Earnings Call Transcript - ONDS Q2 2021

Operator, Operator

Welcome to the Ondas Holdings Inc.'s Second Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Before we begin, the company would like to remind you that this call may contain forward-looking statements. While these forward-looking statements reflect on Ondas's best current judgment, they are subject to risks and uncertainties that could cause actual results to differ materially from those implied by these forward-looking statements. These risk factors are discussed in the Ondas’s 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 reference future events or circumstances, except as required by law. Please note this event is being recorded. I would now like to turn the conference over to Eric Brock, Chairman and CEO. Please go ahead.

Eric Brock, Chairman and CEO

Good morning, and welcome to Ondas’s Second Quarter Investor Call. I'm joined today by Stewart Kantor, our President and CFO; and Reese Moser, CEO of our wholly-owned subsidiary, American Robotics. For those of you who have been following the company, you are well aware that Ondas had a very eventful second quarter. In May, we entered into a definitive agreement to acquire American Robotics, a leading developer of commercial growth systems and the first company approved by the FAA to operate its drones beyond visual line of sight without the presence of a human operator. The acquisition was completed on August 5, and we received overwhelming support from our shareholders with approximately 99.7% of the votes cast supporting the acquisition. Then in June, we completed a $51.5 million public offering, the proceeds of which will allow the company to support the planned rapid growth for both Ondas Networks and American Robotics. We also used the opportunity to retire almost all the Company’s debt, leaving us with an extremely strong balance sheet. During the quarter, we advanced our plans towards driving FullMAX network adoption with the Class 1 Rails. We expanded our strategic partnership with Siemens and substantially completed our phase-one development work with AURA to support their nationwide command and control network for commercial drones. Our agenda for the call today will include a financial update from our CFO, Stewart Kantor, covering the second quarter and first half of 2021. We will then provide an update on the Ondas Network business before handing the call over to Reese for an update on American Robotics. I'll provide a summary outlook for the company at the end before turning the call over for Q&A. Stewart, I will now hand the call to you to provide more details on Q2 and the financial outlook.

Stewart Kantor, President and CFO

Thank you, Eric. As Eric mentioned, we did have an eventful quarter, which included making a $2 million loan to American Robotics in April in advance of the announced agreement in May, executing on a $51.5 million equity raise in early June, and leading the effort to complete the acquisition, all while continuing to advance both the Ondas Network and American Robotics businesses. As I share our financial results for Q2 and the first half of the year, please note that we have included financial statements in this morning's press release. We will be filing our 10-Q by the end of the day. The numbers we're reporting do not include financials for American Robotics for the quarter. We'll be publishing AR second quarter and performer financials in several weeks. I'd also like to mention that we don't intend to provide financial guidance given the maturity of the businesses and the recent acquisition of AR. We will continue to update our shareholders in real time as we achieve milestones. Moving to our results in the second quarter, revenues decreased by 25% to approximately $0.9 million for the three months ended June 30, 2021, as compared to approximately $1.2 million for the three months ended June 30, 2020. The decrease in revenue was primarily due to lower product sales, which were offset by an increase in development revenue in the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, during which the company fulfilled a large network product order. Gross profit decreased by 50% to $0.3 million for the three months ended June 30, 2021, as compared to $0.6 million for the three months ended June 30, 2020. This was a result of lower revenue and higher costs of goods related to development agreements. Gross profit on a percentage basis was approximately 35% for the three months ended June 30, 2021 compared to 53% for the three months ended June 30, 2020. The lower gross profit percentage was driven by the change in mix between development revenue at lower margins and product revenues. Operating expenses were relatively flat at $3.4 million for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020. Stock-based compensation decreased by approximately $0.8 million in the three months ended June 30, 2021, which was offset by a total increase of approximately $0.8 million for professional fees related to the American Robotics acquisition and facilities-related expenses in the three months ended June 30, 2021. The company realized an operating loss of approximately $3.1 million for the three months ended June 30, 2021, as compared to $2.8 million for the three months ended June 30, 2020. The difference was driven primarily by lower revenues and lower gross profit during the period. Net loss was approximately $2.8 million for the three months ended June 30, 2021, as compared to a net loss of $3.2 million in the three months ended June 30, 2020. The net loss was lower primarily due to loan forgiveness of approximately $0.7 million and a decrease in interest expense of approximately $0.1 million as compared to the three months ended June 30, 2020. Now transitioning to our first half numbers over the prior year, revenues grew by 50% to approximately $2.1 million for the six months ended June 30, 2021, as compared to approximately $1.4 million for the six months ended June 30, 2020. Revenue growth was due primarily to larger development projects with Siemens and AURA during the first half of 2021. Gross profit increased by 45% to $0.9 million as a result of higher revenue for the six months ended June 30, 2021, as compared to $0.6 million for the six months ended June 30, 2020. Gross profit on a percentage basis was approximately the same at 45% for the six months ended June 30, 2021, as compared to 47% for the six months ended June 30, 2020. Operating expenses increased approximately 21% to $6.9 million for the six months ended June 30, 2021, as compared to $5.7 million for the six months ended June 30, 2020. This increase was driven primarily by professional fees associated with the acquisition of American Robotics. The company realized an operating loss of approximately $6 million for the six months ended June 30, 2021, as compared to a similar loss for the six months ended June 30, 2020. Increased operating expenses from the American Robotics acquisition was the primary driver despite the growth in revenues and gross profits. Net loss was approximately $6 million for the six months ended June 30, 2021, with a similar net loss for the six months ended June 30, 2020. And now turning to our balance sheet. The company held cash and cash equivalents of approximately $58.5 million as of June 30, 2021, as compared to approximately $26.1 million as of December 31, 2020. We would now like to discuss the milestones achieved in the second quarter for Ondas Network, along with the network's outlook, and then transition to the same for American Robotics. We continue to collaborate closely with Class 1 Rails and our strategic rail partner Siemens to promote the adoption of Ondas’ FullMAX platform in the 900 megahertz network, greenfield spectrum. Our various test networks with BNSF and CSX are still being tested in the field, and the insights we are gaining are guiding our implementation efforts. The rail industry is rallying around the 802.16s and 802.16t standards, with active participation in the standards process. It’s worth noting that the standard is based on our format technology. The federated or shared network capability of our FullMAX platform is a crucial feature of the 900-megahertz network. The Rail Industry Leadership Committee informed us in June that the Rail Lab has been approved, and we anticipate receiving the purchase order in the second half of 2021. We will share that information once we have it. This order further validates the opportunity we have in the rail market. As the year progresses, we plan to provide more details regarding the timing of the 900-megahertz network deployment. Our partnership with Siemens continues to grow with a major launch of our dual mode ATCS products this September. Siemens is fully backing these products, and their impact will become increasingly evident soon. Feedback from rail customers indicates they recognize the value and capabilities of ATCS with FullMAX integrated. These products facilitate a smooth transition from the existing legacy ATC network to the new Greenfield 900-megahertz spectrum. Continuing with Siemens, we updated you about a new development program initiated in Q1 during our last earnings call. We received the initial purchase orders last quarter, and this development project, which is our first onboard locomotive product, is progressing well with anticipated completion by the end of the year. Significantly, Siemens plans to market this product worldwide, not just in North America. We will provide further updates on this exciting new product soon. We also expect to secure additional product integration agreements with Siemens in the latter half of 2021. In June, both AURA and American Robotics were invited to engage in the FAA unmanned aircraft systems beyond visual line of sight aviation rulemaking committee. We have completed that work in the second quarter, involving over 80 hours of real-world helicopter flight testing and development work that is now transitioning to a test and demonstration network for AURA’s customers, along with rising demand for equipment. I would also like to highlight that AURA has made some noteworthy announcements recently. On July 28, they announced the closing of an approximate $31 million Series A financing. This followed a previous announcement on July 12 when NASA selected AURA for their advanced Air Mobility campaign, aimed at integrating air taxis, cargo delivery aircraft, and other new air vehicle concepts into the National Airspace. To summarize, we believe the Networks’ business is on the verge of widespread adoption across several critical industries.

Eric Brock, Chairman and CEO

Thank you, Stewart. We continue to make substantial progress on the Ondas networks' front. Now let's turn to American Robotics. As you have heard, American Robotics is leading the charge in the commercial drone sector. They bring both a first-in-class and a best-in-class complete drone-in-a-box platform called the Scout System. In addition, AR has secured unique and critical regulatory approvals from the FAA that allow for widespread commercial deployment of Scout Systems. The Scout is a type of solution that is coveted by our critical infrastructure customers. The addressable market for the Scout drone platform can be extended with the integration of Ondas' mission-critical FullMAX wireless technology. Scout can benefit from Ondas' networks' robust wireless connectivity, and Ondas' networks' customers can benefit from a new, hugely valuable means of data collection. The AR acquisition was a bold move for Ondas, and the reception has been extremely positive, opening the eyes of our customers, ecosystem partners, and many industry participants who are looking for complete end-to-end next-generation data solutions. REEF, VJ, and the American Robotics team have already been hard at work scaling the AR business plan. I will now ask Reese to give an update on where we're at in ramping that growth plan. After Reese, we'll wrap the call and turn to Q&A.

Reese Moser, CEO, American Robotics

Thank you, Eric. It's a pleasure to attend our first quarterly investor call officially under the Ondas umbrella. We've had quite a year since we announced our historic FAA approval, which culminated in merging American Robotics with Ondas Holdings. I know I speak for our entire team that we are thrilled to be here and are ready to scale and deliver for both our customers and investors. We've already begun to put together the key building blocks for growth at American Robotics. As previously discussed, we launched our growth plan after receiving initial funding from Ondas in April 2021, prior to reaching the definitive agreement in May. We started building inventory of Scout Systems and have launched a hiring plan to put a world-class team in place to support our rapid growth potential. Previously, we indicated plans to produce tens of units of Scout Systems, and we have made our initial orders to do so. We've identified customers for initial installations as we move through Q3 and Q4 of this year. Our customer pipeline has historically been focused on Ag markets. With our critical FAA approvals and the funding and acquisition by Ondas, we have seen a significant demand ramp in high-value industrial markets such as oil and gas, mining, and rail. The applicability for this technology is huge, and at the outset, we will concentrate our energies on the largest sophisticated customers who have existing drone programs that they're looking to scale with automated solutions. We also plan to leverage Ondas' networks' customer base and worldwide distribution partners. This business plan calls for significant investment in people across all aspects of the organization. We're adding software, hardware, manufacturing, and customer support engineers, and we'll be continuously advancing our Scout platform and its capabilities. Importantly, we're now investing in and building out our field service operational capabilities, as our customers are large, sophisticated, and demand quality execution from their vendors. Combining that requirement with a significant market demand for our products, we're investing to ensure an industry-leading experience from day one. To that end, I want to highlight a few critical hires that relate to this plan. In May of this year, we hired Kevin Willis as American Robotics VP of Sales. Kevin has hit the ground running, as he brings with him decades of experience, including serving as the Vice President of Sales for Kiva Systems, which was sold to Amazon and now operates as Amazon Robotics. Michael Gatewood has been hired as American Robotics Director of Flight Ops; Mike will oversee, formalize, and grow the company's flight operations program. Prior to American Robotics, Michael was Flight Operations Manager at Aero Biomed and has two decades of engineering and aviation management experience. Additionally, last week, we announced the hiring of Michael Clatworthy as our VP of Operations. Michael is an exceptional hire that will help accelerate our corporate and customer ops. Prior to American Robotics, Michael was the Head of Operations for Avitas Systems, which is Baker Hughes' internal drone company. Michael helped found Avitas when it was part of GE and has grown their operations from concepts to 1,500 customer sites per quarter. As mentioned, we see significant pent-up customer demand and have received purchase orders post-deal announcement. I would like to highlight two. First, we announced the purchase order from Stockpile Reports in July. Stockpile provides best-in-class supply chain data solutions for both products that are mined and processed, such as rock, gravel, cement, and aggregates. This is a huge industry with more than 10,000 sand and gravel mines and over 3,000 ready-mix and asphalt plants in the US alone. Stockpile has an impressive customer base of leading players serving over 300 companies in 48 countries. The data generated and analyzed by Stockpile is used not just for inventory management but also has tremendous value for supply chain optimization. When you can have near real-time information on inventory levels, the opportunity to create that impact on the bottom-line profitability for Stockpile customers is massive. There are thousands of these types of locations in the US alone, and just one of Stockpile's customers generates nearly $5 billion per year in revenue. The market is eager for better supply chain data, and the Scout System is the best-positioned technology to deliver. Similarly, we also announced in July a purchase order from a Fortune 100 oil and gas producer. The oil and gas industry represents a major new market for American Robotics with more than 90,000 oil and gas wells and over 500,000 miles of pipeline in the US that require constant monitoring and inspection. This customer has a variety of use cases ranging from well pad inspection to monitoring remote facilities and emissions. This customer, like many industrials, has an active drone program that currently relies on pilots. The Scout System will take over many of these jobs, generating data more frequently, more reliably, and at a lower cost.

Eric Brock, Chairman and CEO

Thank you, Reese. Quite clearly, we are full steam ahead at American Robotics. We got an early start in May on launching their plan and we will accelerate customer activity as quickly and prudently as we can. Our goal is to position American Robotics to eventually deploy thousands of autonomous Scout Systems in the field. We intend to build a dominant commercial drone platform, and we are all-in on doing so. We do want to carve out time to do a deeper dive with our investors on the American Robotics market opportunity, growth strategy, and many additional details around the AR business plan. To do this, we intend to schedule an AR-focused business update targeted for September. We will be in touch with more details about that event soon. Let's wrap it up before we move to Q&A. Ondas has made tremendous progress this year positioning the company for huge growth in large open-ended markets. Importantly, we are getting closer to turning the investments we've made into revenue. We announced and closed the transformative acquisition of American Robotics in just a few short months and then significantly strengthened our balance sheet by raising $51.5 million in the public offering. The equity offering allowed us to eliminate virtually all our debt and secure growth capital to allow us to fully execute our plan. We have momentum. In addition to the huge opportunity with American Robotics, Ondas is executing on our critical initiatives in driving platform adoption. Starting with the rails, Siemens and AURA, we are establishing our MC-IoT platform as the default next-generation wide-area mission-critical industrial network. Operator, we can now open the call to Q&A.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Today's first question comes from Tim Horan at Oppenheimer. Please go ahead.

Tim Horan, Analyst

Hey, guys. Thanks a lot. Can you elaborate on – I think you said in June, the lab approved the FullMAX equipment, maybe what lab just a little bit more color around what does that mean?

Eric Brock, Chairman and CEO

Sure. Absolutely, thank you, Tim. So let me talk about what we mean by the Federated Rail Lab, the Mission Critical-IoT lab, and remind you that this is connected to the work on the 900 megahertz network. Recall that our FullMAX software-defined wireless platform is a new paradigm. We're bringing the bandwidth, but we're also bringing flexibility that the railroads and these industrial markets have never had before. As it relates to the railroads, in certain high traffic areas, there are multiple rails operating; we like to point to Chicago as sort of the poster child for that, right, all the rails come in, they terminate their traffic there. Of course, that creates logistical and operational issues because of the demand for data capacity on the network, in particular. In the legacy network, which is going to be retired, the legacy 900 band, the rails have historically had to carve out that spectrum into small, inefficient networks that each individual rail would operate, obviously compromising the capacity for the system. We can bring a shared network, provide more capacity, and then our software can allocate or manage that traffic to maximize throughput and guarantee a much higher level of quality of service. So that's what the rail lab is for. You can think of it as planning, additional planning activity related to the network adoption. I also highlight that the Rail Lab is going to be evergreen; this is going to be a lab that we establish, and given the flexibility of the network, the railroads are always going to be testing, sort of looking to see how to optimize traffic, but also how to add new applications because we have – we're giving them the capacity to do just that. So that's the real lab. As we discussed in our last call, we've been working with the rails and the 900 in the field for a long time. The shared element, the lab was taken up by the wireless comms committee under the AURA, the senior-most operating group for the rails. That's where we see the support for the lab. So as Stewart mentioned in his comments, we expect the purchase order for the formal work on the lab in the fourth quarter.

Tim Horan, Analyst

And has the Association of American Railroads endorsed your FullMAX network? Have they said anything publicly or formally?

Eric Brock, Chairman and CEO

They haven't formally done that. They won't until they're ready to give us the initial purchase order.

Stewart Kantor, President and CFO

Let me elaborate on that, Tim. The collaboration on the 900 megahertz project with the Class 1 rails is progressing well. We've been working closely with our partners as we move forward. The senior operating committee of the Rail Association endorsing the lab is a strong indicator of support and validation for our efforts. Additionally, our work on the 900 megahertz system highlights the complexity involved as we implement an important new mission-critical network. It's crucial for us to organize these operations under a central coordinating group, and that's where we're currently seeing benefits.

Tim Horan, Analyst

And on the purchase order, will that be from multiple driver companies, or do you expect individual ones for each rail? And secondly, if you get the purchase order in the fourth quarter, when do you start recognizing revenue?

Stewart Kantor, President and CFO

I will address the second part of your question first. We expect to recognize revenue in the fourth quarter, and we can quickly set up that lab. In fact, the basic structures and equipment are already prepared. Regarding the order, it's not entirely clear where the budgets are coming from. However, we believe it will receive support at the industry level, and we anticipate broader participation among the Class 1 railroads than we initially expected. I want to point out that BNSF and CSX have been leading most of the work in the field and remain very engaged with the labs. There's also a chance to involve others in the process.

Tim Horan, Analyst

But ultimately, it'll be purchase orders with each individual rail company, correct?

Stewart Kantor, President and CFO

Ultimately, the deployment will depend on where the order comes from and what budget is available for it, which is yet to be determined.

Tim Horan, Analyst

So just to be clear, this purchase order is coming from the lab, or is it coming from the individual rail companies?

Stewart Kantor, President and CFO

The purchase order we are discussing is for the Federated Network Lab.

Tim Horan, Analyst

Do we have a sense how large it could be or how large purchase orders in the fourth quarter could be broadly speaking?

Stewart Kantor, President and CFO

We're not able to share that information today.

Tim Horan, Analyst

Okay, great. Do you have an idea of how much the rail companies need to invest to vacate and upgrade the 900 megahertz spectrum? Is it just a general sense of when they will need to make that expenditure?

Eric Brock, Chairman and CEO

All indications are we're strongly positioned to deliver on this 900 megahertz network. However, the question is timing, Tim. We can't give you a precise date for the commercial PO and when that starts. We're working closely with the rails, and we're earning the business, but the purchase orders are going to come when they're ready. We'll be sure to notify our investors as soon as we can.

Tim Horan, Analyst

Okay, great. Do you have an estimate of how much the rail companies need to invest in order to upgrade their network with your services?

Eric Brock, Chairman and CEO

Well, we think the network is in the hundreds of millions of dollars of potential market, but I don't have anything yet to add beyond what we've talked about previously, which was the market size.

Tim Horan, Analyst

Great, great. And then just lastly, just curious on the drones, what can the concrete industry do with the drones essentially to improve our operations? Just out of curiosity, at a high level what they're using it for?

Eric Brock, Chairman and CEO

Sure. Reese, would you like to take that?

Reese Moser, CEO, American Robotics

Yeah, sure. Can you just repeat, which industry you're asking the question about?

Tim Horan, Analyst

Sorry, I think you said you want a very large contract in the mining industry that was more focused on aggregates and concrete. Just curious, with just some examples, what do we do to improve productivity?

Reese Moser, CEO, American Robotics

Yeah. Sure, absolutely. So the initial use cases around stockpile analysis and management. So it's about having a daily representation of exactly what you have in your stockpile yard, your facility to optimize things like supply chain management and logistics, where materials are being moved to and from. So it's really just about having up-to-date accurate information about how much of any of these materials you actually have.

Tim Horan, Analyst

I see. Thank you. Thanks, guys. Good luck.

Eric Brock, Chairman and CEO

Thanks, Tim.

Operator, Operator

And our next question today comes from Mike Latimore with NCM. Please go ahead.

Mike Latimore, Analyst

Hi, good morning. Thanks for taking the question. I guess, on the American Robotics initial winter stockpile in the Fortune 100 company. Can you talk about the rollout with these two customers? Just the process there, do they start with trials and get commercial over time? Just how would that work with these two?

Eric Brock, Chairman and CEO

Hey, Stewart, please take that.

Stewart Kantor, President and CFO

Yeah, sure. The short answer is yes. So typically with industrial customers and sales process that we see is starting out with trials and the single-digit units, and then after reaching some success criteria after call it three to six months that transitions into larger commercial deployments. With any of these customers, including Stockpile and the Fortune 100 oil and gas company, part of our initial discussion with them is what does field look like? Since we received that FAA approval in January, we've received a lot of inbound interest, frankly, more than we can handle. So our task right now is qualifying who's worthy of being in this first wave of customers? And who has the biggest potential to convert to hundreds of units? One of the reasons we selected those two companies that we've referenced publicly is because they have the ability to scale to eventually hundreds of units in the fairly near term.

Mike Latimore, Analyst

That makes sense. Okay. And then, are you finding that customers are willing to pay you under a kind of a SaaS model, or do some of these guys want to just kind of buy the system outright?

Reese Moser, CEO, American Robotics

Yeah. That's a great question. On the whole, most are interested in accepting the SaaS-based model. There are a couple of industries that, based on their historical accounting practices, may prefer to shift it more to a CapEx model. We're working with them again, in the lens of making sure that fits with our scaling up business plan. We don't want to change too many things for everybody. But if we represent a large potential order of hundreds of units, we're willing to work with that customer.

Mike Latimore, Analyst

Got it. You're investing significantly in American Robotics across various areas. You also mentioned software and hardware. What would be the next major technology update you would like to see for your platform?

Reese Moser, CEO, American Robotics

Yeah. I mean, I'd say, it's a little bit more on the operations side of things, but technology related. Our big focus right now is scaling up field operations, things like installation, maintenance, and design for manufacturing. We want to make sure that the process of building and installing and servicing hundreds of units is efficient and goes well for our customers. So there's some technology elements around that that we're investing in, and again to make sure that our customers have the best possible experience.

Mike Latimore, Analyst

Okay. Got it. And then, as you shifting to the real opportunity for a second, assuming the lab order comes in, in the fourth quarter. What would be the next step after that? You know, do they kind of deploy and test for a couple of quarters? And then, we get commercial orders after that?

Reese Moser, CEO, American Robotics

Mike, I'll ask Stewart to fill in, but the lab work is around the element of the shared system, right? As I described earlier, if you think about the 900 megahertz, or the rail footprint, I'll say, most of the territory is solely operated on their own track. We think that's where the initial build-out is going to take place, with the shared element coming in parallel, sort of, somewhere in the process. We still target with Siemens the ATCS deployment of 900 and the initial commercial deployments with the Rails. Like I said, it's likely going to be in the solely operated territories to start. Stewart, would you talk a little bit about the lab and how long that will be in place?

Stewart Kantor, President and CFO

Yes, I think that's correct. As Eric mentioned, the federated concept involves intermodal operations and connections. We’ve noted that both BNSF and CSX have their test networks implemented and these are making progress. Orders will come from the individual railroads and aren't necessarily tied to the lab's schedule. The lab’s focus is mainly on intermodal aspects. We just need you to stay tuned as we advance with the individual railroads and with Siemens' support. We mentioned that the ATCS is set to formally launch in September with Siemens, and the railroads are recognizing the value of this product, which supports both the legacy system and facilitates the transition to new platforms. All these elements are aligning, with individual railroads appreciating the benefits, including the intermodal connections. They are not entirely dependent on each other; they operate independently.

Mike Latimore, Analyst

And that would go for the ATCS product there, it sounds like?

Stewart Kantor, President and CFO

Correct.

Eric Brock, Chairman and CEO

All right. Thank you, Mike.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Today's next question comes from Carter Mansbach with Forte Capital Group. Please go ahead.

Carter Mansbach, Analyst

Good morning, gentlemen. Congratulations on all your developments. I have two questions. First, when can we expect to have a clearer understanding of future growth projections? Second, regarding contracts, will there be a time when we will know the names of the Fortune 100 companies that both companies are securing contracts with?

Eric Brock, Chairman and CEO

Thank you, Carter. To answer your last question, yes, at the right time, we will share more details about our customers and their names. For competitive and business reasons, we opted not to disclose the recent oil and gas customer. However, I want to emphasize that we have similarly sized customers in the pipeline within the oil and gas sector. As we announced our plans to invest in scaling for substantial markets, we are focusing on the mission-critical IoT private industrial network market through Ondas Networks, as well as commercial drones via American Robotics. At Ondas Networks, we are collaborating with large customers on significant networks. Since we don't yet have clear timing on the purchase orders we are targeting, it is wise not to commit prematurely. Nonetheless, we are very optimistic about the opportunities in the 900 and other Rail Networks we've previously mentioned, including the 160 and 450. As we observe the inflections and receive the purchase orders, we will be building a backlog, making the business at Ondas Networks much more predictable. American Robotics boasts a best-in-class technology platform, and they operate under FAA regulations that enable quicker deployments than anyone else in the industry. We are assembling our team to scale up these initial purchase orders for a few scout systems and are working to prepare those customers for fleet deployments. As we navigate this process, that business will also become considerably more predictable. Therefore, I believe that not providing guidance for Q3 at this time is a wise decision.

Carter Mansbach, Analyst

Okay, great. Thank you so much.

Operator, Operator

Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Eric Brock, Chairman and CEO

All right, well, thank you, operator. And I appreciate everyone joining us on the call this morning. I'd like to close by reminding our investors that we're bringing tremendous value to the commercial markets we're targeting. We're leveraging not one, but two best-in-class disruptive technology platforms, of course, that's Ondas network software-based FullMAX mission-critical wireless network. And that's with American Robotics Scout Systems, the only fully autonomous drone approved to operate beyond visual line of sight with no human on site. The markets we're targeting are well into the billions of dollars in size, and Ondas has made and continues to make the investments needed to pull them through to orders or revenue that we're tracking towards in the substantial customer pipeline opportunities we are focused upon. We expect a very active second half of 2021 and a strong finish to what is clearly a transformational year for Ondas and Robotics. We will keep you informed on the critical business development milestones as we achieve them. Thanks again for joining us this morning and have a great day.

Operator, Operator

Ladies and gentlemen, 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.