Ondas Inc

Welcome to the ONDAS Holding, Inc. fourth quarter and full year 2023 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 in ONDAS's periodic SEC 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 statements to reflect future events or circumstances, except as required by law. During this call, ONDAS will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investors Relations section of our website. This non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. However, management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business. 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. I am happy to be joined today by key members of our leadership team, including our CFO, Yishay Keraluru, who returned to ONDOPS in January after being called to duty to serve his country. In addition, we will hear from both Mayor Kleiner, who is president of ONDOPS Autonomous Systems and the founder and CEO of our Aerobotics subsidiary, and Tim Tenney, who is the CEO of American Robotics. Mayor and Tim will provide updates on the business plan and outlook for our drone businesses. In addition, we are joined today by Guy Simpson, the president and Chief Operating Officer of OnDust Networks. This is the first quarterly investor call Guy is attending, and he will help provide the business update for OnDust Networks. He has been the CEO at OnDust Networks for the last 13 years and is instrumental in managing our business while leading much of our direct-facing customer development and service activity. Now let's turn to the agenda. We'll start the call with some brief comments highlighting some recent announcements, and I will then provide a high-level review of 2023 and how we are positioned for success in 2024. I will then hand the call to Yishe for a financial review of our fourth quarter and full year 2023 results. We will then provide a business update for OnDots Networks in our OAS business units, where I will ask Guy, Mer, and Tim to provide commentary around current business activity. Then we will wrap the call and open the floor for investor questions. Let's begin today's update by highlighting a few recent announcements we have shared with investors beginning with this morning's news that Joe Popolo, CEO of Charleston Potomac Capital, has been appointed to the Andas Holdings Board of Directors. I am very grateful for Joe's willingness to serve on the board and help advise me and the management team on our growth plan. This, along with Joe's significant financial interest in the company, is a huge endorsement in the opportunity we have created at Andas that reflects a belief in our ability to drive significant returns for our investors in the years ahead. I will highlight that Joe has a long and successful track record as a business operator and investor. This includes leading the growth of large, profitable businesses, as well as exits from successful ventures as an investor. As the single largest investor in ONDOS, Joe's incentives are directly aligned with our shareholders, which is exactly what we want at ONDOS. In short, this is great news for ONDOS. I welcome Joe to the board, and we are excited to work even more closely together in the quarters and years ahead. I also want to highlight our announcement on February 26th that we secured $8.6 million in new financing. As we announced, the funding was led by Charles and Potomac and provides additional growth capital to support our business plan. This is the second investment that CNP has led after originally leading a $15 million investment in OnDOS Networks in Q3 last year. We also announced the formation of OnDOS Autonomous Holdings, known as OAH. OAH is a new drone holding company established to hold our drone operations, which we operate under the Andas Autonomous Systems Business Unit. Bringing American robotics and aerobatics under the OAH corporate umbrella is a continuation of the integration we embarked on after closing the aerobatics acquisition in January 2023. We believe this structure will provide many operational and financial benefits as we scale the OAH business globally around our world-class technology platforms. We'll discuss this in more detail later in the call. 2023 was a breakout year for Andas. For the full year, we generated record revenues of $15.7 million, which was a seven-fold increase from the prior year. This included $5 million of revenue in Q4, which was above our prior expectation. At Andas Networks, growth was driven by initial orders from Siemens to feed the market with inventory ahead of the expected 900 MHz adoption curve. While the order ramp on 900 MHz was further delayed versus our prior expectations, we have nonetheless made substantial progress in the field with customers. Guy will provide more detail later regarding the complex systems integration process in which we are engaged with customers. We believe we are in the final stage of the adoption of the new DOT16 standard, which will allow the Class 1 railroads to launch the 900 MHz build-out, driving a commercial order cycle for ONDOS. At OnDesk Networks, we see FCC deadlines generating more activity and urgency to engage and finish proving out the scalable integration of ATCS in the migration to the new network. Despite the sluggish orders with the 900 MHz network, our confidence in the rail opportunity is only growing, and we foresee demand building in many areas, even beyond 900 MHz. This stems from an increase in the growing awareness of our 802.16 technology across the global rail sector and with other rail vendors. This is creating visibility around significant new opportunities for network upgrades beyond 900 megahertz into new rail sectors such as passenger and transit. Our autonomous systems business unit had an exceptional year, with market adoption kicking in to drive revenues to $9 million for 2023. This was ahead of the $8 million goal we shared at the time of the closing of the aerobatics acquisition, This also represented a massive increase relative to the $1 million revenue base we had in 2022. OAS revenue growth is being driven by fleet adoption, with a particularly impressive drone infrastructure fleet buildout being supported by our operations in Dubai, where public safety and security are driving the initial use case there for Optimus. We believe our Optimus system is the only truly automated platform seeing scaled deployment in large-scale operations in urban environments globally. Of course, we are very proud of this. As we move into 2024, we are seeing broadening opportunities at OAS, with marketing efforts in the United States beginning to gain positive traction. We have strengthened the leadership team through the addition of Tim Tenney as CEO of American Robotics, and Tim is growing his customer service team with proven talent in defense, government, and commercial sectors. As Mayor and Tim will discuss, the Optimist system inventory availability is improving after the delays related to the Gaza conflict. We believe inventory availability will improve in Q2 and beyond. This will enable additional customer activity here in the U.S. and internationally, and will allow us to engage a growing and maturing customer pipeline. In the United States, American Robotics has wrapped up its proof of value in demo work with the MassDOT Aeronautics Division. We are quite excited about the prospects there. We believe this was a very successful program, and we anticipate and are working with the Commonwealth on follow-on activities. We believe that the critical infrastructure, public safety, government, and industrial sectors will continue to drive the UAS market and be the central focus for our capabilities and solutions. In the last quarter, we have noticed a large increase in RFPs and inbound leads from these same sectors that align with our leadership and offerings. To wrap up the overview, I want to highlight that we are very excited about the prospects for the Iron Drone Raider system. As we disclosed in November 2023, we are responding to an urgent need in Israel for the Iron Drone Raider capabilities. The Raider system meets counter UAS requirements in other defense use cases by rapidly and autonomously launching multiple high-speed unmanned aircraft to perform multiple missionings to protect from the threat of hostile drones. This is clearly an incredible opportunity, and we are very excited about our ability to deliver a valuable solution to friendly defense and security forces around the world. Mary and Tim will share more on this opportunity this morning. I am now going to hand the call to Yishay for the financial review. Yishay?

Thanks Eric. As I get started, I want to remind our investors that the figures we're about to discuss encompass the inclusion of Aerobotics Financial effective from January 23rd, 2023, following our successful acquisition. This strategic move has significantly augmented our operational effectiveness and revenue stream, increased our market presence and enhancing shareholder value. Further, Despite the added scale from the addition of robotics, as you will see, operating expenses are down year over year, reflecting an extreme focus on OPEX efficiency. That will continue. Turning to the Q4 2023 results. We had a strong finish to the year. In the fourth quarter of 2023, Revenues increased to $5 million compared to half a million dollars in Q4 2020. Our more than tenfold increase in revenues was primarily a result of higher product sales and development revenue compared to prior year periods. At Ondas Networks, revenue in fourth quarter of 2023 were driven by product sales to Siemens and development projects. Revenues at OES were primarily driven by a continued build out of the Optimus fleet by our governmental customers in Dubai. For ONDOS networks, revenues will fluctuate from quarter to quarter given the uncertainty around the timing of customer activity in front of the targeted commercial rollout for the 900 megahertz rollout networks. And the development programs underway with Siemens and MXV. Similarly, revenues at OAS are expected to vary from quarter to quarter and to normalize into a more predictable pattern as we grow our customer base and more of those customers enter fleet programs and recurring services agreements in the United States and internationally. Gross profit increased to $1.7 million for Q4 2023 compared to $0.3 million for Q4 2022. Gross profit as a percentage of revenues remains variable in the near term and decreased to approximately 35% for Q4 2023 compared to 56% for Q4 2022 as a result of lower margin product mix. Operating expenses decreased to $14.4 million for Q4 2023 as compared to $34.8 million in Q4 2022. The sharp drop in operating expenses was primarily due to recognition of $19.4 million non-cash charge of goodwill impairment in 2022 and decreased R&D activity. Recurring cash operating expenses, which exclude non-cash expenses and non-recurring costs outlined in the supplemental section of this table, were $8.7 million in Q4 2023, a 32% decline from $12.9 million in Q4 2023. The sharp decline in recurring cash operating expenses was due to strong cost controls despite the addition of robotics in 2023 and the increase in revenues. This demonstrates the operating leverage we have across businesses as we drive expected revenue growth in the coming quarters and years. We will discuss the non-cash and non-recurring costs when we review the full-year P&L in a very moment. The company narrowed operating loss to $12.6 million for Q4 2023 as compared to $34.5 million for Q4 2022. Operating loss improvement was driven by expense controls and lower non-cash charges as mentioned. Assisted EBITDA loss narrowed to $7 million for Q4 2023 as compared to $12.6 million for Q4 2022. Turning to the full year results. The fiscal year of 2023, revenues grow $15.7 million, which was a dramatic increase year over year versus only $2.1 million recognized in 2022. Revenue growth was strong, at both Anders Networks and Anders Autonomous Systems, both business units posted record level of revenues. Gross profit increased by six fold for 2023 as compared to 2022. Gross margins were 41% for 2023 as compared to 52% for 2022, primarily due to our larger proportion of low margin product sales and services in the revenue mix during 2023. Operating expenses narrowed sharply to approximately $46.1 million for 2023 as compared to $70.5 million for 2022. The largest component of the decrease in operation expenses was due to a one-time non-cash goodwill impairment charge of $19.4 million, which was recognized in 2022. Included in operating expenses are non-cash expenses, including depreciation, amortization, stock-based compensation, as well as charges of certain impairment of assets. As outlined here, impairment of right of use of assets and leasehold improvement of $2.5 million was recognized in 2023. This impairment was connected to the American Robotics and Aerobotics integration and office space reduction and subleases in order to create additional cash savings. An additional non-cash charge is an impairment of long-term equity investment of $1.5 million related to our investment in DynamAI in 2023. As mentioned earlier, a goodwill impairment charge of $19.5 million was recognized in 2022. In total, non-cash expenses and impairment charges totaled $10 million in 2023 and $29.3 million in 2022. Recurring cash operating expenses, which exclude non-cash expenses and non-recurring costs, total $36.1 million in 2023, a 13% reduction versus $41.2 million in 2022. The bulk of the decline in recurring cash operating expenses was in R&D spending, which was offset by increased sales and marketing costs. This shift in OPEX reflects our focus in driving platform adoption and revenue growth across the businesses. The company realized an operating loss of $39.7 million in 2023 as compared to a loss of $69.4 million in 2022. Operating loss decreased primarily as a result of the aforementioned decrease in operating expenses, including the $9.4 million goodwill impairment charge. Net loss was approximately $44.8 million for 2023 as compared to a net loss of $73.2 million for 2022. Excluding non-cash and non-recurring costs, the company's adjusted EBITDA loss narrowed to approximately $29.7 million for 2023 as compared to $40.1 million for 2022. Now let's turn to the cash flow statement. we held cash of $50 million as of December 31, 2023, as compared to $29.8 million as of December 31, 2022. The decline in cash is primarily a result of operating expenses incurred and $5.5 million cash used to repay debt in the first half of 2023. This use of cash was supported by $24 million in net proceeds raised from the previously announced financing at Ondas Networks and Ondas Holdings early in the third quarter of 2023. Cash used in operation during 2023 reflect ongoing investment in the business as we drive platform adoption across Ondas Networks and OAS. We expect cash utilization to improve significantly as we move through 2024. Improved cash efficiency comes from operating expenses leverage at both companies as we focus spending on driving customer adoption and growth in revenues and gross profits. As noted, we ended the year with $15 million in cash. In February, we announced an $8.6 million capital raise through the sales of undersolding common stock and on the network's preferred stock in a financing led by Charleston Potomac Capital. Pro forma of these financing and net transaction expenses, the company would have had $23.4 million of cash as of December 31st, 2023. As of December 31st, 2023, we had 28.5 million in convertible notes outstanding. I want to highlight that the convertible notes have maturities in April 25 and July 25, which means we have some time to manage the amortization and create conditions to equitize the notes under more favorable conditions. It is our objective to equitize these notes as soon as we can by using shares to retire the notes either via monthly amortization or to see these notes convert entirely into equity prior to maturity. I will now hand over the call back to Eric.