Ondas Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 1, 2024

There are 12 speakers on the call.

Operator

Welcome to the Andas Holding, Inc. 4th Quarter and Full Year 2023 Conference Call. All participants will be in a listen only mode. Before we begin, the company would like to remind you that this call may contain forward looking statements. While these forward looking statements reflect Andas' 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.

Operator

These risk factors are discussed in Andas' periodic SEC filings and in the earnings press release issued today, which are both available on the company's website. Andas 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, Andas 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.

Operator

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.

Speaker 1

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, Ishe Keralaru, who returned to Andas in January after being called to duty to serve his country. In addition, we will hear from both Meyer Kleiner, who is President of Andas Autonomous Systems and the Founder and CEO of our Aerobotics subsidiary and Tim Tenay, who is the CEO of Americal Robotics.

Speaker 1

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 Andas Networks. This is the 1st quarterly investor call Guy is attending and he will help provide the business update for Andas Networks. He has been the CEO at Andas Networks for the last 13 years and is instrumental in managing our business by leading much of our direct facing customer development and service activity. Now let's turn to the agenda.

Speaker 1

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 Q4 and full year 2023 results. We will then provide a business update for Andas Networks in our OAS business units, where I will ask Guy, Mary 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 beginning with this morning's news that Joe Popolo, CEO of Charleston Potomac Capital has been appointed to the Andres Holdings Board of Directors.

Speaker 1

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 and 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 Andas, Joe's incentives are directly aligned with our shareholders, which is exactly what we want at Andas.

Speaker 1

In short, this is great news for Andas. 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 26 that we secured $8,600,000 of 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 2nd investment that CNP has led after originally leading a $15,000,000 investment in Onondas Networks in Q3 last year.

Speaker 1

We also announced the formation of Andas 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 Aerobotics under the OAH corporate umbrella is a continuation of the integration we embarked on after closing the Aerobotics acquisition in January 2023. We believe this structure will provide many operational and financial benefits as we scale the OAS business globally around our world class technology platforms. We'll discuss this in more detail later in

Speaker 2

the call.

Speaker 1

2023 was a breakout year for Andas. For the full year, we generated record revenues of $15,700,000 which was a 7 fold increase from the prior year. This included $5,000,000 of revenue in Q4, which was above our prior expectation. At Andes Networks, growth was driven by initial orders from Siemens to feed the market with inventory ahead of the expected 900 megahertz adoption curve. While the order ramp on 900 megahertz was further delayed versus our prior expectations, we have nonetheless made substantial progress in the field with customers.

Speaker 1

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 point 16 standard, which will allow the Class 1 Railroads to launch the 900 Megahertz build out, driving a commercial order cycle for Andas. At Andas 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 Megahertz network, our confidence in the rail opportunity is only growing and we foresee demand building in many areas even beyond 900 megahertz. This stems from an increase in the growing awareness of our 802.16 technology across the global rail sector and with other rail vendors.

Speaker 1

This is creating visibility around significant new opportunities for network upgrades beyond 900 Megahertz into new rail sectors such as passenger and transit. Our Onbus Autonomous Systems business unit had an exceptional year with market adoption kicking in to drive revenues to $9,000,000 for 2023. This was ahead of the $8,000,000 goal we shared at the time of the closing of the Aerobotics acquisition. This also represented a massive increase relevant to the less than $1,000,000 revenue base we had in 2022. OES revenue growth is being driven by fleet adoption with a particularly impressive drone infrastructure fleet build out being supported by our operations in Dubai, where public safety and security are driving the initial use case there for Optimus.

Speaker 1

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 Tanay 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 Optimus system inventory availability is improving after the delays related to the Gaga conflict.

Speaker 1

We believe inventory availability will improve in Q2 and beyond. This will enable additional customer activity here in the U. S. And internationally, it 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.

Speaker 1

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 IronDrone Raider system.

Speaker 1

As we disclosed in November 2023, we are responding to an urgent need in Israel for the IronDrone Raider capability. 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 Tim will share more on this opportunity this morning. I am now going to hand the call to Yishe for the financial review.

Speaker 1

Yishe?

Speaker 3

Thanks, Eric. As I get started, I want to remind our investors that the figures we're about to discuss encompass the inclusion of Thera Robotics Financial effective from January 23, 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.

Speaker 3

Turning to the Q4 2023 results. We had a strong finish to the year. In the Q4 of 2023, revenues increased to $5,000,000 compared to $500,000 in Q4 2023. Our more than 10 fold increase in revenues was primarily a result of higher product sales and development revenue compared to prior year periods. At OnDeS Networks, revenue in Q4 of 2023 were driven by products added to Siemens and development projects.

Speaker 3

Revenues at OAS were primarily driven by a continued build out of the Optimus fleet by our governmental customers in Dubai. 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 for the 900 megahertz rollout networks and the development programs underway with Siemens and MXV. Similarly, revenues at OIS 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 Gross profit increased to $1,700,000 for Q4 'twenty three compared to $300,000 for Q4 'twenty 22. 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.

Speaker 3

Operating expenses decreased to $14,400,000 for Q4 2023 as compared to $34,800,000 in Q4 2022. The sharp drop in operating expenses was primarily due to recognition of $19,400,000 non cash charge of goodwill impairment in 2022 and decreased R and D activity. Recurring cash operating expenses, which exclude market share expenses and non recurring costs outlined in the supplemental section of this table were $8,700,000 in Q4 2023, a 32% decline from $12,900,000 in Q4 2023. The sharp decline in recurring cash operating expenses was due to strong cost controls despite the addition of the 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.

Speaker 3

We will discuss the non cash and undercurrent costs when we review the full year P and L in a very moment. The company narrowed operating loss to $12,600,000 for Q4 2023 as compared to $34,500,000 for Q4 20 22. Operating loss improvement was driven by expense controls and lower non cash charges as mentioned. Adjusted EBITDA loss narrowed to $7,000,000 for Q4 2023 as compared to $12,600,000 for Q4 2022. Turning to the full year results.

Speaker 3

For the fiscal year of 2023, revenues grew of $15,700,000 which was a dramatic increase year over year versus only $2,100,000 recognized in 2022. Revenue growth was strong at both Ondas Networks and Ondas Autonomous Systems, both business units posted record level of revenues. Gross profit increased by 6 fold for 2023 as compared to 2022. Gross margins were 41% for 2023 as compared to 52% for 2022, primarily due to a larger proportion of low margin product sales and services in the revenue mix during 2023. Operating expenses narrowed sharply to approximately $46,100,000 for 2023 as compared to $70,500,000 for 2022.

Speaker 3

The largest component of the decrease in operation expenses was due to a onetime non cash goodwill impairment charge of $19,400,000 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 $2,500,000 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 $1,500,000 related to our investment in Dynam AI in 2023.

Speaker 3

As mentioned earlier, a goodwill impairment charge of $19,500,000 was recognized in 2022. In total, non cash expenses and impairment charges totaled $10,000,000 in 2023 $29,300,000 in 2022. Recurring cash operating expenses, which exclude non cash expenses and non recurring costs totaled $36,100,000 in 2023, a 13% reduction versus $41,200,000 in 2022. The bulk of the decline in recurring cash operating expenses was in R and 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.

Speaker 3

The company realized an operating loss of $39,700,000 in 2023 as compared to a loss of $69,400,000 in 20.22. Operating loss decreased primarily as a result of the aforementioned decrease in operating expenses, including the 9 point $4,000,000 goodwill impairment charge. Net loss was approximately $44,800,000 for 2023 as compared to a net loss of $73,200,000 for 2022. Excluding non cash and non recurring costs, the company's adjusted EBITDA loss narrowed to approximately $29,700,000 for 2023 dollars as compared to $40,100,000 for 2022. Now let's turn to the cash flow statement.

Speaker 3

We held cash of $50,000,000 as of December 31, 2023, as compared to $29,800,000 as of December 31, 2022. The decline in cash is primarily a result of operating expenses incurred and $5,500,000 cash used to repay debt in the first half of twenty twenty three. This use of cash was supported by $24,000,000 in net proceeds raised from the previously announced financing at Ondas Networks and Ondas Holdings early in Q3 of 2023. Cash used in operation during 2023 reflect ongoing investment in the business as we drive platform adoption across OnDeS Networks and OAS. We expect cash utilization to improve significantly as we move through 2024.

Speaker 3

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 profit. As noted, we ended the year with $15,000,000 in cash. In February, we announced an $8,600,000 capital raise through the sales of ONDAS holding common stock and ONDAS Networks preferred stock in a financing led by Charleston and Potomac Capital. Pro form a of these financing and net transaction expenses, the company would have had $23,400,000 of cash as of December 31, 2023. As of December 31, 2023, we had $28,500,000 in convertible notes outstanding.

Speaker 3

I want to highlight that the convertible notes have maturities in April 25 July 25, which means we have some times to manage the amortization and create condition 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.

Speaker 1

Well, thank you, Isha. 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 on OnDez Networks. Firstly, we have made a leadership change at OnDez Networks.

Speaker 1

Stuart Kantor is no longer with the company. In addition, Guy Simpson has been appointed as the new President at Ondesk 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.

Speaker 1

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 in 900 megahertz will begin soon and that the opportunity in 900 megahertz in the other private networks for Class 1 rails in addition to global rail markets remains substantial.

Speaker 1

Guy, I am now handing the call over to you.

Speaker 4

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 $6,700,000 in revenues during 2023 led by product shipments for customers. This represented a 2 50% increase in revenues compared with 2022. 2023 was also marked by OMDAS Networks making investments to significantly increase its production capacity, which supported record production and shipment volumes for the year.

Speaker 4

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 megahertz. 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 on the passenger rail side soon.

Speaker 4

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 megahertz channels. In return, the FCC has provided new greenfield spectrum known as the A block for the railroads to build new modern network to build a new modern network for operational and safety use cases. Andas first engaged the AAR in development work on 900 megahertz in 2019.

Speaker 4

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, Andres and Siemens have been deeply engaged on this project for more than 4 years. And let's be clear, we have accomplished a lot. After extensive lab and field testing of our full MAX based platform and significant joint product development efforts with Siemens, the AAR announced the selection of 0.16 as the technology for the new 900 megahertz network.

Speaker 4

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 Andres and a significant reason why customers value our expertise.

Speaker 4

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 will have heard me repeat the term systems integration many times. This is an important concept to understand.

Speaker 4

Work that Anders 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 2 decades. This means that Andres and Siemens are upgrading the ATCS application and introducing a new communications technology simultaneously.

Speaker 4

The systems integration of ATCS and the DOC-sixteen network requires backwards compatibility with many other complementary technologies within rail operations, starting at the railway sides 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.

Speaker 4

Upon final acceptance from our leading Class 1 customer, we believe initial commercial orders will come from this railroad as well as 2 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 networked 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 to deadlines not ours, we do believe that these deadlines are motivating increased engagement. We believe the hard work on systems integrations 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.

Speaker 4

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 0.16 technology. So let me try to succinctly summarize the outlook at Andas 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.

Speaker 4

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 Andaz are advancing our services capability to support wide scale adoption and deployment of our point 16 wireless technology. As we advance, we are seeing a broadening and also a deepening of engagement across the industry.

Speaker 4

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 ecosystemvendor 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.

Speaker 4

I'll now hand the call back to Eric.

Speaker 1

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

Speaker 5

Thank you, Eric. 2023 was a pivotal year for Andas 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 out over the past 2 years to bring Anders to this point. We are concluding 2023 with record high revenues, and found validate market feed for the Optimus system and a very promising position in the market with the Iron Wall radio system.

Speaker 5

We believe that Onondas currently holds 2 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 OPTIMO 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 U. S, 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 1st drone in a box and data capturing 1 to achieve such certification.

Speaker 5

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 RAN 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 systems to our customer in Dubai.

Speaker 5

This is a continuation of our governmental customer stating its intention to deploy a citywide network. During 2023 and recently, major public safety and security groups from the U. S. And international markets received demonstration of the OPTIMO system network capabilities. Its dramatic impact on response time is probably 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.

Speaker 5

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 UAE. 2023 was a significant year for our Island One Raider Counter One system. We have acquired and enhanced this system to become one of the most prominent solutions for some of the most challenging problem 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 drone, the damage they cause and the difficulty in detecting and effectively neutralizing them in a timely manner with minimal collateral damage.

Speaker 5

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 U. S.

Speaker 5

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. Onad's 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.

Speaker 6

Thank you, Mare. 2023 was a significant year for American Robotics. Since quarter 4 and throughout quarter 1, 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.

Speaker 6

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 Optimus inventory arrivals during quarter 2. 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.

Speaker 6

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 C and AVOID system that enabled the rapid approval of a beyond visual line of sight waiver from which allows for truly remote operations.

Speaker 6

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.

Speaker 6

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 Mair.

Speaker 5

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.

Speaker 5

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 U. S, 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 to 1 platforms, services and data integration. We focused on scaling our production capability in 2024.

Speaker 5

We are building and delivering inventory, expanding to 15 new OPTIMO system on order and preparing new production orders for H2 2024 to satisfy expected demand. We believe ION-one will launch this year, and we look forward to sharing more news about the ION-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 on this autonomous holdings to scale up our drone business.

Speaker 5

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.

Speaker 1

Thank you, Mary and Tim. 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 platform. As we illustrate here, Oh is a wholly owned and controlled subsidiary and controlled by the public company Andas Holding.

Speaker 1

From a consolidated basis, nothing has changed. The benefits of this new corporate structure are multifold. 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 serial security and data solution. The markets we service are large, dynamic and rapidly growing. A pure play drone solutions company is the appropriate corporate structure.

Speaker 1

The financial benefits are also significant. We measure our market valuation opportunities with OAH in the many 1,000,000,000 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.

Speaker 1

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.

Speaker 1

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 Andes Networks, we will complete the systems integration effort as Guy discussed.

Speaker 1

It is close and from there visibility on pipeline and ability to secure orders improves quite a bit. The opportunity at Andes Networks remains as big as ever. We continue to see the TAM on 900 megahertz at $400,000,000 and you will see us increase our serviceable addressable market or SAM this year with new customers and network opportunities beyond 900. Remember, .16 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.

Speaker 1

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 IronDrone 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?

Operator

We will now begin the question and answer session. The first question today comes from Glenn Mattson with Ladenburg Thalmann. Please go ahead.

Speaker 7

Yes. Hi. Thanks for taking the questions. So a couple of 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 availability of inventory now and perhaps, I guess, the timeline as to when you think that inventory problem alleviated itself versus what backlog you have now and how you expect that backlog to kind

Speaker 2

of ship throughout the year? That'd be helpful. Thanks. Yes, Glenn. I'll answer this and then I'll ask Maher to provide a few more details.

Speaker 2

So we were building systems as we communicated to investors 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 Meyer, maybe you can give a little bit more detail on that.

Speaker 8

Sure. Thanks, Harry. So as you mentioned, we are in the manufacturing phase. And right now, we are in the timeline of every 2 weeks regarding new system from the supplier. So I think we are in good shape about it.

Speaker 7

Okay. Thanks. And if I could ask another one just on the network side. I guess with the ramp and deployments coming a little slower than expected perhaps, can you just give a sense of the it doesn't appear, I guess, perhaps for the 1 Class 1 railroad, 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 that has been set by the government, but it doesn't appear that maybe some of the other Class 1 railroads are as far long down the path.

Speaker 2

Can you give us a sense of

Speaker 7

the urgency on their side? How you're sensing what the urgency is in terms of the guidelines and the deadlines and what the plan would be if they were to not meet those and that kind of thing?

Speaker 2

Sure.

Speaker 1

Yes. So as we said on that, we gave some context

Speaker 2

on this and I'll circle back to that regarding deadlines. But I do want to emphasize that these are the rail deadlines. And as we talk to the AAR, principally the Wireless Cons 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, as Guy shared in some great detail, the complex systems integration work.

Speaker 2

And that's a process that is being done with 1 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 Andaz Siemens to be stretched across all the 6 rail systems simultaneously doing the same program to demonstrate the scalability of the network and ATCS integration and 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, that the engagement with the other railroads is going to be we're not starting at ground 0 essentially. They'll go through a process where they start to install themselves, get comfortable with how that process looks.

Speaker 2

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 in a modern network, I think the belief is that these other railroads can engage fairly quickly.

Speaker 7

Great. Thanks for the color, Eric. Thanks for the help.

Speaker 2

Sure. Thanks, Glenn.

Operator

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

Speaker 9

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?

Speaker 3

Think we'll see we'll do

Speaker 2

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

Speaker 9

to get that. Lot of any sense of the balance.

Speaker 2

Yes, we're not going to disclose that amount now. I think you can look at the current OpEx levels of about on a cash basis of about $7,500,000 per quarter as it's kind of what the OpEx is. And then of course, we need to we will be driving revenue growth, gross profit and that's going to increase the front of the business.

Speaker 9

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

Speaker 2

Yes. I hesitate to put 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.

Speaker 2

And with respect to the timing, the legacy 900 network retirement date remains in 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 twenty twenty six. 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.

Speaker 9

Got it. So do you think this year is still primarily a year for call.

Speaker 2

I think we're going to get shipments in 'twenty four.

Speaker 9

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

Speaker 2

So I think we're very close. What we're doing in the field is sort of real time, I would say. And I hesitate to put any more finer point on that because you're not there until you're there. But we have been in the field now with this effort with this one particular Class 1 for better part of 6 months. And as we said on the call, there's things that come up, right?

Speaker 2

And even innocuous integration with a small piece of the legacy system. Sometimes we'll sort of send you back. You have to wait for an upgrade of a certain component of the system and then you get back and you finish. So we believe we've done the vast bulk. I'd 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.

Speaker 2

So I think it's close. And then from there, obviously, we'll be communicating this with Siemens and our customer, and the forms I told you about before, the WCC and with the individual railroads. And I think we 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 0 because we've demonstrated the path in the field with how the systems get integrated.

Speaker 9

Got it. So for the remaining rails, you think it's more of instead of a 6 to 8 month process, you think it's more of a 3 to 4 month process for each of them?

Speaker 2

Yes, it's definitely shorter. And I would hope it's shorter than that. I think the 2nd railroad will go a lot faster. The 3rd railroad will go faster than What we're really doing here is demonstrating the systems integration and also the scalable processes to integrate and migrate to the new band.

Speaker 9

Got it. And so it sounds like we might be in a $100,000,000 worth of equipment within like a I mean, to meet the timeframe within like a 6 to 9 month period. Do you have the manufacturing capability to do that?

Speaker 2

So we need to add capacity to hit those numbers you mentioned. And 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 with increases of visibility, we can do that along with obviously working closely with our manufacturing partners.

Speaker 3

Thank you.

Speaker 2

Thank you, Tim.

Operator

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

Speaker 10

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?

Speaker 2

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.

Speaker 2

But there's more opportunity out there when we think about global rail. So that's what I can share with you today.

Speaker 10

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 this possible the spin off of the drone business. So can you give us any insight of what it looks like?

Speaker 10

Are we talking about 2 separate stocks? I mean, I just have a lot of questions coming in from investors. We have no clarity. So are we looking at 2 separate entities? Will there be 2 separate stock symbols?

Speaker 10

Can you give us anything until we actually have a call about it?

Speaker 2

Yes. I think the short answer to that is, it may that might be what we do. So where we have now what we have established is OAH as a 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 Onbus Networks.

Speaker 2

And or it could be in connection with a public market transaction, say, a spin out or 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.

Speaker 10

All right. Sounds good. Yes, it sounds like the drone side will be a lot leaner and it will be great to have them separate entities. All right. Well, thanks for your time.

Speaker 10

Congratulations on all the accomplishments. I look forward to seeing what happens in 2024.

Speaker 2

Thank you, Carter.

Operator

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

Speaker 3

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

Speaker 2

Yes. 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 U. S.

Speaker 2

And that over time the U. S. 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 1 or a small handful of systems be deployed. And of course, we're focused on customers that can scale multiple systems fleets.

Speaker 2

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 a bigger amounts in terms of number of systems and we do expect this year we'll see even more. So hopefully that gives you enough color on how we see growth regionally.

Speaker 3

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

Speaker 2

I'm not going to give that guidance just yet. That depends on a lot of factors, including what the mix is vis a vis 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 big market is the data as a service market, And we'll be able to share some a lot of color on the unit economics we see there in our Oh Investor Day.

Operator

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

Speaker 11

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 following the mass DOT work could be a 2025 event?

Speaker 11

Or just sort of frame for us what the path is to starting to get some sorts of fleet deployments in the U. S?

Speaker 2

I don't want to I'm going to speak more broadly when I answer that question, Matt, and not specific to MassDOT. So with 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.

Speaker 2

And

Speaker 11

then can you also maybe frame where IronDrone stands against kind of the traditional fleet deployments that you've looked at? Is that something that can kind of looking into 2025 be a bigger contributor for a period of time just given where focus is currently and where budgets are?

Speaker 2

Sure. I'll ask Maher to expand. But I think we'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.

Speaker 2

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 Meyer, maybe you can provide some context as to what the engagement looks like, production capability and things like that to the rest of 'twenty four and 'twenty 25?

Speaker 8

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

Speaker 2

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

Operator

This concludes our question and answer session. I would like to turn the conference back over to Eric Brock for any closing remarks.

Speaker 1

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.

Speaker 1

I hope you all have a great day.

Operator

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

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Ondas Q4 2023
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