Elsight Limited

Good afternoon and welcome to L-Site's Q2 FY26 results webinar. Presenting today is L-Site's CEO, Yoav Amitai, and CFO, Dan Hillerowitz. Before we dive in, I'll direct your attention to the disclaimers on slide two. This presentation is for information purposes only and does not constitute financial product advice. We will discuss forward-looking statements today and these involve known and unknown risks that could cause actual results to differ. A quick reminder on our reporting, all figures discussed today are in US dollars unless stated otherwise and we operate on a calendar year basis. Regarding logistics, we will have a dedicated Q&A session at the end. We'll aim to address as many as possible during the session, otherwise we'll get back to you privately. It is now my pleasure to hand over to our CEO, Yoav Amatai.

Thank you very much, Mel, and thank you everyone for joining us today, this afternoon, morning, wherever you are in the world. We are both looking on the second quarter of the year and also trying to look on the entire first half of 2026. Even though we still added numbers, obviously they are in the range. And I think that we end up a great half year if we look on the bottom line results. We already overachieved last year revenue. In terms of profitability, we're in an even better spot of where we were last year. And I think if there is a story that the numbers are not telling and it's super important for us to deliver during this presentation today is all the traction and everything that is happening in different markets today, which are not necessarily part of the numbers we will see, obviously part of the pipeline, but not part of the report, and also not necessarily part of the language we put out in the activity reports. Remind you all that we're active in dual use market, which include commercial application. We'll talk about that, but also defense. And in the defense side, not everything can be an exposure because of classification and other stuff. So looking broadly, I think what we saw in the first half, besides generating the revenue and the profits that more than what we have the entire last year, attraction that we have with a very strong focus on the U.S. market and seeing a lot of programs that are starting to mature there. I think that in the second half and in the years to come, we will see more and more growing demand and growing revenue numbers and pipeline and backlog numbers coming from this market, while the rest of the world is also growing and I'll try to walk you through those developments that are happening and where L-Site is located within this Perfect storm, let's call it, and also what makes us prefer to the wave that will come in front of us in terms of the opportunity. If there is one point that I'm continuing to say again and again is that the opportunity is still in front of us, and that's definitely not behind us in terms of how we see the market growth and how everything is happening there. For those of you who are joining us for the first time for this webinar, just to take you through what L-State is, The website started as a communication solution for a broad range of sectors and applications. In the last six years, we focused the business to be in unmanned or uncrewed industry, meaning aerial vehicle, ground vehicle, maritime robotics. The only two domains we're not touching today is underwater and space. Over the last six years, when we started in unmanned systems, we started in commercial markets. In the last two and a half, three years, we see a growing demand in the defense market because of the geopolitical environment that we all see in the news on a daily basis. Drones and unmanned systems become a material part of every Western government today preparing or are inside of a conflict or preparing for a conflict or making sure they have what they need for that. and LSI is building, we are building ourselves to become basically the key one for this industry, the backbone of the industry, starting from communication and growing from there. Starting from technology, today all the technology we're selling to our customers and partners is proprietary technology that was developed in LSI. We have patents that are already granted. Many families of patents that are currently in the process for various new products that we're presenting, whether it's in the new business unit that we'll talk about or the existing offering that we're doing and constantly doing more innovation and offering more value, basically, to our customers. Looking at our numbers, we're continuing the same level of profitability and have super profitable business model of high 70% in the gross margin. And also, if you look on the bottom line of the net profit, I think that the numbers are showing a very strong business model that allows us to grow fast, but do it super profitable and not just earning cash, but actually generating cash is part of what we're doing. Looking at our pipeline, the opportunities in front of us and not behind us today, we grew the pipeline to be $168 million of actual tangible opportunities. We'll deep dive into that later in the presentation. I spoke about the margin model and the fact that It's not only a one-time sale for every product that we're doing. It's a combination of one-time sale as well as recurrent revenue in every unit that we're selling. And seeing in general what's happening around us, like I said, the growth that is happening in the industry. And again, I'll try to walk you through some of the developments that are happening there and what we're seeing there. which is super interesting and Elside is positioned in a very, very interesting space within this market today and where we're seeing ourselves and how we see ourselves growing moving forward. In terms of revenue growth, I think what this chart shows more than anything is, first of all, the continuous growth quarter over quarter. I think also what is worth mentioning is if you look on, I won't call it seasonality, but if you look on the first half of the year versus the second half of the year in LSI history, the second half was always stronger than the first half. One of the reasons is because of how government budgets are structured. And when they spend those budgets, obviously towards the end of fiscal year on different places, they start to spend more of the budget. So those kind of a leftover of those budget that we can leverage basically. Seeing this continuous growth, we are expecting to see this continuous growth quarter of a quarter as we move along. Based on our pipeline opportunities, if we look backwards on the second quarter or even the first quarter, there are a lot of opportunities that are emerging during the quarter and already delivered as revenue in the same quarter. Those are mostly relatively small orders of hundreds of thousands of dollars, but they are accumulated to big numbers as we move along. I think we will see this continuous trend moving forward. I was speaking about macro perspective again for those of you who saw our presentations and webinar in the past have seen this trend and that's a growing trend that is happening in every quarter. We see another data points that just approve it and approve those trends and showing how they're continuously continue to grow. So I'll start with the big chart that you see in the middle. That's just to show how it looks like in terms of NATO countries comparison between 2014 and 2024. You have the growth there across the board in all NATO countries, and that's before they put the new bar, the orange line that you see on the top. They put the new target for 5% of GDP, and that's a slow process, but we're actually starting to see those programs starting to be deployed in different parts of the world. I'll deep dive into the U.S. market because I think that's where the biggest change is happening, but looking on other markets like the U.K. that just passed their defense budget basically just a couple of weeks ago after many months of waiting, same in Germany that already committed to increase their budget by 25%, basically rebuilding their armed forces with new capacities and new capabilities based on what they're seeing in the wars all over the world today, whether it's the Ukraine-Russia war or the Middle East, the U.S.-Iran or other conflict in the Middle East. I think everyone are seeing today how they were prepared for the wrong war or having the wrong assets, let's call it, and now they're investing a lot in those areas. Speaking about that, I think that the biggest example is the U.S. market when we see the biggest growth in terms of budget. Again, those numbers, I can tell you that from Elphi's perspective, from our point of view and what we're actually seeing with working with our end users and customers, we are seeing that many of those programs are already being deployed and already budgeted to start to be utilized. So we're not only talking about budget that or revenues that will come towards the end of the year, we are expecting those traction or those development to translate into actual material revenue for LSI in the next weeks, months and quarters moving forward. And again, just to talk through those numbers, the US new budget request for defense in general is $1.5 trillion. It's 42% increase over last year or over the current levels of what they have today. Out of that for drones and counter drone solutions is $75 billion, which is super big growth. Now inside of it, also during the first half, first of all, we will qualify for the blue UAS, which is the first basically spam of quality that we're eligible to sell to the US government or to the US DLD or DLW today. Then we have all the programs that we've been talking about for the last couple of months, whether it's Project GI that was super successful and still is, or other programs that we're a part of, and starting to see the revenue coming in. Not everything is announceable and not everything we're eligible to announce because of, like I said, different sensitivities, but I can say that we're seeing a lot of development happening there, both with end users being the actual unit in the non-forces and also with different OEMs in the U.S. market, which are names that you're all familiar with. I'll keep them like that because of classification. We all need to understand that when we're working in this market, There are some sensitivities that, unfortunately, we cannot disclose everything. Obviously, we put out on the ASX platform as part of the reports and our quarterly reports in general, quarterly and half-year and yearly reports, all the necessary disclosures, but not always we can mention names for specific programs for this reason. talking a little bit about the technology and what we're building here again, for those of you who hear our presentation for the first time, or showing the development that we're having there. LSAT have started in communication. Today, we did more than 500,000 flight hours on different terrain, different platforms, in different areas for different missions. And today, we're expanding. We're taking all this experience and knowledge and expanding into other solutions, which are not only communication. Basically, we build ourselves to become the backbone of the uncrewed industry, and our direction is not to be the platform manufacturer. We don't see that we have any competitive advantage there, but we have a very strong competitive edge on everything that is related to what we call enablement technology. Basically, we want to help the end users and the OEMs and service providers to complete their mission, whatever the mission is. whether it's for commercial application, for logistics, or for ISR, or for public safety, or it's in the defense for, again, for ISR, logistics, or different missions that are more sensitive. So, growing from connectivity only into connectivity positioning, autonomy, and video and sensors processing, that's the expansion we're doing, and the idea behind it is to provide more value to our customers to be a bigger chunk of their solution basically. A lot of our customers are today buying those different capabilities from different companies. So they end up with silo technologies that are not really connected to each other. And we see how we can help our customers by combining all of those together into one whole product that hold the same state basically, and can help each one of those nodes can help the other one to be better, to enhance the performance, and by that, to complete a mission or to help to what we call mission completion, basically. So that's the enablement technology of what we're talking about, and that's the reason why we're not going to be the platform nor the mission operating system or the human-machine interface. We believe that this layer that I will show you in a second in the slide, we believe that this layer is super large layer. And if you look on the automotive industry, for example, as a reference, you'll see that the T1 companies that are not the OEM are in many cases much bigger than the OEMs because they provide to everyone. People try to walk you through where we sit within the layers, the different layers of every unmanned system. So we're trying to split it into four layers to make it simple. Obviously, there are many more in between, but just to structure it in a way to understand where we are and where we want to expand. On the bottom line, there is the hudder, which is the actual drone. The companies are rebuilding the chasers, the motors, putting together the batteries. the cameras, the flight control unit, etc., etc. Then there is the platform OS, that's where L-Site sits. Above that, we have the mission OS, OS stands for operating system, basically where all the mission is managed, all the teaming between humans and machines, all the missions for the machines, and so on and so forth. And usually it comes together with what's called HMI, human-machine interface. Now, On the bottom end, on the OEM side, there are many companies that are actually building the drone. That's not L-Site. We are providing our solution for those companies. On the top, on the Mission OS and the HMI, there are also a lot of companies, mostly the primes in the market that are providing those systems. For example, Andrew Lattice of Quantum Systems, Mosaic, or different companies, Reharvest have products there and General Dynamics and so on. So, there are a lot of companies that are sitting in this layer. L-Site sits in the platform OS, what we call platform OS, which basically helps to connect between the hardware on the edge and the mission planning which sits on the ground control station or in the headquarter, and we are the underlying layer that connects us to exactly the backbone that I mentioned before. That's where we sit, and that's what we do. Now, inside of it, there are different capabilities and different enablement technologies that we're providing to our customers. started in communication. Like you all know, that's where we come from. That's our background. That's where most of the revenue is coming today. The vast majority of the revenue is coming today. On top of that, there is the navigation of positioning. We soft-launched during the quarter our positioning solution, which basically provides a new way to get the drone position or the robot, ground robot position in a non-GNSS environment or GNSS-denial environment. We are already providing to many of our customers video and sensor processing, for example, adaptive video encoding and other features that sits there. And on the autonomy, we are providing a lot of autonomy in the edge, which is that's the development part of what we're doing, and it's not yet fully deployed and developed in the market. Now, those domains partially are done internally, like I said, organically in LSI, and partially are with third-party partnerships that we're doing, that we put them onto our platform and allow our customers to use it, and we are enjoying the revenue share model that we're doing with those companies. LSI today have... a very strong distribution channel in the market. We have a lot of drones that are operating in our system. So a lot of companies are coming to us to partner with us so we can be their kind of distribution channel to the market. But in parallel, we're also looking to inorganic opportunities in this market because there are a lot of companies in this space here that have super interesting technologies. Not all of them have access to either the market, do sales, or for capital to complete the development that you are doing. And we are seeing a lot of interesting companies in those spaces that are offering or looking for partnerships. and it's part of our growth trajectory of looking not only on organic growth, but also inorganic. And then I would say that we have a couple of targets that we're talking with in different levels of where we are, and we are expecting some of those to translate into actual transactions. Looking at what differentiates us from the rest of the market, many times there are a lot of questions around competition and where we sit within the competition. LTECH's main approach is that there is no single source or single input of solution. Basically, drones or platforms that are relying on single solution, whether we're talking about communication or navigation or any other capability, are set for failure because today's market or today's environments are super contested, the electronic worker environment becoming harder and harder, and those that are relying on only one solution one source of communication are basically set for failure. And our approach was always to do that in a way that combining all the available spectrum, all the available possibilities to do those kind of mitigation and positioning solution and combine them together into one solution that provide the software or the platform with the best quality of performance in terms of again, connectivity and all the other features that I mentioned. We are connecting all of them together so the operator doesn't care how it works. He does want to make sure that he will have what we call connection confidence, making sure that he will be connected to the platform on the other side. This pipeline is as of end of June, end of the quarter, basically, which is constantly moving, obviously, with new opportunities in the top as well as converting into revenue in the bottom. You'll see if you compare it to our previous quarter, numbers overall pipeline have grown. It's grown not only by the top line. Also, when we look on the revenue that we already booked on Q2, which is called $12 million, that was in addition to these numbers that you're seeing here. So, basically, there are two main things. The two main parts that I want to mention, first of all, starting from the top of the pipeline, we have grown a lot with our business development team that we recruit in the first half of the year. A lot of it is coming, like I said, from the U.S. and also from our team in Germany and the U.K. that are seeing a lot of opportunities that we have not seen before, not being with boots on the ground in this market. And also in the commercial discussion, which is the more mature pipeline, we also see a conversion there. Again, if you compare it to previous quarter numbers, we're seeing a good conversion there in terms of progress down the funnel. So looking at this pipeline and the second half of the year, we do believe that we're going to have another strong half year in the second half of 2026. and also creating the stepping stone or creating the backlog and the pipeline for 27 and beyond in terms of B-SPAN programs that will starting to emerge as part of this new budget that I was talking about before. I want to draw a line here in the middle of the pipeline because basically everything in this $65 million is with existing customers, basically meaning that companies that already have some transaction of dollars between us and the company, sometimes it's small, sometimes it's big. But the reason I mention it is because we are trying in every sales process that we're doing, we're starting trying very early in the sales process to make sure that we're going through all the paperwork, all the contracts, NDA, vendor qualification, and so on and so forth, so we will have less friction on the progress of the conversion into actual revenue. Speaking about translating and converting into actual and what is our commercialization strategy, so like I said, today we have people with boots on the ground in North America being US, Europe, UK, and the Middle East, We are doing all the rest of the role from here in Israel. We are starting to see revenue coming in in those markets. So starting in the U.S., as we mentioned in our quarterly reports, we mentioned part of the end users that started to use our system. For example, the 101st Airborne Division in the U.S. Army have already said out loud that they are using the L-site systems in some of their deployments, which is a big stamp, again, for the rest of the armed forces. and going with those case studies and say, this is how they're using it, distributing to more units like that and more divisions within the DOW, not only the army, but also in the other armed forces, and also seeing how they are growing and how our partnerships with not only the end users in the government, but also in the industry side, being the OEMs, mainly in defense, but not only, which is starting to mature into actual pipeline and as a result of it, the revenues. Same in Europe, looking at the European market. Obviously, we have big customers there, as you all know, or most of you should know that most of our revenue today is coming from Europe. We have various customers there that are relatively big customers. We are expecting to see more orders coming from them during the second half of the year in the same trend that we have seen before. And that's a market that not only the existing opportunity that we have there, but also emerging new opportunity, like I was talking about the UK budget in previous slides, or the German development that are happening. We are seeing a lot of movement in those markets. Same for the rest of the world, looking on all the GCC countries in the Gulf, seeing what's happening in the current war between the US and Iran, and in general, how it's affecting the whole Middle East. We are seeing a lot of new opportunities that are emerging there that wasn't exist before, as well as more different countries like India, Singapore, Japan, that we didn't have business in the past, but we are seeing a growing interest and demand in those countries. We are constantly having people there meeting with prospects and partners and making sure that we are accelerating our go-to-market in those areas as well. I think one interesting point to mention is that we are seeing this development are actually happening in order of magnitude in terms of the programs and the number of units and quantities that our prospects and customers are talking with us about. That's why we see our opportunity ahead of us in terms of how we continue to grow the revenue and to grow the pipeline numbers. Talking about a business model, I'll run briefly on that. HealthSite business model in general is split into three main elements. The first one is one-time hardware sale. Currently, the Halo and the Aura are the platforms that we're selling on this side. In addition to that, we're adding more platforms, basically. So today we have the Halo, the Aura. We're now working on a new product, which is going to go to the lowest end of the market. For those of you who are familiar with the term SPV or PBUS, we also want to have an offering there in this market for different programs like the drone dominance program or others but those are basically platform that customers are pay in a one-time fee in addition to that every customer as long as they are using our products have what we call the all-site cloud subscription but basically as long as they want to use the product as long as they're using the drone they will have to keep and pay this return fee basically on an annual basis basically renewing their contract, renewing their license. While the top two are mandatory, the data usage is not mandatory. This is where we're offering a one-stop shop basically to our customers. As I mentioned before, today we're offering different kind of communication, whether it's point-to-point, cellular communication, satellite communication. It is part of the service. what we're offering is the actual SIM cards, the Telstra and Optu SIM cards in Australia or Verizon AT&T T-Mobile in the U.S. and in other countries as well. And we're seeing that customers really like the fact that they can do a one-stop shop and have everything from one place. Now, looking on gross margin altogether, like I said before, we are keeping super high gross margin, but today we're sitting in 76% gross margin on average, while the hardware is somewhere around those levels, depending on the flavor of the product, and the software is obviously higher than that because most of the cogs there is software and infrastructure, so that fits in around the 92% gross margin on the software and services. which is very interesting development because looking on all the capabilities that I mentioned before, the communication, the positioning, the video and sensor processing, they all sit here in the Allstate cloud basically. And this is where we are expanding most of our average revenue per unit is by developing and deploying more capabilities in this part of the business model, which is basically the software and the service piece of it. LSAID is not only looking on revenue, but also looking on how we prefer to deliver those revenue numbers and how we can make sure that we're manufacturing it and delivering on time despite the challenges that are currently existing in the world supply chain. We've been asked again and again about our production capacity and everything, and I want to make a clear point about that. First of all, today, our production capacity as of today is still $150 million worth of goods per annum. we're constantly expanding it or we constantly have the opportunity to expand it and that you starting towards end of August, we're starting to have manufacturing in both US and Germany. Basically, we'll have Halo made in US and Halo made in Germany, not because of production capacity, by the way, more so because of localization and tariffs and other issues that customers today or governments today wants to control the supply chain and they want to have the manufacturing from their country's soil. So, just to give you an example of that, we're not opening our own manufacturing facilities. We're using contract manufacturers. We started to discuss with the contract manufacturer in the beginning of May after a big one. In the beginning of May, we started to talk about sending all the manufacturing file and everything. And by mid-August, we already have the first batch ready to go. The only cost associated with this process is our people's life to Germany basically to make sure they have all the quality features and all the quality assurance processes in place. So it's a super capital efficient model that allows us to expand our production capacity very easily without any big capex investment at all in putting into production lines or into workforce. We're utilizing other capabilities to do that. The only thing we're doing is making sure that we have the inventory of components to be able to deliver to customers. So it's that for us to increase from $150 million to $300 or $500 million, It's more than anything going to the manufacturers and say, we need more capacity. The only cost we have associated with that is when we have the units ready to be sold on the end of the production line. This is where we basically pay for the unit and then we sell it. I think that most, if not all of our customers will say that our lead times are the best in the industry in terms of from the time you put the order, by the time you will receive your goods, that will be in small orders within days, in big orders within weeks. And if it's scheduled, it will be right on time. So when we schedule with an OEM that wants to have their deliveries weekly or monthly or quarterly, that will be on schedule based on those capacities again. So besides collecting a lot of hours as we always did and continuing to collect a lot of data of a lot of flight and drive and sale hours that we're having and our customers are doing, we're also working on patents, which today we still have 13 patents I'm sorry, family of patents. And we are expanding that based on all these new capabilities that we're developing. Two last points for me before we are moving to the Q&A. And again, like Mel said, we will welcome a question on the bottom that you have on the bottom of your screen. is first is a new business unit that I think during the quarter, we had the first major milestone there besides having the products ready to be demonstrated. We also signed the first customer. Customer there, I remind you all, is government. This product, even though we're still in stealth mode, and I'll try to give a little more light on that I would say that it's going for government customers, so we're selling directly to government in this case. It's a pure software solution that goes, in some countries, go to the Homeland Security Office. In other, it goes to the defense, to the Ministry of the Defense. It really depends on where it sits within the specific country. And I think having the first customer is always the hardest, finding the first early adopter of a technology that didn't have any track in the market or any experience in the market. And having the first one always helps to get the second one and third one and so on and so forth. It's only hundreds of thousands of dollars. but I think it's part of the program and I think it's very interesting to see this development. A company or a business unit that we initiated just six, eight months ago already had the first paying customer, but today we have engagement with a lot of other prospects and potential customers in different parts of the world that are suffering from the problem that we're solving. Now, remind you all, again, those of you on the line who are new, remind you all that one of the reasons that we are – one of the reasons it's still in stealth mode is because we're protecting the competitive edge that we have here. We still don't feel that we have a strong and deep enough moat around this technology or around this solution, and we want to make sure that once we go out to the market, we already have a big first mover advantage because currently we're not aware of any company – that are going after this problem, other than one small company in the UK that are more than anything doing a lot of social costs, but we have not seen any actual products that they're offering in the market. One of the points that we're taking our time with that is because we're not feeling that it's affecting our go-to market. Unlike L-Site and the Halo, which goes to a broad base of clients, this market or this solution is going to government and it's going to top-down government. So we're not talking with the people on the ground. We're talking with the people that are creating the strategy and everything and getting to them can be done without any marketing effort because it's mainly on a personal basis and connection and we have a very strong team, and an advisory board that are helping us to push this to the market and getting it in front of the potential customers. Seeing the execution that we have done in the last, actually, two years, and seeing the potential that we have in front of us, both from market growth perspective, new product offering, and getting into new region and new customers, I think that LCA today is positioned in a super interesting position within the perfect sum of the unfruit market, and we are ready to take over this opportunity with a lot of excitement and a lot of Passion about the problem we're solving, about the market we're serving, and being part of this growth in the industry is super interesting for us. With that, I'll hand it over back to Mel, and happy to answer any questions.

Thanks, Jo. We have Rhys on the line. I'm not sure if you can allow him to talk there, Jo. We might ask that one live.