ONDS - NASDAQ

Welcome to the Ondas Holdings, Inc. Second Quarter 2024 Conference Call. All participants will be in listen-only mode. [Operator Instructions] Before we begin, the company would like to remind you that this call may contain forward-looking statements. While these forward-looking statements reflect Ondas best current judgment, they are subject to risks and uncertainties that could cause actual results to differ materially from those implied by these forward-looking statements. These risk factors are discussed in Ondas periodic SEC filings and in the earnings press release issued today, which are both available on the Company’s website. Ondas’ undertakes no obligation to revise or update any forward-looking statements to reflect future events or circumstances, except as required by law. During this call Ondas will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with general 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 presentation over to Eric Brock, Chairman and CEO. Please go ahead.

Thank you, operator, and 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; Meir Kliner, President of Ondas Autonomous Systems, and the Founder and CEO of our Airobotics subsidiary; and Tim Tenney, CEO of American robotics. Let's turn to the agenda. We will start the call with some brief comments highlighting recent business development 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 second quarter 2024 results. We will then provide a business update for Ondas Networks and our OAS business units, where I will ask Guy, Meir and Tim, to provide commentary around current business activity. Then we will wrap the call and open the floor for investor questions. While we continue to progress critical customer activity during the second quarter positioning Ondas for long term growth, I will begin the call by acknowledging the disappointing start to 2024 from a revenue perspective. While this was consistent with expectations we set at our last call, it is nonetheless disappointing to you as well as to me and our team. Extended timelines relative to our expectations for railroad deployment plans and 900 megahertz remain an issue, and the impact from the Gaza war, which created inventory, production and other bottlenecks, served to push out customer and business development activity at both Airobotics and American Robotics. Nonetheless, we did achieve important technical and operational milestones across the business units, which demonstrates that we are positioned for long term success driving adoption of our technology platforms across the large markets we address. Focusing initially on Ondas Networks, I want to highlight that we have completed important systems integration efforts in the 900 megahertz network. Two customers, which include a Class I railroad in Chicago and a commuter railroad in the southwest, are operating live Airlink wireless networks at 900 megahertz. In addition, we have executed a successful field trial with a third customer, a major transit authority in the Midwest. Due to this work, our distribution partners secured the first commercial order for ATCS in the 900 megahertz band during the second quarter. In addition, we expect both the Class I Rail and the transit rail operator, I mentioned, to submit purchase orders for area-wide deployments, both in Chicago, which would take us to 3 area-wide Airlink deployments in the second half of 2024. We are happy to see this commercial acceptance as this further validates our dot16 technology as a platform for the new 900 megahertz network. Guy Simpson will share more details on our field operations and pipeline engagement with both the railroads and our partner, Siemens, as well as the progress we are making on advancing the 220 megahertz PTC data radio, which we are developing on behalf of Amtrak and the Northeast Corridor. While the Gaza conflict was disrupted from an operational and financial standpoint, I am proud of how our team at OAS rose to the occasion to support their country and continue to advance the business. While the situation remains difficult, the stakes remain high, and the work we are doing is essential. That exceptional effort included amazing work at Airobotics to accelerate the productization of our autonomous counter-drone platform, the Iron Drone Raider. As we said on our last call, the Raider is a home-run product which has benefited from an intense capability upgrade program, in partnership with our customers, to meet the urgent needs to protect the homeland. We have advanced the Raider product specifications to meet cutting edge military requirements, which include mobility, autonomy and precision. Those capabilities are enabled by the integration of sophisticated technologies, including onboard sensors and AI-driven software algorithms that allow for navigation and high-performance levels in complex GPS-denied aerial environments. In addition, we have been able to perform extensive testing in real-world conditions to validate these capabilities. We have satisfied those requirements, which allowed us to secure 2 significant customers for Iron Drone with initial orders. One of those orders was provided by a large global defense vendor and the other, a direct purchase from a major military end customer. The purchase by the military end customer was a particularly significant event for the company, establishing Ondas as a prime vendor with locked in pricing in economics for our high-performing counter drone platform. This morning, we announced a second order from our initial military customer, which is funding an expansion of our program introducing the Iron Drone Raider into live, security and combat operations. This order will fund continued system integration and enhancements as well as certain sustainment activities. We expect demonstrating combat success in the coming months will result in volume orders for the Iron Drone platform. In parallel, we are preparing an increase in production capacity, field deployment and sustainment capability, and expanded marketing to other defense and security customers globally. Now I want to put the Iron Drone success into its proper context. And that is this, we are establishing a leading position in the counter-drone market at Ondas. 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 and price point. We 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. The emergence of the defense sector as a material growth vector for Ondas cannot be overstated. It demonstrates the true dual-use nature of our technology platforms, and results in a massive increase in not only the total addressable market, but also drives a much higher Serviceable and Obtainable Market, or SOM. As we moved into the second half of 2024, we are seeing broadening opportunities at OAS. The demand environment for aerial security platforms like Optimus and Iron Drone is strengthening, and we believe we have entered a significant and durable upcycle, supporting our long-term business plan and value creation opportunity. While Iron Drone has gotten a lot of attention as of late, let's also highlight our business development activity with American Robotics, as we open a large U.S. market for our services and technology platforms. American Robotics announced a landmark deal with the U.S. Coast Guard. We garnered a fixed-price contract for a program designed to perform emissions monitoring at the Port of Long Beach. This is in support of the EPA Clean Ports initiatives intended to improve air quality. The service we provide is consistent with certified solutions worldwide, as maritime regulations around air quality are uniform globally, and we believe it's the first time the U.S. Coast Guard has contracted to this capability. It is important to emphasize that while this is an initial pilot, it is not an experiment. This is a fully operational program, and vessels that violate air quality limitations will be held accountable by the Coast Guard. We believe this solution is properly architected and can develop into a big opportunity for American Robotics, Tim will share more details. With the focus turning to defense, military and homeland security, remember, both the Optimus and Iron Drone platforms are dual-use, targeting huge commercial and government markets as well. We expect existing customers to grow their Optimus suites later this year, while the pipeline for new customer engagement is both expanding and maturing. The pipeline now includes military customers. I'm also pleased with significant fleet opportunities we see in the United States with American Robotics, where we are engaged with public safety departments, and operators of critical industrial and technology infrastructure and assets. We expect to have more to share in those markets as we move through the second half. So to wrap up the introduction, the weak first half revenue belies the value we are building with customers across our technology platforms. We do have work to do to outline the 900 megahertz deployment plans with customers, and we will work hard to secure those build-out plans. At OAS, we see the commercial adoption cycle for Optimus, reengaging in a huge new product opportunity for Iron Drone. This will lead to a material recovery in revenue in the second half of 2024. I will now hand the call to Neil to provide the detailed second quarter financial update. Neil?

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 rollout. 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 rollouts in the 900 megahertz network, and the development of 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, more of those customers enter fleet programs and recurring service agreements in the United States and internationally. In the second quarter of 2024, revenues were approximately $1 million as compared to approximately $5.5 million for the second quarter of 2023. This was primarily a result of extended time lines at Ondas Networks related to the 900 megahertz activity with the Class I Railroads, and supply chain disruptions connected to the Gaza war at our OAS business unit. Gross profit was negative $190,000 for Q2 2024 as opposed to $3.1 million for Q2 2023. Gross margin was negative 20% for Q2 2024 as opposed to 56% for Q2 2023. The gross margin performance is primarily due to subscale operations, given the low revenue recorded in the quarter relative to the recurring cost of services provided, as well as, revenue being primarily typically low-margin development programs. Gross margins can be volatile on a quarter-to-quarter basis due to low revenue levels and shift in revenue mix between product development and product development and service revenues. Operating expenses decreased to $8.1 million for the second quarter of 2024 as opposed to $11.6 million in the second quarter of 2023. The sharp drop in operating expenses was primarily due to strict controls on cash expenditures and decreased R&D activity, both at Networks and OAS. This decrease in operating expenses emphasizes the ongoing benefits from the restructuring of our Ondas Autonomous Systems business unit in connection with the integration of American Robotics and Airobotics, after the Airobotics acquisition closed in January 2023. The company narrowed operating loss to $8.3 million for the second quarter of 2024 as compared to $8.5 million for the second quarter of 2023. Adjusted EBITDA loss was $6.7 million for Q2 2024 as opposed to $5.6 million for Q2 2023. And now let's turn to the cash flow statement. We held cash and cash equivalents of $5 million as of June 30, 2024, as compared to $15 million as of December 31, 2023. The first half cash provided by financing includes an additional gross funding totaling $8.5 million. Cash used in operations during the first half of 2024 decreased by $5.6 million due to -- primarily due to the lower operating expenses discussed just now, as well as lower investment in working capital as we collected receivables from the higher revenues in the previous year. We expect cash utilization to improve significantly as we move into the second half of 2024. Improved cash efficiency comes from both continued cost control and operating expense leverage at our OAS business unit, given our expectation of a recovery in revenue and gross profit growth in the second half of 2024. As noted, we ended Q2 with $5 million in cash. As of June 30, 2024, we had $29.2 million of convertible notes outstanding. As we previously stated, it is our objective to equitize these notes by using shares to retire the note side of our monthly amortization, or to see these notes convert entirely to equity prior to maturity. I will now hand the call back to Eric.

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. We will also ask Tim Tenne to share comments regarding American Robotics and the outlook for OAS in the United States. As I hand the call to Guy, I want to reiterate that I have confidence in our ability to grow an important business at Ondas Networks as we deploy wireless technology that is critically valuable for the rail customers, and the large industrial vendors and emerging MC-IoT technology ecosystem. While timelines have extended, the opportunity at 900 megahertz as well as with other private networks for the Class I rails, in addition to global rail markets remain substantial. Guy, please proceed.

Thank you, Eric. Once again, I'm happy to be here this morning and to share Ondas Networks updates for our investors. Following on from previous calls, I will provide an incremental update on 900 megahertz network upgrades and migrations. Although progress towards wide-scale deployment has been slower than we would like, there have been some significant milestones recently. Our distribution partner, Siemens Mobility, received the first commercial AirLink order for a system-wide upgrade of the commuter railroad network in the Southwest. As a reminder, Siemens AirLink products are powered by our FullMAX software-defined networking platform. This network is now in full live operation using exclusively AirLink radio products and the progressive migration to 802.16 operation in the A block is underway. Furthermore, this migration supports the introduction of new IP applications using the same 900 megahertz network infrastructure. This is a key benefit of 802.16 technology in creating general purpose networks that are flexible, expandable and allow for the adoption of new operating and safety technologies. This is unlike the legacy application-specific networks that are capable of only a single use case. Our systems integration activity with the Class I Railroad in Chicago continues, with AirLink products supporting live network operations. We are currently planning the next phase with this customer, which we expect to complete in the second half of 2024. Also in Chicago, we have completed the establishment of 3 discrete labs in which a transit customer is evaluating dot16 technology and planning for field trials. We expect our distribution partner to receive an order for a system-wide upgrade in Q3 2024. Our work with the AAR and in particular, its wireless communications Committee, or WCC, continues. As reported in the last earnings call, the AAR has repeated its public commitment to the 900 networks migration and the deadlines imposed by the FCC. They have also restated the critical role of dot16 as being key to their future network plans. The successful integration of AirLink products into legacy 900 megahertz networks is a key milestone on the path to network migration. In Q2, we continued our support of multiple customers to achieve this critical objective. The introduction of new dot16 applications helps to reinforce the value of a general-purpose network being created as part of the migration to the 900 megahertz A block. We are working with multiple customers to integrate a variety of IP-based solutions in parallel with the legacy critical train control, or CTC application. In one example, the 900 megahertz network can be used as a complementary and redundant path of positive train control applications. Key to securing further commercial orders from the railroads is to work within their standard procedures. Railroad budgets for 2025 will typically be determined in the second half of 2024 and finalized in Q4. And we are working with our distribution partner to secure orders. Of course, we are also continuing to pursue opportunities to capture orders within 2024 budgets. We are executing on the new PTC Data Radio program for Amtrak and the first prototypes have recently been delivered for evaluation. We expect the development program to be completed in Q1 2025 and commercial deliveries to start in Q2. We continue to work with Siemens in the U.K. on a new locomotive radio for the European market with important development milestones being achieved in Q2 2024. The delay in commercial orders for the 900 megahertz network has created pressure on the networks business. We have taken specific actions to manage expenses, including headcount reduction and a sharp focus on direct revenue-generating activities. I remain extremely positive on the outlook for our dot16 wireless technology with the railroads. There is little doubt that new network investment is required and that we have proven the value of our technology and capabilities. I am hopeful that as the railroads move through their 2025 budgeting process, we will receive more clarity in the coming months in terms of orders and deployment plans for 2025. Now I will hand the call back to Eric. Eric?

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 our intensive engagements with customers. Note that as it relates to the iron Drone Raider, there are certain technical and operational details that are considered sensitive, which we aren't able to share at this moment. Though Meir will give you a good feel about what makes Iron Drone special, and the advancements we have made with customers and in the commercialization of the Raider. Meir?

Thank you, Eric. During Q2, we continued to witness strong growth in demand for our unmanned systems and solutions in the defense and online security markets. The ongoing conflicts and events worldwide are underscoring the significant role of unmanned area systems, particularly in low altitude areas for both offense and defense missions. Almost every organization worldwide that is involved in national security is gearing up their use of drones for various missions and seeking solutions to protect against outside drone attacks. Ondas is well positioned to respond to this growing demand, offering revolutionary technology and unmatched operational readiness. Both the Optimus system and Iron Drone Raider have essentially no competitive alternatives that offer equivalent capabilities to operate continuously in both civil and military environments even under our weather condition and limited access to infrastructure, such as GPS, internet and cellular networks. Airobotics' primary focus during Q2 was on enhancing the capabilities of Iron Drone Raider to meet the urgent needs of our customers in these military environments. We have succeeded in advancing and showcasing the capabilities of the Iron Drone Raider system and have already secured both a global defense entity and a major military organization as customers. We have also secured the first order for the deployment of the Iron Drone Raider in a combat environment, as we recently announced. We are advancing our Optimus system inventory build plan and believe that the Optimus system will be required by existing and many additional customers due to the growth in the defense markets. Our teams in the U.S. and Israel are working on advancing the Optimus system configuration to address the needs of defense and homeland security customers. We look forward to sharing more news about the new opportunities with the Optimus Systems, soon. In the U.S., American Robotics secured a fixed price contract with the U.S. Coast Guard for emissions monitoring at the Port of Long Beach, and further developed our customer pipeline for Optimus Systems in U.S. governmental sectors. American Robotics hosted several successful demonstrations and the new vision and operational center in Baltimore, showcasing its unparalleled capabilities in Beyond Visual Line of Sight phone operations and automation capabilities. As I previously mentioned, many security organizations worldwide are seeking solutions to protect against outside drones. I would like to take a few minutes to elaborate on the Iron Drone Raider, it's automation features and advantages. The Raider Drone launches from a designated protected storage, this storage can host 1 to 3 drones, keeping the Raider Drone hot and ready for a quick launch. It's crucial to have the drones ready for emission as the interception window of opportunities is typically limited. Deploying Iron Drone system is a cost-effective solution compared to deploying manual or automated machine guns, missiles and expensive laser systems, which may not always be applicable as they can cause more collateral damage than the hostile drone itself. Once the Iron Drone Raider receives an estimated location of the target, typically from a radar or another detection system, the Raider automatically launches from its pod and starts flying to this estimated location. This flight is entirely autonomous and is based on an advanced system that we have developed that integrates designated hardware with AI models and optical flows. During the flight, the Raider uses its build in thermal camera to search for and find the hostile drone and recognize it with its advanced AI software. We have invested significant efforts in training our algorithms to recognize different types of drones under various operational conditions. After autonomously detecting the target, the Raider Drone begin to track it and fly towards a meeting point. The Raider uses its guiding camera, computing power and onboard micro-radar to calculate a flight route for interception, maintaining an optimal and close-range position from the target. This stage requires fast and robust computing and highly responsive motor configuration to be able to maneuver autonomously with the target. The Raider than intercepts the target by operator command with a designated ballistic net. The net can be attached to parachute to reduce collateral damage if operating in over populated areas. Now in Q2, Airobotics secured a purchase order from a major defense company for the Iron Drone Raider. In addition, we recently announced Onas received an initial order from a significant military customer to provide the first systems for operational deployments, adding in the protection of military unit for the borders and other critical assets from hostile drones. And today, we announced that the military customers has expanded the program via a second order. We are concentrating on progressing this order through a multi-stage structured world map, building a supply chain and service infrastructure for sustainment while working on demonstrating the system and capturing new global defense customers. We anticipate additional volume orders in the second half of 2024 based on successful combat operations. Airobotics continue to expand operations with a local governmental entity in Dubai, supporting the world's first drone network infrastructure for public safety and other public services. We have secured and renewed and expanded service agreement for the support and maintenance of the Optimus Systems fleet deployed in Dubai. The deployed fleet of Optimum System has been extensively utilized by the local government entity. This initiative is expected to continue with the aim of achieving a fleet of more than 20 systems by the end of 2025. We are expanding our business in the UAE with additional deployments and locations. During Q2, we continued our market reach activities to expand into Europe, addressing this through reseller partnerships with HHLA Sky and C-Astral Aerospace in Germany, Slovenia and other European countries. I will now hand over the call to Tim Tenne, CEO of American Robotics to provide an update on the business achievements we are making at American Robotics.

Thank you, Meir. We have just completed the buildout of our new demonstration training and operations center, which was launched via a grand opening event in June at our Baltimore County, Maryland headquarters. We were very excited to see the positive reception of local, state and federal leadership to include the Deputy Regional Administrator for the Federal Aviation Administration, as well as many other dignitaries. The launch has already paved the way for increased opportunities as we have seen large municipal, state and other potential customers come and provide actionable and positive feedback on the products, location and operations. This has led to increased demand for the deployment of the Optimus system with potential customers in both government and commercial segments. We are also pleased to share that American Robotics landed an important strategic win with the U.S. Coast Guard by securing a fixed price contract for a program designed to perform emissions monitoring at the ports of Los Angeles and Long Beach. The aerial collection of data via specialized and certified payload will allow the EPA in U.S. Coast Guard increased capability that increases the compliance of vessels entering U.S. ports in alignment with the EPA Clean Ports initiatives. Compliance with the global standards around maritime emissions is intended to improve air quality. Being selected by the U.S. Coast Guard for this critical and complex operation continues to prove that both commercial and government customers trust American Robotics to provide the right capabilities and solutions. It's important to emphasize that this is being treated by the U.S. Coast Guard as an initial operation. Given the importance of this mandate, we are confident this will only grow as a requirement for the EPA and U.S. Coast Guard. We believe that this has the potential to develop into a much larger opportunity for American Robotics with the possibility of a program of record for persistent inspection across all major U.S. ports. We are executing the program over the next couple of weeks, and we look forward to sharing more details in the future. American Robotics is also advancing its go-to-market plans in U.S. defense and security markets with both Optimus and Iron Drone. We demonstrated our Optima system to key customers, which included public safety as well as a major technology infrastructure provider in Texas. This demonstration showcased its capability to remotely operate drone fleets Beyond Visual Line of Sight via the leveraging of Optimus FAA type certification and the Kestrel system. We also successfully hosted demonstrations for key potential customers with the Kestrel system. An airspace monitoring system comprised of active and passive technology that is fused with air traffic situational awareness software. This system satisfies regulatory detect and avoid requirements, enabling full autonomous and remote Beyond Visual Line of Sight operations. We anticipate new opportunities that will come into effect during the second half of 2024, and I look forward to keeping our investors informed on these activities. I will now hand the call back to Eric.

Let's wrap the call now, summarize the outlook, and provide context for where we are and where we are going. We're going to continue to hold off on providing a formal outlook for 2024. While we expect modest revenues for Ondas Networks in the second half, mostly driven by development programs, we continue to see a major financial opportunity in 900 megahertz and beyond. Recall from our last call, public comments made by the AAR in May and June suggest the Railroads are intending to build out the 900 megahertz network. And it also suggests they will have some urgency. We are working hard to drive visibility on time lines around 900 megahertz, and we and our partner are asking for orders. In addition, the Railroads typically complete budgets in the October and November time period, as Guy stated, we believe that will help support clarity for the outlook in 2025. We have made it clear customers that we need ordering plans well in advance to fulfill deployments, which we expect to occur in 2025. For OAS, we see a significant recovery in revenue beginning in the second half, and I believe the recovery will be strong and durable in the coming years, supported by demand from Optimus from both existing customers in the Middle East and rest of World, and a growing opportunity in the United States with American Robotics. We also believe the Optimus platform has significant potential with military customers, and this is now part of our customer pipeline. 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 from a performance and reliability standpoint. To that end, our new customer training and demonstration center with American Robotics in Maryland is allowing us to efficiently engage customers and is likely to accelerate sales cycles. A brief word about the U.S. market and American Robotics. In recent quarters, we have noticed a notable maturation of the U.S. market from an end customer standpoint. Commercial customers realize the value of the drone for aerial security and intelligence are improving their expertise in integrating drones into their operating environments, and are securing budgets for expanded operations. Public safety may be the best example where demand is booming, and many public safety departments are looking to scale Drone as a First Responder, or DFR programs. We are seeing significant interest in Optimus for high-end use cases, where markets are most mature and require safety and advanced autonomy, have high system utilization demand, and most of all, require proven reliability. We believe Optimus is in its own class as an industrial and even military grade platform to meet these requirements. Optimus is still new to the U.S. and with our new Baltimore location, we are seeing the most sophisticated users of drones indicate significant interest in our platform as well as our ability to integrate safety and regulatory solutions to support field deployments and flight operations. We will look to leverage that with comprehensive programs designed around scalable fleet operations with American Robotics. I am optimistic we will be able to share updated proof points as we move through the second half with Optimus and AR. I want to also note that we continue to work on funding plans to address our liquidity position. We may seek additional funds through our equity or debt offerings and/or borrowings under additional notes payable, lines of credit or other sources. We noted in the earnings release that Charles & Potomac has invested $1.5 million via Senior Notes in Ondas Networks. Of course, we are grateful for the continued support of Charles & Potomac I believe we have tremendously valuable technology platforms and have both demonstrated product market fit with customers and proven we can deploy these technologies with attractive unit economics. I believe there are experienced defense, industrial and technology partners who see that value. Our objective is to properly capitalize the businesses and support the focused business and financial plan we have created to operationalize, enable and enable the scalable expansion we are working hard at driving. We also plan to hold an Investor Day in the first half of September, where we will focus on Ondas' Autonomous System. The event will take place at our Baltimore location, where we will provide system demonstrations, as well as, a detailed overview of our business plan with an in-depth look at the financial model and outlook for OAS. We will share details and logistics next week. I encourage our investors to make the trip to Baltimore for this, though we will also offer a live broadcast of the event. So I will close by saying the outlook remains very positive for Ondas. Ondas Networks is taking longer than we want, but we have the dot16 platform solution and are committed to delivering for customers. We will get there. Our drone businesses are poised for an inflection point as we recover from war disruptions. We expect to deliver on demand for Optimus and, of course, capitalize on the exceptional opportunity with Iron Drone as we introduce this platform and capture a new revenue stream. I believe we will have a strong second half and have an extremely bright future. With that, let's see if there are any questions. Operator?

[Operator Instructions] Our first question comes from Glenn Mattson from Ladenburg. Please go ahead.

Yes, thanks for taking the questions. First, on the Networks business. Could you kind of just give us a better sense of the scope of some of these things, you talked about the trends of the authority in the Northeast valuing dot16 and you expect a system-wide upgrade order potentially in the third quarter? There's the first commercial order of AirLink live operations of 802.6, migration leading to new IP applications being deployed. Can you just kind of help us understand some of the, some of the size and scope of the best you can as far as, from what you know right now in terms of the magnitude? And then maybe you can frame it along the lines of, like, is there the scope of work that you expected, say, six months ago versus where you are today in relation to the migration plan for Q3 '15 or whatever, where we are in terms of how far along on track we are and all that kind of stuff? Thanks.

Sure. Thanks for the question, Glenn. So what we're talking about with these three customers that we're active in the field with are what we're describing as area wide networks. So these are smaller deployments and they're going to be largely fulfilled out of Siemens inventory. And as we're doing that, we're working with customers on the broader deployment plans across wider systems. So a little more context, as we said, two of those three customers are transit operators, and of course, their footprints are going to be much smaller individually. Now, transit as a whole, there's a lot of territory to cover. But specific transit customers are typically based in city environments, right? As opposed to the Class I freights, which collectively amongst the six freight operators, cover the entire country. So what we're trying to do is use these proof points, show the deployment activity, demonstrate how we deploy the network, how it's installed and operated and maintained, and as we're doing that, working with the customers on these broader wide area deployments across their systems.

Glenn, maybe I'll just say Yes, on the scale.

I'm sorry to interrupt, but you did ask about scale. And of course, we think this is a big opportunity. We've given market size information at least a couple of times around the TAMs for 900, which we think is over $400 million, and a good chunk of that, the obtainable market out of the gate here is the initial build out of the new 900 MHz network, which we think is half that. So obviously we continue to have a big opportunity and what we need to do with these customers is just drive them further down the path. And we do believe that the budgeting process that they're going through now will be providing for the beginning of deployments.

That's helpful. Thanks. On the OAS side, the UAE was a big part of the kind of back half, I think, projections and everything. And it sounds like you guys continue to make progress with them. You talked about this service arrangement that you've added stuff. Can you just talk about the potential for further deployments in the second half? Do you still expect that? And is it the same pace as you previously had expected?

Yes, certainly. So we have talked about our government customer, which is a public safety group in the UAE deploying fleets across the city of Dubai. They have publicly said that they intend to deploy 22 systems by the end of 2025. And that is a plan that they reiterated multiple times, including in the first half of this year. Today we've deployed about eight systems with them and we do have, and we've been expanding the services capabilities around that to support the broader network build out. So we expect them to come back with a significant order in the second half, which is consistent with what we've seen in the last couple of years. In addition, I want to highlight that we are really building three revenue streams now. Optimus has really started to get traction in the Middle East and rest of world. Of course, we've described some of the activity we've had on the commercial side with American Robotics. I do think we're going to get at least a win or two here in the U.S. in the second half. And the customers that we're working with in the U.S. are substantial, and do have the capability, and I would say the intent, if we begin deploying with them to build fleets. So I do think we've got some activity here with AR. And then we have a third revenue line, which is starting to mature, clearly, which is Iron Drone in the military sector. So I do think we're setting up for really a strong recovery after some disruptions that I referred to in our comments that held us back a bit in the first half.

That's great. And then I guess, last, the U.S. government has kind of been on this initiative a little bit to kind of help build the industrial drone manufacturing and production base given the realities of what's going on in the world. And so can you just talk about, generally speaking, the level of support you see in terms of their interest in the kind of supporting you amongst many of the players that are out there? You talked about some new military orders and things like that. So maybe just a little more commentary on the general backdrop versus as you see it?

Yes. Let me kind of keep a high level at least as I start to discuss this. So there is major support coming, really from all levels of government, both federal and specifically for DoD and DHS, but not limited to that. You see what we're doing here with the Coast Guard and the EPA, for example. Understanding -- the government is clearly understanding the value of drones as tools for security and inspection and of course, defense and security as well. So -- and that's both on the offense and defense. And then of course, we're typically on the security side. And as they do that, they're putting a lot of dollars to work and building programs and ecosystems to support not just OEMs who are developing and deploying these technologies for government applications, but they're also taking some great pains to help support any ecosystem. And what I mean about the ecosystem is the supply chain, the production capacity, the services capabilities and even the regulations. And all of these are interrelated, and we can see support on all levels. And as that support comes and you see the intentions of the federal government, and it does come down to some state and local activities, some very specific to what we're doing. What I am seeing is that's encouraging in a big way the private sector to amplify that investment and demand signal that's coming from the government. So we think broadly, there's a big tailwind here for what we do. And I do believe that we're benefiting in a big way because what we're bringing is a very special unique technology that's valuable.

[Operator Instructions] Our next question comes from Jim Powers, private investor. Please go ahead.

Yes, I'd like some color on bandwidth allocation for the European Union to address that TAM. Is there a block -- a single block of frequency available or will it be fragmented for the rail?

So the opportunity in the European Union, and just, by the way, we do have some activity that's specific to development programs with our partner, Siemens. But I think the question is more broadly about what the opportunity is. And I'd say, in a lot of ways, it's very similar to the U.S. where Railroads and other critical infrastructure industries who are operating critical infrastructure and assets over extremely wide fields need to use low-frequency band networks that are private because it's mission-critical. So there's a huge installed base in Europe that looks a lot like what we see in the U.S. And we do see opportunities to bring our technology there. I will say where it differs a little bit is that the public infrastructure as it relates to wireless networks is a little bit more densely deployed. So that's for folks like Vodafone, Orange, other tele carriers across Europe. And that's because the population intensity is a bit different or quite a bit different than we see here in the United States. But at the same time, it's not unlike what you see here. There's a mixture of private wireless networks for mission-critical activity. There's fiber, of course, in certain areas and then in some places for some use cases, you'll see both public and cellular networks and satellite systems being deployed.

Is it -- does it have to be done on an individual country basis or does Brussels handle it centrally?

It's going to be done by rail operator, really, the private networks and connectivity is unique to each railroad. So you don't necessarily see a coordinated network deployment. With that said, similar to what we see in the U.S., there's obviously standards and coordination amongst the railroad operators and the vendors who are providing technology into these networks that connect to the wireless networks. So the standards are things, I guess, to watch. And obviously, the IEEE standard is going to be an option for those railroad operators and regulators.

I was referring to the issuance of licenses for the bandwidth itself from the government entities, not the railroads.

Okay. So I'm not familiar with what you're talking about specifically, but the -- my understanding is that whether they're owned outright or provided by the frequency coordinators at the federal level that the existing wireless networks that are low band would be upgradable with our technology.

And our next question comes from Matthew Galinko from Maxim Group. Please go ahead.

Hey, thanks for taking my questions. Eric, I guess, do you expect more of the Iron Drone pipeline to go directly through defense customers as opposed to sort of an intermediary? And I guess is that surprising the way it's developed so far? And I guess, just how do you expect that to progress?

It's a great question, Matt, and I don't think I want to make -- put a stake in the ground on that because it depends. But the reason we are going direct to the customer is really because our technology platform needs to be integrated and is capable of being integrated into a variety of technologies, in particular, that being the detect technologies, which are often going to be Raider systems. So if you're a military customer and you need a counter UAS system like ours for securing and protecting against hostile drones, you want us to be able to be integrated into any detect technology, as an example. I'll also add that -- and we didn't really emphasize this on the call, that the system -- the Iron Drone System has also been enhanced for mobility. That also means that what that means is it's able to be installed on a vehicle, a ground vehicle and it's mobile. So similarly, we will need to integrate the system with customers who have ground equipment that the militaries want to deploy. So that's the answer. I will say going direct, and we did highlight this, but I'd just reemphasize provides many, many, many advantages to us, including the ability to really set the economics for the system, which is good as opposed to trying to be bundled into various systems on each sale. And then I'd also add that some customers, including this one, when you qualified as a vendor, you become eligible for what we refer to as government-to-government sales. What that means is your customer actually is marketing you to allied countries. And I think that's going to be a very significant source of new customer activity for us, and it's already started. I mean we made that point on the call.

All right. And maybe just as a follow-up, just, I guess, presuming you get more of the direct sales as opposed to the alternative, what with Iron Drone, did that create any conversations to expand the visibility of Optimus Systems and their role they could play and in DoD and different defense systems? Or is it -- is the conversation fairly limited?

I'd say you're spot on, and we did make the point on the call that these conversations and activities around securing critical locations naturally lead themselves to what we're capable of doing with Optimus for homeland security and defense. So now this is specifically a market that is emerging. Now it's always been available to us, but it hasn't been a focus for us to the extent it is going to be going forward.

Great. Maybe one last question. I think you qualified the Iron Drone opportunity a couple of times with the defense customers. I don't know if you meant it as pending success in its current use or if it's been tested and it's actively moving towards that commercial order. But can you just clarify if you're sort of waiting for more performance data of actual use for further go ahead for order? Or are you already there?

Yes, I'd say -- so given the unique circumstances where we really had a shock to militaries globally around how the battlefields evolve so quickly, and where drones have become such a threat. So we've been working, as we've described on urgent activities around upgrading the system for even new military requirements, and that's particularly around the capabilities with -- to deploy the Iron Drone in complex area or environments where you don't have GPS and reliable communications links. So as we've done that, we've been in parallel, doing extensive testing, and we've had the really incredible good fortune to do that hand-in-hand with our customer and military partners. And really, I'd say, sort of real-world environments for this sort of stuff, okay? So now as we've gone to the next level, we've done extensive real-world testing and validation. And these initial orders that we've discussed are intended to put us into now live combat and security operations. And we do see that happening over the next couple of months. We have all the confidence in the world that we can capture the hostile drones as intended, and that's going to be very valuable. And as we do that, we do believe the customers will come back for expanded volume orders. And of course, we need to be putting in parallel here, the capacity to do -- to address and fulfill those orders. So does that answer your question, Matt?

It does.

[Operator Instructions] We have a follow-up from Glenn Mattson from Ladenburg. Please go ahead.

Hi, Eric. Just as a follow-up to that last point, can you talk about the capacity plans for Iron Drone and where you -- what kind of cost you need to build something out and where you intend to do it? And what kind of production levels you expect to build to?

Yes, sure. So on a relative basis, building the Iron Drone is much simpler, less complex system than the Optimus system. So what we're having here is really at the low volumes, which we'll see over the next, I'll say, quarter or 2, we'll be doing that in-house. And that's -- will be tens of systems a month. We'll go up to hundreds of systems with contract manufacturers, and we've been identifying them already. And then, of course, we'll move to thousands of systems with larger and more diverse group of contract manufacturers as we move through 2025, we'll be able to create that capability.

There are no more questions in queue. This concludes our question-and-answer session. I would like to turn the conference back over to Eric Brock for any closing remarks.

Okay. Thank you, operator. So I'll just close the call by thanking you again for attending. We do hope that you can join us in Baltimore for our OAS Investor Day. It's going to be a great opportunity to touch and feel the technology platforms and see them in action. And I think you're going to be impressed by the opportunities we have created in the business plan we have developed to capitalize on the investments we have made in these technology platforms as well as the global distribution and services capabilities that we're going to demonstrate. So we have a lot of work ahead, so we're going to get right back at it, and we do look forward to keeping you informed on our progress. So I hope you have a great day, and we'll talk soon.