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spk01: Good day, and thank you for standing by. Welcome to the ACTELIS Network's second quarter 2022 earnings conference call. All participants are in a listen-only mode. As a reminder, this call is being recorded. Joining us today from ACTELIS are Tuvia Barlib, CEO, and Yoav Efron, CFO. Before we begin, we would like to remind everyone that our prepared remarks contain forward-looking statements, including but not limited to statements of expectations, future events, or future financial performance. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Actual events or results could differ materially. These statements are based on current expectations of the company's management and involve inherent risk and uncertainties, including those identified in the risk factors section of our final prospectus, filed pursuant to the Rule 424B4 with the SEC. All non-GAAP financial measures referenced in today's call are reconciled in our earnings press release to the most directly comparable GAAP measure. This call also contains time-sensitive information that is accurate only as of the date of this broadcast, August 11, 2022. Finally, I would like to remind everyone that this conference call is being webcast and a recording will be made available for replay on our investor relations website at ir.actelis.com. I will now turn the call over to our CEO, Tuiv Barlev. Tuiv?
spk02: Thank you, operator. Welcome, everyone, and thank you for joining us today on our second earnings call.
spk03: Recognizing that some of you might still be new to the Actelit story, I begin today's discussion with a brief overview of who we are. Then, I'll review our operational updates and financial highlights for the three and six months ended June 30, 2022, before turning the call over to our CFO Yoav Efron to discuss our financial results.
spk02: After that, I'll share some closing remarks.
spk03: Let's start with a quick overview. At Actelis, our mission is to enable fast, cyber-hardened, cost-effective IoT networking for rapid deployment over wide areas such as cities, campuses, industrial plants, airports, military bases, roads, and rail. Our networking solutions use a hybrid combination of newly deployed fiber infrastructure and existing copper and coaxial lines to significantly cut costs and speed up deployment of secure IoT networks, accelerating IoT projects across the world and making them more affordable and predictable to plan and implement even in hard-to-reach locations. We achieved that by applying our unique signal processing software package to existing infrastructure lines that are readily available in the billions, and by doing that, eliminating the need of civil works to deploy new fiber to hard-to-reach locations. Using our unique signal processing software package, we're able to operate on such existing copper lines at highly accelerated speed at much longer distances
spk02: and reach secure fiber-grade communication quality instantly and at virtually no spending on civil works.
spk03: Our software packages also offer smart management of large IoT networks and automation of networking services across wide areas, which saves our customers much headache and manual labor, and then implement our triple shield end-to-end network security package to protect critical IoT data, utilizing a powerful combination of coding, and encryption technologies as applicable on both new and existing infrastructure within the hybrid fiber-copper network. Actelisa solutions also provide optionally remote powering to IoT devices without the need to deploy a new powering network. Our solutions have been tested for performance and security by the U.S. Department of Defense Laboratory, approved for deployment and already deployed with US federal government and US defense forces. Moving now on to the financial highlights. During the first six months of 2022, we grew sales delivery to IoT customers by 51% compared to the first six months of 2021, fueled by the increase in demand in our fast-growing IoT market. This growth was driven by our strong backlog of customer open orders, which was 4.6 million as of December 31st, 2021, off of which we delivered over 50% by June 30, 2022, consistent with our published expectations earlier this year. Our backlog of customer open orders continues to be strong at $4 million as of June 30, 2022, off of which 83% is attributable to IoT customers. This backlog supports our revenue growth for 2022. Our revenues increased by 8% year-over-year, to 4.9 million for the first six months ended June 30, 2022. During the second quarter, we were also able to further improve our gross margin 62% compared to 57% in the second quarter of 2021, while gross margin for the first six months of 2022 was 51% compared to 54% in the first six months of 2021. We're pleased with our ability to sustain strong margins despite severe inflationary effects and supply constraints in the global economy. In that regard, we're encouraged by the fact that the majority of our IoT customers are solid public organizations and by the expected positive impact of the American infrastructure law. The top-line growth and replenishment of our order backlog, coupled with the sustained strong margins, showcase the potential for a profitable scalability of Actelis. As a result of closing our IPO last May, our balance sheet went through a strong transformation with total assets increasing by $14.9 million and shareholder equity increasing by $27.2 million from December 31, 2021 to June 30, 2022, which Yoav will later elaborate on. Our stronger position allows us to invest in accelerating our sales and marketing plans. Therefore, our sales and marketing expenses grew 65%. to 1.6 million in the first six months of 2022 compared to 0.9 million in the first six months of 2021. We have recently hired a new sales resource for the Intelligent Traffic Vertical and have just signed up a new head of marketing programs. Now, let me share some operational updates. Since the beginning of 2022, we made considerable operational progress and achieved several milestones for our business, highlighted by our successful public listing in May multiple customer wins, and initiatives laying the ground for accelerated growth. As I mentioned earlier, during the first six months of 2022, we've delivered over 50% of our customer backlog of open orders of December 31, 2021. I'm pleased to note that we delivered on our expectations to ship the majority of our 2021 backlog in 2022, but supply shortages and logistic challenges continue to impact our business. We increased our investment in working capital following the IPO in securing sources for components in many months in advance, and we believe that we will have to continue to do so until the situation in the electronic components market stabilizes. During the second quarter of 2022, a large customer of ours renewed its software license and support contract for an additional two years. The value of the order over the lifespan of the contract renewal period is approximately $1.45 million. As mentioned in our Q1 earnings call of 2022, we delivered the first order of a three-year contract with a world-leading partner specializing in airport operations management systems to supply our networking solutions, which will help modernize and digitize airports globally. Since that time, we've successfully fulfilled further orders for that customer and also have received new orders in the sum of $134,000 by June 30, 2022. Orders were received for airports in Taiwan, Japan, Indonesia, Hungary, as well as Newark, New Jersey, and JFK New York in the United States. We expect to see an increasing number of orders from many airports globally. In addition to that, our products were selected by the City of San Jose in the United States to provide IoT building blocks and management software to upgrade the city's existing central traffic system. We received an initial order for this project of $189,000 and expect more to come this year and in the coming years as the deployment progresses through the city in this multi-year project that is budgeted at millions of dollars. The mission of this project is to modernize, digitize, and enhance the city's existing network of traffic-related sensors, meters, and lights, providing the necessary update to its smart city infrastructure. Our rapid, secure, cost-effective deployment capabilities, as well as our high-reliability solutions, helped us win this project. We are proud to help make the high-tech capital of the Silicon Valley, as San Jose is referred to sometimes, a smarter city. In June of 2022, we also introduced a new 10 gigabit per second high-switching capacity product family of advanced, cyber-hardened, and environmentally-hardened building blocks for IoT networks. The new building blocks support mixed hybrid fiber copper networks, 256-bit encryption, remote powering for IoT devices and small cells, and include advanced software for automated management and security. And last but not least, we closed our IPO in May 2022. This effort allowed us to transform our balance sheet, increasing our assets dramatically, convert all our outstanding convertible loans, all of our preferred shares, and nearly all our warrants, driving a dramatic increase in our shareholders' equity, on which Yoav will elaborate shortly. As we continue to assess the current environment, IoT connectivity demand over fiber, copper, and 5G is further rapidly growing. There is an urgent need to provide networking solutions to tens of millions of locations which are fast, secure, rapid to deploy, and cost-effective. This presents an exciting opportunity for us. With that, I will turn the call over to our CFO, Yoav Efron, to discuss our financial results in greater detail. Yoav?
spk04: Thank you, Tuvia. Before I provide an overview of our financial performance in the second quarter and first six months of 2022, I'd like to provide a brief summary of our recent capital market activities as they are now fully reflected in our balance sheet. As a result of the successful closure of the IPO in May, as Tuvia mentioned, we managed to transform our balance sheet. The company reported a balance sheet as of June 30, 2022, compared to December 31, 2021, with $19.6 million of total assets compared to $4.7 million $11.8 million of total liabilities compared to $18.7 million, and $7.6 million of shareholders' equity compared to a shareholders' deficit of a negative $19.6 million. This was a result of the funding of $15.4 million net proceeds from the IPO after deducting underwriters' discounts and commission of $1.4 million, of which $14.4 million became available to the company. after paying IPO-related expenses, and also a result of the fact we converted all our convertible loans, convertible preferred shares, and virtually all the outstanding warrants we had. During 2020, 2021, and the first six months of 2022, we incurred significant financial expenses as those loans and warrants appreciated. But since all our convertible loans and nearly all warrants converted to equity, we do not expect material financial expenses from these loans and warrants in future periods. Turning now to our financial results for the three and for the six months ended June 30, 2022. Revenues amounted to $3.1 million for the three months ended June 30, 2022. compared to $3.0 million for the three months ended June 30, 2021. The increase from the corresponding period was primarily attributable to an increase of $363,000 of revenues generated from North America as a result of increase in revenue from service and software contract renewal, offset by a decrease of $208,000 in revenues generated from Europe, the Middle East, and Africa as a result of supply chain challenges. For the first six months of 2022, revenues amounted to $4.9 million compared to $4.6 million for the first six months of 2021, representing an 8% growth. The increase from the corresponding period was primarily attributable to $555,000 of revenues increased generated from Europe, the Middle East, and Africa, offset by a decrease of $179,000 in revenues generated from North America and Asia Pacific. Cost of revenues amounted to $1.2 million for the three months ended June 30, 2022, compared to $1.3 million for the three months ended June 30, 2021 primarily due to a product mix change cost of revenues for the six months and the june 30th 2022 amounted to 2.45 million compared to 2.1 million for the six months and the june 30th 2021 the increase from the corresponding period was mainly due to the increase in revenues as well as a change in the product mix and an increase in the cost of components and manufacturing driven by supply shortages and shipment costs. Gross profit amounted to $1.9 million, or 62% of revenues, for the three months ended June 30, 2022, compared to $1.7 million, or 57% of revenues, for the three months ended June 30, 2021. The year-over-year increase in gross profit was primarily attributable to a favorable mix of product sales. Gross profit for the six months ended June 30th, 2022 was $2.5 million or 51% of revenue compared to $2.5 million or 54% of revenue for the six months ended June 30th, 2021. Research and development expenses amounted to $0.7 million for the three months ended June 30th, 2022 compared to $0.6 million for the three months ended June 30, 2021, as a result of an increased investment in research and development. Research and development expenses for the six months ended June 30, 2022 amounted to $1.3 million compared to $1.3 million for the six months ended June 30, 2021. Our sales and marketing expenses amounted to $0.8 million compared to $0.5 million for the three months ended June 30, 2021. The increase from the corresponding period was mainly associated with increased investments in sales and marketing, specifically in payroll expenses in the amount of $133,000, mainly due to hiring of sales and marketing employees, increase in commission expenses in the amount of $121,000 due to the higher revenues, and increase in travel expenses in the amount of $59,000. Our sales and marketing expenses for the six months ended June 30th, 2022 amounted to $1.6 million compared to $0.9 million for the six months ended June 30th, 2021. The increase in comparison with the corresponding period was mainly associated with increased sales compensation due to higher revenue of $193,000, increased investment in sales and marketing, specifically in payroll expenses in the amount of $263,000, mainly due to hiring of sales and marketing employees increase in other professional services in the amount of $85,000, and increase in travel expenses in the amount of $72,000. Our general and administrative expenses amounted to $1.1 million for the three months ended June 30, 2022, compared to $0.3 million for the three months ended June 30, 2021. The increase was mainly due to payroll and one-time professional services expenses attributed to the work on the company's IPO completed in May 2022. Our general and administrative expenses for the six months ended June 30, 2022, amounted to $1.7 million compared to $0.7 million for the six months ended June 30, 2021. The increase was mainly due to payroll and one-time professional services expenses attributed to the work on the company's IPO. Our operating loss was $0.7 million for the three months ended June 30, 2022, compared to an operating income of $0.2 million for the three months ended June 30, 2021. The decrease was mainly due to a delay in supply due to shortages, as well as higher expenses associated primarily with investment in sales and marketing, and expenses attributed to the IPO. Our operating loss for the six months ended June 30th, 2022 was 2.1 million compared to an operating loss of 0.4 million for the six months ended June 30th, 2021. The increase was mainly due to a delay in supply due to shortages, as well as higher expenses associated with primarily the investment in sales and marketing and expenses attributed to the IPO. Our financial expense net was $1 million for the three months ended June 30, 2022, compared to $0.3 million for the three months ended June 30, 2021. During the three months ended June 30, 2022, we incurred financial expenses mainly due to increase in fair value of various financial instruments, such as convertible loan, note, and warrants in the amount of $1.4 million and had income in the amount of $0.5 million from exchange rate differences. Our financial expense net for the six months ended June 30, 2022, was $4.2 million, compared to $0.3 million for the six months ended June 30, 2021. During the six months ended June 30, 2022, we incurred financial expenses mainly due to increases in fair value of various financial instruments such as convertible loans and warrants, in the amount of $4.5 million and had income in the amount of $0.5 million from exchange rate differences. As I explained earlier, we do not expect additional material financial expenses in future periods from the convertible loans and warrants, as they are now almost entirely converted to common stock. Our net loss was $1.7 million for the three months ended June 30, 2022. compared to net loss of $0.1 million for the three months ended June 30, 2021. The increase was primarily due to the increase in financial expenses, resulting from the increase in fair value of various financial instruments, as well as an increase in operating expenses, mainly due to investment in sales and marketing, as well as expenses attributed to our IPO. Our net loss for the six months and the June 30th, 2022 was $6.3 million compared to a net loss of $0.7 million for the six months and the June 30th, 2021. The increase was primarily due to the increase in financial expenses resulting from the increases in fair value of various financial instruments, as well as the increase in operating expenses mainly due to investment in sales and marketing, as well as one-time expenses attributed to our IPO. Adjusted EBITDA, the non-GAAP measurement of operating performance, was $79,000 for the three months ended June 30, 2022, compared to a non-GAAP adjusted EBITDA of $446,000 for the three months ended June 30, 2022. The decrease was primarily due to higher investment, in sales and marketing. Our non-GAAP-adjusted EBITDA loss was $888,000 in the six months ended June 30, 2022, compared to $60,000 EBITDA in the comparable year-ago period. This decrease was primarily attributed to product mix changes, increase in sales and marketing investment, and starting to incur costs as we become a public company. As you can see, the report is positively influenced by our IPO that occurred during the second quarter of this year. We're also geared to invest in success now with the right capital structure and balance sheet. That completes my summary. I now would like to turn the call back over to Tuvia for closing comments. Tuvia?
spk03: Thanks, Yoav. In closing, Actelis has taken a step towards delivering on its goals of successfully penetrating the IoT market. An increasing number of customers select us as their long-term networking partner in various IoT verticals globally. We expect our investment in sales and marketing personnel and operations to further promote strong organic growth in our IoT client base in the coming quarters. Our strong margins will allow us to further expand our global operations and deal with supply chain challenges. There is a tremendous opportunity ahead of us as the IoT market is estimated to reach a $1.8 trillion value by 2028, according to the marketing study by Taxman Factors, and we are working to grow with it. I want to thank our dedicated employees for their ongoing contributions and our customer community for their continued partnership. I also want to thank our investors for their continued support.
spk02: Thank you for joining us today. This is truly an exciting time for XLS. Operator?
spk01: Again, thank you for joining us today for the Actelis Network's fiscal second quarter 2022 earnings conference call. You may now disconnect.
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