Ondas Holdings Inc

NASDAQ:ONDS

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and welcome to the Ondas Holdings Incorporated Third Quarter 2023 Conference Call. [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're subject to risk and uncertainties that can cause actual results to differ materially from those implied by these forward-looking statements.These forward-looking statements 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 non -- certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally-accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investor Relations section of our website.This non-GAAP information is provided as a supplement to, not as a substitute for or as superior to measures of financial performance prepared in accordance with GAAP. However, management believes these non-GAAP measures provide investors with viable information on the underlying trends of business. Please note this event is being recorded.I would now like to turn the presentation over to Mr. Eric Brock, Chairman, CEO & Interim CFO. Please go ahead, sir.

[Eric Brock, executive]

Well, thank you, operator, and good morning. I want to get started by welcoming everyone to our third quarter investor call. As always, we appreciate the time you're spending with us and for your interest in our company. At the outset, I want to take a brief moment to share some opening remarks before we go through the typical cadence of our quarterly call. As I do that, I want to highlight that the value of our company in our world-class technology platforms has never been higher. This the case today. We believe it will be true tomorrow, next month, next quarter and the years ahead. Every day we make progress towards wide scale adoption and the value we are creating for our customers, employees, and yes, and this of critical importance to me. The value to our shareholders will increase. We are committed to this, and I believe we are succeeding, notwithstanding the pressures from the capital markets and specifically the added challenges of having a low stock price and high cost of capital.We are seeing firsthand through our Airobotics team in Israel how a volatile and rapidly evolving geopolitical environment is impacting industry globally. I am happy to say today that our team in Israel is entirely accounted for as the Gaza conflict continues to present challenges. I cannot say however that they are safe because, of course, this war is being fought on their home front, but they're with us and working hard in a variety of capacities to ensure that their families and their country are as safe as possible. I am proud of our team in Israel and how they are bravely rising to the challenges and how our team in the United States is supporting our collective efforts.As I mentioned, the evolving geopolitical and volatile global economic situation is impacting industry in creating demand for the industrial wireless technology and aerial security and data platforms Ondas provides. The increasing requirements for performance and resiliency are the defining trends in the critical services and industrial economy, [ standing ] from transportation and energy to security and defense across the globe. These trends highlight the value we create for customers, our partners in our ecosystems and are supportive of Ondas's long-term success.With the support of these strong global tailwinds, we are seeing growing opportunities for our Ondas FullMAX wireless connectivity platform and our Optimus and Iron Drone autonomous drone systems, which I will emphasize are now commercially ready and being adopted and deployed at an increasing rate. Of course, we are offering these valuable solutions to large, very sophisticated customers and ecosystem partners in mission critical environments. We are getting closer and closer -- and I believe our investors, and of course I am one of them, will be rewarded. We look to demonstrate that to you on this call, and more importantly, during the months and quarters ahead. I believe we are on the cusp of great success.I'm joined today by some key members of our leadership team. You'll hear from familiar faces in Stewart Kantor, Co-Founder, President & CFO of Ondas Networks; and Meir Kliner, the Founder & CEO of Airobotics and the President of Ondas Autonomous Systems. In addition, Tim Tenne is joining us today for the first time. As you know, Tim recently joined Ondas as American Robotics' CEO. We will properly introduce Tim later in the call as we share the update and outlook at OAS.On another note, as we announced last month, I have stepped in as Interim CFO in place of Yishay Curelaru, who has been called to serve in the Israeli army. Yishay and other members of our team at Airobotics are performing their duties with great honor. Of course, we expect Yishay and our other team members to return hopefully soon. To that point, we have had a number of employees who have been called to serve, have done so and already returned back to their homes in the workplace.Let's turn to the agenda. We will start today's call with some brief comments about the third quarter performance and the significant progress we have made in advancing the adoption of our technology platforms. I will then provide a review of our third quarter financial performance and our balance sheet and liquidity position. Then we will transition and provide a business update for Ondas Networks and our OAS business units where I will ask Stewart and Meir to provide commentary around current business activity and the outlook for Q4. Here we will ask Tim Tenne to introduce himself and share his thoughts on the opportunities ahead for OAS in American Robotics. We'll then wrap the call and open the floor for investor questions.We had a strong quarter operationally in advance with customers across the board at both Ondas Networks and Ondas Autonomous Systems. For the quarter, we generated $2.7 million in revenue, which brought us to $10.7 million of revenue year-to-date through the end of September.Ondas Networks generated [ rick ] of revenues of $2.4 million in Q3. We believe the substantial growth year-over-year puts us on track for the $15 million revenue target we provided last quarter and demonstrates that we are driving adoption across our technology platforms.I also want to highlight the capital raise announced early in the third quarter whereby we secured $25 million in funding from sophisticated, private and institutional investors. As we highlighted on our last call, this capital raise reflects confidence in the value of our proprietary technology platforms and the end markets and customers we are targeting for growth.At Ondas Networks, field activity progressed and we are getting closer and closer to the breakout volume orders driven by success in the 900 megahertz network with the Class 1 rails. We see deeper, more intentional engagement with the railroad customers around the technical implementation of roll-off strategies as [ SEC's ] deadlines near. Stewart will share more details around our work with Siemens and the Class 1 rail customers and the outlook for 900 megahertz deployments, in addition to other global rail markets.At OAS, despite the obvious challenges on the ground in Israel, we continue to perform for customers. The recently announced order from a governmental entity in Dubai demonstrates that fleet expansion continues in the city of Dubai with the Optimus public safety infrastructure. I will highlight again that we believe we are uniquely deploying autonomous drone systems in urban settings and setting the gold standard for performance, reliability and value with our Optimus system.This was further amplified by the historic Type Certificate that we received in September from the FAA. Ondas is just a second small UAS developer to receive a Type Certificate from the FAA. We believe we are the only certified drone design for security and data collection applications. The TC Award validates the unique quality and reliability of our systems and has been well received by customers as we expected and will undoubtedly help shorten sales cycles for new customers as we look ahead.While we continue to make progress with customers with the Optimus system, we are very excited to highlight the opportunities we see with Iron Drone. As we announced yesterday, we have accelerated our development activity of the Raider, our AI-driven autonomous Counter-UAS platform. This activity is targeted at meeting specific requirements of the Israeli Defense Forces, or IDF, for an urgent need to protect critical locations and people from the threat of hostile drones in Israel. The Iron Drone Raider is a proprietary Counter-UAS system and we believe the Raider's unique capabilities are meeting a large and rapidly growing market at the right time. Meir is going to share more details regarding this exciting work during the call.Another significant development at OAS, we announced that Tim Tenne has joined Ondas as American Robotics' CEO, to lead the expansion of our business in the United States. I'm very excited to have Tim on board. He's the right person for the right job at the right time. He has the experience, talent and drive to continue to position Ondas and American Robotics as leaders in scaling drone technology solutions across industrial and government markets we target. You'll hear from Tim a bit later on this call.In the United States, our customer pipeline is maturing and growing across industrial and government markets, both of which should accelerate with new leadership and as inventory becomes available in the U.S. We'll touch on this in the outlook.So to wrap up the introduction, we are now beginning to scale at both Ondas Networks and OAS. I am happy with how we're positioned to grow our business in the coming quarters supported by our recently fortified balance sheet. We expect a strong finish for the year in Q4. We continue to focus on driving orders, customer adoption and revenue growth in addition to maintaining cost discipline as we work to drive down cash burn and move towards profitability.Now let's turn to the financial review. As I mentioned earlier, I'll handle this section of the call in place of Yishay Curelaru, our Chief Financial Officer, until he's able to return. We will start with the P&L. And 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 in the preparation for larger commercial rollouts.We expect significant operating leverage as revenues grow, though today's revenue levels do not yet cover our operating expenses. We generated approximately $2.7 million in revenue in the third quarter of 2023, which was a 4 times increase over the $630,000 in revenue realized in the third quarter of 2022.Revenue growth was primarily the result of higher product shipments at Ondas Networks. OAS revenue was modest in Q3 after we had recognized a large unit sale in the UAE in the second quarter of this year. We expect revenues at OAS 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 in the United States and internationally.Gross profit in the third quarter of 2023 was approximately $550,000, up slightly from the $400,000 in the third quarter of 2022. Gross margins were 20.8% in the third quarter of 2023, a decline from 63.2% in the third quarter of 2022. The margin decline is primarily due to cost, including labor for Optimus customer service operations related to units and service during a quarter when we recognize a comparatively low level of Optimus related product and service revenues.Operating expenses declined sharply year-over-year to approximately $6.5 million in the third quarter of 2023 as compared to $14 million in the prior year, despite the larger business operations, which now include a full quarter of Airobotics expenses. Operating expenses declined as a result of strong cost controls and lower costs from the integration of American Robotics and Airobotics under the OAS business unit. In addition, lower operating expenses were supported by a reversal of stock-based compensation charges due to Executive departures at American Robotics.Cash operating expenses during the third quarter of 2023 were equal to approximately $7.5 million, which was lower than expectations. Cash operating expenses exclude non-cash operating, items including $1.3 million in depreciation and amortization and $800,000 of non-cash interest expense offset by the reversal of stock-based compensation. Lower cash operating expenses reflect management's focus on tight expense control as we invest and grow our business.Operating loss narrowed by 56% to approximately $5.9 million for the third quarter of 2023 as compared to $13.5 million for the third quarter of 2022. The decline in operating losses was primarily due to sharply lower operating expenses. Other expenses increased to $1.4 million for the 3 months under 2023. The increase in other expenses was largely due to interest in amortization expenses related to the convertible notes, which we did not have last year.The company narrowed its EBITDA loss to $6.9 million, which was sharply lower than the EBITDA loss of $11 million in the third quarter of 2022. The EBITDA loss benefited from the aforementioned cost controls.Now let's turn to the cashflow statement. We entered the third quarter with $21 million in cash, which was supported by the $25 million in gross proceeds raised from the previously announced financings at Ondas Networks and Ondas Holdings early in the third quarter. Cash used in operations during the first 9 months of 2023 reflects ongoing investment in the business, though the year-to-date burn was elevated due to certain one-off and non-recurring costs realized early in the year, which were related to the acquisition of Airobotics and the integration of Airobotics and America Robotics into the OAS business unit.Operating cash flow included a cash use of approximately $5.1 million of investment in working capital year-to-date through 2023. In addition, as we mentioned in the second quarter, we had used $5.5 million in cash for debt repayments in the first half of 2023.As discussed, the recent financings fortified our balance sheet, helped grow our cash balance and positioned us to continue to execute our growth plan. We entered the quarter with $21 million in cash. Between the original and new convertible notes, we have approximately $30.4 million in outstanding debt.I want to also highlight that the convertible notes have maturities in April, 2025 and July, 2025, which means we have quite some time to manage the amortization and create conditions to equitize the notes under more favorable conditions. As previously discussed, it is our objective to equitize these notes as soon as we can by using shares to [ retire ] the notes either via monthly amortization or to see these notes convert entirely to equity prior to maturity.I want to highlight 2 important features of the convertible that may not be widely understood by our investors. First, the investor is limited to owning 4.9% of our outstanding shares, so that limits the amount of amortization we can see in the notes when our stock price is low.Secondly, amortization of the note via payments of common shares or cash does not necessarily happen every month as the convertible note investor has the option to defer amortization into the future. In practice, the convertible investor has done this. The convertible investor has deferred amortization option from time to time. At the end of the day, the way to drive this equitization of the notes and by extension a deleveraging of our balance sheet is through execution of our business plan and growing our market capitalization for the benefit of our investors.Let's now move to discuss the financial outlook before turning to a review of our business units. Firstly, I want to reiterate that 2023 has been a critically important year for Ondas. After many years of hard work by our team and important support from our investors, we have now transitioned our business from platform development to market adoption at both Ondas Networks and Ondas Autonomous Systems. This is demonstrated by the $10.7 million in revenue we have generated year-to-date, which is more than 6 times revenue growth as compared to the first 9 months of 2022.In addition, we expect to generate approximately $4.2 million to $4.4 million in revenue during the fourth quarter of 2023, which means we expect to achieve our prior target of $15 million in revenue for the full year 2023.I want to also highlight that both business units have grown significantly in 2023, again, reflecting that platform adoption is in motion. While Ondas Networks expected timelines with the rails extended relative to our previous goals, our OAS business unit is expected to deliver its original growth targets presented at the time of the Airobotics acquisition.While we were proud of our strong growth in 2023 versus the prior year, we also now know that we have just scratched the surface of our potential. In large markets we are addressing, there is much more to do.We are not going to give specific outlook for 2024 at this time. However, I want to reiterate, we expect substantial growth to continue in both business units next year. As we scale adoption and deliver revenue growth, we will remain focused on controlling expenses as we drive towards improved profitability. We expect cash operating expenses to be approximately $7 million for the fourth quarter of 2023. We are continuing to manage OpEx efficiently and we will look to maintain cost discipline going forward.Now we will transition to a review of our business units and ask Stewart Kantor and Meir Kliner to share updates on recent activity in the field with customers and industry partners. We will also ask Tim Tenne to share some comments regarding American Robotics and drill down a bit into the outlook for OAS in the United States. We'll start with Stewart, who will update us on the current status with the rails on dot16 adoption, and focus on the work with customers in our preparations for volume deployments on a 900 megahertz network. Stewart?

[Stewart Kantor, executive]

Great. Thank you, Eric. In Ondas Networks, we had another record revenue quarter driven by product shipments for customers. We delivered approximately $2.4 million in product and development revenue in the third quarter with a new record delivery in product shipments to Siemens. This is coming off as strong second quarter of approximately $1.5 million in revenue, which was the prior record quarter for shipments. The continued growth demonstrates that we are growing our production capacity. Total revenue year-to-date through September, 2023, was approximately $5.1 million, a 250% increase over the comparable period in 2022. We continue to be fully engaged with Siemens, the Class 1 rails, and now transit customers to further prepare for large scale commercial deployments.Furthermore, we continue our work with the AAR and our rail customers, which includes a development roadmap for a number of future products and additional networks beyond 900 megahertz.We continue to work hand-in-hand on deployments with key rail personnel with direct budget responsibility. Also, several of the railroads are engaging us directly in the field with network migration planning, testing and implementation services in order to accelerate deployment activity given the impending deadline. We are in discussions with one of these customers that is seeking for a turnkey solution, which would include Ondas providing field services to deploy the ATCS system upgrade and execute the migration to the new 900 megahertz band to meet their deadline.Our initial deployments are focused on critical network and high traffic locations, as well as new vital communications such as railroad crossing. We believe this work and the areas of focus reflect positively on how the rails have come to value the 900 megahertz network opportunity. Simultaneous to this field work, Siemens is actively negotiating purchase orders with select rails.MxV, which is the technical subsidiary of the AAR, continues to be engaged on the dot16 network integration plans with an immediate focus on the new network controller and critical dot16 functionality, including high demand features like peer-to-peer networking. The network controller project and peer-to-peer development activity are advancing, and we are negotiating with MxV to proceed with the preliminary technical work on the next 160 megahertz network, which we expect to commence in Q1 of next year.On the production side, we've now solved most of our supply chain challenges and no longer view parts components as a constraint. And in early October, alongside Siemens, we attended the Railway Systems Suppliers conference, where we continued our planning discussions with the Class 1 and engaged with several new transit customers.As we have stated previously, we continue to move forward aggressively on securing new orders and now have the capabilities to meet our customers' production needs. At the same time, we will continue to advance our existing development programs, while new development programs continue to present themselves in our pipeline.The Siemens on locomotive radio program for Europe continues to advance, and we are expecting to hear responses from the proposals we submitted on several major passenger and transit communications upgrades. As we grow, we will pay close attention to spending levels on operating costs as we drive towards profitability. As revenue and gross profits grow with increasing demand in shipments, we are focused on moving towards profitability as we move through the year and into 2024.Now I'll hand the call back to Eric. Eric?

[Eric Brock, executive]

Thank you, Stewart. I will now ask Meir Kliner to take the floor and update us on progress with customers at Ondas Autonomous Systems and provide some insight into recent developments at OAS and the outlook from here. Meir?

[Meir Kliner, executive]

Thank you, Eric. Before providing the Q3 update for OAS, I would like to acknowledge the exceptional effort of our team in Israel, some of whom have been called to serve in the Israeli defense forces during the Gaza conflict. Our team has worked tremendously hard, as they always do, and I'm very grateful for their effort and commitment to our success. Through this commitment and with the great support of our U.S-based team at Ondas Autonomous Systems, we are maintaining operations in Israel.Turning now on the third quarter update. Ondas Autonomous System continued to deliver our business plan for 2023 and maintain momentum in the global market. In the Middle East fleet expansion in Dubai, U.A.E continues to advance, as evidenced by the recently announced $2.6 million order for immediate delivery of additional Optimus Drone System from a local governmental entity.The Optimus fleet expansion in Dubai illustrates the effectiveness of our Optimus System in the field of public safety and governmental drone applications and ongoing advancement of activity with existing customers. We have successfully deployed the Optimus Drone Infrastructure in Haifa port in Israel and successfully completed 1 break-in proof of concept in maritime security. The PoC was conducted in complex port compound in Israel, consisting of 7 ports and corporations. The successful outcome paves the way for further deployment in Haifa port area, marking a significant advancement in maritime security technology for many other ports, authorities and facilities worldwide.OAS continues its expansion behind U.A.E and Israel, creating partnership, marketing and distribution agreements in the Kingdom of Saudi Arabia, India and now Morocco, which we announced last week. In Morocco, we have initiated a new relationship with Maghrebnet, a leading IT solution provider focused on North Africa markets. Under the MOU, we will offer through Maghrebnet our advanced drone infrastructure in North Africa.The agreement includes the potential for manufacture of Optimus System in the Kingdom of Morocco and the Republic of Senegal, as well as the establishment of Joint Center in Morocco. We also received a grant from the Israel Innovation Authority, IIA, to advance the Iron Drone Raider, our AI-driven counter drone system. The grant was approximately $450,000 and will be used for development of advanced features such as enhanced night vision and flying in GPS-denied environment.The grant represent the level of innovation of the Iron Drone Raider and the interest of Israel and aerospace global leader in this innovative solution. The interest in the Iron Drone Raider Counter-UAS platform continues to increase in Israel and beyond.We announced yesterday that we have accelerate our development timelines and our advancing specific system enhancements to meet the requirements of the Israeli Defense Forces to meet an urgent need related to the conflict in Gaza. We are working closely with Israel Defense Contractors to support system integration and readiness for deployment. This work is further supported by the financial grant mentioned earlier that we received in August from the IIA.We believe the Iron Drone Raider is exceptional system meeting a very large need in the market to protect people and both government and private sector critical infrastructure from the rapidly growing threats posed by hostile drones. There are many public research reports pointing towards billions of dollars in the market opportunity for solutions such as the Iron Drone Raider.We are happy to share this update with you and we'll continue to work out to deliver this urgently required solution for our customers. I look forward to keeping you informed of our progress. In the meantime, I encourage you to review our prior disclosures around the Iron Drone and to visit our website ondas.com for more information about the special capabilities of the system.As we announced in early September, our Optimus Drone received an airworthiness Type certification from the FAA. This the second ever Type certification granted by the FAA for a small drone, and first of its kind for a non-air carrier, fully automated drone designed for security and data capture. With the Type certification, OAS will be able to approve with the FAA complicated unmanned aerial operations such as flying over roads and people. OAS is currently the only drone manufacturer in the U.S.A to hold an FAA Type certification for a drone designed for security and data capturing operations.The certification of Optimus Drone was achieved after 4 years of intensive engineering and agency review processes. We believe that [ DC ] will support the ongoing business development activities of American Robotics in U.S. commercial and governmental markets, and will serve to accelerate demand and help shorten sales cycles.In the U.S. market, American Robotics, along with our customer, the Massachusetts Department of Transportation Aeronautical Department, will soon launch the pilot program we previously announced in June. The program will include operational demonstrations to relevant stakeholders such as government agencies showcasing our Optimus System capabilities for emergency response and critical infrastructure monitoring. We look forward to sharing more details on this launch soon.In addition to launching the MassDOT program, our customer pipeline is maturing and expanding and we expect to secure additional engagement for the first quarter. Of course, we expect the addition of Tim Tenne, who is now leading the expansion in the U.S. as American Robotics, CEO, to have a significant impact to driving an expanded set of defense and commercial opportunities.I'm now going to ask Eric to introduce Tim so he can share more comments on American Robotics and the opportunities we see looking at. We are excited to have Tim join the OAS team as we continue to drive platform adoption globally. Eric?

[Eric Brock, executive]

Thank you, Meir. I'll now ask Tim Tenne to share a few words on why he joined Ondas and on the opportunities we have at American Robotics to drive industry leadership and growth in the United States. As I hand over the call, I want to emphasize that Tim is a major addition to our leadership team. I have known Tim for several years now and have been incredibly impressed with his business acumen in addition to his very obvious aviation, multi-mode transportation operations and regulatory experience. He has a broad and deep understanding of UAS technologies and services, and has extensive experience in developing end-to-end solutions for large, sophisticated UAS customers in international markets, ranging from industrial and government to military. I believe Tim will have a tremendous impact at Ondas and thrilled to have him join our leadership team.Tim, I'll now hand the floor to you.

[Timothy Tenne, executive]

Thank you, Eric, and it's great to attend my first investor call with Ondas. As Eric mentioned, I have spent a career that spans defense and commercial aviation, and most importantly, drone technology. As a previous leader at the Federal Aviation Administration, I led the standup of the UAS Drone Integration office and was part of the initial cadre that developed the world's first drone regulations, including the small UAS registration rule and the commercial UAS rule, Part 107, which established requirements for commercial drone operators and led to a much wider adoption of drone services across the United States and beyond. I'm very familiar with Ondas Networks, American Robotics and Airobotics and for a long time have been extremely impressed with the world-class technology platforms we bring to global markets. The automated data and information services provided by the drone-in-a-box solutions, defines one of the most important segments in the commercial drone industry.Although there are multiple segments or categories in the drone sector, fully autonomous technologies are critical to scaling and driving growth throughout the spectrum of use cases. With a long history as a leader in industrial markets and defense, I know what is required to meet and exceed customer expectations, and now as a leader supplying these same clients, I want to ensure we continue to develop scale and win in all segments across the market by developing the right talent, partnering with the right organizations and delivering on our own capabilities and solutions.The first order of business is to drive adoption of Optimus and Iron Drone systems within the United States of Americas. We have a customer pipeline that is maturing and growing, and given the FAA Type certification of our unmanned aircraft, I believe the market potential is massive. This includes inspection, security, safety along with a multitude of defense applications. Given our advantage of being only the second company in the world in achieving the gold standard FAA Type certification, I believe we are going to be very successful in driving adoption and garnering support and partnerships throughout the industry.I'm confident we will continue our positive success, continue to scale and expand our operations and services to exceed the demands of our clients due to having the specific expertise in a very complex and highly regulated market, developing world-class programs and offering the right mix of capabilities and solutions.American Robotics is a strong and trusted provider of drone services and data solutions, and we are committed to scaling it into a successful industry leader, uniquely capable of providing turnkey solutions for our customers. We also believe drone regulatory environment is rapidly improving, which will support accelerating growth within the drone sector. For example, we have seen a significant increase in the FAA approving beyond-visual-line-of-sight, or BVLOS waivers, which lead directly to an increase in drone revenue generating capability.We also see new regulations advancing, including the pending Part 108 rule, which will -- among other things, should improve the scaling of drone field operations by allowing a single pilot to operate multiple autonomous drones simultaneously.While regulations grow increasingly supportive, the FAA has also recently announced a new administrator that has much experience in advanced air mobility, including the integration of drones into the National Airspace System.With the improving regulatory backdrop and continued advancement of our autonomous drone platforms, I couldn't have a more positive outlook on the ability of OAS and American Robotics' ability to continue to drive market share by gaining and scaling with our clients.To ensure our strategy meets expectations, we are rapidly developing our go-to market plan. That includes leveraging our growing partnerships, building on our current platforms, and increasing our offerings of capabilities and solutions for our clients. These offerings will include comprehensive aviation and airspace solutions.I will now hand the call back to Meir who will share the outlook for our OAS business unit.

[Meir Kliner, executive]

Thank you, Tim. We expect a strong end to 2023 for Ondas Autonomous Systems. This is true despite the operational challenges presented by the Gaza conflict in Israel. As mentioned, the Dubai Public Safety Optimus Infrastructure order was for immediate delivery, and we are working to fulfill that order in the fourth quarter. This position has to achieve the $8 million revenue target was established for the OAS at the beginning of the E.U. when the Robotics acquisition was closed. In addition, our customer pipeline in the U.S. is both maturing and growing, and we expect that to accelerate now with new leadership at American Robotics. This activity is further supported by the Type Certificate we received for the Optimus drone.In the United States, we are in discussions for initial PoCs with the number of customers and distribution partners in security, government, as well as in oil and gas and other industrial markets.The Gaza conflict in Israel has lightly impacted our inventory delivery schedule. We expect our initial 10 of 15 systems to be available over the course of Q4 into Q1 2024. We have an addition 5 system in the production queue and continue to expect to increase production orders in 2024. We are pleased with the growth in 2023 and the hard work with our team.This completes my formal remarks. Eric, I'm going to end the call back to you now.

[Eric Brock, executive]

Thank you, Meir. This concludes our formal remarks. Before we turn the call over to Q&A, I want to reiterate that we remain bullish on the outlook for Ondas and believe our business is strengthening considerably. We are seeing growth, and I am optimistic when I look at our customer pipeline in both business units that we will finish 2023 strongly. Our visibility on demand continues to improve, and I believe we are positioned for significant expansion across our businesses in 2024. With that said, let's see if there are any questions. Operator?

[Operator]

[Operator Instructions] The first question will come from Tim Horan with Oppenheimer.

[Timothy Horan, analyst]

The Counter-UAS systems here, a $1 billion marketing in '23, can you talk about what the competition looks like and how do you measure that $1 billion market? I guess, does anyone have a system like this? And maybe how much intellectual property do you have in here? And I know you have it growing to $5 billion by 2030. Just the sense of what more percentage comes from the different ways to do Counter-UAS systems? Like how important will your type of functionality be in the growth of that market?

[Eric Brock, executive]

Yes, sure. So if you look at the Counter-UAS market, there's principally 2 types of technologies that are used to counter hostile drones. The first type is the jamming of radio frequencies in GPS, which interferes with the operation of the drone. Those sorts of technologies have pluses and minuses. One of the complications with deploying a jamming system is when you're jamming radio frequencies, you can interfere with other wireless communications that have public safety implications. So, for example, at an airport, you want to be really careful if you are using the jamming technology. On the other hand, with the system we have, it's a capture type of a strategy or platform, and as this this system is fully autonomous. So when we deploy this as infrastructure, it's typically going to be deployed at borders, at important locations such as power plants, government buildings, places where people congregate like stadiums, for example, refineries, critical infrastructure. And these are places where jamming is not acceptable because when you jam radio frequencies, you have the risk of things falling from the sky, in addition to the other drawbacks around public safety and wireless communication.So we see a very significant market here. The market is for security. There is the homeland security or defense aspect of it as well. And in terms of the market sizes, we looked at -- we see the public reports as well from various research groups, and they all kind of point to very large markets that are grown rapidly.Now, we think about the -- sort of the value of the drone and why they're growing rapidly. We can pick up the paper any given day, and on the front page there's talk about hostile drones and that's only something that we're likely to see more of. So we think the demand for the security we can provide with the Iron Drone Raider is very valuable. And we like where we're positioned.Let me add another thing you asked. I think it was related to what makes our technology unique. And I do think it is the autonomy. When we deploy these systems, we're deploying them again in critical locations to counteractive threat of a hostile drone, but it is fully autonomous. So the systems there is typically integrated with a [ Raider ] or [ RADAR ] or other detect type of technology where we know where we can identify a hostile drone coming in. And without -- this system can autonomously react to that drone because, of course, when drones are moving, the speed of reaction to neutralize the threat is of critical importance.So when the drones are deployed, there's several -- up to several drones that can be, what we call high-speed drones -- small high-speed drones that'll be deployed. And what we're able to do, and this is really, really difficult, is we're able to, firstly, when we launch the drones to the Raider, identify the location. But of course, this a moving target. We're able to autonomously -- once we launch the Raider, lock in to that hostile drone and then, of course, apprehend it with a net. So that autonomy around what we're offering is unique and I would highlight that. So anyway, that was -- hopefully that was helpful.

[Timothy Horan, analyst]

So it's true to say majority of the market right now is GPS-blocking. I mean, is there anyone else with a system like yours on the market?

[Eric Brock, executive]

I think yes, the majority is the jamming techniques. We're aware of at least a couple others that have a capture capability. But we don't think that they have the form factor, the cost point or the price point and the autonomy that we're delivering. We think we're uniquely capable in all those levels.

[Timothy Horan, analyst]

Back on the rail side, can you give us maybe just an update on how much you think the rails need to spend the next 2 years to vacate the existing spectrum, and just rough idea on timing of when you expect big orders or big deliveries to occur and when do they have to be finished?

[Eric Brock, executive]

Sure. So the TAM that we're addressing and -- starting at 900 megahertz doesn't change, right? We calculate that based on the base station infrastructure or the coverage network and what we believe they need to deploy in terms of edge remotes, the endpoints in the field, along the track, across these, et cetera. So the TAM is still what we discussed. In terms of where we are with the customers, as I said, and Stewart amplified, we're seeing a lot of – very intentional work with the railroads. We're very optimistic that we're getting to that point where we're going to see material orders and deployments begin to scale across the industry. I'll remind you that the most -- the bulk of our work for the first 3, call it even 4 years, was with the Wireless Communication Committee, the WCC, which is a central group underneath the umbrella of the AAR.Now they, in March, made the statement that the 900 megahertz network will use the dot16 technology, and at that point in time, we began to work with the folks in the field, specifically the communications and signaling group, or C&S groups. And we've been doing a lot of work with them.And as to remind you, the C&S group along with other field operating groups with the railroads have the important responsibility to keep trains running. So -- And what they're doing with us is we're going through the planning, we are going through the training and the implementation of how to deploy the system.Of course, then they have to operate and maintain the network. And this is a system -- just going through that whole process for the train operators has some complexity. So we're going through the blocking attack and to make sure that all of this activity, when they're implementing a new modern system, it can be repeatable and scalable as they go through the deployment.So again, this is mission critical. While they're doing that, they need to keep the trains running. So we're just doing that hard work and we're advancing. So I can't put a specific date on this, Tim. But as I said, we're getting very close, and we do think that 2024 is going to be a really big year for growth and we're tracking orders now.

[Timothy Horan, analyst]

So I know it's early, but it's pretty important. I mean, can you give us some kind of range of revenue or how you're thinking about revenue next year? Are you talking about 100% growth to 500% growth? I'm not looking for specificity, but any kind of thoughts on what the revenue can do next year, would be really helpful -- in total.

[Eric Brock, executive]

Yes, so without a doubt, when we're looking at 2024 -- and before -- well, when we're looking into 2024, we're looking at multiples of what we've done this year, which is really just to get our production moving, building that capacity and capability and start to provide inventory for the early activity. We have the railroads. So there's going to be a significant growth next year.

[Timothy Horan, analyst]

And can you give us a sense of the breakdown between rail and drone? And then secondly, can you give us a rough idea what you're thinking about gross margins next year? I mean, I know there's a lot of moving parts,

[Eric Brock, executive]

Sure. So we're going to -- so we are at the moment getting back to the rail, I want highlight that. We are planning now with Siemens and the customers for 2024. So it's a little early for me to be able to kind of give you some specificity around this. On the drone side, we have a pipeline. We're going to expect it to continue fleet expansion in the U.A.E. As you know we've also established some other partnerships with local partners in India and now Morocco as well as, Saudi Arabia. So we think we're going to get traction there. And then, of course, with the maturation of our pipeline here in the United States, we're going to see significant growth. So we've said in the past that we expect to be able to double our revenue across the businesses next year, but I'd like to think that we can do even better than that.So -- But we're going through the proper planning and when we're ready, probably early next year, we'll put more details around that.In terms of margins, we still look at our business and these technologies, platforms as providing very attractive margins. At these low volume levels you'll see some lumpiness. Our margins were down this quarter. And to give you a kind of a census -- a little bit more color on why, as I highlighted, it's kind of a fixed level of cost at the OAS business unit for field service operations. So we have people in the field who are tasked with serving customers and also growing the business. It's debatable whether this should be cost of sales or SG&A and we'll look at that next year.But we had some costs or COGS related to that sort of service operations in the field, and that was relative as compared to a very low revenue quarter for the drone business. So as you look at the margins in the next year and beyond, we're targeting at least 50%. And I believe, as we get volumes and operating leverage even on the gross margin line, we're going to see some expansion from there.

[Operator]

The next question will come from Matthew Galinko with Maxim Group.

[Matthew Galinko, analyst]

Can you touch on -- I think Stewart mentioned an opportunity to provide turnkey services to a Class 1 rail around the 900 megahertz deployment. Can you go into a little bit more detail around why that became a direct engagement and how that changes the scope of what you're delivering?

[Eric Brock, executive]

Actually, Stewart, I'll let you take that.

[Stewart Kantor, executive]

So what we're starting to see is, as we're getting closer to the deadline, the customers are looking to some of our expertise in deploying wireless networks. So I would not say that it's a solid trend right now, but it does open up new opportunities. And what we see also is their confidence in us is growing in terms of our capabilities, where historically, a lot of the rails have managed tightly and internally their deployment processes. But we're starting to see trust in our ability to assist and accelerate the deployment. So we think this does represent a new opportunity. We're not forecasting it heavily yet, but we do think it's showing additional confidence in our capabilities.

[Eric Brock, executive]

And I'll amplify that, it's a great point. Our expertise, as I alluded to -- there's a lot of complexity in terms of migrating while the trains are still running, right? Migrating from a legacy technology literally decades old to a new, modern, general IP network, and as Stewart's rightly saying, the expertise we bring in there we demonstrate on a daily basis, is valued highly. So at a minimum across the Board, we'll be strongly involved and advising and training folks on new systems and how we see deployments and operation of the network. But we are likely to be called on -- in certain instances for even more significant services around that.

[Matthew Galinko, analyst]

And then I apologize [ as ] this going to be a multi-part follow up, but I think it's all getting to the same point. You provided a little bit of color around the cash operating expenses, I think for Q4. Can you talk a little bit about -- again, I know I'm asking for color around 2024, but what can we kind of expect from OpEx looking into '24? How do you think about -- can we kind of take your general gross margin run rate, apply your OpEx and sort of get to your burn rate? And thirdly, in reference to that opportunity in rail around helping managing that complexity, is there a scenario where you're staffing up around that if it becomes more of a pronounced trend?

[Eric Brock, executive]

Great question, Matt. So we'll look at it a couple different ways. So firstly, I'll say our cash OpEx, as we're entering next year, shouldn't be increasing dramatically. And we do believe we're going to get a significant operating leverage across both businesses. Specifically at Ondas Networks, the operating leverage is going to be even more apparent because we've got -- most of our OpEx, if you see is really related to development of the technology platform and specific products that Siemens and the railroad customers are desiring. And to the extent we have to add more in terms of field service, as we were just discussing, that's likely to be actually accretive to profitability because we're going to be able to charge for those services. So I don't see a significant increase in OpEx for Ondas Networks.As we're scaling with customers and generating revenue on the drone side and particularly with the U.S., you'll probably see us expand [Audio Gap] people in advance. We're going to be able to do that simultaneously. And a lot of those field services actually can be contracted in at least a transitional way with third-parties. And you're likely to see us actually establish some partnerships on the field services side for the OAS business unit.

[Operator]

[Operator Instructions] Our next question will come from Mike [indiscernible] with Northlink Capital Markets.

[Unknown Analyst]

This is [ Luke ] on for Mike. Just wanted to touch on the $2.6 million to buy order. Are you guys able to quantify how many units or how many drones this order was for?

[Eric Brock, executive]

No, we're not. And we're -- I guess I'll say this is proprietary information for now. But I do think as we're getting into next year, we'll give you a sense as to what the install base is, but I don't want to kind of in a public forum connect our pricing strategies given the -- all -- the customers we work with have various levels of solutions. And the systems are different. So [indiscernible] some are services, some are purchases, so.

[Unknown Analyst]

I totally get that. Is there any way you'd be able to quantify how many you've sold in total into the Dubai region?

[Eric Brock, executive]

I don't want to do that right now.

[Unknown Analyst]

Or any sort of outlook in this region for 2024?

[Eric Brock, executive]

Yes, so in the region, starting with the public safety, there's public comments from the customer that they intend to have 24 or more systems by 2025. We've seen similar statements from our -- the customer in Abu Dhabi. And of course, as we're expanding the partnerships into other markets such as Saudi Arabia, India, Morocco and we have other conversations like that, the fleet opportunities in those markets are as big or bigger. Some of those economies are significantly larger than what we're seeing at the outset in U.A.E.

[Unknown Analyst]

And then just kind of pivoting here, just -- could you provide what total employee headcount is up to now and kind of the split between Networks and Autonomous Systems?

[Eric Brock, executive]

Yes, so the number, I don't have it handy, but it's -- let's say we're probably 95 or so, and it's about half and half. But I can get you a more specific number. I haven't looked at that in a bit.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Eric Brock for any closing remarks. Please go ahead, sir.

[Eric Brock, executive]

Thank you operator. I'm going to close the call by just thanking you again for attending. As always, we have a lot of work ahead and we're going to get right back at it. So I look forward to keeping you informed from our progress. We will talk soon and have a great day.

[Operator]

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