Earnings Call Transcript - ONDS Q3 2024

Operator, Conference Operator

Welcome to the Ondas Holdings Inc., Third Quarter 2024 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 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, Ondas will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared 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 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

Thank you, operator. Good morning. I want to get started by welcoming you to our quarterly conference call. We appreciate the time you're spending with us and for your interest in our company. I'm happy to be joined today by key members of our leadership team, including our interim CFO, Neil Laird, Guy Simpson, the President and Chief Operating Officer of Ondas Networks, and Meir Kliner, President of Ondas Autonomous Systems and the Founder and CEO of our Airobotics Subsidiary. Now, let's turn to the agenda. We will begin the call with some brief comments highlighting recent business developments at both our Ondas Networks and Ondas Autonomous Systems business units. I will then hand the call to Neil for a financial review of our third quarter 2024 results. We'll then provide a business update for Ondas Networks in our OAS business units, where I will ask Guy and Meir to provide commentary around current business activity. Then we will wrap the call and open the floor for investor questions. I will start the call by saying simply, this is an exciting time for Ondas. Our hard work is translating into commercial success, and that is being reflected not only in the recently announced orders, but also in the maturation of the customer pipeline and the improving visibility for both OAS and Ondas Networks. This supports our belief that we will have a significant revenue growth ahead looking into Q4 and for 2025. The big news this quarter, of course, was the $14.4 million of orders OAS secured for our Iron Drone Raider and Optimis platforms. This signaled our entry into military markets and established our Iron Drone Raider system as a third revenue-generating technology platform in the Ondas portfolio. Further, the expansion into global military markets has dramatically increased the total addressable market for OAS, but more importantly, the serviceable and obtainable market that we can identify with customers today, which has also increased. I am incredibly proud of our team at OAS and their perseverance through this challenging time. Clearly, the conflict in Israel has disrupted operations from a financial standpoint, but our team continues to rise to the occasion to support their country while continuing to advance the business. This is truly exceptional, and that effort has translated into the largest booking quarter in the company's history. Further, the orders were received directly from a military customer, representing programs of record for both Iron Drone and Optimis in establishing Ondas as a prime vendor while also establishing pricing and margins for our high-performing autonomous drone platforms. We believe the Iron Drone Raider is a best-in-class autonomous solution from a performance standpoint with its capabilities in complex environments, unique hard-kill execution, reusability, and price point. This platform is positioned as a leading candidate to own the category for hard-kill counter UAS infrastructure. We further believe there is a significant global market for Iron Drone to protect from the growing threat of hostile drones. I see substantial expansion opportunities in the global defense market. In fact, we are seeing tangible engagement with additional military customers already, and those government-to-government marketing opportunities are supported by our initial military customer. In addition, the Optimis system will now be deployed to secure military bases and border checkpoints, demonstrating the exceptional capabilities of this market-leading system in high-value security markets. We believe the Optimis system was chosen for this critical security requirement due to its rugged, military-grade design and its unmatched reliability in performing autonomous operations. Further, this new program for Optimis entails OAS enhancing the functionality to allow for remote operations in complex, GPS-denied aerial environments. Our ability to meet these military requirements is a testament to our engineering expertise, which is demonstrated across both Optimis and Iron Drone. This expertise is highly valued by our customers. I would like to stay on Optimis for a moment. We see a steepening demand curve for aerial security and inspection services utilizing remotely operated autonomous drone-in-a-box systems. As we scale with existing customers for military and public safety applications, we see evidence that security officials and project managers are increasingly realizing our ability to satisfy the most demanding requirements to secure and protect high-value assets and locations. The work to establish American Robotics' scalable operations capability has advanced, and customer pipelines are maturing. We see specific opportunities in public safety, as well as the protection of critical assets, including ports and the protection of critical technology infrastructure, which includes data centers and semiconductor facilities. For Ondas Networks, I want to highlight progress on gaining clarity on the railroad's plans for the 900 MHz network. This is reflected in the strategically important order our distribution partner Siemens secured for Metra, Chicago's primary commuter rail system. This is a significant milestone, and we will support a system-wide upgrade of the 900 MHz network to the new A block for Metra beginning in the fourth quarter. In addition, we have gotten Siemens secured in an order for an expansion of a live dot16 network in the 900 MHz band with a Class I railroad in Chicago. This is an expansion of a trial network that has been operating with live traffic since the fourth quarter of last year and is now a new deployment phase with this rail operator. We expect this to result in broader deployment across Chicago for that railroad in 2025, with likely expansion from there. The activity with both Metra and this freight railroad operator in Chicago is an important development, and it clearly signals to the rest of the industry that Ondas Networks and Siemens have established a comprehensive deployment and migration plan to support adoption of the dot16 wireless standard by North American railroads and a new 900 MHz network. In short, we are demonstrating the robustness of the dot16 standard as we start 900 MHz upgrades in Chicago, the most complex railroad wireless environment in the country. In addition, we see a consensus emerging across our railroad customers regarding the use cases for 900 MHz that should lead to more system orders and deployments in 2025. Guy Simpson will expand on this increased transparency, but in short, we see the railroads using 900 MHz as both a primary and redundant or secondary network. In certain regions, railroads will migrate the legacy ATCS function to the new 900 MHz network. In other locations, legacy ATCS, also known as CTC, will move to the 220 MHz network. In situations where CTC is moved to the 220 network, the railroads plan to use the 900 MHz network as a backup system to host both CTC and positive train control applications. Either way, we are well positioned with a multi-purpose network hosting either primary train control applications or hosting CTC and PTC traffic as a secondary network. This demonstrates the value of our dot16 platform with increased capacity and flexibility that supports robust, general-purpose, and multi-purpose network hosting. In this instance, PTC protocols will be carried on 900 MHz. So, to wrap up the introduction, I see momentum building with both business units as we move through the fourth quarter. We should see a significant pickup in revenue as we fulfill the backlog at OAS, and we should also see additional orders enter the backlog over the balance of Q4.

Neil Laird, Interim CFO

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 larger commercial roll-outs. We expect significant operating leverage as revenues grow, though today's revenue levels do not yet cover our operating expenses. For Ondas Networks, revenues will fluctuate from quarter to quarter, given the uncertainty around the timing of customer activity in front of the targeted commercial roll-outs in the 900 MHz network and the development programs underway with Siemens and MxV Rail. Similarly, revenues at OAS are expected to vary from quarter to quarter and to normalize into a more predictable pattern as we grow our customer base and more of those customers enter fleet programs and recurring service revenue agreements in the United States and internationally. In the third quarter of 2024, revenues were approximately $1.5 million, as compared to approximately $2.7 million for Q3 2023. This was primarily a result of extended timelines at Ondas Networks related to the 900 MHz activity with the Class I railroads, partially offset by increases at OAS as we started to fulfill the purchase orders received during the quarter. Gross margin was $48,000 for Q3 2024, as compared to $555,000 for Q3 2023. Gross margin was 3% for Q3 2024, as compared to 21% for Q3 2023. The gross margin performance is due to the change in the mix of revenues in the third quarter of 2024, which included lower margin development projects as compared to product revenue with high gross margins in the prior year quarter, as well as certain fixed costs related to OAS service delivery. Gross margins can be volatile on a quarter-to-quarter basis due to low revenue levels and shifts in revenue mix between product, development, and service revenue. Operating expenses were $8.7 million for Q3 2024, as compared to $6.5 million in Q3 2023. Cash operating expenses were $7.1 million, compared to $7.5 million. Cash operating expenses exclude non-cash operating expenses for depreciation and amortization of $1.3 million in both quarters, and stock-based compensation of $0.3 million in the third quarter of 2024, compared to the credit of $2.3 million in the third quarter of 2023. The operating loss was $8.7 million for Q3 2024, as compared to $5.9 million for Q3 2023, reflecting the lower revenue and the one-time compensation credit in the prior year. Adjusted EBITDA loss was $7.1 million for Q3 2024, as compared to $6.9 million for Q3 2023. Now let's turn to the cash flow statement. We held cash and cash equivalents of $2.9 million as of September 30, 2024, compared to $15 million as of December 31, 2023. The nine-month cash provided by financing includes additional gross financing totaling $15 million, of which $6.95 million occurred in the third quarter. The $6.9 million included $4 million at Ondas Holdings via a registered direct equity offering to a single institutional investor, and $2.95 million at Ondas Networks via secured loans from Charles & Potomac. Cash used in operations during the first nine months of 2024 decreased by $2.7 million, due primarily to lower operating expenses because of the integration of American Robotics and Airobotics, and cost-saving actions, partially offset by an increase in inventory to support the purchase orders received in the third quarter of 2024. We expect cash utilization to improve in the fourth quarter. Improved cash efficiency comes from continued cost controls and operating expense leverage of our OAS business unit, given our expectation of a recovery in revenue and gross profit growth as we fulfill orders from the backlog beginning in Q4 of 2024. The company expects to fund its operations from the cash on hand as of September 30, 2024, proceeds from financing activities, gross profits generated from revenue growth, potential prepayments from customers for purchase orders, potential proceeds from warrants issued and outstanding, and additional funds that the company may seek through equity or debt offerings and borrowings under additional notes payable, lines of credits, or other sources. In terms of the balance sheet, as of September 30, 2024, Ondas Holdings had $27.8 million in convertible notes outstanding. And as mentioned previously, we had $1.5 million in convertible notes outstanding at Ondas Networks. We also had $1.45 million of non-convertible notes payable at Ondas Networks. We have been focused on maintaining liquidity to fund our growth plan. Subsequent to September 30, we have raised an additional $3.55 million of capital. This funding in the current fourth quarter includes $3.5 million via a convertible note at OAS, a transaction led by Privet Ventures and Charles & Potomac. The Privet Ventures is an investment vehicle owned by our CEO, Eric Brock. In addition, we've established a relationship with Clear, a working capital provider who provided $500,000 to Ondas Networks in October, backed by customer invoices. We expect to have additional liquidity via the Clear relationship to help support working capital needs as orders grow at both Ondas Networks and OAS.

Eric Brock, Chairman and CEO

Thank you, Neil. Now we will transition to a review of our business units and ask Guy Simpson and Meir Kliner to share updates on business development activity and operations at Ondas Networks and OAS. As I hand the call to Guy, I want to reiterate that we are encouraged by the increasing transparency from certain railroads who have begun to communicate network architecture plans and their vision for 900 MHz. Of course, we continue to push our railroad customers for visibility on network deployment timelines and orders for 900 MHz as we prepare for 2025. I have the utmost confidence that Ondas Networks wireless technology is critically valuable for these rail customers. Despite extended timelines, the opportunity in 900 MHz, as well as with other private networks for the Class I rails, in addition to global rail markets, remains substantial. Guy, please proceed.

Guy Simpson, President and COO of Ondas Networks

Thank you, Eric. Once again, I'm happy to be here this morning and to share with our investors the progress that Ondas Networks is making. In previous calls, I've talked about the challenges of working with the railroads' timescales and the general lack of visibility for their deployment plans. The good news is that in Q3, things have definitely improved. Our distribution partner, Siemens Mobility, received an order from Metra, the primary commuter rail system in Chicago, for a system-wide upgrade of their 900 MHz network. This project includes the migration of the network to the new A-Block channels and the introduction of 802.16 to support general-purpose IP applications. Siemens Mobility also received an order from a Class I railroad to expand a 900 MHz field trial, also in Chicago, that has been supporting live traffic for almost a year. As with Metra, this project includes migration and the deployment of 802.16 in the new 900 MHz A-block. This activity will start later this month. Multiple Class I railroads have expressed an interest in extending the new 900 MHz network from its primary use of transporting legacy centralized train control, or CTC, traffic, to providing a backup for the positive train control, or PTC, applications operating on the 220 MHz network. This strategy adds resiliency, redundancy, and diversity to critical railroad operations by eliminating single points of failure. Field trials of AirLink 802.16 products supporting the required IPCM messaging over 900 MHz are scheduled to start later this month. This recent activity not only validates the commitment the AAR has made to the FCC regarding the 900 MHz network buildout, but also that the value of a general-purpose network is now being recognized by the railroads. The successful integration of AirLink products into legacy 900 networks is a key milestone on the path to network migration. In Q3, we continued our support of multiple customers to achieve this critical objective. Beyond 900 MHz, we continue to execute on the new PTC data radio program with our partner Siemens Mobility on behalf of Amtrak. First prototype radios were delivered to Amtrak in Q3, and the development activity is on track to be completed in Q1 of 2025. We are working with Siemens Mobility and Amtrak to expedite the delivery of the first production PTC data radios in Q2 of 2025. We continue to work with Siemens in the UK on a new locomotive radio for the European market with key development milestones achieved in Q3 2024. We expect to deliver prototype radios in the next few weeks and are working with Siemens to identify and actively support the first field trials next year in Europe. In response to various unfortunate events in the rail industry and to support the safe operation of longer trains, the AAR has initiated a program to develop the next-generation head-of-train and end-of-train, or NGHE, solution. Ondas Networks has recently participated in a comprehensive technology bake-off at the AAR's MxV rail test facility in Pueblo, Colorado. During these tests, we successfully demonstrated the enhanced performance of the new 802.16T standard compared with legacy HOT EOT technology and other alternatives. Whilst the visibility of commercial orders for the 900 MHz network is improving, we continue to manage our expenses prudently in advance of substantial commitments. Our confidence in the application of 802.16 wireless technology in the railroad space is finally being rewarded. While there is still much work to be done, I remain extremely positive on our outlook with the railroads. Time and time again, we have proven the value of our technologies and expertise across multiple applications and opportunities. We are building momentum on multiple fronts and well-positioned to execute on the pent-up demand. Now I will hand the call back to Eric.

Eric Brock, Chairman and CEO

Thank you, Guy. I will now ask Meir Kliner to take the floor and update us on progress at Ondas Autonomous Systems. Meir’s comments will include an update on Iron Drone and Optimis activities with customers. Meir, please proceed.

Meir Kliner, President of Ondas Autonomous Systems

Thank you, Eric. Ondas Autonomous Systems had an outstanding quarter, positioning the business for long-term success. Our hard work in advancing platform development allowed us to generate a record bookings quarter with $14.4 million in purchase orders. This positive trend in bookings validates our decision to focus energy on the military, homeland security, and public safety markets and expand the market for both Optimis and Iron Drone. We will address the increasing global need to protect and secure critical locations, infrastructure, industrial assets, and populations. Airobotics is well-known for its ability to produce highly functional and, most importantly, highly reliable autonomous systems meeting the most rigorous and complex standards and requirements. We are providing not just industrial-grade solutions, but also military-grade. Our Iron Drone and Optimis dual-use technology platforms demonstrate our proven ability to produce built-for-purpose and scalable autonomous systems. Of course, this is possible because of the talent and experience we have built within our organization. I will give more details about these bookings shortly. During Q3, Airobotics’s primary focus was on continuing to advance the capabilities of the Iron Drone Raider, which included enhancing navigation systems to support operations in complex airspace. In parallel, we are working with our customers and partners on establishing standard operational and sustainment activities to support the deployment of Iron Drone as a security infrastructure. In addition, our Optimis Drone network operations with our local governmental partner in Dubai are expanding, and the network is extensively utilized and performing extremely well. We are excited to be at the forefront of public safety urban drone action, where once thought to be futuristic drone operations are now becoming a day-to-day reality. We are looking forward to hearing more good news from Dubai by the end of this year. We are also working on expanding our market reach into Europe and will perform demonstrations in the second half of November for defense, security, and critical infrastructure customers with our partner HHLA SKY at the port of Hamburg in Germany. In the U.S., American Robotics has successfully delivered a key contract with the United States Coast Guard for maritime emissions monitoring to support EPA Clean Port Initiative at the ports of Los Angeles and Long Beach as a prime vendor for a U.S. federal agency. American Robotics also advanced and performed multiple demonstrations of the Optimis system to key potential customers, showcasing its capability to remotely operate BVLOS drone fleets by leveraging Optimis FAA type certifications and the Castrol system. We see the American Robotics customer pipeline deepening and maturing supported by continued successful demonstrations. Indeed, American Robotics will have the opportunity during the fourth quarter to conduct follow-up demonstrations on-site with one of the largest police departments in the U.S. We believe AR customers are recognizing the unique capabilities of the Optimis system to meet the highest requirements in providing area security and intelligence for public safety, DOTs, ports and terminal operations, data centers, semiconductor facilities, and construction project management. In addition, OAS entered a strategic alliance with GenLab Venture Studio to develop mutual go-to-market models, leveraging their AI capabilities together with the best-in-class capabilities of the Optimis system in capturing for security and inspection applications and building the large data libraries required to develop sophisticated AI-driven data analytics tools. As I previously mentioned, we had record bookings for both the Iron Drone Raider and Optimis platforms. I would like to explain and provide details on these orders and how we will deliver these systems and fulfill the customer purchases. We received our initial order for Iron Drone Raider systems, which were deployed to demonstrate the capabilities in a controlled environment. Subsequently, we received an additional order for specific technical upgrades during August. Lastly, during September, we completed a third order for fleet deployment in multiple locations for this customer. These deployments are for live military activities defending borders, assets, and ground forces. These orders for Iron Drone totaled approximately $9 million. For the Optimis system, we received a significant order from a different division for the same military customer, which amounted to approximately $5.4 million. These Optimis systems are intended to provide perimeter and border security. We believe there are few, if any, systems comparable to Optimis that can deliver persistent availability and reliability and meet the environmental and complex aerial operations required for military and homeland security deployments. This order demonstrates our ability to address these requirements, and we expect this to support a large opportunity for military base and border security for this customer as well as for global defense customers, including in the United States. In short, our serviceable and obtainable market for both Iron Drone and Optimis has expanded dramatically in the last six months. We intend to expand our distribution capabilities to address the global military and homeland security markets for both Iron Drone and the Optimis system. We are looking forward to fulfilling the Q3 orders during Q4 and Q1 2025. As we deliver these systems, we are expanding success-based opportunities with this customer and many other governmental customers in the defense sector, which will be our focus during Q4 and into 2025. We will be advancing the required specific upgrades of our systems and focusing on executing operational deployments in multiple locations and implementing sustainment activities to support our customers and partners. We will also be working on securing follow-on volume orders and building our supply chain and services infrastructure to sustain our business growth. We are looking to capture new global defense customers leveraging these activities with our current customers. As I mentioned in the opening, we are witnessing strong utilization of our drones network in Dubai and expect to see more orders coming during Q4. We are looking forward to expanding this network and services it provides to new stakeholders and applications with AI technology and other cutting-edge capabilities. OAS will continue to promote its solutions in Europe with our partner HHLA SKY and more potential customers. We will drive the expansion of the Optimis system in the U.S. market, which is growing rapidly as more police departments and communities, as well as owners and operators of critical infrastructure and technology assets, realize the opportunity and benefits of fully autonomous drones.

Eric Brock, Chairman and CEO

Thank you, Meir. I want to take some time to share some context on the rapidly growing and evolving opportunity in public safety. For many years, public safety has been considered an attractive target market for drones for a very simple reason. Drones save lives. They save lives for both citizens and first responders themselves. Indeed, this market has always been a focus for Airobotics, and you can see that we are addressing the highest end of public safety in Dubai where we're deploying Optimis as drone infrastructure with our customer. Operations like those we support in Dubai are increasingly being described as DFR 3.0, which I will come back to. But first, some context. When responding to emergencies, first responders like police officers and firefighters are faced with many unknowns. How serious is the issue? What is the threat? How many people are at risk, and how many perpetrators are there? Are there weapons involved, and so forth? Not understanding these risks has consequences. When drones fail to arrive at the scene before officers, crucial issues ranging from car accidents to violent crimes can remain unaddressed. In the case of car accidents, for example, the absence of drones can lead to delayed assessments of the scene, hindering the identification of the most severely injured victims and slowing down the delivery of emergency medical services, such as ambulances. Without the aerial perspective, traffic flow around an accident might not be managed efficiently, causing further delays and secondary collisions, all of which creates real-world economic and social issues. In a violent crime scenario, such as an armed robbery or assault, drones provide a vital real-time overview, helping to track suspects and gather crucial evidence. Without this rapid response, police officers might miss critical moments that could prevent further violence or aid in apprehending suspects. These examples and countless more underscore the importance of timely drone deployment to enhance situational awareness and response effectiveness. So the drone as first responder or DFR concept evolved a number of years back as law enforcement and rescue organizations realized the benefits of equipping police officers and firefighters with manually operated tactical drones. We have seen many successful and growing implementations of drone programs around the country, and these organizations, their communities, and importantly, the folks in charge of municipal budgets have increasingly realized the value and scalability of autonomous drone networks. This is because attaching a piloted tactical drone to the dispatch unit doesn't shorten the response time, as the drone needs to be mobilized to the scene. For this purpose, a more strategic network of drones should be in place, allowing for shorter mobilization times by leveraging flight capabilities. This is now being called DFR 3.0 by some in the industry. As we see in Dubai, public safety organizations are looking for automated drone platforms that are highly reliable and capable of true, fully remote and scalable operations. The autonomous drone adoption cycle is accelerating as agencies see the huge value from drones in saving lives. The high level of autonomy unlocks scalable operations, which we believe will drive the next leg of growth in public safety. As drone infrastructure is deployed, municipalities are seeking to centralize the remote operating centers and provide services across multiple agencies. In this instance, police, fire, transportation, ports, and many other municipal agencies can be served by shared drone infrastructure across an urban environment that is centrally operated by the public safety organization. We can see the competition building around this use case as more and more drone companies are launching new drone box solutions. We are very excited to observe the market evolving around this application, not only because we have always known these are life-saving technologies and services with a positive impact on communities, but also because we have been working on this vision for almost a decade. To be very clear, our Optimis system holds one of the most promising solutions for DFR 3.0, and we believe major public safety and security organizations are recognizing this. We have already nailed it in Dubai, and with our FAA-type certification, we are ready to provide this platform solution in U.S. cities via American Robotics. Removing the human factor from drone operations is not an easy task. It requires deep technology and experience, which, of course, we have in spades. So DFR 3.0 requires scalable shared infrastructure that is proven and reliable. It requires full autonomy, scalable remote operations, 24/7 availability, and the ability to service multiple agencies across a drone network. We look forward to sharing more details on this exciting DFR market in the quarters ahead. Let's wrap the call now and summarize the outlook for Q4 and provide some context as to how and where the business will develop in 2025. We expect modest revenues for Ondas Networks in Q4, mostly driven by development programs. However, we continue to see a major financial opportunity, 900 megahertz and beyond, and are optimistic that railroad orders will emerge in 2025. For OAS, we see significant revenue growth beginning in the fourth quarter as we begin to fulfill the military orders announced in Q4. In addition, we expect to land additional orders at both Airobotics and American Robotics in Q4 and to build backlog for 2025. I believe the revenue recovery beginning at OAS this quarter will be strong and durable for both our Optimis and Iron Drone platforms. Demand for Optimis is expected from both existing customers in the Middle East and rest of the world, and a growing opportunity set in the United States with American Robotics. We are deploying Iron Drone systems integrated with the requisite command and control infrastructure in the field and are developing standard operating procedures and sustainment activities with our customers and partners. We expect combat success will result in volume orders for the Iron Drone platform and an expansion of the program. In parallel, we are preparing to increase production capacity, field deployment and sustainment capability, and expanded marketing to other defense and security customers globally. The opportunity to expand both Iron Drone and Optimis with our current customer, as well as with allied militaries, is substantial and likely to be additive to 2025 from an order and revenue standpoint. We believe we will demonstrate progress on the DFR 3.0 opportunity in the coming months, both with existing and new customers, including in the United States, which will also contribute to revenue in 2025. I want to highlight I am very happy with the new customer demonstration training in Remote Operations Center in Maryland that Tim Tenney and our American Robotics team have stood up. This is supporting the maturation of our customer pipeline and accelerating sales cycles for customers in public safety as well as those protecting critical assets such as ports and critical technology infrastructure, including data centers and semiconductor facilities. We expect to establish additional similar customer centers in the United States in 2025, specifically targeting military customers and in Europe targeting DFR ports and critical infrastructure. The need to protect and secure military locations, critical civil and industrial infrastructure and technology assets, and for public safety and emergency response capabilities continues to grow in importance. We have the product platforms and services portfolio to meet the needs of the highest end of these markets. Turning now to our liquidity position in the NASDAQ listing. As Neil said, we may seek additional funds through equity or debt offerings and or borrowings under additional notes payable, lines of credit, or other sources. Additionally, we expect non-dilutive funding to be available to support working capital from our new financial partner, Clear, for both Ondas Networks and OAS. We are grateful for Charles & Potomac’s ongoing support and investment, and I personally participated in the OAS convertible with a $1 million investment. We remain very bullish on the outlook for Ondas in our business units. In addition, we have requested an additional 180-day compliance period from the NASDAQ to regain compliance with NASDAQ's minimum bid price requirement. We believe we meet the requirements for an extension and will share an update on the request when we are notified by the NASDAQ. I want to now wrap our prepared remarks. This has been quite a year for Ondas where we've had to navigate issues ranging from rail timeline uncertainty to, of course, the conflicts in Israel. Our teams remain totally committed to our objectives, and we are positioned to deliver. We have now regained our momentum, and we expect to close 2024 on a strong note. Further, we are prepared for and very optimistic about 2025. With that said, let's see if there are any questions.

Operator, Conference Operator

We will now begin the question-and-answer session. The first question comes from Mike Latimore with Northland Capital Markets. Please go ahead.

Mike Latimore, Analyst

Thanks on the big orders in the quarter there. In terms of the Iron Drone prospect, Eric talked about demonstrating combat success could lead to more volume orders. Can you explain that a little bit more? Have you had combat success? How long would it take? If not, how long would it take to prove that out? I'm just trying to get a sense of when another major Iron Drone order might come in.

Eric Brock, Chairman and CEO

I'm going to ask Meir to comment on that. Thank you, Mike.

Meir Kliner, President of Ondas Autonomous Systems

Eric, do you want me to take it?

Eric Brock, Chairman and CEO

Yes.

Meir Kliner, President of Ondas Autonomous Systems

I can't say specifically about what's happening here in Israel, but as we mentioned before, we sell for IDF-specific Iron Drones, and we worked together with them in the last eight months.

Eric Brock, Chairman and CEO

To add on that, we are in the process of delivering on the orders and we've described the activities around the delivery, which is installing the systems infrastructure, integrating with the technologies around command and control, detection, etc. As we're doing that, we're prepared to be live in operations. We can't give specifics on timelines as to where we are in that process.

Mike Latimore, Analyst

Okay.

Eric Brock, Chairman and CEO

I will say this, Mike, and I just say this. We do expect orders in 2025, but we can't be more precise just yet.

Mike Latimore, Analyst

Okay, got it. Then on the DFR opportunity in the U.S., do you need to get any kind of additional certifications to be able to have autonomous drones kind of working in these use cases you're pursuing?

Eric Brock, Chairman and CEO

No, we just have to go through the regulatory processes that we go through with all the other work we're doing here in the U.S. And with that, it would be integrating into the operations with the police departments we work with. I'd say the DFR opportunity ranges from, in terms of the applications, very similar, whether you're talking about working with public safety or protecting critical assets like ports, data centers, etc.

Mike Latimore, Analyst

So you don't need any FAA sort of?

Meir Kliner, President of Ondas Autonomous Systems

Sorry, just to add on what Eric said. So after we got the type certificate from the FAA, the regular process is much more quicker and easier for us to deliver the first responder.

Mike Latimore, Analyst

Got it. Great. And then the last one, just on gross margin. I know you talked about this quarter having project revenues. What is kind of a good gross margin to think about on this $14 million of orders?

Neil Laird, Interim CFO

For the $14 million, it will be north of 50%.

Mike Latimore, Analyst

Got it. Thanks a lot. Sure.

Glenn Mattson, Analyst

Yeah, congrats on that quarter. And the strong orders on the OAS side in particular. Remind me, sorry, I'm jumping across a couple of calls. Would you say the $14 million of orders that most would be recognized in Q4 and Q1? Did I hear that correctly?

Neil Laird, Interim CFO

Yes.

Glenn Mattson, Analyst

Great. And then talking about the Dubai opportunity, can you remind us, I believe the total order announcement early on was 22 systems. Can you remind me how many you've shipped so far? Was it 22 by the end of 2025? Is that still kind of the timeframe? Can you just give us a sense?

Neil Laird, Interim CFO

Yeah, so we've shipped eight systems to the customer, and they're still anticipating 22 systems by the end of 2025.

Glenn Mattson, Analyst

Okay. There might be a surge in OAS revenue over the next couple of quarters, and new orders could also begin to come in, which would support the rest of the year. Do you expect the year to trend upward as it progresses, or do you think it will be more about front-loading the top line?

Neil Laird, Interim CFO

I think it's certainly going to start strong with strong year-over-year growth, and I think we can sustain those levels and build on them through the rest of the year. So you're right. We have existing customers that we expect to grow with and also growing with our military customer and new military customers. And we pointed to activity here in the United States with American Robotics, which will be additive as well.

Glenn Mattson, Analyst

Great. And nice to see some progress on the network side. Is there inventory that needs to be worked through at Siemens still at this point, or, you know, so will orders turn into revenue quickly, or will there be a lag in that process?

Neil Laird, Interim CFO

There'll be a bit of a lag with these initial orders we've announced, but as the railroads expand and more railroads get engaged, Siemens will be in the need of reordering. So, the order from, say, Metra just to be specific, will be fulfilled from the Siemens inventory. But from here, we see them starting to eat through that. So 2025, we'll definitely be getting reorders based on our current expectations.

Glenn Mattson, Analyst

Great. That's it for me. Thanks, and congrats again.

Neil Laird, Interim CFO

Thank you.

Matthew Galinko, Analyst

Thank you for allowing me to ask a question. It’s challenging to have a conversation this week without addressing the election. Could you provide a preliminary insight on how the shift in U.S. government control might influence the DFR opportunity in the U.S. and federal support for the domestic drone industry?

Eric Brock, Chairman and CEO

Yeah, so, Matt, I'll say I think the support is really across both aisles for DFR and more broadly for commercial and military use with drones and integrating that into our security infrastructure. So that's the short answer. I will say at the margin that we've seen with the new administration, a particular focus on supporting the domestic drone sector. But again, I think that's really broadly shared. But, as it relates to supporting U.S. producers, I think if I netted it all out, I'd say it's a positive for sure.

Matthew Galinko, Analyst

Got it. Thanks. I guess a follow-up to that. Is marketing Optimis to military in conjunction with Iron Drone an unexpected evolution for 2025? I know we've talked about it a little bit before, but it seems like it's come on relatively quickly. So maybe talk about where that's mapped against your expectations of Optimis’s development.

Eric Brock, Chairman and CEO

Well, Matt, I think the answer is yes to that. We've always viewed Optimis as very robust in not just industrial-grade, but military-grade system. But we've seen in defense markets, globally, it's moved towards deploying more and more autonomous technologies. So, that's happened probably a bit quicker than we've seen. And there's no question that the order we received in Q3 for Optimis for the specific use cases to protect military bases and border checkpoints was as we're looking at other global defense customers. So, I'd say, yeah, for sure, Optimis in 2025, as we're looking for global defense markets, it's probably coming a little sooner than we would have planned.

Matthew Galinko, Analyst

Got it. And final question for me, just the ability to scale Optimis production in light of that, maybe quicker build than that opportunity. Do you feel like you're in a position where you can source components and get the building done? Or what has to happen to get to that point?

Eric Brock, Chairman and CEO

So, where we are today, we feel good about our production capabilities. And I'll remind you that the Optimis system is a very high-end solution. So, what we're not doing is building 1,000 or 10,000 small disposable or tradable drones that are $2,000, $5,000, $10,000. Our system is robust premium. So, we think on the supply chain that we're in good shape. But with that said, we do have to prepare for expanded demand. And we also have to ensure that we're able to produce locally, particularly for the United States market. So, we're doing that work now to broaden our capabilities as it relates to supply chain.

Matthew Galinko, Analyst

Great. Thank you.

Eric Brock, Chairman and CEO

Sure. Thanks, Matt.

Timothy Horan, Analyst

Hi, guys. Thanks a lot. Eric, maybe just once again, can you give us a bit of an update on how much you think that rails need to spend to clear the spectrum? And your best guess on the timing. And I guess, can they meet the FCC deadlines? I know it's a lot of moving parts out there. And then secondly just a bit of an update on liquidity and how do you meet the requirements over the next year that you have? And then, just kind of any update on the stock listing what you guys need to do. Thank you.

Eric Brock, Chairman and CEO

Sure. Regarding deadlines, we need to be cautious. They have mentioned recently that they plan to meet the deadline for retiring the legacy network. To support this, we'll require some lead time since it's a substantial project, and we are collaborating with them on that. As for the total addressable markets, the TAM remains unchanged, with the same areas needing coverage in 900 megahertz. The base station infrastructure is established, and we are aware of the edge remotes needed for train control applications. We've noted that the railroads will utilize 900 as a primary network in specific areas and also as a secondary or backup network. This visibility is encouraging because it confirms their intention to build. We are still awaiting the point at which orders will begin to increase, but we believe that moment is approaching. If 900 is used as a redundant network, it could lead to greater opportunities with edge remotes since we would handle multiple applications, including PTC backup. On the liquidity side, I can only share what's in our prepared remarks. We've received strong support from Charles & Potomac at Ondas Networks. As we mentioned at our investor day in September, we have a multi-stage capital plan and have initiated the first phase, which included my participation in the offering with Charles & Potomac. We will continue to progress in this area. Lastly, regarding the listing, we've applied to NASDAQ for an extension, believe we meet the requirements, and expect to hear back soon.

Timothy Horan, Analyst

Thank you.

Eric Brock, Chairman and CEO

Sure. Thank you.

Carter Mansbach, Analyst

Good morning, gentlemen. First, I want to say three things. Thank you so much for the update on the listing, because that's been a level of angst for a lot of investors, and we look forward to hearing the update. Secondly, congratulations on the drone side of the business. $14.4 million is tremendous, considering where you guys have come from. And I think equally as important is the rails. So if you could give me just more in English, some color on what exactly you've achieved with the rail one. And last point on this is, from my knowledge being involved with the company for so many years, it seemed always that one rail goes, the others go with them because they're all interconnected. So would you agree with that statement? And would you agree with the general statement that 2025 on this as a whole is the beginning of the hockey stick for the company?

Eric Brock, Chairman and CEO

All right, Carter. Yeah, so I'll start with the last comment and agree with you. I do believe 2025 is the beginning of the hockey stick, and maybe it's even Q4. You are spot on when you're suggesting that the railroads are interconnected. And the first rails to move on upgrading a major network, it's always the hardest. But it's very important, the activity we've seen in Chicago with Metra and the other Class I railroad that we've discussed, because what they're demonstrating is not just that the system is robust and meeting mission-critical requirements. Also demonstrating that the customers have an operational and migration plan to deploy a new network. And that's really important because when you make these network upgrades, you have to do it in the context of rail operations continuing. So, this is what we've talked about in the past is the backwards compatibility, for example. And then the migration plan is how you put new base stations in, make them backwards compatible with the remote radios. And then you continue to go, and the railroads continue their operations. So I think you're going to see as we're going into 2025, there's going to be a lot more public conversation about this in the industry because it's actually going. And this is something that we've been working on for the last five years. But when you see action in the field, things change.

Carter Mansbach, Analyst

Okay. Well, guys, thank you so much. And I really appreciate the update. And congratulations on all the developments. 2025 should be very interesting. Thanks again.

Eric Brock, Chairman and CEO

Thank you, Carter. Thank you.

Operator, Conference 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. Thank you, Operator. I'm just going to close the call by simply thanking everyone again for attending. We have a lot of work to do and we're going to get right back at it. So in the meantime, we'll stay in touch, but we'll be talking soon. So, thank you very much. Have a great day.

Operator, Conference Operator

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