Ondas Inc

Welcome to the ONDAS Holdings Incorporated fourth quarter and full year 2022 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist 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 ONDAS's best current judgment, they are 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 are ONDAS's periodic SEP filings and in the earnings press release issued today. which are both available on the company's website. ONDAS undertakes no obligation to revise or update any forward-looking statement to reflect future events or circumstances, except as required by law. Please note, this event is being recorded. I would now like to turn the presentation over to Eric Brock, Chairman and CEO. Please go ahead.

Well, thank you, Operator, and good morning. I want to get started by welcoming everyone to our quarterly conference call. We appreciate the time you're spending with us and for your interest in our company. Today's call will be a bit shorter than we're used to for these quarterly updates since we just met a few weeks back at our virtual investor event. At that time, we provided both a comprehensive business development review and a detailed outlook for 2023 for both our ONDOS networks and ONDOS Autonomous Systems business units. So today, we plan to review our financial performance in a bit more detail and provide updates on recent activity with both Andas Networks and Andas Autonomous Systems business units. In that conversation, we'll focus on current activity in the field with customers and partners. As you continue to see, Andas is picking up momentum. We have had a strong start to the year and look forward to sharing details of this customer activity with you. So let's go. I'm happy to be joined today by our CFO, Derek Risefield, and our president, Rhys Moser. In addition, we will hear from Stuart Cantor, the founder and president of OnDOS Networks, and Mayor Kleiner, Aerobotics founder and CEO. Recall that in connection with the closing of the Aerobotics acquisition, we established a new business unit we call OnDOS Autonomous Systems, or OAS, which combines the drone operations of American Robotics, Aerobotics, and now Iron Drones. Mayor is the president of OAS, and it's my pleasure to have him join us today on his initial investor call with OnDust. Now let's turn to the agenda. We will start the call with some brief comments about the state of our business entering 2023. I will then hand the call over to Derek for a financial review, and we will briefly recap the 2023 outlook. Then we will provide a business update for OnDust Networks and our OAS business units, where I will ask Stuart and Mayor to provide commentary around current business activity. Again, since we have previously provided a deep dive at the virtual investor event in February, these updates will be mainly focused on recent events in on-the-ground activity we are driving here in the first quarter. We'll then wrap the call and open the floor for investor questions. We expect 2023 to be a very good year for ONDOS, both with our ONDOS networks and OAS business units. We entered the year with momentum, fresh on successes in 2022, where we secured our initial commercial orders signifying the validation of our technology platforms and their scalability with customers. At OnDesk Networks, the volume order from Siemens in the 900 MHz network was a significant event because rail networks are large and strategically important, and this adoption is beginning. The strategic value of the 900 MHz network in all private networks, frankly, is becoming more and more apparent today. We have outlined in a number of occasions how private wireless networks enable safe and efficient train operations, and specifically how new industrial broadband capabilities like ONDES' DOT16 compliant system, we call Fulmax, and the value that provides rail customers with the ability to adopt new and advanced safety technologies. The 900 MHz network has come into focus with the national attention today on rail safety. With this attention, the technologies that will be implemented to make our railways efficient and safe are becoming ever more clear. Through all this conversation, again, which is happening nationally, one thing is obvious. You need robust wireless networks to implement and enhance safety systems along the track, on locomotives and rail cars, and at highway crossings. OnS Network's Fulmax wireless platform is well positioned to help address these challenges around connecting these technologies that the rail industry is facing today. We believe the rail sector, which always has large capital expender budgets, is poised to accelerate investment in safety technologies. Adas and Siemens are active in the conversations around how this will happen, and we will talk a lot more about that today. At OAS, we have also seen fleet adoption begin as Aerobotics secured initial commercial orders for the Optimus system from customers and partners in the UAE, where we are beginning citywide deployments of urban drone infrastructure in Dubai and Abu Dhabi. This is a development in the drone industry that is nothing short of groundbreaking. Flying autonomous unmanned systems in a densely populated urban setting is an unparalleled achievement and demonstrates the massive lead we have in defining these UAS markets. In short, we believe Ondas entered 2023 positions to drive significant increase in revenue, which we believe will help support the scaling of our company and put us on a path to profitability. Again, we believe 2023 is going to be an excellent year for ONDAS in the beginning of a long investment cycle in our mission-critical IoT and drone businesses. I am now going to hand the call over to Derek for the financial review.

Thanks, Eric. As I get started, I want to remind our investors that our financial statements reflect investment and preparation for larger commercial rollouts within our ONDAS networks and ONDAS Autonomous Systems business units. As we outlined in our investor update last month, we believe we will see that commercial adoption in 2023. Revenues for the periods presented have been primarily generated by full max product sales and service revenues for customers, including class one railroads. In addition to product development programs with Siemens and field activity with autonomous drone installations. Of course, We believe this activity has been valuable, serving to establish the broader opportunity which we expect to lead to significant growth in Fulmax-based wireless systems and Optimus deployments in 2023 and in the coming years. For the fourth quarter of 2022, revenues were approximately $500,000. This was a decrease from $600,000 for Q4 last year. Revenues during the recent quarter were generated by full max product sales driven by orders from Siemens, as well as development revenues as we advance the HOT and European product development programs with Siemens. Based upon the low level of revenues in the pre-commercialization period, gross profits remained low during the fourth quarter of 2022 at roughly $300,000. Operating expenses increased to $34.8 million for the fourth quarter of 2022 as compared with $7.2 million the prior year. The rise in operating expenses was primarily due to an increase in research and development expenses, professional fees associated with the aerobatics acquisition, along with an increase in depreciation, amortization, and stock-based compensation expense. We consider the acquisition-related expenses to be non-recurring. We also recorded a $19.4 million non-cash charge for impairment of goodwill. The goodwill impairment is an accounting charge reflecting the write-down in the carrying value of the American Robotics acquisition. We perform regular analysis related to goodwill And given the dramatic decline in valuations of comparable small emerging technology and the decline in our share price, we believe the write-down is prudent. While we understand the accounting treatment, we remain very positive on the strength of our IP portfolio and the business outlook across both our business units and do not believe the goodwill write-down has a significant impact on our business. Aside from the $19.4 million goodwill impairment charge, noncash expenses totaled $2.5 million for the fourth quarter of 2022. Stock-based compensation was approximately $1.5 million in the fourth quarter. That increased by approximately $200,000 from the prior year. Depreciation and amortization expenses increased from $700,000 in the fourth quarter of 2021 to approximately $1 million in the fourth quarter of 2022. Operating expenses in the fourth quarter of 2022 also included professional and advisory fees related to the aerobatics acquisition. Once again, we consider these acquisition-related expenses to be non-reoccurring. Excluding non-cash expenses and non-reoccurring professional fees related to the aerobatics transaction Operating expenses were equal to approximately $12.3 million, which were higher than expected due to accelerated spending on customer-related activities at American Robotics. With the completion of Aerobotics acquisition, we restructured our activities in the autonomous drone segment. We believe this will lead to significantly lower operating costs going forward at the combined entity. 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 long term. The company realized an operating loss of approximately $34.5 million for the fourth quarter of 2022, as compared to $7 million for the fourth quarter of 2021. This loss includes the aforementioned non-cash and non-recurring expenses. We generated an adjusted EBITDA loss of $12.6 million in the fourth quarter, excluding these non-cash expenses as compared with a $5 million EBITDA loss for the fourth quarter of 2021. Also noted, the increase in both cash and non-cash expenses related to the business development activity and preparation to meet the demands of a growing business. Now let's look at our full year results. For the full year of 2022, revenues were $2.1 million. This was a decrease from $2.9 million during the full year of 2021. Revenues during the 2022 period were generated by product sales driven by our order from Siemens as well as development revenues as we advance the HOT and European product development programs with Siemens. Gross profit increased to approximately 1 million for 2022. This was roughly equal to the gross profit of 1 million last year on higher sales. Gross margin improved significantly to 52% for 2022, compared with a gross margin of 38% in the prior year period. Again, this low level of gross profit reflects a period of pre-commercial adoption of our technology platforms. 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 in the revenue mix during 2022. Operating expenses increased to $70.5 million for all of 2022 as compared to $19.1 million the prior year. $19.4 million of the operating expense was due to the non-cash charge related to goodwill impairment. Also, the rise in operating expenses was primarily due to an increase in research and development expenses, professional fees associated with the aerobatics acquisition, along with an increase in depreciation, amortization, and stock-based compensation expense. Aside from the 19.4 million goodwill impairment charge, non-cash expenses totaled 9.9 million for the full year of 2022, including stock-based compensation of 5.9 million. That increased by approximately 2.6 million from the prior year. Depreciation and amortization expenses increased from $1.5 million in 2021 to approximately $4 million in 2022. Operating expenses in 2022 also included professional and advisory fees related to the aerobatics acquisition of approximately $2.1 million. Once again, we consider these acquisition-related expenses to be non-reoccurring. Excluding non-cash expenses and non-reoccurring professional fees related to the aerobotics transaction, operating expenses were equal to approximately $39 million, which were higher than expected due to accelerated spending on customer-related activity at American Robotics. With the completion of the aerobotics acquisition, we restructured our activities in the autonomous drone segment. We believe this will lead to significantly lower operating costs going forward at the combined entity. 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 long term. The company realized an operating loss of approximately $70.5 million for 2022, as compared to 19 million for 2021. This loss includes the aforementioned non-cash and non-recurring expenses. We generated an adjusted EBITDA loss of approximately 40 million for the full year 2022, excluding these non-cash expenses, as compared with 13.2 million EBITDA loss in the prior year. As noted, the increase in both cash and non-cash expenses related to business development activity and preparation to meet the demands of a growing business. Now let's turn to the balance sheet. We ended the fourth quarter of 2022 with a $29.8 million of cash. Our cash position was aided by the convertible note offering. Outside of the new convertible notes, we maintain a minimal long-term debt and a $58.2 million equity position. Of course, our equity position reflects the substantial investments made in our technology platforms. I will now hand the call back to Eric.