Ondas raises annual forecast as executive compensation deepens losses
The American-Israeli defense company expects up to $550 million in revenue this year after quarterly sales jumped 14-fold, but its acquisition and hiring spree pushed operating expenses to $199 million.
The American-Israeli defense company Ondas is beginning to generate significant revenue, but its rapid expansion is also producing heavy losses. After an aggressive campaign to acquire Israeli defense companies and recruit their former executives, Ondas reported second-quarter revenue of $84 million, a 14-fold increase from just $6 million in the same quarter last year.
Revenue in the first quarter stood at $50 million, meaning second-quarter sales increased by nearly 70% from the previous quarter. The company said it received $175 million in new orders during the quarter, followed by an additional $105 million in orders from the beginning of the third quarter through the date of its report.
Ondas' backlog now stands at $613 million, prompting the company to raise its annual revenue forecast to between $525 million and $550 million. At that level, the company's current market value of $5.5 billion represents a price-to-sales multiple of roughly 10. That remains high, although it is less extreme than it was previously.
Ondas expects second-quarter growth to accelerate to 76%, with quarterly revenue reaching between $140 million and $155 million.
The company, which was previously a US-listed business with almost no activity, began acquiring Israeli defense companies over the past year as it sought to build a substantial defense business. One of those acquisitions was Israeli drone manufacturer Airobotics. Calcalist revealed earlier that the company won a Ministry of Defense tender to supply attack drones after the tender had initially appeared to close with two Israeli startups, Kela and eyesAtop, as the winners.
Ondas has completed 15 acquisitions over the past two years. Its most recent transaction closed in May, when it paid $875 million for U.S. defense technology company DZYNE Technologies. The company's Israeli expansion is being led by Oshri Lugassy, a former IDF chief engineering officer and Rafael vice president of sales.
The acquisition spree has been accompanied by a sharp rise in Ondas' stock. Its shares have doubled over the past year, bringing the company's market value to $5.5 billion. At the end of the quarter, Ondas held $1.4 billion in cash, leaving it with substantial resources to continue acquiring companies and recruiting Israeli defense executives.
The company's growing payroll and generous compensation packages are also weighing heavily on its financial results. Operating expenses nearly tripled in the second quarter to $199 million, including $67 million in stock-based compensation for executives.
Ondas' operating loss consequently widened to $163 million, compared with $43 million in the previous quarter. The company reported a net loss of $90 million, although financing income generated by its large cash balance helped offset part of the loss.
Ondas said it expects expenses to fall significantly in the third quarter. At the same time, the company continues to expand its workforce. It added 560 employees during the quarter, including 155 engineers.
The numbers illustrate the unusual balance at the heart of Ondas' strategy. The company is rapidly assembling a portfolio of Israeli defense businesses, winning new contracts and building a substantial order backlog. But that growth is being accompanied by the high costs of acquisitions, executive compensation and an expanding workforce, leaving Ondas still far from profitability despite its rapidly rising revenue.
