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Ondas Holdings Inc. [ONDS] Conference call transcript for 2021 q1


2021-05-17 17:40:07

Fiscal: 2021 q1

Operator: Good day, and welcome to the Ondas Network First Quarter's 2021 Earnings Conference Call. All participants will be in a listen-only mode. Please note today's event is being recorded. I will now turn it over to Eric Brock, CEO. Please go ahead, sir.

Eric Brock: Thank you, operator, and good morning, and welcome to our first quarter investor call. This is an exciting day for Ondas. In addition to sharing our earnings release, we've also announced the acquisition of American Robotics. This is a deal combining two leading mission-critical industrial data platforms of course I'm talking about Ondas' mission critical FullMAX wireless network and American Rrobotics world-class drone system.

Stewart Kantor: Great. Thank you, Eric, and welcome everyone. I want to begin by highlighting that we made excellent progress on all of our key business initiatives in the first quarter including achieving both record revenues and bookings. We booked approximately 2.4 million in new orders, and generated 1.2 million in revenue with revenue growth of 480% over Q1 2020. Our growth came primarily from joint development programs with Siemens Mobility, our partner in the North American Rail market, and AURA our partner which is deploying nationwide drone and unmanned aircraft navigation network. Our financial results have shown substantial improvement year-over-year and reflect excellent progress towards scaling both the Rail and Drone communications markets. Our operating expenses were 3.4 million, an increase of approximately 1.1 million over Q1 2020. The increase in operating expenses was primarily the results of 1.3 million in non-cash stock based compensation. We expect bookings and revenues continue to grow substantially in the coming quarters, driven primarily by our sales activity from Siemens and AURA. Revenue and profitability will fluctuate quarter-to-quarter because our major commercial orders and new system deployments don't happen on a fixed timeline. Because of this, as we've mentioned in previous calls, we don't intend to provide full-year financial guidance. For Q2 2021, we expect revenue between 1.1 million and 1.5 million and that revenue will come from our backlog as well as new sales orders from Siemens, the Class 1 Railroads and AURA. Eric will tell you more about this in the next section in greater detail. Our cash operating expenses, which exclude non-cash expenses such as stock based compensation, are expected to be between 2.5 and 3 million in the second quarter. We believe we're positioned to see bookings and revenues grow on a quarterly basis throughout the year. We continue to have a strong balance sheet with 24 million in cash at the end of first quarter. And relative to the large revenue opportunities in our customer pipeline, we have a modest cash burn. Given all these factors, we feel we're in a great position moving forward. And now, Eric will provide more details on the customer activity and growth outlook for 2021. Eric.

Eric Brock: Thank you, Stewart. And as you can see, we've made a lot of progress in Q1. So of course, as I like to remind my team, we have more work to do. While the big news today is of course the American Robotics acquisition, Q2 remains busy and milestone heavy as we set up for a strong year. We expect to see significant business development progress throughout the second quarter with a Class 1 Rails, Siemens and AURA.

Reese Moser: Thank you, Eric. Good morning, everybody, great to meet you all in this new chapter of American Robotics and Ondas. So, my name is Reese Moser, and I'm the Co-Founder and CEO of American Robotics. American Robotics is a developer of fully automated industrial drone systems. And as Eric mentioned at the beginning of his presentation, in January, we became the first company approved by the FAA to operate fully automated drones with no humans on site. And so, the most important thing to understand about American Robotics and the commercial drone industry is the problem. As the drone that we talked about for a long time now and there's been a lot of success with drones in the military sector, there's been a lot of success with drones in the consumer sector. But in the middle of this very large opportunity for commercial drones that today, we are still barely scratching the surface. And the reason for that is, for the vast majority of commercial drone applications, using a manually operated drone is simply not practical. It takes way too much time and as of not being an economical solution, because when you look at these industries, and these use cases, whether it's oil and gas or agriculture, railways, stockpile monitoring, you have to operate this drone and collect data and analyze data multiple times a day every day for it to have value. And having a person stand out there in the field with a remote control, while that's occurring, quickly doesn't make sense. Now on top of that, default FAA regulations prohibit this kind of automated operation. So today, anytime a drone is flying, a human has to be present on the ground with that drone typically with eyes on at all times, obviously prohibiting the ability to operate in this . And so, we have solved this problem with the Scout System. The Scout System is a truly automated platform. And it consists of a number of software and hardware systems that are proprietary to American Robotics that were developed from the ground up to work together to create this completely hands-off experience and really changed the dynamic of what it means to use a drone in the commercial sector. So comprises are kind of the drone, our automated base station, our detect and avoid sensors and the software to tie that all together both at the back end and at the front end, and so everything has been automated. Flight is actually just one component of what it takes to use a drone for business purpose. And at the end of the day, what our product is data not the drone itself. And so we've automated mission planning, precision landing, charging, data processing, data storage, data transmission, physical storage. All of that together and now you can install these systems in your field and they will live there indefinitely conducting 10, 20 missions per day every day, processing that data at the edge and transferring it back to the customer. And so, this again changes the dynamic of what it means to use a drone and the changes the economics as well. So, as it's been mentioned a few times now, American Robotics in January of this year became the first company approved by the FAA for fully automated drone operations with no human onsite. This is the most important approval that has occurred yet in the commercial drone space. And as of right now, we're actually the only company that has this approval, which means at the moment American Robotics has exclusive access to any of those markets, which require this degree of automation, which by our estimation incorporates about 90% of all commercial drone markets. So -- and to recap, our system can fly beyond line of sight with no real observer or no humans on the ground at any time. That means before, during or after flights at no point does a person have to be co-located with this drone, which again completely changes the dynamic and the economics of what drones can do for commercial businesses. So, the number of markets and the number of use cases for this type of technology is incredibly broad. As I mentioned, 90% of all commercial applications require this level of automation for drones to actually be a scalable solution. And we divide this into overarching categories, the industrial markets, the agricultural market and the defense market. And with any one of those, you have things like oil and gas, solar nuclear, railways utilities, stockpile yards, row crops, and especially crops, just to name a few. And the use cases are broad, but the common theme among all of them is you want to be able to monitor your assets on a frequent basis, whether you have 500 well pads or 10,000 acres of farmland, our system is able to digitize that, digitize that physical world and allow you to monitor those assets remotely and increase the efficiencies of your business. So, the final piece of the puzzle is, once you can achieve this type of automation, you can now combine it with the robot-as-a-service model. We've extracted, what is historically the most expensive cost of operating and traveling, which was the pilot. And with that removed from the equation, now we can focus on the service that the system provides, and so, instead of customers purchasing this hardware, this is provided in terms of an annual subscription. And this has two effects, this lowers the annual cost of data acquisition for our customers and it also provides American Robotics now, American Robotics and Ondas, with recurring software like margins. And so Eric, I'll hand it off to you from here.

Eric Brock: All right. Thanks, Rees. So let me wrap it up before we move on to Q&A. Ondas continues to position itself for huge growth in our large open-ended markets. We have momentum and we're executing on our critical initiatives driving platform adoption. It starts with the Rails and Siemens and AURA networks. We are establishing our mission-critical IoT platform as the default next generation mission-critical network. And now we integrate American Robotics. American Robotics drone-in-a-box Scout platform is best-in-class, and it will be in high demand in our end-markets and beyond. This also positioned Ondas as a leading player in all C2 markets with drones all sizes and applications ranging from very large to small, and for altitude ranging from high to low and for flight mission spanning local to regional to long durations. The drone age is here and Ondas will be a key player driving innovation, infrastructure in to end-to-end solutions as well as market penetration. So, operator, let's move to Q&A.

Operator: Thank you. We will now begin the question-and-answer session. Today's first question comes from Mike Latimore with Northland Capital Markets. Please go ahead.

Mike Latimore: All right. Thanks. Yes. Congratulations on the acquisition and quarter here. Just starting with a couple of questions on the acquisition and these may be kind of basic. But, what do you sort of charge per month, like what's the ARPU on a specific drone? And then maybe just, what is your ROI pitch to customers like, what kind of ROI can you prove that?

Eric Brock: All right, I'm going to ask Reese to answer the question. I think we're going to be a little sensitive on the price points at this moment, and we will be providing a lot more information regardless regarding this, and as we should know that the acquisition is expected to close in August. So, we've got a couple months here, BUT we will be providing more details. But, Reese, can you share some perspective on this for Mike?

Reese Moser: Yes, absolutely. And as Eric mentioned, not disclosing specific pricing at this time, but we do look forward to sharing that publicly soon. I can say, when you look at the pricing as a result of this robot-as-a-service model, we are able to deliver the highest quality data at the lowest cost. Our system again, because that human is removed from that operation, it can run continuously, essentially marginal increase in costs all day, every day. And so, that allows an entirely new category of data that has never even been feasible to collect before. So, we're talking about sub centimeter resolution, multiple times a day, every day, which most importantly unlocks a new category of data analytics. That was never possible before, which, we're excited to get talking more to that that concept as we move ahead, but hopefully that, that answers some of that question.

Eric Brock: Yes, let me just add a couple of things like, Mike, just to think about conceptually how it works. When American Robotics deploys a Scout System in the field, they're typically going to get a long-term contract from the customer, say, five years. And the idea is in the initial year, that subscription agreement covers the cost to deploy the system. And then you get extremely high margins in years two, three, four and five.

Mike Latimore: Okay, makes sense. And then just to be clear, on the data that you're gathering this largely kind of video imagery data that you're gathering, and then I'm guessing the, pulls in a lot of data. So, maybe is there some AI in the background that sort of boiled and analyzed the data and sends back the most important stuff?

Eric Brock: Yes, absolutely. And so it's been a focus of ours to create and deliver a full stack complete solution, which is, again one of the reasons why we've joined up with Ondas and so one of the aspects of that is not just delivering raw data to the customer, but actual analytics and actual actionable information. So, that's part of our product stack itself and there's multiple steps to that. So, actually going back to the first part of your question, what type of data do we collect, that depends on the market on the use case. Our system is largely payload agnostic. So within agriculture, that is RGB multispectral. Within the industrial markets, it's typically RGB and thermal. And there are other types of sensors on the horizon, things like methane sensors, for example. And so typically, we're talking about collecting a very large amount of image data, on the order of 20 gigabytes a day. That is all offloaded to the base station. And within that base station, again, these also function as edge computing centers, which is a key step to making this work. And so, those images are stitched together, processed, and to some degree analyzed at the edge. And then that finished product is uploaded to the cloud, through our front end software called ScoutView. And then from that point on, you can apply additional AI to analyze that data.

Mike Latimore: Okay, great. And then just on the core business here. Maybe I can talk a little bit about the timing of this lab, took some orders from the lab trial, I think this quarter, is the success of that critical to the eventual commercial orders you get in the second half, or are there a couple rails that might sort of buy irregardless of that lab?

Eric Brock: There is going to be rail activity irregardless of the lab, however, the lab is important and it's a place where all the rails become to collaborate on that shared system we've talked about. So, now it is an important step. And as I highlighted earlier, it's really validates the market opportunity even further because we now emerging, not just with as Wireless Comms Committee, but we're sort of now interacting and engaging with those senior operating committees, the folks who are going to use the network.

Reese Moser: Hey, Eric, maybe I can jump into I think, although they work collectively, they also obviously, the rails work independently and so the number of applications continue to grow and the interests -- so I think the lab is critical, but also lots of activity going on individually but the rails.

Operator: Today's next question comes from William Morrison of National Securities. Please go ahead.

William Morrison: Hi, Eric. Hi, Reese. Couple of questions -- sorry, if you hear any -- how you doing? There's hammering in the background. We have construction going on here, sorry.

Reese Moser: No problem.

William Morrison: Couple of questions, Reese. Do you have -- this cloud link also a WiMAX radio 2 or do you have a radio in there? And if so, are you going to migrate this Ondas, WiMAX radio or software? And do you operate with any AI cloud platform in the cloud like C3.ai or Palantir, how's that worked?

Reese Moser: Yes, that's a great question. So the question is how we get the data to the cloud. The -- sorry, my EarPods just started. The answer depends on the site. The short answer is yes, the grading with the FullMAX to help to get the information to the cloud. But if cellular connectivity is available in the site that we're operating in, which is sometimes the case, we can also use that method.

William Morrison: Okay. And then when you get into the cloud, does it interoperate with a different AI platform or is it your platform in the cloud to it?

Reese Moser: It is our platform in the cloud, but the system is developed in such a way where we have the opportunity to integrate with other software as well whether that's a third-party or that is something developed by the customer that we work with.

William Morrison: And on the joint itself, is there any compute resources like Intel NUC or anything like that?

Reese Moser: On the drone itself, the compute and intelligence focuses mainly on mission planning, intelligent flight dynamics things like precision landing. The data itself from a customer perspective is stored on there in a raw format and then that's offloaded to the base for processing after the flight occurs.

William Morrison: Okay. So, I mean, can you kind of give us an idea, Reese, what your pipeline looks like and when do you expect to start to ramp in the orders?

Reese Moser: Yes, absolutely. So in coordination with our R&D efforts over the past five years, we've been building up a deep customer pipeline in anticipation of our recent FAA approval. Now that we've achieved that milestone back in January of this year, we're looking ahead to deployments with a number of Fortune 500 companies across the U.S. and across multiple sectors including energy, agriculture and rail. Our immediate focus now turns to building out our team and inventory to support this interest with initial target deployments in Q3 and Q4 of this year.

Operator: And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn it back to the management team for any final remarks.

Eric Brock: Excellent. Thank you operator. I'd like to close by reminding our investors that Ondas is bringing tremendous value to the critical industrial and government markets we're targeting. We're focused on delivering big networks for important end-markets, and we're proving this with the Rails and AURA and the flywheel is working. Today's announcement with American Robotics is proof to our commitment to bring valuable and complete next generation solutions to these markets. Adding the industrial markets best drone platforms via American Robotics' Scout System is a huge win for our customers and investors. So to close, I want to thank you again for joining the call. I also want to express gratitude on behalf of the entire team at Ondas for your support. We began the year with terrific momentum and we look forward to sharing updates on our key initiatives over the course of the year. Thanks again for joining us this morning.

Operator: This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.