Ondas Inc. Q1 FY2025 earnings call

Key Highlights

• Ondas entered 2025 with strong momentum, especially OAS, generating $4.2 million in Q1 2025 with a backlog of $16.8 million, and securing over $9 million in additional orders year-to-date.
• OAS announced a $1.7 million order for Iron Drone from a governmental customer for border security, and secured other military and homeland security customers. The Optimus Drone fleet in the UAE for DFR use continued to expand.
• Ondas Networks saw the Association of American Railroads select dot16 as the communications protocol for Next-Generation Head of Train / End of Train system, and the IEEE ratified the 802.16t standard. 900 MHz deployments had encouraging signs with small-scale live network deployments.
• Debt conversions reduced convertible debt outstanding, with outstanding balances on convertible notes reduced to $20.6 million as of the time of the call.

Business Unit Updates

• Oshri Lugassy of OAS highlighted securing multi-million dollar orders for Iron Drone, strategic partnerships with Palantir Technologies and Volatus Aerospace, and plans to expand Optimus and Iron Drone programs.
• Markus Nottelmann of Ondas Networks discussed the selection of dot16 by AAR, ratification of 802.16t, progress on 900 MHz and 220 MHz deployments, and engagement with Class 1 railroads for future solutions.

In Q1 2025, total revenue was $4.2 million. Ondas Networks contributed $0.2 million (relatively flat compared to $0.3 million in Q1 2024). Ondas Autonomous Systems (OAS) generated $4.0 million, a over 600% increase from Q1 2024. OAS revenues accounted for the majority of the total revenue, driving the growth.

Guidance

• Reaffirmed full-year revenue goal of at least $25 million for 2025, with OAS expected to generate at least $20 million.
• Backlog stood at $16.8 million in Q1 2025, and management expects further growth in backlog and revenues throughout 2025 and into 2026.
• Targeted adding 4 new military or homeland security customers in 2025, up from the initial goal of 2, and aiming to establish at least two new important partner relationships.

Risks

• Tariff risk: Discussed potential impacts of tariffs, noting efforts to source away from China and move production to the US, but acknowledged it's difficult to quantify the exact impact at this time.

Q: Hey, guys. Thanks for taking my question, and solid quarter, especially there on the drone side. When we think about follow-on orders from some of these customers over the past, let's say, a couple of months, we talk follow-on orders here. Are you typically seeing a bump in those follow-on orders in terms of size?

A: Yes, Max, so firstly, thank you for the question, and thanks for joining the call. Yes, the initial orders are often pilot programs in nature. We work to install and operate the system. As we do that, we're in parallel making plans for significant expansions, I would say. So that's the model we use. If you go back to last year, you would see similar activity with our initial military customer. Of course, that led to larger sales in the second half. We think even there, we're going to see expansion. So the short answer is yes, these programs have significant upside.

Q: Hi. Yes, thanks for taking the questions. Good quarter. Nice progress on Iron Drone for sure. Optimus also seems to be doing a little better. You talked about additional growth in 2025 for Optimus, existing and new, including USA. Can you just give us some background and color on what kind of opportunities you're pursuing in that side of the drone business?

A: I'd say if you look out into the rest of the year, we do have existing customers that will expand programs. I'll highlight the initial military customer in that program we captured last year, as well, of course, as we're doing in the UAE. We did announce on our March call that we had secured our first customer for Optimus in the United States. We're not able to give details on that just yet, but I do expect us to be able to do so in the coming months. And then beyond that, we're targeting those markets, right? Public safety, it's security, homeland security and defense, and the protection of critical infrastructure assets. And I think I'd leave it at that, Glenn, but it's really a significant opportunity, and we're maturing that pipeline.

Q: Hey, thanks for taking my question, and congrats on the quarter and the progression of orders on the drone side. Can you maybe touch on maybe what the margin profile is of the more recent orders for Iron Drone and what you have in the pipeline?

A: Sure. I'm going to defer getting as specific as I think you'd like me to get at this moment. And I say that largely for competitive reasons. You should think of our systems as having both Optimus and Iron Drone margins north of 50%. And I would say that Iron Drone margins are better than Optimus. I'd also add that initial orders, we've got quite a bit of pricing power. But at the same time we're being very deliberate about building a business. So, let me leave it at that, Matt.

Q: Sure. Yes, I appreciate that. Thanks. And then, I don't think it would be a call this year if we didn't talk about tariff risk and if you see any threats to the supply chain as you try to scale production.

A: Yes, it's a good question. In the last call when we talked about this, it was still early and a lot's happened. And I said I didn't expect a big impact from tariffs. And that's largely because we're very careful to source away from China. We design our platforms to be NDA compliant. And of course, the focus on China in this trade war has been so acute. I would say, as we sit here today, that the magnitude of the tariffs that have been announced on China was massive. It appears to be less massive given recent reports. However, it's still significant. We also saw Israel get hit with the tariffs. The question that I think we have to ask is, will the supply chain in the U.S. and Europe inflate or deflate as a result? Or put another way, what are the direct or indirect impacts? So, it's really hard to quantify. I do think from Israel, we will see a bit of a bump unless things normalize, which is what I believe will happen. But if they do, if we do stay with a 17% tariff there, we'll probably see some impact. At the same time, we are active. We made this comment today on the call with our plans. We're advancing plans, I would say, to move production in the United States. So, net-net, I think it's too early to say. But I do, I would think that for us, the direct and indirect impacts are going to be manageable.

Q: Good morning. As you look at the pipeline for OAS, how does it roughly break out between expansion opportunities with current customers and new logos?

A: There’re significant expansion opportunities with new logos. And that's the case in really the regions of the world that we've identified. So I do expect our core customers to grow with us this year and next year. But then we're going to be layering on new programs, new customers. And that's sort of where we get to that S-curve I've referred to in the past. And by the way, I'll say let me just be very, very clear. None of this is easy. It's not easy at all. But nothing's harder than getting your first customer. And of course, the second customer is not easy. But after that, when you demonstrate performance, you demonstrate leadership and capabilities. And we're hitting this market that is massive today, but unpenetrated because these capabilities like Iron Drone and Optimus are just emerging and scalable. So, I expect a significant new customer program growth in 2025, 2026 and beyond.

Q: Okay. That's more on the network side. Okay. And then in terms of manufacturing capacity for Optimus and Iron Drone like how many can you build per month presently? And where does that capacity go by year end?

A: So, I don't have specifics on the monthly that we can share. And I'll highlight that we're not a low-end or small drone commodity plant, right? We're making higher-end systems. So, what I'll say is that we have ample capacity to hit our plans in Israel. That's largely what I've been talking about OAS, of course. And that's where we're producing the systems today. And then as we're moving through this year, we're going to build the capacity in the United States. So stay tuned on that.