ONDS - NASDAQ

Welcome to Ondas Holdings Inc. Second Quarter 2025 Conference Call. All participants will be in listen-only mode. Before we begin, the company would like to remind you that this call may contain forward-looking statements. While these forward-looking statements reflect Ondas' best current judgment, they are subject to risks and uncertainties that could cause actual results to differ materially from those implied by these forward-looking statements. These risk factors are discussed in Ondas' periodic SEC filings and in the earnings press release issued today, which are both available on the company's website. Ondas undertakes no obligation to revise or update any forward-looking statements to reflect future events or circumstances, except as required by law. 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 that 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 you joining us today and for your continued interest in Ondas. I'm happy to be joined today by key members of our leadership team, including Neil Laird, our CFO, Oshri Lugasi, the Co-CEO of Ondas Autonomous Systems, Meir Kliner, the President of OAS and Founder of Aerobotics, and Markus Nottelmann, the CEO of Ondas Networks. Let's now turn to the agenda. I will begin with a review of our key highlights from 2025. I will then hand the call to Neil for a financial review of our Q2 2025 results. We will then provide a business update for our OAS and Ondas Networks businesses, where I will ask our business unit leaders, Oshri, Meir, and Markus to provide commentary around current business activity and the progress we are making on our business plans. I will then provide an outlook for the remainder of 2025 where we continue to anticipate a record year of revenue growth primarily driven by OAS. We will wrap the call and open the floor for investor questions. Now we met for an OAS-specific Investor Day about a month ago and shared a lot of detail on our plan, progress, and outlook. So we will try to be succinct today, but at the same time, we do have quite a bit to discuss, so we're going to jump right into it now. I'll start by saying that Q2 was another step forward for Ondas. We executed well, sustained momentum, and delivered a quarter that reflects both growth and operational progress. We are demonstrating that our multiyear growth plan is firmly on track, supported by the growing global tailwinds and demand for our autonomous drone platforms. We generated record quarterly revenue of $6.3 million, a more than six-fold increase over the same period last year and up 50% sequentially. This performance was driven by disciplined execution at OAS where we are delivering against existing programs, expanding with current customers, and capturing new programs, new customers across the world. With this momentum in a growing order pipeline, we are reaffirming our full-year revenue target of at least $25 million in 2025, with more than $20 million to be generated by OAS. Our customer pipeline is both growing and maturing, and we expect to secure significant strategically important orders from new customers in 2025. This will enable us to meet our revenue goals for the year while building backlog to support continued rapid growth into 2026. From an execution standpoint, OAS continues to expand its footprint in defense and homeland security markets in Europe, the Middle East, and the United States. Our Iron Drone radar system is combat-proven with a leading military customer and now new customers, and that real-world validation is fueling a global marketing push. Since February, our dedicated Iron Drone demonstration team has been engaging customers worldwide, driving strong interest and generating new demand. Similarly, we are executing and expanding major programs for the Optimus system where we see a growing and maturing pipeline as well. Collectively this quarter, we deployed Iron Drone under a NATO governmental order at an international airport in Europe. We believe this may have been the first mitigation or interceptor CUAS layer at a location like this in the world, and we expect these sorts of critical locations to be a large market for Ondas. We also completed a successful homeland security pilot in Asia that we expect will convert into a multiyear program. On the Optimus side, our UAE drone box fleet continues to expand for public safety missions in urban environments, and we expect additional growth this year from both existing and new customers, including important opportunities here in the United States. And we have generated additional defense and homeland security opportunities, at least several that we anticipate will close before year-end. At Ondas Networks, we advanced our long-term strategy with meaningful milestones. The Association of American Railroads formally selected our DOT-16 protocol for the next-generation head of train, end of train system, validating years of strategic development work. We delivered our new 220 megahertz ASUS radios to Amtrak, marking the start of a commercial rollout. We continued migration activity in Chicago's 900 megahertz A Block and saw increased field activity for broader DOT-16 applications. Overall, we are executing our plan, scaling production and service capabilities, deepening customer relationships, and positioning Ondas for sustained growth into 2026. Let's take a closer look at the business metrics behind that momentum. In the last twelve months, OAS has secured over $39 million in orders, and our backlog has grown to $22 million at the end of Q2, up from $10 million at the year-end 2024. This backlog growth is translating into revenue, and our operational footprint in the U.S. and Europe is expanding to support scaled adoption of our platforms. Our balance sheet is in the strongest position ever. We ended Q2 with $68.6 million in cash, and in July, we fully retired the remaining balance of Ondas Holdings convertible notes through equity conversion. With no holding company debt outstanding, we have the financial flexibility to execute our growth plan. Strategically, we continue to expand our ecosystem as we will explain in more detail during this call. The Mistral partnership is poised to accelerate U.S. government adoption of IronDrone and Optimus. Our production partnership with Detroit Manufacturing Systems strengthens U.S. supply chain resiliency and cost efficiency. We launched our strategic M&A program, and our strategic pipeline is both growing and maturing. In short, we are currently on track to build a scalable, well-capitalized operating platform, converting backlog into revenue and creating visibility for continued growth into 2026. I want to highlight a powerful moment for Ondas last week. As we shared in some detail at our OAS Investor Day in July, the drone sector is benefiting from significant policy tailwinds. We highlight some of them here on this slide. Ondas was thrilled to see the FAA, in response to President Trump's executive order, which is awesomely entitled Unleashing American Drone Dominance, announced the launch of a new FAA rulemaking process to enable BVLOS drone operations nationwide. This was a huge moment for the drone sector, and Ondas, along with other industry leaders, have been working hard to get to this point. At the FAA's press conference in Washington, where Transportation Secretary Sean Duffy announced the rulemaking, two of the three drone systems on display front and center were ours. The Optimus system on the left-hand side and the IronDrone radar in the middle right under the podium. This visibility at such a pivotal policy announcement underscores our leadership in autonomous aerial systems, the dual-use markets we address, and the role we at Ondas are playing in shaping the future of drone operations here in the United States. Let me be very clear, we do believe our business will be a significant beneficiary of these regulatory advances in the strengthening demand and policy tailwinds outlined here. Let's take a moment now to talk about our big news from Friday, where we announced our partnership and investment with Rift Dynamics. Rift is led by drone and defense industry pioneer, Knut Ruhlwig. Knut is a long-time friend to me and our team at Ondas. He and his team bring tremendous pedigrees in the defense and aerospace sectors with deep operational experience and trusted relationships across Europe's drone and defense ecosystem. As we discussed at our recent Investor Day, building a successful defense and security technology company will require localization in all major theaters. Together, Ondas and Rift can help with those localization efforts, and the formalization of our relationship with Rift is synergistic with the relationships we are building with other defense partners in Europe and our broader on-the-ground efforts on the continent. Rift's WASP platform is a highly capable, low-cost, attributable drone designed for scale. It's ideally suited for reconnaissance, strike, and other critical missions where affordability, reliability, and mass production are paramount. As Rift has outlined, the WASP is cheap to use and cheap to lose, and this aligns squarely with the U.S. DoD's priorities and Secretary Hegseth's call for mass lethality to equip our warfighters at scale. Rift is doing the right things out of the gates. They have used a clean sheet in the design of the WASP. This means they can start with high-quality NDA-compliant components on day one, meeting the very specific DoD requirements for a low-cost, mass-producible, attributable drone platform. Further, the system has extreme modularity, and this flexibility will allow for segmentation based upon DoD requirements today and as they evolve in the future. One of Rift's greatest strengths is the meticulous supply chain preparation they put in place, positioning them to deliver in volume at a critical go-to-market advantage in the space. That supply chain relies on contract manufacturers, and we, along with Rift, have identified very capable global contract manufacturers with facilities in Europe and the U.S. to produce significant volumes with very reasonable timelines. Of course, we believe there is a significant revenue opportunity in the United States here. The spending on one-way attributable drones, as laid out in the one big beautiful bill, was north of $1 billion, and that is in addition to the DoD budgeted spending on ISR-type drones, which is a segment that WAS addresses as well. As part of this partnership and our investment, I plan to join Rift's Board to help support their growth, and Ondas will benefit from their success. We intend to strongly support their efforts, and I believe this relationship has some exciting avenues to grow from here. I will now hand the call to Neil to provide a detailed financial update. Neil?

Thank you, 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. We expect to demonstrate significant operating leverage in the next twelve months 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, the development programs underway with Siemens and MXV Rail, Amtrak and Northeast Corridor deliveries, as well as the ongoing work on additional rail networks beyond 900 megahertz and new applications being developed with customers. 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 these customers enter fleet programs and recurring service agreements. Revenues increased over 500% to $6.3 million in the second quarter from $1 million in the second quarter of last year. This increase was driven by OAS revenues, which were $6.1 million compared to $300,000 a year ago. This reflects the shipment of products and services from the orders received over the past twelve months and specifically to defense and homeland security customers in Israel, United Arab Emirates, and Europe. Gross profit was $3.3 million, representing a 53% gross margin in the second quarter as compared to a gross loss of $200,000 in Q2 2024. The increase in gross margins year over year results from increased higher margin product revenue at OAS compared to the lower margin service and subscription revenue in 2024. Our gross margins can be volatile on a quarter-to-quarter basis due to the revenue levels that reflect the early stages of platform adoption, certain fixed service costs reflected in our cost of goods sold, and shifts in the revenue mix between product, development, and services revenue. Operating expenses increased to $12.6 million for 2025 as opposed to $8.1 million in Q2 2024, an increase of $4.5 million. Our operating expenses increased primarily due to an increase in human resource costs to support our business growth and strategic initiatives. These operating expenses include non-cash items, and our non-cash items were higher year over year. Cash operating expenses, which exclude non-cash items such as stock-based compensation, depreciation, and amortization, were $9.4 million in Q2 2025 compared to $6.6 million in Q2 2024, an increase of $2.8 million. The increase in cash operating expenses includes approximately $1 million in holding company and other strategic costs to implement our M&A program, restructure the balance sheet, and establish internal processes to facilitate further growth. Employee costs were approximately $2 million higher because of salaries and for additional headcount and bonuses at OAS in line with the increased revenue. Additionally, stock-based compensation included in operating expenses increased by $1.6 million because of stock options and RSUs issued to hire and retain employees and advisors. Adjusted EBITDA improved from a $6.7 million loss to a loss of $5.8 million. This reflects the increase in gross margin of $3.5 million exceeding the increase in cash operating expenses of $2.8 million. The operating loss was $9.2 million in Q2 2025 compared to $8.3 million in Q2 2024. Other expense was $1.5 million higher primarily because of additional interest expense, which included the faster amortization of debt issuance costs because of the accelerated conversion of debt. So now let's turn our attention to the cash flow statement. We held cash of $68.6 million as of 06/30/2025 compared to $30 million as of 12/31/2024. Cash used in operations for the first six months decreased slightly to $15.1 million compared to $16.3 million for the first six months of 2024, very much in line with the improvement in EBITDA. We also had cash from financing activities of $53.9 million in 2025. This includes $42.7 million net of expenses from the equity offering in June and $10 million from the exercise of warrants. We expect cash utilization to continue to improve throughout 2025. Improved efficiency comes from operating expense leverage at our OAS business unit, given our expectation of increased revenue and gross profit growth over the course of 2025. Further, our expanded partnership with Clear, which we expanded in July, will support our revenue growth, including for revenue streams we have through our strategic acquisition program. This working capital support is non-dilutive credit facilities to fund certain inventory and accounts receivable balances. On the balance sheet, again, held $68.6 million of cash as of 06/30/2025 compared to $30 million as of 12/31/2024. Ondas Holdings had $5.2 million in convertible debt outstanding, down from $44.6 million at the end of 2024, reflecting a significant conversion of our outstanding convertible notes into equity. The remaining balance was converted in July, and the holding company's convertible debt is now zero. We are pleased with the results of our program to improve the structure of the balance sheet by raising cash and converting debt. Shareholders' equity as of 06/30/2025 was $90.8 million compared to $16.6 million as of 12/31/2024. Perhaps now a little bit more on our capitalization. We have approximately 219.2 million shares outstanding as of today, which is an increase from the 137.4 million shares outstanding on our quarterly first-quarter investment call in May. As outlined here, this increase is primarily related to the complete elimination of the convertible debt at Ondas Holdings and the June equity offering as well as the exercise of warrants by investors with a de minimis amount of employee stock options and RSUs. Of course, Ondas has benefited from a dramatic improvement in balance sheet health by the elimination of the convertible debt and the more than $54.4 million cash infusion, both of which position us well to execute our growth plan. With that, I will now hand the call back to Eric.

Thank you, Neil. I want to take a moment to emphasize two things that Neil has communicated in his financial review. Firstly, we believe our strong balance sheet is a massive competitive advantage for Ondas as we execute our core and strategic growth plan from a position of strength. Further, we intend to sustain Ondas' strong capitalization profile and use it to the maximum benefit for our investors. Secondly, our share count has risen through the support of our investors, including new institutional holders who believe in our technology in end markets, but are also backing our vision and support our four-plus strategic growth plan. We have a mandate to win in the AI-enabled and autonomy-driven global defense and security markets we are targeting. From here, I believe the combination of the core platform expansion and our M&A program will allow us to reward our investors for the significant contributions they have made to help us position the company for the success we see in the coming quarters and years ahead. Now we will transition to a review of our business units and ask Markus, Oshri, and Meir to share updates on the business development activity and operations at Ondas Networks and OAS. Markus will start with Ondas Networks. Markus?

Thank you, Eric. We have been very busy at Ondas Networks, and it's great to be here and update you on our progress. I will start by highlighting that during the second quarter, the IEEE formally ratified the 802.16T wireless standard. As you are well aware, this DOT 16T standard was pioneered by Ondas, and over the last four years, we have worked tirelessly with the industry to prepare for formal adoption. Advancements like this are contributing to a broadening acceptance of our DOT 16 platform across the North American rail industry. Indeed, the selection of DOT 16 as the wireless backbone for the 450 megahertz NGHE network by the AAR on April 11 was another important validation of Ondas' technology. This is not only an important milestone in the development of the NGHE 4.0 specification but also a significant endorsement of 802.16 technology in the railroad operating environment and has helped accelerate discussions across all the rail frequencies. While we are establishing live networks supporting centralized train control via the ATCS product lines with Siemens, we are also progressing additional 900 megahertz field trials with multiple Class 1s and regional railroads alongside these full-scale deployments. These activities and Class 1 pilots are testing new use cases that showcase the value of DOT 16 as a true multipurpose network. Importantly, we are now seeing broadening awareness within the industry on how DOT 16 can be applied across the critical wireless railroad networks where the massive capacity increases in data capacity and flexibility for the new IP-based use cases are extremely valuable. As we show here, the capacity increases across all railroad private networks are material. For example, in the 220 megahertz spectrum where the critical positive train control safety application resides, DOT 16 can increase network capacity by five times. This would help the railroads avoid costly spectrum purchases. And the 160 megahertz network, the largest single spectrum block owned by the railroads, represents a significant new opportunity, transforming legacy voice networks into high-capacity VoIP-enabled data systems. I will discuss this in more detail on the next slide and note that the 160 network is the largest rail network as measured by channel capacity and is ubiquitous, covering every mile of track across North America. Meanwhile, legacy voice or land mobile radio technology is utilizing less than 10% of this capacity. As we will discuss next, the prospect of converting 160 megahertz from a legacy LMR network to a hybrid data and voice over IP network is a significant opportunity for railroad customers and Ondas. As noted, there is strong interest in deploying DOT 16 over 160 megahertz networks, and we're demonstrating how this can connect multiple applications, including mission-critical voice over a single IP network. Our field trials are showing wayside systems tied directly into the back office, new operational applications, and high-quality voice over IP communications that can meaningfully improve railroad safety and efficiency. Given the 160 megahertz system-wide coverage and channel capacity, the potential to convert these networks to DOT 16 is driving the creation of a growing ecosystem of rail applications. We plan to expand these demonstrations to a Class I railroad in the first half of next year. Despite the lack of wide-scale commercial network build-outs to date, momentum in rail around Ondas and our point one six capabilities continue to build. We're supporting ongoing 900 megahertz deployments, progressing A Block migrations to primary network use, and positioning 900 megahertz as an alternative path for certain 220 megahertz applications. As we have discussed in recent investor calls, the new 900 megahertz A Block is being positioned as both a primary network for CTC as well as a secondary network for both CTC and PTC. We are also working on integrating multiple new applications on the new 900 megahertz network. We are demonstrating how the railroads can upgrade from outdated legacy single-purpose networks to modern and secure IP-based systems that enable new data-intensive applications to support efficient train operations and safety tools. We are field testing the 900 megahertz in dark territory for a Class I operator, while our 220 megahertz PTC data radio program with Amtrak remains on track, with deliveries starting this quarter. We're also in discussions with other Northeast Corridor operators for additional deployments. On the NGHE front, MXV Rail is finalizing the 4.0 standard by year-end, and we're engaging with HOT and EOT vendors to commercialize the next generation of products. As data-intensive IoT solutions are becoming more prominent on Class I railroads, the need for timely data transmission increases significantly. Ondas Networks is engaging with several Class I's on solving long-standing data transmission needs. We continue to engage with the railroad community on the significant value of DOT 16 enabled networks and the many applications they enable. By building out an ecosystem of DOT 16 applications, we will continue to drive the commercialization of the Ondas technology platform. I will now hand the call back to Eric.

Thank you, Markus. I will now ask Oshri Lagasi to take the floor and provide a business update for our OAS business unit. Meir Kliner and I will also weigh in on the progress of the OAS business expansion. Oshri, please proceed.

Thank you, Eric. Ondas Autonomous System maintained strong momentum during Q2 2025, particularly in the defense and homeland security sectors, generating approximately $6.1 million in revenue and more than a six-fold increase from the same period in 2024. OAS has captured $23.3 million in orders year to date, driving backlog growth, which reflected continued strong global demand for the Optimus and IronDrone platforms. At the start of Q2, we announced a $3.2 million follow-on order from a governmental entity in the UAE to extend the optimal drone network supporting public safety operations. This order expanded by $600,000 to $3.8 million when fleet support services were later added. Later in the quarter, Aerobotics secured a $14.3 million order from a major defense customer, primarily for our Optimus drone system, the largest single Optimus in the company's history, significantly expanding our presence in the global defense sector. During Q2, we secured and executed strategically important orders for new defense and homeland security customers for IronDrone. The first was a $3.4 million order from a European governmental defense agency in a NATO member country, successfully executed the system's first operational deployment in Europe. The second was a $1.7 million order from a governmental agency in Asia for homeland security operations with potential for future expansion. The order was delivered, and we look forward to receiving a follow-up order. In the U.S. market, American Robotics secured a purchase order from a major U.S. urban public safety agency for the Kestrel system, an advanced drone detection and counter-UAS platform. Our world tour of the IronDrone radar systems continued through Q2, showcasing the radar's unmatched autonomous counter-UAS capabilities and building trust through live, high-impact demonstrations. During this demo, we engaged directly with top-tier defense and public safety stakeholders. This has already resulted in two new IronDrone customers in Europe and Asia in Q2 2025, with additional customers and orders in progress. More stops are planned in the U.S. and Europe over the coming months. Each event is designed to turn pipeline opportunities into active programs and programs into long-term expansion. Recently and over a period of months, we participated in Project Vanaheim, a joint U.S. and UK initiative created to shape the future of counter-UAS capabilities. The IronDrone's high level of autonomy, loco lateral design, and usability offer a unique value proposition for sustained high-frequency operations in next-generation military and homeland security missions. We will continue to promote it through participation in upcoming projects. Another key outcome of our global tour is integration with new local detection systems and C2 platforms. In Q2, we successfully completed integrations with multiple third-party detection and C2 systems. Each completed integration proves the robustness of the IronDrone radar system and creates more opportunities for expansion as the system becomes a true plug-and-play component for key defense and homeland security, contractual, and end users. We plan to continue our world tour with demo, POC, and pilot programs in Europe and Asia to accelerate expansion. Recall our strategy is to engage with larger customers for initial pilot programs, which we then work to transition to multi-tier infrastructure program build-outs. In the U.S., we plan to demonstrate our company UAS capabilities to the NYPD and with distribution and partners to multiple U.S. DoD services branches during Q3. The New York Post highlighted that NYPD was seeking expanded authority to utilize counter-UAS tools and specifically highlighted their interest in deploying American Robotics' IronDrone platform. We have other demonstrations with important partners and customers in the United States, which includes our participation in the Interpol San Diego border counter-UAS expo in September. I will hand the call now to Meir where we will discuss our operating platform expansion. Meir?

Thank you, Oshri. As part of our rapid expansion plan, we are building OAS as a full operating platform, not just great products, but the service delivery infrastructure to deploy them at scale. This includes sales and marketing, supply chain and production, field services and sustainment, finance and administration, legal, regulatory, and government affairs. Our customers, ranging from defense ministries to homeland security and first responders, need more than innovation than interested, responsive partners who can deliver consistent results. During Q2, we established a new advisory board for OAS to support our global expansion and leadership focusing on autonomous drone and AI-powered intelligence, surveillance, and reconnaissance, or ISR, platforms for the defense and homeland security markets. We also announced that Brigadier General Rez Yaniv Rotem was our first appointee to a newly formed advisory board. Mr. Rotem brings decades of leadership experience in Israel defense R&D, weapon system innovation, and business development, leveraging his deep leadership experience as the former Head of R&D at the Israeli Ministry of Defense. His guidelines will help shape OAS' strategy's direction in emerging technology and global defense partnerships. We will announce new high-impact advisory board members in the coming weeks. We are investing in our internal leadership while simultaneously expanding through partnerships, especially for integration, distribution, and field services, and you will learn more about the talent we are adding in the coming months. Of course, this activity is also supporting the M&A program we laid out at the OAS Investor Day in July. Our M&A program is progressing nicely. Recently, we acquired

Thank you, Meir, and also to you Oshri and Markus. Let's turn our focus to American Robotics in the U.S. markets. On the regulatory front, Optimus is making substantial progress towards inclusion on the Green UAS list, and IronDrone is slated for submission in Q3. Effective July 2025, I want to note all Green UAS platforms are automatically added to the Blue UAS cleared list. Of course, Blue UAS certifications are critical for DoD adoption at scale for systems such as Optimus and IronDrone. I believe we can and will share more details on this progress soon. Operationally, we're accelerating our U.S. expansion and announced key partnerships with immediate engagement during Q2, supporting a much larger go-to-market strategy with American Robotics in the United States. Our partnership with Mistral gives us strategic access to federal procurement channels backed by over thirty years of DoD and DHS contact tracking experience. Mistral is actively driving business development for both Optimus and IronDrone Radar with a goal of securing at least one DoD order by year-end. We believe this is a modest goal based on the demand environment, our platform maturity, and our customer pipeline development activity. On the production side, Detroit Manufacturing Systems will support NDA-compliant, made-in-USA manufacturing at its Kinetic facility in Michigan. This partnership strengthens our supply chain resilience, reduces costs, shortens delivery timelines, and improves gross margin profile through design for manufacture at scale. This work was started immediately when we announced the partnership. Lastly, I want to highlight that we are actively pursuing opportunities under the Replicator two DoD initiatives while building a U.S. pipeline that includes major urban critical infrastructure programs, fleet expansions with existing utility customers, initial Optimus deployments at a U.S. military base in 2025, and campus security programs with a Fortune 100 customer. Of course, our partnership with Rift is going to be part of the American Robotics story in the coming quarters as well. Let's now transition to our outlook for 2025, starting with a status update on our strategic growth program. At our OAS Investor Day earlier this year, we laid out a clear opportunity to build a scaled AI-enabled and autonomous systems defense and security platform that can deliver advanced technology, integrated solutions, and high-value services to customers globally. We've been methodical in advancing that plan. Our strategy is to layer in and finance the advancement of mature, field-proven technology platforms while making targeted investments in talent and ecosystem partnerships to strengthen both our global and localized go-to-market capabilities. This approach allows us to address an increasingly broad technology, solutions, and services offering to the emerging AI-enabled and autonomous systems markets and build our capabilities in defense, security, and critical infrastructure markets which are poised for strong growth in the years ahead. We are deliberately building an operating platform that goes beyond individual products, integrating capabilities across autonomous ISR, counter-UAS, mission planning, and real-time engagement to deliver comprehensive solutions aligned with the operational priorities of defense, homeland security, and critical infrastructure customers worldwide. Our M&A pipeline is robust, diverse, and maturing. We've identified multiple targets that can accelerate our roadmap from mature mission-ready technology platforms that expand our solutions offering to service and integration partners that strengthen customer adoption. We have highlighted today the Rift transaction and

The first question comes from Mike Latimore with Northland Capital Markets. Please go ahead.

All right. Good morning. Again, great results and the list of accomplishments is impressive here this year.

Thank you, Mike.

Eric, just on that last slide, I guess, you talked about $23 million plus of bookings. It seems like demand is very diverse, and you could kind of hit that or see that in several ways. But are there one to two big deals that you're expecting here? Or maybe just clarify kind of the source of those bookings confidence and a little bit more international versus U.S., Optimus versus IronDrone? A little clarity on that because that's a strong number.

Yes, sure. So I'll refer back to our OAS Investor Day when I outlined our marketing program and how we're generating programs with customers. And typically, you'll see us capture a new customer with a POC type of small order. And of course, we deliver on that, and then we aim to expand those infrastructure build-outs, and that's when the orders get larger. We have a few of these programs now in motion, and we do believe that we'll continue to capture new pilots but also convert the pilots. So what you'll see is just increasingly large orders as we're moving through the next six, twelve, eighteen months. And at that point, there's clearly things in our pipeline where we can be capturing orders in the tens of millions of dollars. But of course, we want to put them into the outlook here in a formal way when they're more visible. But I can tell you that's the sort of scale that we do see in front of us. I think the guidance could be quite conservative, and I think that's a good place to be for the moment.

Yes, for sure. Sounds good. And then you mentioned two control acquisitions. Is that in addition to the small one you just referenced today? And then I assume it would look to be upside to revenue?

Yes. So it is that's in addition to the transaction with

Excellent. Just last one for me. The gross margin was really good in the quarter. Is that a good sort of reflection of what your OAS business looks like kind of at scale?

Yes, for sure. And I do think that over time we can do better, right. So and that comes from both volume, right, and design for manufacturing that we're going to do on both platforms. So I think we have opportunities to do better. At the same time, I will caution, we're still not at scale. So it will likely be volatile from quarter to quarter. But the 50 target, I think is a good one for now. All right. Thanks a lot. Best of luck.

Excellent. Thanks, Mike.

The next question comes from Maxwell Michaelis with Lake Street Capital Markets. Please go ahead.

Thanks for taking my question. Just kind of want to go back to the two acquisitions and maybe how that ties in with 2026. So I look back at the Investor Day, I think you guys talked to $40 million for 2026 of OAS revenue. I mean, was that always thought to be organic or did this $40 million target always kind of include these two potential acquisitions in 2025?

Right. So that outlook for 2026 is entirely organic. These acquisitions will be accretive to the 2026 outlook as well as well as the 2025.

Okay. And then maybe if we go kind of stay stateside here and we look at the Kestrel win with the, I believe it was the Urban Public Safety Agency. Maybe can you offer up a little bit more detail around that win and maybe what you're doing, the use case around that?

Yes, sure. So that was the first order we've captured for that the Kestrel system, which is an airspace awareness tool. The bulk of our activity with Kestrel is really to bundle that at a system level with the Optimus as we deploy the Optimus infrastructure. But at the same time, we're seeing quite a bit of demand for all things counter-UAS. And when we think about that layered security, the Kestrel is part of that initial layer of detection. So we'll see. I think with this customer, we have delivered the system, the Kestrel, and I think that's an area that we could see engagement on Optimus, for example. So that's some context around the Kestrel order.

All right. And then just last one for me. I know you guys highlighted the New York Post and how the NYPD had mentioned you guys. I mean, is there any other police departments around the United States? You can't obviously probably say their name, but are you guys working with additional police departments around the U.S.?

So I'll say firstly, the interest globally and in the United States in counter-drone technologies is just up into the right, and it's really, really intense. At the same time, there's a lot of activity where Ministries of Defense, Homeland Security officials, major urban public safety groups are doing the work to explore capabilities, how these layers are integrated, and etcetera. In parallel, there's activities on the regulatory side to allow more permissions for folks like NYPD to deploy these technologies. So I don't want to talk about any other public safety organizations. It's just a very significant amount of customers who are interested, and they're big. But I think at the same time, I want to point to those regulations that are evolving and will be allowing more permissions for deploying our drone across, say, DoD, Homeland Security, and major public safety organizations like NYPD.

Awesome. Thanks for taking my questions.

Yes. Great.

The next question comes from Timothy Horan with Oppenheimer. Please go ahead.

Thanks, guys. Eric, on Ondas Networks, I mean, qualitatively, it seems like we've broken the ice here, and it feels like we're seeing more momentum, I think, than we've seen in a few years. But what are your thoughts on what's going on there?

So firstly, I agree with you. The engagement with railroads is both broadening and deepening. And as you know, Tim, you've been following us for a long time. A lot of the early work with the railroads was really centered on validating the technology, and that was principally led by the wireless comms committee, the wireless communications committee, which is a centralized group that the AAR oversees, right, so all the railroads participate in that. At the same time, that WCC is really kind of focused on the network experts, and what we've seen over the last, I'd say, twelve months, and that's particularly accelerating with Markus Nottelmann joining as a CEO, you're getting deeper and deeper into each of the rail organizations and really in the field validating capabilities, validating performance, and also working on new applications. As you know, we're moving from the siloed networks, the legacy networks that are built for a single purpose, to a general IP network where we can do multiple applications. And as we prove that, the conversations are getting more and more productive. So at this point, where we started with the railroads is 900 megahertz, and that's still in play. We have seen the AAR announce that the 450 megahertz network, is a head of train end of train network has been selected, the DOT 16T technology has been selected there. And as Markus outlined, we're seeing interest in 160. So Markus, I don't know if you can add a bit more context to this, but I think it's clear that we are in the roadmap, and we're trying to get I'll just say this, we're still trying to get that inflection to when the first network gets built. But as I'm looking into 2026, I feel very strongly that both 900 megahertz and 400 megahertz or 450 megahertz with that EndoTrain application will be revenue-generating. But Markus, would you add anything?

Yes. So it's quite similar to what you described with OAS. You start with the proof of concept, you build confidence, and then you build out from there, right? So that's really what we've been focusing on in 2025. We continue with those efforts. We start with small-scale efforts that ultimately lead to bigger deployments. So building momentum there with all the Class 1s that's right on track.

And then switching over to OAS, I guess it's only been two months or a little bit more since Ukraine attacked the planes on Russian soil, and it seems like that was a catalyst to wake up the world that you need some defense measures here. And I know your Analyst Day was only a month ago, but can you give us maybe just a sense of what's going on with the pipeline at this point?

Sure. So the pipeline is growing, and it's also advancing. We've been doing a lot of work. It started in Europe back in February. And so you've seen that we secure the customer firstly at the airport. We think that program will expand. And we've been doing other work on the ground with various, I'll say, homeland security organizations and militaries in Europe. I'll also highlight, Tim, that there was a high-profile event connected to Project Vanaheim. This was actually sponsored by the U.S. Army. The U.S. Army called it Project Flytrap, and there were some demonstrations in Poland just a couple of weeks ago, and we participated in that. And as Oshri had said in his earlier remarks, was that Vanaheim and which is a joint project with UK and the U.S. DoDs, that's been a multi-month project. So the customers and the industry, the partners are learning a lot, and I think that is going to be transitioning towards infrastructure deployments, and it will be multilayered. We've had a great benefit as we're doing that work to integrate the IronDrone platform with various detection technologies, principally radar and C2 capabilities. And those are generally going to be capabilities that are brought by major defense vendors. And of course, those are our partners. So I think collectively, we look at the customer activity, the partner activity, I think we've set up a really robust pipeline, and we're going to look to convert that over the next three, six, twelve months. Specifically on the U.S., a lot of engagement as I just described in Europe actually coming from the U.S. And we did engage in the sprawl back in May to start to jump-start our penetration here, and we're very happy with the traction we're getting. So it's a big focus. If you look inside the one big beautiful bill and the DoD budgets and the programs, know that there is a big focus on spending on counter-drone technologies, and we do believe we're going to be part of that.

And lastly, you know of anyone else that's trying to pursue a platform strategy for OAS like you are? And maybe you can elaborate a little bit more on what the strategy is for that platform. I know you just talked about integrating drone with radar. That would seem to be unique kind of a neutral platform that multiple sales channels, multiple manufacturers, multiple technologies. And I guess, for example, can Rift tie into that type of platform and can others also?

It does. Yes, absolutely. So if I think of it in two levels, Tim, there's technology platforms, which IronDrone or Optimus are. So and we're integrating the autonomous systems and the capabilities that enable that. And very often we're going to engage partners as I've described. The systems are modular, right, and that enables us to work in all sorts of environments. So when you come to the United States, there's going to be preferred radar vendors, for example, for detection. And there's multiple, and we know a bunch of them, and if we don't know all of them yet, we will, but I'm really happy with the traction we're getting. So that's an example of technology platforms. At the same time, what we're really transitioning and focusing our business model and strategy is on becoming an operating platform, right. And that's a much different that lends itself to the second half of your observation where you have to address customers, right, you need that whole suite of scaled operations. And if you have a single platform, it's very difficult to do that, single revenue stream. It's very difficult to build that sophisticated sales and marketing capability. The field support and sustainment really, really hard and costly on a single revenue stream. And it's also hard to do it globally. And if you're making these investments, you have leading technology, you want to be able to deploy these defense and security platforms across all allied nations. And the way you do that is localization. So if I think of Rift, it does add our capability, right. So we're getting more scale from our sales and marketing. If we can add that third, that fourth, that fifth platform to market. It also gives us more scale and supply chain, right, because we're more relevant to the folks like Detroit Manufacturing Systems and the component providers thereof. And then if I also go say, you think about Rift and it's a partnership, it's not just the distribution here, which I do believe is going to be a major contributor, but it's also giving us relationships, strengthening relationships that we can build around in Europe because they've done that heavy work. So I really think of us as we're delivering technology platforms that are required for success. If you don't have that, you have nothing. But to be able to deliver those at scale, that's where it gets really interesting for investors where you can do that using your operating capital and your financial capital really, really efficiently. Thank you. Awesome.

The next question comes from Glenn Mattson with Ladenburg. Please go ahead.

Yes. Hi, Eric. Thanks for taking the questions. Congrats on the results. Curious the obviously, it's quite clear from everything you laid out today that the company is set to ramp significantly in terms of the scale in OAS. Curious about the operational infrastructure that's in place either capacity-wise. I don't know I know you've got this relationship now with Detroit Manufacturing Systems and other things in place. But can you maybe just broadly give us a sense of if you need to make any more big investments or new partnerships to meet to have the kind of capacity you need to deliver these systems? But then secondly, operationally, just do you have the infrastructure within OpEx? Obviously, OpEx is going to grow in revenues, but is there anything you need to put in place like systems or that kind of thing to really to support this ramp?

Yes, terrific question. It's really important, Glenn. So Oshri joined us formally in March as the Co-CEO of OAS, and that is this has been a major focus of his to be able to build the leadership team and the partnerships and the ecosystem to help support the scaling that we're talking about here today and we have been and what we've been demonstrating. So what we've done is we've we are layering in a leadership team at OAS, who is it's just another layer that's going to help us scale all these important the aspects of the business, again sales and marketing, the field support supply chain, and really critical things like that. We're also going to continue to build our advisory board, and that's going to be very impactful. We're not just putting people that look good in the deck. These are folks who are going to make a real impact on the business and be very accretive. And then I also point to leveraging the partnerships in the ecosystem. So we're going to build our internal capabilities and our OpEx spend, and we're going to try to do that with our revenue growth in a way that we get positive operating leverage and get that path of profitability. So one of the ways that we do that is by engaging these vendors around when we're integrating with them, for example, on the C2 or radar, that's also an opportunity for us to jointly market the systems to their customers. So that's in context around how I'm looking at that. So we're going to be building this company for many years. I'll also add this point is when we see when you look at our pipeline and the folks that we strategically aligning with in and around acquisitions and partnerships, we're not just acquiring technologies, we're acquiring people and experts. We need that expertise, we need that scale. That's part of the transaction, and we provide for that in our financial analysis, valuation work, etcetera.

Very helpful. And then I'd rather say in the call, but one more quick one. You mentioned winning the DoD contract before the end of the year. You seem to have high confidence in that. You may have said you could win multiple, I'm not sure, but do you have multiple DoD potential large contracts in the pipeline? Could you win more than one? Is it the program is of record? Just do a little bit more flesh that out a little bit if you could, it be great.

Yes. So I just kind of want to leave at that. I think we're very happy with how the pipeline is developing and advancing. We are in a strong demand environment. Our partners at Mistral are very experienced. And I think I'm optimistic, I'll say that. And then of course, a lot of these things get the timing. So if we do one or two or three, do we do it by year-end? I'm not sure. So what I would just like to do is set that expectation for at least one and then we'll try to beat it.

Great. Congrats again. Thanks for taking the questions.

Awesome. Thank you, Glenn.

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 as we wrap the call, I want to thank you again for spending time with us today. As we outlined, 2025 is off to a great start. We're going to be focused on sustaining the momentum through the end of 2025 and into 2026. And of course, we look forward to providing you more updates along the way. So the team will go back to the important work of building the company, and we hope you have a great day. So thanks again.