Ondas Inc

Welcome to the ONDAS Holdings, Inc. first quarter 2024 conference call. All participants will be in 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 on ONDAH'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 ONDAH's periodic SEC filings and in the earnings press release issued today, which are both available on the company's website. ONDAWS 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, ONDAWS will refer to certain non-GAAP financial measures, These non-GAAP measures are not prepared in accordance with generally accepted account principles. 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 Investor 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 that 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.

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'm happy to be joined today by key members of our leadership team, including our CFO, Ishe Terluru, Guy Simpson, the President and Chief Operating Officer of OnDust Networks, Mayor Kleiner, President of OnDust Autonomous Systems and the Founder and CEO of our Aerobotics Subsidiary, and Tim Tenney, CEO of American Robotics. Now, let's turn to the agenda. We'll start the call with some brief comments highlighting recent business developments at both OnDesk Networks and OnDesk Autonomous Systems business units. I will then hand the call to Yishai for a financial review of our first quarter 2024 results. We will then provide a business update for OnDesk 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. I expect today's call to be on the shorter side, given we have shared a detailed update on our last investor call just six weeks ago when we delivered our annual results for 2023. That investor call covered quite a bit of activity from Q1. Even so, we have been productive in the last six weeks, and as we will discuss, we have advanced our key business priorities at both on-desk networks and OAS business units. Before we dig into that, I want to start by acknowledging the disappointing start to 2024 from a revenue perspective. As we mentioned on our call on April 1st, we expect a good year from a growth perspective. However, our revenue will be heavily weighted to the second half of 2024, given headwinds we face to start the year, namely the extended timelines with the Class 1 railroads to deploy our technology in upgrading the legacy 900 MHz network, as well as the interruptions with our OAS business unit related to the Gaza conflict. Recall, with the Gaza conflict, the production of Optimus systems was negatively impacted, which created a bottleneck in advancing marketing activity. Nonetheless, we are optimistic about the adoption cycle ahead for our three technology platforms, which include, of course, ONS Network's FOMACS.16-compliant software-defined network platform, as well as OAS's Optimus system and Iron Drone Raiders. The value of our DOT16 technology was further confirmed with the order we announced today to provide an upgraded 220 megahertz PTC data radio for a key northeast corridor passenger railroad. The customer specifications for this upgraded PTC data radio required compatibility with the IEEE 802.16 wireless standard, which, of course, provides the customer the flexibility to engage a wireless network upgrade roadmap across that northeast corridor. This is a landmark deal, and we are very excited to open the passenger rail market and expand our serviceable addressable market, or SAM, to that very large 220 megahertz network. We are also excited about last week's update where we highlighted the first commercial order for our Iron Drone platform. Iron Drone Raider is a home-run product with what we believe are market-leading performance specifications. We have worked intently with our customer and defense partners to add even more capability to the Raider, and we look forward to sharing these details on the Raider specifications and technology enhancements at a later time. We expect to receive additional orders for the Iron Drone platform in the coming months as we prepare for volume production and expanded marketing to other defense and security customers globally. These new orders for on-desk networks in our OAS business unit demonstrate the market leadership and valuable innovation we are bringing to protect and secure provision of critical services and operation of critical infrastructure assets. At on-desk networks, all signs continue to support a major growth opportunity, starting with the 900 megahertz network, where activity continues to advance. On the 900 megahertz program, we have made more progress on the systems integration effort we described on our last call. Guy will provide more details, but I am happy to share up front that we have now completed the integration and backwards compatibility on the legacy 900 megahertz network with two railroads, including a class one railroad in Chicago and with a smaller communal rail system in the southwest. Our progress was validated when our distribution partner received an order in early May for a system-wide deployment on behalf of that commuter railroad. There's still more work in Chicago, which is related to demonstrating the final migration to the new 900 megahertz frequency band, and that migration is being planned now. As we move into 2024, we are seeing broadening opportunities at OAS. With geopolitical conflicts rising as evidenced by the tensions in the Ukraine, Middle East, and Taiwan, the need to protect and secure critical infrastructure, assets, and services is a significant focus from government, defense, and Homeland Security officials, as well as for operators of critical technology and industrial assets. These tailwinds are strong and strengthening and benefit our Optimus and IronDrone platforms. In addition to our milestone order for IronDrone, we continue to advance the customer marketing activity on our Optimus system. Our marketing efforts in the U.S. and Europe are adding to a robust pipeline of attractive customer activities while our efforts in the Middle East continue to perform well. Mary and Tim will share more details later on the call. And as Mayor and Tim will discuss, the Optimist system inventory availability is improving. This will enable additional customer activity here in the U.S. and internationally and allows us to engage a growing and maturing customer pipeline. I want to highlight the partnership we signed last week with Hala Sky, a drone services unit of Hala, the largest terminal operator at the port of Hamburg in Germany, which is Europe's third largest seaport. This is an important relationship for the Andes Autonomous Systems business unit. With Hala Sky, we are bringing an ability to drive fleet adoption of Optimus systems and build scalable aerial security and data intelligence programs for global terminal operators where our customer pipeline is growing. I would add that we believe Hala Sky will also provide entry across government and industrial markets and the large German drone market. So to wrap up the introduction, the week's first half revenue belies the value we are building with customers across our technology platforms. The order for the 220 MHz PC data radio is a huge signal of broad adoption of DOT16 across global rail markets and the strategic value of our Fulmax connectivity platform. Further, the commercialization of the Iron Drone Raider transitions that platform to revenue generation and solidifies our OAS business unit as an important player in a fast-growing market for autonomous systems, providing security and intelligence to critical markets such as defense, security, public safety, and critical infrastructure operations in a world that's requiring more and more of this expertise. I will now hand the call to Yishay to provide the detailed Q1 financial update. Yishay?

Thank you, 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 23, 2023, following our successful acquisition. This strategic move has significantly augmented our operational effectiveness and revenue streams, increased our market presence, and enhancing our shareholder value. Further, despite the added scale from the addition of aerobatics, as you will see, operating expenses, both cash and non-cash OPEX, are down quarter over quarter, reflecting an extreme focus on OPEX efficiency. That will continue. Turning to the Q124 results, we had a slow start to the year. In the first quarter of 24, revenues decreased to $625,000 compared to $2.6 million in Q1-23. The decrease in revenues was primarily a result of extended timelines at ONDAS networks related to the 900 MHz activities with the Class 1 railroads and supply chain disruption connected to the Gaza war at our OAS business unit. For ONDAS networks, revenues will fluctuate from quarter to quarter given the uncertainty around timing of customer activity in front of the targeted commercial rollout in the 900 MHz network and development programs underway with Siemens and MXD rates. Similarly, revenues at OES are expected to vary from quarter to quarter and to normalize into more predictable patterns as we grow our customer base and more of those customers enter fleet programs and recurring service agreements in the United States and internationally. Gross profit decreased to negative 400,000 for Q124 as compared to 1 million for Q123. Gross margin was negative for Q124 as compared to 39.6% for Q123. A disappointing gross margin performance is primarily due to subscale operations given the low revenue recorded in the quarter relative to recurring cost of services provided, as well as product development costs overrun on typically low-margin development programs. Cost margins can be volatile on quarter-by-to-quarter basis due to low revenue levels and shift in quarter mix between products, development, and services revenue. Please note that we are targeting higher gross margin at Ondas Network on new development progress such as the PTC data radio announced today. Operating expenses decreased to $8.7 million for Q124 as compared to $13.7 million in Q123. The sharp drop in operating expenses was primarily due to controls on cash activity and decreased R&D activity both in networks and OAS. This decrease in operating expenses emphasizes the ongoing benefit from the restructuring of our autonomous system business unit in connection with the integration of American robotics and aerobatics after the aerobatic acquisition closed in January 23. The company narrowed operating loss to $9.1 million for Q124 as compared to $12.6 million for Q123. Although revenue decreased, our operating loss improved 28% year-over-year and was largely driven by strong expense control and lower non-cash charges. Adjusted EBITDA loss narrowed 24% year-over-year to $7.7 million for Q124 as compared to $10.2 million for Q123. Now let's turn to the cash flow statements. We had cash and crash equivalents of $14.6 million as of March 31st, 24, as compared to $14.2 million as of March 31st, 2023. Q1 cash provided by financing includes additional gross financing totaling $8.6 million. Cash used in operations during Q1 24 decreased by $5.3 million, due to primarily the restructuring of our ONDOS autonomous system business units. We expect cash utilization to improve significantly as we move forward into 2024. Improved cash efficiencies come 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 Q1 with $14.6 million in cash. In February, we announced an $8.6 million capital raise through the sales of Ondas Holdings Common Stock and Ondas Networks Preferred Stock in a financing led by Charles and Potomac Capital. As of March 31, 2024, we had $27.4 million in convertible notes outstanding. I want to highlight that the convertible notes have maturities in April 2025 and July 2025, 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 quarterly. to see those nodes convert entirely to equity prior to maturity. I will now hand over the call back to Eric.