Ondas Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2024

There are 11 speakers on the call.

Operator

Welcome to the Andaz Holdings, Inc. 1st Quarter 2024 Conference Call. All participants will be in 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 on Ondaz Best's 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 Oanda's periodic SEC filings and in the earnings press release issued today, which are both available on the company's website. Andaz 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, Andaz will refer to certain non GAAP financial measures. These non GAAP measures are not prepared in accordance with Generally Accepted Account 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 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 conference 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'm happy to be joined today by key members of our leadership team, including our CFO, Ishe Teriluru Guy Simpson, the President and Chief Operating Officer of Andas Networks Meyer Kleiner, President of Onondas 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.

Speaker 1

We will 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 Yixe for a financial review of our Q1 2024 results. We will then provide a business update for Andes Networks and our OAS business units, where I will ask Guy, Maren 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 6 weeks ago when we delivered our annual results for 2023.

Speaker 1

That investor call covered quite a bit of activity from Q1. Even so, we have been productive in the last 6 weeks, and as we will discuss, we have advanced our key business priorities at both Ondesk 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 1, we expect a good year from a growth perspective. However, our revenue will be heavily weighted to the second half of twenty twenty four, 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 megahertz network, as well as the interruptions with our OAS business unit related to the Gaza conflict.

Speaker 1

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 3 technology platforms, which include, of course, Andas Networks full Max.16 compliant software defined network platform, as well as OAS's Optimus system and Iron Drone Raider. The value of our Dot 16 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 specification 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.

Speaker 1

We are also excited about last week's update where we highlighted the first commercial order for our IronDrone platform. IronDrone 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 IronDrone platform in the coming months as we prepare for volume production and expanded marketing to other defense and security customers globally. These new orders from our 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.

Speaker 1

At Advest 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 systems integration effort we described on our last call. Guy will provide more details, but I am happy to share upfront that we have now completed the integration and backwards compatibility on the legacy 900 megahertz network with 2 railroads, including a Class 1 railroad in Chicago and with a smaller commuter 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.

Speaker 1

As we moved 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 OPTIMIC system. Our marketing efforts in the U.

Speaker 1

S. And Europe are adding to a robust pipeline of attractive customer activities, while our efforts in the Middle East continue to perform well. Maren Tim will share more details later on the call. And as Mary and Tim will discuss, the Optimus system inventory availability is improving. This will enable additional customer activity here in the U.

Speaker 1

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 3rd largest seaport. This is an important relationship for the OnDeus Autonomous Systems business unit. With Hala Sky, we are bringing an ability to drive fleet adoption of Optamus Systems and build scalable aerial security and data intelligence programs for global terminal operators where our customer pipeline is growing.

Speaker 1

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 weak first half revenue belies the value we are building with customers across our technology platforms. The order for the 220 Megahertz PC data radio is a huge signal of broad adoption of dot16 across global rail markets and the strategic value of our Foamax 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 Yishe to provide the detailed Q1 financial update.

Speaker 1

Yishe?

Speaker 2

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 stream, increased our market presence and enhancing our shareholder value. Further, despite the added scale from the addition of AIR Robotics, 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.

Speaker 2

Turning to the Q1 'twenty four results. We had a slow start to the year. In the Q1 of 'twenty four, revenues decreased to $625,000 compared to $2,600,000 in Q1 'twenty three. The decrease in revenues was primarily a result of extended timeline at OnDeck's net box related to the 900 megahertz activities with the Class 1 railroad and supply chain disruption connected to the Gaza War at our OAS business unit. For OnDeck Network, 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 megahertz network and development programs underway with Siemens and MXD Ray.

Speaker 2

Similarly, revenues at OAS are expected to vary from quarter to quarter and to normalize into 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. Gross profit decreased to negative $400,000 for Q1 2024 as compared to $1,000,000 for Q1 2023. Gross margin was negative for Q1 2024 as compared to 39.6 percent for Q1 'twenty three. The 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 progress. Gross margin 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.

Speaker 2

Please note that we are targeting higher gross margin at OnDeck Network on new development progress such as the PTC data radio announced today. Operating expenses decreased to $8,700,000 for Q1 'twenty four as compared to $13,700,000 in Q1 'twenty three. The sharp drop in operating expenses was primarily due to controls on cash activity and decreased R and D activity both in networks and OAS. This decrease in operating expenses emphasizes the ongoing benefit from the restructuring of our On Dust Autonomous Systems business unit in connection with the integration of American Robotics and Aerobotics after the Aerobotics acquisition closed in January 'twenty three. The company narrowed operating loss to $9,100,000 for Q1 'twenty four as compared to $12,600,000 for Q1 'twenty three.

Speaker 2

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 $7,700,000 for Q1 2024 as compared to $10,200,000 for Q1 'twenty three. Now let's turn to the cash flow statement. We had cash and cash equivalents of $14,600,000 as of March 31, 'twenty four, as compared to $14,200,000 as of March 31, 2023. Q1 cash provided by financing includes additional gross financing totaling $8,600,000 Cash used in operations during Q1 2024 decreased by $5,300,000 due to primarily the restructuring of our Hondas Autonomous System business unit.

Speaker 2

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 profit. As noted, we ended Q1 with $14,600,000 in cash. In February, we announced an $8,600,000 capital raise through the sales of Ondas Holdings common stock and Ondas Net Worth preferred stock in a financing led by Charles and Potomac Capital. As of March 31, 2024, we had 27 $400,000 in convertible notes outstanding.

Speaker 2

I want to highlight that the convertible notes have maturities in April 2025 July 2025, which means we have some time to manage the amortization and create conditions to equitize the note under more favorable conditions. It is our objective to equitize these notes as soon as we can by using shares to retire the note, either via monthly amortization or to see those notes convert entirely to equity prior to maturity. I will now hand over the call back to Eric.

Speaker 1

Thank you, Youshey. Now we will transition to a review of our business units and ask Guy Simpson and Meredith 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. As I hand the call to Guy, I want to reiterate that I have confidence in our ability to grow an important business at Andes Networks as we deploy wireless technology that is critically valuable for the rail customers and the large industrial vendors and emerging MC IoT technology ecosystem. We believe commercial deployments on 900 megahertz will begin soon, certainly this year, and that the opportunity in 900 megahertz as well as with the other private networks for the Class 1 rails in addition to global rail markets remains substantial.

Speaker 1

Guy, please proceed.

Speaker 3

Thank you, Eric. I'm happy to be here this morning and to share an Andas Networks update for our investors. As stated earlier in the call, we provided a very detailed status update of the 900 megahertz upgrade activity recently. So my comments today will focus on our incremental progress and outlook. I am happy to share that we have achieved the systems integration goals for our Airlink ATCS products and demonstrated backwards compatibility in the live legacy 900 megahertz network of a Class 1 railroad in Chicago.

Speaker 3

Our next step with this railroad is to advance the migration of the installed Airlink systems to the new 900 megahertz frequency band and we believe we have the right plan to do just that. This effort is currently being planned with the customer and we expect to complete this migration effort in the Q2. In addition, we have completed a second systems integration with a commuter railroad in the Southwest. Our distribution partner has already received an order on behalf of this customer signaling their confidence in our ability to upgrade the legacy 900 Megahertz network. And let me highlight, this is the 1st system wide commercial order in the 900 Megahertz network.

Speaker 3

This is a significant milestone validating the progress we are making with this important network. Furthermore, we are starting the now well proven systems integration process with the Midwest commuter railroad. As we recommended, they have purchased equipment to establish multiple labs in which they will evaluate AirLink products and DOCT 16 technology for various applications. The other Class 1 rails continue to closely track our progress. Success in Chicago is expected to lead to further engagement with Class 1 rails on planning and timelines for their own 900 megahertz networks.

Speaker 3

We, along with the rail customers and Siemens, have learned a lot through these initial integration activities and we believe we have created scalable processes that can be deployed in other regions across all railroad operations. We want to take a moment and highlight some recent public statements by the AAR regarding plans for the 900 Megahertz network and some key takeaways. On May 2, the AAR submitted a comment letter to the FCC in response to regulatory filings related to a 900 Megahertz spectrum licenses. In this comment letter, the AAR made some strong statements related to the value of the new 900 Megahertz spectrum and the networks for train operations. Also, the AAR stated that the 900 Megahertz frequency band was critical, highly valuable and that the 900 megahertz network was a key component of the industry's next generation network plans.

Speaker 3

Furthermore, they signaled the critical role the dot16 wireless technology will play in the 900 megahertz build out, while also referencing the other private license spectrum bands. I remind our investors that the railroads currently operate 4 mission critical private networks across the 160, 220, 450, and 900 Megahertz frequency bands. We believe the AAR's reference to future innovative technologies across the full suite of spectrum bands highlights the opportunity for Ondas and its Dot 16 platforms to support network upgrades across all of the legacy networks operated by the railroads. We will continue to work hard to realize this massive market opportunity and support the AAR's requirements. Let's turn now to the major announcement we made today regarding the 2 20 megahertz PTC data radio.

Speaker 3

Andas Networks has entered into an agreement with our distribution partner to provide an upgraded on locomotive radio for a key Northeast Corridor passenger railroad. This radio will be backwards compatible with the legacy 220 megahertz network and host positive train control, a critical safety application. Importantly, this new radio will replace a discontinued legacy radio and is designed for adoption across the Northeast corridor where track is shared by other passenger, transit and even freight railroad operators. The new 220 data radio will offer an upgrade pass to 0.16 which was a specific requirement of the rail customer. I want to note that this project has already started and we are on track to deliver production radios in the Q1 of 2025.

Speaker 3

One final note on the 2 20 megahertz program. This win represents a new rail market, passenger and transit, a new private network, 220 Megahertz and a new application, Positive Train Control. In short, it expands our service addressable market or SAM in the rail sector. In addition, our work with the AAR and specifically with MXV Rail continues to point to expanded engagement regarding new networks and applications. For example, work with the Class 1 Railroads on advancing the commercialization of our base station controller to provide dynamic frequency resource management and on new use cases for 900 megahertz, including CTC over ITCM to provide the required redundancy for the 220 megahertz PTC safety network.

Speaker 3

Now, I will hand the call back to Eric. Eric?

Speaker 1

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

Speaker 4

Thank you, Eric. In the Q1, we announced the formation of OnDeus Autonomous Holdings, Inc, OAH. This newly formed 1 holding company is intended to enhance our operational and financial flexibility as we scale our drone business worldwide. OAH will leverage our market leading autonomous drone platforms, the Optimus system and the Iron Drone radar, by driving focused and scalable operating models targeted towards providing comprehensive aerial security and data solutions for specific industry verticals. Of course, these initial vertical of course, this initial vertical markets where we are demonstrating scalable go to market success, including public safety and emergency response, critical infrastructure, construction project management and data centers.

Speaker 4

Our customer pipeline has expanded significantly in recent months as our investments in our services organization in both U. S. And Europe, which include partnerships like we announced last week with HHLA Sky and C Astrwal Aerospace begin to mature. Our ability to meet this growing demand visibility has improved with OPTIMO system production now catching up after the dislocation from the Gaza Wall. On production, we expect to receive delivery of the 15 systems currently being produced by Q3 2024.

Speaker 4

We are making plans to expand production behind these systems. During Q1, Aerobotics secured an expanded services agreement to support the growing fleet of our Optimus systems in the UAE and Israel. Additionally, Aerobotics continued its expansion in the United Arab Emirates, where a local governmental entity is deploying the world's 1st 1 network infrastructure for public safety and other public services. This initiative is expected to continue, aiming to achieve a fleet of more than 20 systems by the end of 2025. As we continue to support this network expansion, we see a growing potential for expanded commercial use cases in the UEE, and we hope to have more to say on this later this year.

Speaker 4

In the counter drone domain, we have successfully completed the urgent work to tailor the I-one-one radar system for certain military requirements. This achievement is evident in our recent announcement of initial purchase order for major defense company. We believe the system specifications for the radar are best in class and even disruptive as compared to other systems in the market. The incredible effort and accomplishments by our team positions ONDAS very well in a fast growing market. While Tim Tene will provide an update on U.

Speaker 4

S. Business activity, I want to highlight our business development activities in Europe, where we have established a marketing effort that includes the formation of new partnerships that help leverage the local market expertise of distributors. We believe the market potential in Europe credibility in protecting and monitoring critical assets to key customers in transportation, construction and many other critical operations. I want to finish my prepared remarks by highlighting that we are operating robotics and American Robotics in full synergy, effectively bringing to the table the core advantages of OAH. Together, we are leveraging world class technology with proven value and reliability, which we are combining with scalable solutions targeting at focused vertical markets and use cases.

Speaker 4

I will now hand the call over to Tim Tanners, CEO of American Robotics, to provide an update on the business achievements we are making at American Robotics.

Speaker 5

Thank you, Mair. During the Q1, we successfully completed a proof of value program with the Mass Department Mass Department of Transportation Aeronautical Division, which included flawless demonstrations of the OPTIMA system and our newly positioned Kestrel Detect and Avoid solution at the Massachusetts Maritime Academy. These demonstrations showcased our ability to operate the Optima system consistently with remote operations beyond visual line of sight. This demonstration is continuing to drive a maturing pipeline within the defense, federal, state and commercial segments, which positions us well for successful sales and deployments. We have also expanded our ecosystem around field operations and technology infrastructure via new partnerships at American Robotics.

Speaker 5

For example, we secured a partnership with Senhive, a leading provider of a portable passive detection system for drones, also known as a counter unmanned aircraft system, as well as additional capability for tracking participating and non cooperative air traffic. Additionally, we have partnered with Resilience, a leader in data quality assurance and real time aviation safety management systems for highly automated and autonomous systems. Together, these partnerships will assist Andas in elevating autonomous drone operations through advanced integration of airspace safety and management systems. American Robotics engaged in the Green UAS program to certify compliance with the highest levels of cybersecurity and supply chain requirements of the U. S.

Speaker 5

National Defense Authorization Act. The Green UAS program is administered by the Association For Uncrude Vehicle Systems International in partnership with the U. S. Department of Defense and many state governments with the purpose of enhancing the country's UAS technology base. American Robotics expects to complete the green UAS qualification during quarter 3.

Speaker 5

We expect to be completed on the build out of our new demonstration training and operations center to be launched at our Baltimore County, Maryland headquarters in June. We look forward to sharing more detailed information with everyone soon. We are seeing an increased demand for the deployment of the OPTIMA system with potential customers in both government and commercial segments. Lastly, American Robotics is advancing its go to market plans in U. S.

Speaker 5

Defense and security markets with both Optimus and Iron Drone. We anticipate new opportunities that will come into effect during the second half of twenty twenty four, and I look forward to keeping our investors informed on these activities. I will now hand the call back to Eric.

Speaker 1

Let's wrap the call now and summarize the outlook and provide context for where we are. We're going to continue to hold off on providing a formal outlook for 2024. We want to be conservative given we still need to secure that initial 900 megahertz order. We do believe order and revenue visibility will improve in the second half. We continue to work hard in the recent AAR public comments suggest the railroads are intending to build out the 900 megahertz network and it also suggests that they will have some urgency.

Speaker 1

For OAS, customer engagement, conversations and negotiations around orders as well as field trials continue to build and the availability of Optimus systems will help support a recovery in revenue growth. The various distribution partnerships ships we have secured such as the Hollis Sky announcement last week are also expected to add to our revenue in the second half. Lastly, Iron Drone will be accretive to the revenue outlook now that has been officially launched and accepted by a very important reference customer. So the outlook remains positive for Andas. I understand investors may be frustrated with our choppy performance from a financial and operational standpoint.

Speaker 1

We share your frustrations, especially given our belief that we have created extremely valuable technology platforms in very large high growth end markets. We are continuing to work hard to deliver this to you. We are working on business plans and funding strategies, which include capital strategies at our OAH business unit, which we believe will accelerate the execution of its business plan. My confidence remains high. We are doing amazing things for our customers and partners, and it's our job to make sure that we, meaning our investors and our team, will be rewarded.

Speaker 1

It isn't easy for sure, but we remain 100% committed and we will work hard to deliver for you. With that said, let's see if there are any questions. Operator?

Operator

The first question comes from Tim Horan with Oppenheimer. Please go ahead.

Speaker 6

Hi, guys. Hi, Eric. It's great that the rails kind of reaffirmed to the FCC meeting meet the intent in that letter? And just a rough update when you think the revenues kind of start coming in?

Speaker 1

Okay. So in terms of sizing, we still look at the TAM as what we've shared with you often in the past. I would point to specific numbers that the AAR used in their comment letter. I think that's a nice number that they've used in terms of size. However, I think it does refer to legacy equipment.

Speaker 1

So it's not necessarily apples to apples. And then in terms of timing, as we've been discussing in the last couple of calls, we are very active across the board with, the AAR and specifically in Chicago. And that activity is being watched very closely. We do believe that we will have success there and that will lead to commercial orders and further engagement with other railroads on their plans for upgrading the legacy network.

Speaker 6

So is there any change in it's been a few years, I think, since you updated the TAM. Is there any change in your pricing strategy or scope of the work whatsoever? And do you think you'll I guess, do you have a best guess on when the revenues might start coming in? At this point, it seems like it's not the firm orders now that revenues are probably more like next year. I'll put words in your mouth here.

Speaker 1

Yes. So I don't want to make any commitments in terms of timelines because we do need the visibility. I do would refer again and Guy covered this in the AR statement that they're expecting to meet the deadlines to move off the legacy network. And as a reminder, those are September of 2025. In addition, there is a build out requirement where the railroads have to show substantial coverage to the FCC and that deadline is April 2026.

Speaker 1

So the initial deadline is less than 18 months away and April 2026 is about 2 years and actually less than 2 years. So we got to get busy. And I guess that's all I can tell you, Tim. I do want to hold off on putting stakes in the ground on the revenue side until we get orders. I will add if orders come that we have built a bit of inventory, so we can be responsive.

Speaker 6

There you go. Great. And can you then maybe just update us on your liquidity situation? Do you think you need to raise more capital at this point, A? And B, can you just remind us what your fully diluted shares outstanding are now

Speaker 1

on a fully diluted basis? Oh, gee, I don't have that in front of me on the share count. I'll have to get back to

Speaker 6

you. Okay.

Speaker 1

But on the liquidity side, we do expect to raise capital. And I've said that on the last call 6 weeks ago, and we pointed specifically to some activity with Oh. So I'd like to just leave it at that.

Speaker 6

Okay. So do you think this cash burn rate is kind of good for another quarter or 2 or any changes to the cash burn?

Speaker 1

Yes. I think you'll see our cash OpEx at these levels. And then on the revenue side, we'll drive or I'd say maybe these levels or maybe slightly lower. And then we look into the second half where we have gross profit generation picking up with revenue and we'd like to have that drive the cash utilization down. Thank you.

Operator

Our next question comes from Glenn Mattson with Ladenburg Thalmann. Please go ahead.

Speaker 7

Hey guys, thanks for taking the questions. Yes, just can you give us a sense on the Oh side about there's been, I guess, a little bit of push out based on some of the disruptions you mentioned. Just can you give us a sense of the scope of what you feel you see for that unit versus where you were say at the beginning coming into the year? Sure.

Speaker 1

So I'll say I expect our drone businesses to be up year over year in revenue. The reason for the work in the first half weakness is just clearly the war, which was disruptive. And we've shared that with you. At Oh, there is pent up demand. And I want to be specific or careful about the specifics on some of the pipeline, but clearly there's and of course that's for competitive reasons, but we're seeing quite a bit of activity in public safety, The Dubai Police, the UAE governmental entity continue to be very active and we're having great success expanding the fleet there.

Speaker 1

And we think that continues. They have publicly restated again their intent to build a citywide infrastructure. And we do see commercial activity or commercial opportunities in the UAE as well. That activity in Dubai is leading to more engagement with global security and law enforcement groups. So we're very encouraged by that.

Speaker 1

We have highlighted some of the demand we're seeing from ports and specifically inside ports, we're talking terminal operators where we're going to be building specific programs around security and aerial intelligence or inspection and the HOLOSKY relationship that we established this quarter is a good example of us in the direction we're heading there. Similarly, the departments of transportations and other government agencies are engaged. So we see quite a bit of opportunity. And I would also add that we have a new revenue generating platform in the IronDrone Raider. We did announce that order last week.

Speaker 1

We're expecting more orders. So that's going to help support revenue growth this year.

Speaker 7

Okay. On the Iron Drone, when you as the pipeline begins to build or whatever, is it more for are you saying for more military applications or is it sometimes like more security and public safety type things? And what do you think when you're competing against other drone platforms or whatever on that type of application? Where do you think you stand? What do you see when there is like a bake off versus you versus somebody else type of thing?

Speaker 1

Yes. So the initial demand here is clearly going to be with military use cases and that's where our first orders will come. And we believe with this customer that we have substantial growth opportunity. Now I'd also say we're seeing quite a bit of interest from other governments, Homeland Security Groups and Defense groups as well. So that's where you're going to see us play.

Speaker 1

And we feel specifically for the counter U. S. Platforms that intercept

Speaker 6

that we have a best in

Speaker 1

class product. So the that we have a best in class product. So the market for counter drone systems is big and growing very rapidly. So we think we're well positioned there to build a very nice business and that's going to be starting now after a lot of effort.

Speaker 7

Great. And maybe a same question on the Optimus, just when you're competing for ports and that kind of stuff, is it are you the kind of go to solution that people just need to convert to becoming drone operators users I think? Or is there oftentimes just 2 or 3 competitors going for that business and you're having to compete on either features or price or anything like that?

Speaker 1

So I guess I'll share with you how I look at it is the solution we offer from a reliability and functionality standpoint is really unmatched. We can provide security intelligence, we can do it 24 hours a day, 7 days a week and that's an incredibly valuable solution. We do see quite a bit of activity in these markets using drones, but most of them are piloted single purpose. They don't have the persistency and again the intelligence, the range of solutions that we can bring from an analytics standpoint. So as you see spending grow with the value of the drone being realized and incorporated into work flows.

Speaker 1

I think that what we're doing is extremely competitive. And I think that we're going to be helping drive growth in these markets. So I like our position.

Speaker 7

Okay, great. Thanks for the color guys.

Speaker 1

Thanks, Glenn.

Operator

Our next question comes from Carter Mansbach with Ford Capital Group. Please go ahead.

Speaker 8

Good morning, guys. So I guess congratulations on the $2,800,000 commuter. Is there any way that we can know the name of the company that you signed this contract with? And if not, why? So

Speaker 1

what I'll say is that there let me give you some background on the request for proposal that came from a couple of different places in the Northeast Corridor, including Amtrak. And those are publicly disclosed RFPs. The engagement we've had is coming with our partner, Siemens. So this order for us comes from Siemens. Siemens is very active with all the Northeast Corridor customers.

Speaker 1

So I don't want to say specifically, Carter, But it's a radio for a key Northeast quarter customer. And we believe that the Northeast quarter rails, which includes MBTA, New Jersey Transit, Long Island Rail, MTA and Amtrak, as well as certain freight rail operators like CSX, they'll be the target for this radio. And it's important to also understand that this radio is being developed because the legacy radio is end of life and has been discontinued.

Speaker 8

Number in that article or that piece was $69,000,000 So what piece of that action is could be toiled on this?

Speaker 1

So I can't talk specifically about those numbers because those are AAR numbers and they calculate themselves. What I will say is that in the new A band, as they call it, the new 900 megahertz frequency, that we are, as far as we know, the only radio that's certified, the only system, wireless systems that's certified by the FCC to operate.

Speaker 8

Okay. All right. Last question regarding this spin off of the drone industry business. Can we get any type of feel as to what the time to how it's going to to how it's going to happen and when you're going to be discussing it further? Thanks.

Speaker 1

I can't give you specifics on that. What I did say and I'll reiterate is that conversations with investors are active. So and I'll say there's a variety of scenarios that could play out today and in the future, which

Operator

Our next question comes from Mike Latimore with Northland Capital. Please go ahead.

Speaker 9

Hi, this is Aditi on behalf of Mike Latimore. Could you give some color on what kind of revenue mix between autonomous systems and networks could we expect for this year?

Speaker 1

Well, I would say the outlook for the year is our autonomous systems business unit will likely have higher revenue than Honest Networks, but I don't want to forecast the mix.

Speaker 9

Got it. And also could you give some color on what is the average selling price on your counter drones?

Speaker 1

We're not disclosing that at the moment for competitive reasons. I will tell you that we believe it's going to this is a very valuable product. It's at price points that are very competitive and I think lower than other systems we see out there and that we can deliver it at a very attractive margin.

Speaker 9

Got it. Fine. Thank you.

Speaker 1

Sure. Thanks.

Operator

Our next question

Speaker 10

I'm wondering how much custom integration work you expect to be required as the radar is sold to other military and defense applications?

Speaker 1

Good question, Matt. I don't think we necessarily have a lot of work on the system itself, right? So the UAV and the docking station. However, when we go to other markets, there may be different detect technologies. And when we talk about detect, we're typically talking about radar systems or radar systems, I'm sorry.

Speaker 1

So if we have a different radar system, we need to integrate into that radar system, which is a pretty straightforward process and not necessarily very costly.

Speaker 10

Got it. Okay. And then I guess follow-up to that is just given some of the supply chain hiccups you've seen on the Optimus side, do you expect or how do you navigate any limitations or ongoing limitations when it comes to scaling up the Raider business?

Speaker 1

Good question. So the current plans are to produce the Raider in Israel. And as we access customers globally, we're likely to produce in other regions as well. I would tell you that the complexity with the Raider system is dramatically less than what we see with the Optimus system. And that's from a bill of materials and a build standpoint.

Speaker 1

So we think we've got this current the orders that we're tracking now, we think we can produce and we've identified the plan to do that. But again, I do think I'll say this for both Optimus and Raider, we will have plans to build in other parts of the world. And we'll add more specifics to that when we're ready to do so.

Speaker 10

Great. And I guess final question on that thread is just looking out to 2025, I know you're not giving a 2024 outlook, but relative to how you see demand on the autonomous side developing on both the Optimus and Raider side? Do you expect that Raider could have pull through in 'twenty five that outpace its optimist? Or is it going to be a more gradual uptake?

Speaker 1

Great question. So I believe 2025 for both platforms is going to be significant. I think that I would say, Optimus will still be larger from a revenue standpoint. Where we're going to see revenue driven is through existing customers and fleet adoption. But as we're moving this year through 2024, you're going to see a number of very significant customers engage, which will start to turn into fleets in 2025 as well.

Speaker 1

So there's a lot of pent up demand for what we're doing here with Optimus. Same thing with Raider. So, Raider will expand with the existing customer is our strong belief, but we think we're going to be able to engage other Homeland Security and Defense Groups. And you add it all up, given the revenue models, I think Optimus will probably still be larger than Raider, but they're both going to grow significantly.

Speaker 10

Great. Thank you.

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 just going to close the call by simply thanking you again for attending. We have a lot of work ahead and we're going to get right back at it. And then I look forward to keeping you informed on progress.

Speaker 1

I hope you have a great day.

Operator

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

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Earnings Conference Call
Ondas Q1 2024
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