Elsight Limited

Good afternoon and welcome to LSAT's Q3 FY26 results webinar, presenting today's LSAT CEO of Amitai and CFO Dan Hillerobis. Before we dive in, I'll direct your attention to the disclaimers on slide two. I won't read them in full. However, I want to highlight the key points. This presentation is for information purposes only and does not constitute financial product We will discuss forward-looking statements today. 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. However, you are welcome to submit your questions at any time using the Q&A function at the bottom of your screen. will address as many questions as possible during the session. It's now my pleasure to hand over to our CEO, Yoram Amato.

Thank you, Mel, for the introduction. And thank you, everyone, for joining us today for this quarterly webinar about the September quarter of L-CITES. For those of you who joined us for the first time, I'll try to walk you through briefly who else it is, where we sit, what is the opportunity that we have in front of us, and what is the level of confidence and excitement that we have in the company. I hope to do it in the best way that will give you an understanding of how the future looks like, what happened to us in the last quarter, and how we see the next year as part of the growth that we're seeing to ourselves. As you all see, we did a small brand uplift to our site with a new logo and new look, mainly to stress the development that the company is doing from being a communication provider to being enablement technology provider for uncrewed systems, not only for communication, while ensuring our entities and unauthorized entities are kept at bay. so in LSAT we're not building drones we're not building robots what we do is we are creating this thin layer of enablement technologies that enable those all those platforms to perform their mission doesn't matter if the mission is commercial mission or inspection drone delivery or agriculture or it's a home security or defense mission like ISR mission logistics mission product the first responder and so on and so forth And I'll say today, looking from top down on what we achieve, we have a pretty big customer base that we're supporting with our systems today. This number is growing on a quarterly basis, having new customers. Some of them are pretty big ones. We'll talk about it. about those onboarding that we did this quarter as part of it but when we're talking from experience and when we're talking about what we have done and where we are in the market i think that while the market is growing fast and we'll talk about the trends in the market we're sitting in a very very interesting spot in the middle of the market having the right capability from boot and ground perspective and access to new customers and end users and OEMs and also having the infrastructure to support logistically from manufacturing in both Israel, United States and Germany from having business development people in different parts of the world being close to the customers and generating more pipeline opportunities and as well as converting those pipeline opportunities into actual deliveries or actual sales. so looking on our overall numbers or starting from the technology One of the beauties about L-Side is currently all the growth that we're seeing is pure organic growth. Maybe we'll touch a little bit upon inorganic opportunities that we're seeing as well. But within this organic growth, it's all based on a proprietary technology that we have developed and still developing in-house. Part of what I will talk today is not only about what we already have on the track, but also about what we're developing for future capability and future feature for our customers. that will create more pass-sell and cross-sell opportunities for us. So while we're seeing a big surge in the defense market in general, but more interestingly, in our case, the uncrued systems, I think, like I said, LSAID is positioned in a very, very interesting spot within this space, and we have all the tools we need to benefit or to take over this opportunity that, again, like I said in the beginning, I think that my biggest challenge as a CEO talking to investors that are looking from outside in is to try to share the level of excitement and the level of confidence we have inside the company to execute and to deliver those opportunities that we have on the table today. Looking at our number, we put it as a nine month numbers of revenue, which look exceptionally good if you compare it to previous year. What we did during this quarter that was ended in September is grading the infrastructure and grading the exposure to many of these customers and potential customers, having all the legal tick boxes from BlueList that we have done before the last quarter, getting into the DOA with the DOW in the U.S., being listed in the Army or UAS marketplace. And I believe that between now and the end of the year, we'll be able to show how we convert those opportunities into actual revenues based on those progress that we started to be honest with the project GI that you all remember. And then from there, there was a lot of different work streams that brought us to where we are today in terms of the opportunity that we have in front of us, the pipeline and the backlog that we have. on on our resources we have all the resources we need to execute on our strategy and to even be more aggressive on our strategy to make sure that not only that we're achieving our goals but we over achieving our goals and getting those goals or thinking big when we're thinking of the results and thinking about next year as a result of the opportunity with that we see in front of us and we genuinely believe that that there is point in time in a company lifetime that you have these kind of opportunities that we need to think big and that's where we are today in health side based on all the feedback that we're getting from the industry based on the progress that we're doing much faster than what we thought in some areas so taking those 195 million us dollars of pipeline or actual tangible opportunities and we'll break down that this pipeline into actual numbers And like I said, I think that shows the opportunity and that shows that we know what needs to be done to convert that into actual revenues in not only the short term, but also in the medium term, speaking about 2027 and how calendar year 2027 is going to look like. We're getting ourselves ready from production capacity, like I said. As we set the market, we're going to expand our production capacity into new territories. So during the quarter, we already start to do manufacturing in both Germany and the U.S. in addition to the current manufacturing capacity that we have. Remind you all that we're using contract manufacturers, so we are not having our own manufacturers, basically. We don't have our own manufacturing line. We're not investing a lot of COPEX, as you can see in our numbers in the quarterly report. but expanding this number and being able to deliver on the opportunity we have is something that we were doing in a very planned way and I think what equally interesting to all of the above is that the margins that we're still able to support showing the market that need for the products basically by having super high gross margin relative to the rest of the industry of 77-ish percent gross margin on every sale that we're doing on average. Well, the software is higher than that and the hardware is around those levels. I think it shows the quality or the value proposition that we provide to our customers. When I'm looking two years out or three years out, based on the macro political environment in the world today, I still think that the vast majority of our revenue will come from defense. having said that we are seeing expansion also in commercial markets we are investing resources there to make sure that we're not only looking at the defense side but also looking on the commercial side different application within the commercial side we're seeing those that are moving faster and some that are moving a little slower but we do see the progress that is currently happening in the industry as a company not only as i said not only that we're looking on different sectors within our industry, we're also looking on different domains. So starting from the sectors, and I think that's one of the advantages of us with our go-to-market strategy is that we have the same go-to-market to each one of the sectors. L-side product, the Halo and other products that we'll talk about are kind of a one-size-fits-all. It doesn't matter if we're talking to a defense customer, to a public safety customer, or to a commercial customer. all of them are having the same needs based in the basic level obviously they do their own configuration the actual product is exactly the same not only between different sectors but also between different domains so when we're talking about when today most of our sales are in aerial vehicle we do have a lot of exposure in ground and since the last quarter we are starting to have a growing growing exposure also to maritime I think that being able to serve all those domains with pretty much the same products or exactly the same product but just decent configuration provide us or expanding our addressable market in a very interesting way and on that we are working with our customers with the end users we're looking on general on industry trends of one of the next trends in terms of the main domain that will be there and this is how we are expanding our addressable market looking on the problem that we're solving or what is the gap that else are you solving. So from one hand, we have the platform, which is the basic level. That's the actual drone, robot, vessel, what have you. And on the other side, there is what we call enablement or enabling infrastructure. And enabling infrastructure is exactly what I said is the actual technical capabilities that enable those platforms to complete their mission, whatever the mission is. Again, that's true both for commercial and defense. so what we're seeing in the market is that there is this big gap between the platform capability and the technology or enablement technologies capability and what we have seen there we see more than anything a great opportunity for else is to expand from being only a communication company to becoming an enablement technology basically company which include different different portion of the of the mission enablement that I'll walk you through in a second But before that, again, getting deeper into the challenge or the different challenges that are out there is editing from signal loss on the communication level, losing the positioning of the platform, knowing where the platform is in a non-GPS environment. Think about it that you are working with your iPhone. or with your cell phone and you don't know where you are using Google Maps or Waze or your favorite navigation app, that's the basic assumption in today's front lines or in today's modern warfare. And that's a huge problem, probably as big as the communication problem, and I'll talk about what else he's doing there. in addition to that when we're talking about different failures that can happen it can be how do you manage the spectrum how do you get the intelligence in the right time backwards so decision maker will get the right decision how the data that you that all the sensors in the field are being collected and how you enrich your database that you have on the back using AI tools and others to have a more situational awareness in the field. All of these are huge problems in today modern warfare that we're seeing both in active frontlines as well as looking on government and how they are getting ready to basically find a solution to the challenges that they see moving into the future. going back to us and what we're solving like i said with the halo is exactly that we are looking on all these different building blocks of a mission regardless of the platform regardless of the domain and thinking where we can expand or where we can provide more solution that will create a better experience for our customers or OEMs in general, on one hand, and on the other hand, will create upsells and cross-sell opportunities for us. So today we're looking on different parts of the solution. And the beauty of that is that they're all dependent on the same halo as a platform, basically. And speaking about this platform, on the baseline, What we're being able to do is to help our customers and end users to utilize the entire spectrum of frequencies and technologies to make sure that, again, they not only can complete their mission, but they can monitor their mission, they can make sure that the mission was successful, and so on. So summarizing the technical part, LSAT is sitting on what we call the platform OS. the platform operating systems. While below that we have the actual hugger, the actual vessel, the actual robot, the actual drone, or whatever the platform is, then on top, above it, there is the mission OS, the mission operating system, and the human-machine interface, basically. But L-Site, we look on this layer, call it the T1 layer, basically, of enabling technologies, like I said, of providing communication, positioning, video and sensor processing, and some autonomy features to be able to complete it. And by the way, on that, some of it is being developed in-house in Elphi. Some of it we're looking to do joint venture with different companies. And some of it we are looking in terms of inorganic opportunities that we are looking to expand our product portfolio and reach the market as fast as possible because of the opportunity we have in front of us. now speaking about this opportunity it is a slide that we showed for the last couple of quarters just to show the trends that we're seeing in budgeting in defense budget in general and more interestingly how much of those budgets are specifically relevant for antro systems or what we're doing and that's an interesting trend that we're seeing throughout the world basically not only in the us or north american market we see the same in europe we see the same in different parts of asia and asia pacific and all these for us are signaling or signs for the opportunity that I was referring to before and to the shift that we're seeing happening in the industry of how big is the place of where today those technologies are taking part or what is the portion of those systems within the defense budget in general. now looking at the development that we're doing regardless of the revenue and pipeline numbers are also different putting the right putting the right setting the right stage or setting the right infrastructure to take over the opportunity once the budget will start to kick in and i'll talk about this budget in the next slide So, starting with Air Environment, AVAV, that's one of the biggest or the biggest company in crude systems for in the US defense. We just launched, we just announced the market basically, a partnership that we have done with them is part of AUSA, one of the biggest Defense Conferences in the U.S., the RD Conference in the U.S. I refer you all, if you haven't watched the video of how they speak about the opportunity they see on the outside and how we speak about the opportunity we see with them, I think that's a very, very interesting development. And again, being prepared for all the budgets that will be allocated and all those programs that will be started to be deployed and how it will translate into actual revenue for us and being next to this thing creates a lot of benefits for us even during the AUSA show, we already started to see the result there of having a lot of feedback. Our name was out there, was very, very known when we walked the floor and people heard about this partnership. It was a PR that was made by AV, saying that they now implement or they now integrate LSI capabilities into their Mayhem 10 platform, which I think is very, very interesting development that is happening there. Like I said, on the manufacturing scale, we started doing manufacturing with two new electronic manufacturer service providers, one in the U.S., the other one in Germany. More than it's supporting our production capacity, it's supporting the need to have a manufacturing close to our customers to be able to provide them local manufacturing so they have a better control of supply chain, better sovereignty on what they're buying for us, and that's another trend that we're seeing, and we just... like I said, creating the infrastructure so we won't have any friction in the sales cycle when we move forward. Another interesting development that happened during this quarter, or actually after the quarter end, that was also part of the AUSA, we launched our new positioning product, which is basically to mitigate the problem that I mentioned before about how do you navigate or how do you know what is the position of the platform without using GPS. GNSS or GPS is kind of GNSS network, basically. So, what we have launched there is basically a product to go after this market, while the communication market is huge in that number, total addressable market, we're seeing the same in the positioning market of a lot of different solutions, none of them are the ultimate solution, and we see our disruptive technology which is still patent pending, but is a new approach of how to utilize existing infrastructure around the world, the infrastructure that is the most deployed around the world and how we leverage that to let the platform or let the operator know where the platform sits with integrating different kind of sensors and our unique technology that we have developed internally in-house. And like I said, it's still patent pending and hopefully will mature into a patent in the medium term. and last but not least during the quarter the access to the us which included boa contract as well as being listed in the marketplace one of the first or maybe the first component to be listed in the marketplace the uas marketplace for the u.s army which is not only for the army now there are different services they're using the same infrastructure to buy from there is no dollar amount attached to that but like i said That's part of the pipeline expansion based on those developments that help us to go to more customers. As I said in my opening, I do believe that between now and the end of the year, we will be able to show to investors or to ourselves as well how we translate those infrastructure developments into actual revenues and millions of dollars of revenues that we are expecting to come from there, which I think is, again, an interesting development. Now, deep dive into the U.S. market a little bit and talking about budgets, and there is a lot of discussion in the industry in general and in the market as well about what the budget is going to lend and how it's going to affect companies in the market. So I'll focus on the U.S. market, but for LSI, it's true for almost any other market that we're going after. Well, the big prime of the big companies, the very big companies are very sensitive to the size of the budget. In our case, because we are sitting on so many different programs, it's more of the passing the budget rather than the size of the budget it means that right now the budget request of the in the us is 1.5 trillion dollar over 54 billion dollar is allocated specifically for uncrewed systems which as you know based on my previous of my previous presentation it's 200 times higher than FY26 so that's a huge jump that is happening there I think more than anything even before the budget was approved it shows where like I said in the beginning where the opportunity sits and how big is the opportunity but what I wanted to comment about that is that while the sector or the industry is still discussing where those budgets will start to be deployed I think that for a company like us once it will be approved and we'll start to see even if it's a small program that's already accelerated for us or opened a lot of bottlenecks for us just of the approval regardless of if the size will be 54 billion or half of that just the fact that the approval was happened and the budget can be deployed that will open for us a lot of or that will open up for us a lot of bottlenecks that we have today and will help us to translate it into revenue so what I wanted to put on this point today in this presentation is that in LSA case again unlike the big primes or neo primes we're not as much exposed to the approval of the budget and started to be deployed and again that's based on the next week election mid-term election in the US and what the process will be there and how it will look like but when we are working with our customers and end users this is what we're getting from them that once those programs will start to happen we'll see a flow of new opportunities and new orders coming in. The way all of it translates into actual pipeline opportunities, so as you can see, first of all, we tried to put more detail into our pipelines and to give you a better understanding of how many opportunities we have in each one of those stages, how the numbers look like, and maybe one of the most important stuff here is that those pipelines cover Halo solutions and also covers opportunities that we already have on the table. So like we put on the quarterly, when we're talking about commercial discussion, those in a very, very high, very, very high probability to translate into actual revenue in the short, medium term, and that's the meaning of the commercial discussion. This is why we're feeling so comfortable and so excited about how the future looks like. But all of these are opportunities for Halo, and those do not include, obviously, new customers and new opportunities that are coming our way, as well as expanding our product portfolio with both existing customers and net new customers. which create a lot of upsell and cross-sell opportunities for us. So the meaning of this growth in the pipeline, and for those of you who remember the number, we have around 30 million increase in the pipeline in different stages of the pipeline since last quarter. Now, we started to see the result of our business development team that is working with the boots on the ground, like I said, being closer to the customer. And when we're looking 12 months out of how the next 12 months or until 2027 will look like, we're feeling very comfortable that big portion of this pipeline will be converted into actual revenue as we're seeing the different opportunities mature inside a pipeline and getting into actual revenues or becoming a backlog, which is a contracted deal and translated into revenues. speaking about the contract or the backlog and basically the number if you look on the number of the quarter and look on this pipeline how it looked like on the previous quarter you can understand sorry that many opportunities are matured during the quarter and already delivered and that because if you look on the backlog for example this number went up since the last quarter and we still did all the revenue we have done during this quarter so just to make sure we all understand that those are the tangible, foreseeable opportunities that we have in front of us and that does not include other products or new product offering like I spoke about the positioning, which we believe can be maybe even the same size of this pipeline which we're seeing in front of us on the communication. We'll have the same on positioning as well as other products that we're expecting to launch to the market in the short, medium, and long terms. what helps us to get into all those developments that are happening are the boots of the ground like I said that we have on each one of those areas of working specifically in North America or being more specific in the US market and on the priority market for us in Europe Middle East and the rest of the world this is where we put our resources today this is where we're expanding the capacity and the resources that we have Like I said before, because we understand that the opportunity in front of us is huge, because we understand that we need to be more aggressive and to press the pedal to the metal and to accelerate even faster than what we're doing this year versus last year and what we have done in the last two years. Like I said, in terms of the opportunity that we see in front of us, the opportunity is endless basically if you're looking on the face of LSA today. And this is why we have this level of excitement and hunger to go get it and to be more aggressive in places where we feel that we need to be more aggressive. We're doing that, like I said, while we're setting the infrastructure to be able to support these opportunities. whether it's from making a simple product to manufacturer that can be manufactured anywhere in the world whether we're talking about redundancy or making sure that we have different providers and we're not depending on a single source for anything and being able to deliver orders while we get them supporting production capacity expanded production capacity not only with the existing manufacturers that we had at the beginning of the year but also expanding it to other territories and onboarding these manufacturers like I said in the US and Germany to support those needs and to support this surges is happening currently in the market speaking of this infrastructure to protect our IP and to make sure that we are in front of the technology so first of all we're constantly utilizing all the data that we're collecting from the field we are submitting patents those are patents that we already have granted I mentioned during this call place to patent pending that we're having a new development that we have done or still doing as part of us and how we protect or what is the mode that we're creating around the technology, not only from patent perspective, but also other measures like data protection that I talked about, or making sure that we're constantly developing and being at the forefront of the technology, basically. So before I'm opening it to questions, I think if we look on the recent achievement that we have received, whether it's from actual revenue perspective, the margin that we are working on, looking on the different infrastructure that we're creating, whether it's the Blue List or the UAS Marketplace, and having the resources we need to execute on the strategy I think that looking on the 196 million dollars of US dollars of pipeline and understanding that we know what it takes to convert those that is very promising and and we are feeling super comfortable and excited to get into or to finish this year with the best foot forward and getting into next year with even bigger hope than what we had for the year and even though this current quarter was soft because of mainly movement of actual movement of actual opportunities and not because they are they disappeared I think like I constantly saying to investors it's a matter of time and I think those and we see that those orders will come and once they will come I think that we all be satisfied with the result and the growth of L-Site. So with that I want to hand it over back to Mel to open the question and I'll be happy to answer any question.

Thank you.