ONDS Q3 2026 earnings call transcript, November 12, 2026

As Neil noted... ...adjusted cash operating expense increased to approximately $119 million in the third quarter, driven by two principal factors. First, our strategic M&A program... ...added new businesses to the ONDS platform. These companies bring operating costs, but they also contribute meaningful revenue and gross profit, established customer relationships, contracted backlog... ...and expanding pipelines. We believe these additions materially strengthen ONDS's earnings power and long-term growth potential and should be viewed as investments in scale, not incremental overhead. Second, we continued investing in the growth platform at both ONDS, Inc. and across our operating businesses. At ONDS, Inc., in addition to our underlying finance, accounting, and governance... We invested $27.6 million in growth OPEX related to corporate development, ONDS capital, ecosystem, and partner initiatives. And the broader operating platform, including our work... with Palantir and initial investments in Regna AI. In aggregate, the investment in growth OPEX at the ONDS Inc. level was slightly lower than in the second quarter. At the operating platform level, growth OPEX... for OAS leadership and infrastructure totaled $9.5 million, up from $6 million, as we continued building the leadership and capabilities required to scale. In total, we classify approximately $37 million in Q3 OPEX related to growth initiatives.

These are deliberate, front-loaded investments designed to integrate acquisitions efficiently. Expand our global commercial reach, scale supply chain and production, and provide the field support, sustainment and services a much larger business requires. We are building the operating platform. Not for the ONDS of today, but for the significantly larger company we expect ONDS to become. Apart from planned investment in Regna AI, we expect Growth OPEX to continue to moderate in the fourth quarter and into 2020. Because much of this spending is discretionary, rising revenue and gross profit should create meaningful operating leverage as we scale. Let's now turn to our Growth and Operational Update. I will review the continued expansion of our multi-domain platform, recent contract awards, and the strong demand developing across our four strategic market segments. We will also discuss... ...the progress we are making to scale Ultra and IonStrike, expand our supply chain and production capacity, and build the global operating infrastructure required to deliver for customers at scale. ONDS has built a deep differentiated... ...solutions portfolio across the four strategic market segments shown here. Aerial security, ISR and persistent intelligence, precision strike, and autonomous ground systems. In aerial security, we provide technologies to detect, identify, track, and defeat threats across the full counter-drone kill chain.

Our ISR and persistent intelligence portfolio provides multiple... ...multi-layer surveillance from the stratosphere through long-endurance airborne platforms and down to the tactical edge. In Precision Strike, we are delivering affordable, autonomous launch defects. ...aligned with the growing demand for scalable, mission-ready mass. And in autonomous ground systems, our portfolio includes robotic ground platforms supporting demining, engineering, logistics... ...border security, and operations in contested environments. Supporting all four segments is an expanding portfolio of AI-enabled software and command and control capabilities. The unified... ...command core, connecting sensing, decision-making, autonomous operations, and mission execution across domains. Across these four segments, we are increasingly focused on integrating our technologies and... ...solutions while investing in internal development to expand our capabilities, enhance our offerings, and create new opportunities for growth. Each of these four segments addresses significant global markets. Supporting a strong, sustainable, organic growth trajectory with opportunities for outsized growth that could meaningfully accelerate our business beyond the core. We continue to show solid order activity. Highlighted by some of the key awards we have received since June 30th, shown on this slide. This order activity is diversified across all four target market segments, aerial security, ISR and persistent intelligence, precision strike, and autonomous ground systems.

It also reflects a growing, increasingly diverse set of customers, geographies, and mission requirements. Our newly acquired businesses are contributing important contract wins. We expand their access to customer relationships, partners, and sales channels across ONDS. Examples include U.S. Department of War activity involving Ultra, Drone Buster, and Ion Strike. Together with... ...significant orders for Gate and Braun. These wins demonstrate the breadth of demand across both complete systems and mission-critical components. We are demonstrating increasing leverage from our expanded sales organization. ...customer access, partner network, and commercial infrastructure. We are pleased with our progress and remain focused on achieving even greater results. Our focus is sustaining and accelerating this order cap. ...capture through the remainder of 2026 and beyond. Here we highlight our backlog, as well as the global nature of our current and future revenue outlook. Our backlog now stands at $835 million and is up 36% sequentially. Reflecting both newly acquired businesses in the quarter and strong organic order capture across the ONDS portfolio. Our backlog is diversified across both market segments and geographies, providing meaningful revenue... ...and reducing dependence on any single product, customer, program, or region. That said, we have made it a point to grow the U.S. business given the large, long-term domestic opportunity.

And that focus is paying off, as we highlight here that the U.S. represented more than 50% of total revenue in Q3. We expect to see a growing contribution from the U.S. However, it's worth highlighting... ...that our customer base is more diversified globally than many peers, which provides stability during uncertain budget periods in the U.S. It's also important to highlight that ONDS's backlog consists of... ...of customer orders and awarded programs, rather than the broader unfunded opportunity pipeline. Our immediate priority is execution. Delivering against this backlog, supporting customers, and converting... ...meaningful portion of these orders into revenue during the fourth quarter of 2026. At the same time, we remain focused on replenishing and expanding the backlog organically through continued pipeline conversion. Despite a large revenue outlook for Q4, we continue to expect our backlog to grow as we exit 2026. Let me now highlight two particularly significant growth opportunities that have emerged from our design acquisition. Of course, I am... ...talking about the Ultra and IonStrike platforms, both of which are seeing advancements in customer activities. Ultra is a low-cost, long-endurance intelligence, surveillance, and reconnaissance, or IonStrike. ...ISR, platform that we believe is exceptionally well-positioned to address a growing and urgent military requirement.

Recent conflicts have exposed the vulnerability and high cost of traditional unmanned ISR platforms. ...with significant aircraft losses, reinforcing the need for more affordable, attritable alternatives. At the same time, the growing need to operate across greater distances is placing additional pressure... ...on legacy ISR solutions. Ultra addresses these challenges with approximately three times the flight endurance at just one-fifth the cost of traditional platforms. Again, three times the flight... ...endurance at one-fifth the cost. This is compelling, particularly when higher-cost legacy systems are seeing survivability issues that are driving the requirement for mixed-fleet operations. Increased endurance... ...means fewer aircraft are needed to maintain the same level of persistent surveillance. Combined with significantly lower acquisition and operating costs, ULTRA offers a fundamentally more attractive economic model. To put that into perspective, at the bottom here on slide 18, we illustrate the economics of maintaining a combat air patrol, or CAP, using legacy MQ-9 aircraft versus ULTRA. A traditional MQ-9... CAP requires nearly $200 million in upfront investment, with annual operating costs exceeding $50 million. ULTRA can provide comparable ISR coverage for approximately $25 million. And $23 million in annual operating costs. These are extraordinary economic advantages, particularly as the Department of War looks to rapidly replenish and expand ISR.

While addressing the operational vulnerabilities of legacy systems. For ONDAS, this represents a potentially transformative opportunity. We are already seeing demand signals for dozens of ultra. aircraft with the potential to scale into a substantial installed base supporting what we believe could ultimately become a $1 billion annual recurring service revenue opportunity. Given the significant opportunity ahead of us, we are taking decisive steps to scale production to meet anticipated demand. Here we highlight our recently announced definitive agreement to. Acquire STEMA, the German manufacturer of Ultra's airframe and a critical component of the platform. Bringing STEMA in-house will give us greater control over our supply chain, production capacity. And the pace of expansion, positioning us to execute against what we believe is a substantial long-term growth opportunity. Importantly, this vertical integration also provides an opportunity. to further enhance Ultra's already attractive margin profile by capturing more of the value within the manufacturing process. STEMA's existing European manufacturing facility is currently operating... ...at just 25% capacity utilization, providing room to increase production within our existing footprint. In addition, STEMA's type-certified aircraft and established manufacturing processes... ...provide a strong foundation to accelerate production in the U.S., where we intend to establish up to 345,000 square feet of additional manufacturing capacity.

We believe we are well capitalized... ...to support this expansion, though may consider opportunities to access non-dilutive sources of capital to help fund an accelerated production ramp. Together, these initiatives position us to scale... ...production to as many as 10 aircraft per month by 2028, supporting what we believe could become one of the most significant growth opportunities in our portfolio. Let's turn to IonStrike. Our cost... ...effective kinetic counter UAS interceptor designed to address one of the most urgent requirements in global defense. We continue to advance IonStrike with U.S. government customers, building on the important development and validation work completed with the U.S. Air Force. The market requirement is clear. Adversaries are industrializing the production of increasingly capable Shahhead-type drones, creating demand for defensive systems that can be deployed in very large quantities. We have discussed previously, we are pursuing initial commercial orders and can now share that we have submitted a response to a $45 million sole-source RFP, reflecting progress toward... ...operational use and scale deployment. While we are limited in the details we can share, we believe the requirement is urgent. We are preparing our production base so that we can move quickly if awarded. In addition, IonStrike was recently selected for a $10 million integration order with a new U.S. government customer. This order is related to a new operational environment, and we look forward to sharing more on this as we can.

Of course, the growing threat from Shahead-class drones creates an economic challenge as well as an operational one. Customers need an interceptor that can defeat these threats without relying on weapons. Costing hundreds of thousands of dollars per engagement. IonStrike is designed for that mission. It is a fire-and-forget system, requires no operator after launch, can be deployed across land, maritime... ...and airborne applications, and has a targeted sales price below $50,000 per unit. Cost parity is critical here, as is the ability to produce at scale. We are now preparing... ...and our production base for rapid scale. We expect to reach hundreds of units per month early in 2027, and to expand toward thousands of units per month beginning in late 2027. We're also developing IonStrike as a family of interceptors and precision strike systems that can address multiple missions, launch configurations, and operational environments, and we look forward to sharing more details. On this roadmap over time. As IonStrike moves from integration into fielded deployment, we believe it can become a meaningful growth platform for ONDS and address a multi-billion dollar annual market opportunity. Our focus is execution, completing customer integration, converting proposals into production orders, and building the capacity required to meet global demand at scale. We have also continued to strengthen the ONDS.

platform through a series of targeted acquisitions that add important enabling technologies across our major market segments. This slide highlights four of those additions. I want to focus first on Gate and Braun technologies, which established a strong position for ONDS in the fashion. Fast growing electronic safe and arm devices or ESADs and advanced electronic fusing for precision weapons, missiles and interceptors. These are highly specialized safety critical components. And qualified production capacity is increasingly constrained across the global precision strike supply chain. Gate brings proven engineering, established customer relationships and a scalable. International production footprint, including NATO-based non-ITAR manufacturing through Braun in Poland. Strategically, this acquisition does more than just add an attractive standalone. With Gate, Ondas is now a leading supplier of high-quality and, importantly, low-cost ESAD and kinetic systems. This also ensures we have access to a critical component. In a supply-constrained kinetic package and offers significant gross margin capture for Onda's precision strike and interceptor platforms. The other acquisitions shown here are also important building blocks. Caribou Labs adds resilient positioning, navigation, and communications capabilities for GNSS-denied and contested environments. Insignido adds an AI-enabled acoustic sensing layer

that can identify and track drones by their unique signatures, further strengthening our counter-UAS detection architecture. And Autopia adds proven teleoperation and autonomy software. that we believe can accelerate the autonomy path for ONDS unmanned ground vehicles and heavy combat machinery portfolio. We expect to share more about each of these capabilities in the coming quarters as we integrate them across the portfolio and convert their technology advantages into larger customer solutions and new revenue opportunities. Before turning to the outlook, I want to highlight that we have established the ONDS land systems division within OAS to bring five companies together under one strategy with a clear focus on autonomous ground vehicles. The purpose is straightforward, to put unmanned systems at the first point of contact, reducing personnel exposure. While helping customers carry out demanding ground missions. This is our bots before boots vision and practice. By combining our capabilities in robotics, autonomy, platforms, protection, and smart demo. We can deliver more complete solutions tailored to the customer's mission. Shared engineering and coordinated operations will accelerate development, integration, manufacturing, deployment, and support. While capturing cost synergies through streamlined operations. This also positions us to compete for larger multi-year defense programs. We can bring a broader portfolio to each opportunity.

With one coordinated team accountable for delivery. We are currently tracking approximately $3.25 billion of identified unweighted potential pipeline opportunities for land. Systems through 2031. We are building this division to turn these opportunities into awarded programs and sustain growth. Let's now turn to our outlook for the fourth quarter in 2027. As we highlighted earlier, we expect a strong finish to a transformational year. We are targeting full year 2026 revenue of at least $550 million, including more than $250 million in the fourth quarter. We also expect order momentum to remain strong and to exit the year with backlog above the $835 million reported at September 30th, providing substantial visibility into 2027. growth is supported by major programs already underway, including Mistral's Lethal Unmanned Strike Program, Indo-Earth's Combat Engineering Vehicles, and continued global demand across our counter-U. Indeed, we see organic growth continuing to be robust and expect at least 75% organic year-over-year growth on a same-store basis for Q4, higher than the 64%. We saw in Q3. Looking to 2027, we expect Ultra and IonStrike to become increasingly material contributors as customers advance and production scales. We are also focused... ...on expanding recurring and repeat revenue across the platform through software, services, sustainment, and longer-duration customer programs. Against that backdrop, we are initiating a 2020...

...revenue target of at least $1.1 billion. That outlook does not include potential acquisitions and assumes organic growth of more than 40%. As revenue and gross profit scale... ...we expect meaningful operating leverage. As mentioned, we continue to expect the operating platform to achieve adjusted EBITDA profitability in the fourth quarter of 2026. We are also... ...pulling forward the profitability timeline for OndaSync. And now expect company-wide adjusted EBITDA profitability in the third quarter of 2027, one quarter earlier than our previous target. Let me wrap up our prepared remarks before we open. ...the call for questions. We are seeing very strong demand across U.S. and allied defense and security markets. The capabilities represented across the OndaSync portfolio are rapidly moving from development and evaluation... ...into operational adoption. Indeed, they are increasingly essential to the modern mission. Our adversaries are innovating, deploying, and industrializing autonomous aerial and ground systems. ...precision effects, sensing, and mission software at scale. The United States and its allies cannot cede that advantage, and we do not believe they will. Despite the political tensions we see in Washington, across Europe, and in other allied capitals, we believe the need to invest in these capabilities has broad and durable support across aisles in Congress. This is a structural, multi-year demand.

...supported by operational urgency and increasingly resilient procurement priorities. ONDS has been built specifically for this adoption curve. We have assembled a differentiated portfolio of... ...software-enabled capabilities across aerial security, persistent intelligence, precision strike, autonomous ground systems, and AI-enabled command and control. We continue to... ...and integrate those capabilities while expanding the supply chain, manufacturing, field support, and sustainment infrastructure required to deliver reliably at scale. These investments... ...in our position with customers and support the much larger company we are building. We also believe the platform company model is required for our industry to scale. Customers need integrated, mission-ready systems that can be delivered... ...and supported across the operational lifecycle. Investors need a financial model that deploys capital efficiently, generates operating leverage, and supports sustained investment in innovation and growth. That is the model we are building at ONDIS, a diversified global business with multiple drivers of organic growth, an expanding base of recurring revenue, and the scale to efficiently deploy capital and sustain investment. Importantly, we believe a growing portion of our business will be driven by recurring and repeat revenue streams. This includes software, services, and sustainment, as well as

mission-critical components designed into customer platforms that generate repeat orders and are difficult to substitute. Together, these revenue streams provide greater visibility, durability, and performance. predictability as our business scales. Our focus continues to be on execution, converting backlog, delivering on major programs, scaling production, integrating our technologies, and demonstrating the profitable growth our platform model can generate. In closing, I want to restate the three main takeaways from today's call, which we mentioned at the outset of our call. First, ONDS is establishing a scaled global business. with a strong foundation for sustained long-term organic growth. Second, we have multiple opportunities to drive outsized growth, including Ultra, IonStrike, Regna. AI, and others, with the potential to meaningfully accelerate our growth trajectory. And thirdly, we are laser-focused on rapidly scaling production and deployment capabilities to capitalize. On accelerating demand for our solutions. We believe ONDS is positioned to become a global leader in autonomous defense and security technologies, and to create substantial long-term value for our customers.

Segment from Stiefel. Please go ahead with your question.

Clark Jeffries from Piper Sandler. Please go ahead with your question.

Please go ahead with your question.

Okay, thank you. So, it was a great call today. We appreciate all the questions and engagement, and we appreciate you joining us. And thank you for your continued interest in NONDOTS. We're going to get back to work, and we look forward to updating you on our- progress. Operator, we can conclude the call. And with that, we will conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.