Ondas Inc

Welcome to the Ondas Holdings, Inc. second 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 ONTIS' 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 ONTIS' periodic SEC filings and in the earnings press release issued today, which are both available on the company's website. ONTIS undertakes no obligation to revise or update any forward-looking statements to reflect future events or circumstance except as required by law. During this call, ONDIS will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with general accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure 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 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 you 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 interim CFO, Neil Laird, Guy Simpson, the president and chief operating officer of OnDesk Networks, Mayor Kleiner, president of OnDesk Autonomous Systems and the founder and CEO of our aerobotics subsidiary, and Tim Kenney, CEO of American Robotics. Let's turn to the agenda. We will start the call with some brief comments highlighting recent business developments in both our ONDAS Networks and ONDAS Autonomous Systems business units. I will then hand the call to Neil for a financial review of our second quarter 2024 results. We will then provide a business update for ONDAS Networks in our OAS business units, where I will ask Guy, Mayer, and Tim to provide commentary around current business activity. Then we will wrap the call and open the floor for investor questions. While we continue to progress critical customer activity during the second quarter, positioning Ondas for long-term growth, I will begin the call by acknowledging the disappointing start to 2024 from a revenue perspective. While this is consistent with expectations we set at our last call, it is nonetheless disappointing to you as well as to me and our team. Extended timelines relative to our expectations for railroad deployment plans and 900 MHz remain an issue, And the impact from the Gaza War, which created inventory production and other bottlenecks, served to push out customer and business development activity at both Aerobotics and American Robotics. Nonetheless, we did achieve important technical and operational milestones across the business units, which demonstrates that we are positioned for long-term success, driving adoption of our technology platforms across the large markets we address. Focusing initially on non-disk networks, I want to highlight that we have completed important systems integration efforts in the 900 megahertz network. Two customers, which include a class one railroad in Chicago and a commuter railroad in the Southwest, are operating live air link wireless networks at 900 megahertz. In addition, we have executed a successful field trial with a third customer, a major transit authority in the Midwest. Due to this work, our distribution partners secured the first commercial order for ATCS in the 900 megahertz band during the second quarter. In addition, we expect both the Class 1 rail and the transit rail operator I mentioned to submit purchase orders for area-wide deployments, both in Chicago, which would take us to three area-wide air link deployments in the second half of 2024. We are happy to see this commercial acceptance as this further validates our DOT16 technology as a platform for the new 900 megahertz network. Guy Simpson will share more details on our field operations and pipeline engagement with both the railroads and our partner Siemens, as well as the progress we are making on advancing the 220 megahertz PTC data radio, which we are developing on behalf of Amtrak and the Northeast Corridor. While the government conflict was disruptive from an operational and financial standpoint, I am proud of how our team at OAS rose to the occasion to support their country and continue to advance the business. While the situation remains difficult, the stakes remain high and the work we are doing is essential. That exceptional effort included amazing work at Aerobotics to accelerate the productization of our autonomous counter drone platform, the Iron Drone Raider. As we said on our last call, the Raider is a home run product, which has benefited from an intense capabilities upgrade program in partnership with our customers to meet the urgent needs to protect the homeland. We have advanced the radar product specifications to meet cutting-edge military requirements, which include mobility, autonomy, and precision. Those capabilities are enabled by the integration of sophisticated technologies, including onboard sensors and AI-driven software algorithms that allow for navigation in high-performance levels in complex, GPS-denied aerial environments. In addition, we have been able to perform extensive testing in real-world conditions to validate these capabilities. We have satisfied those requirements, which allowed us to secure two significant customers for Iron Drone with initial orders. One of those orders was provided by a large global defense vendor and the other, a direct purchase from a major military end customer. The purchase by the military end customer was a particularly significant event for the company, establishing Andas as a prime vendor with locked in pricing and economics for our high performing counter drone platform. This morning, we announced a second order from our initial military customer, which is funding an expansion of our program introducing the Iron Drone Raider into live security and combat operations. This order will fund continued system integration and enhancements, as well as certain sustainment activities. We expect demonstrated combat success in the coming months will result in volume orders for the Iron Drone platform. In parallel, we are preparing an increase in production capacity, field deployment and sustainment capability, and expanded marketing to other defense and security customers globally. Now, I want to put the Iron Drone's success into its proper context, and that is this. We are establishing a leading position in the counter drone market at ONDOPS. We believe the Iron Drone Raider is a best-in-class autonomous solution from a performance standpoint with its capabilities in complex environments, unique hard kill execution, and price point. We believe there's a significant global market for Iron Drone to protect from the growing threat of hostile drones. I see substantial expansion opportunities in the global defense market. In fact, we are seeing tangible engagement with additional military customers already, and those government-to-government marketing opportunities are supported by our initial military customer. The emergence of the defense sector as a material growth vector for Andas cannot be overstated. It demonstrates the true dual-use nature of our technology platforms and results in a massive increase in not only the total addressable market, but also drives a much higher serviceable and obtainable market, or SOM. As we move into the second half of 2024, we are seeing broadening opportunities at OAS. The demand environment for aero security platforms like Optimus and Iron Drone is strengthening, and we believe we have entered a significant and durable upcycle supporting our long-term business plan and value creation opportunities. While Iron Drone has gotten a lot of attention as of late, let's also highlight our business development activity with American Robotics as we open the large U.S. market for our services and technology platforms. American Robotics announced a landmark deal with the U.S. Coast Guard. We garnered a fixed-price contract for a program designed to perform emissions monitoring at the Port of Long Beach. This is in support of the EPA Clean Ports Initiative intended to improve air quality. The service we provide is consistent with certified solutions worldwide, as maritime regulations around air quality are uniformed globally, and we believe it's the first time the U.S. Coast Guard has contracted for this capability. And it's important to emphasize that while this is an initial pilot, it is not an experiment. This is a fully operational program, and vessels that violate air quality limitations will be held accountable by the Coast Guard. We believe this solution is properly architected and can develop into a big opportunity for American robotics. Tim will share more details. With the focus turning to defense, military, and homeland security, remember, both the Optimus and Iron Drone platforms are dual use, targeting huge commercial and government markets as well. We expect existing customers to grow their Optimus fleets later this year, while the pipeline for new customer engagement is both expanding and maturing. The pipeline now includes military customers. I'm also pleased with significant fleet opportunities we see in the United States with American Robotics, where we are engaged with public safety departments and operators of critical industrial and technology infrastructure and assets. We expect to have more to share in those markets as we move through the second half. So to wrap up the introduction, the week first half of revenue belies the value we are building with customers across our technology platforms. We do have work to do to outline the 900 megahertz deployment plans with customers, and we will work hard to secure those build-out plans. At OAS, we see the commercial adoption cycle for Optus re-engaging in a huge new product opportunity for Iron Drone. This should lead to a material recovery in revenue in the second half of 2024. I will now hand the call to Neil to provide the detailed second quarter financial update.

Neil? Thanks, Eric. As I get started, I want to remind our investors that our financial statements reflect the early stage of platform adoption for both ONDAS networks and OAS, and the preparation for larger commercial rollouts. We expect significant operating leverage as revenues grow, though today's revenue levels do not yet cover our operating expenses. For ONDAS networks, revenues will fluctuate from quarter to quarter, given the uncertainty around the timing of customer activity. in front of the targeted commercial rollouts in the 900 megahertz network and the development of programs underway with Siemens and MXV rail. 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 service agreements in the United States and internationally. In the second quarter of 2024, revenues were approximately $1 million, as compared to approximately $5.5 million for the second quarter of 2023. This was primarily a result of extended timelines at ONDAS networks related to the 900 megahertz activity with the Class I railroads and supply chain disruptions connected to the Gaza war at our OAS business unit. Gross profit was negative $190,000 for Q2 2024, as opposed to 3.1 million for Q2 2023. Gross margin was negative 20% for Q2 2024, as opposed to 56% for Q2 2023. The gross margin performance is primarily due to subscale operations, given the low revenue recorded in the quarter relative to the recurring cost of services provided, as well as revenue being primarily typically low margin development programs. Gross margins can be volatile on a quarter-to-quarter basis due to low revenue levels and shifts in revenue mix between product development and product development and service revenues. Operating expenses decreased to $8.1 million for the second quarter of 2024 as opposed to $11.6 million in the second quarter of 2023. The sharp drop in operating expenses was primarily due to strict controls on cash expenditures and decreased R&D activity, both at networks and OAS. This decrease in operating expenses emphasizes the ongoing benefits from the restructuring of our ONDAS autonomous systems business unit in connection with the integration of American Robotics and Aerobotics after the Aerobotics acquisition closed in January, 2023. The company narrowed operating loss to 8.3 million for the second quarter of 2024, as compared to 8.5 million for the second quarter of 2023. Adjusted EBITDA loss was 6.7 million for Q2 2024, as opposed to 5.6 million for Q2 2023. And now let's turn to the cash flow statement. We held cash and cash equivalents of $5 million as of June the 30th, 2024, as compared to $15 million as of December the 31st, 2023. The first half cash provided by financing includes an additional gross funding totaling $8.5 million. Cash used in operations during the first half of 2024 decreased by 5.6 million, primarily due to the lower operating expenses discussed just now, as well as lower investment in working capital as we collected receivables from the higher revenues in the previous year. We expect cash utilization to improve significantly as we moved into the second half of 2024. Improved cash sufficiency comes from both continued cost controls and operating expense leverage at our OAS business unit, given our expectation of a recovery in revenue and gross profit growth in the second half of 2024. As noted, we ended Q2 with $5 million in cash. As of June the 30th, 2024, we had $29.2 million of convertible notes outstanding. As we previously stated, it is our objective to equitize these notes by using shares to retire the notes either via monthly amortization or to see these notes convert entirely to equity prior to maturity. I will now hand the call back to Eric.