly US market and the European market. We are recruiting people in both markets to have boots on the ground in multiple countries in Europe and multiple places in the US to be closer to the industry, to be closer to the end customer with the objective of doing two main objectives. One, to grow the top of the funnel, the pipeline basically top line to make sure that we're continuing to bring net new opportunities into this pipeline, but equally important, also to help to accelerate this conversion of pipeline opportunities into actual sales and into signed contracts. And again, I think that we are seeing the progress happening there in both, by the way, working directly with the government and with different OEMs. The reason we're working directly with the government is because of our go to market strategy of being able to speak with the end users to create the demand. And at the same time speaking with the OEMs with the system integrator who will essentially provide a full system to those to those customers. And this is the go to market play of speaking with both ends. of the user chain, let's call it, or the supply chain. And by that accelerating our, or the way that the market accepting us or the traction that we're getting from the market. And that's true, by the way, for both commercial and defense market, like I said, seeing all the different opportunities and all the new budgets that are now being prepared to be deployed in the field, this is what we're looking for. And we are expecting to have recruitments before the end of the year, like we expected in the previous quarter. We are in a very advanced discussions or process with different candidates to become our representative or business development people on the target markets. So that's where we're focusing at the moment. in terms of go to market strategy, and sales and marketing efforts. We are right now as we speak, we are in the high season on conferences, since the beginning of September until late November before the holidays, we're literally having almost every year every week, sorry, having a conference somewhere around the world, making sure that our name is out there that people familiar with us that people know what is our value proposition. So we will be able to leverage into actual sales in the future in the presence of India as well as in the future. A little bit about supply chains and what we're doing there. Starting from the fact that as I said before, we are a software company that happens to have hardware. And I'm saying it with proud with pride, that our hardware is pretty simple to be manufactured. Today, we're using only only contract manufacturers, we don't have our own manufacturing facility. And for us to increase the capacity is basically to go to the contract manufacturers and said, we need more, we need more capacity. And what we're doing in parallel to having our three different contract manufacturers that we have today, we also broadening that and open it for for more, again, like we like we presented to the market in the previous quarters that we are now onboarding a new contract manufacturer that will be good for NATO countries, mainly for for diversity and to reduce friction. But it will also be resolved in sorry, in a higher capacity to be able to support our, our long term plans or a long term pipeline of opportunity that we will need to deliver them. So, we're still expecting to have this new manufacturer that we already have the first engagement with them, and we are considering where will be the right timing to start and actually do manufacturing there. There are a lot of factors into this discussion, but that's basically where we're at in terms of updates versus the previous quarters. assuming that some of the question will be around IV protection. And since we have here the title about the IP or the patents that we have, I want to touch about that a little bit. Starting with the obvious protection of IP of having patents, so we do have our patents, we still have a long time until those patents will be expired. So it's not anything close. But as far as my concern, patents are great, but they're not a very, very strong protection because because of reasons. I think that today, the biggest mode or the deepest mode that also have around our technology is first of all, having the long experience of like I said, more than 450,000 flight hours of enhancing our algorithm of collecting a lot of data and learning from this data what we can do better and how we can enhance the product. which takes a lot of data from the actual deployment to learn the algorithm of how to do their work better and also looking on how we do a lot of our features or a lot of our value proposition to our customers and basically how we can make the product sticky or as sticky as possible within their operation. And by doing that, that will block some of the competition by having what I call before design win strategy means that we would like the customers to use as many tools as possible or as many features as possible that we put out. So we will be we will be a central part within their operation or within the way they are doing their job basically. So that's how we are protecting our current existing competitive advantage. So besides investment in sales and marketing and operation and being able to deliver in full on time with a super resilient supply chain, we are also looking forward and seeing how else we can expand our revenue not only by providing by bringing in new customers are going to new regions or new sectors. We also looking at about how we are broadening our product portfolio and increasing our our product reach to the same customers base or to a new customer base. a great example for that it's a feature that we started to deploy with first alpha customer customers um over the last quarter of our patent pending technology for positioning and navigation around non-gmss solutions for those of you who don't know gnss stands for global global navigation satellite system which basically it's what we know as many of us know as gps And today, that's as big as a problem or as a challenge like the communication solution that we feel that we have a superior solution there. We do think that with our capabilities and with our products, we can provide a very, very good and interesting solution for this non-GNSS challenge. And like I said, today we started to have... first deployment with alpha customers, just to get feedback to understand what we need to do different, what is the best, what is the value proposition, what is the right pricing for this product. And we do expect to have sales from these products specifically again, as an example, during calendar year 26. And that will be another catalyst for our revenue and another another product you will have around our portfolio where we are going to our existing customers or to net new customers to convince them that that's the right path to go. So that's just an example of how we are developing our product portfolio horizontally and not very vertically to be able to offer more solution basically to our existing customer base. And by that, increase the revenue per unit or the revenue per customers of what what we're offering today. And having a more whole solution that we want to position ourselves as the tech stack provider for unmanned or uncrewed systems. And again, doesn't matter if you're talking about on the ground in the air or overseas. in addition to that that's also another new initiative that i mentioned already in our previous presentation we started to recruit the first people to this new business unit and it's still in stealth mode um i'm sorry in advance that i assumed that in the next quarter it also will remain in stealth mode just because we hardly believe that we will have a very strong fast mover advantage in this market We already recruited the head of this new business unit, Roy Gross, who joined us a month ago and started to promote this business. We're now working with the engineering team to start and build and shape and design the actual product on the technical level while we're approaching customers. We want to get as fast as possible in front of customers or design partners to be able same as I said in the positioning solution to start and get feedback from the real customers and understanding or sensing the willingness to pay and so on but this is going to go after $20 billion total addressable market, which is super mature market that had different solutions today. And we believe that we can come with a new solution that will, in many ways will disrupt this market. Just about setting expectation, I don't think that in 2026 calendar year, this product will generate millions of dollars of revenue, but I definitely expect that to start and be presented and being used by customers with with the plan of started having material cells in 27 and beyond. And I believe that if we will execute correctly, this new business unit, we will be able to or this business unit will might become bigger than the whole L side business today. And that's super promising. It's still in hypothesis, let's call it that we need to prove to ourselves that we have the right assumptions and we can follow them. But I think we were able to prove to the market that we know how to execute. And that's another initiative that we have to execute on and to see how we how we take it to the market and how we get market traction and market to support us while we're building this new this new initiative that will generate revenue in the future. So taking the full picture or looking forward, like I said in the beginning, I think that we are currently in a super interesting point in time of having the perfect storm around us. having all the capital that we have that we need to accelerate our growth and to make sure that we can execute our plans, to make sure that we keep our gross margin based on where we are in terms of other competitors or alternatives that are available in the market, seeing the opportunity that we have in front of us, both in commercial market and defense market, also looking into other kind of markets that we're currently exploring and looking to. I think that I'm saying it for many years now, but I truly think that today being part of the L-Site story is being part of a success, is being part of pioneers that are pushing together this industry forward, and the opportunity is just huge. I truly believe that opportunity in front of us is much bigger than what we had in the past. With that, I will hand it over back to Howard. and we'll open the floor for any question you might have.

Thank you, Yoav. Can I remind everybody, you can still... I received a lot of questions, so please, you can add more questions, questions that you have in the Q&A window while we're answering the questions that we already have. Yoav, if I might start, we've had a lot of questions asking, what are your competitors?