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Presentation

Ondas Holdings Inc. misses on earnings expectations. Reported EPS is $-0.18 EPS, expectations were $0.2.

Operator: 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.

Eric Brock: 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 line revenue reaching $5.5 million in the second quarter. This quarterly performance brings first half revenue to $8 million which is an eightfold increase versus just $1 million for the first half of 2022. The momentum also allowed us to secure $25 million in additional funding from sophisticated private and institutional investors. I will discuss the financing in more detail shortly, though I will like that these investors have performed substantial diligence on our technology and market opportunity. In my opinion, this capital raise reflects confidence in the value of our proprietary technology platforms in the end markets and customers we are targeting for growth.

Regarding these end markets, Ondas Networks is now deep in field activity with specific rail customers in advance of what we believe is the beginning of major volume orders in the 900 megahertz network. This activity is focused on identifying locations and applications for initial volume deployments. In addition, Siemens has negotiating key terms with select rails for purchase agreements around pricing, volume and build-out timelines. While this work is advancing, the migration of ATCS to the new 900 megahertz frequency band is poised to be the first application deployed in 900 as migrating the ATCS Systems from the legacy network is mission-critical. Stewart will share more details around our work with Siemens and the Class I rail customers and the outlook for 900 megahertz deployments.

At OAS, fleet adoption continues to move along with the completion of the proof of concept in Abu Dhabi and as a robotics executes commercial fleet orders for the Optima system from additional customers and partners in the Gulf. We also announced expansion into 2 new large markets that being firstly in India, where we entered into a partnership with Arrow HZ, a firm with deep local knowledge with a particular strength in government security and defense markets. We also announced a partnership in Saudi Arabia with Saudi Excellence and I am particularly excited about this opportunity. Saudi Excellence is heavily involved in the Saudi Vision 2030 initiatives which is helping to drive significant economic growth and transform the Saudi economy.

The partnership with Saudi Excellence comes on the heels of our successes in the UAE and allows us to bring our Optima system to a large, fast-growing Saudi market. Of course, since closing the Airobotics acquisition in January, we have invested time and energy to introduce the Optima system to industrial and government markets here in the United States with a particular focus on public safety, smart city and oil and gas customers. As evidenced by our customer and partner announcements with mass BOT aeronautical and critical infrastructure and Skyfire and public safety, these efforts in the U.S. are beginning to gain traction. As we increase Optimus System inventory, we expect additional customer announcements in the second half of 2023. Meir will share details around the continued advances in fleet operations the new partnerships in India and Saudi Arabia and the progress we are making in the United States.

So to wrap up the introduction, we are now beginning to scale at both Ondas Networks and OAS. I am happy with how we are positioned to grow our business in the coming quarters. supported by our recently fortified balance sheet. We are continuing to focus on driving orders, customer adoption and revenue growth in addition to maintaining cost discipline as we work to drive down cash burn and move towards profitability. Before I hand the call to Derek to review our Q2 results, I want to take a moment to provide some details around the $25 million we raised in the 2 recently announced funding transactions. As I mentioned at the outset, in a difficult funding market, we were fortunate to be supported by 2 groups of well-funded investors, whereby we were able to firstly secure $15 million to deliver on the Ondas Networks growth plan and then $10 million at the holding company to scale our drone platforms and fund public company costs.

As we are all aware, these financings remove a significant overhang for the company as our need for capital was weighing on our shares. The Ondas Networks investment was led by Charles and Potomac. And last Friday, we completed the final closing for their $15 million investment. The C&P groups include sophisticated investors, some with extensive senior level wireless rail backgrounds and their investment was made after extensive independent diligence on our FullMAX Wireless technology platform, the dot16 standard and the growth opportunity with the Class I rails. I believe that the C&P investment is a significant validation of the potential value creation ahead at Andes Networks as the CMP group is putting their own personal capital behind our company.

Importantly, we believe this capital injection into Ondas Networks will fully fund the growth plan there by allowing our shareholders to maintain control and benefit from the significant value creation we see over the next few years. In addition, the C&P group may become a large investor in Ondas Holdings, given the warrants they received as part of this transaction. This further aligns the incentives of our public shareholders with a large supportive financial partner. At the holding company, our existing convertible note investor exercised their right to invest another $10 million in gross proceeds from new convertible notes which have a 2-year maturity. I will provide additional details on the terms of the convertible note in the C&P Group investment when we discuss our balance sheet.

Net-net, these financings put Ondas on a much firmer ground and I’m pleased with the outcome and excited about our ability to execute from here for our shareholders. I’m now going to hand the call to Derek for the financial review. Derek?

Derek Reisfield: 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 2023 as compared to $11.4 million for the second quarter of 2022. The decline in operating losses was primarily due to higher revenue and gross profit generated during this quarter. Excluding the noncash expenses, the company generated an EBITDA loss of $5.6 million in the second quarter of 2023 which was an improvement compared with an $8.8 million EBITDA loss for the second quarter of 2022. The company realized a net loss of $9 million for the second quarter of 2023 as compared to an $11.4 million loss in the second quarter of 2022.

The lower loss was due to higher revenues and gross profit during the quarter. Now let’s turn to the balance sheet. We ended the first quarter with $3.1 million in cash, prior to closing the $25 million funding transactions announced in July. Pro forma for the funding transactions, Ondas cash balance was approximately $27.1 million. We will provide more details on the pro forma balance sheet in a moment. The cash burn in the first half reflects ongoing investment in the business. So the burn was elevated due to certain one-off and non-restructuring costs related to the acquisition of Airobotics and the integration of Airobotics and American robotics into the OAS business unit. In addition to the integration costs, we used approximately $11.6 million of cash for working capital and debt repayment alone in the first half of 2023 which included approximately $6.1 million in working capital investment, including inventory and receivables in the first half and cash debt repayments of approximately $5.5 million related to the convertible note amortization and retirement of a loan at Airobotics.

As Eric will outline next, our businesses remain capital light from a CapEx perspective and we believe that as we grow revenues and gross profits, while controlling expenses, our cash burn will decline in the coming quarters. I will now hand the call back to Eric.

Eric Brock: 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, we expect to fall short of the ambitious revenue targets we laid out to begin the year. This is largely the result of a slower production rate at Ondas Networks, initially due to component availability challenges we identified on our last conference call which were exacerbated by a tight working capital position that constrained our ability to make component purchase commitments. More recently, component availability has improved. And of course, with the recent financings, we have working capital to accelerate production.

As such, we have launched plans to increase production activity from here. However, given 6-month lead times from production to shipment, catching up on our original revenue targets via product shipments is going to be difficult. We will certainly try. With respect to OAS, our outlook remains unchanged as we execute with customers and drive additional order activity in both international markets as well as in the United States. Despite the shortfall versus earlier targets, we still see significant growth in the second half of 2023 and into 2024 and 2025 across both business units. We expect to generate at least $7 million of revenue over the second half of 2023 which brings a new target for revenue to approximately $15 million for the full year.

I want to reiterate, we are tracking meaningful volume orders with Siemens and advancing field work and expect to share an update on the order front as available. As we scale adoption and deliver revenue growth, we will remain focused on controlling expenses as we drive towards improved profitability. We expect cash operating expenses to be approximately $9 million for the third quarter of 2023 which is consistent with targets in the recently completed quarter. We are continuing to manage OpEx efficiently and we will look to maintain cost discipline going forward. Now we will transition to a review of our business units and ask Stewart Kantor and Meir Kliner to share updates on recent activity in the field with customers and industry partners.

We will start with Stewart, who will update us on the current status with the rails on dot16 adoption and focus on the work with customers in our preparations for volume deployment on the new 900 megahertz network. Stewart?

Stewart Kantor: 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 high demand features like peer-to-peer networking. We expect our activity with MxV to continue to expand as new use cases and additional frequency bands are targeted for 802.16 integration. On the production side, after early challenges in obtaining key components described earlier by Eric, we have alleviated many of the constraints which impacted our first 2 quarters of shipments. And our recent financing gives us the necessary working capital to continue to inventory and transition to contract manufacturers which will allow us to ramp production.

And as we ramp production, lead times may limit our ability to ship as much product as we had initially planned for but we are making every effort to move faster. With the new capital secured, we intend to move forward aggressively on obtaining new orders and growing our production capabilities. We have recently engaged a new U.S. contract manufacturer, who we believe is capable of allowing us to scale rapidly in front of the 900 megahertz migration. We see a need to build inventory with Siemens in front of what we continue to believe will be a significant network build-out across the Class I rails in 2024 and 2025. To be clear, we are seeing some migration on 900 megahertz this year as the rails begin to move and that will drive revenue growth in the second half, tempered of course, by the aforementioned early production bottlenecks.

So despite the slower production ramp, we expect Ondas Networks will still grow revenue in Q3 and Q4. At the same time, we will continue to foster our existing and new development programs. The Siemens locomotive program previously announced for Europe is well advanced and has recently expanded in scope. And we have now responded to 2 major passenger and transit network proposals which appear to be very promising. As we grow, we will pay close attention to spending levels on operating costs as we drive towards profitability. As revenue and gross profits grow with increasing demand and shipments, we expect to be increasingly self-funding as we move through the year and into 2024. Now, I’ll hand the call back to Eric. Eric?

Eric Brock: 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?

Meir Kliner: 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 Drone solutions in public safety market is now going rapidly. Again, we are excited to bring Optimus to the U.S. market where we see significant demand and firmly believe in the substantial opportunity to drive fleet adoption as one infrastructure. On the strategic side, as previously announced, the Optimus System has successfully completed its NOIs certification which was the less test required by the FAA to obtain a type certificate for the system.

Our dedicated team is currently finalizing the last reports and submissions to the FAA and we can see the certification process coming to its conclusion soon. I would like to take a moment to explain why the type certification is such an important milestone for OAS. In the United States, anyone wants to operate a drone for capturing data or parcel delivery purposes must comply with certain requirements. The most common one is flying the drone in line of sight of a pilot. Additionally, drones are not allowed to fly over people at night over sensitive infrastructure and more. To conduct drone flights outside of these requirements, the operator must apply for a waiver for each specific area and time. And are not always granted by the FAA. For a system like the Optimus, we can launch hundreds of lights every week with no human involvement.

The FAA needs to understand the worthiness level of the aircraft, just like in men aircraft. The type certification process aims to establish solid criteria that the FAA can rely on to understand the engineering and concept of operations of the Optimus System. When the type certification process is completed, robotics will be able to work with the FAA on complex operations, similar to what we are conducting in the UAE. For example, flights for public safety and municipal use cases which include flying over people, roads, critical infrastructure, like government buildings and power plants, as well as other urban features. Based on the Optimus System and its new certification, American Robotics along with our new partners in the U.S. will be able to offer one of the world’s best solutions for automated streamline area data captured by drones.

In addition to our growing efforts to enter the U.S. market, we have been working on OAS’ global expansions to other regions. We announced our partnership with ARO HZ, an Indian company specialized in security and defense systems and presenting the Optimus and drone radar systems and a designated expo in India which stimulated significant interest from the local industry. We are optimistic that this partnership will produce drone opportunity. Additionally, we have initiated a new relationship with Saudi Excellence Corp., a leading Saudi company providing next-generation security and defense technologies to Saudi government and enterprises accord the KSA. Together, we will work on establishing a local office in the Kingdom and the strategic alliance to offer our solutions in this growing market.

We see enormous opportunities within country in defense and security as well as in industrial and smart city applications. We expect to share more details on our entrance into the Indian and Saudi markets in the coming months. Lastly, Eric’s appointment to the Board of Directors of the Commercial Drone Airlines, CDA, was an important achievement for the company. The CDA is an important industry body that collaborates closely with the key policymakers and the FAA, DOT, White House and Congress to promote one business in various industries in the USA. We continue to expect more fleet deployments during 2023 and anticipate achieving additional milestones related to the expansion of Optimus and Iran Drone in the U.S. and other countries. Progressing as planned, we are successfully delivering on fleet deployments in the UAE and look forward to announcing additional orders in the country.

In addition, we are actively advancing new market expansion with local partners in Saudi Arabia and India. We remain focused on accelerating U.S. business development by leveraging American Robotics U.S. footprint to penetrate public safety, smart city, construction and other industrial markets. To achieve this, we are expanding our sales team and presales activities to engage with a large number of customers and ecosystem partners. Additionally, we are building inventory and expect to complete manufacturing and deliver 10 new Optimus System by the end of ’23. We have a total of 15 Optimum systems on order. As we look ahead, we firmly believe that what we are witnessing today in the U.S. drone market is only the tip of the iceberg. The concept of drone-in-a-box and substantial benefits, autonomous drones has become a consensus understanding and many entities are seeking to remove drone operators for rooftops.

As processes like type certification come together, we envision this market growing exponentially and OES is well positioned to lead this revolution. This completes my formal remarks. Eric, I’m going to end the call back to you now.

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

Timothy Horan: 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?

Eric Brock: 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.

Timothy Horan: 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?

Eric Brock: 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?

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

Eric Brock: 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.

Timothy Horan: 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?

Eric Brock: 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.

Timothy Horan: 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?

Eric Brock: 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.

Timothy Horan: 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

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

Matthew Galinko: 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?

Eric Brock: 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?

Stewart Kantor: 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.

Matthew Galinko: 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.?

Eric Brock: 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?

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

William Morrison: 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?

Eric Brock: 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.

William Morrison: And how much of this is applicable to OAS?

Eric Brock: 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.

William Morrison: 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.

Eric Brock: 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.

Operator: 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.

Eric Brock: 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.

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