Ondas Inc

Welcome to the ONDIS Holdings, Inc., third 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 ONDIS'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 ONDIS's periodic SEC filings and in the earnings press release issued today, which are both available on the company's website. ONDIS 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, ONDIS 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 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 conference 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, and Mary Kleiner, president of OnDesk Autonomous Systems and the founder and CEO of our Aerobotics subsidiary. Now let's turn to the agenda. We will begin the call with some brief comments highlighting recent business developments at both our OnDesk Networks and OnDesk Autonomous Systems business units. I will then hand the call to Neil for a financial review of our third quarter 2024 results. We'll then provide a business update for OnDesk Networks in our OAS business units, where I will ask Guy and Mary to provide commentary around current business activity. Then we will wrap the call and open the floor for investor questions. I will start the call by saying simply, this is an exciting time for ONDOS. Our hard work is translating into commercial success, and that is being reflected not only in the recently announced orders, but also in the maturation of the customer pipeline and the improving visibility for both OAS and ONDOS networks. This supports our belief that we will have a significant revenue growth ahead looking into Q4 and for 2025. The big news this quarter, of course, was the $14.4 million of orders OAS secured for our Iron Drone Raider and Optimus platforms. This signaled our entry into military markets and established our Iron Drone Raider system as a third revenue-generating technology platform in the ONDOS portfolio. Further, the expansion into global military markets has dramatically increased the TAM for OAS, but more importantly, the Serviceable and Obtainable Market, or SOM, that we can identify with customers today, which has also increased. I am incredibly proud of our team at OAS in their perseverance through a challenging wartime. Clearly, the conflict in Israel has been disruptive from an operational and financial standpoint, but our team continues to rise to the occasion to support their country while continuing to advance the business. This is truly exceptional, and that effort has translated into the largest booking supporter in the company's history. Further, the orders were received directly from the military customer, representing programs of record for both Iron Drone and Optimus in establishing ONDOS as a prime vendor, while also establishing pricing and margins for our high-performing autonomous drone platforms. 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, reusability, and price point. This platform is positioned as a leading candidate to own the category for hard kill county UAS infrastructure. We further 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 global defense markets. 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. In addition, our Optimus system will now be deployed to secure military bases and border checkpoints, demonstrating the exceptional capabilities of this market-leading system in high-value security markets. We believe the Optimus system was chosen for this critical security requirement due to its rugged, military-grade design and its unmatched reliability in performing autonomous operations. Further, this new program for Optimus entails OAS enhancing the functionality to allow for remote operations in complex, GPS-denied aerial environments. Our ability to meet these military requirements is a testament to our engineering expertise, which is demonstrated across both Optimus and Iron Drone. This expertise is highly valued by our customers. I would like to stay on Optimus for a moment. We see a steepening demand curve for aerial security and inspection services utilizing remotely operated autonomous drone-in-a-box systems. As we scale with existing customers for military and public safety applications, we see evidence that security officials and project managers in military, public safety, and critical industrial markets are increasingly realizing our ability to satisfy the most demanding requirements to secure and protect high-value assets and locations. The work to establish AmeriCorps Robotics' scalable operations capability has advanced in customer pipelines and maturing. We see specific opportunities in public safety, as well as the protection of critical assets, including ports, and the protection of critical technology infrastructure, which includes data centers and semiconductor facilities. For on-desk networks, I want to highlight progress on gaining clarity on the railroad's plans for the 900 MHz network. This is reflected in the strategically important order our distribution partners seem to secure from METRA, Chicago's primary commuter rail system. This is a significant milestone, and we will support a system-wide upgrade of the 900 MHz network to the new A block for Metra beginning in the fourth quarter. In addition, we'll get some seamless security in order for an expansion of a live .16 network in the 900 MHz band with a Class 1 railroad in Chicago. This is an expansion of a trial network that has been operating with live traffic since the fourth quarter of last year and is now a new deployment phase with this rail operator. We expect this to result in broader deployment across Chicago for that railroad in 2025 with likely expansion from there. The activity with both Metra and this freight railroad operator, Chicago, is an important development as it clearly signals to the rest of the industry that Honest Networks and Siemens have established a comprehensive deployment and migration plan to support adoption of the .16 wireless standard by North American Railroads in a new 900 MHz network. In short, we are demonstrating the robustness of the DOT16 standard as we start 900 megahertz upgrades in Chicago, the most complex railroad wireless environment in the country. In addition, we see a consensus emerging across our railroad customers regarding use cases for 900 megahertz that should lead to more system orders and deployments in 2025. Guy Simpson will expand on this increased transparency But in short, we see the railroads using 900 megahertz as both a primary, a redundant, or secondary network. In certain regions, railroads will migrate the legacy ATCS function to the new 900 megahertz network. In other locations, legacy ATCS, also known as CTC, will move to the 220 megahertz network. In the situations where CTC is moved to the 220 network, the railroads plan to use the 900 megahertz network as a backup system to host both CTC and positive train control applications. Either way, we are well positioned with a multipurpose network hosting either primary train control application or hosting CTC and PTC traffic as a secondary network. This demonstrates the value of our .16 platform with increased capacity and flexibility that supports robust, general-purpose, and multi-purpose network hosting. In this instance, PTC protocols will be carried on 900 MHz. So to wrap up the introduction, I see momentum building with both business units as we move through the fourth quarter. We should see a significant pickup in revenue as we fulfill the backlog at OAS, and we should also see additional orders enter the backlog over the balance of Q4. I will now hand the call to Neil to provide the detailed third 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 on-dust 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 Andos 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 MHz network, and the development programs underway with Siemens and MXV Rails. 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 revenue agreements in the United States and internationally. In the third quarter of 2024, revenues were approximately $1.5 million as compared to approximately $2.7 million for Q3 2023. This was primarily a result of extended timelines at ONDOS networks related to the 900 megahertz activity with the Class 1 railroads, partially offset by increases at OAS as we started to fulfill the purchase orders received during the quarter. Gross margin was $48,000 for Q3 2024, as compared to $555,000 for Q3 2023. Gross margin was 3% for Q3 2024 as compared to 21% for Q3 2023. The gross margin performance is due to the change in the mix of revenues in the third quarter of 2024, which included lower margin development projects as compared to product revenue with higher gross margins in the prior year quarter, as well as certain fixed costs related to OAS service delivery. 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 service revenue. Operating expenses were $8.7 million for Q3 2024 as compared to $6.5 million in Q3 2023. Cash operating expenses were $7.1 million compared to $7.5 million. Cash operating expenses exclude non-cash operating expenses for depreciation and amortization of $1.3 million in both quarters and stock-based compensation of $0.3 million in the third quarter of 2024 compared to the credit of $2.3 million in the third quarter of 2023. The operating loss was $8.7 million for Q3 2024 as compared to $5.9 million for Q3 2023. reflecting the lower revenue and the one-time stock compensation credit in the prior year. Adjusted EBITDA loss was $7.1 million for Q3 2024, as compared to $6.9 million for Q3 2023. So now let's turn to the cash flow statement. We held cash and cash equivalents of $2.9 million as of September the 30th, 2024, compared to $15 million as of December the 31st, 2023. The nine-month cash provided by financing includes additional gross financing totaling $15 million, of which $6.95 million occurred in the third quarter. The $6.9 million included $4 million at Old Us Holdings via a registered direct equity offering to a single institutional investor, and $2.95 million at Old Us Networks via secured loans from Charles and Potomac. Cash used in operations during the first nine months of 2024 decreased by $2.7 million due primarily to lower operating expenses because of the integration of American robotics and aerobatics and cost-saving actions partially offset by an increase in inventory to support the purchase orders received in the third quarter of 2024. We expect cash utilization to improve in the fourth quarter Improved cash efficiency comes from continued cost controls and operating expense leverage at our OAS business unit, given our expectation of a recovery in revenue and gross profit growth as we fulfill orders from the backlog beginning in the Q4 of 2024. The company expects to fund its operations from the cash on hand as of September 30, 2024, proceeds from financing activities, gross profits generated from revenue growth, potential prepayments from customers for purchase orders, potential proceeds from warrants issued and outstanding, and additional funds that the company may seek through equity or debt offerings and borrowings under additional notes payable, lines of credit, or other sources. In terms of the balance sheet, as of September the 30th of 2024, OnDust Holdings had $27.8 million in convertible notes outstanding. And as mentioned previously, we had $1.5 million in convertible notes outstanding at OnBus Networks. We also had $1.45 million of non-convertible notes payable at OnBus Networks. We have been focused on maintaining liquidity to fund our growth plan. Subsequent to September the 30th, we have raised an additional $3.55 million of capital. This funding in the current fourth quarter includes $3.5 million via a convertible note at OAS, a transaction led by Privet Ventures and Charles & Potomac. Privet Ventures is an investment vehicle owned by our CEO, Eric Brock. In addition, we've established a relationship with Clear, a working capital provider who provided $500,000 to Ondas Networks in October, backed by customer invoices. We expect to have additional liquidity via the Clear relationship to help support working capital needs as orders grow at both Ondas Networks and OAS. And I will now hand the call back to Eric.