Ondas Holdings 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.

Well, thank you, Ishe. Now we will transition to a review of our business units and ask Guy Simpson and Mayor Kleiner to share updates on recent activity in the field with customers and industry partners. We will also ask Tim Tenney to share comments regarding American Robotics and drill down a bit into the outlook for OAS in the United States. Before I hand the floor to Guy, I want to provide a couple of important updates at OnDust Networks. Firstly, we have made a leadership change at OnDust Networks. Stuart Cantor is no longer with the company. In addition, Guy Simpson has been appointed as a new president at Andes Networks. As I mentioned at the beginning of the call, Guy has had a long tenure as COO of Andes Networks. I relied on him to manage our growing team from an internal operations standpoint, and in parallel, his leadership has spanned from spearheading our production capacity ramp to leading our technical field and solutions engineering teams, while also being out in front on the most critical customer-related activities. We rely on Guy extensively, and I am happy to have him assume the added responsibilities as president as we move forward to scale the company. The purpose and benefit of the management chain is to align the company to be super focused on driving the order ramp and revenue growth we are targeting while charting a path to profitability. We have done exceptional work at Ondas developing innovative, world-class wireless technology for mission-critical networks. Now it's time to intensively focus our energies towards delivering these solutions in the field to customers at scale. We believe our business is at an inflection point. We believe commercial deployments of 900 megahertz will begin soon, and that the opportunity of 900 megahertz in the other private networks for the Class 1 rails, in addition to global rail markets, remains substantial. Guy, I am now handing the call over to you.

Thank you, Eric. It's a pleasure to be here and to have the opportunity to work with our investors. At Ondas Networks, we generated $6.7 million in revenues during 2023, led by product shipments for customers. This represented a 250% increase in revenues compared with 2022. 2023 was also marked by Ondas Networks making investments to significantly increase its production capacity. which supported record production and shipment volumes for the year. We continue to be fully engaged with Siemens, the Class 1 rails, and our transit customers to further prepare for large-scale commercial deployments at 900 MHz. Furthermore, we continue our work with the AAR and our rail customers on a development roadmap for DOT16 networks. including a number of future products and additional networks beyond 900 megahertz. Internationally, we have ongoing activity with Siemens for Indian Railways, as well as the development of a new locomotive radio for the European market, a program that will be completed in 2024. And lastly, we have several ongoing business development activities with the passenger and transit rails in North America and international markets. We anticipate sharing new activity in these markets, particularly around the passenger rail side soon. As our investors know, we have engaged in long-term program with Siemens and the Class 1 railroads to pursue an upgrade of the 900 megahertz network. I want to take some time and provide a factual update related to our work on that 900 megahertz network, while sharing some context on the opportunity and the path ahead. First, the Class 1 railroads have agreed with the FCC to vacate the legacy 900 MHz channels. In return, the FCC has provided new greenfield spectrum, known as the A Block, for the railroads to build a new modern network for operational and safety use cases. ONDAS first engaged the AAR in development work on 900 MHz in 2019. In April 2020, the FCC issued a formal order for the rails to vacate the legacy 900 megahertz spectrum. Also, in April 2020, we signed a partnership with Siemens to address this 900 megahertz migration opportunity and to upgrade the ATCS application from the legacy 900 megahertz network. So, Anders and Siemens have been deeply engaged on this project for more than four years. And let's be clear, we have accomplished a lot. After extensive lab and field testing of our Fullmax-based platform and significant joint product development efforts with Siemens, the AAR announced the selection of DOT16 as the technology for the new 900 megahertz network. This selection was announced by the AAR's Wireless Communications Committee, WCC, in March 2023. Since then, we have worked in the field on end-to-end systems integration with multiple railroads. This work is with the railroads train operating groups, principally the communications and signaling, or CNS, teams. Systems integration, often encompassing many disparate legacy elements, is complex. The good news is that handling complexity is a huge strength of Undus and a significant reason why customers value our expertise. But of course, it takes work. And in the railroad business, developing scalable processes is rarely a straight line, as you have seen. So let's take a closer look and describe precisely where we are and the outlook ahead. We believe we are in the final stages of the complex systems integration process connected to upgrading the 900 megahertz network. If you've been listening closely, you'll have heard me repeat the term systems integration many times. This is an important concept to understand. The work that Ondas and Siemens and the railroads train operations groups is focused on the integration of new, modern systems with legacy technologies. So first, what do we mean by a system? The 900 megahertz network upgrade isn't just a communications event. The first application on the new 900 megahertz network, Siemens Advanced Train Control System, or ATCS, is the same application that has been running for at least two decades. This means that Anders and Siemens are upgrading the ATCS application and introducing a new communications technology simultaneously. The system's integration of ATCS and the DOT16 network requires backwards compatibility with many other complementary technologies within rail operations, starting at the rail wayside and all the way to the back office applications. Some of this technology is more than 20 years old, and as we move forward, we and the customers are learning that other tangential technology needs to be upgraded as well. Understandably, this integration effort must be done carefully. Even minor issues can impact timelines more than we would like. The good news is that both Siemens and Ondas, as well as the customers, are committed to doing the hard work. And we believe we are close to validating the systems integration effort. Upon final acceptance from our leading Class 1 customer, we believe initial commercial orders will come from this railroad, as well as two smaller rail systems with whom we are also currently engaged. Importantly, the other Class 1 railroads are tracking this activity closely, and we expect them to advance their own field work with Anders and Siemens, and then signal their 900 megahertz network objectives, planning, and timelines once our systems integration process has been validated. Of course, while we are reluctant to publicly discuss FCC deadlines, after all, they are the rails' deadlines, not ours, we do believe that these deadlines are motivating increased engagement. We believe the hard work on systems integration is nearly behind us, and the order and deployment cycle we have been waiting for is becoming increasingly visible. We look to build the order book and backlog with more railroads planning, ATCS upgrades, and wider 900 megahertz network build-outs. 2024 will be a good year. Success in the field, and we will build on the increased production capability established in 2023 and further expand our service delivery model with training and marketing programs designed to drive expanded use of the DOT16 technology. So let me try to succinctly summarize the outlook at ONDAS Networks. We will drive orders, backlog, delivery, and deployment of systems this year to start the 900 megahertz network upgrade cycle for the railroads. We feel like we are close. The customer feedback on the hard task of systems integration has been universally positive. We are very close. As we have stated previously, We continue to move forward aggressively on securing new orders and now have the capabilities to meet our customers' production needs. In parallel, Siemens and Ondas are advancing our services capability to support wide-scale adoption and deployment of our DOT16 wireless technology. As we advance, we are seeing a broadening and also a deepening of engagement across the industry. This includes the Class 1 rail customers we have been working with since 2019, and now transit and passenger rail operators. More generally, there is an increasing demand for new networks and new products and in new geographic markets, and also to develop new rail ecosystem slash vendor relationships. We have outlined some of this here and expect more announcements soon on this front. As we grow, we will pay close attention to spending levels on operating costs as we drive towards profitability. We are increasingly focusing our OPEX dollars on driving revenue and supporting a path to profitability. I'll now hand the call back to Eric. Eric?

Thank you, Guy. I will now ask Mayor Kleiner to take the floor and update us on the progress with customers at Andas Autonomous Systems. and provide insight into recent developments at OAS and the outlook from here. Mayor?

Thank you, Eric. 2023 was a pivotal year for Ondas Autonomous Systems. We have been able to achieve our goals outlined in our roadmap to enable our vision for expanding our fully autonomous drones and the transformative solutions they offer for critical operations. Our team has worked hard over the past two years to bring Ondas to this point. We are concluding 2023 with record high revenues, a strong validate market feed for the Optimus system and a very promising position in the market with the Iron Drone radar system. We believe that Ondas currently holds two of the most promising drone technologies in the market and a very strong and capable team to implementing them as a critical drone infrastructure in civil and military operations. During 2023, the Optimus system has proven its value for ongoing surveillance and emergency response operations in Dubai, UAE, demonstrating the disruptive potential of our trusted technology in current security operations worldwide. In the US, we have made significant progress demonstrating the capabilities of the Optimus system to the Massachusetts Department of Transportation and its stakeholders. Our Optimus drone has received an airworthiness type certification by the FAA, making it the first drone in a box and data capturing drone to achieve such certification. This milestone not only allows our team to continue working with the FAA on advanced completely autonomous operation in complex environments such as cities and metropolitan areas, but also signifies that our technology has reached a very mature stage. Our global potential market in security, critical infrastructure protection, and remote monitoring services is vast. We will continue executing our plan, focusing on market penetration via public safety and transportation departments, serving ports and terminal operations, emergency response, and large construction projects, as our drone and data as a service business models have proven to be scalable. we are receiving strong indications of the value of shared drone infrastructure demonstrated with our customers. The impact of our full-scale world's first urban drone network is reflected in our 2023 revenues and growth as we have delivered an additional system to our customers in Dubai. This is a continuation of our governmental customer stating its intention to deploy a city-wide network. During 2023 and recently, major public safety and security groups from the US and international markets received demonstration of the Optimus system network capabilities. Its dramatic impacts on response time is proudly highlighted, with our customer reducing it from 4 minutes to 70 seconds in the Optimus network coverage areas, creating a network effect and synergy of Optimus drone fleets deployed as a smart network of drones. We will keep working and targeting our expansion in the UEE to additional civil and industrial infrastructure customers and use cases, focusing on shared infrastructure deployments models with multiple customers and leveraging our operational footprint for local and export opportunities from the UEE. 2023 was a significant year for our Iron One radar counter drone system. We have acquired and enhanced this system to become one of the most prominent solutions for some of the most challenging problems posed by hosted drones. We have received a grant from the Israeli Innovation Authority to help support this enhancement. As conflicts in Ukraine and Israel escalate, we are witnessing the growing impact of small autonomous drones, the damage they cause, and the difficulty in detecting and effectively neutralizing them in a timely manner with minimal collateral damage. We have responded to the urgent requirements of defense and security forces in Israel and worldwide. We are rapidly integrating and enhancing this promising technology to address all aspects and become a significant player in this domain. After initially entering the market in Israel, we are planning to develop a global marketing plan. We are already in conversation with the US defense and security entities as we explore partnerships for distribution and system integration worldwide to capture market position in this large market that also includes the protection of critical industrial and civil infrastructure and sensitive public locations. ONAT has also made significant progress in the U.S. market during 2023. Our reorganization program, aiming to leverage the core advantage of integrating American robotics and robotics, has been fruitful. I will now end the call to Tim Tenney, CEO of American Robotics, to provide an update on the business advances we are making at American Robotics.

Thank you, Mayor. 2023 was a significant year for American robotics. Since quarter four and throughout quarter one, we have continued to consolidate, build, and mature our customer pipeline, focusing on fleet opportunities and shared infrastructure models for the defense, government, and commercial sectors within the United States. During this period, we have successfully conducted a proof of concept with the Mass Department of Transportation Division of Aeronautics, which included demonstrations of the Optimus system's wide array of capabilities at multiple locations and in wide-ranging environments. We are planning to advance our marketing efforts with additional governmental customers as part of our go-to-market penetration plan and to launch more programs during 2024. Our pipeline includes departments of transportations, ports and terminals, public safety, rail, utilities, and oil and gas, offering them our unique trusted solutions to some of the most challenging problems of remote monitoring and infrastructure missions. We are advancing our business and operational capabilities with a lean and effective team of proven experts and expecting optimist inventory arrivals during quarter two. With the new inventory, we will be able to support increased installations of Optimus systems for more programs and new sites. With the arrival of these new systems, we are building a world-class customer service and experience center at our new Maryland location that allows for unfettered demonstrations of products and is in close proximity to defense, government, and commercial customers. Together with the FAA type certification of the Optimus drone and our ability to operate consistently beyond visual line of sight, these demonstrations will make a huge impact. Our team's ingenuity and professionalism were proven this quarter, working in coordination with the FAA to receive an important beyond visual line of sight waiver based upon a solution that will enable autonomy and adoption of our systems for customers, which I'll discuss shortly in more detail. I would like to highlight our achievements in the proof of concept program accomplished with the Mass Department of Transportation. During this program, American Robotics demonstrated a multitude of use cases, including inspection of rail and other critical assets, surveillance and emergency response applications, automated mapping, and survey by our autonomous Optimus system. We have continued to build and integrate an ecosystem of technological partners, and together with the unique features of the Optimus system, enable our access to complex airspace, which is critical for delivering continuous, effective drone missions without limitations. As mentioned earlier, the unrivaled aviation safety and regulatory experience was proven in concert of having an FAA-certified UAS and the patented See and Avoid system that enabled the rapid approval of a Beyond Visual Line of Sight waiver from which allows for truly remote operations. This remarkable achievement was lauded by MassDOT, further solidifying our leadership in the UAS industry. This program further validates our assumptions with respect to the size of opportunities with the departments of transportation in the United States and worldwide in establishing a scalable framework and end-to-end automated data solution that supports customer requirements. We are continuing to explore and validate additional deployment locations throughout the United States, supporting our expansion efforts. As mentioned previously, we are excited to introduce the Raider system to defense and government clients and believe the Raider is an important capability and solution for the U.S. markets, especially given the refocus of UAS into defense and security budgets. Finally, we continue to evaluate and add partnerships that enable our autonomous network strategy and framework. Both SenseHive and Resilience, which were announced this quarter, are central to this framework. I will now hand back the call to Mayor.

Thank you, Tim. We are pleased with the growth in 2023 and looking forward to continuing this momentum in 2024. We will continue to grow our revenue and orders for our fleet deployments in the UAE, secure additional customer engagement in the U.S., and expand into other international markets. We are planning to start initial operations in Europe, where our marketing teams have already begun some business development activities. We are optimistic for our ability to accelerate business development in the US, leveraging American robotics footprint to penetrate DOTs, public safety, and critical industrial markets. We will continue with ecosystem development, working with partners to provide full-spectrum drone platforms services and data integration. We focused on scaling our production capability in 2024. We are building and delivering inventory, expanding to 15 new optimal system on order and preparing new production orders for H2 2024 to satisfy expected demand. We believe Iron One will launch this year and we look forward to sharing more news about the Iron One radar. We are establishing production capabilities in parallel as we work with customers and partners to formalize orders. As I mentioned before, we believe we are well positioned to maintain momentum and generate significant growth in 2024. As we have announced, we have decided to create autonomous holdings to scale up our drone business. Eric will talk about this great initiative, and I look forward to sharing that outlook with you the next time we meet. This completes my formal remarks. Eric, I'm going to end the call back to you now.

Thank you, Meriton. Before we wrap up the call, I want to take a moment and discuss the recently announced establishment of Andas Autonomous Holdings, or OAH, as an intermediate drone holding company. Bringing American Robotics and Aerobotics under the OAH corporate umbrella is essentially a continuation of the integration we embarked on after closing the Aerobotics acquisition in January 2023. This will provide many operational and financial benefits as we scale the OAS business globally around our world-class technology platforms. As we illustrate here, OAH is a wholly owned subsidiary and controlled by the public company, Andas Holdings. From a consolidated basis, nothing has changed. The benefits of this new corporate structure are multiple. Firstly, we expect to realize significant operational flexibility with a corporate structure entirely focused on the global development and delivery of best-in-class autonomous aerial security and data solutions. The markets we service are large, dynamic, and rapidly growing. A pure play drone solutions company is the appropriate corporate structure. The financial benefits are also significant. We measure our market valuation opportunities with OAH in the many billions of dollars. We have an exceptional opportunity to grow a large, profitable business, and in doing so, stake out a dominant position in a massive, fast-growing market. Having a clean, independent balance sheet will lower our cost of capital dramatically. We are in a difficult financial climate for drone companies. We have many competitive advantages that matter to our customers and partners. These advantages are chiefly our best-in-class proven technology platforms and roadmap, our regulatory capabilities, and of course, our incredibly talented team. That advantage will be amplified by a strong balance sheet. Just watch. We plan to have an investor day focused on OAH during Q2. Then we will lay out an expanded business plan, which we think will be well received. Let's wrap the call now and summarize the outlook. We aren't giving formal guidance today. We have a lot of confidence in the full year outlook. However, right now, we want to be conservative given we still need to secure that initial 900 megahertz volume order. At OnDesk Networks, we will complete the systems integration effort as Guy discussed. It is close, and from there, visibility on pipeline, inability to secure orders, improves quite a bit. The opportunity on those networks remains as big as ever. We continue to see the TAM on 900 megahertz at $400 million. And you will see us increase our serviceable addressable market or SAM this year with new customers and network opportunities beyond 900. Remember, DOT16 is poised to be the private wireless network technology for all the private rail networks. So stay tuned. At OAS, we will see continued growth with existing customers. Importantly, we see the prospect of adding multiple new customers this year that have significant potential to drive fleet adoption and accelerate our growth curve. In addition, we believe the Iron Drone Raider is hitting a sweet spot in a drone market segment, seeing explosive growth, and will be a major catalyst for our valuation. In short, we do expect 2024 to be a very good year when it's all said and done. With that, Let's see if there are any questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Glenn Mattson with Leidenberg Thalmann. Please go ahead.

Yeah, hi, thanks for taking the questions. So a couple times you guys mentioned inventory as a, I don't know, perhaps a gating factor in the drone space in terms of growth. Can you just talk about that, you know, availability of inventory now and perhaps Uh, you know, I guess the timeline as to when you think that inventory problem alleviated itself versus, uh, what backlog you have now and, and, and how you expect that backlog to kind of ship throughout the year. That'd be helpful. Thanks.

Yeah, Glenn, I'll, um, I'll answer this. Um, and then I'll ask Mary to, uh, provide a few more details. So, uh, we were building systems as we communicated to investors, um, last year. And, of course, sort of trying to sequence that for deliveries in the second half. The events in Gaza, the conflict, did throw the supply chain and the production capability off and really pushed out the timing of completion of builds and delivering of systems to us. So we're at the point where we're seeing that relieve itself. We've had some units delivered recently, and we expect that to pick up. And, Mayor, maybe you can give a little bit more detail on that.

Sure. Thanks, Harry. So, as you mentioned, we are in the manufacturing phase, and right now we are in the timeline of every two weeks we have a new system from the supplier. So I think we are in good shape about it.

Okay, thanks. And, uh, if I could ask another one, just on the, on the network, uh, network side, the, um, you know, I guess with the, um, ramp and deployments coming a little slower than expected, perhaps, can you just give a sense of the, um, you know, it doesn't appear, I guess, perhaps for the one class one railroad, you know, if they start to ramp up a little faster as this year goes by, they'll perhaps be able to meet some of the hard deadlines that the, uh, that that has been set by the government but but it doesn't appear that maybe some of the other class one railroads are as far along down the path can you just get a sense of the urgency uh on their side you know how you're sensing what their urgency is in terms of uh of the of the guidelines and the deadlines and and and you know what the plan would be if they they were to not meet those and and that kind of thing sure

Yeah, so as we said, we gave some context on this, and I'll circle back to that, you know, regarding deadlines. But I do want to emphasize that these are the rail deadlines. And as we talked to the AAR, principally the Wireless Comms Committee, they continue to express confidence in being able to meet the deadlines. But again, I'll leave that to them. In terms of the process, Glenn, We are doing this, you know, as Guy shared in some great detail, the complex systems integration work, and that's a process that is being done with one rail in particular, and we have a couple of other transit rails involved as well. And this is sort of typical, I would say, of how the AAR and WCC work. It doesn't make sense for ONDAS and Siemens to be stretched across all six rail systems, simultaneously doing the same program to demonstrate the scalability of the network in ATCS integration and in migration to the new band. So you're seeing, as we do this work, very regular interaction with the broader WCC on our progress. And our belief is that as we validate this, we do believe we're close. uh that the engagement the other railroads is going to be um you know we're not starting at ground zero essentially they'll go through a process where they start to install themselves get and get comfortable with how that process looks but the fact that we have gone through and i'd say ironed out the kinks with all the legacy technologies and how they play with our new systems um in a modern network um i think you know the belief is that the the these uh other railroads can engage fairly quickly.

Great. That's good to tell, Eric. Thanks for the help. Sure. Thanks, Glenn.

The next question comes from Tim Horn with Oppenheimer. Please go ahead.

Thanks, guys. Eric, do you think you have enough cash now to make it to free cash flow positive, or do you need to do some more fundraising?

I think we'll do some more fundraising, Tim, and we're trying to position the company so that our access to capital on better terms is possible. We've been able to do that. Yeah, we're not going to disclose that amount now. I think you can look at the current OPEX levels of about $7.5 billion per quarter. as kind of what the OPEX is. And then, of course, we will be driving revenue growth, of course, profit, and that's going to increasingly fund the business.

Got it. And so just back to the rails and the 900 megahertz, do you have a best guess Um, when, you know, initially they have to vacate the spectrum and the second phase, you know, at this point, absent the FCC timeline and they have a best guess at this point, you know, what that means, uh, revenue for, uh, you know, for you guys.

Uh, yeah, I hesitate to put, um, you know, the numbers on it. We still look at the addressable market and we made this point on the call. as the same. We just see things pushed to the right a bit here. But we do believe the order cycle will begin soon as we clear these final hurdles. And, you know, with respect to the timing, the legacy 900 network retirement date remains as September 2025, but we have not seen any change of that. And then build out requirements in the first that kick in in the first half of of 2026. So we do believe that there's some urgency here. And as we have success on demonstrating the integration, that we're going to get a lot more visibility on broad plans for the entire sector.

Got it. So do you think this year is still primarily a year for taking orders or will we actually start to, you know, should we expect shipments more in 25 or, you know, should we expect shipments in 24?

I think we're going to get shipment to 24.

Got it. And then the one partner that you're working on, the systems integration, how long is this process taking? And it sounds like are we weeks away or months away from that being finalized? And how long do you take for others to kind of prove out the system integration?

So I think we're very close. You know, what we're doing in the field is sort of real time, I would say. And, you know, I hesitate to put any more finer point on that because you're not there until you're there. But, you know, we have been in the field now with this effort, with this one particular class, one for the better part of six months. And as we said on the call, there's things that come up, right, and even innocuous integration some small piece of the legacy system. Sometimes we'll sort of send you back. You have to wait for an upgrade of a certain system or component of the system, and then you get back and you finish. So we believe we've done the vast bulk. I say, I think we may have done it all, but I don't want to make that point until we're able to say it's finished. So I think it's close. And then from there, Obviously, we'll be communicating this with Siemens and their customer in the forms I've told you about before, the WCC and with the individual railroads. And I think from there, there's going to be more engagement with people trying to do the same sort of process. But again, it doesn't start at ground zero because we've demonstrated the path in the field with how the systems get integrated.

Got it. So for the remaining rails, you think it's more of, you know, instead of a, you know, six to eight month process, you think it's more of a three to four month process for each of them?

Uh, yeah, it's, it's definitely shorter. Um, and I, I would hope it's shorter than that. I think the second railroad will go a lot faster. The third railroad will go faster than that. You know, what we, what we're really doing here is demonstrating the systems integration, and also the scalable processes to integrate and migrate to the new band.

Got it. And, you know, so it sounds like we might be in a situation where we need to ship, like, $100 million worth of equipment within, like, I mean, to meet the timeframe within, like, a six- to nine-month period. Do you have the manufacturing capability to do that?

So we need to add capacity to hit those numbers you mentioned, and, you know, So that's the short answer. I do believe as we're moving through the second half and in 2025 that we're going to, you know, with increased visibility, we can do that along with, you know, obviously working closely with our manufacturing partners. Thank you. Thank you, Tim.

The next question comes from Carter Mansbach with Forte Capital Group. Please go ahead.

Good morning, guys. First of all, congratulations on all the progress that you guys have made. So a couple of questions. So, Eric, I think I heard you say early in the call about other vendors. Are there other vendors that you're talking to or working with besides Siemens for the rails?

So the short answer is yes. We have – and I'll remind you that when we deploy – this network, there's multiple technologies that need to be integrated. So that's one thing I'd highlight. Secondly, this is a global rail market, and we have an outstanding relationship with Siemens. That's only getting stronger. But there's more opportunity out there when we think about global rail. So that's what I can share with you today.

Fair enough. All right, second question, maybe a little more complicated. So you said that you're going to have a call, investor call, regarding the spin-off of the drone business. So can you give us any insight of what it looks like? Are we talking about two separate stocks? I mean, I just have a lot of questions coming in from investors. We have no clarity. So are we looking at two separate entities where there will be two separate stock symbols? Can you give us anything until we actually have a call about it?

Yeah, I think the short answer to that is that might be what we do. So where we have established is OAH as an intermediate holding company. And that can be a funding vehicle where we raise capital specific to the drone businesses. And that could be as similar to the way we've done. We've raised capital on those networks. And or it could be in connection with a public market transaction, say a spin out or a subsidiary IPO. There's a range of options that we'll be evaluating and we'll probably share more of that when we have our investor call.

That sounds good. Yeah, it sounds like the drone side will be a lot leaner and it'll be great to have them separate entities. All right, well, thanks for your time. Congratulations on all the accomplishments. I look forward to seeing what happens in 2024. Thank you, Carter.

The next question comes from Aditya with Northland Capital. Please go ahead.

Hi, this is Aditya on behalf of Mike Latimer. Could you give some color on how much of the expected drone revenue should come from international customers versus domestics?

Yeah, this is a good question. I think you could expect us to drive probably more than half of our revenue this year from international markets. But I do think you'll see us get traction with some very important customers here in the US. And that over time, the US market is very likely to be the biggest one for us. A little more context on that as you think about building expectations and building financial models is when we're working with our initial customers, wherever they are in the world, typically what you'll see is one or a small handful of systems be deployed. And, of course, we're focused on customers that can scale multiple systems, fleets, So as we've demonstrated in Dubai in the public safety market there, it started with a couple, and of course now we're into a wide fleet deployment. So we saw more orders last year in bigger amounts in terms of number systems, and we do expect this year we'll see even more. So hopefully that gives you enough color, and now we see growth regionally.

Yep, got it. Could you also give some color on the gross margin range you would expect from drone revenue for this year?

I'm not going to give that guidance just yet. That depends on a lot of factors, including what the mix is, either the outright sales of the system or the as-a-service model. So I think we're going to hold back and share more details. I will say that we believe the The big market is the data-as-a-service market, and we'll be able to share a lot of color on the unit economics we see there on our OAH investor day.

Great. Thank you.

Thank you.

The next question comes from Matthew Galenko with Maxim Group. Please go ahead.

Hey, thanks for taking my questions. Maybe firstly, just wanted to focus a little bit on maybe your thoughts of timing for U.S. fleet deployments in drones. Is that something that, you know, following the MassDOT work could be, you know, a 2025 event or, you know, just sort of frame for us what the path is to starting to get some sorts of fleet deployments in the U.S.? ?

I'm going to speak more broadly when I answer that question, Matt, and not specific to MassDOT. So 2025, we do believe that we're going to have customers who are in a fleet expansion mode. And I think you'll see this year we're going to be engaging multiple customers who can do just that. So that's the work we're doing with customers is really trying to qualify them to ensure that they have the capability and the intent to scale these technologies.

Okay, thanks. And then can you also maybe frame where Iron Drone stands against kind of the traditional fleet deployments that you've looked at? Is that something that can, you know, kind of looking into 2025, be a bigger contributor for a period of time, just given, you know, where we're focused currently and where budgets are?

Sure. I'll ask Mayor to expand, but I think what you'll see in the near term is, as we've communicated, we're really focused on the initial customer in Israel, and we're excited about that. We think we're seeing – we do believe we're seeing success there. We hope to be able to share more specifics on that soon. And we also highlighted some of the work we're doing to bring this to the U.S. market. But, Mayor, maybe you can provide some context as to, you know, what the engagement looks like, production capability, and things like that for the rest of 24 to 25.

Yeah, right now we're in the final stage of the deployment phase. the system with what's happening here in Israel. And as you mentioned, Eric, we're going to expand it to the United States, I think, soon, a couple of months. And we really believe that we have the best solution for this kind of threat. And I hope that we will show the world very soon about it.

Okay. Thank you. All right. Thanks, Matt.

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 simply just thanking you again for attending. As always, we have a lot of work ahead, and we will get right back at it. And I look forward to keeping you informed on our progress. I hope you all have a great day.

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