Welcome to the Ondas Holdings, Inc. Second Quarter 2023 Conference Call. [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. During this call, the company will refer to certain non-GAAP financial measures. These non-GAAP measures are not paired in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today which is available at the Investor Relations section of our website. This non-GAAP information is provided as a supplement to, not as a substitute for or as superior to measures of financial performance prepared in accordance with GAAP. However, management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business. Please also note that this event is being recorded today. I would now like to turn the presentation over to Eric Brock, Chairman, CEO and President. Please go ahead.

Well, thank you, operator and good morning. I want to get started by welcoming everyone to our second quarter investor call. As always, we appreciate the time you're spending with us and your interest in our company. I'm happy to be joined today by Derek Reisfield, our CFO; as well as Stewart Kantor, the Founder, President and CFO of Ondas Networks; and Meir Kliner, the Founder and CEO of Airobotics and the President of Ondas Autonomous Systems. Today, we plan to review our financial performance and strategic progress for the recently completed second quarter and discuss our outlook for the second half of 2023 and beyond. Now let's turn to the agenda. We will start today's call with some brief comments about the second quarter performance and the significant progress we have made in advancing the adoption of our technology platforms. I will also spend some time reviewing the recent financings we announced in July. I will then hand the call over to Derek for a detailed review of our second quarter financial performance. As part of the financial review, I will discuss our balance sheet and liquidity position and then provide an update on our outlook for the rest of 2023. Then we will transition and provide a business unit update for Ondas Networks in -- Ondas Autonomous Systems, where I will ask Stewart and Meir to provide commentary around current business activity. We will then wrap the call and open the floor for investor questions. As we move through the second quarter, we continue to pick up momentum with our customers at both Ondas Networks and Ondas autonomous systems. We are now driving platform adoption which we expect to broaden with both existing customers and with new customers and ecosystem partners globally. This momentum was evidenced by top…

Thanks, Eric. As I get started, I want to remind our investors that our financial statements reflect the early stage of platform adoption for both Ondas Networks and OAS and the preparation for large commercial rollouts. We expect significant operating revenues grow, though today's revenue levels do not yet cover our operating expenses. Revenue for the periods presented have been generated by both Ondas Networks and the OAS business units and totaled approximately $5.5 million for the second quarter of 2023 which was a significant increase from the $600,000 of revenue generated in the second quarter of 2022. Quarter-over-quarter revenues also showed robust growth of more than 100% from the $2.6 million in revenue reported in the first quarter of 2023. Growth was primarily the result of both higher product shipments at Ondas Networks and deployments of Optimus System related to customer activity for OAS in the UAE. Gross profit for the second quarter of 2023 was approximately $3.1 million, a tenfold increase from the same period in 2022 when gross profit was approximately $300,000. Operating expenses declined slightly to approximately $11.6 million in the second quarter of 2023 as compared to $11.7 million in the prior year, despite the larger business operations which now includes a full quarter of Airobotics expenses. Cash operating expenses were equal to approximately $8.8 million which was about in line with expectations. Over the next few quarters, we believe that we will realize additional benefits from the OAS integration on the cost side. Noncash expenses, including stock-based compensation and depreciation and amortization totaled approximately $2.9 million for the second quarter of 2023. This is up slightly from the noncash expenses of $2.6 million in the second quarter of 2022. The company realized an operating loss of approximately $8.5 million for the second quarter of…

Thank you, Derek. As described previously, the recent funding has substantially fortified our balance sheet and placed us on a strong footing to execute our growth plan. Pro forma for the funding, Ondas had approximately $27.1 million in cash as of June 30. Between the original and new convertible notes, we have approximately $31 million in outstanding loan balances that we will look to equitize as soon as we can. The way to drive equitization of the notes and by extension, a deleveraging of our balance sheet is through execution of our business plan and growing our market capitalization for the benefit of our investors. Regarding the convertible notes, we and the investor also agreed to extend the maturity of the original convertible notes from October 2024 to April 2025. This works to reduce the monthly amortization of that original note. Note that the exchange price for the notes to convert into shares prior to maturity is now approximately $1.45 per share. The convertible preferred shares at Ondas Networks which provided CMP Group investors with an effective 28% equity interest in our Ondas network subsidiary are reflected as a minority interest in the consolidated balance sheet. Let's now move to discuss the financial outlook before turning to a review of our business units. Firstly, we are poised to have a very strong year at Ondas as both business units transition to generating revenue growth. In 2023, we are demonstrating real demand for our technology platform and that they are commercially ready and scalable. We expect the growth this year to continue in 2024 and beyond and we believe our expectations for substantial multiyear growth remain achievable. With that said, our trajectory can be lumpy and difficult to forecast as our adoption curves are just beginning. For the full year 2023,…

Great. Thank you, Eric. At Ondas Networks, we had a record revenue quarter, driven by shipments for customers. We delivered approximately $1.5 million in product and development revenue in the second quarter with a new record delivery product shipments to Siemens. This is coming off a solid first quarter of approximately $1 million in revenue with the previous record amount of shipments. Moreover, we're fully engaged with Siemens in the Class I rails to further prepare for large-scale commercial deployments at 900 megahertz. And with the adoption of the standard in March 2023, we see increasing amounts of deployment planning among the Class Is. We are now working hand-in-hand on deployments with key rail personnel with direct budget responsibility. Specifically, in July, we commenced work with a major rail visiting their critical ATCS locations and completing detailed site surveys in preparation of new ATCS installations. As we shared on our last call, the announcement by the American Association of Railroads in March that the dot16 platform was chosen for deployment in the greenfield 900 megahertz network combined with the approaching deadlines to retire the legacy 900 megahertz network by September 2025, is advancing the formal activity of the rails around migrating the network. Our initial deployments are focused on critical network and high-traffic locations as well as new vital communications endpoints such as rail crossings. We believe this work in the areas of focus reflects positively on how the rails have come to value the 900 megahertz opportunity. Simultaneously to this work, Siemens is actively negotiating purchase orders with select rails. In terms of development and standardization, MxV Rail which is a subsidiary of the AAR, is thoroughly engaged on the dot16 network integration plans with a continued focus on the new network controller and critical dot16 functionality, including key…

Thank you, Stewart. I will now ask Meir Kliner to take a floor and update us on progress with customers at Ondas Autonomous Systems and provide some insight into the outlook for the rest of 2023. Meir?

Thank you, Eric. We continue to build momentum at Ondas Autonomous System in the second quarter with revenue reaching $4 million, a substantial increase over Q1 revenues of $1.5 million. Our team continues to execute well, as evidenced by the successful completion of our proof-of-concept in Abu Dhabi, UAE and the ongoing advancement of activity with existing customers as well as new customers and partners globally. In Dubai, we are continuing to expand our relationship with the government. We secured an additional service agreement for our deployed systems and plan to expand OAS operation and footprint in the city later this year. We study growth throughout 2023 and into 2024 with ongoing fleet expansion in Abu Dhabi, Dubai and other countries in the region as we welcome new customers. We provided investors an important added in July on our type certification activities with the FAA as we report to receiving FAA-type certification the Optimus System, our focus is qualifying and acquiring customers in the United States. We have secured an agreement with the Massachusetts Department of Transportation, MassDOT, aeronautical department for proof-of-concept program which includes demonstrations to relevant stake orders across the state. These demonstrations may attract other government agencies for Massachusetts and beyond. We are excited to showcase our Optimus System which is state-of-the-art capabilities and functionality which can enter the various use cases desired by the public agency in charge of providing critical services to the state of Massachusetts. Additionally, we have made significant progress in our partnership with Skyfire, a leading consulting team into public safety field. By combining Skyfire's expertise in One programs in various states with our type certificate Optimus System, we have made game-changing advantage. We and Skyfire believe the market for Drone first responder, or DFR, is very large and that spending on…

Thank you, Meir. Before we turn the call over to Q&A, I want to reiterate that we remain bullish outlook for Ondas and believe our business is strengthening considerably. We have worked extremely hard to position for growth, though, as we all know, we and our investors have had a bumpy 12 months. The challenges we have faced which included extended timelines, particularly on the rail side with Ondas Networks have been exacerbated by a more difficult funding backdrop for small emerging technology companies. Nonetheless, I believe we are clearly on the path to monetize the significant investments we have made in our FullMAX and Optimus platform technologies. Of course, this growth plan is now supported by our strengthened balance sheet. The Class I rails are now engaged deeply in formal planning for the 900 megahertz network migration and we believe visibility in the big ramp ahead is improving dramatically. We will look for volume orders as we move through the fall and in parallel, work to scale production to be prepared to meet the expected order ramp. At OAS, fleet deployments are valid in the safety and reliability of our Optimus System as well as the value our automated drone services provide. This is driving faster engagement with a broader set of partners and customers across the globe, including in new markets such as India and Saudi Arabia and of course, in the United States as well. The broader engagement for both networks and OAS is exactly what you want to see when you're in the early stage of technology adoption and is evidence that we are in the initial stage on the hedge curve of exponential growth. We expect to grow orders and deliveries in the second half which will allow us to maintain the momentum we have built coming into 2023 with a significant ramp in 2024 and beyond. This growth, combined with continued cost discipline will allow us to reward our shareholders. From here, I firmly leave the outlook for Ondas is only getting better and better. With that said, let's see if there are any questions. Operator?

[Operator Instructions] At this time we will take our first question will come from Tim Horan with Oppenheimer.

Can you give us a sense of how much in orders you've received from the rails? And just trying to understand the process or maybe -- it seems like most of the orders have to come in, in the next 9 to 12 months if it's going to be 6 months to deliver. And then can you just talk about the gross margins on the rail equipment. And I guess related to this, if you can't talk about how many orders now, can you give us a sense of how much in orders you expect in the next 12 months? And then are you basically -- can you talk about what you're anticipating? Like are you starting to build the equipment in front of the orders? And can you talk about how much equipment you've ordered here? And then the working capital, is that still a problem? Or do you think you've kind of totally solved that at this point? I know that's a mix of questions. Just trying to understand the whole process on the rails here from -- when you -- what orders you received, when do you put in the -- when do you start making the equipment? And then basically, have you started making equipment in front of the orders?

Great. Tim, I'll start with the gross margin question first and then we'll talk about the ordering process and expectations of how we'll build over the next few quarters. So gross margins on the Ondas Networks system side are targeted at 50% [ph] to 60%. You'll see that bounce around a little bit until we get into these bigger volumes. But of course, we do see the volumes ramping but that's what it looks like on the margins. And we'll give more clarity on that as we get the volume revenue pull-through. In terms of the order and inventory building process but what we're doing in the field today with customers is really working hand-in-hand with Siemens. Discussing with customers, locations, requirements in terms of what applications and equipment they want to hook up first. In and around that, of course, we're talking about volumes and pricing, et cetera. Siemens is handling the bulk of your negotiations on that front. What we do with Siemens is in parallel, we're planning for production and capacity ramp. So as we're moving through this year, we are targeting significant orders and having conversations and see about the timing of our inventory production in front of that. So the dynamic is with these -- what we do expect to be a big build-out in 2024 and 2025 to meet deadlines that we need to start ramping function now. And we're doing that in front of what we think is we expect to receive the orders over the balance of year. So we'll be building inventory for Siemens and we think returning into 2024, the demand for even more building will certainly increase.

Can you talk about the dollar amount of orders you've kind of replaced in? If you're going to get like 200 million orders in the next 12 to 18 months, I mean, it would suggest you need like $100 million of working capital at a 50% gross margin. How do you kind of plan on funding that?

So we do have -- we are expecting to have a payment arrangements to Siemens to help support component inventory build. So that's one aspect of it. And we also expect to have a very attractive payment terms in terms of when we ship and bill and receive payments. So we think that's going to help us quite a bit on working capital. Was there another element of that question?

Can you -- yes, you see you talk about how much like the rough size of orders you placed at this point?

So yes, I don't want to do that just yet. I mean part of this conversation with the Siemens in the railroad is we're negotiating. And we certainly, as you can understand, want to work to get to firm commitments on this upfront to an extent where sort of signaling that we want to build inventory in front of that, I would not want to put a number on that because that would delay some of the impetus on getting those for so I want to sort of defer on that question at the moment.

And do you have a set and the orders will really start kicking in? Is it third quarter this year, fourth quarter, first quarter of next year? And then the revenues, I'm guessing are 6 to 9 months after the orders to kick in but do you have a sense when the orders will really start flowing?

Yes. So a couple of things. So the orders that Siemens secure then turns to us, we do expect over the balance of the year. And I think I'll say in the next few months, I don't want to put a specific timing on it, again, given where we are in these discussions from a competitive standpoint. But of course, having the visibility we do on the expected ramp and knowing that we need equipment, we can start ramping now and I thought we're only going to be building capacity through the year. So I can't get any more granular than that at this point.

Okay. Got it. But it seems like you're kind of expecting the orders really ramp in the fourth quarter and the first quarter and then the revenues really ramped second and the third quarter of next year. Is that fair to say your best guess at this point?

It is fair to say when we think about the very large revenue numbers that we believe are ahead of us. But I do think that if we're moving through the year into Q1, I think Q1 will be -- see a nice uptick as well.

So you kind of expect to receive revenue from these orders in Q1 will be a pretty good uptick. Okay. And so can you give us a sense of how much you've received an order so far, you're expecting Q1? I know you had some guidance on bookings for the -- at the beginning of the year for this year. Can you give us a sense where you're tracking the

Yes. So we haven't -- we didn't give guidance on bookings as we gave targets for revenues. And of course, we've updated that today. And I don't want to go further on the bookings side as we -- as we're moving into the second half, we'll update you as we can.

[Operator Instructions] Our next question will come from Matthew Galinko with Maxim Group.

I'll be brief. I wanted to maybe get a little bit more color on the contract manufacturer that you're engaged with now. Any fixed commitments there? And just to the extent that you do expect the volume orders from rails in the next year or 2. Is this manufacturer in a place to meet that capacity? Or do you expect to have to do more work to get to that point?

I'm going to ask Stewart to share more details. On this contract manufacturer, this is a firm that we've been working with to qualify for quite some time now. And it's -- we've been doing that in parallel with Siemens. And again, it was an anticipation of obviously the increase in volumes. So Stewart, what would you add to that?

Yes. Matthew, so we -- this is the contract manufacturer in the U.S. is one we qualified with Siemens and they support Siemens in many of their product lines. So we feel they're very capable. And as we secured the new working capital, we've now engaged them and have turned over some critical boards in our development that have been a bottleneck in the past. So they are prepared to ramp and are well qualified. We also have another manufacturer in Canada that's supporting us for some other key components. So I think we feel very confident with them.

Got it. And maybe just on a -- help me understand the type certification and how that factors into timing on the pipeline, build and engagement with U.S. entities. And it doesn't seem like you've needed it to, to ramp up engagement but just if you could help me understand a little bit better. Is it a question of, hey, we get the certification and you expect U.S. orders imminently or still several months post for additional evaluation before you get to something in volume in the U.S.?

Thanks, Matt. So the type certification itself has or lacked the we formally received it has not been a barrier to conversations with customers because there's other ways we can get out and receive approvals for flight operations. I think what you'll do is see is that in our marketing efforts, it's a lot easier to have these conversations. And it's easier for customers to engage more quickly when we have this level of quality that's being validated by things like type certification, as well as the experience we're able to point to all the flight hours, for example, commercial deployment in urban environments in the UAE. So I can -- I think you can think of it as an accelerant of the activity with customers, maybe it's going to be more efficient in the sales process will be shorter as a result. Meir, would you add anything to that?

Yes. So we finished the last asset we need to do with the FAA and now we're waiting for the final approval. In our opinion, it's going to make a game changer in the industry because this is the first time that anyone will get this approval to fly above people without the need with specific waiver. And as Eric mentioned, it will give us the ability to accelerate and scale as a operate deal with clients in more quickly because we will have this approval and we can open new markets in the United States to build one infrastructure in human area and not only in remote area.

[Operator Instructions] Our next question will come from William Morrison with B. Riley.

You wouldn't have to be particularly insightful to understand that there might be inventories shortages going out. So what exactly went wrong? Because like the last 5 times we talked about this, it was under control. So what changed like who dropped the ball?

Well, Bill, we did -- I'll refer back to our last conference call, we highlighted some of the component bottlenecks that we had been experiencing as we're really ramping up volume production for the first time. So we've done a lot of work to qualify supplier components but the first time you enter into these volume orders with them, they can catch them off guard. So as Stewart had mentioned, we relieve those specific bottlenecks. And today, we believe the supply chain is in pretty good shape for us. We're going to be particularly active sort of focusing on advanced purchases for certain components in addition to qualifying other component vendors for diversification but that's kind of how we've dealt with it. But we did highlight this on the last call. I'd say a bigger issue has particularly as we're moving to the contract manufacturer has been having the working capital base to make commitments to volume purchases of components to ramp production. And we -- as you know, we completed a financing in July. We were trying to get that financing in a bit earlier but these things can sometimes take some time. So we really have just started to ramp, as we described with the contract manufacturer and these other component orders for higher volumes after we announced the funding and given the lead times, the ability to pull that through the supply, the production is -- means that some of that will go into Q1.

And how much of this is applicable to OAS?

OAS is -- we're talking specifically about Ondas Networks related to the supply chain ramp. OAS has -- we have entered the year, as you recall, we closed the Airobotics acquisition in January. And at that time, we ordered 50 new Optimus System. And we were expecting to receive 10 in the second half of the year and we're still on track for that.

All right. And then what about major fleet orders we've been kind of looking for those for a while, not like 10 but hundreds of systems.

We going to give us a little time on hundreds per customer. When we came into the year with the Optimus System, we spoke of the activity in UAE, those customers were the furthest along commercial adoption fleet adoption. And we targeted -- or we've highlighted that the customers have been publicly discussing in the UAE at least 50 units, of course, through 2025. We still -- we're kind of working with them to build that out. Elsewhere, when we're talking about new markets like India, Saudi Arabia, of course, in the United States, we've identified early customers and partners. We're going to work with them but you'll see them sort of start to ramp in a more deliberate way, right, to take maybe a couple of systems up to 5, they goes out. And then from there, we can scale more quickly as they get the experience and we do perfecting how we deliver the solution, so -- and again the valuable experience. So I guess we'll see how -- we do think we're on that path in the UAE. And as you'll -- as we were able to share with you customer activity with these other markets and specifically in the U.S. as well, you'll as we get busy with the customers, we'll give you more plans on what we think pet deployments look like.

And with that, this will conclude our question-and-answer session. I'd like to turn the conference back over to Eric Brock for any closing remarks.

Okay. Thank you, operator. Just going to close the call today by thanking you again for attending. As always, we have a lot of work ahead and we're going to get right back at it. And we look forward to staying in touch and keeping you informed on our progress. So have a great day. Thank you.

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