Ondas Inc

on this holding first quarter 2023 earnings and business update conference call. All participants will be in listen-only mode. If you need assistance, please signal conference passers by pressing the star key followed by zero. After today's presentation will be opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the conference over to Mr. Eric Brock, chairman and CEO of ONDIS. Please go ahead, sir.

Well, thank you, Operator, and good morning. I want to start by welcoming everyone to our first quarter investor call. We appreciate the time you're spending with us and for your interest in our company. I'm happy to be joined today by our CFO, Derek Rysfield, and our President, Rhys Moser. In addition, we will hear from both Stuart Cantor, the founder and president of OnDOS Networks, and Mayor Kreiner, the founder of Aerobotics and president of OnDOS Autonomous Systems. Today we plan to review our financial performance and strategic progress for the recently completed first quarter and discuss our outlook for the rest of 2023. Now let's turn to the agenda. We will start today's call with some brief comments about the first quarter performance in recent industry and company-specific developments driving the outlook for our business entering 2023. Okay. I will then hand the call over to Derek for a financial review of the first quarter. Our discussion on our financial performance will include commentary around the streamlining of operating expenses. As part of the financial review, I will discuss our balance sheet and liquidity position and provide an update for our outlook of 2023. Then we will transition and provide a business update for OnDesk Networks and our OAS business units, where I will ask Stewart and Mayer to provide commentary around current business activity. We will then wrap the call and open the floor for investor questions. 2023 is off to a great start operationally at ONDOS, highlighted by record revenues of $2.6 million in the first quarter, which exceeds all of 2022's revenue. This reflects the beginning of shipments on the backlog secured as we enter 2023. Of course, we have a lot more to do on production, shipments, and installations on both sides of the business to deliver current backlog and drive new orders from customers. Regarding customer activity, we want to highlight a critical milestone we cleared with OnDesk Networks. In March, we saw the Association of American Railroads, or AAR, formally announce to the rail industry that they have selected the IEEE 802.16 wireless technology as a platform for the new 900 MHz network. In addition, the AAR publicly confirmed key timeline dates, which include both the September 2025 deadline to retire the legacy 900 MHz network, as well as the requirement from the FCC to substantially build out the new Greenfield 900 MHz band by April 2026. We believe the formalization of the technology choice in 900 MHz, along with the communication of deadlines, is a huge catalyst for the OnDOS Network's business. Stuart's going to share more details around these developments and timelines, though I want to emphasize that since this announcement by the AAR, we have seen a significant increase in customer engagements, including deployment plans. These announcements from the AAR are also supporting increased activity across the rail vendor ecosystem. We expect further development opportunities, both with Class 1 freight rails, as well as in passenger and transit and international rail markets with both Siemens and MXV Rail, as well as with other vendors. At LAS, we have previously outlined fleet adoption is moving along as Aerobotics executes commercial fleet orders to the Optimus system and customers and partners in the UAE. We have now begun citywide deployments of urban drone infrastructure in both Dubai and Abu Dhabi. In addition, we have advanced marketing activity of the Optimus system in U.S. markets and are seeing significant interest in oil and gas, public safety, and other government markets. We will discuss this in more detail as well. I want to once again highlight the fleet deployment activity of the Optimus system is nothing short of groundbreaking for the drone industry and has clearly separated ONDOS from the rest of the pack. Flying autonomous unmanned systems in a densely populated urban setting is an unparalleled achievement and demonstrates the lead we have in defining these UAS markets. As we execute these initial fleet deployments, we believe customer adoption will accelerate. Merritt is going to share some details around installation and operation of the systems on behalf of customers and expectations around future growth. So to wrap up the introduction, we are now beginning to scale in both the on-desk networks and OAS business units. With expected revenue growth and a focus on cost controls and cash efficiency, we believe our cash burn will move significantly lower on a quarterly basis as we move through the year. I'm now going to hand the call over to Derek for the financial review. Derek?

Thanks, Eric. As I get started, I want to remind our investors that our financial statements continue to reflect investment and preparation for larger commercial rollouts within our ONDAS networks and ONDAS Autonomous Systems business units. We expect significant operating leverage as revenues grow, though today's revenue levels are not yet covering our operating expenses. Revenues for the periods presented have been generated by both ONDOS networks and OAS business units and totaled approximately $2.6 million for the first quarter of 2023. This was a significant increase from the $400,000 of revenue generated in the first quarter of 2022. Revenue growth was primarily the result of higher product shipments at ONDOS networks and installations of Optimus systems for OAS. Gross profit in the first quarter of 2023 was approximately $1 million, a nearly tenfold increase from the same period in 2022. Operating expenses increased to approximately $13.7 million in the first quarter of 2023 as compared with $10 million in the prior year. The increase in operating expenses was primarily due to one-time costs related to the reduction in force and termination of certain development programs at OnDust autonomous systems, as well as professional fees associated with the aerobatics acquisitions. We expect these elevated expenses to come down in the second quarter. Non-cash expenses totaled approximately 2.5 million for the first quarter of 2023. Stock-based compensation was 1.3 million in the first quarter of 2023. a slight decrease from the prior year. Depreciation and amortization expenses increased to approximately 1.2 million in the first quarter of 2023, up from approximately 900,000 in the prior year. Excluding non-cash expenses, operating expenses were equal to approximately 11.1 million, which were about in line with expectations and again reflected elevated costs at American Robotics due to the restructuring. The company realized an operating loss of approximately $12.7 million for the first quarter of 2023 as compared to $10 million for the first quarter of 2022. This loss includes the aforementioned non-cash and non-recurring expenses. The company realized a net loss of $14.5 million for the first quarter of 2023 as compared to a $10 million loss in the first quarter of 2022. The higher loss included some of the non-cash and non-reoccurring costs previously discussed. In addition, we incurred $1.8 million of mostly non-cash interest expense, which was related to the accounting treatment of the original issued discount, or OID, of the convertible note. We generated an EBITDA loss of 10.2 million in the first quarter, excluding these non-cash expenses, as compared to a 7.8 million EBITDA loss for the first quarter of 2022. Before turning to the balance sheet, I want to emphasize that we expect to see the full benefit of lower spending at OAS on a quarterly basis, beginning in Q2. As such, we expect to incur approximately 9 million of cash operating expenses in the second quarter of 2023, which is a more than $2 million decline from the elevated 11.1 million of OPEX in the first quarter. Now let's turn to the balance sheet. We ended the first quarter with 14.2 million in cash. As described, cash expenses were elevated in the quarter and included certain costs related to the reduction enforced and termination of development programs. We also use 3.7 million of cash to repay debt for both mounts due in connection with the aerobatics closing in January and for cash amortization payments on the convertible note. That outstanding convertible note had a net carrying value of approximately 26 million. That debt amortizes on a monthly basis and matures in October, 2024. Outside of the new convertible nodes, we maintain a minimal long-term debt and a 54.2 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. Well, thank you, Derek.