Odysight.ai (ODYS): Eyes Inside the Machine: AI-Powered Visual Sensing and Predictive Maintenance for Aerospace and Defense

In this episode of the WTR Small-Cap Spotlight Podcast, Yehu Ofer, CEO, and Einav Brenner, CFO of Odysight.ai Inc. (Nasdaq and Tel Aviv: ODYS), join host Tim Gerdeman and WTR equity research analyst James Kisner. Odysight.ai pairs small optical sensors with AI to bring predictive maintenance to aerospace, defense, and industrial markets, placing eyes inside hard-to-reach, safety-critical parts to spot leaks, cracks, and corrosion and forecast failures before they happen. Ofer explains how legacy monitoring relies mostly on vibration sensors bolted to moving parts, leaving much of a platform checked only by the human eye, and how Odysight's AI reads what those systems miss. He traces the path from optics to a qualified aerospace product and why today's defense environment is pulling customers in. Brenner walks through the backlog, the shift toward recurring revenue, and the company's cash and funding. Ofer closes with the milestones investors should watch across the U.S., Europe, and beyond.

Transcript

SPEAKER_03 0:01

Welcome to the WTR Small Cap Spotlight Podcast. I'm your host, Tim Gerderman, Vice Chair and Co-Founder and Chief Marketing Officer of Water Tower Research. Today we're joined by Yihu Offer, CEO, Anita Brenner, CFO of AutoSite AI, Inc., NASDAQ and Tel Aviv stock exchange ticker symbol, O D Y S. Autocyte AI is pioneering AI-powered visual sensing and predictive maintenance for aerospace, defense, and industrial markets. The company deploys proprietary video-based sensors, embedded software, and AI algorithms into hard-to-reach environments and safety critical components, essentially putting eyes inside the machine to detect anomalies in real time and forecast failures before they happen. Autosite AI's dual-use technology is qualified and deployed on platforms associated with such well-known names as Boeing, Lockheed Martin, Soffron, Elbett Systems, and NASA, with a growing presence across rotorcraft, UAVs, space, and industrial applications. Yihu has served as CEO for the past three years. Also joining is my WTR equity research colleague, James Kister. Good morning, everyone, and thank you for joining today's podcast. Thank you very much. Yihu, to kick things off, for listeners new to Odysite story, can you please provide them with a 30,000-foot overview of what the company does with AI-powered visual sensing and what problem or problems the company's technology solves for your customer base?

SPEAKER_00 1:36

Thank you again for the question. And from 30,000 foot to uh to describe Audisite, so uh around five or six years ago, Audisite was a small diameter optical, uh optical device uh company for uh different uh for different applications. It had one project in the medical device arena to uh to area to uh Fortune 500 uh company that developed and produced uh a solution for spinal surgery, uh, and this came out uh up to uh a full uh a full product that is changing the way that spinal surgery is being uh is being made. And from the other hand, NASA came to the company and approached us via the internet in order to find a solution for a small uh small diameter optical device that is launched from a space from a from the space shuttle attached to a dead satellite in orbit and check the uh through the fuel shuttlefeld, the fuel tubes for cracks, leaks, and etc. And we had a we had a product that could survive from one end in the human environment and from the other hand in the uh in space conditions. And then came an accident in the Israeli Air Force that an Apache A864 helicopter uh was crushed because of a problem, a mechanical problem of a push-pull road. The push-pull road is connecting between the pedals of the pilot to the uh to the aft rotor, and this was dissembled in flight and and and and this is being checked only every five years in depot level, and it's very hard to look at it because you need 10 days to dissemble the aircraft in order to see. And the investigation committee, when it defined the root cause analysis of what was the cause of this accident, it was a movement of the mechanical, a mechanical closing uh knob on the uh on the on the push-pool road, and this was released in half a millimeter and slowly, slowly until it dissembled, and then they lost the connection between the aft rotor and the and the pedals, lost the horizontal uh stability and crashed. Out of that came uh uh and today, if I'm running three years forward, so today we have uh a full AI-based uh solution based on small sensors that can survive in the very harsh environments of aerospace. Uh and beyond that, we are we are having a full solution that is taking the data from the aerospace, put it inside a small computer that can survive in on premises or via the cloud, give analyze the data, give anomaly detection in real time, and as we are gathering the information, so we can get also prediction to when it's happening. This is relevant for safety critical issues, hard-to-reach, single point of failure, uh areas inside the inside platform, and it's identifying many things that cannot be can haven't been able to detect before, like leaks, cracks, anomaly detection, uh corrosion, uh moving parts, and things that does not have as the legacy system uh that are doing it by vibration on dynamic parts only. That's the new thing that we are bringing into the into this world.

SPEAKER_03 4:21

That's a uh fascinating diversity of applications, I have to say. Uh, and with that, thank you for that answer. I'm gonna turn it over to my colleague James Kisner to drill a little deeper into the firm.

SPEAKER_02 4:30

All right, thanks, Tim. All right, so uh I'm gonna drill down a little bit more on your answer there, Yahoo. It's um you know, you've described out of side as putting eyes inside the machine, which I think is a kind of a cool description. What really makes this combination of visual sensors and AI fundamentally different from you know traditional sensor-based monitoring? And why is that so hard to replicate?

unknown 4:52

Okay.

SPEAKER_00 4:52

So so so first of all, it's the conditions. In order to be proved for the aerospace, uh for the aerospace uh uh hemisphere, so you need to prove yourself for standards so uh you know Audicite is an AS9100 uh uh company, it stands on all the uh on all the requirements, both from the um mechanical and and and environmental and the and electrical, in order to be qualified in order to get inside to those uh to those environments. The other thing is the ability to create a sensors that can survive in the in the in the environment and give you the detection. We have in the company a lot of uh a lot of knowledge in small optics that can detect because the definition of uh a crack or a structure problem inside an aircraft, it's very small and how to detect it and how to do it efficiently. So there is a lot, a lot of knowledge of the electroelectrical optical solution that is invested in that. We have more than 16 patents already granted for those sensors, and we have around 34 in PST level and in the movement, as we are unique in this in the development and production of this uh of these types of uh eyes inside the machine, as you correctly, as you correctly said. So the ability to survive, the ability to function, the ability to detect the actual use case that is uh that that is there. And on that, of course, there is the application, software, and then algorithms that are not less important in order to give uh an AI solution that is uh is is in a high level of reliability and can give to those critical uh machines a solution that they can rely on.

SPEAKER_02 6:24

Yeah, that's very helpful. Um I guess you know, let's let's turn that on. You touched on the competitive piece a little bit, but maybe we could kind of double-click on that. Just you know, how would you describe the competitive landscape and you know how does your that IP portfolio reference and overall strategy just position out of site to stay ahead as the market develops?

SPEAKER_00 6:42

Okay, great. So so first of all, the the competitive landscape today is mainly or 90% of the market is based on on uh the traditional legacy platforms that are based on vibration. Uh but the the the leading sensors in the world are vibration, uh optical uh vibration, um thermic, thermic, thermal, acoustic, and uh and pressure. Uh what we brought inside to that is the ability, think about that 99% of all the checks in all the machines, the critical machines in the world, at the end, the checklist for the maintenance personnel is check that it's okay, check that there is no leak, check that there is no that. And the vibration, the vibration-based sensors that are the legacy sensors, are integrated only into dynamic parts and can sense vibration in something that is not moving correctly or starts to move incorrectly. So we are bringing uh around 70% of the platform that was not being detected, it was only detected by human. So we are bringing a solution to those uh 70 parts, and we can also, uh, if we if we if we are needed, we can also make a detection of most of the other things. Now, since we are coming from this world, so we we we designed our sensors and our our system in order to be able also to uh to take uh the let's say the legacy sensors that are there. So we can install also a holistic solution that also takes vibration and other sensors inside into our platform and give the holistic solution if the customer asks. Now, what we are bringing today does not have nobody, nobody developed that before, those this kind of capability. So we are new into an existing or already to an existing uh to an existing market. Now, the ability, what you asked about, the ability for someone to come, of course, if someone will tomorrow will will put uh 500 engineers and we'll invest a huge amount of money and power and power, it probably can, you know, it can create something like uh like Odyssey T doing. It's not something that is uh impossible, impossible to do, but we are already having a lot of a lot of knowledge, both in the in the knowledge of the data that we are recognized, both in the knowledge of what we are doing, what we have as existing solution in high level of reliability, and the position, why should tomorrow the Israeli Air Force should approach to someone else when you already have a very good record with us? So once we in 2025 we got the product into a qualified level and we have a qualified product in all the assets, both hardware and software. So now we are running full steam ahead in order to get to a commercial position, and every position that we are getting, like the one that we published lately, and probably more that will come, so is giving us a strategic advantage in front of competitors that will come tomorrow to the same market.

SPEAKER_02 9:28

That's helpful. So um you had a lot of you know important wins recently, the IF Sarkovski SH60 fleet level order, the the first AH64 orders, UAV platforms, NASA, and even some growing European momentum. So, what do you think it is about today's defense environment that's driving customers to adopt your technology now?

SPEAKER_00 9:49

Okay, uh that's a great question. Thank you. Uh thank you. First of all, there is there are conflicts in the world. They were not uh they were not there uh 20 years ago, uh defense was one, and today the whole geopolitical situation in the world is being changed. It's not connected to to Odyssey. But the there are two two factors that are there. One, the existing platforms, all of them, if you want to buy tomorrow a tank or a F-16, you will get into line that you will get it in six years. So all the existing platforms that are in the world today will be extended. In order to be extended, they need to be examined. The most of the exam, most of the checks that need to be done are exactly with where Audicite brings uh brings a lot of value. So that's from one end, and think about the overload of uh of platforms that are flying in the Ukraine or in the uh in the US against uh US and Israel against Iran conflict. So you need to overload the platform. It flies very heavy, do a lot of flight hours. The time between the between the periodical checks is becoming very short because it's flying a lot of flying hours. So the the whole cycle of maintenance is becoming uh an acceleration. One. The second is the time, uh the efficiency of the time on ground. The time on ground is critical for a commercial aircraft, it's the most expensive thing, and it's critical from the operational point of view to uh to a defense platform. So a lot of the platforms will be extend life, they need us. A lot of the platforms need to be more efficient in order to get, we are, we are contributing, uh, we are contributing in that sense. We are contributing, think about the men in the loop issue. That we are, you know, if you need to check something that you need to see the maintenance personnel ignite in the in the Persian Gulf, in a on a carrier of the uh in a US carrier, so you know, people get tired. So, and we are objective, we are checking that exactly what is needed. So we give the data that is very uh that is very uh very valuable because uh the the the system does not get uh get tired. And the last thing is for the OEM, for the that needs to because think about even from the aspect of personnel, it's not easy today to find people who want to become master in technician of maintenance for platforms that are there. It's a it's a it's a manpower that is becoming more and more problematic to worldwide, not connected. Uh who wants to be on an elevator and get 100 floors up in order to check the cable with a flashlight? It's not something that is so no, but but that's where we come, that's where we come useful, okay? Because we bring eyes exactly into this spot and we are in a way replacing or giving value to the uh to the criteria, which is what is being checked by the human eye.

SPEAKER_01 12:26

Just to add on what Yehusa, the the the contribution here is also in terms of it's also economical because you save man hours and you save the cost of specific professional man hours, and you are able to manage your supply chain in a more effective way. So you're not ordering potentially a lot of spirit parts if you're not absolutely required to do that. Um, so the contribution to the customers is not just within the safety on their operational availability, it's also within the economical.

SPEAKER_00 12:58

Yeah. And and and and I'm just saying one word of operational camera out of my experience, and and I think it's important to understand. Think about the UAV that is seven hours out there. It could be uh it could be a US UAV or a US, it doesn't matter. Okay, and now you need to take a decision. You have some very small metal function, but you don't know exactly what it is. Suddenly you have the data about a about a leak of fuel or a leak of oil that is there, and you don't know just that there is a there is a uh a light that is saying you have a leak. You know that there is a leak, you know what is, and you can calculate and know when it will become critical. Now, this data becomes operational because then you can take a decision to maintain it there in order to continue the mission, or you are taking it back based on data and not based on fillings or on something like that. And and just finalizing what Enav said, because I think it's critical in every availability contract in or every availability of uh of a system. And and there are two requirements today in the US market that is operational availability and mission readiness. And the second third one, by the way, is safety. So those things are being contributed by Odyssey because Odyssey lowers the life cycle of the from the pre-flight level up to the depot level. It it the costs that are there are maintenance personnel and the level of parts that you are you need to hold in order to support the operation, and we are contributing on all of those, uh, on all of those.

SPEAKER_02 14:23

Yeah, that makes sense.

SPEAKER_00 14:24

We give value of all of those.

SPEAKER_02 14:26

That sounds like a lot of customer value. That visibility seems like it would be really important and useful. Um, you know, beyond aerospace, you're expanding to elevator safety, mining trucks, railway monitoring, and armored personnel carriers. Just how do you balance that broader opportunity with staying focused on aerospace?

SPEAKER_00 14:43

So again, that the thank you for the question. First of all, we are small and we need to focus. So our decision was because it was when I came into the company and I had a lot of discussion on that with Ainav, we we are a small company, we need to be focused. And what the decision that we took is aerospace, okay? But why aerospace? Because aerospace can pay for the the maintenance, aerospace can pay for the safety, aerospace is the gaps there are big, and and the value that we bring is is very evident. Okay, so that's why aerospace and aerospace by itself is a huge market because it's not just the platform, it's also the engines, it's also the parts. There are a lot of things in aerospace that we can uh if you you know if you look inside below the floor of a 74 or 777 or or 7 or 787, so so many pipes, there is a lot of do a lot to do there for what with what we give value. But but the the the the what we learned in the when we grew up the uh the aerospace product to the level of qualification, which is where we are, we learned that in the last year since the since the change of AI and the ability to accelerate in software, and one, you know, the the the ability to go from C ⁇ to uh from C ⁇ to Python was something that was or in the operation, it was was a huge operation in just a few years ago. Today it's it's a kind of uh it's a kind of easy and you can accelerate. So what we what we learned is that 85 or maybe even more than 85 percent of our software is the same as it is both on the uh both on the uh on the aerospace and with industrial. The other thing is that that the the sensors are the same at the end. So and the algorithms, they're repeated, it's a repeated phenomenon. So what we said is where we see an opportunity that does not need anything from us. It looks like huge opportunity, like railway switches, okay, like elevators, and we can do it because someone is taking us forward, as we did in the elevators. So there is, we are just a piggy bag inside, and there is someone that is taking all the effort to take it forward, and we bring something that we already know, and we just need to give him a piece and let him go. So that's why we uh that's why we allowed ourselves to test the water in in a few places, and and and the responses are amazing. And and the last thing that I need to say, and this is a CEO for a very small startup company, is is that where we are is that we cannot close our eyes and say we are only going there because sometimes the opportunity is not here, it's it's a little bit 10 degrees to the left. And if there is there, and the market will accelerate much more. So I need to see that I also have some alternative, as it does not heat, does not hurt our main operation, and that's where we are.

SPEAKER_01 17:28

I agree. I totally agree with what you said. Um, and I think just to to maybe further emphasize it, the application is the same application that we use, the software is the same software. Um, in a lot of cases, the hardware is exactly the same hardware in and some sometimes simpler within the industrial, obviously, um, in terms of cost and and price to to the customers. And the algorithms, just as an example, so if you're taking the algorithm, it's it's the basic algorithm, it may require some customization in terms of the the uh field of view or or the length or or other uh definitions, but it's the same basic algorithm we use in cranes and in elevators built and in rescue cables and even in the cables on the carriers that uh that assist the um the aircraft in in their landing uh process. So it's the same basic algorithm with some certain customization that is not required much as as you who mentioned uh because of the progress of the AI in the latest month. Um and and this is exactly what we're doing. We're taking every low-hanging fruit that we can, taking into consideration that it's not you know diversify diverting the company from its focus.

SPEAKER_00 18:42

And if I may, because and I've touched a critical point, which is also important. Look, if I'm got if I'm gathering uh uh information in 500 elevators, okay, and this information is on a cable, and this is supporting me because it's the same use case in the level, again, in the level of the AI and the and the the the maturity of the algorithm. And that's this at the end, it's the same algorithm that I use on search and rescue hoist that is there, that is, you know, how you are it's tending so you are you it contributes and it matches, okay? So it does not hurt us. On the contrary, it's helped us to give more value to other customers.

SPEAKER_02 19:17

That's very helpful. So uh, you know, I think I'm gonna hit you with a couple financial questions. Um, that's why an obvious here. Yeah, so uh you know, you had a I think you had a bit of a timing impact you talked about in Q1 from a revenue perspective, but you had some strong backlog, I think 14 million just um with a revenue profile kind of geared towards year end. So, how should investors think about that backlog conversion to the rest of 26 and kind of you know what gives you confidence?

SPEAKER_01 19:45

Thank you, James. So, yes, we did have $14 million backlog. We ended up 25 with $3 million revenues, and it's important to say that in 2025, towards year end, we have actually had the initial deliveries or first recognition of revenues within the aerospace. So uh the entire $14 million backlog is focused within the Air Force. There's some industrial flavor in there, but it's focused within the aerospace, and it's a firm commitment by customers. And another important, I think, point to emphasize is that it only reflects the initial sell of the kit that includes our sensor processing unit and basics algorithms. So it doesn't reflect the future subscription recurring revenue that is expected to come on top of those sales. And in terms of 2026, this is the year we aim work very hard to deliver the existing backlogs. Some of the existing backlog, the large agreement in there, which we've published it exceeds 10 million, is to be delivered within the next several years. There's a minimum quantity per year the customer is committed to uh to take. Um, so I feel very comfortable within the delivery of that, and also the other agreements in there. So let's take into example the Seahawk agreement that you've talked about. It it is to be delivered within the next 12 to 18 months. So it is some of it will be delivered within 2026. So I feel very comfortable within the expected delivery of 2026. On the other hand, yes, you are right, Q1 revenues were relatively low because of mainly timelink differences in some of the deliveries that we expected to have uh in Q1 was pushed forward to Q2 or onwards because some global conflict. By the way, the the the shutdown that the the US government had uh last at the end of last year and and the the conflict that we faced here in in March and slightly even after March um affected some of the deliveries within Israel and the US. Uh so pushed it forward, didn't come didn't eliminate it obviously, but just in terms of the timing, yes, pushed it forward towards the the end of the 2026 or or later quarters in 2026. But I feel very comfortable. And I think more importantly, I think we should be measured.

SPEAKER_00 22:00

measured probably in the next uh year within the backlog level by the backlog level because we have a lot of proposals out there we expect to mature those proposals within some within 2026 definitely within the next 12 months um so I think we we expect to have a very interesting let's say uh two uh year uh 12 to 24 uh month uh it will be very interesting and um i i just um recommend everybody to stay tuned and follow us and and adding to that is the significance of every uh po that is there because even uh if you signed a CRADA or you signed an initial PO with Honeywell or you did it uh or we did a cooperation so this is after a very long uh very long period and efforts that were taken in order to get to this position every one of those uh of those POs is an enter entry point into a global uh to a global name and and and it's only it's only the start so if you look at what the company will will accomplish in the coming so I think it should be US first as you as you saw it Europe is coming uh the level uh level of uh level of I would say uh major OEM and and major companies uh name outside of Israel and and not not left uh alone to come to uh uh to a POs that are fleet level okay not only uh one two three but fleets level which is those are the those are the the next milestones that will indicate that the potential of the company is is starting to be translated into uh into what we think exactly okay that's helpful so one more here for you for you Narav um it's uh you ended Q1 with uh a little over like 20 million in net cash I think and you just got this recent dual listing and television stock exchange um and that kind of broadened your investor base just how how are you thinking about your cash runway and the framework for framework for funding the business from here thank you so yes indeed we ended up at 2020 uh Q126 with approximately 22 million um we're well funded we're debt free uh that's true we're very minded and on the cash burn we're focused on anything we're not planning by the way extending our uh our uh uh headcount we're focusing on commercial progress and commercial deliveries of the existing backlog and signed POs uh so we're very minded into into the cash burn uh so we're well funded but we're not fully funded we have all the all this all the let's say um um all the funds that we need in order to deliver our commitments uh but we do plan to accelerate uh and with this acceleration we may require additional funding by the way some of it may come as part of all the um the global we're discussing with global global partners uh really really large OEM operators mROs and some of the discussions are not only commercial are also strategic um so some of potential financing could come from one of those uh huge huge uh uh huge partners uh but we're very minded to it um and I feel comfortable within the next uh 12 to 18 months and and we'll see um we'll we'll be opportunistic as the right opportunity uh comes all right thanks you know that's that's helpful so uh you look let's wrap up here so you know what are the priorities that you and the team are most focused on over the balance of 2026 and what milestones should investors be watching so I I think that uh the we are focused on uh as I said uh core uh core level and and positions in the uh in the aerospace the next milestones should be fleets uh fleets uh POs uh on the level of fleets and not uh not just uh the uh the first uh the first uh POC or second POC the second uh the second we are focused uh US first and in the US we are focused on the the level of OEM and large scale large scale companies uh Honeywell is a good uh example the US Navy is a good example okay but that's where we the the the investor any one of those that will be like that or bigger uh should indicate to the uh to the uh investor that we are on the right uh on the right track in Europe uh it's the same since the budgets there are are huge so uh and and accelerating so to get the the first uh we started only one year and something ago so to get the first POs in the in the in the EU even if it's small it's a huge indication of uh of our consideration um and the last one so fleets OEMs and tier and blue blue chip customers that are recognizing uh recognize us could come also from the uh from the far east uh it's not uh it's not that we are neglecting or not looking there it just was not uh you know on the map uh until now but we are looking also there and though those are the indications okay and and every one of those is is a huge uh symbol of uh that we are getting it uh getting it right well it sounds like a very differential technology um with a lot of secular tailwind so very interesting story i'll I'll pass it back to Tim thanks James for those great questions and uh Yihu and Ina thanks so much for joining us today to discuss Audisight I have to say the same observation I made on the front end even stronger now on the back end after hearing this story is that it seems like the applications for the technology are limited literally just by your imagination.

SPEAKER_03 27:42

There's so many different applications and I would just say kind of in a quick digression as a lifelong military hawk thank you for all the important work you're doing to keep pilots safe around the world so have a great day. Thank you very much as well as visiting www watertowereseearch.com to stay up to speed on the company small cap written research reports, podcast, fireside chats, industry specific symposiums and conference schedules we will see you next time for another edition of the WTR Small Cap Spotlight podcast. Finally a special thanks to the producer and editor of the podcast Christopher Fitzpatrick