Elsight Limited (ELS) Earnings Call Transcript

Good afternoon, and welcome to Elsight's Q2 FY '26 Results Webinar. Presenting today is Elsight's CEO, Yoav Amitai; and CFO, Dan Hilerowitz. Before we dive in, I'll direct your attention to the disclaimers on Slide 2. This presentation is for information purposes only and does not constitute financial product advice. We will discuss forward-looking statements today, and these involve known and unknown risks that could cause actual results to differ. A quick reminder on our reporting. All figures discussed today are in U.S. dollars unless stated otherwise, and we operate on a calendar year basis. Regarding logistics, we will have a dedicated Q&A session at the end. We'll aim to address as many as possible during the session. Otherwise, we'll get back to you privately. It is now my pleasure to hand over to our CEO, Yoav Amitai.

Thank you very much, Mel, and thank you, everyone, for joining us today this afternoon, morning, wherever you are in the world. We are both looking on the second quarter of the year and also trying to look on the entire first half of 2026, even though it's still unaudited numbers, obviously, they are in the range. And I think that we end up a great half year. If you look on the bottom line results, we already overachieved last year revenue. In terms of profitability, we're in an even better spot of where we were last year. And I think if there is a story that the numbers are not telling, and it's super important for us to deliver during this presentation today is all the traction and everything that is happening in different markets today, which are not necessarily part of the numbers we will see, obviously, part of the pipeline, but not part of the report and also not necessarily part of the language we put out in the activity reports, remind you all that we're active in dual-use market, which include commercial application. We'll talk about that, but also defense. And in the defense side, not everything can be disclosure because of classification and other stuff. So looking broadly, I think what we saw in the first half, besides generating the revenue and the profits that more than what we have the entire last year, seeing the traction that we have with a very strong focus on the U.S. market and seeing a lot of programs that are starting to mature there. I think that in the second half and in the years to come, we will see more and more, a growing demand and growing revenue numbers and pipeline and backlog numbers coming from this market, while the rest of the world is also growing, and I'll try to walk you through those developments that are happening and how Elsight -- where Elsight is located within this perfect storm, let's call it, and also what makes us prepared to the wave that will come in front of us in terms of the opportunity. If there is one point that I'm continuing to say again and again is that the opportunity is still in front of us and definitely not behind us in terms of how we see the market growth and how everything is happening there. For those of you who are joining us for the first time for this webinar, just to take you through what Elsight is. So Elsight started as a communication solution for a broad range of sectors and applications. In the last 6 years, we focused the business to be in unmanned or uncrewed industry, meaning aerial vehicle, ground vehicle, maritime robotics. The only 2 domains we're not touching today is underwater and space. Over the last 6 years, when we started in unmanned systems, we started in the commercial market. In the last 2.5, 3 years, we see a growing demand in the defense market because of the geopolitical environment that we all see in the news on a daily basis. Drones and unmanned systems become a material part of every Western government today preparing or are inside of the conflict or preparing for a conflict or making sure they have what they need for that. And Elsight is building -- we are building ourselves to become basically the Tier 1 for this industry, the backbone of the industry, starting from communication and growing from there. Starting from the technology, today, all the technology we're selling to our customers and partners is proprietary technology that was developed in Elsight. We have patents that are already granted. We have many families of patents that are currently in the process for various new products that we're presenting, whether it's in the new business unit that we'll talk about or the existing offering that we're doing and constantly doing more innovation and offering more value basically to our customers. Looking on our numbers, we're continuing the same level of profitability and have super profitable business model of high 70s percent in the gross margin. And also, if you look on the bottom line of the net profit, I think that the numbers there are showing a very strong business model that allows us to grow fast, but do it super profitable and not just burning cash, but actually generating cash as part of what we're doing. Looking at our pipeline, the opportunities in front of us and not behind us today, we grew the pipeline to be $168 million of actual tangible opportunities. We'll deep dive into that later in the presentation. I spoke about the margin model and the fact that it's not only a onetime sale for every product that we're doing. It's a combination of onetime sale as well as recurring revenue in every unit that we're selling. And seeing in general, what's happening around us, like I said, the growth that is happening in the industry. And again, I'll try to walk you through some of the developments that are happening there and what we're seeing there, which is super interesting in Elsight is positioned in a very, very interesting space within this market today and where we are seeing ourselves and how we see ourselves growing moving forward. In terms of revenue growth, I think what this chart shows more than anything is, first of all, the continuous growth quarter-over-quarter. I think also what is worth mentioning is if you look on -- I won't call it seasonality, but if you look on the first half of the year versus the second half of the year in Elsight history, the second half was always stronger than the first half. One of the reason is because of how government budgets are structured and when they spend those budgets. Obviously, towards the end of fiscal year on different places, they start to spend more of the budget. So those kind of a leftover of those budgets that we can leverage basically. Seeing this continuous growth, we are expecting to see this continuous growth quarter-over-quarter as we move along. based on our pipeline opportunities. If we look backwards on the second quarter or even the first quarter, there are a lot of opportunities that are emerging during the quarter and already delivered as revenue in the same quarter. Those are mostly relatively small orders of hundreds of thousands of dollars, but they are accumulated to big numbers as we move along. I think we will see this continuous trend moving forward. Now speaking about macro perspective, again, for those of you who saw our presentations and webinar in the past, have seen this trend, and that's a growing trend that is happening. And every quarter, we see another data point that just approve it and approve those trends and showing how they're continuously continue to grow. So I'll start with the big chart that you see in the middle that just to show how it's looked like in terms of NATO countries comparison between 2014 and 2024. We have the growth there across the board in all NATO countries, and that's before they put the new bar, the orange line that you see on the top, they put the new target for 5% of GDP. And that's a slow process, but we're actually starting to see those programs starting to be deployed in different parts of the world. I'll deep dive into the U.S. market because I think that's where the biggest change is happening. But looking on other markets like the U.K. that just passed their defense budget basically just a couple of weeks ago after many months of waiting. Same in Germany that already committed to increase their budget by 25%, basically rebuilding their armed forces with new capacities and new capabilities based on what they're seeing in the wars all over the world today, whether it's the Ukraine-Russia war or the Middle East, the U.S., Iran or other conflicts in the Middle East. I think everyone are seeing today how they were prepared from the wrong war or having the wrong asset, let's call it, and now they're investing a lot in those areas. Speaking about that, I think that the biggest example is the U.S. market when we see the biggest growth in terms of budget. Again, those numbers, I can tell you that from Elsight perspective, from our point of view and what we're actually seeing with working with our end users and customers, we are seeing that many of those programs already being deployed and already budgeted to start to be utilized. So we're not only talking about budget that -- or revenues that will come towards the end of the year, we are expecting those traction or those development to translate into actual material revenue for Elsight in the next weeks, months and quarters moving forward. And again, just to talk through those numbers, the U.S. new budget request for defense in general is $1.5 trillion. It's 42% increase over last year or over the current levels of what they have today. Out of that for drones and counter drone solutions is $75 billion, which is super big growth. Now inside of it, Elsight during the first half, first of all, we will qualify it for the Blue UAS, which is the first basically stamp of quality that we are eligible to sell to the U.S. government or to the U.S. DoD or DOW today. Then we have all the programs that we've been talking about for the last couple of months, whether it's Project GI that was super successful and still is or other programs that we're part of and starting to see the revenue coming in. Not everything is announceable and not everything we're eligible to announce because of, like I said, different sensitivities. But I can say that we're seeing a lot of development happening there, both with end users being the actual units in the armed forces and also with different OEMs in the U.S. market, which are names that you're all familiar with. I'll keep them like that because of classification. We all need to understand that when we're working in this market, there are some sensitivities that unfortunately, we cannot disclose everything. Obviously, we put out on the ASX platform as part of the activity reports and our quarterly reports in general, quarterly and half year and yearly reports, all the necessary disclosures, but not always we can mention names or specific programs for this reason. Talking a little bit about the technology and what we're building here again for those of you who hear our presentation for the first time or showing the development that we're having there. Elsight have started in communication. Today, we did more than 500,000 flight hours on different terrains, different platforms in different areas for different missions. And today, we're expanding. We're taking all this experience and knowledge and expanding into other solutions, which are not only communication. Basically, we build ourselves to become the backbone of the uncrewed industry. And we don't -- our direction is not to be the part manufacturer. We don't see that we have any competitive advantage there. But we have a very strong competitive edge on everything that is related to what we call enablement technology. Basically, we want to help the end users and the OEMs and service providers to complete their mission, whatever the mission is, whether it's for commercial application, for logistics or for ISR or for public safety or it's in the defense for, again, for ISR, logistics or different missions that are more sensitive. So growing from connectivity only into connectivity positioning, autonomy, video and sensors processing, that's the expansion we're doing. And the idea behind it is to provide more value to our customers to be a bigger chunk of their solution basically. A lot of our customers are today buying those different capabilities from different companies. So they end up with siloed technologies that are not really connected to each other. And we see how we can help our customers by combining all of those together into one whole product that hold the same state basically and can help -- each one of those nodes can help the other ones to be better to enhance the performance. And by that, to complete the mission or to help to what we call mission completion basically. So that's the enablement technology of what we're talking about. And that's the reason why we're not going to be the platform nor the mission operating system or the human machine interface. We believe that this layer that I will show you in a second in a slide, we believe that this layer is super large layer. And if you look on the automotive industry, for example, as a reference, you'll see that the Tier 1 companies that are not the OEM are, in many cases, much bigger than the OEMs because they provide to everyone. If I'll try to walk you through where we sit within the layers, the different layers of every unmanned system, so we're trying to split it into 4 layers to make it simple. Obviously, there are many more in between, but just to structure it in a way to understand where we are and where we want to expand. On the bottom line, there is the hardware, which is the actual drone, the companies that are building the chassis, the motors, putting together the batteries, the cameras, the flight control units, et cetera, et cetera. Then there is the platform OS that's where Elsight sits. Above that, we have the mission OS, OS stands for operating system, basically where all the mission is managed, all the teaming between humans and machines, all the missions for the machines and so on and so forth. And usually, it comes together with what called HMI, human machine interface. Now on the bottom end, on the OEM side, there are many companies that are actually building the drone. That's not Elsight. We are providing our solutions for those companies. On the top, on the mission OS and the HMI, there are also a lot of companies, mostly the primes in the market that are providing those systems. For example, Anduril, Lattice or Quantum Systems, Mosaic or different, L3Harris have product there and General Dynamics and so on. So there are a lot of companies that sits in this layer. Elsight sits in the platform OS, what we call platform OS, which basically help to connect between the hardware on the edge and the mission planning, which sits on the ground control station or in the headquarter, and we are the underlying layer that connects those two, exactly the backbone that I mentioned before, that's where we sit and that's what we do. Now inside of it, there are different capabilities and different enablement technologies that we're providing to our customers, started in communication, like you all know, that's where we come from. That's our background. That's where most of the revenue is coming today. The vast majority of the revenue is coming today. On top of that, there is the navigation or positioning. We soft launched during the quarter, our positioning solution, which basically provide a new way to get the drone position or the robot -- ground robot position in a non-GNSS environment or GNSS-denied environment. We are already provide to many of our customers video and sensor processing, for example, adaptive video encoding and other features that sits there. And on the autonomy, we are providing a lot of autonomy in the edge, which is -- that's the development part of what we're doing, and it's not yet fully deployed and developed in the market. Now those domains partially are done internally, like I said, organically in Elsight and partially are with third-party partnership that we're doing that we put them onto our platform and allow our customers to use it, and we are enjoying the revenue share model that we're doing with those companies. Elsight today have a very strong distribution channel in the market. We have a lot of drones that are operating in our system. So a lot of companies are coming to us to partner with us so we can be their kind of distribution channel to the market. But in parallel, we're also looking to inorganic opportunities in this market because there are a lot of companies in this space here that have super interesting technologies. Not all of them have access to either the market, do sales or for capital to complete the development that we're doing. And we are seeing a lot of interesting companies in those spaces that are offering or looking for partnerships, and it's part of our growth trajectory of looking not only on organic growth, but also inorganic. And I would say that we have a couple of targets that we're talking with in different levels of where we are, and we are expecting some of those to translate into actual transactions. Looking on our -- what differentiates us from the rest of the market or many times, there are a lot of questions around competition and where we sit within the competition. So Elsight's main approach is that there is no single source of -- or single input of solution. Basically, drones or platforms that are relying on single solution, whether we're talking about communication or navigation or any other capability are set for failure because today's market or today's environments are super contested, the electronic warfare environment becoming harder and harder and those that are relying on only one source of communication are basically set for failure. And our approach was always to do that in a way that combining all the available spectrum, all the available possibilities to do those kind of navigation and positioning solution and combine them together into one solution that provides the software of the platform with the best quality of performance in terms of, again, connectivity and all the other features that I mentioned. We are connecting all of them together so the operator doesn't care how it works. He does want to make sure that he will have what we call connection confidence, making sure that he will be connected to the platform on the other side. This pipeline is as of end of June, end of the quarter, basically, which is constantly moving, obviously, with new opportunities in the top as well as converting into revenue in the bottom. You'll see if you compare it to our previous quarter numbers, overall pipeline have grown. It's grown not only by the top line, also when we look on the revenue that we already booked on Q2, which is, call it, $12 million, that was in addition to these numbers that you're seeing here. So basically, there are 2 main parts that I want to mention. First of all, starting from the top of the pipeline, we have grown a lot with our business development team that we recruited in the last -- in the first half of the year. A lot of it is coming, like I said, from the U.S. and also from our team in Germany and the U.K. that are seeing a lot of opportunities that we have not seen before not being in with boots on the ground in this market. And also in the commercial discussion, which is the more mature pipeline, we also see a conversion there. Again, if you compare it to previous quarter numbers, we are seeing a good conversion there in terms of progress down the funnel. So looking on this pipeline and the second half of the year, we do believe that we're going to have another strong half year in the second half of 2026 and also creating the stepping stone or creating the backlog and the pipeline for '27 and beyond in terms of different programs that were starting to emerge as part of this new budget that I was talking about before. I want to draw a line here in the middle of the pipeline because basically, everything in this $65 million is with existing customers, basically, meaning that companies that already have some transaction of dollars between us and the company. Sometimes it's small, sometimes it's big. But the reason I'm mentioning it is because we are trying in every sales process that we're doing, we're starting trying very early in the sales process to make sure that we're going through all the paperworks, all the contracts, NDA, vendor qualification and so on and so forth. So we will have less friction on the progress of the conversion into actual revenue. Speaking about translating and converting into actual and how -- what is our commercialization strategy. So like I said, today, we have people with boots on the ground in North America being U.S., Europe, U.K. and the Middle East. We are doing all the rest of the world from here in Israel. We are starting to see revenue coming in, in those markets. So starting in the U.S., as we mentioned in our quarterly report, we mentioned a part of the end user that started to use our system. For example, the 101st Airborne division in the U.S. Army have already said out loud that they are using Elsight systems in some of their deployments, which is a big stamp again for the rest of the armed forces and going with those case studies and say, this is how they're using it, distributing to more units like that and more divisions within the DOW, not only in the Army, but also in the other armed forces and also seeing how they are growing and how our partnerships with not only the end users in the government, but also in the industry side, being the OEMs, mainly in defense, but not only, which is starting to mature into actual pipeline and as a result of it, the revenue. Same in Europe, looking at the European market. Obviously, we have big customers there, as you all know or most of you should know that most of our revenue today is coming from Europe. We have various customers there that are relatively big customers. We are expecting to see more orders coming from them during the second half of the year in the same trend that we have seen before. And that's a market that not only the existing opportunity that we have there, but also emerging new opportunity like I was talking about the U.K. budget in previous slide or the German development that are happening, we are seeing a lot of movement in those markets. Same for the rest of the world, looking on all the GCC countries in the Gulf, seeing what's happening in the current war between the U.S. and Iran and in general, how it's affecting the whole Middle East. We are seeing a lot of new opportunities that are emerging there that wasn't exist before as well as more Eastern countries like India, Singapore, Japan that we did have business in the past, but we are seeing a growing interest and demand in those countries. We are constantly having people there meeting with prospects and partners and making sure that we are accelerating our go-to-market in those areas as well. I think one interesting point to mention is that we are seeing this development are actually happening in order of magnitude in terms of the programs and the number of units and quantities that our prospects and customers are talking with us about. That's why we see our opportunity ahead of us in terms of how we continue to grow the revenue and to grow the pipeline numbers. Talking about the Business Model, I'll run briefly on that. Elsight business model in general is splitted into 3 main elements. The first one is onetime hardware sell. Currently, the Halo and the Aura are the platform that we're selling on this side. In addition to that, we are adding more platform basically. So today, we have the Halo, the Aura. We're now working on a new product, which is going to go to the lowest end of the market. For those of you familiar with the term FPV or PBAS, we also want to have an offering there in this market for different programs like the drone dominance program or others, but those are basically platform that customers are paying in a onetime fee. In addition to that, every customer, as long as they are using our products have what we call the Elsight cloud subscription. But basically, as long as they want to use the product, as long as they are using the drone, they will have to keep and pay this recurring fee basically on an annual basis basically, renewing their contract or renewing the license. While the top 2 are mandatory, the data usage is not mandatory. This is where we're offering a one-stop shop basically to our customers. As I mentioned before, today, we're offering different kind of communication, whether it's point-to-point, cellular communications, satellite communication. And as part of the service, what we are offering is the actual SIM cards, the Telstra and Optus SIM cards in Australia or Verizon, AT&T, T-Mobile in the U.S. and in other countries as well. And we're seeing that customers really like the fact that they can do a one-stop shop and have everything from one place. Now looking on gross margin altogether, like I said before, we are keeping super high gross margin. But today, we're sitting in 76% gross margin on average, while the hardware is somewhere around those levels, depending on the flavor of the product. And the software is obviously higher than that because most of the COGS there is software and infrastructure. So that sits in around the 92% gross margin on the software and services, which is a very interesting development because looking on all the capabilities that I mentioned before, the communication, the positioning, the video and sensor processing that all sits here in the Elsight cloud basically. And this is where we are expanding most of our average revenue per unit is by developing and deploying more capabilities in this part of the business model, which is basically the software and the service piece of it. Elsight is not only looking on revenue, but also looking on how we prepare to deliver those revenue numbers and how we make sure that we can deliver -- how we can make sure that we're manufacturing it and delivering on time despite the challenges that are currently existing in the world supply chain. We've been asked again and again about our production capacity and everything, and I want to make a clear point about that. First of all, today, our production capacity as of today is still $150 million worth of goods per annum. We're constantly expanding it or we constantly have the opportunity to expand it. And that should starting towards end of August, we're starting to have manufacturing in both U.S. and Germany. Basically, we'll have Halo made in the U.S. and Halo made in Germany, not because of production capacity, by the way, more so because of localization and tariffs and other issues that customers today or governments today wants to control the supply chain and they want to have the manufacturing on their country's soil. So just to give you an example of that, we are not opening our own manufacturing facilities. We're using contract manufacturers. We started to discuss with the contract manufacturer in the beginning of May after a big one. In the beginning of May, we started to talk about sending all the manufacturing file and everything. And by mid-August, we already have the first batch ready to go. The only cost associated with this process is our people fly to Germany basically to make sure they have all the quality features and all the quality assurance processes in place. So it's a super capital-efficient model that allows us to expand our production capacity very easily without any big CapEx investment at all in putting into production lines or into workforce. We're utilizing other capabilities to do that. The only thing we're doing is making sure that we have the inventory of components to be able to deliver to customers. So it's that for us to increase from $150 million to $300 million or $500 million, it's more than anything going to the contract manufacturers and say, we need more capacity. The only cost we have associated with that is when we have the units ready to be sold on the end of the production line, this is where we basically pay for the unit and then we sell it. I think that most, if not all of our customers will say that our lead times are the best in the industry in terms of from the time you put the order by the time you will receive your goods, that will be in small orders within days, in big orders within weeks. And if it's scheduled, it will be right on time. So when we schedule with an OEM that wants to have their deliveries weekly or monthly or quarterly, that will be on schedule based on those capacities again. So besides collecting a lot of hours as we did -- as we always did and continuing to collect a lot of data of a lot of flight and drive and sail hours that we're having and our customers are doing. We're also working on patents, which today we still have 13 sorry, family of patents, and we are expanding that based on all these new capabilities that we're developing. Two last points from me before we are moving to the Q&A. And again, like Mel said, we will welcome question on the button that you have on the bottom of your screen is -- first is the new business unit that I think during the quarter, we had the first major milestone there besides having the product ready to be demonstrated. We also signed the first customer. Customer there, I remind you all is government, this product, even though we're still in stealth mode, and I'll try to give a little more light on that. I would say that it's going for government customers. So we're selling directly to government in this case. It's a pure software solution that goes in some country, go to the Homeland Security office. In other, it goes to the defense, to the Ministry of the Defense. It really depends on where it sits within this specific country. And I think having the first customer, it's always the hardest finding the first early adopter of a technology that didn't have any track in the market or any experience in the market and having the first one always helped to get the second one and third one and so on and so forth. It's still in the hundreds of thousands of dollars, but I think it's part of the program, and I think it's very interesting to see this development. A company or a business unit that we initiated just 6, 8 months ago already have the first paying customer. But today, we have engagement with a lot of other prospects and potential customers in different parts of the world that are suffering from the problem that we're solving. Now remind you all, again, those of you on the line who are new, remind you all that one of the reasons that we are -- one of the reasons it's still in stealth mode is because we're protecting the competitive edge that we have here. We still don't feel that we have a strong and deep-enough moat around this technology, around this solution, and we want to make sure that once we go out to the market, we already have a big first-mover advantage because currently, we're not aware of any company that are going after this problem other than one small company in the U.K. that are more than anything doing a lot of social posts, but we have not seen any actual product that they're offering in the market. One of the points that we're taking our time with that is because we're not feeling that it's affecting our go-to-market. Unlike Elsight and the Halo, which goes to a broad base of clients, this market or this solution is going to governments and it's going to top-down government. So we're not talking with the people on the ground. We're talking with the people that are creating the strategy and everything and getting to them can be done without any marketing effort because it's mainly on a personal basis and connection. And we have a very strong team and advisory board that are helping us to push this to the market and getting it in front of the potential customers. Seeing the execution that we have done in the last actually 2 years and seeing the potential that we have in front of us, both from a market growth perspective, new product offering and getting into new region and new customers, I think that Elsight today is positioned in a super interesting position within the perfect storm of the uncrewed market, and we are ready to take over this opportunity with a lot of excitement and a lot of passion about the problem we're solving and about the market we're serving. And being part of this growth in the industry is super interesting for us. With that, I'll hand it over back to Mel and happy to answer any questions.

Thanks, Yoav. We have Bryce on the line. I'm not sure if you can allow him to talk there, we might ask that one live.

Not sure also, but please put your question on the Q&A. I think everyone who have questions, please feel free to put them on the Q&A button on the bottom.

Let's start with some of the pipeline questions we received. The first question comes from Ron says compared to Q1, there appears to have been a decrease of $6 million in the backlog. Can you give more color on what happened and what changes were made to the pipeline this quarter? He also has added to that, that there seems to be the larger part of the pipeline, so the identified opportunity doesn't seem to be growing at the same rate. Could you maybe talk to some of the reasoning there?

Sure. For the 2 points, first of all, remind you all that the backlog is contract that we already signed, and we are delivering based on schedule. The previous quarter number was $12 million. And obviously, as you look on our revenue number, those are part of the $12 million that we delivered during the quarter. Not all of it was there. Part of it is still need to be delivered, like you see as part of this $3.2 million backlog that we have here. The reason why the backlog has decreased is because we delivered part of it, and we didn't convert it from the commercial discussion to contracted in the same rate. So basically, we delivered faster than we are signing a new contract. On the top of the funnel, I think that the number have grown pretty nicely. If you look on the number from the previous quarter, it was $156 million on the top of the funnel. And again, those are accumulated numbers. So the difference is not only the $90 million that you are seeing between them, it's basically add to that the difference in the backlog that was already delivered. So I think overall, we are happy with the top of the funnel growth that we're having today. And remind you all that when we're talking about pipeline opportunities, we're talking about tangible opportunities. We're not putting here wishful thinking of programs that we might be relevant for or we have seen some titles, and we add them to the pipeline. Identified opportunities are only companies or end users or OEMs that we actually have discussion with. We actually spoke with them. We have people on the other side, but those are numbers that are coming from the customer and customers that we have relationship with. For us, pipeline is opportunities that are literally tangible, and we understand what we need to do to convert them into revenue.

From Eric, he says, it seems there is no new order from European OEMs. How do you see this market in the second half of '26? And also, how quick could you see orders scaling from the U.S. and NATO?

So for the first part of the question, like I said during the presentation, we are expecting to have more orders like we had in the first half from the European customers in the same scale. We are expecting in the second half, and we're feeling comfortable there. It's more about timing rather than a question of if. And on the second part, as I said, we are seeing a growing traction in the U.S. market and in the NATO country market. In the U.S., we're looking at that as a stand-alone market, and we're putting a lot of effort there, and we are seeing great results. Looking on our pipeline numbers, a big chunk of the pipeline is coming from the U.S. market specifically. We definitely see -- starting to see the results or the fruit of the efforts and the investment we're doing in this market. And part of our plan is to continue and even make those investments bigger because this is where we see a lot of the opportunities that we have in front of us is in the U.S. market. And I think that we will be able to demonstrate to the market, like I said, in the coming weeks, months and quarters, the fact that we actually converted into material revenue and not just small numbers of hundreds of thousands of dollars, but in the millions of dollars of contracts that we will start to see even during the second half of the year. So looking on the U.S. market in general, we are super comfortable and confident in our ability to continue the penetration where we started there, and those efforts will start to show fruits in a meaningful way, like I said, during the second half.

And then when do you expect a product solution for the lower end of the market?

So timing -- our timing there is having the prototype ready by October and GA general availability in January '27. It's very much connected to the -- if you look on the drone dominance program, which that's the program we are targeting with this product to be ready for. Gauntlet 2, we already started, and I would say that Gauntlet 2, which is going to happen this month during August. We have a couple of OEMs that are going there to what call the innovation lane with our solution on board. We are expecting more OEM to come as the main solution for their platform during Gauntlet 3 and 4, which are going to be in the first half of '27. I would say that the product is going to go for the upper tier of the FPV market. And the reason I'm mentioning it because there are drones that cost $600 and $800 for the entire drone or the entire platform. That's not the market we're targeting. We're targeting the more sophisticated one, which costs low thousands of dollars. The drone dominance program, for example, target price is USD 4,200 per drone, including all the system on board. And this is the market we're targeting with that. We believe that we have a very, very interesting value proposition there. And we will see in the next 6, 8 months, both the launch of this product and also starting to see sales from this direction.

Is there an estimated timetable for the completion of the third phase of the DIU?

The person who asked the question is referring to the Project GI is a plan that basically present capabilities in front of end users. The reason I mentioned the 101st Airborne division, for example, that's a lead or that's a result of the Project GI process, which then translate into actual procurement. So we are seeing this progress as we move along. As I said, from the first time we started to talk about this project -- about this program in September or October last year, it's not -- there is no budget that attached to it. It's a procurement process basically. So there is not a definitive date that says this is where the program ends. It's an ongoing program that present capabilities in front of end users. I would say that we already generate over the first half of the year, nice revenue numbers from this program.

Thanks, Yoav. If we could just go back to the pipeline slide. We've had a few questions here. So of the $65 million in evaluation, how much is to existing customers? And then also, Richard has asked on that same point, could you add a bit of color on how many customers that is?

So for the first question, like I said, 100% of the $65 million is with existing customer. Now a customer can be a small customer or a big customer, but all of them small in revenue numbers, not necessarily in the company size. Those are all companies that we already have transaction with, whether they completed that what we call SMART Start, which is basically the PO proof of value process that we're doing with them, and they are paying for that or they already have first orders that came in. On the second part of the question in terms of the number of different opportunities that are in there, I would say that in the $65 million, there is more than 25 different opportunities that are breaking down into these numbers. Part of them are with the same customers, part of them is with different customers. And in terms of the size, I'll refer you to, we are now more focused on showing the actual results and progress of revenue. But if you look on our 2025, the revenue came from 84 different customers. I would say loud and clear that there is a clear pareto for Elsight of the top customers that are still generating most of the revenue of what we're doing. And we are -- part of our objective for the year is to diversify not only the customer base, but also the product base and the market base in terms of region. And we are seeing the result of it in diversifying the revenue. The percentage of the biggest customers have went down as a percent of the overall revenue that we did in the first half. And that's a continuous progress that we're doing without getting into names because of the reason I mentioned before, that's the best color I can put into it in terms of the numbers.

Thanks, Yoav. And then Robert has added to that. With the pipeline scope to Halo connectivity only, how should investors size the other 4 revenue streams? Elsight cloud, data usage, GNSS-denied positioning and the Stealth initiative, even a directional split of where calendar year '27 revenue might come from?

The entire pipeline that you see here, the vast majority of it is Halo solution, the connectivity, communication solution of what we're selling today. That's why we -- what we have a long experience with, and that's where most of the opportunities and the pipeline is coming from. A small part of it is starting to be from the positioning solution, the one that I mentioned before that we soft launched and started to see opportunities there. But looking forward, we do believe that we'll have expansion -- a big expansion of the pipeline only as a result of it because the beauty of those products is that most of them, the positioning, the communication, the autonomy and the sensor processing that I mentioned, they can not only go on new product, they can go to existing systems that are already deployed with a software upgrade basically. So that provides a very good access or very good distribution in the market, and we do expect this number to grow. I'll talk about addressable numbers or total addressable numbers. Generally speaking, the non-GNSS solution market is according to different estimation is around $3 billion to $4 billion market. It's a little -- it's slightly smaller than the communication market, but it's a very big market, and it's parallel to that because communication is one challenge. There is another challenge that is not necessarily have something to do with communication, which is navigation and positioning in a GNSS-denied environment. So we do expect to see a big pipeline inflection once we will start to actually include those numbers in the pipeline as we are expanding those. And I think that in 2027, when we will look on Q1 '27, a lot of the pipeline will be from the new product that we're -- part of it, we already soft launch, part of it, we are already in the development phase, and then we'll go into the go-to-market phase. Speaking about the Stealth mode. About the Stealth mode business unit, that's entirely a separate business -- a separate pipeline because it's going to a new customers. I think it's too early to talk about pipeline there because, as I said, it's still an early stage. We did sign the first customer. We are talking with additional potential customers and prospects. But I think there it is too early to talk about the pipeline. I believe that during 2027, when we will start to talk about what is actually behind this business unit, we will start to talk also about pipeline and opportunities, but that will be in a separate pipeline because those 2 are completely separate efforts. So that's how currently the split of the pipeline looks.

And then if we stick with this slide, Timir has said the current order backlog is sitting around $3 million. How should investors think about the Q3? And what should they expect regarding the revenue and orders?

So like I said before, during the previous quarters, if you look, a lot of the revenue have -- it's ordered that came in during the quarter and quarter and was delivered in the quarter. It's about timing and the time we're getting the order basically and then how long we have to deliver it or what is the schedule of the delivery that the customer have. I would say that from a production perspective or delivery perspective, we are making sure that we will have all the goods on the shelf basically. So once we're starting to get those contracts, it will be even faster to deliver than what it was before. So that's how we mitigate this gap between the backlog that we have to the actual revenue that we're expecting in the second half, Q3 and Q4 together. If I understand the question correctly, you see the split in the numbers here, like I said, the bottom part of the pipeline is with existing customers and the top part is with net new. As you see the numbers, we have more opportunities in the net new rather than the existing customers that we have. I would say that part of them are because of growing programs and also because of new customers that we're talking with. This is how the split looks like today from existing or the existing design win to new design win on the top of the funnel. I'll try to talk about top-down analysis if anyone wants to model it. And allow me not to talk about the overall defense spend of, for example, in the U.S., $1.5 trillion or EUR 150 billion or EUR 110 billion in Germany as an example. I'll talk about from the percentage or from the budget that is going for unmanned systems, if you look on a typical unmanned system, whether it will be a drone or ground robot or a vessel, around 12% to 17% of it will be those solutions -- or let's call it, 12% to 20% of it will be the solution that Elsight is selling. So if we're looking on the budget for unmanned system, take from that, if you want to be conservative, 12%, that's Elsight's service addressable market basically. And that's how we're looking at top down. Obviously, we're also looking at bottom up, but that's our top-down approach.