Earnings Call Transcript
Ondas Inc. (ONDS)
Earnings Call Transcript - ONDS Q4 2022
Operator, Operator
Welcome to the Ondas Holdings Incorporated Fourth Quarter and Full year 2022 Conference Call. All participants will be in a listen-only mode. Before we begin, the company would like to remind you that this call may contain forward-looking statements. While these forward-looking statements reflect 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. Please note, this event is being recorded. I'd now like to turn the presentation over to Eric Brock, Chairman and CEO. Please go ahead.
Eric Brock, Chairman and CEO
Thank you, operator, and good morning. I want to get started by welcoming everyone to our quarterly conference call. We appreciate the time you’re spending with us and for your interest in our Company. Today’s call will be a bit shorter than we are used to for this quarterly update since we just met a few weeks back at our Virtual Investor Event. At that time, we provided both a comprehensive business development review and a detailed outlook for 2023 for both our Ondas Networks and Ondas Autonomous Systems business units. So today we plan to review our financial performance in a bit more detail and provide updates on recent activity with both Ondas Networks and Ondas Autonomous Systems business units. In that conversation, we will focus on current activity in the field with customers and partners. As you continue to see, Ondas is picking up momentum. We’ve had a strong start to the year and look forward to sharing details of this customer activity with you. So let's go. I’m happy to be joined today by our CFO, Derek Reisfield; and our President, Reese Mozer. In addition, we will hear from Stewart Kantor, the Founder and President of Ondas Networks; and Meir Kliner, Airobotics Founder and CEO. Recall that in connection with the closing of the Airobotics acquisition, we established a new business unit we call Ondas Autonomous Systems or OAS, which combines the drone operations of American Robotics, Airobotics, and now Iron Drone. Meir is the President of OAS, and it's my pleasure to have him join us today on this additional Investor Call with Ondas. Now let's turn to the agenda. We will start the call with some brief comments about the state of our business entering 2023. I will then hand the call over to Derek for a financial review, and we will briefly recap the 2023 outlook. Then we will provide a business update for Ondas Networks and our OAS business units, where I will ask Stewart and Meir to provide commentary around current business activity. Again, since we’ve previously provided a deep dive at the Virtual Investor Event in February, these updates will be mainly focused on recent events and on-the-ground activity we are driving here in the first quarter. We will then wrap the call and open the floor for investor questions. We expect 2023 to be a very good year for Ondas, both with our Ondas Networks and OAS business units. We ended the year with momentum from fresh successes in 2022, where we secured our initial commercial orders signifying the validation of our technology platforms and their scalability with customers. At Ondas Networks, the volume order from Siemens in the 900 megahertz network was a significant event because rail networks are large and strategically important, and this adoption is beginning. The strategic value of the 900 megahertz network, in all private networks, frankly, is becoming more and more apparent today. We have outlined on several occasions how private wireless networks enable safe and efficient train operations, and specifically how new industrial broadband capabilities like Ondas's dot16-compliant system, which we call FullMAX, and the value it provides rail customers with the ability to adopt new and advanced safety technologies. The 900 megahertz network has come into focus with the national attention today on rail safety. With this attention, the technologies that will be implemented to make our railways efficient and safe are becoming increasingly clear. Through all this conversation again, which is happening nationally, one thing is obvious: you need robust wireless networks to implement and enhance safety systems along the track, on locomotives and rail cars, and at highway crossings. Ondas Networks FullMAX wireless platform is well-positioned to help address these challenges around connecting the technologies that the rail industry is facing today. We believe the rail sector, which always has large capital expenditure budgets, is poised to accelerate investment in safety technologies. Ondas and Siemens are actively engaged in conversations around how this will happen, and we will talk a lot more about that today. At OAS, we have also seen fleet adoption begin as Airobotics secured initial commercial orders for the Optimus system from customers and partners in the UAE, where we are beginning citywide deployments of urban drone infrastructure in Dubai and Abu Dhabi. This is a development in the drone industry that is nothing short of groundbreaking. Flying autonomous unmanned systems in a densely populated urban setting is an unparalleled achievement and demonstrates the massive lead we have in defining these UAS markets. In short, we believe Ondas entered 2023 positioned to drive significant increases in revenue, which we believe will help support the scaling of our company and put us on a path to profitability. Again, we believe 2023 is going to be an excellent year for Ondas and the beginning of a long investment cycle in our mission-critical IoT and drone businesses. I am now going to hand the call over to Derek for the financial review.
Derek Reisfield, CFO
Thanks, Eric. As I get started, I want to remind our investors that our financial statements reflect investment and preparation for larger commercial rollouts within our Ondas Networks and Ondas Autonomous Systems business units. As we outlined in our investor update last month, we believe we will see that commercial adoption in 2023. Revenues for the periods presented have been primarily generated by FullMAX product sales and service revenues for customers, including Class 1 railroads, in addition to product development programs with Siemens and field activity with autonomous drone installations. Of course, we believe this activity has been valuable, serving to establish the broader opportunity which we expect to lead to significant growth in FullMAX-based wireless systems and Optimus deployments in 2023 and in the coming years. For the fourth quarter of 2022, revenues were approximately $500,000. This was a decrease from $600,000 for Q4 last year. Revenues during the recent quarter were generated by FullMAX product sales driven by orders from Siemens, as well as development revenues as we advance the HOT and European product development programs with Siemens. Based upon the low level of revenues in the pre-commercialization period, gross profits remained low during the fourth quarter of 2022 at roughly $300,000. Operating expenses increased to $34.8 million for the fourth quarter of 2022 as compared with $7.2 million the prior year. The rise in operating expenses was primarily due to an increase in research and development expenses, professional fees associated with the Airobotics acquisition, along with an increase in depreciation, amortization, and stock-based compensation expense. We consider the acquisition-related expenses to be non-recurring. We also recorded a $19.4 million non-cash charge for impairment of goodwill. The goodwill impairment is an accounting charge reflecting the write-down in the carrying value of the American Robotics acquisition. We performed regular analysis related to goodwill, and given the dramatic decline in valuations of comparable small emerging technology and the decline in our share price, we believe the write-down is prudent. While we understand the accounting treatment, we remain very positive on the strength of our IP portfolio and the business outlook across both our business units and do not believe the goodwill write-down has a significant impact on our business. Aside from the $19.4 million goodwill impairment charge, non-cash expenses totaled $2.5 million for the fourth quarter of 2022. Stock-based compensation was approximately $1.5 million in the fourth quarter. That increased by approximately $200,000 from the prior year. Depreciation and amortization expenses increased from $700,000 in the fourth quarter of 2021 to approximately $1 million in the fourth quarter of 2022. Operating expenses in the fourth quarter of 2022 also included professional and advisory fees related to the Airobotics acquisition. Once again, we consider these acquisition-related expenses to be non-recurring. Excluding non-cash expenses and non-recurring professional fees related to the Airobotics transaction, operating expenses were equal to approximately $12.3 million, which were higher-than-expected due to accelerated spending on customer-related activities at American Robotics. With the completion of the Airobotics acquisition, we restructured our activities in the Autonomous Drone segment. We believe this will lead to significantly lower operating costs going forward at the combined entity. We believe the additional investments we made were prudent and necessary for the expansion of our services and capabilities to ultimately drive larger revenue opportunities over the long term. The Company realized an operating loss of approximately $34.5 million for the fourth quarter of 2022 as compared to $7 million for the fourth quarter of 2021. This loss includes the aforementioned non-cash and non-recurring expenses. We generated an adjusted EBITDA loss of $12.6 million in the fourth quarter, excluding these non-cash expenses, as compared with a $5 million EBITDA loss for the fourth quarter of 2021. Also noted the increase in both cash and non-cash expenses related to the business development activity and preparation to meet the demands of a growing business. Now, let's look at our full year results. For the full year of 2022, revenues were $2.1 million. This was a decrease from $2.9 million during the full year of 2021. Revenues during the 2022 period were generated by product sales driven by our order from Siemens, as well as development revenues as we advanced the HOT and European product development programs with Siemens. Gross profit increased to approximately $1 million for 2022. This was roughly equal to the gross profit of $1 million last year on higher sales. Gross margin improved significantly to 52% for 2022 compared with the gross margin of 38% in the prior year period. Again, this low level of gross profit reflects a period of pre-commercial adoption of our technology platforms. As we have described in our prior calls, due to the historically lumpy nature of development programs and customer product sales and services, gross margins can be volatile on a quarterly basis. The margin improvement is primarily due to a larger proportion of high-margin product sales and services in the revenue mix during 2022. Operating expenses increased to $70.5 million for all of 2022 as compared to $19.1 million in the prior year. $19.4 million of the operating expense was due to the non-cash charge related to goodwill impairment. Also, the rise in operating expenses was primarily due to an increase in research and development expenses, professional fees associated with the Airobotics acquisition, along with an increase in depreciation, amortization, and stock-based compensation expense. Aside from the $19.4 million goodwill impairment charge, non-cash expenses totaled $9.9 million for the full year of 2022, including stock-based compensation of $5.9 million, that increased by approximately $2.6 million from the prior year. Depreciation and amortization expenses increased from $1.5 million in 2021 to approximately $4 million in 2022. Operating expenses in 2022 also included professional and advisory fees related to the Airobotics acquisition of approximately $2.1 million. Once again, we consider these acquisition-related expenses to be non-recurring. Excluding non-cash expenses and non-recurring professional fees related to the Airobotics transaction, operating expenses were equal to approximately $39 million, which were higher-than-expected due to accelerated spending on customer-related activity at American Robotics. With the completion of the Airobotics acquisition, we’ve restructured our activities in the Autonomous Drone segment. We believe this will lead to significantly lower operating costs going forward at the combined entity. We believe the additional investments we made were prudent and necessary for the expansion of our services and capabilities to ultimately drive larger revenue opportunities over the long term. The Company realized an operating loss of approximately $70.5 million for 2022 as compared to $19 million for 2021. This loss includes the aforementioned non-cash and non-recurring expenses. We generated an adjusted EBITDA loss of approximately $40 million for the full year 2022, excluding these non-cash expenses, as compared with a $13.2 million EBITDA loss in the prior year. As noted, the increase in both cash and non-cash expenses related to business development activity and preparation to meet the demands of a growing business. Now let's turn to the balance sheet. We ended the fourth quarter of 2022 with $29.8 million of cash. Our cash position was aided by the convertible note offering. Outside of the new convertible notes, we maintain minimal long-term debt and a $58.2 million equity position. Of course, our equity position reflects the substantial investments made in our technology platforms.
Eric Brock, Chairman and CEO
Well, thank you, Derek. As you know, we believe 2023 will be the year when Ondas begins to monetize the substantial investments we have made in our business development. We expect to generate significant revenue growth and are reaffirming our outlook from February and our target for $26 million to $30 million of revenue for the full year. We expect adjusted EBITDA losses to narrow to $19 million to $24 million for the year. Our outlook is supported by over $13 million in backlog and visibility into expected demand from our existing customers as we move through 2023. We expect cash utilization to improve significantly. Improved cash efficiency comes from operating expense leverage at Ondas Networks with expected growth in revenue and gross profit. A similar dynamic exists at OAS, where we believe the integrated companies will operate with dramatically lower costs as a combined company focused on optimizing the Optimus platform in the field with customers. Now we will transition to a business unit review and ask Stewart Kantor and Meir Kliner to share updates on recent activity in the field with customers and industry partners. We're going to start with Stewart, who will update us on the current status with the rails on 900 megahertz and share some details around the value of our technology in the context of the national conversation around rail safety.
Stewart Kantor, President, Ondas Networks
Great. Thank you, Eric. We believe Ondas Networks, along with our strategic partners Siemens Mobility, is well-positioned to accelerate the adoption of our FullMAX wireless technology and our dot16 platform. Over the past few years, we, Siemens, the Class 1 rails, the Association of American Railroads, and their technical arm MxV Rail have worked diligently to lay the groundwork for the wide adoption of our dot16-based technology in the 900 megahertz band. And that adoption is happening now. In this quarter, we've begun to deliver on our initial volume orders to Siemens on behalf of BNSF and CSX and look for deliveries to accelerate in the next quarter. We're also working closely with Siemens and the rail customers to expand the order book, and we expect follow-on orders from BNSF and CSX, as well as new launch orders from additional Class 1s. Currently, we are actively engaged with all seven of the North American Class 1s on various aspects of network adoption, including establishing inroads in the 160 megahertz frequency band for data applications. This is also a safety-critical network. Internationally, we have our ongoing activity with Siemens for Indian Railways, as well as a new locomotive radio program for the European market. Lastly, we have ongoing business development activities with the passenger and transit rails in North America and in international markets, and we anticipate new activity in these markets. We’d also like to emphasize that rail safety is not new to us or to our customers, and we will outline in a few moments specifically how the recent national focus on rail safety aligns with our core strengths. We want to emphasize that mission-critical networks are fundamental to train operations and their integrated safety systems. The North American rails operate continent-wide train systems and require modern wireless technology to implement large scale connectivity, edge computing, and automation technologies. The rail sector has invested and continues to invest heavily in their train operations, and safety is front and center to everything they do. However, the integration of safety technologies has many challenges, often the core of which is reliance on reliable railroad-wide communications. Most of the geography they traverse is highly remote with challenging terrain. This is where our 802.16 technology and licensed radio spectrum come into play. Also, you may recall that in May 2020 when the FCC awarded the rails new 900 megahertz greenfield spectrum, one of the primary reasons cited for the award was the expected implementation of safety-based applications, including increased support for rail integrity applications, continuous crossing monitoring, and advanced defect detection, which includes the hot bearing detectors, also known as hot box detectors, that we've been hearing a lot about recently. It also provides redundancy for positive train control. Over the last two years, the rail industry has worked with Ondas, Siemens, and other ecosystem vendors to develop a standards-based wireless system that would be robust and secure and would provide higher data capacity and flexibility in order to upgrade the private wireless communications network they own and operate, starting with the 900 megahertz. Some of this work has taken place inside the IEEE process where the 802.16 wireless standard is evolving to incorporate additional capabilities that will support long-term adoption by the railroads. We’re also working cooperatively with the AAR through MxV Rail in Pueblo, Colorado, as they determine how 802.16 will be implemented as a rail standard. And you may recall that MxV has been operating their own dot16 rail development capabilities, implementing use cases and focused on integrating existing and new applications into rail operations. Now let's turn our attention to detail on some of the safety systems and applications that rails operate and where our 802.16 wireless communications technology comes into play. On this slide, you can see a whole host of applications and devices that the rails use today or plan to use in the future to address safety and operational purposes. Most of the current applications operate on frequency-specific networks owned by the rails at 900 megahertz, 450 megahertz, 160 megahertz, and 220 megahertz. So why is it like this? Well, most of these networks evolved over time and were introduced to meet certain needs at certain times to address certain problems. But with the advancement in digital wireless technology like 802.16 and internet protocol, the same protocol we all use today in our home and enterprise networks, the rails are seizing on the opportunity to move away from application- and frequency-specific networks to what we call general purpose IP data networks. These networks can support multiple applications at the same time, offering redundancy and expansion of current and planned applications. As we know right now, at your home or in your office, you really don't care or don't even know whether you're on one Wi-Fi frequency or another as long as your applications work and whether that connectivity occurs over Wi-Fi, a cell phone network, or an Ethernet cable. This is the same direction the rails must go in order to build their own private networks and expand capacity. Remember, they need private networks because they are addressing nationwide connectivity and have to travel from the most urban dense areas to the most remote areas, illustrated by their need for connectivity, even in places like the Mojave Desert with no cell tower anywhere to be seen. So what you see on this slide with the implementation of 802.16 megahertz, the 802.16 standard at 900 megahertz, is that the rails can now host multiple applications on the same network with high quality of service and reliability, and importantly get to set those levels. Let's just take one example that has been in the news lately, hot box defect detectors. The rails, with the new network capacity based on our modern wireless standard, can conduct more hot box detectors onto the same network without the ongoing telecom operating costs. It's an exciting time for Ondas, and we appreciate the vision and foresight the AAR and the rails have had to see the value of our technology come to the forefront when national tension is so focused on the safety of critical infrastructure.
Eric Brock, Chairman and CEO
Well, thank you, Stewart. And I want to reemphasize your final comment. The purpose of our work with the rails has been to introduce wireless technology that enables the ongoing improvements to safety and efficiency that the rails are always pursuing, but are difficult to implement. So indeed, it is an exciting time for us to see the value of our technology come to the forefront when national attention is so focused on the safety of critical infrastructure. I'm now going to transition to an update on activity at Ondas Autonomous Systems. When I hand to Meir, he will share some updates on our work with customers and partners. You will expand upon our relationships in the UAE with the Dubai Police's SkyGo and also touch on the recent announcement we made highlighting a deployment we have with Intel. We will start with some commentary around the World Police Summit, where our Optimus platform in Iron Drone counter UAS systems are generating tremendous interest among growing awareness of our capabilities in both public safety and homeland security. But before I hand to Meir, I want to play a brief video. This video was created by the Dubai Police and demonstrates the vision for how they are integrating Optimus into their public safety operations. So let's put the video now.
Meir Kliner, President, Ondas Autonomous Systems
Thank you, Eric. And I want to start by saying it's a pleasure to be here for my first investor call with Ondas. Before I proceed, I want to take a brief moment and share how excited our team at Airobotics is to join forces with Ondas and American Robotics. We worked extremely hard to get to where we are today. Together, we have the ability to achieve great things. We have hit the ground running after closing the acquisition in January and establishing the Ondas Autonomous System global business unit. We are seeing tremendous momentum with customers, and the combination with Ondas has put us in a strong position to expand our current relationships and bring our technology to global markets, including the United States. The recent orders in the UAE for fleet deployment of our Optimus system for urban public safety and smart city use cases validate the safety and reliability as well as the value of our Optimus platform to customers. This was acquired last week in Dubai, where we attended the World Police Summit, which was widely attended by the largest and most sophisticated leaders in public safety and online security across the globe. As Eric showed in the video, the Optimus platform was highlighted in multiple video segments by the Dubai police as they outlined the vision for smart police infrastructure. We share their vision and believe we are here today with scalable technology as urban drone infrastructure that is setting the pace for the future of public safety and online security. At the summit, we also presented our counter UAS system from Iron Drone. In a moment, I will share more details about the Iron Drone system, but I want to highlight the huge interest in counter UAS solutions and specifically on the capabilities of our system. It's an exciting product, and the early feedback after the public launch is promising. We announced an expanded relationship with the Dubai Police at the end of the summit. As part of this agreement, the Dubai Police expressed an intent to purchase Iron Drone systems. This came after a successful system demonstration. In addition, Airobotics and the Dubai Police agreed to work together on further technology development around our AI capabilities and to continue to enhance the solutions that Ondas Autonomous Systems can provide to global public safety markets. We expect orders and installations to grow in Dubai as we move through 2023, and we continue to scale up the Urban Drone Infrastructure within this important partnership. At the summit, it was quite clear that there is extensive and growing interest globally in both Optimus and Iron Drone systems. That interest is coming from both potentially large customers and blue-chip industry rentals, with which we aim to establish partnerships. We have previously announced that the Dubai Police has begun a program to adapt the Optimus platform across the city to support enhanced public safety. We have installed systems and are operating on a regular daily basis with our reliability and availability of the system. We are off to a great start and look forward to the Optimus fleet footprint expanding in the coming years. Similarly, we announced a $3.5 million order from Abu Dhabi-based SkyGo, in addition to the intent to enter into a joint venture to provide aerial data services for smart city use cases in the UAE. SkyGo is an excellent partner bringing leadership and application expertise, in addition to incredible vision as to where we can take drone services in the UAE. SkyGo is connected with multiple customers across the UAE, and we look forward to sharing more details about our activity here in the near future. Lastly, we recently announced an extension of our service agreement with a global semiconductor manufacturing firm, where we have been providing both area security and safety services in addition to surveying, mapping, and other inspection applications. We believe the construction project management market is well-suited for the adaptation of our Optimus system and the data services embedded in our insightful data platform. From a central data portal, providing very insightful construction project management tools, clients in addition to vendors and suppliers are able to track project progress. The information and analytics help to keep a project on track from a time and budget standpoint, offering the potential for significant efficiencies and cost savings. We believe this market is large and growing strongly and are developing strategies to further expand in construction markets. Lastly, I want to focus on Iron Drone, the counter UAS system. We announced the Iron Drone acquisition last summer and formally closed the transaction last week. Iron Drone has unique insights into solutions required to counter hostile drones. The threat of hostile drones in both military and civilian markets has grown dramatically in recent years. The threat is particularly acute with small low-cost ones that are being used as weapons and are capable of causing significant damage. Iron Drone has introduced the radar, which is an autonomous platform. The radar system is modular and is deployed in a container or pod to intercept small UAVs. When a hostile drone is identified near a sensitive location, the drones can be deployed at extremely high speeds to intercept the threat. The radar is equipped with a netting system that can capture the hostile drone. A parachute ensures that the hostile drone is safely landed, so it can be secured as evidence while safely protecting assets and people on the ground. The physical capture method of counter UAS is differentiated from other counter UAS methods, which use jamming of radio frequencies or GPS signals to disable drones mid-operation. Jamming methods for countering hostile drones have significant drawbacks near sensitive civilian locations such as airports, government buildings, and business areas, as they can disrupt critical communications. We see significant market potential for Iron Drone. It has obvious use cases protecting high-value civilian infrastructure and public services in addition to homeland security. We also see military potential and expect this to be a revenue-generating product in 2023. Eric, I'm going to hand the call back to you so you can provide some closing remarks.
Eric Brock, Chairman and CEO
Well, thank you, Meir. And let's wrap this up with a couple of closing remarks before we shift to questions. I want to reiterate that management is committed to delivering for investors. We believe we are on the right track to build a large, successful company that defines the large high-value end markets we are addressing. We are well-positioned to monetize our valuable proprietary platform technologies, which have been funded by you, our investors, and the substantial efforts of our team. We are particularly excited about Ondas Networks as the hard work we have put in to create valuable next-generation wireless technology for safety-critical networks is poised to be recognized as a critical component of rail safety upgrades. We believe that activity around safety at the national level creates upside for Ondas. Similarly, fleet deployments of Optimus are off to a great start with our initial customers launching urban drone infrastructure in major cities. As we build inventory and advance marketing efforts with our customers globally, including in important sectors such as oil and gas and public safety in the United States, we expect to drive an S-curve adoption, highlighting the long-term value of our Optimus system to both customers and investors. We expect revenue growth and a focus on efficiency will demonstrate our ability to drive shareholder value, which we believe will be reflected in our share price. That is an important focus for our team, as I know it is for you. Again, I think this is going to be a great year for Ondas. With that, let's see if there are any questions.
Operator, Operator
The first question today comes from Mike Latimore with NCM. Please go ahead.
Mike Latimore, Analyst
Great. Good morning. Thank you. So I guess, Eric, the $13 million in backlog, how do you think about when that will, or when will that get recognized? Is it more first half weighted or second half weighted?
Eric Brock, Chairman and CEO
I think you're going to see a build through the year firstly, in terms of the revenue target. The backlog we have today is going to be largely recognized over the first couple of quarters. So we'll be shipping some of the systems that Siemens has ordered on behalf of the rail starting this quarter, as Stewart mentioned, that'll be larger in the second quarter. And then you'll see a similar ramp regarding recognized revenue on the orders we’ve announced at Dubai and Abu Dhabi for the drone platforms.
Mike Latimore, Analyst
Okay. And then in terms of cash, OpEx, what level should we think about in the first and second quarter?
Eric Brock, Chairman and CEO
It's comparable to what you've been expecting, Mike. So …
Mike Latimore, Analyst
Okay.
Eric Brock, Chairman and CEO
One of the changes we've made with the restructuring is bringing American Robotics together, allowing us to significantly reduce costs. This presents a larger opportunity while also ensuring a much more efficient operating spend. Additionally, I want to highlight that Ondas Networks continues to provide considerable operating leverage, as we previously mentioned. We have successfully secured a platform sale that starts with 900 megahertz, and the additional operational expenses required are quite minimal as we increase our orders and shipments.
Mike Latimore, Analyst
Yes. And then on the drone business, I mean, is it fair to say that the best prospect for incremental orders comes from the Dubai Police here? So if we're thinking about new orders you don't have, is that the most logical place it would come from?
Eric Brock, Chairman and CEO
That's the most logical place, but not the only place, for sure. We do see opportunity more broadly in the region. And we are working on the activities here in the U.S., which is obviously a very large market. And you'll hear more about that as we're moving through the year because those conversations continue, but we're also building inventory to address what we think will ultimately be substantial demand in the U.S. So …
Mike Latimore, Analyst
Great. Lastly, regarding Iron Drone, how do you charge for it? What is the average price per unit?
Derek Reisfield, CFO
We haven't disclosed pricing yet, and so I guess I'm going to defer. I do believe that the unit economics on the Iron Drone platform will be very attractive, but we haven't disclosed pricing yet.
Mike Latimore, Analyst
Okay, thank you.
Eric Brock, Chairman and CEO
Sure.
Operator, Operator
The next question comes from Timothy Horan with Oppenheimer. Please go ahead.
Timothy Horan, Analyst
Hey everyone. We've faced some severe train derailments recently, and we're continuously learning more about them. It seems that you might be suggesting this could speed up the rollout of the 900 megahertz network and possibly other bands, resulting in a larger expansion. Could you provide an update on what the rail companies are planning regarding the 900 megahertz activation and when they might begin using it? Also, any insights on the initial build cost and the timeline for deactivating the legacy spectrum would be appreciated.
Eric Brock, Chairman and CEO
Okay. So Tim, you're right, we believe that as we discussed at the National Conversation around rail safety, there are several factors at play, and we think this will boost spending on all technologies related to safety upgrades. It also has the added benefit of raising awareness about Ondas and private networks in general, starting with 900. However, we believe all the private networks they have will contribute to a long-term solution. Regarding the retirement of their legacy spectrum, they still have the deadlines we've talked about previously, which we consider important, set for 2025. As for the discussions happening here, we engage with the railroads daily. We also collaborate with the AAR and MxV Rail, which is a crucial partnership, and we are working closely with Siemens as well. There's a significant amount of activity in DC, and I'm sure you're aware of this too. Agencies like Congress, DOT, and the EPA are involved, and there is legislative activity specifically regarding rail safety. We're making efforts to ensure we are part of that discussion in DC to promote awareness of how these solutions come together. This legislation will likely introduce new industry requirements, potentially calling for more advanced technologies like hotbox detectors, which Stewart briefly mentioned during his presentation. This means not only densifying but also upgrading technology. We believe that networks will be essential to this effort. The positive train control initiative was a major undertaking for the rail industry, with the AAR estimating that it incurred billions of dollars in costs. That would not have been possible without the 220 megahertz network or a reliable wireless backbone, highlighting the value of what we're doing as an enabling technology and platform.
Timothy Horan, Analyst
So any update on the total cost for the initial 900 megahertz build out and when they would like to get that network up and running? Do you have any best guesstimate at this point?
Eric Brock, Chairman and CEO
No, I think that the network is a priority and has always been important. That's why you've seen the AAR involved; they negotiated the 900 megahertz swap and we've shared some language from the FCC report talking about safety technologies. The AAR is active in the industry, particularly in the 802.16 working group, and we've highlighted their contributions publicly. They're also involved in the rail lab, integrating our dot16 platform into various rail operations. While we outlined the total addressable market on our last call, we made it clear this is just the initial build, and there will be incremental builds that likely increase the overall market size. As we've experienced in our homes with Wi-Fi, once you have data capacity, you tend to use more of it. We started with one device and now have many, and I believe the total addressable market probably does increase. We don't need to make formal statements about that today, but it's likely that there will be an acceleration in technology upgrades, which requires robust networks.
Timothy Horan, Analyst
Great. And then can you give us a sense of the cash burn per quarter, the next few quarters? And do you have enough cash to make it to breakeven in your current model? Or how much more do you need to raise? Thanks.
Eric Brock, Chairman and CEO
We believe our cash requirements are modest, especially in relation to the opportunities we are pursuing, and are primarily focused on building working capital to support growth. We have access to various sources of capital, including non-dilutive options like prepayments or credit lines linked to our current and anticipated orders. Additionally, we mentioned joint ventures which can help cover some operating expenses as we expand the distribution of the Optimus platform. The equity markets could also be a potential source of funding. Overall, our cash needs are modest compared to the growth opportunities ahead and the strategic value of our technology, especially with significant customers and partners.
Timothy Horan, Analyst
Great. So lastly, I didn't really understand the answer to Mike's question on your operating expenses. I think they were close to $13 million in the quarter. You've taken some steps here. Can you talk about what operating expenses will be maybe in the first and second quarter? Yes, I just don't know the origin of magnitude on the expense reductions.
Eric Brock, Chairman and CEO
Yes, they'll be lower and probably to call it in the $11 million range for OpEx.
Timothy Horan, Analyst
Okay. Thanks a lot.
Eric Brock, Chairman and CEO
Yes. Yes.
Operator, Operator
The next question is from Mike Latimore with NCM. Please go ahead.
Mike Latimore, Analyst
I guess just two follow-up questions here. You talked about developing or working on artificial intelligence within your drone program. Can you just highlight a little bit more about what the end application is? Is it object detection? Is it insights and changes or just exactly what might the result of that investment be?
Eric Brock, Chairman and CEO
That's a great question. I'll ask Meir to provide some insight on it. I'm not entirely sure what specific points we want to discuss, as it seems you are specifically referring to the announcement regarding the Dubai Police. Meir, could you share details about our work with AI and how it relates to Optimus or the counter-drone system that the Dubai Police is involved with?
Meir Kliner, President, Ondas Autonomous Systems
Yes, I can say at a high level that we try to take the application to the next level of automation. We're talking about applications for the municipality to reduce response times by triggering and by having alerts if something changes in the picture, in the video, in the mapping, and things like that. And specifically to take the next level of the application to the next level of automation.
Mike Latimore, Analyst
Okay, great. And then what would be the analyst for the Dubai Police to further expand the use of your products throughout their city? Is it just kind of getting these first deployments up and running, or what gets them to sort of that next level of expansion?
Eric Brock, Chairman and CEO
Well, I would say there's plans to do this citywide, which they've talked about publicly. And Meir, maybe you can share a little bit more color on how we think this does work in the field and the things we're doing.
Meir Kliner, President, Ondas Autonomous Systems
Yes. I can say at a high level, without going into specifics about Dubai Police. The docking session has already been deployed throughout the city, providing real-time video via command and control, which can be managed remotely and operated automatically, transferring the video to the main command and control center, covering the entire city. It's important to note that one docking station can cover 80 square kilometers.
Eric Brock, Chairman and CEO
Yes. To that point, as we've discussed previously, the math surrounding the coverage and the areas being considered indicates 24 systems. We expect to share more information on this as the year progresses.
Mike Latimore, Analyst
Okay. Super. Thanks.
Eric Brock, Chairman and CEO
Great.
Operator, Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Eric Brock for any closing remarks.
Eric Brock, Chairman and CEO
Okay. Well thank you, operator. I want to just close the call by thanking you again for attending. As always, we do have a lot of work to do, so we're going to get back at it, and we look forward to keeping you informed of our progress. So have a great day, and thanks again.
Operator, Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.