Actelis Networks, Inc. (ASNS) is a leading provider of cyber-hardened, rapid-deployment networking solutions for wide-area IoT applications. With a strong focus on delivering reliable, secure, and high-performance connectivity, Actelis has established itself as a trusted partner for government agencies, telecommunication service providers, and enterprises across various industries.

Company Background

Founded in 1998 under the laws of the state of Delaware, Actelis Networks, Inc. has a rich history of innovation and strategic growth. The company began its journey by serving telecommunication service providers, providing connectivity solutions for enterprise and residential customers. Over the years, Actelis has evolved its technology and expanded its product offerings to cater to the growing demands of the wide-area IoT market, while maintaining its commitment to its existing Telco customers. The company has a wholly-owned subsidiary in Israel, Actelis Networks Israel Ltd., which has played a crucial role in its research and development efforts.

Business Overview

Since its inception, Actelis has been focused on the design, development, manufacturing, and marketing of cyber-hardened, hybrid fiber networking solutions for IoT and Telecommunication governmental agencies and companies. In its early years, the company's products and solutions were deployed with more than 100 telecommunication service providers worldwide, serving enterprise, residential, and mobile base station connectivity applications. As Actelis further developed its technology and introduced additional products, it shifted its focus towards serving the wide-area IoT markets while continuing to support its existing Telco customers. In 2023, the company introduced new product offerings that could serve both the IoT markets and its Telco customers, demonstrating its ability to adapt to changing market demands.

Actelis is a market leader in cyber-hardened, rapid deployment networking solutions for wide-area IoT applications. Its unique portfolio of hybrid fiber, environmentally hardened aggregation switches, high density Ethernet devices, advanced management software and cyber-protection capabilities, unlocks the hidden value of essential networks, delivering safer connectivity for rapid, cost-effective deployment.

The company's solutions use a combination of newly deployed fiber infrastructure and existing copper and coaxial lines which its patented technology can upgrade to Fiber-grade to jointly create a highly cost-effective, secure and quick-to-deploy network. The primary focus is to provide customers with a cyber-secure network solution, offering Triple-Shield protection of data delivered with coding, scrambling and encryption of the network traffic.

Technology and Solutions

Actelis' unique hybrid fiber networking approach combines the use of newly deployed fiber infrastructure with its patented technology to upgrade existing copper and coaxial lines to Fiber-grade performance. This innovative solution allows for cost-effective and expedited deployment of modern IoT networks, particularly in hard-to-reach locations where running new fiber would be time-consuming and costly.

The company's solutions offer a range of key features, including cyber-secure protection, power delivery over existing infrastructure, and the ability to provide Fiber-grade reliability and quality over both fiber and copper networks. These capabilities have made Actelis a valuable partner for a diverse set of customers, including federal, state, and local governments, intelligent traffic systems, military, utility, rail, and campus applications.

Actelis operates in two main product segments:

1. Networking Solutions: The company provides cyber-hardened, hybrid fiber networking solutions for IoT and telecommunication applications. These solutions can deliver multi-Gigabit communication speeds while supporting fiber-grade reliability and quality.

2. Cyber Security: Actelis offers "Triple-Shield" protection of data delivered with coding, scrambling, and encryption of network traffic. The company is also working on introducing additional capabilities for network-wide cyber protection software as an additional software and license-based service.

Financials

Actelis' financial performance has been characterized by a mix of challenges and successes. In the nine months ended September 30, 2024, the company reported revenues of $6.70 million, a 46% increase compared to the same period in the prior year. This growth was driven primarily by a 73% increase in revenues from North America, offset by a decline in revenues from Asia Pacific and Europe, the Middle East, and Africa regions.

Gross profit for the nine-month period improved significantly, reaching $3.91 million, or a 58% gross margin, compared to $1.55 million, or a 34% gross margin, in the same period of 2023. This improvement reflects the company's focus on optimizing its product mix and cost structure.

Despite the top-line growth, Actelis has continued to face profitability challenges, reporting a net loss of $2.58 million for the nine months ended September 30, 2024, compared to a net loss of $4.36 million in the prior-year period. The company has been actively implementing cost reduction measures, which have contributed to the narrowing of its operating loss from $5.71 million to $2.12 million over the same period.

For the most recent fiscal year (2023), Actelis reported revenue of $5.61 million, a net loss of $6.29 million, operating cash flow of -$6.58 million, and free cash flow of -$6.59 million.

In the most recent quarter (Q3 2024), the company reported revenue of $2.54 million, a net loss of $0.51 million, operating cash flow of -$2.44 million, and free cash flow of -$2.44 million. Notably, Q3 2024 revenue showed a substantial 200% increase compared to Q3 2023. This increase was primarily attributable to a $1.4 million rise in revenues generated from North America, driven by volume increase and a renewal of a service and software contract, as well as a $0.3 million increase in revenues from Asia Pacific and Europe, the Middle East and Africa, driven by volume increase.

Actelis has been focused on cost reduction measures, which have helped improve its financial performance. Research and development expenses decreased to $1.79 million in the nine months ended September 30, 2024, compared to $2.12 million in the prior year period. Sales and marketing expenses also decreased to $2.00 million from $2.33 million, and general and administrative expenses declined to $2.40 million from $2.81 million.

Performance by Geographic Markets

Actelis generates revenues primarily from three geographic regions: North America, Europe, the Middle East and Africa, and Asia Pacific. In Q3 2024, the revenue distribution was as follows:

- North America: 72.8% of total revenues - Europe, the Middle East and Africa: 24.2% of total revenues - Asia Pacific: 2.9% of total revenues

Liquidity

Actelis' balance sheet as of September 30, 2024, showed a working capital deficit of $1.00 million and an accumulated deficit of $42.26 million. The company has relied on a combination of equity and debt financing to fund its operations, including a $3.50 million private placement in May 2023 and a $2.25 million warrant exercise in June 2024.

In September 2024, Actelis filed a shelf registration statement with the SEC, allowing the company to offer and sell up to $50 million in securities. Subsequently, the company entered into an at-the-market (ATM) offering program with H.C. Wainwright & Co., through which it has raised approximately $317,000 in net proceeds as of September 30, 2024.

As of September 30, 2024, Actelis had cash, cash equivalents, and restricted cash of $2.54 million. The company's long-term debt stood at $150,000 from an EIDL loan received in 2020. Additionally, Actelis has a $1.5 million credit facility with Bank Mizrahi-Tefahot, of which $927,000 was drawn as of September 30, 2024.

Key financial ratios as of September 30, 2024: - Debt/Equity ratio: 0.23 - Current ratio: 1.42 - Quick ratio: 0.94

Despite the improved financial performance, Actelis continues to face challenges, including significant losses and negative cash flows from operations. The company is actively seeking additional financing to fund its operations and continue executing its business strategy.

Geopolitical Considerations

Actelis' operations have not been significantly impacted by the ongoing geopolitical tensions in the Middle East, including the war between Israel and Hamas. However, the company remains cautious about the potential for further escalation and its potential impact on its business and personnel located in Israel.

Future Outlook

Looking ahead, Actelis' management is focused on driving continued revenue growth, improving profitability, and strengthening the company's financial position. The company's unique hybrid fiber networking solutions, combined with its focus on cyber-security and rapid deployment capabilities, position Actelis well to capitalize on the growing demand for advanced connectivity in the wide-area IoT market.

Actelis' success will depend on its ability to maintain its technological edge, expand its customer base, and navigate the competitive landscape. Additionally, the company's financial performance and liquidity position will be crucial in supporting its growth strategy and ensuring its long-term sustainability.

The global IoT market is expected to grow at a CAGR of over 24% from 2023 to 2028, driven by the increasing adoption of IoT technologies across various industries such as smart cities, transportation, utilities, and industrial automation. This trend bodes well for Actelis, as the company's solutions are well-positioned to address the growing demand for secure and efficient connectivity in these sectors.