Ondas Holdings Inc.

Welcome to the Ondas Holdings Incorporated third quarter 2022 conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Before we begin, the company would like to remind you that this call may contain forward-looking statements. While these forward-looking statements reflect ONDIS's best current judgment, they're subject to risks and uncertainties that could cause actual results to differ materially from those implied by these forward-looking statements. These risk factors are discussed in ONDIS's periodic SEC filings and in the earnings press release issued today, which are both available on the company's website. ONDIS undertakes no obligation to revise or update any forward-looking statements to reflect future events or circumstances, except as required by law. Please note this event is being recorded. I'd now like to turn the presentation over to Eric Brock, Chairman and CEO. Please go ahead.

Well, good morning. It's a pleasure to welcome you to our conference call. I'm happy to be joined today by Derek Risefield, our President and CFO, Stuart Cantor, the Founder and President of OnDust Networks, and Reece Moser, American Robotics Founder and CEO. Let's begin with some opening remarks before we outline today's agenda. I want to start by emphasizing that business is on track at OnDust. The technology-based leadership positions we have established with customers in the critical infrastructure and services markets we target continues to strengthen. We expect this to create substantial shareholder value and are determined to deliver that value to our investors. This is a theme we will come back to. As our investors are well aware, we have invested substantial amounts in our technology platforms. If you look at Andes Networks, American Robotics, and now with Aerobotics, who we are in the process of acquiring, we have collectively invested well over $250 million in our businesses. This is a substantial sum, and quite clearly, our investors have not yet been rewarded for that investment and our hard work. Of course, I believe we will be rewarded, and it's my responsibility along with our management team to make sure that we deliver on our plan and earn our just rewards on your behalf. The ultimate measuring stick for the value creation we expect is clearly the revenue, profits, and cash flow that we can generate from the monetization of our platform technologies. This is always the case. We don't develop wireless network technology or autonomous drone and data capabilities for the oohs and ahhs they generate. Our purpose is not to impress engineers. Our purpose is to generate tangible financial rewards for you. Our management team is hugely focused on monetizing the substantial investments we have made by delivering that revenue and profit growth which we deserve. We believe the revenue ramp will start with on-dust networks where we continue to advance the 900 megahertz network with Siemens and the Class 1 rails. Pre-launch activity with the Class 1 has progressed, and the initial volume order from Siemens received in the third quarter illustrates that we are moving close to wide-scale adoption in a meaningful revenue ramp. At American Robotics, we continue to make progress with customers toward large revenue opportunities. We have learned a lot in the field in new verticals, including oil and gas and mining, and are engineering the scalable solutions by integrating new data capabilities with payloads and analytics development. We are defining these solutions hand-in-hand with customer input, and we are very optimistic in our ability to deliver here. Aerobotics is similarly progressing their plan while we and the Aerobotics team work closely on supporting the integration of the two companies. Aerobotics is seeing fleet demand build as their incredibly impressive and mature Optimus drone platform and field service capabilities are being recognized by customers via fleet adoption. We will provide more context during the call around the excitement for Aerobotics business prospects and the benefits of combining our drone platforms. I look forward to sharing more details on our business progress across OnDesk as we move through the presentation this morning. So with these opening remarks, I will now outline the agenda. I will start the call with some details and commentary on the funding we announced at the end of October. I will then provide a brief update on Aerobotics, focusing on the deal timeline and highlighting the integration activity between the two companies, as well as recent significant customer announcements. Then I will turn to Derek for the financial review before we provide updates on progress made on the business plans at OnDesk Networks and AR. And of course, Stuart and Reese will help lead that discussion. And I will wrap the call by focusing on the outlook before we take investor questions. Let's start by highlighting the recent move to strengthen our balance sheet. As we all know, the financial markets have been challenging for the better part of a year now, if not longer. In this environment, smaller emerging technology companies like Ondas have been under particular pressure from both a cost of capital and access to capital perspective. Meanwhile, we are positioning the company in huge markets in investing to drive significant platform adoption and revenue growth. In this difficult financial climate, we were able to secure $30 million from a convertible note offering. We raised this capital from a high-quality investor group. Proforma cash balances as of September 30th are $43 million, adjusting for the net proceeds of the note offering. I am very pleased with this outcome, including the key terms which we have included on this slide. I believe the overhang of an obvious funding need for ONDOS in a difficult equity market had been unduly pressuring the shares lower. So this event removes that overhang and allows us to execute our plan and deliver the growth that our investors are looking for and our management team is focused on. In addition to increasing our balance sheet liquidity, I want to highlight that we have access to additional potential sources of capital. The agreement for the notes offering has an option for an additional $30 million in gross proceeds and additional convertible notes under similar terms. The total $60 million of potential amounts available under the convertible notes transaction combined with the ATM we have in place represents incremental potential liquidity of over $90 million. Of course, we don't believe we need all that capital for our plan, and we will be prudent here. I highlight this because I believe our funding profile should alleviate any fears over ONDOS's support from investors in access to capital. To sum it up, we have secured an agreement for investment of up to $60 million in ONDOS, demonstrating, in my opinion, a strong belief in the value of our technology and markets and growth outlook across ONDOS networks, American Robotics, and soon, Aerobotics. Moving to Aerobotics. I would like to provide an update on the deal timeline and business progress. We feel good about the process and the timeline visibility. We expect to close the acquisition in the first quarter of 2023 and more specifically in January. The next key event will be the Aerobotics shareholder vote on December 18th. Major shareholders have communicated their support to ONDOS for this compelling combination. After the shareholder vote, the deal should move swiftly to close about a month later. Customers are responding very positively to this transaction. We have spent time with Aerobotics customers and partners, and they are very happy with the strength of the combined company, both from a balance sheet and technology standpoint. Similarly, our customers here in the U.S. with American Robotics are excited about the breadth of services we can offer in future product development roadmaps. We believe we will see significant interest in the United States for the Aerobotics Optimist platform from both commercial and government customers, as well as potential strategic partners. We look forward to sharing more specifics around the business plan after the deal closes. In the meantime, the integration work we have been doing positions us to hit the ground running when we do close the transactions. I want to also highlight the massive achievement announced last week by Aerobotics. In fact, I have to pound the table on this and congratulate the team at Aerobotics. Last Wednesday, Aerobotics announced that a UAE government agency in Dubai has placed a $2 million follow-on offer for two optimist-grown platforms. This order will build upon the two systems they have already deployed in Dubai and comes after extensive performance and reliability testing in 2021. Importantly, this order marks the initial rollout of a fleet of autonomous drones that will be deployed by Aerobotics with this customer throughout the city of Dubai. The Optimus drones will be used for public safety, homeland security, and smart city applications. It is entirely accurate to say this order is a landmark event for the drone industry. We believe this is the first true fleet deployment of autonomous drone systems in the world. What makes it even more noteworthy is that this deployment is in an urban environment. From a regulatory standpoint, operations of drones, both autonomous and piloted, have to pass regulations. passed an incredibly high bar in terms of reliability and safety to be widely deployed, and that bar is even higher for heavily populated environments. Very few industry observers have thought a citywide autonomous drone deployment was possible, but here we are. Aerobotics has proven their system provides customers highly valuable data and information services, And more importantly, a fleet of autonomous Optimus drones can be reliably and safely deployed in densely populated cities. We see additional fleet demand across the region and globally as well. This customer has publicly indicated that the initial Aerobotics Optimus fleet deployment is targeted for 24 systems based in strategic locations covering the city of Dubai. Again, this is a landmark deal, which we believe will lead to significant growth ahead. I will now hand the call over to our CFO, Derek Ricefield, to walk through our financial results in more detail. Derek?

Thanks, Eric. As I get started, I want to remind our investors that our financial statements reflect the investment and preparation for larger commercial rollouts within on-dust networks and American robotics, which we believe we will soon see. Revenues for the periods presented have been generated by Fullmax product sales and service revenues for customers, including Class 1 railroads, in addition to product development programs with Siemens. Of course, we believe this activity has served to establish the broader opportunity and will lead to significant growth in the Fullmax-based wireless systems and Scout deployments in the coming years. For the third quarter of 2022, revenues were $600,000. This was an increase from $300,000 during Q3 last year. Revenues during the recent quarter were generated by product sales in addition to services related to the Class 1 Federated Rail Lab shipped to MVX Rail in the third quarter. In addition, we advanced the HOT and European product development programs with Siemens. Gross margin improved significantly to 63.2% for the third quarter of 2022, compared with gross margin of 4.8% in the prior year period. As we have described in our prior calls, due to the historically lumpy nature of development programs and customer product sales and services, gross margins can be volatile on a quarterly basis. The margin improvement is primarily due to a larger proportion of high margin product sales and services revenue in the revenue mix during Q3 this year. Operating expenses increased to $13.9 million for the third quarter of 2022 as compared over the last 12 months to support customer activity and due to deal expenses incurred for the aerobatics acquisition. Non-cash expenses totaled $2.8 million for the third quarter of 2022. Stock-based compensation was approximately $1.5 million in the third quarter. That increased by approximately $1.2 million from the prior year. Appreciation and amortization expenses increased from 700,000 in the third quarter of 2021 to approximately 1.3 million in the third quarter of 2022. The bulk of the increase in non-cash expenses is related to the acquisition of American Robotics. Operating expenses in the third quarter of 2022 also included approximately 1.7 million in professional and advisory fees related to the aerobatics acquisition. We consider these acquisition-related expenses to be non-recurrent. Excluding non-cash expenses and non-recurring professional fees related to the aerobatics transaction, operating expenses were equal to approximately $9.5 million, which were higher than expected due to accelerated spending on customer-related activity at American Robotics. While our operating expenses were higher than initially expected, we believe the additional investments we made were prudent and necessary for the expansion of our services and capabilities to ultimately drive larger revenue opportunities over the longer term. The company realized an operating loss of approximately $13.5 million for the third quarter of 2022, as compared to $4.9 million for the third quarter of 2021. This loss includes the aforementioned non-cash and non-recurring expenses. As noted, the increase in both cash and non-cash expenses related to the business development activity and the addition of American Robotics operating expenses, which were not included in last year's full Q3 results, were the biggest driver of the year-over-year increase in operating losses. Now let's turn to the balance sheet. We ended the third quarter with approximately $15.3 million of cash. As Eric mentioned earlier, pro forma for the convertible notes offering, our cash position would have been approximately $43 million. Outside of the new convertible notes, we maintain minimal long-term debt and a $93.8 million equity position. Of course, our equity position reflects the substantial investments made in our Fulmax and Scout technology platforms. We feel good about our balance sheet and believe it supports our business plan. And now I will hand the call back to Eric.

Thank you, Derek. Let's transition to an update on business development activity at OnDesk Networks in American Robotics. Before I ask Stuart and Reese to share details of the progress we are making, I will provide an initial summary of where we are on our key priorities. I will start by reiterating that our business plan is on track, and we believe we are creating significant shareholder value as we work with customers to adopt our technology platforms. ONDAF Network continues to advance launch activities with the Class 1 Rails, and of course, we continue to work closely with Siemens Mobility here. The initial Siemens volume order of $5.2 million announced in August is validation that we are well positioned to penetrate the global rail market with FOMACs. While we are happy to begin building inventory with Siemens for commercial customer deployments in 900 megahertz, I want to be very candid about the pace of orders and our expectations for growth. I expected to have a higher level of bookings with the Class 1 rails at this point in time. While we believe those bookings are coming, we need to adhere to the formal transition processes with the railroads which are taking longer and are a bit more arduous than originally anticipated. Remember, our rail customers are operating a mission-critical network, a decision that is a 10, if not 20-year commitment to our platform and involves nearly all aspects of their train operations. As such, they act very deliberately planning commercial deployments, and that explains the comprehensive work we are doing with these customers. We work closely with the railroads on a nearly daily basis And the feedback we get from the Class 1 rails remains extremely positive. That extends to organizations within the rail sector, including the AAR and MXB Rail. It's clear to us that our FOMAC.16 platform will be adopted broadly across the Greenfield 900 MHz network, as well as other mission-critical networks. In short, increased bookings are coming. We continue to expect additional orders and backlog growth, which will lead to a breakout year in 2023 in terms of realizing shipments and revenue. To that point, Stuart will shed more light on the work we are doing to secure additional orders, both from the initial two Class 1 rails, who are the first to deploy on the new 900 megahertz network, and the other freight rail operators as well. As Stuart will highlight, the internal activities that the two initial rail launch customers are undertaking to support commercial deployments have been successful, which is moving us closer to an order ramp. Before moving to American Robotics, I want to highlight that our success with validating the platform with Siemens and on the 900 megahertz network is leading to adjacent network and in-market opportunities. As you know, our joint development work with Siemens has extended past the ATCS system on 900 megahertz. We are now developing on-locomotive products for the Class 1 rails for the Form 50 megahertz network in North America, in addition to similar on-locomotive products tailored to large Asian and European markets. Today's announcement that Siemens has placed an initial order of the jointly developed on-locomotive HOT radio for a large Asian railway is a signal that our Fulmax Wireless platform has broad global opportunities. As further evidence of broadening opportunities, we announced an initial order from ELTA, a large Israeli defense contractor, for a maritime network deployment to support coastal surveillance in a large Asian country. This program with ELTA began several years ago, but was slowed by COVID-19. We're happy to see it back on track, and we expect follow-on orders to this Homeland Security project in use case in 2023 and beyond. At American Robotics, activity supporting solutions for marquee customers continues. We announced a new oil and gas customer who is deploying in the strategically important Permian Basin, in addition to a new program with Nevada Goldmines, as we continue to concentrate our energy on developing a scalable set of data solutions for focused industries. As Reece will describe, we have taken steps to enhance our payload and data analytics capabilities to help move closer to fleet deployments at AR. I will reiterate, we believe the acquisition of Aerobatis clearly positions ONDAS as the leading provider of autonomous drones for data-intensive industrial and government services, and we have already done substantial work on integration in front of the deal closing. I'm going to now hand the call to Stuart. Stuart?

Great. Thank you, Eric. As most of you were aware, in the last call, we announced our initial volume order from Siemens for the 900 megahertz Greenfield network in North America, where we now have five of the class ones active with our Fullmax technology, and two having completed their launch activities. This order from Siemens was a pivotal event for OnDisk Networks, and we're well down the path to scaling production, including having qualified contract manufacturing to start deliveries this quarter. Similar to other manufacturers, we too have experienced supply chain pressures, but anticipate that we can manage this process going forward as we ramp up our deliveries to address Siemens' backlog. We believe this initial volume order is a reflection of the progress MXV Rail, the AAR, and the Class 1 Rails have made in qualifying Airlink.16 and completing their associated launch activities. We expect these activities to drive follow-on orders and rail deployments, including expansion into the North American passenger and transit rail markets. The next version of the .16 standard, known as IEEE 802.16T, is in its final draft form and headed for the IEEE ratification in the near future. The standard has received strong support from MXV Rail and the AR, and in September, we transferred the Rail Lab to MXV Rail's new headquarters in Pueblo, Colorado, where the lab will be under MXV's control along with ongoing support from ONDIS. We expect new development programs on behalf of eRails as MXV and their customers standardize on DOT16 and the 900 MHz network. in addition to other mission-critical Class 1 rail wireless systems. Furthermore, we continue to see adoption of DOT16 beyond the North American market. Evidence of this includes our announcement today of our first international volume order from Siemens for delivery in Q1 2023 for a major rail customer in Asia. This order is the result of the completion of our joint development program with Siemens for the next generation HOT radio in Asia. We've already started production activity for this order. This is an on locomotive HOT radio, and it's part of a multi-year delivery program for a large railroad in Asia with a total addressable market of approximately 10,000 units. This Asian rail network is the fourth largest in the world. We've progressed on our development work on the advanced radio module, which is part of a new joint development program with Siemens UK for the European locomotive market, with deliveries expected in the second half of 2023. And beyond rail, DOT16 is seeing traction in new segments, including the mission-critical homeland security market. As previously announced, we have obtained a new order from ELTA, an Israeli-based global defense contractor for coastal surveillance in Asia. and that's to be delivered this year. We expect this is the first of approximately 40 sites to be rolled out in a sovereign country in Asia. To sum up, we are now scaling for delivery on our first volume order for the 900 MHz market in North America. In parallel, the rails are testing expanded use cases, which we expect to drive follow-on orders in 900 MHz and other frequency bands in North America. We're now completing development of the HR2 radio for a Siemens customer in Asia, with initial volume orders to be delivered in Q1 2023. Furthermore, the advanced radio module is part of a new development program to be delivered to Siemens rail customers in Europe by Q4 of 2023. Now I'll pass the call over to Rhys to provide updates on American Robotics. Rhys?

Thank you, Stuart. In Q3, American Robotics achieved a number of important milestones. In M&A and partnership activity, we entered into the definitive agreement to acquire Aerobotics, one of the world's foremost leaders in autonomous drone systems, expanding our portfolio of industry-leading talent, industry-leading IP, and broadening our customer pipeline. We also acquired the assets of Field of View, a company that specializes in the integration of payloads into commercial drone platforms. Additionally, we announced a strategic technology partnership with ICI, a leading developer of infrared sensors specializing in the oil and gas market. This partnership was the direct result of customer requirements determined during our pilot engagements, as well as the expected updates to EPA regulations governing rigorous requirements for oil and gas companies to routinely monitor all existing assets across the United States for methane leaks. For regulatory reactivity, American Robotics received three new milestone approvals from the FAA, further solidifying our leadership position in fully autonomous BV loss approvals in the United States. The first, in the form of a new exemption, permits wide-scale commercial operations of our autonomous scout system without limitations on use by removing a prior restriction that constrained operations to R&D, crew training, and market surveys. The second approval, a waiver, permits expanded area autonomous BB loss operations, unlocking inspection opportunities for customers with very large industrial sites and linear assets. The third, being announced for the first time on the call today, is a waiver permitting automated BB loss operations at two new customer sites located in Texas. All three were predicted on the prior earnings call, and all three have occurred. With each of these, combined with our prior approvals, it is clear American Robotics is maintaining its IP-enabled competitive advantage in this critical regulatory category. Despite often misleading claims from other vendors, we believe American Robotics remains the only drone manufacturer in the United States to be granted the approval to operate fully autonomous drone systems with no humans on site. In commercial activity, we announced a new purchase order from a leading oil and gas company to deploy Scout systems in the Permian Basin and continue to have other active oil and gas opportunities in the pipeline. Next, I want to provide some insight on the hard work and the exciting progress that is being made behind the scenes. Behind customer deployments and regulatory milestones, our team is working on a host of initiatives that we believe lead to significant and sustained revenue growth. These include new payload integrations, new analytics development, optimization of our customer portal, safety evaluations, cybersecurity evaluations, API integrations, and customer training, to name a few. Tying this to our customer pilot programs, we are in what can be considered phase two with many of our customers, where we've taken a learning from our proof of concept phase and are integrating payload upgrades and analytics features that have been directly requested by our customers. Once these product enhancements are complete, We expect duplication of this success across all applicable asset sites, or in other words, fleet deployments. One of the most notable payload enhancements in process is methane detection, which through our engagements with customers, including ConocoPhillips and Chevron, we believe to be heavily driven by current and pending EPA regulations. One of the most important questions is, When does this translate into significant revenue growth for the company? For the Scout system, we are currently in the early adopter cycle, where initial engagements focus on design partnerships with our customers and new feature introduction. As customers within certain markets require customized payload packages, this translates to an average of 12 to 18-month phase for this initial proof of concept, and an average 6 to 12 months for initial fleet rollout, which we characterize as 2 to 10 units per customer. We expect this cycle to conclude in the third quarter of 2023, at which time we will enter an accelerated cycle where focus is no longer on design and new features, but instead success duplications, both within existing customer accounts, as well as new ones. The exception to this is within the bulk materials and aggregates market where no new payloads or analytics are required. After initial fleet rollouts occur, we expect regional fleet rollouts to follow. followed by national fleet rollouts where we can expect hundreds of orders per customer account. By the end of 2024, as case studies become more widely publicized, we expect this process to be further optimized with new sales beginning with a simple demo instead of a proof of concept engagement. As alluded to in the prior slide, Fleet readiness depends on sector and the associated payload integration for the Scout system. Among the three primary market targets for Scout, bulk materials and mining is the most ready, with no additional payload or analytics development required. With our customers in this market, we anticipate fleet readiness to occur in the first half of 2023. For oil and gas, we are working to integrate the customer requested payloads and analytics mentioned earlier, with the acquisition of Field of View and the partnership with ICI contributing to that effort. We estimate product readiness for fleet deployments within the oil and gas market to occur in the second half of 2023. For rail, we expect product readiness for the Scout system in the first half of 2024, though it's important to note that we expect pure SAS sales of the Ardena software to occur prior to that in 2023. I'd like to now recap the rationale for the Aerobotics acquisition, as well as provide updates on progress and outlook. First, let's recap some of the key differentiating features of the Aerobotics Optimus system. Optimus comes equipped with up to 10 swappable batteries, up to 9 swappable payloads, all powered by a robotic arm within the base station. It offers a variety of industrial-grade payload sensor options, ranging from high-resolution video to LiDAR, and also offers a delivery solution for small parcels such as medical supplies. This robust system has been designed for harsh environments and thoroughly tested across thousands of flight hours. With these features and others, it enables fully automated 24-7 operations across roughly a 31-square-mile area per system. As a result of this industry-leading feature set and reliability, Last week, it was announced that Aerobotics has received the first in history order for commercial fleet deployment of autonomous drone systems in an urban environment. It cannot be overstated how impactful this is both for the company as well as the industry as a whole. This marks a pivotal inflection point in the autonomous drone industry and the start of a new era for autonomous drone technology in cities. The order of two Optimus systems doubles the fleet to four, with the customer planning to cover the entirety of Dubai over the next few years. Additionally, we believe similar fleet adoption opportunities for smart city use cases are in the pipeline. As a result of this customer success, plans to increase inventory at Aerothotics have begun, which we at Ondas are supporting. Inventory will be increased both for anticipated additional orders in the UAE and to build systems for expected interest with government and commercial customers here in the United States. So we ask the same important question again for the Optimus system. When does this translate into significant revenue growth for the company? Within the smart city market, Optimus is currently in the accelerated cycle where design partnerships and new feature introductions have concluded. We anticipate this cycle to drive revenue growth over the next few years and beyond with the initial proof of concept stage for new customers lasting an average of two to six months and fleet rollouts following. And as I mentioned a moment ago, we are working with Air Robotics and plans to build inventory, which we expect to support revenue growth in 2023. So why both systems, Scout and Optimus? Much like the automobile and the traditional aviation industry, these products have different feature sets, different price points, and are designed for different customers. The market opportunity for autonomous drone in a box technology is massive. Estimated at over $100 billion, in annual recurring revenue, and spans numerous sectors and use cases. The Aeroproducts Alchemist System targets the high end of the market spectrum, including smart cities, security, public safety, and defense, whereas the Scout System targets a different set of markets, with an estimated larger total addressable market, including oil and gas, rail, bulk materials, mining, and agriculture. Together, we not only find sales and marketing synergies, but also technology, financial talent, expertise, and regulatory synergies. Together, we believe we are the clear market leaders in autonomous drone-in-a-box technology. This concludes my prepared remarks. I look forward to the Q&A, and I will hand the call back to Eric. Eric?

Well, thank you, Rhys. Now let's turn and summarize some of our key business objectives as we wrap up the year and look forward to 2023. As discussed, we are focused on ramping production at on-desk networks to meet the initial demand from Siemens. Of course, our rail team is working in parallel with Siemens and customers to secure additional 900 megahertz orders from additional railroads. The networks being built by the railroads have 10 to 20-year lifetimes, if not longer, and, of course, they are large. While the initial ordering has come slower than we like, the long-term opportunity remains there for on-desk. While we don't expect to meet our original bookings targets for 2022, we do see at least 8 million in product and developing bookings as a reasonable goal for 2022 and expect to secure significant growth in bookings in 2023. We anticipate providing an update on our 2023 outlook in the first quarter of next year. I want to highlight that we expect increased public dialogue from the rail industry regarding their support for the DOT16 wireless standard and plans to adopt our Fullmax platform, starting with the Greenfield 900 megahertz network. As we have highlighted, the rail industry has been active in the IEEE 802.16 standards group, and the Federated Rail Lab, operated by MXV Rail, is poised to become a showcase for our Fullmax technology in critical rail networks. Raising awareness within the industry, which again, we expect the rail customers to do, will help accelerate broader ecosystem and vendor participation driving integration of more and more applications being developed to run on the network. This activity, supported by MXV Rail and the AAR, will serve to further increase the value of our Fulmax technology. Lastly, for on-dust networks, we expect to continue to grow in new markets, as Stuart highlighted. We are tracking passenger and transit product and network development opportunities and look to transition those networks into formal development programs with customers and strategic partners in the coming months, if not sooner. Of course, we will also focus on delivering the new on-locomotive products we plan to introduce with Siemens in both Asia and Europe. Similarly, we are targeting follow-on orders to the Asian maritime networks with ELTA and creating new opportunities in homeland security. For American Robotics, we plan to selectively add customers in our targeted oil and gas mining and rail verticals. Our pipeline continues to be represented by major blue-chip industrial companies with active plans to deploy drones in operations. A bigger emphasis in the near term will be on delivering the back-end data solutions through integrating new payloads and data analytics capabilities tailored to customer requests as described by Reese. Remember, the pathway to success sooner is much higher by concentrating on solutions development with a handful of motivated customers, as opposed to solving the same problem with many customers at the same time. We do not want to dilute our efforts. The scalable data solutions combined with the capability and autonomy of our Scout system and the Aerobotics Optimist system will be critical to drive fleet adoption. For American Robotics, we believe we're on the path to fleet adoption in 2023 in both the mining and oil and gas verticals with existing customers, Of course, and this is incredibly important, fleet adoption at Aerobotics has already now begun. Lastly, we expect to close the Aerobotics acquisition in early 2023 with a target of mid to late January. After the close, we plan to hold an investor meeting to outline the combined company business model and growth plan. We believe American Robotics and Aerobotics have impressive customer opportunities and will deliver revenue growth in 2023 via fleet deployments. To continue the outlook, I want to reiterate that the convertible notes funding in October leaves us with a healthy balance sheet. Our cash position is strong, and we have demonstrated access to capital. We expect cash outbacks of about $9.5 million for the businesses in the fourth quarter, not including ongoing costs related to the aerobatics transaction. An important message here is that we understand the tight funding environment and the need to deliver on revenue growth. We will live within our means as it relates to investing for growth. We are attacking a huge opportunity at both Andas Networks and AR and have an ambitious plan, but we need to earn the right to expand that plan. And that's by rewarding shareholders with upside. From here, we are extremely focused on driving revenue growth across our businesses and believe we are positioned to deliver meaningful revenue growth in 2023. Before we close, I want to share some broader context around the opportunity ahead for Andas. the long-term opportunity, which I believe is not fully appreciated. And I will try to be brief. This is important, not just for our investors, but I think it's a topic the wider drone industry has to embrace in front of what we continue to believe is a huge investment cycle in drones. Over the last 10 or even 20 years, we have seen massive energy and talent working to build drone technologies and services. Of course, we have seen a significant amount of capital invested as well. So far, it isn't obvious when the payoff for this hard work will come. We think this is misunderstood. From our view, the drone industry has made significant technical advancements in technologies ranging from UAVs and components, batteries, wireless communications networks, and other infrastructure, payloads and data analytics, in addition to professional services groups that are emerging in many other parts of the drone ecosystems. What is further underappreciated is the pace at which these complementary technologies and services are coming together and being integrated and commercialized at the systems level as solutions. AR and AR robotics are demonstrating just this by delivering complete turnkey end-to-end solutions. Importantly, customers and regulators are taking notice that these drone-driven scalable solutions are emerging. At the same time, you can see on the vendor map we're sharing here, There are simply too many drone companies. The sector is overly fragmented, and on average, vendors are subscaled and unfortunately remain poorly capitalized. The result is confused and often disappointed customers as most vendors simply aren't able to bring a complete solution. In addition, investor capital is spread way too thinly, like peanut butter, across way too many companies. The adoption cycle in drones needs scale providers and that's required for and will be valued by customers, regulators, and importantly, investors. The industry needs significant consolidation, which we think we will see in the next three to five years. Leading technology providers, industry talent, and investors should embrace this opportunity. The drone economy is huge. The focus needs to be on growing the pie, which can only happen if integrators emerge and bring scale to solutions and services demanded by customers. We believe ONDOS, with our wireless and autonomous drone platforms and expanding global capabilities, has a role to play. And we look forward to continuing to engage with drone industry leaders, regulators, and investors to help drive industry growth. In the context of our leadership position, I want to reiterate again that we believe our shares are undervalued. As we discussed on our last call, leading UAS platforms are valuable. Virtually any market survey you will find will confirm that the drone economy is huge with TAMs measured in the many billions of dollars. We see that the UAS market has large submarkets where leaders command billions of dollars in market value and are backed by sophisticated investors. I want to reemphasize. We believe the industrial and commercial markets for automated drone services targeted by AR and robotics may ultimately prove to be the most valuable of all drone segments. We believe the rewards for winning will be significant for our investors, which helps you understand why we are being so deliberate in our growth plan. Before we turn the call over for Q&A, I want to reiterate that we remain bullish on the outlook for ONDOS and believe our business is strengthening. We are focused on turning the major investments we have made into tangible results in terms of bookings and revenue generation. We believe this starts with on-desk networks and that our drone platforms with American Robotics and soon Aerobotics will be strong contributors as well. We are at an inflection point now. I am excited to build customer momentum to set us up for big revenue growth in 2023. Operator, please open the call for Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Tim Horan from Oppenheimer. Please go ahead.

A few questions. Can you update us maybe on the timing, do you think, of when you receive a booking and when you can basically recognize revenue for both major segments? And maybe just elaborate a little bit more on the manufacturing capacity that you have for both in terms of revenue generating capacity at this point. And then I have a few follow-ups. Thanks.

Okay, sure. So we do have that initial order from Siemens, Tim, that we're now producing, and we expect to earn some revenue on that order in Q4, with the bulk being in the first half, and we're targeting Q1 to be a big delivery quarter. As it relates to production, we are ramping. We've been working on the supply chain now for a while, and we believe we'll be able to meet those timelines I just mentioned. And, of course, we're in parallel working with the customers and Siemens to book additional orders, and we think that will be – those additional orders will be produced and delivered and recognized in 2023.

So I guess my question is, if you receive an order, you know, if you receive an order, how long will it take you to deliver or recognize revenue? You know, your best guess, like if you receive 20 million in booking in the first quarter, do we recognize that in the third quarter?

So as we get orders, we give delivery timelines of six to nine months. And we think as the production process and the supply chain gets going, it'll be closer to the six-month timeline. Thanks. Maurice, do you want to talk about the manufacturing outlook on the American Robotics side?

Yeah, sure. So we've been working closely with our manufacturing partner It's based here in the Northeast for a couple years now, so they're pretty much up to speed on producing the Scout system as it exists today. We've already produced roughly 20 of those, and we anticipate 35 to be completed by the beginning of Q2, and we think that'll support the bulk of our deployments in 2023, and you know, we'll prepare them for larger volume amounts by the end of the year.

Great. And maybe can you give us an update on just the clearing out of the 900 megahertz spectrum, you know, your best guess on the timing at this point and, you know, the total amount they need to spend, the rails that is. And it looks like they're going to meet and miss their August 23 commitment date on clearing out that spectrum. But, you know, are there any penalties for that or – You know, do you think that's the case? Thanks.

Sure. So in terms of the deadlines to retire the legacy network, you know, we still understand them to be over the next several years. There's a couple of railroads that have deadlines for 2023, and the railroads are still motivated to meet those deadlines. So they're taking them very seriously. I guess that's it. In terms of the market opportunity, the addressable market in 900 megahertz alone is a $300 million TAM. We think that the ATCS is about a third of that. I'd say a couple of things. ATCS has a heavy base station and higher ASP mixed to it as opposed to the broader network. But in parallel, we see the railroads working on not just ATCS but other applications. as as stuart has uh explained uh earlier so um so the timing uh still can still is uh in terms of the focus on the railroads continues to be a three-year build out uh with certain deadlines in 2023 and that's why you're seeing these orders come and we expect to see more as we're moving into 2023. and um i'll just add my answer before did not include any robotics projections just to be clear so optimus system

There's a certain amount that are already manufactured and we're working to manufacture more to deliver for that Dubai order as well as some other orders that we expect to see in 2023. And so we're going to plan to share more details on those plans after we close the deal.

Got it. And just lastly, on the additional potential to raise more convert money from that investor, I think it's at their option. Do you know what criteria they're looking for to do a reinvestment?

They have not shared the criteria. You're right. It is at their option, and that's a 12-month option.

Great.

Thanks a lot, guys. As a reminder, if you have a question, please press star, then 1. And our next question comes from Carter Mansbach from Fort Capital Group. Please go ahead.

Good morning, gentlemen. Morning, Carter. So I'd like to congratulate you guys on all the developments that you've had. And I have a couple of questions just for clarification purposes. So as for the Arrow Robotics Dubai contract, what I think I heard or what I read is that you have the potential of 24 units. And I believe I read or heard that there are a million dollars per drone. Is that correct?

That is correct. The initial order, which is a follow-on order for beginning the rollout of the fleet, it was for two systems for $2 million. We think that pricing will be reflected in future orders.

So basically what you're saying is it's a $24 million opportunity. Exactly. And the cost –

Yeah, I'll also add that there's some recurring revenue in there as well for maintenance and continued operation of those systems.

Excellent. Now, did I also hear that there's another one that's very similar in nature that could get this benefit, the same type of revenue?

So, Aerobotics does have an active customer pipeline, including in the UAE. So we expect that there will be more business there, and I think we should probably hold off on describing that in greater detail.

Okay. So we're thinking $24 million on this contract, which is a big number. So last point for me. So it seems like over the last four years that I've been involved, the foundation is being built, and now we're looking to build the house. So I'm assuming from your words that this is a hockey stick year in 2023. Now, that being the case, assuming I'm right in what I'm saying here, When your Q4 comes out and you start giving projections for 2023, will you be able to be more clear and have better understanding of what you're looking for in 2023?

I do believe that's the case, Carter. And as I said in the prepared remarks, we are working with the rail industry, including the customers, the AAR, and MXB Rail, to more broadly communicate the plans for the .16 platform adoption and network rollouts. We expect that to just get a lot more visibility. It's going to be helpful for investors, but it's also helpful for the industry as well. Vendors who are going to be plugging into the network, for example, are going to be more engaging as awareness builds.

Okay, great. I wish you guys continued success, and I look forward to the major ramp in 2023. Thanks again. Thank you, Carter.

The next question comes from Mike Lattimore from Northland Capital Markets. Please go ahead.

Yeah, thanks. On this aerobatics Dubai deal, would that likely be the majority of their revenue next year coming from this contract? And then As you look to sort of integrate aero robotics with American robotics, does the revenue model change at all? Do you end up with selling more recurring revenue under the aero robotics product, let's say? And then also, what kind of additional regulatory approval do you need to get to sell aero robotics in the U.S.?

Yeah, I can take some of that. Eric? I think the Dubai order certainly represents a significant portion of the expected revenue in 2023, although we do see some other similar opportunities forming. As Eric said, there's only so much we can say right now, but we'll be sharing more details on that after the deal closes. I do think it's important to note that Once an order like this is complete for the city of Dubai, the ability to duplicate that at a faster rate becomes a lot more feasible because other customers around the world see the success at this place and feel more comfortable about placing orders. And that's the same thing at American Robotics as well. On the recurring revenue side, You know, aerobotics has a mix of recurring revenues, but also hardware sales. So I think that mix is going to continue. American robotics is heavier on the pure subscription model than aerobotics. So there's going to be a mix of that over the coming years. I think there was one more question, which I forgot now.

Just what kind of additional regulatory approvals do you need to get for aerobatics to sell it in other regions, particularly the U.S.?

Yeah, that's a good question. So it depends how it's being used. If it's being used in a fully autonomous manner in the United States, it would require approval like ours. And that's one of the reasons that we decided to join forces is because American Robotics has this unique approval set driven by some of our intellectual property. And so we anticipate integrating that into the aerobatic system and allowing Optimus to operate the way that Scout does in the US. Probably important to note, though, that one of the unique things that aerobatics has is they're very far along in what's called the type certification process, which is important to being able to fly over very populated areas. So that's not something that American Robotics has pursued because we typically operate in very rural areas. But as far as duplicating the Dubai success in cities in the United States, Aerobotics is extremely far along that path. And we expect some pretty big news around that topic over the next year.

Mike, just one more thing on aerobatics and the rollout of fleet. So the Dubai order, it basically doubles the system, and that starts the fleet deployments. They have publicly indicated that they expect to have 24 systems throughout the city of Dubai by the end of 2025. And they also have signaled that they're going to do the additional orders next year. And I'd also add that we expect more than one fleet customer building out in 2023. So this revenue will be a meaningful ramp.

And then just last on approvals generally, I guess you talked about three additional ones for American robotics. Are there more approvals you're looking for the next year?

Uh, yeah, we expect to continue, you know, adding additional sites is now becoming somewhat routine for us, which is a good thing. Um, so that's certainly part of what we expect to see. Uh, there's another couple of approvals that we're going to be going for that. Um, you know, I'm, I'm, I'm going to hold off details for right now, but the answer is yes. I think we're going to continue to extend our lead with these approvals.

Okay. Thanks.

There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Eric Brock for any closing remarks.

Okay. Thank you, operator. I'm going to close the call by thanking you again for attending. We have a lot of work ahead and look forward to keeping you informed on our progress. We do expect to hold an analyst call after closing the aerobotics acquisition. And in the meantime, investors are always welcome to reach out. Hope you have a great day. And this ends the call. Thank you.

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.