Welcome to the Ondas Holdings Incorporated Third Quarter 2022 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Before we begin, the company would like to remind you that this call may contain forward-looking statements. While these forward-looking statements reflect Ondas' best current judgment, they are subject to risks and uncertainties that could cause actual results to differ materially from those implied by these forward-looking statements. These risk factors are discussed in Ondas' periodic SEC filings and in the earnings press release issued today, which are both available on the company's website. Ondas undertakes no obligation to revise or update any forward-looking statements to reflect future events or circumstances, except as required by law. Please note, this event is being recorded. I'd now like to turn the presentation over to Eric Brock, Chairman and CEO. Please go ahead.

Good morning. It's a pleasure to welcome you to our conference call. I'm happy to be joined today by Derek Reisfield, our President and CFO; Stewart Kantor, the Founder and President of Ondas Networks; and Reese Mozer, American Robotics’ Founder and CEO. Let's begin with some opening remarks before we outline today's agenda. I want to start by emphasizing that business is on track at Ondas. The technology-based leadership positions we have established with customers in the critical infrastructure and services markets we target continues to strengthen. We expect this to create substantial shareholder value and are determined to deliver that value to our investors. This is a theme we will come back to. As our investors are well aware, we have invested substantial amounts in our technology platforms. If you look at Ondas Networks, American Robotics and now with Airobotics, where we are in the process of acquiring, we have collectively invested well over $250 million in our businesses. This is a substantial sum and quite clearly, our investors have not yet been rewarded for that investment and our hard work. Of course, I believe we will be rewarded and it's my responsibility along with our management team to make sure that we deliver on our plan and earn our just rewards on your behalf. The ultimate measuring stick for the value creation we expect is clearly the revenue, profit and cash flow that we can generate from the monetization of our platform technologies. This is always the case. We don't develop wireless network technology or autonomous drone and data capabilities for the oohhs and aahhs they generate. Our purpose is not to impress engineers. Our purpose is to generate tangible financial rewards for you. Our management team is hugely focused on monetizing the substantial investments we have made…

Thanks, Eric. As I get started, I want to remind our investors that our financial statements reflect the investment and preparation for larger commercial rollouts within Ondas Networks and American Robotics, which we believe we will soon see. Revenues for the periods presented have been generated by FullMAX product sales and service revenues for customers, including Class I railroads, in addition to product development programs with Siemens. Of course, we believe this activity has served to establish the broader opportunity and will lead to significant growth in the FullMAX based wireless systems and Scout deployments in the coming years. For the third quarter of 2022, revenues were $600,000. This was an increase from $300,000 during Q3 last year. Revenues during the recent quarter were generated by product sales in addition to services related to the Class I federated rail lab shipped to MxV Rail in the third quarter. In addition, we advanced the HOT and European product development programs with Siemens. Gross margin improved significantly to 63.2% for the third quarter of 2022, compared with gross margin of 4.8% in the prior year period. As we have described in our prior calls, due to the historically lumpy nature of development programs and customer product sales and services, gross margins can be volatile on a quarterly basis. The margin improvement is primarily due to a larger proportion of high-margin product sales and services revenue in the revenue mix during Q3 this year. Operating expenses, increased to $13.9 million for the third quarter of 2022, as compared to $4.9 million in the prior year. The increase in operating expenses was primarily due to spending at American Robotics, where we grew headcount over the last 12 months to support customer activity and due to deal expenses incurred for the Airobotics acquisition. Non-cash expenses…

Thank you, Derek. Let's transition to an update on business development activity at Ondas Networks; and American Robotics. Before I ask Stewart and Reese to share details of the progress we are making, I will provide an initial summary of where we are on our key priorities. I will start by reiterating that our business plan is on track, and we believe we are creating significant shareholder value as we work with customers to adopt our technology platforms. Ondas Networks continues to advance launch activities with the Class I rails. And of course, we continue to work closely with Siemens Mobility here. The initial Siemens volume order of $5.2 million announced in August is validation that we are well positioned to penetrate the global rail market with FullMAX. While we are happy to begin building inventory with Siemens for commercial customer deployments in 900 megahertz, I want to be very candid about the pace of orders and our expectations for growth. I expected to have a higher level of bookings with the Class I rails at this point in time. While we believe those bookings are coming, we need to adhere to the formal transition processes with the railroads, which are taking longer and are a bit more arduous than originally anticipated. Remember, our rail customers are operating a mission-critical network, a decision that is a 10, if not 20-year commitment to our platform and involves nearly all aspects of their trading operations. As such, they act very deliberately planning commercial deployments, and that explains the comprehensive work we are doing with these customers. We work closely with the railroads on a nearly daily basis and the feedback we get from the Class I rails runs is extremely positive. That extends to organizations within the rail sector, including the AAR…

Great. Thank you, Eric. As most of you are aware, in the last call, we announced our initial volume order from Siemens for the 900 megahertz greenfield network in North America, where we now have five of the Class 1' active with our FullMAX technology; and two, having completed their launch activities. This order from Siemens was a pivotal event for Ondas Networks, and we're well down the path to scaling production, including having qualified contract manufacturing to start deliveries this quarter. Similar to other manufacturers, we too have experienced supply chain pressures, but anticipate that we can manage this process going forward, as we ramp up our deliveries to address Siemens' backlog. We believe this initial volume order is a reflection of the progress MxV Rail, the AAR and the Class 1 Rails have made in qualifying Airlink dot16 and completing their associated launch activities. We expect these activities to drive follow-on orders and rail deployments, including expansion into the North American passenger and transit rail markets. The next version of the dot16 standard, known as IEEE 802.16t is in its final draft form and hounded for the IEEE ratification in the near future. The standard has received strong support from MXV Rail and the AAR. And in September, we transferred the Rail lab to MxV Rail's new headquarters in Pueblo, Colorado, where the lab will be under MxV's control, along with ongoing support from Ondas. We expect new development programs on behalf of derails as MxV and their customers standardize on dot16 in the 900 megahertz network, in addition to other mission-critical Class 1 rail wireless systems. Furthermore, we continue to see adoption of dot16 beyond the North American market. Evidence of this includes our announcement today of our first international volume order from Siemens for delivery in…

Thank you, Stuart. In Q3, American Robotics achieved a number of important milestones. In M&A and partnership activity, we entered into the definitive agreement to acquire Aerobotics, one of the world's foremost leaders in autonomous drone systems, expanding our portfolio of industry-leading talent, industry-leading IP, and broadening our customer pipeline. We also acquired the assets of Field of View, a company that specializes in the integration of payloads into commercial drone platforms. Additionally, we announced a strategic technology partnership with ICI, a leading developer of infrared sensors specializing in the oil and gas market. This partnership was a direct result of customer requirements determined during our pilot engagements as well as the expected updates to EPA regulations, governing rigorous requirements for oil and gas companies to routinely monitor all existing assets across the United States from--. Regulatory reactivity, American Robotics received three new milestone approvals from the FAA, further solidifying our leadership position in fully autonomous BV loss approvals in the United States. The first, in the form of a new exemption permits wide-scale commercial operations of our autonomous Scout Systems without limitations on use by removing a prior restriction that constrained operations to R&D, crew training, and market surveys. The second approval, a waiver, permits expanded area for autonomous BB loss operations, unlocking inspection opportunities for customers with very large industrial sites and linear assets. The third being announced for the first time on the call today is a waiver for emitting automated BD loss operations at two new customer sites located in Texas. All three were predicted on the prior earnings call, and all three have occurred. With each of these, combined with our prior approvals, it is clear American Robotics is maintaining its IP-enabled competitive advantage in this critical regulatory category. Despite often misleading claims from other…

Thank you, Reese. Now let's turn and summarize some of our key business objectives as we wrap up the year and look forward to 2023. As discussed, we are focused on ramping production at Ondas Networks to meet the initial demand from Siemens. Of course, our rail team is working in parallel with Siemens and customers to secure additional 900 megahertz orders from additional railroads. The networks being built by the railroads have 10 to 20-year lifetimes, if not longer, and of course, they are large. While the initial ordering has come slower than we like, the long-term opportunity remains there for Ondas. While we don't expect to meet our original bookings targets for 2022, we do see at least $8 million in product and developing bookings as a reasonable goal for 2022 and expect to secure significant growth in bookings in 2023. We anticipate providing an update on our 2023 outlook in the first quarter of next year. I want to highlight that we expect increased public dialogue in the rail industry regarding their support for the dot 16 wireless standard and plans to adopt our FullMAX platform, starting with the greenfield 900-megahertz network. As we have highlighted, the rail industry has been active in the IEEE 802.16 standards group and the Federated Rail Lab operated by MxV Rail is poised to become a showcase for our FullMAX technology in critical rail networks. Raising awareness within the industry, which, again, we expect the rail customers to do will help accelerate broader ecosystem in vendor participation, driving integration of more and more applications being developed to run on the network. This activity supported by MXV Rail and the AAR will serve to further increase the value of our FullMAX technology. Lastly, for Ondas Networks, we expect to continue to grow…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Tim Horan from Oppenheimer. Please go ahead.

A few questions. Can you update us maybe on the timing do you think of other applications, as Stewart has explained earlier. So the timing still is -- in terms of the focus on the railroads, continues to be a three-year build-out with certain deadlines in 2023. And that's why you're seeing these orders come, and we expect to see more as we're moving into 2023. A – Eric Brock: And I'll just add my answer before did not include any Airobotics projections, just to be clear. So Optimus system, there's a certain amount that are already manufactured and we're working to manufacture more to deliver for that Dubai order as well as some other orders that we expect to see in 2023. And so we're going to plan to share more details on those plans after we close the deal. Q – Tim Horan: Got it. And just lastly, on the additional kind of the potential to raise more convertible money from that investor. I think it's at their option. Do you know what criteria they're looking forward to do a reinvestment? A – Eric Brock: They have not shared the criteria. You're right, it is at their option in that 12-month option. Q – Tim Horan: Great. Thanks a lot, guys.

[Operator Instructions] And our next question comes from Carter Mansbach from Forte Capital Group. Please go ahead. Q – Carter Mansbach: Good morning, gentlemen. A – Eric Brock: Good morning, Carter. Q – Carter Mansbach: So, I’d like to congratulate you guys on all the developments that you've had, and I want to -- I have a couple of questions just for clarification purposes. So as for the Airobotics Dubai contract, what I think I heard or what I read is that you have the potential of 24 units, and I believe I read or heard that there are $1 million of product per drone. Is that correct? A – Derek Reisfield: That is correct. The initial order, which is a follow-on order for beginning the role of the fleet, it was for two systems for $2 million. And we think that pricing will be reflected in future orders. Q – Carter Mansbach: So basically, what you’re saying it's a $24 million opportunity. A – Derek Reisfield: Exactly. And the cut -- please. Yes. A – Eric Brock: I also add that there's some recurring revenue in there as well for maintenance and continued operation of those systems. Q – Carter Mansbach: Excellent. Now then I also hear that there's another one that's very similar in nature that could get the benefit, the same type of revenue? A – Eric Brock: So the robotics does have an active customer pipeline, including in the UAE. So we expect that there will be more business there, and I think we should probably hold off on describing that in greater detail. Q – Carter Mansbach: Okay. So we're thinking $24 million on this contract, which is a big number. So last point for me. So it seems like over the last four years that I've been involved, the foundation is being built and now we're looking to build the house. So I'm assuming from your words that this is a hockey stick year in 2023. Now that being the case, assuming I'm right in what I'm saying, when your Q4 comes out and you start giving projections for 2023, will you be able to be more clear and have better understanding of what you're looking for in 2023?

I do believe that's the case, Carter. And as I said in the prepared remarks, we are working with the rail industry, including the customers, the AAR and MXP Rail to more broadly communicate the plans for the dot16 platform adoption in network rollouts. We expect that to just get a lot more visibility. It's going to be helpful for investors, but it's also helpful for the industry as well. Vendors who are going to be plugging into the network, for example, are going to be more engaging as awareness builds.

Okay. Great. I wish you guys continued success, and I look forward to the major ramp in 2023. Thank you, guys.

Thank you, Carter.

The next question comes from Mike Latimore from Northland Capital Markets. Please go ahead.

On this Airobotics Dubai deal, would that be the likely be the majority of the revenue next year coming from this contract? And then as you look to kind of move -- sort of integrate Airobotics with American Robotics, does the revenue model change at all? Do you end up with more selling more recurring revenue under the AIROBOTICS product, let's say? And then also, what kind of additional regulatory approval that you get -- need to get to sell Airobotics in the US?

Yes, I can take some of that. Yes. I think the Dubai order certainly represents a significant portion of the expected revenue in 2023, although we do see some other similar opportunities forming. So as Eric said, there's only so much we can say right now, but we'll be sharing more details on that after the deal closes. I do think it's important to note that once a – when a order like this is complete for the city of Dubai, the ability to duplicate that at a faster rate becomes a lot more feasible because other customers around the world see the success at this place and feel more comfortable about placing orders. And that's the same thing at American Robotics as well. On the recurring revenue side, Aerobotics has a mix of recurring revenues, but also hardware sales. So I think that mix is going to continue. American Robotics is heavier on the pure subscription model than Aerobotics. So there's going to be a mix of that over the coming years. I think there was one more question, which I forgot now.

Yeah. Just what kind of additional regulatory approvals you need to get for Airobotics to sell it in other regions, particularly in the U.S.?

Yeah. It's a good question. So it depends how it's being used, if it's being used in a fully autonomous manner in the United States, it would require an approval like ours. And that's one of the reasons that we decided to join forces is because American Robotics has this unique approval set, driven by some of our intellectual property. And so we anticipate integrating that into the Airobotic System and allowing Optimus to operate the way that Scout does in the U.S. Probably important to note though, that one of the unique things that Airobotics has is they're very far along in what's called the Type certification process, which is important to being able to fly over very populated areas. So that's not something that American Robotics has pursued, because we typically operate in very rural areas. But as far as duplicating the Dubai success in cities in the United States, Airobotics is extremely far along that path, and we expect some pretty big news around that topic over the next year.

I guess...

Mike, just one more thing on Airobotics and the rollout of fleet, so the Dubai order brings basically double the system and that starts the fleet deployments. They have publicly indicated that they expect to have 24 systems throughout the city Dubai by the end of 2025. And we do -- they also have signaled that they're going to do -- there will be additional orders next year. And I'd also add that, we expect more than one-fleet customer building out in 2023. So this revenue will be a meaningful ramp.

Got it. And then just last on approvals, generally, I guess you talked about three additional ones for American Robotics. Are there more approvals you're looking for in the next year?

Yeah. We expect to continue adding additional sites, is now becoming somewhat, routine for us, which is a good thing. So that's certainly part of what we expect to see. There's, another couple of approvals that we're going to be going for that, I'm going to hold out details for right now, but the answer is, yes. I think we're going to continue to extend our lead with these approvals.

Okay. Thanks.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to, Eric Brock for any closing remarks.

Okay. Thank you, Operator. I'm going to close the call, by thanking you again for attending. We have a lot of work ahead. And look forward to keeping you informed on our progress. We do expect to hold an analyst call after closing the Airobotics acquisition. And in the meantime, investors are always welcome to reach out. Hope you have a great day. And this ends the call. Thank you.

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