11x in 12 months and “We’re just getting started”

Elsight CEO Yoav Amitai explains how a small wireless-communications company became the connectivity layer inside defence drones and robots, and when he expects the commercial drone market to follow.

“We’re Just Getting Started”

Simon Hinsley opened by asking what happened at Elsight over the last 12 months, given how sharply the business has moved. Yoav’s answer is about the industry. He says what people do not necessarily understand is that the company is only beginning, and that they have been smiling at that line for some time.

People were smiling also where we were 6 months ago when I said exactly the same, and they said, “Okay, that’s another person saying that.” But here we are.

— Yoav Amitai

The key change, he says, was an inflection point in the industry and a growth in the total addressable market, and then knowing how to leverage it into a snowball of more orders and customers.

Enabling Drones, Not Countering Them

People hear “drones” and think of DroneShield and EOS, and Elsight often gets lumped in with them. Yoav says they are on opposite sides. DroneShield and EOS are counter-drone systems. Elsight enables drones, and not only drones, but ground vehicles and maritime robotics.

The differences go beyond technology. The unit economics and the customers are different, too, since they sell to completely different parts of the same defence organisations.

From Operations Manager to CEO

Yoav trained as a mechanical engineer and joined Elsight in 2017. He says what he brought was a builder’s culture, and tells the story of his 11th birthday, when his brother, 16 years older, gave him a VW Bug and he turned it into a dune buggy.

We’re not here to create cool stuff. I emerged from that into someone who thinks about business and how it translates into revenues and profits.

— Yoav Amitai

He moved from operations through product and development, then the business side and COO, before becoming CEO. The benefit is breadth. Investors are sometimes surprised that he can answer a deep technical question and a numbers question, and he says knowing the business bit by bit helps him know both the limits and the risks.

He is happy to meet investors, and was in Australia for a week doing so, but says the team is about 98% focused on execution and wants to get back to real work. He says the company has learned that the numbers must be delivered, or over-delivered, and puts everything on the table, good and bad.

What Halo Does

The Halo was originally built for highly reliable communication in wireless environments, with nothing to do with unmanned systems. In 2019 the company decided it needed a laser-focused strategy, knowing what it would do and what it would not, and chose the unmanned market. That means drones, ground robots, hybrid robotics and maritime robotics.

It started in commercial. Yoav says not many people know that Elsight began with Walmart drone deliveries, doing the enablement technology rather than the drone itself, alongside shell pipeline inspection, agriculture and public safety. It always had some defence exposure, but nothing like today’s.

Concurrent, Not Failover

Simon Hinsley picked up on the key word Elsight uses: concurrent, not failover. Yoav explains with an everyday example. When you walk out of your home on a Zoom or WhatsApp call, your phone drops the Wi-Fi and connects to the cellular network, and the call freezes for a few seconds. That is failover.

What we’re doing, we’re utilizing both networks at the same time. Not only that you won’t have this drop, you also can benefit from both sides’ bandwidth.

— Yoav Amitai

If Wi-Fi gives you 5 megabits per second and cellular gives you another 5, the two merge into 10, so you can do much more with the connection. The same logic applies across cellular, Wi-Fi, satellite and other links.

The stakes are higher for a mission-critical drone. Yoav asks listeners to imagine operating one 10 kilometres away and suddenly losing the link, even for a couple of seconds. Regulators also require a constant command and control link, so connection confidence is both an operational and a compliance need.

A Software Company That Happens to Have Hardware

About 95% of Elsight’s engineers are software people and about 5% hardware. Yoav used to say Elsight is a software company that happens to have hardware, and used to think the hardware was a bug. The company built it only because it could not find a white-box OEM with the specifics it needed.

Today we figured that if we thought in the past that the hardware is a bug, now we understand it’s a feature more than a bug.

— Yoav Amitai

Hardware is hard, with supply chains, manufacturing capacity and export controls. But once it is integrated into a drone or robot, it provides processing resources that can be used to upsell and cross-sell more software. A pure software company has nowhere to put it.

The Moat Is the Data

Simon Hinsley asked whether the moat is the roughly half a million real-world flight hours. Yoav says yes, and extends the point. With AI models improving, he says software is becoming more of a commodity, so companies need to know what their real assets are. Patents, which investors often ask about, are good for marketing but not real protection, and certainly not in defence.

What Elsight has is not only the experience of about 500,000 flight and drive hours, but the log data from all of them.

Think about how many different products you can make, based on this data set. And that’s what we’re doing today.

— Yoav Amitai

The company has soft launched a navigation product that has nothing to do with communication, and is running another business unit in stealth mode, both built on the data.

Why the Layer Underneath Is the Place to Be

Simon Hinsley asked why Elsight likes being the layer underneath, a kind of Switzerland that partners with many manufacturers. Yoav compares it to automotive and aviation. Beyond the OEMs, such as Toyota, Land Rover, Boeing and Airbus, there are tier-one suppliers like Bosch and Continental that many people have never heard of but which supply all the OEMs and are much bigger.

Being lower in the food chain does not make for good marketing for investors, he says, but the layer is bigger and thicker and has far less competition. Elsight wants to be the trusted partner for anything an OEM or end user needs on that enablement layer, growing organically and possibly through acquisition.

On competitors, he says Elsight is compared to point-to-point radio makers, satellite providers like Starlink, Viasat and Iridium, and public networks like Telstra, Optus, Verizon and AT&T. But it is an abstract layer on top of all of them, and is often additive rather than a replacement. On the Blue UAS list there is a multi-path section, and Elsight is the only name in it. That is both good and hard, since it requires a lot of education.

SOCOM, Project G.I. and the Blue UAS List

Elsight was part of Project G.I., a collaboration between the US Defense Innovation Unit and SOCOM. Its role was to show how drone-enabling technology could overcome counter-drone systems. Out of roughly 120 companies, Elsight was one of six selected for the next phase.

One part of that phase was qualification for the Blue UAS list, which you need for selling directly to the US Department of Defense. Yoav says it usually takes four to 14 months and can cost a lot of money. In Elsight’s case it was fully funded by its sponsor inside the department.

The list works as a marketplace, so different parts of the department can procure more easily than with other products. Being used by SOCOM, the US Special Operations Command, also sends a message.

If they’re using us, the army can use it. We thought that if we got this stamp, it would make it easier to go to other places.

— Yoav Amitai

Defence Today, Commercial Tomorrow

Yoav says part of the shift was a trend towards commercial off-the-shelf products being adapted for defence. Elsight changed nothing about its product. It is the same one sold to commercial and defence customers, and it is not treated as a defence company for export regulation purposes, so in his words it is a commercial company leveraging its capability into defence.

The commercial side has not shrunk, but it is growing more slowly than defence. He says the commercial inflection is a question of when, not if, and gives use cases that make economic sense from the first drone:

• Drones as first responders: replacing police on the ground, saving money and people.
• Power line inspection: replacing full-size helicopters with drones that fly more often, more safely and more cheaply.
• Drone deliveries: more capital intensive and still dearer than a delivery rider on a scooter, but it will get there with scale and clear regulatory frameworks.

Yoav thinks the timeline will not be very fast, perhaps a couple of years or five or more, but the market will eventually be as big as defence because of the unit economics.

The Red Flag Act and the Future Sky

Simon Hinsley brought up the early law that required someone to walk in front of a car carrying a red flag. Yoav says it fits. The man in the loop is still the problem, and gaining the confidence of the public and aviation authorities takes time.

He reassures listeners that the sky will not be full of drones and air taxis. Cars drive on roads, not sidewalks, and drones will have corridors, a bit like train lines. He points to an underused dimension, from the ground up to the altitude of commercial aviation, and asks how much of the morning traffic into Melbourne is a delivery driver moving a small box in a full-sized vehicle.

Technologies like GPS and the internet started in defence and moved to commercial. Yoav says experience in the most contested, electronic-warfare-heavy environments should make it fairly easy to go to the suburbs of Melbourne and do deliveries.

The Bear Case: Concentration and Peace

Simon Hinsley raised two bear arguments. The first is customer concentration. Yoav says diversification is part of this year’s objectives, across customers, product lines and regions, with new hires on different continents. He says more recent announcements from other customers show concentration getting lower.

The second is what happens when the conflicts end. Yoav says everyone hopes for peace and ceasefires, but the change is structural, and the strongest lesson from the Russia-Ukraine conflict is that the speed of iteration has changed dramatically.

Long gone are the days that they can give a big check for a big prime saying, “We need a solution in 10 years’ time.”

— Yoav Amitai

By the time the technology reaches the field it would be irrelevant, he says, with cycles of days or weeks on the front lines. Procurement has changed, and he points to the share of budgets going to unmanned systems in the US, Germany, the UK and the Nordic countries, in long-term programs that reflect a shift in the capabilities militaries need.

The Problem He’s Fallen in Love With

Yoav has advised founders not to fall in love with their solution, but with the problem. Asked about his current one, he says there are many, and they all sit in the enablement layer: how a drone navigates, communicates and connects with other nodes in a swarm, in the most efficient way.

Elsight is working in short cycles with customers who feel the pain first-hand, and has an open and intimate relationship with them. Feedback from those customers can be blunt, he says, with changes happening so frequently because of the environment, and the company is willing to hear that a first idea was not the right solution.

The next challenge is to position ourselves as a tier one in this industry.

— Yoav Amitai