Ondas Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2025

There are 9 speakers on the call.

Operator

Welcome to the Ondus Holdings Inc. First Quarter twenty twenty five 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 OnBase's best current judgment, they are subject to risks and uncertainties that could cause actual results to differ materially from those implied by these forward looking statements.

Operator

These risk factors are discussed in Ondus' periodic SEC filings and in the earnings press release issued today, which are both available on the company's website. 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, Ondus 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 conference over to Eric Brock, Chairman and CEO. Please go ahead.

Speaker 1

Thank you, operator, and good morning. I want to get started by welcoming you to our quarterly conference call. We appreciate you joining us today and for your continued interest in ONDOS. I'm happy to be joined today by key members of our leadership team, including Neil Laird, our Interim CFO Oshi Lugasi, the Co CEO of Ondus Autonomous Systems and Marcus Nadelman, the CEO of Ondus Networks. So let's now turn to the agenda.

Speaker 1

I will begin with a review of our key highlights from the first quarter of twenty twenty five. I will then hand the call to Neil for a financial review of our Q1 twenty twenty five results. We will then provide a business update for our OAS and ODES Networks business units, where I'll ask Oshri and Marcus to provide commentary around current business activity and the progress we are making on our business plans. I will then provide an outlook for the remainder of 2025, where we continue to anticipate a record year of revenue growth, primarily driven by OAS. We will then wrap the call and open the floor for investor questions.

Speaker 1

Let me start by saying we have a very positive story to tell today. As you're well aware, we have worked extremely hard over a long period of time to build the exceptional capabilities represented by our technology platforms across both OAS and OnVEST networks. Not only that, we have also worked to both demonstrate their value to our customers and begin to drive adoption in the large critical markets we are addressing. These efforts are beginning to pay dividends in very tangible ways, indeed in ways that you as investors can measure. With this backdrop, Andas entered 2025 with strong momentum, especially with Andas Autonomous Systems.

Speaker 1

We put up a strong quarter from both a growth and operational standpoint, further accelerating our multi year growth plan, which is also being supported by growing global tailwinds in demand for our autonomous drone platforms. As we will outline, we are expanding existing customer programs and securing new programs with new customers across the world. In Q1, we generated $4,200,000 in revenue, primarily driven by execution against the $10,000,000 backlog we began 2025 with. We also secured more than $9,000,000 of additional orders year to date, further growing our backlog to $16,800,000 In addition, we have strong visibility on a number of additional orders for both Iron Drone and Optimus that are likely to further increase our backlog by the end of the second quarter as well as during the second half of twenty twenty five. With this momentum in a growing order pipeline, we are reaffirming our full year revenue goal of at least $25,000,000 for 2025 with at least $20,000,000 to be generated by our OAS business unit.

Speaker 1

OAS continues to deliver against existing customer programs while expanding its presence with new defense and homeland security customers across Europe, The Middle East and The U. S. Notably, our Iron Drone Raider system is now operational in a live combat environment with a leading military customer, further demonstrating its status as a best in class low collateral counter UAS platform. The Iron Drone demonstration team, which we launched in February, has been successfully engaging customers and these marketing activities are generating significant new demand supported by the Iron Drone's real world combat readiness. We are actively investing behind the Iron Drone expansion to support the scaling of this platform with customers.

Speaker 1

As we talk further about specific customers, orders and backlog, I want to take a moment to remind our investors that certain customer activities at OAS can be sensitive or even classified in nature. This is obviously true for many of our defense and home security customers, but this can also be the case with certain commercial customers as well. As a result, we need to be sensitive to this while being as transparent as possible on our business development progress understanding this constraint. With that said, I am happy to report today that we are announcing our third customer for Iron Drone with a $1,700,000 order. This is a governmental customer that will deploy Iron Drone for border security.

Speaker 1

This newly announced customer today for Iron Drone is in addition to the initial order from a European governmental entity in NATO member country we announced a few weeks ago, whereby the IronDrone raider is being deployed to protect critical locations. These new customers are demonstrating the global opportunity for IronDrone as we pursue our strategy to establish a platform as a category leader for low kinetic CUAS threat mitigation. These new customers also mean we have met our initial goal of adding two new military or homeland security customers in 2025. In addition to our initial military customer, we secured in the second half of twenty twenty four. With proper execution, we will be able to expand these new iron drone customer programs with future orders.

Speaker 1

I want to add that with our new customer goal met for 2025, we now also expect to add even more military and homeland security customers this year beyond these initial two. The Optimus drone fleet in The UAE for DFR use continues to expand under the DroneBox program with new deployments supporting public safety missions in urban environments. We expect additional growth in 2025 for Optimus including with existing customers as well as new customers, including those in

Speaker 2

The United

Speaker 1

States, where we are pursuing important business. At Omnibus Networks, we made meaningful progress, which included the selection of DOT 16 by the Association of American Railroads or the AAR as a communications protocol standard for the next generation head of train, end of train or NGHE system. This validates our long term strategic efforts and positions us for commercial adoption for rail networks across the 900 megahertz, two twenty megahertz and four fifty megahertz frequency bands. In addition, the 802.16T standard for which we created the design in critical software based intellectual property was formally ratified by the IEEE Committee last week. Recall that the AAR and its railroad members were actively involved in designing the requirements for the .16T standard.

Speaker 1

This is another marker of success for ONDOS and was especially gratifying given the rigorous work of our team and the leadership we have displayed to drive this new standard on behalf of our customers and the rail vendor ecosystem. Lastly, while the 900 megahertz deployments remain slow, we are seeing encouraging signs with key customers actively running small scale critical live network deployments and we are also integrating new IP based applications, which we believe will result in additional sales system sales over time. Of course, Marcus will share more details later in the call. Overall, we are executing well against our strategy, expanding our production and service capabilities to scale with demand, deepening customer relationships and positioning OnDOS for sustained growth throughout 2025 and into 2026. I will now hand the call to Neil to provide a detailed financial update.

Speaker 1

Neil?

Speaker 3

Thank you, Eric. As I get started, want to remind our investors that our financial statements reflect the early stage of platform adoption for both OnBus Networks and OAS. We expect significant operating leverage as revenues grow, though today's revenue levels do not yet cover our operating expenses. For On Dust Networks revenues will fluctuate from quarter to quarter given the uncertainty around the timing of customer activity in front of the targeted commercial rollouts in the 900 megahertz network and the development programs underway with Siemens and MXV rail. 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 service agreements.

Speaker 3

Revenues increased over 500 percent to $4,200,000 in Q1 twenty twenty five from $600,000 in Q1 twenty twenty four. Revenues from OnDaaS networks were $200,000 relatively flat compared to $300,000 from Q1 twenty twenty four and were primarily the result of extended timelines related to 900 megahertz field deployments with the Class I railroads. OAS revenues were $4,000,000 an increase of over 600% from Q1 of twenty twenty four. This increase reflects the shipment of products and services from the 14,400,000 orders, primarily related to the two new programs secured with a military customer in the third quarter of twenty twenty four. We also recognized revenues from additional deployments in The United Arab Emirates.

Speaker 3

Gross profit was $1,500,000 representing a 35% gross margin in Q1 twenty twenty five as compared to a $400,000 gross loss in Q1 of twenty twenty four. The increase in gross margins year over year results from increased higher margin product revenues at OAS compared to lower margin service and subscription revenue in Q1 twenty twenty four. Gross margins can be volatile on a quarter to quarter basis due to revenue levels that reflect the early stages of platform adoption, certain fixed service costs reflected in our cost of goods sold and shifts in revenue mix between product development and services revenue. Operating expenses increased to $11,800,000 for Q1 of twenty twenty five as compared to $8,700,000 in Q1 of twenty twenty four. Cash operating expenses were $9,000,000 in Q1 twenty twenty five compared to $7,300,000 in Q1 twenty twenty four.

Speaker 3

The increase in cash operating expense was the result of investments in headcount and programs at OAS to support the business growth we discussed above. Operating expenses also increased because of additional stock compensation expense. The operating loss was $10,300,000 for Q1 twenty twenty five as compared to $9,100,000 for Q1 twenty twenty four. Adjusted EBITDA loss was $7,500,000 for Q1 twenty twenty five improving slightly from the $7,700,000 loss in Q1 of twenty twenty four. So now let's turn to the cash flow statement.

Speaker 3

We held cash of $25,400,000 as of 03/31/2025 compared to $30,000,000 as of 12/31/2024 and $14,600,000 as of 03/31/2024. The increase from March 2024 reflects the financing received during the last twelve months less cash used in operations. Cash used in operations during Q1 of twenty twenty five decreased slightly to $6,700,000 compared to $7,500,000 for Q1 twenty twenty four, as we saw improved cash collections from the orders received and shipped in 2024 and early twenty twenty five. We also received cash from financing activities of $2,300,000 including proceeds from warrants exercises, government grants and other financing. We expect cash utilization to continue to improve in 2025.

Speaker 3

Improved cash efficiency comes from operating expense leverage at our OAS business unit given our expectation of increased revenue and gross profit over the course of 2025. The company expects to fund its operations from the cash on hand of twenty five point four million dollars as of 03/31/2025 gross profits generated from revenue growth potential prepayments from customers for purchase orders potential proceeds from warrants issued and outstanding and additional funds if needed that the company may seek through equity or debt offerings and or borrowings under existing notes additional notes payable lines of credit or other sources. Turning to the balance sheet. Again, we held cash of $25,400,000 as of 03/31/2025 compared to $30,000,000 as of 12/31/2024. As of 03/31/2025, Arndest Holdings had $25,400,000 in convertible debt outstanding, down from $44,600,000 as of the end of twenty twenty four, reflecting a significant conversion of our outstanding convertible notes into equity.

Speaker 3

We're pleased to say that during the second quarter to date, we have seen further debt reduction via conversion of convertible notes to equity and our outstanding balances on the convertible notes as of today have been reduced to $20,600,000 This debt reduction included conversion of notes that were due to mature at the April. Of course, we plan to support the conversion of these remaining notes to equity before maturity. And I will now hand the call back to Eric.

Speaker 1

Thank you, Neil. While the debt conversions Neil highlighted added more shares to the share count than we would have liked, the reduction in debt at the holding company is a significant positive in my opinion. With that context, thought it would be helpful to spend a few minutes here to dig a bit more into our cap table. As you are aware, significant funding of our growth plan has come from the raising of capital through convertible notes. Since October 2022, we have raised $70,000,000 in cash, which represented $80,500,000 in convertible notes due when including original issue discount or OID.

Speaker 1

This $80,500,000 includes the $34,500,000 of notes that were invested at the end of twenty twenty four, just last December. While these notes have fixed conversion prices, they also have a feature that allows for monthly amortization whereby they can be converted into shares at a conversion price calculated using a discount to a VWAP measure if the VWAP is below the fixed conversion price. While the terms of the notes are fully disclosed in our SEC filings, we are providing some additional context to help investors calculate the potential additional shares to be issued to satisfy the balance of the outstanding convertible notes. But first, let's discuss the increase in share count from $93,200,000 to $137,400,000 during the first five months of twenty twenty five year to date.

Speaker 3

Note that the bulk

Speaker 1

of the shares as we show here are related to the conversion of the convertible notes, which include unamortized discounts in accrued interest. The average conversion price for these additional shares was approximately $0.68 The low conversion price was unfortunate and a function of a significant decline in our share price despite what we believe is a significantly improving company fundamentals. It is management's view that market related factors exacerbated pressure on our shares and resulted in Andas issuing more shares due to the conversion than we may have otherwise. Going forward, we anticipate the conversion of the remaining $23,800,000 of outstanding notes, which includes unamortized discounts in accrued interest into additional shares. We have shared the maturities and conversion prices here on this slide for your information.

Speaker 1

The best outcome of course is for the shares to appreciate above the fixed conversion price. If this happens, we will issue another 18,700,000.0 shares as depicted here to eliminate the debt. Of course, if the shares are below the fixed conversion prices, the incremental shares issued upon conversion using a conversion price calculated with a discount VWAP method would result in more shares being issued above the 18,700,000.0 described within. We encourage investors to perform their own analysis and we are merely sharing this perspective to provide additional tools to help you make your own assessments. Now we transition to a review of our business units and ask Oshri and Marcus to share updates on business development activity and operations at OnDesk Networks and OAS.

Speaker 1

As a reminder, both Oshri and Marcus took the reins as CEOs of their respective business units during the first quarter of twenty twenty five. Both are highly experienced and bring exceptional and relevant talents to their leadership positions. I am pleased with their performance and believe they will be highly successful driving growth for our companies. Marcus will now provide an update on our business activity and the outlook for OnDesk Networks. Marcus?

Speaker 4

Thank you, Eric. Twenty twenty five has been an exciting year so far for OnDesk Networks, and I'm happy to join the call and update our investors on some important developments. On April 11, the Association of American Railroad's Wireless Communications Committee announced that DOT 16 has been selected as the communications protocol for all future head of train and end of train devices. This is not only an important milestone in the development of the NGHE four point zero specifications, but also a significant endorsement of 802.6 technology in the railroad operating environment. The Wireless Communications Committee made its decision after a rigorous technical evaluation and competitive technology comparison at the AAR's MXV research facility in Colorado.

Speaker 4

We were pleased to see that our capabilities performed as strongly as they did as the industry continues to see the dot 16 technology platform and Omnis as the leading capability to upgrade private wireless networks in the railroad sector. I would like to take this opportunity to thank both the OMNIS and MXV technical teams who put a lot of time and energy into getting us to this point. With the NGHE communications protocol selected, the remaining NGHE four point zero specification now be finalized. This effort is being led by MX3, and we expect that the full specifications will be complete by the end of this year. In anticipation of the final specifications, which primarily relate to end of train device functionality, we are proactively engaging with head of train and end of train device manufacturers to be in a position to commercialize next generation head of train devices in early twenty twenty six and end of train devices shortly thereafter.

Speaker 4

Last week, the Institute of Electrical and Electronics Engineers or IEEE formally ratified 802.16T, the latest iteration of the point one six standard. Securing the point one six standard was a multiyear process that took a tremendous amount of energy and talent from many people ecosystem. Further, this standard has been tailored to unique requirements of private industrial wireless networks, particularly for the needs of the Class I railroads who collectively operate continent wide wireless networks supporting critical operating and safety systems, enabling the efficient and safe operations of trains. I would like to use this opportunity to thank the Onnes Networks engineering team as well as many of our Class I partners who contributed to the development of the standard. Dot16T represents a significant improvement in throughput and latency, which further underscores the benefits to be gained by converting legacy narrowband networks to networks.

Speaker 4

The ratification of dot 16 T solidifies dot sixteen's role in NGHE and the 900 megahertz transition and more importantly, it opens the door to addressing the capacity issues the Class 1s face in other networks, including, of course, the strategically important two twenty megahertz and 116 megahertz networks. We continue to work closely with our partners in the railroad industry on delivering existing projects as well as on developing solutions for long standing needs. I am pleased that certain 900 megahertz deployments are proceeding as expected, demonstrating continued progress on what we believe will ultimately be wide scale adoption of DOT 16 in this greenfield network. Metro, Chicago's regional transit authority placed an order a follow on order for 900 megahertz equipment with our partner Siemens to ensure system wide coverage. Metro's plans call for system wide deployment to be completed in September 2025.

Speaker 4

We have also been working closely with customers on 900 megahertz applications, including the integration of PTC messaging currently hosted on the two twenty megahertz band. This will allow railroads to use 900 megahertz as either a primary or secondary network for CTC and PTC operations. This testing is proceeding well, and we expect our partner Siemens to receive an additional order for our class from a Class one railroad to equip an entire subdivision with 900 megahertz equipment. A subdivision wide deployment opens the door to division and network wide deployments on this Class one as well as others for the same use case. With another Class one, we are developing additional specific use cases for 900 megahertz equipment in dark territory operations.

Speaker 4

Once fully demonstrated, we expect these use cases to be relevant to other Class one operators. In the two twenty megahertz spectrum, we continue to execute on the PTC data radio on behalf of Amtrak. We expect to start delivering PTC radios in early Q3. Once the Amtrak work is complete, we expect a rollout to other operators in the Northeast Corridor. As data intensive IoT solutions are becoming more prominent on Class one railroads, the need for data transmission increases significantly.

Speaker 4

On this network is engaging with several Class 1s on solving long standing data transmission needs. Our work on DAT16 and our industrial wireless communications capabilities and expertise put us in an excellent position to partner with our customers and rail vendors to develop solutions with long term viability. We will keep the investor community informed as we commercialize these efforts. I will now hand the call back to Eric.

Speaker 1

Thank you, Marcus. I will now ask Oshri Lugosi to take the floor and provide a business update for our OAS business unit. Oshri, please proceed.

Speaker 5

Thank you, Eric. On the Autonomous System, 2025, maintaining strong momentum, particularly in the defense and homeland security sector. We generated $4,000,000 in revenues and secured over $9,000,000 in order year to date. We have been working closely together to accelerate the building of OAS into a leading provider of next generation defense and security technology platforms. Our core focus is delivering tactical solutions based on software defined autonomous aerial systems, supported by our deep engineering capabilities and our ability to operate across both US and allied defense ecosystems.

Speaker 5

While I will elaborate on our go to market progress in the following slides, I want to highlight that our strategy is demonstrating success that is evidenced by the ongoing business development growth we have demonstrated so far in 2025. In January, we received an order from a major defense company for the integration of new applications into the Iron Drone radar system. This includes testing and development of features designed to counter ground based threats. This will be a new use case for the Iron Drone platform, and we will have more to say on this at a later date. Recently, we have secured to initial multimillion dollar orders for the Iron Drone Raider from major customers.

Speaker 5

At the end of q one, OA secured a $3,200,000 purchase order from a governmental entity in The UAE to expand its optimal strong network infrastructure. It supports the ongoing development of autonomous aerial services under The UAE's DroneBox program, enabling rapid response, public safety, and emergency operations in urban environments. Since then, we have added two new homeland security customers for our Iron Drone platform. In April, we announced we had secured a $3,400,000 order from a European defense contractor to deploy Iron Drone on behalf of a Neto member country to protect critical locations. And as Eric highlighted in his opening remarks, today we announced that we secured non US governmental customer for Iron Drone related to border security.

Speaker 5

These two new Iron Drone customers are important milestones demonstrating the strong market position for Iron Drone in the global markets. We are pursuing an opportunity to position the radar as the market leader for the low kinetic counter US mitigation capabilities. As part of our US expansion efforts, we formed a strategic partnership with Palantir Technologies, which begin with the integration of their Foundry AI platform to support the scaling of OAS supply chain, production, and failed operations. We expect this relationship to expand and drive AI enabled product innovation around advanced autonomy capabilities, as well as business development opportunities. We also announced a strategic partnership with Valatas Aerospace to enhance border surveillance and situational awareness through the use of our autonomous aerial systems, where we are together targeting specific market opportunities and split programs.

Speaker 5

The new customers and industry partners we have announced highlight OAS's growth potential in global defense and security markets. They reflect our strategic advantages enabling us to work closely with government agencies, security forces, and the defense and security ecosystem to deploy mission critical solutions where they are needed most. I'd like to take a moment to revisit our go to market strategy as we continue advancing the extensions of OAS across global defense and security markets. Hondas offers functional, field proven, and highly reliable software defined drone solutions built to meet the most rigorous and complex operational requirements. These built for purpose systems are in demand across both security related government applications and high value civil and commercial use cases.

Speaker 5

According to recent industry research, this market represent a multibillion dollar opportunity and are expected to continue growing significantly over the coming decade, and we evaluate the global defense and security market for our Optimus and iron drone based solutions, we see significant upside even under conservative assumptions with limited disruption focused on specific applications and targeted customers. Combined total addressable market for both systems specific to JustDefense and HLS markets represents a multibillion dollar opportunity, particularly in areas like border protection and the safeguarding of military assets. We are seeing strong global demand for iron drone radar as nations seek multilayered, kinetic counter UAS solutions. Our system stands out as combat ready and built for real world deployment. In 2025, we are scaling global demos for IronDrone and OptiPOS, targeting major defense and HLS customers across Europe and other key regions, which is leading to more and more customers and partner pipeline activity.

Speaker 5

We are also building partnerships to support localization, integration, and go to market execution, especially in The US and Europe. Finally, we are advancing US based manufacturing plans to align with defense procurement's priorities and strengthen our supply chain. In conclusion, OIS is executing with urgency and discipline, securing customers, building scale, and advancing strategic partnerships that support our long term growth objectives. I'm confident in our trajectory and excited about the opportunities ahead in 2025 and beyond.

Speaker 1

Thank you, Oshri. In short, the growth model for OAS is to firstly capture programs of record and then expand those programs. In parallel, we use that experience and market validation to add new customers via new programs and then expand those in a similar manner. The net result, a growing customer and program base with expansion that generates recurring business activity across more and more customers and programs. We believe this growth curve will be significant and look forward to delivering on this expansion over the course of 2025 and then again in 2026.

Speaker 1

So let's dig into the outlook. As I said at the outset, this is an exciting time for ONDOS. We are executing against a clearly defined multi year growth plan. Our strong start to 2025 confirms that the foundational work we've done across OAS and ONDOS networks is converting into measurable business momentum. We continue to believe 2025 will see accelerated growth, leveraging the business momentum we have created over the last several quarters.

Speaker 1

Our key objectives at OAS continue to include driving growth through expansion of our ongoing OPTIMIS and IRONDROME programs with our current military and public safety customers, ensuring successful deployments and further customer adoption. We also plan to expand new customer programs, particularly in the defense and homeland security sectors, and aim to secure additional military customers through both government to government channels and direct marketing. Indeed, our last call, we said we wanted to capture at least two new defense or homeland security customers this year, and we have now done that with the recent Iron Drone customer announcements. We now believe we can add more of these customers via programs this year and have increased our goal from two to four new military or Homeland Security customers for the full year 2025. Growing our partner ecosystem will be critical to support not just global sales and marketing, but also field support and sustainment as well as supply chain and production activities.

Speaker 1

Localizing our business with the support of partners is integral and we are seeing growing engagement from large defense and homeland security vendors interested in working with ONDOS and our OAS business unit. We expect to establish at least two new important partner relationships in 2025 to add to the Palantir Technologies and Validus Aerospace partnerships we announced earlier this year. On the financial side, the maturing of our technology platforms and operational plans is driving meaningful results for our revenue and growth outlook. The financial metrics we share here reflect both business units with the bulk of the growth, of course, being driven by OAS in 2025. As these targets demonstrate, we are clearly making the transition to building a healthy and growing company and driving a path to profitability, firstly, at OAS with IMaaS Networks profitability still leveraged to the launch of a network build out by the Class I railroads.

Speaker 1

We are reaffirming our target for at least $25,000,000 in revenues for 2025, led by OAS, which is expected to deliver at least $20,000,000 in sales this year. The visibility on this growth outlook is increasingly supported by a growing backlog, which now stands at $16,800,000 including both business units and an expanding and maturing customer pipeline. We expect the backlog to grow further in 2025 beyond these levels with new orders, while also growing our revenues as described. We expect this growth to be sustained or even accelerated into 2026. Quite clearly, we believe we are demonstrating a transition to a strong and sustained growth period, which will leverage the significant investments we have made in developing our technology platforms in end markets.

Speaker 1

To sum it up, we're executing on our vision to scale ONDOS, and I continue to believe 2025 will be a breakout year. Before we wrap up, I have some final comments to share. Firstly, as we announced this morning, Joe Popolo will be stepping down from the Anders board as he takes on new responsibilities connected to his nomination to The U. S. Ambassador to The Kingdom Of The Netherlands.

Speaker 1

On behalf of our Board, our team and our shareholders, I want to thank Joe for his dedicated service and exceptional leadership during a pivotal time in ADEF's growth. Joe brought valuable perspective to the boardroom, guidance to our leadership team and played an important role in helping direct our strategy as we scaled our operations and pursued major market opportunities. While Joe will be missed, I expect his successors at the Charles and Potomac Group to remain important and engaged investors in Andas, and we are excited for the impact he will make on behalf of the citizens of The United States. We're proud of his appointment and wish him great success in this important role serving our country. Joe, thank you again from all of us at Ondos.

Speaker 1

Secondly, I want to provide some context into our filing for $225,000,000 We believe having a shelf registration statement on file is part of a responsible corporate financial strategy. And while $225,000,000 is certainly large relative to our market capitalization, I do not believe it is large relative to the opportunities we have in front of us in the coming years. We continue to believe that there are billions of dollars of market capitalization available for companies like Andas focused on capitalizing on the emerging investment cycle we are seeing in defense and security markets globally. So the self registration statement gives us the required flexibility to invest behind this investment cycle as we grow a large and important company.

Speaker 1

I want to be very clear. We will be sensitive to our cost of capital, which of course is the inverse to our stock price. While the share price is low, we need to be extremely sensitive to that and we will be. As I consider our outlook and the performance I expect our team to deliver, I believe that as we execute upon our growth plan, we will be rewarded by investors with a higher share price. This will also come with a mandate to both accelerate our growth plan and participate further in industry consolidation.

Speaker 1

I believe capitalizing on the organic and strategic growth opportunities ahead will support compounded growth and shareholder value in the coming years. We will be deliberate here, but first things first, of course, we need to deliver on our plan and earn the right from investors to invest more in our business. It is our intention to maintain a healthy balance sheet and prudently invest behind the opportunities we have created. And we will use shareholder value accretion as a critical litmus test for all of our corporate financial strategies. With that said, I want to wrap the call by highlighting our intention to host a second OAS focused Investor Day, likely in the June.

Speaker 1

At this event, we want to provide a detailed update on our business plan and financial outlook. As you know, we have made significant progress since our last OAS focused Investor Day in September 2024. We have advanced and matured our technology platforms, added customers and partners and increased our pipeline of opportunity. This Investor Day will be a good opportunity to mark to market our plan and provide some context on our multiyear outlook and the expanding opportunity set at Ondos. So stay tuned for details.

Speaker 1

Operator, we will now move to take investor questions.

Operator

We will now begin the question and answer session. The first question is from Maxwell Michalis with Lake Street Capital Markets. Please go ahead.

Speaker 6

Hey guys, thanks for taking my question and solid quarter, especially there on the drone side. I want to dig in on the drone side real quick here. When we think about follow on orders from some of these customers over the past, let's say, couple of months, we talk follow on orders here. Are you typically seeing a bump in those follow on orders in terms of size?

Speaker 7

It's very Max. So firstly, thank you for the question, and thanks for joining the call. So yes, the initial orders are often pilot programs in nature. We work to install and operate the system. And as we do that, we're in parallel making plans for significant expansions, I would say.

Speaker 7

So that's the model we use. If you go back to last year, you saw you would see similar activity with our initial military customer. And of course, that led to larger sales in the second half. And we think even there, we're going to see expansion. So the short answer is yes, these programs have significant upside.

Speaker 6

Awesome. And then when we look to that NATO customer, the European customer, are you having further discussions with other countries around that area?

Speaker 7

Yes, absolutely. And I'll give some context on Europe. There's been a significant shift in policies on defense spending. And of course, that's wrapped up into a larger geopolitical story. And we see ourselves as major beneficiaries.

Speaker 7

And I would say specifically as it relates to drone activities and encounter UAS activities, I'll remind our investors that Europe is really on the doorstep of Ukraine, Russia and the threats we see in Europe are real and they're taking them seriously. So they're preparing. So I do expect a significant investment cycle. And I think our platforms, and I'll highlight Iron Drone because that's where we're making our initial step, are significantly differentiated and valuable and we're getting a great reception.

Speaker 6

All right. Thanks for taking my question guys. Great quarter.

Speaker 8

Thanks, Max.

Operator

The next question is from Glenn Mattson with Ladenburg. Please go ahead.

Speaker 8

Hi, yes. Thanks for taking the questions. Good quarter, nice progress on IronDrone for sure. Optimus also seems to be doing a little better. Talked about additional growth in 2025 for Optimus existing and new including USA.

Speaker 8

Can you just give us some background and color on what kind of opportunities you're pursuing in that side of the drone business?

Speaker 1

So I'd say if you look out into the rest of

Speaker 7

the year, we do have existing customers that will expand programs, and I'll highlight initial military customer in that program we captured last year as well, of course, as what we're doing in The UAE. We did announce on our March call that we had secured our first customer for Optimus in The United States. We're not able to give details on that just yet, but I do expect us to be able to do so in the coming months. And then beyond that, we're targeting those markets, right? It's public safety, it's security, homeless security and defense and the protection of critical infrastructure assets.

Speaker 7

And I think I'd leave it at that, Glenn, but it's really a significant opportunity and we're maturing that pipeline.

Speaker 8

Can I maybe in The U? S, when you're going after public safety or critical infrastructure, is it, what budgetary dollars is that coming from? Is federal money or is it state or local or how do you

Speaker 7

It's really both, and it depends on where we're going. So what we're seeing in public safety is there are more and more dollars available for what we call the drone is first responder programs. So I do see us benefiting from that. What you'll see is that's typically going to be funded by state and local governments. And oftentimes it's special departments in these organizations that are funding innovation and new technology deployments to modernize infrastructure.

Speaker 7

And of course, on the federal side, we see quite a bit of that. And we do believe, if you think about and this is true, certainly in The United States, DoD, Homeland Security spending, but also globally, that not only are budgets increasing significantly, the mix shift towards autonomous systems and capabilities that we're bringing to the table is very, very significant. So the demand in funding environment is improving really every day.

Speaker 8

Last one for me. The President is in The Middle East signing a lot of defense related deals for U. S. Defense tech and stuff like that. Is there is that do you view that as an opportunity for you guys?

Speaker 8

Is there a way you obviously have some Middle East business already. So what's your ability to get yourself into that mix with those those talks?

Speaker 7

Yes, I absolutely believe we can be part of those conversations. But I guess I'd have to leave it at that, Glenn. We do have active marketing efforts in all the major regions of the world.

Speaker 8

Great. Thanks, Eric. Sure.

Operator

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

Speaker 2

Hey, thanks for taking my question and congrats on the quarter and the progression of orders on the drone side. Can you maybe touch on the maybe what the margin profile is of the more recent orders for IronDrone and what you have in the pipeline?

Speaker 7

Sure. I'm going to defer getting as specific as I think you'd like me to get at this moment. And I say that largely for competitive reasons. You should think of our systems as having both OPTICUS IronDrone margins north of 50%. And I would say that Iron Drone margins are better than Optimus.

Speaker 7

I'd also add that initial orders, we've got quite a bit of pricing power. But at the same time, we're being very deliberate about building the business. So let me leave it at that, Matt.

Speaker 2

Perfect. Yes. I appreciate that. Thanks. And then, I don't think it would be a call this year if we didn't talk about tariff risk and if you see any threats to the supply chain as you try to scale production.

Speaker 7

Yes, yes, it's a good question. In last call, when we talked about this, it was still early and a lot's happened. And I said, I didn't expect a big impact from tariffs. And that's largely because we're very careful to source away from China. We design our platforms to be NDA compliant.

Speaker 7

And of course, the focus on China in this trade war has been so acute. I would say, as we sit here today, that the magnitude of the tariffs that have been announced on China was massive. It appears to be less massive, given recent reports. However, it's still significant. We also saw Israel get hit with the tariffs.

Speaker 7

The question that I think we have to ask is, will the supply chain in The U. S. And Europe inflate or deflate as a result? Or put it another way, what are the direct or indirect impacts? So it's really hard to quantify.

Speaker 7

I do think from Israel, will see a bit of a bump unless things normalize, which is what I believe will happen. But if they do if we do stay with a 17% tariff there, we'll probably see some impact. At the same time, we are active, and we made this comment today on the call with our plans. We're advancing plans, would say, to move production in The United States. So net net, I think it's too early to say.

Speaker 7

But I do I would think that for us, the direct and indirect impacts are going to be manageable.

Speaker 6

Perfect. Thank you.

Speaker 8

Sure.

Operator

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

Speaker 2

Good morning. As you look at the pipeline for OAS, how does it roughly break out between expansion opportunities with current customers and new logos?

Speaker 7

There's significant expansion opportunities with new logos. And that's the case in really the regions of the world that we've identified. I do expect our core customers to grow with us this year and next year. But then we're going to be layering on new programs, new customers. And that's sort of where we get to that S curve I've referred to in the past.

Speaker 7

And by the way, I'll say, let me just be very, very clear. None of this is easy. It's not easy at all, but nothing's harder than getting your first customer. And of course, the second customer is not easy. But after that, when you demonstrate performance, you demonstrate leadership and capabilities and we're hitting this market that is massive today, but unpenetrated because these capabilities like IronDrone and OptiMist are just emerging as scalable.

Speaker 7

So I expect a significant new customer program growth in 2025, '20 '20 '6 and beyond.

Speaker 2

So new customers will be a bigger driver than expansions in current customers?

Speaker 7

In 2025, it's going to be both. In 2026, it will be both as well.

Speaker 2

Okay. Got it. I got it.

Speaker 7

Right, I can't get more specific on that, but let me think about that Investor Day because we were doing some analysis.

Speaker 2

Sure. And then the I mean, it just sounds like there's kind of broad based demand here. But in terms of the you mentioned the potential for prepayments on some contracts. Can you elaborate a little bit on that? How prevalent might that be?

Speaker 7

I think that's a comment that's more specific to OnDesk networks. Both OAS and OnDesk networks, we do have we've highlighted this before a relationship with Clear that helps fund purchase orders. And so there is some working capital facilities that we can access. So it's going to be a combination of both.

Speaker 2

And then somewhere on the network side. Okay. And then in terms of manufacturing capacity for Optimus and Iron Drone, like how many can you build per month presently? And where does that capacity go by year end?

Speaker 7

So I don't have specifics on the monthly that we can share. I'll highlight that we're not a low end or small drone commodity play, right? We're making higher end systems. So what I'll say is that we have ample capacity to hit our plans in Israel. That's largely I've been talking about OAS, of course.

Speaker 7

And that's where we're producing the systems today. And then as we're moving through this year, we're going to build the capacity in The United States. So stay tuned on that.

Speaker 2

Okay. Thank you.

Speaker 7

All right. Sure.

Operator

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

Speaker 7

Okay. Thank you, operator. As we wrap the call, I want to thank you again for spending time with us today. As we outlined, 2025 is off to a great start, and we look forward to providing more updates this year as we execute our growth plan. And of course, that includes the OAS Investor Day.

Speaker 7

So we'll be in touch and hope you have a great day. Thanks again.

Operator

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

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Key Takeaways

  • Ondus reported Q1 revenue of $4.2 million (up >500% YoY) and grew its backlog to $16.8 million, reaffirming a full‐year 2025 revenue target of at least $25 million (with $20 million from OAS).
  • OAS secured three new IronDrone customers—including a $1.7 million border‐security order—and has the platform operational in a live combat environment, driving a pipeline that supports expansion in Europe, the Middle East and the U.S.
  • Ondus Networks achieved selection of DOT16 as the AAR standard for next‐generation head/end‐of‐train systems, and IEEE ratified 802.16T, while 900 MHz and PTC radio deployments (e.g., Chicago, Amtrak) continue to advance.
  • Q1 gross margin was 35% (versus loss last year) and adjusted EBITDA loss improved to $7.5 million; cash on hand was $25.4 million and convertible debt was reduced from $44.6 million to ~$20.6 million year‐to‐date.
  • Looking ahead, Ondus plans at least four new defense/HLS customers in 2025, two additional strategic partners, U.S. manufacturing for OAS, and will host an OAS‐focused Investor Day in June.
AI Generated. May Contain Errors.
Earnings Conference Call
Ondas Q1 2025
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