Ondas Inc. Q2 FY2023 Earnings Call

Welcome to the Ondas Holdings, Inc. Second Quarter 2023 Conference Call. 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.

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 and 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 compared to 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 want to highlight 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 been 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 Airobotics executes commercial fleet orders for the Optimus system from additional customers and partners in the Gulf. We also announced expansion into two new large markets: firstly in India, where we entered into a partnership with Arrow HZ, a firm with deep local knowledge and 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 Optimus 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 Optimus 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 and 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 two recently announced funding transactions. As I mentioned at the outset, in a difficult funding market, we were fortunate to be supported by two 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 Ondas Networks as the C&P 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 two-year maturity. I will provide additional details on the terms of the convertible note and 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.

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 revenue growth, 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 the 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.

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 financing, we have working capital to accelerate production. As such, we have launched plans to increase production activity from here. However, given six-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.

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 for 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 two 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 two 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.

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

Thank you, Eric. We continue to build momentum at Ondas Autonomous Systems 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 update in July on our type certification activities with the FAA as we report to having received FAA-type certification for 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 a proof-of-concept program which includes demonstrations to relevant stakeholders across the state. These demonstrations may attract other government agencies for Massachusetts and beyond. We are excited to showcase our Optimus System which has state-of-the-art capabilities and functionality which can integrate into the various use cases desired by the public agency responsible for providing critical services to the state of Massachusetts. Additionally, we have made significant progress in our partnership with Skyfire, a leading consulting team in the public safety field. By combining Skyfire's expertise in One programs in various states with our type-certified Optimus System, we have a game-changing advantage. We and Skyfire believe the market for Drone First Responder (DFR) is very large and that spending on drone solutions in the public safety market is increasing 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 last 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 wanting 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 the 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 flights every week with no human involvement. The FAA needs to understand the worthiness level of the aircraft, just like in manned 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, Airobotics 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 streamlined 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 at a designated expo in India which stimulated significant interest from the local industry. We are optimistic that this partnership will produce drone opportunities. 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 across the KSA. Together, we will work on establishing a local office in the Kingdom and forming a strategic alliance to offer our solutions in this growing market. We see enormous opportunities within the 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 Alliance (CDA) was an important achievement for the company. The CDA is an important industry body that collaborates closely with key policymakers and the FAA, DOT, White House, and Congress to promote drone 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 Airobotics 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 pre-sales 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 Systems by the end of '23. We have a total of 15 Optimus 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 the substantial benefits of autonomous drones has become a consensus understanding, and many entities are seeking to remove drone operators from rooftops. As processes like type certification come together, we envision this market growing exponentially, and OAS is well positioned to lead this revolution. This completes my formal remarks. Eric, I'm going to hand the call back to you now.

Thank you, Meir. Before we turn the call over to Q&A, I want to reiterate that we remain bullish about our 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 into 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 validating 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 stages on the edge 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 believe the outlook for Ondas is only getting better and better. With that said, let's see if there are any questions.

At this time we will take our first question from Tim Horan with Oppenheimer.

Can you provide an overview of the orders you've received from the rail sector? I'm trying to understand the timeline since it seems most orders need to come in within the next nine to twelve months if delivery is anticipated in six months. Additionally, could you discuss the gross margins on rail equipment? If you're unable to share the current number of orders, can you estimate the order volume expected in the next twelve months? Are you beginning to manufacture equipment ahead of receiving orders? Furthermore, could you share how much equipment has been ordered? Lastly, is working capital still an issue, or have you resolved that? I realize this is a mix of questions, but I'm looking to grasp the overall process concerning your rail operations, including the timing of orders and equipment production.

Great. Tim, I'll start with the gross margin question first and then we'll discuss the ordering process and expectations for building over the next few quarters. Our target gross margins for the Ondas Networks system side are between 50% and 60%. You may see some fluctuation until we achieve larger volumes. We do anticipate these volumes will increase, which will provide more clarity on the margins as the revenue from volume sales comes in. Regarding the order and inventory building process, we are currently collaborating closely with Siemens and engaging with customers about their locations and specific requirements for initial applications and equipment. We are also discussing volumes and pricing during these conversations. Siemens is primarily managing the negotiations on this. In parallel with Siemens, we are planning for production increases and capacity ramping. As we progress through this year, we are aiming for significant orders, and we are assessing the timing of our inventory production accordingly. Our expectation is for a substantial increase in build-out in 2024 and 2025 to meet deadlines, so we need to begin ramping up our operations now. We are preparing inventory for Siemens, and we anticipate that as we enter 2024, demand for more building will likely rise considerably.

Can you talk about the dollar amount of orders you've kind of replaced in? If you're going to get like $200 million in 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?

We are expecting to set up payment arrangements with Siemens to assist in building our component inventory. Additionally, we anticipate favorable payment terms regarding shipping and billing, which should significantly enhance our working capital. Was there another part of your question?

Can you talk about the approximate size of the orders you have placed at this point?

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

And do you have a sense of when the orders will really start flowing?

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

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

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

So you kind of expect to receive revenue from these orders in Q1 will be a pretty good uptick. Okay. And so can you give us a sense of how much you've received an order so far?

Yes, we have not provided guidance on bookings, only on revenue targets, which we updated today. I prefer not to discuss bookings further at this moment, but as we progress into the second half of the year, we will provide updates when we can.

Our next question will come from Matthew Galinko with Maxim Group.

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 two, is this manufacturer in a place to meet that capacity?

I'm going to ask Stewart to share more details. This contract manufacturer is a company we've been working with to qualify for quite some time now, and we've been doing that alongside Siemens in anticipation of the expected increase in volumes. So Stewart, what would you add to that?

Yes, Matthew, the contract manufacturer in the U.S. is one we have qualified with Siemens, and they support many of Siemens' product lines. We believe they are very capable. Now that we have secured new working capital, we have engaged them and have provided them with some critical boards in our development that had previously been a bottleneck. They are ready to ramp up and are well qualified.

Got it. Can you help me understand the type certification and how it influences the timing on the pipeline, build, and engagement with U.S. entities?

Thanks, Matt. The type certification itself has not hindered our discussions with customers because we have alternative ways to obtain approvals for flight operations. You'll see that our marketing efforts become more effective, making it easier for customers to engage quickly when we have this level of quality validated by type certification and the experience we can showcase, such as the flight hours from commercial deployment in urban environments in the UAE. I think you can view this as a catalyst for increased customer activity, potentially resulting in a more efficient sales process with shorter timelines.

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 for specific waivers. And as Eric mentioned, it will give us the ability to accelerate and scale as we operate and deal with clients 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 areas.

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

Well, Bill, referring back to our last conference call, we noted some component bottlenecks we were facing while ramping up volume production for the first time. We've worked extensively to qualify our supplier components, but the initial volume orders can catch them off guard. As Stewart mentioned, we've addressed those specific bottlenecks, and currently, we believe our supply chain is in good shape. We plan to actively focus on advanced purchases for certain components and qualify additional component vendors for diversification. This was discussed in our last call. A larger issue has been the working capital needed to make commitments to volume purchases of components to ramp up production as we transition to the contract manufacturer. We completed a financing in July, and while we aimed to secure that sooner, such processes can take time. We have just begun ramping up with the contract manufacturer and higher volume component orders following the funding announcement, and considering the lead times, some of that will extend into Q1.

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

We need to take some time to see progress on hundreds per customer. At the beginning of the year with the Optimus system, we mentioned the activity in the UAE, where customers are making significant strides in commercial and fleet adoption. We highlighted that these customers have been publicly discussing at least 50 units through 2025. We are actively working with them to expand that. In other markets like India, Saudi Arabia, and the United States, we have identified initial customers and partners. We will collaborate with them, and you will notice a gradual ramp-up, starting with a few systems and then increasing from there. This will allow us to scale more rapidly as they gain experience and we refine our delivery of the solution. We believe we are on the right track in the UAE, and as we engage more with customers in other markets, particularly in the U.S., we will share further details on what our deployment plans look like.

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

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

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